UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address, and Telephone Number Identification No.
1-11377 CINERGY CORP. 31-1385023
(A Delaware Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 381-2000
1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY 31-0240030
(An Ohio Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 381-2000
1-3543 PSI ENERGY, INC. 35-0594457
(An Indiana Corporation)
1000 East Main Street
Plainfield, Indiana 46168
(317) 839-9611
2-7793 THE UNION LIGHT, HEAT AND POWER COMPANY 31-0473080
(A Kentucky Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 381-2000
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
This combined Form 10-Q is separately filed by Cinergy Corp., The Cincinnati
Gas & Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power
Company. Information contained herein relating to any individual registrant is
filed by such registrant on its own behalf. Each registrant makes no
representation as to information relating to the other registrants.
The Union Light, Heat and Power Company meets the conditions set forth in
General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing its
company specific information with the reduced disclosure format.
As of October 31, 1997, shares of Common Stock outstanding for each registrant
were as listed:
Company Shares
Cinergy Corp., par value $.01 per share 157,679,129
The Cincinnati Gas & Electric Company, par value
$8.50 per share 89,663,086
PSI Energy, Inc., without par value, stated value
$.01 per share 53,913,701
The Union Light, Heat and Power Company, par value
$15.00 per share 585,333
<PAGE>
TABLE OF CONTENTS
Item Page
Number Number
Glossary of Terms . . . . . . . . . . . . . . . . . . . 3
PART I. FINANCIAL INFORMATION
1 Financial Statements
Cinergy Corp.
Consolidated Balance Sheets . . . . . . . . . . . . . 7
Consolidated Statements of Income . . . . . . . . . . 9
Consolidated Statements of Changes in Common
Stock Equity. . . . . . . . . . . . . . . . . . . . 10
Consolidated Statements of Cash Flows . . . . . . . . 11
Results of Operations . . . . . . . . . . . . . . . . 12
The Cincinnati Gas & Electric Company
Consolidated Balance Sheets . . . . . . . . . . . . . 23
Consolidated Statements of Income . . . . . . . . . . 25
Consolidated Statements of Cash Flows . . . . . . . . 26
Results of Operations . . . . . . . . . . . . . . . . 27
PSI Energy, Inc.
Consolidated Balance Sheets . . . . . . . . . . . . . 34
Consolidated Statements of Income . . . . . . . . . . 36
Consolidated Statements of Cash Flows . . . . . . . . 37
Results of Operations . . . . . . . . . . . . . . . . 38
The Union Light, Heat and Power Company
Balance Sheets. . . . . . . . . . . . . . . . . . . . 44
Statements of Income. . . . . . . . . . . . . . . . . 46
Statements of Cash Flows. . . . . . . . . . . . . . . 47
Results of Operations . . . . . . . . . . . . . . . . 48
Notes to Financial Statements . . . . . . . . . . . . . 51
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 57
PART II. OTHER INFORMATION
1 Legal Proceedings . . . . . . . . . . . . . . . . . . . 61
6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . 61
Signature . . . . . . . . . . . . . . . . . . . . . . . 62
<PAGE>
GLOSSARY OF TERMS
The following abbreviations or acronyms used in the text of this combined Form
10-Q are defined below:
TERM DEFINITION_________________________
1996 Form Combined 1996 Annual Report on Form 10-K filed separately by
10-K Cinergy, CG&E, PSI, and ULH&P
August 1997 An IURC order issued in August 1997
Order
Avon Energy Avon Energy Partners Holdings, an Unlimited Liability
Company and its wholly-owned subsidiary Avon Energy
Partners PLC, a Limited Liability Company
Beckjord CG&E's W. C. Beckjord Station
Btu British thermal unit
CAC Citizens Action Coalition of Indiana, Inc.
Cadence\tab Cadence Network LLC
\tab
Capital & Cinergy Capital & Trading, Inc. (a subsidiary of
Trading Investments)
CERCLA Comprehensive Environmental Response, Compensation and
Liability Act
CG&E The Cincinnati Gas & Electric Company (a subsidiary of
Cinergy)
Cinergy, CIN, Cinergy Corp.
or Company
Cinergy UK Cinergy UK, Inc. (a subsidiary of Investments)
which holds Cinergy's 50% investment in Avon Energy
Clean Coal A joint arrangement by PSI and Destec Energy, Inc. for a
Project 262-megawatt clean coal power generating facility located
at Wabash River Generating Station
D&P Duff & Phelps Credit Rating Co.
December 1996 A PUCO order issued in December 1996 on CG&E's gas rate
Order proceeding
December 1996 An IURC order issued in December 1996 on PSI's DSM
DSM Order proceeding
DSM Demand-side management
EPA U.S. Environmental Protection Agency
FASB Financial Accounting Standards Board
February 1995 An IURC order issued in February 1995
Order
<PAGE>
GLOSSARY OF TERMS (Continued)
TERM DEFINITION_________________________
Fitch Fitch Investors Service, Inc.
GEP Greenwich Energy Partners L.P.
Gibson PSI's Gibson Generating Station
IGC Indiana Gas Company, Inc.
Investments Cinergy Investments, Inc. (a subsidiary of Cinergy)
IURC Indiana Utility Regulatory Commission
KPSC Kentucky Public Service Commission
kwh Kilowatt-hour
LANCEs Debentures in the form of Liquid Asset Notes with Coupon
Exchange
LIBOR London Interbank Offered Rate
M&R Fund Maintenance and Replacement Fund
Mcf Thousand cubic feet
MGP Manufactured Gas Plant
Miami Fort CG&E's Miami Fort Generating Station
Midlands Midlands Electricity plc
Moody's Moody's Investors Service
NAAQS National Ambient Air Quality Standards
NIPSCO Northern Indiana Public Service Company
NOx Nitrogen Oxide
Opinion 15 Accounting Principles Board Opinion 15, Earnings Per Share
PSI PSI Energy, Inc. (a subsidiary of Cinergy)
PUCO Public Utilities Commission of Ohio
PUHCA Public Utility Holding Company Act of 1935
S&P Standard & Poor's
SEC Securities and Exchange Commission
September 1996 An IURC order issued in September 1996 on PSI's retail rate
Order proceeding
SIP State Implementation Plan
Statement 14 Statement of Financial Accounting Standards No. 14,
Financial Reporting for Segments of a Business Enterprise
<PAGE>
GLOSSARY OF TERMS (Continued)
TERM DEFINITION_________________________
Statement 128 Statement of Financial Accounting Standards No. 128,
Earnings Per Share
Statement 130 Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income
Statement 131 Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related
Information
UCC The Indiana Office of the Utility Consumer Counselor
ULH&P The Union Light, Heat and Power Company (a wholly-owned
subsidiary of CG&E)
UK United Kingdom
Zimmer CG&E's William H. Zimmer Generating Station
<PAGE>
CINERGY CORP.
AND SUBSIDIARY COMPANIES
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
September 30 December 31
1997 1996
(dollars in thousands)
<S> <C> <C>
Utility Plant - Original Cost
In service
Electric $8,944,741 $8,809,786
Gas 737,681 713,829
Common 187,733 185,255
9,870,155 9,708,870
Accumulated depreciation 3,758,974 3,591,858
6,111,181 6,117,012
Construction work in progress 169,689 172,614
Total utility plant 6,280,870 6,289,626
Current Assets
Cash and temporary cash investments 58,234 19,327
Restricted deposits 1,950 1,721
Notes receivable 163 321
Accounts receivable less accumulated provision
for doubtful accounts of $11,401 at September 30,
1997, and $10,618 at December 31, 1996 378,164 199,040
Materials, supplies, and fuel - at average cost
Fuel for use in electric production 57,771 71,730
Gas stored for current use 37,680 32,951
Other materials and supplies 79,651 80,292
Property taxes applicable to subsequent year 30,895 123,580
Prepayments and other 28,438 37,049
672,946 566,011
Other Assets
Regulatory assets
Amounts due from customers - income taxes 368,338 377,194
Post-in-service carrying costs and deferred
operating expenses 180,477 186,396
Coal contract buyout costs 125,029 138,171
Deferred merger costs 91,862 93,999
Deferred demand-side management costs 115,731 134,742
Phase-in deferred return and depreciation 91,057 95,163
Unamortized costs of reacquiring debt 67,777 70,518
Other 57,120 72,483
Investments in unconsolidated subsidiaries 469,420 592,660
Other 262,595 231,551
1,829,406 1,992,877
$8,783,222 $8,848,514
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CAPITALIZATION AND LIABILITIES
September 30 December 31
1997 1996
(dollars in thousands)
<S> <C> <C>
Common Stock Equity
Common stock - $.01 par value; authorized shares - 600,000,000; outstanding
shares - 157,679,129 at September 30, 1997, and
December 31, 1996 $ 1,577 $ 1,577
Paid-in capital 1,571,527 1,590,735
Retained earnings 922,209 992,273
Cumulative foreign currency translation adjustment (1,234) (131)
Total common stock equity 2,494,079 2,584,454
Cumulative Preferred Stock of Subsidiaries
Not subject to mandatory redemption 178,116 194,232
Long-term Debt 2,098,619 2,326,378
Total capitalization 4,770,814 5,105,064
Current Liabilities
Long-term debt due within one year 35,000 140,000
Notes payable and other short-term obligations 1,245,345 922,217
Accounts payable 480,585 305,420
Accrued taxes 266,480 323,059
Accrued interest 42,203 55,590
Other 65,465 114,653
2,135,078 1,860,939
Other Liabilities
Deferred income taxes 1,147,148 1,146,263
Unamortized investment tax credits 168,694 175,935
Accrued pension and other postretirement
benefit costs 287,353 263,319
Other 274,135 296,994
1,877,330 1,882,511
$8,783,222 $8,848,514
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Quarter Ended Year to Date Twelve Months Ended
September 30 September 30 September 30
1997 1996 1997 1996 1997 1996
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating Revenues
Electric $1,315,165 $724,917 $2,923,655 $2,060,471 $3,631,890 $2,699,657
Gas 39,941 40,787 326,964 306,062 494,936 451,137
1,355,106 765,704 3,250,619 2,366,533 4,126,826 3,150,794
Operating Expenses
Fuel used in electric production 197,116 184,093 507,464 539,350 681,364 710,556
Gas purchased 15,622 17,133 175,416 150,313 274,219 226,328
Purchased and exchanged power 607,281 37,020 963,237 95,443 1,026,632 110,083
Other operation 157,089 129,009 478,989 423,769 653,654 572,376
Maintenance 42,498 45,903 139,553 137,709 195,752 192,055
Depreciation 72,385 70,811 216,112 211,603 287,272 281,011
Amortization of phase-in deferrals 3,371 3,399 10,112 10,198 13,512 13,607
Amortization of post-in-service
deferred operating expenses 1,091 (930) 3,272 (2,637) 4,400 (2,997)
Income taxes 52,172 65,456 156,028 172,459 201,838 220,718
Taxes other than income taxes 67,002 63,549 203,215 196,095 264,935 259,562
1,215,627 615,443 2,853,398 1,934,302 3,603,578 2,583,299
Operating Income 139,479 150,261 397,221 432,231 523,248 567,495
Other Income and Expenses - Net
Allowance for equity funds used
during construction (182) 358 189 1,206 208 2,444
Post-in-service carrying costs - 391 - 1,228 (5) 1,231
Phase-in deferred return 2,002 2,093 6,006 6,279 8,099 8,413
Equity in earnings of
unconsolidated subsidiary 3,782 8,014 42,462 10,447 57,445 10,447
Income taxes 3,211 3,538 7,655 9,085 18,106 10,493
Other - net (4,172) (4,758) (14,879) (18,384) (36,959) (19,211)
4,641 9,636 41,433 9,861 46,894 13,817
Income Before Interest and Other
Charges 144,120 159,897 438,654 442,092 570,142 581,312
Interest and Other Charges
Interest on long-term debt 43,525 46,522 137,777 143,678 184,716 196,935
Other interest 16,542 10,305 43,839 18,497 56,511 22,803
Allowance for borrowed funds used
during construction (1,623) (1,455) (4,719) (4,235) (6,667) (5,976)
Preferred dividend requirements
of subsidiaries 3,142 6,495 9,617 19,941 12,856 26,710
61,586 61,867 186,514 177,881 247,416 240,472
Net Income Before Extraordinary Item $ 82,534 $ 98,030 $ 252,140 $ 264,211 $ 322,726 $ 340,840
Extraordinary Item - Equity Share of
Windfall Profits Tax (less applicable
income taxes of $0) (Note 5) (109,400) - (109,400) - (109,400) -
Net Income (Loss) $ (26,866) $ 98,030 $ 142,740 $ 264,211 $ 213,326 $ 340,840
Costs of Reacquisition of Preferred
Stock of Subsidiary - (18,175) - (18,175) (216) (18,175)
Net Income (Loss) Applicable to
Common Stock $ (26,866) $ 79,855 $ 142,740 $ 246,036 $ 213,110 $ 322,665
Average Common Shares Outstanding 157,679 157,679 157,679 157,678 157,679 157,633
Earnings Per Common Share
Net income before extraordinary item $ 0.53 $ 0.63 $ 1.60 $ 1.68 $ 2.04 $ 2.17
Extraordinary item (0.69) - (0.69) - (0.69) -
Net income (loss) $ (0.16) $ 0.63 $ 0.91 $ 1.68 $ 1.35 $ 2.17
Costs of reacquisition of preferred
stock of subsidiary - (0.12) - (0.12) - (0.12)
Net income (loss) applicable to
common stock $ (0.16) $ 0.51 $ 0.91 $ 1.56 $ 1.35 $ 2.05
Dividends Declared Per Common Share $ 0.45 $ 0.43 $ 1.35 $ 1.29 $ 1.80 $ 1.72
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
(unaudited)
Cumulative
Foreign
Currency
Common Paid-in Retained Translation Total Common
Stock Capital Earnings Adjustment Stock Equity
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Quarter Ended September 30, 1997
Balance July 1, 1997 $1,577 $1,570,533 $1,019,957 $ (720) $2,591,347
Net loss (26,866) (26,866)
Dividends on common stock (See page
9 for per share amounts) (71,000) (71,000)
Translation adjustments (514) (514)
Other 994 118 1,112
Balance September 30, 1997 $1,577 $1,571,527 $ 922,209 $(1,234) $2,494,079
Quarter Ended September 30, 1996
Balance July 1, 1996 $1,577 $1,594,920 $ 981,003 $ (567) $2,576,933
Net income 98,030 98,030
Dividends on common stock (See page
9 for per share amounts) (67,802) (67,802)
Translation adjustments (17) (17)
Costs of reacquisition of preferred
stock of subsidiary (18,175) (18,175)
Other (2,527) (17) (2,544)
Balance September 30, 1996 $1,577 $1,592,393 $ 993,039 $ (584) $2,586,425
Nine Months Ended September 30, 1997
Balance January 1, 1997 $1,577 $1,590,735 $ 992,273 $ (131) $2,584,454
Net income 142,740 142,740
Dividends on common stock (See page
9 for per share amounts) (212,910) (212,910)
Translation adjustments (1,103) (1,103)
Other (19,208) 106 (19,102)
Balance September 30, 1997 $1,577 $1,571,527 $ 922,209 $(1,234) $2,494,079
Nine Months Ended September 30, 1996
Balance January 1, 1996 $1,577 $1,597,050 $ 950,216 $ - $2,548,843
Net income 264,211 264,211
Issuance of 8,988 shares of common
stock - net 311 311
Dividends on common stock (See page
9 for per share amounts) (203,402) (203,402)
Translation adjustments (584) (584)
Costs of reacquisition of preferred
stock of subsidiary (18,175) (18,175)
Other (4,968) 189 (4,779)
Balance September 30, 1996 $1,577 $1,592,393 $ 993,039 $ (584) $2,586,425
Twelve Months Ended September 30, 1997
Balance October 1, 1996 $1,577 $1,592,393 $ 993,039 $ (584) $2,586,425
Net income 213,326 213,326
Dividends on common stock (See page
9 for per share amounts) (283,866) (283,866)
Translation adjustments (650) (650)
Costs of reacquisition of preferred
stock of subsidiary (216) (216)
Other (20,866) (74) (20,940)
Balance September 30, 1997 $1,577 $1,571,527 $ 922,209 $(1,234) $2,494,079
Twelve Months Ended September 30, 1996
Balance October 1, 1995 $1,572 $1,585,470 $ 941,652 $ - $2,528,694
Net income 340,840 340,840
Issuance of 539,343 shares of common
stock - net 5 11,920 11,925
Common stock issuance expenses (38) (38)
Dividends on common stock (See page
9 for per share amounts) (271,002) (271,002)
Translation adjustments (584) (584)
Costs of reacquisition of preferred
stock of subsidiary (18,175) (18,175)
Other (4,959) (276) (5,235)
Balance September 30, 1996 $1,577 $1,592,393 $ 993,039 $ (584) $2,586,425
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date Twelve Months Ended
September 30 September 30
1997 1996 1997 1996
(in thousands)
<S> <C> <C> <C> <C>
Operating Activities
Net income $ 142,740 $ 264,211 $ 213,326 $ 340,840
Items providing (using) cash currently:
Depreciation 216,112 211,603 287,272 281,011
Deferred income taxes and investment tax
credits - net 4,698 34,061 18,549 34,636
Equity in unconsolidated subsidiary (17,309) (10,447) (32,292) (10,447)
Extraordinary item - equity share of windfall
profits tax 109,400 - 109,400 -
Allowance for equity funds used during
construction (189) (1,206) (208) (2,444)
Regulatory assets - net 57,316 (450) 97,048 9,845
Changes in current assets and current
liabilities
Restricted deposits (229) (357) (230) (1,400)
Accounts and notes receivable, net of
reserves on receivables sold (180,916) 227,237 (275,404) 123,562
Materials, supplies, and fuel 9,871 23,525 30,351 48,522
Accounts payable 175,165 (5,959) 218,405 89,126
Litigation settlement - - (80,000) -
Accrued taxes and interest 22,719 (8,734) 36,922 19,678
Other items - net (25,845) (32,556) 44,557 (4,889)
Net cash provided by operating
activities 513,533 700,928 667,696 928,040
Financing Activities
Issuance of common stock - 311 - 11,887
Issuance of long-term debt - - 150,217 -
Funds on deposit from issuance of long-term debt - 973 - 86,276
Retirement of preferred stock of subsidiaries (16,182) (209,559) (19,110) (209,567)
Redemption of long-term debt (336,312) (207,583) (365,912) (307,863)
Change in short-term debt 323,128 651,654 243,891 533,454
Dividends on common stock (212,910) (203,402) (283,866) (271,002)
Net cash provided by (used in)
financing activities (242,276) 32,394 (274,780) (156,815)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (215,389) (203,977) (334,425) (296,939)
Deferred demand-side management costs (16,961) (32,426) (28,879) (49,557)
Investment in unconsolidated subsidiary - (503,349) - (503,349)
Sale of investment in Argentine utility - - - 19,799
Net cash used in investing activities (232,350) (739,752) (363,304) (830,046)
Net increase (decrease) in cash and
temporary cash investments 38,907 (6,430) 29,612 (58,821)
Cash and temporary cash investments at
beginning of period 19,327 35,052 28,622 87,443
Cash and temporary cash investments at
end of period $ 58,234 $ 28,622 $ 58,234 $ 28,622
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
CINERGY CORP.
Below is information concerning the consolidated results of operations for
Cinergy for the quarter, nine months, and twelve months ended September 30,
1997. For information concerning the results of operations for each of the
other registrants for the same quarter and nine months ended, see the
discussion under the heading RESULTS OF OPERATIONS following the financial
statements of each company.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1997
Kwh Sales
Kwh sales increased 165.9% for the quarter ended September 30, 1997, from the
comparable period of last year, primarily reflecting increased activity in
Cinergy's power marketing and trading operations which led to higher non-firm
power sales for resale. Also contributing to the higher kwh sales levels were
increased industrial and commercial sales, primarily reflecting growth in the
primary metals sector and an increase in the number of commercial customers,
respectively. These increases were partially offset by decreased residential
sales for the quarter ended September 30, 1997, as compared to the same period
last year, as a result of mild weather.
Mcf Sales and Transportation
Mcf gas sales for the quarter ended September 30, 1997, decreased 1.5% while
Mcf transportation volumes increased 12.6%, when compared to the same period
in 1996. Industrial sales declined and gas transportation volumes increased as
customers continued the trend of purchasing gas directly from suppliers, using
transportation services provided by Cinergy.
Operating Revenues
Electric Operating Revenues
Electric operating revenues for the quarter ended September 30, 1997,
increased $590 million (81%), as compared to the same period last year,
primarily as a result of the increased kwh sales as previously discussed. Also
contributing to the increase were the effects of the December 1996 DSM Order
and the September 1996 Order (as amended by the August 1997 Order).
An analysis of electric operating revenues is shown below:
Quarter
Ended September 30
(in millions)
Electric operating revenues - September 30, 1996 $ 725
Increase (Decrease) due to change in:
Price per kwh
Retail 16
Sales for resale
Firm power obligations (3)
Non-firm power transactions 5
Total change in price per kwh 18
Kwh sales
Retail 9
Sales for resale
Firm power obligations 7
Non-firm power transactions 556
Total change in kwh sales 572
Electric operating revenues - September 30, 1997 $1 315
Gas Operating Revenues
The increasing trend of industrial customers purchasing gas directly from
producers and utilizing Cinergy facilities to transport the gas continues to
put downward pressure on gas operating revenues. When Cinergy sells gas, the
sales price reflects the cost of gas purchased by Cinergy to support the sale
plus the costs to deliver the gas. When gas is transported, Cinergy does not
incur any purchased gas costs but delivers gas the customer has purchased from
other sources. Since providing transportation services does not necessitate
recovery of gas purchased costs, the revenue per Mcf transported is less than
the revenue per Mcf sold. As a result, a higher relative volume of gas
transported to gas sold translates into lower gas operating revenues.
Operating Expenses
Fuel Used in Electric Production
Electric fuel costs increased $13 million (7%), as compared to the same period
last year.
An analysis of these fuel costs is shown below:
Quarter
Ended September 30
(in millions)
Fuel expense - September 30, 1996 $184 Increase (Decrease) due to change in:
Price of fuel 6
Deferred fuel cost (1)
Kwh generation 8
Fuel expense - September 30, 1997 $197
Gas Purchased
Gas purchased for the quarter ended September 30, 1997, decreased $2 million
(9%), when compared to the same period last year, reflecting decreased volumes
purchased which were partially offset by an increase in the average cost per
Mcf of gas purchased.
Purchased and Exchanged Power
Purchased and exchanged power increased $570 million for the quarter ended
September 30, 1997, when compared to the same period last year, primarily
reflecting increased purchases of non-firm power for resale to others as a
result of increased activity in Cinergy's power marketing and trading
operations.
Other Operation
Other operation expenses for the quarter ended September 30, 1997, increased
$28 million (22%), as compared to the same period of 1996. This increase is
due, in part, to higher other operation expenses of PSI, primarily associated
with the Clean Coal Project, amortization of deferred DSM expenses, and
amortization of deferred expenses associated with the Clean Coal Project, all
of which are being recovered in revenues pursuant to either the September 1996
Order or the December 1996 DSM Order. The effect of PSI discontinuing deferral
of certain DSM-related costs in accordance with provisions of the December
1996 DSM Order also added to the increase. Further contributing to the
increase is the effect of CG&E curtailing certain deferrals, associated with
its DSM programs, for new participants after December 31, 1996, due to a
December 1996 order issued by the PUCO that changed the benefit/cost tests
that DSM programs must surpass in Ohio in order for certain DSM-related costs
to be eligible for deferral.
Maintenance
For the quarter ended September 30, 1997, maintenance expenses decreased $3
million (7%), when compared to the quarter ended September 30, 1996. This
decrease is due, in part, to reduced outage related charges associated with
PSI's electric production facilities and reduced maintenance associated with
CG&E's electric production facilities. Partially offsetting this decrease was
an increase in maintenance expenses associated with CG&E's electric
distribution facilities.
Amortization of Post-in-service Deferred Operating Expenses
Amortization of post-in-service deferred operating expenses reflects the
amortization and related recovery in rates of various deferrals of
depreciation, operation and maintenance expenses (exclusive of fuel costs),
and property taxes on certain generating units and other utility plant from
the in-service date until the related plant was reflected in retail rates.
Taxes Other Than Income Taxes
The $3 million (5%) increase in taxes other than income taxes for the quarter
ended September 30, 1997, as compared to the same period last year, is
primarily due to an increase in the Ohio Gross Receipts Tax.
Other Income and Expenses - Net
Equity in Earnings of Unconsolidated Subsidiary
The decrease in equity in earnings of unconsolidated subsidiary of $4 million
(53%) for the quarter ended September 30, 1997, as compared to the same period
in 1996, primarily resulted from the successful closing, in the third quarter
of 1996, of a power development project by Midlands' international development
business.
Interest and Other Charges
Interest on Long-term Debt
Interest on long-term debt decreased $3 million (6%) for the quarter ended
September 30, 1997, as compared to the same period last year, primarily
reflecting the net redemption of approximately $200 million of long-term debt
by CG&E and PSI during the period from August 1996 through September 1997.
Other Interest
Other interest increased $6 million (61%) for the quarter ended September 30,
1997, as compared to the same period last year, primarily reflecting interest
expense on increased short-term borrowings used to fund CG&E's redemption of
first mortgage bonds and Cinergy's investment in non-regulated companies,
including Avon Energy.
Preferred Dividend Requirements of Subsidiaries
Preferred dividend requirements of subsidiaries decreased $3 million (52%) for
the quarter ended September 30, 1997, as compared to the same period of 1996.
This decrease is primarily attributable to the reacquisition of approximately
90% of the outstanding preferred stock of CG&E, pursuant to Cinergy's tender
offer in September 1996.
Extraordinary Item - Equity Share of Windfall Profits Tax
Extraordinary item - equity share of windfall profits tax
represents the one-time charge for the windfall profits
tax levied against Midlands and recorded in the third
quarter of 1997. (See Note 5 of the "Notes to Financial
Statements" in "Part I. Financial Information.")
Costs of Reacquisition of Preferred Stock of Subsidiary
Costs of reacquisition of preferred stock of subsidiary represents the
difference between the par value of preferred stock of CG&E tendered pursuant
to Cinergy's tender offer in September 1996 and the purchase price paid
(including tender fees paid to dealer managers) by Cinergy for these shares.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
Kwh Sales
Kwh sales increased 90.1% for the nine months ended September 30, 1997, from
the comparable period of last year, primarily reflecting increased activity in
Cinergy's power marketing and trading operations which led to higher non-firm
power sales for resale. Also contributing to the higher kwh sales levels were
increased industrial and commercial sales, primarily reflecting growth in the
food products and primary metals sectors and an increase in the number of
commercial customers, respectively. These increases were partially offset by
decreased residential sales for the first nine months of 1997, as compared to
the same period last year, as a result of mild weather.
Mcf Sales and Transportation
Mcf gas sales for the nine months ended September 30, 1997, decreased 11.2%,
while Mcf transportation volumes increased 9.1%, when compared to the same
period in 1996. Decreased Mcf sales reflect, in part, cold weather during the
first nine months of 1996, as compared to mild weather during the same period
of 1997, and were partially offset by increases in residential and commercial
customers. Industrial sales declined and gas transportation volumes increased
as customers continued the trend of purchasing gas directly from suppliers,
using transportation services provided by Cinergy.
Operating Revenues
Electric Operating Revenues
Electric operating revenues for the nine months ended September 30, 1997,
increased $864 million (42%), as compared to the same period last year,
primarily as a result of the increased kwh sales as previously discussed. Also
contributing to the increase were the effects of the December 1996 DSM Order
and the September 1996 Order (as amended by the August 1997 Order), and the
return of approximately $13 million to customers in 1996 in accordance with
the February 1995 Order. The February 1995 Order required all retail operating
income above a certain rate of return to be refunded to customers. Partially
offsetting these increases was the operation of CG&E's fuel adjustment clauses
reflecting a lower average cost per kwh.
An analysis of electric operating revenues is shown below:
Nine Months
Ended September 30
(in millions)
Electric operating revenues - September 30, 1996 $2 060
Increase (Decrease) due to change in:
Price per kwh
Retail 21
Sales for resale
Firm power obligations (9)
Non-firm power transactions 32
Total change in price per kwh 44
Kwh sales
Retail (14)
Sales for resale
Firm power obligations 8
Non-firm power transactions 826
Total change in kwh sales 820
Electric operating revenues - September 30, 1997 $2 924
Gas Operating Revenues
For a discussion of the continued trend of downward pressure on gas operating
revenues from increased transportation services, refer to the discussion under
the caption "Gas Operating Revenues" for Cinergy in "Results of Operations for
the Quarter Ended September 30, 1997."
Gas operating revenues increased $21 million (7%) for the nine months ended
September 30, 1997, when compared to the same period last year. Contributing
to the increase was the December 1996 Order approving an overall average
increase in gas revenues for CG&E of 2.5% ($9 million annually) and the
operation of a gas cost recovery mechanism reflecting a higher average cost
per Mcf of gas purchased. This increase was partially offset by the previously
discussed changes in Mcf gas sales.
Operating Expenses
Fuel Used in Electric Production
Electric fuel costs decreased $32 million (6%), as compared to the same period
last year.
An analysis of these fuel costs is shown below:
Nine Months
Ended September 30
(in millions)
Fuel expense - September 30, 1996 $539 Increase (Decrease) due to change in:
Price of fuel (1)
Deferred fuel cost (37)
Kwh generation 6
Fuel expense - September 30, 1997 $507
Gas Purchased
Gas purchased for the nine months ended September 30, 1997, increased $25
million (17%), when compared to the same period last year, reflecting an
increase in the average cost per Mcf of gas purchased which was partially
offset by a decrease in volumes purchased.
Purchased and Exchanged Power
Purchased and exchanged power increased $868 million for the nine months ended
September 30, 1997, when compared to the same period last year, primarily
reflecting increased purchases of non-firm power for resale to others as a
result of increased activity in Cinergy's power marketing and trading
operations.
Other Operation
Other operation expenses for the first nine months of 1997 increased by $55
million (13%), as compared to the same period of 1996. This increase is
primarily due to higher other operation expenses of PSI relating to the Clean
Coal Project, amortization of deferred DSM expenses, and amortization of
deferred expenses associated with the Clean Coal Project, all of which are
being recovered in revenues pursuant to either the September 1996 Order or the
December 1996 DSM Order. The effect of PSI discontinuing deferral of certain
DSM-related costs in accordance with provisions of the December 1996 DSM Order
also added to the increase. Further contributing to the increase is the effect
of CG&E curtailing certain deferrals, associated with its DSM programs, for
new participants after December 31, 1996, due to a December 1996 order issued
by the PUCO that changed the benefit/cost tests that DSM programs must surpass
in Ohio in order for certain DSM- related costs to be eligible for deferral.
These increases were partially offset by the effect of CGE's charges in the
second quarter of 1996 for early retirement and severance programs.
Amortization of Post-in-service Deferred Operating Expenses
Amortization of post-in-service deferred operating expenses reflects the
amortization and related recovery in rates of various deferrals of
depreciation, operation and maintenance expenses (exclusive of fuel costs),
and property taxes on certain generating units and other utility plant from
the in-service date until the related plant was reflected in retail rates.
Other Income and Expenses - Net
Equity in Earnings of Unconsolidated Subsidiary
The increase in equity in earnings of unconsolidated subsidiary of $32 million
for the nine months ended September 30, 1997, as compared to the same period
last year, primarily reflects the effect of the investment in Midlands for a
full nine months in 1997. Midlands was purchased during the second quarter of
1996.
Other - net
The change in other - net of $4 million (19%) for the nine months ended
September 30, 1997, from the same period of 1996, is primarily due to a gain
of approximately $4 million in 1997 on the sale of a PSI investment and a loss
of approximately $5 million in 1996 on the sale of a foreign subsidiary. A
number of miscellaneous items, including expenses of approximately $2 million
associated with the acquisition of GEP's assets, in the nine months ended
1997, partially offset these increases.
Interest and Other Charges
Other Interest
Other interest increased $25 million for the nine months ended September 30,
1997, as compared to the same period last year, primarily reflecting interest
expense on increased short-term borrowings used to fund CG&E's redemption of
first mortgage bonds and Cinergy's investment in non-regulated companies,
including Avon Energy.
Preferred Dividend Requirements of Subsidiaries
Preferred dividend requirements of subsidiaries decreased $10 million (52%)
for the nine months ended September 30, 1997, as compared to the same period
of 1996. This decrease is primarily attributable to the reacquisition of
approximately 90% of the outstanding preferred stock of CG&E, pursuant to
Cinergy's tender offer in September 1996.
Extraordinary Item - Equity Share of Windfall Profits Tax
Extraordinary item - equity share of windfall profits tax
represents the one-time charge for the windfall profits tax
levied against Midlands and recorded in the third quarter of
1997. (See Note 5 of the "Notes to Financial Statements" in
"Part I. Financial Information.")
Costs of Reacquisition of Preferred Stock of Subsidiary
Costs of reacquisition of preferred stock represents the difference between
the par value of preferred stock of CG&E tendered pursuant to Cinergy's tender
offer in September 1996 and the purchase price paid (including tender fees
paid to dealer managers) by Cinergy for these shares.
RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997
Kwh Sales
Kwh sales increased 73.4% for the twelve months ended September 30, 1997, from
the comparable period of last year, primarily reflecting increased activity in
Cinergy's power marketing and trading operations which led to higher non-firm
power sales for resale. Also contributing to the higher kwh sales levels were
increased industrial and commercial sales, primarily reflecting growth in the
primary metals sector and an increase in the number of commercial customers,
respectively. These increases were partially offset by decreased residential
sales for the twelve months ended September 30, 1997, as compared to the same
period last year, as a result of mild weather.
Mcf Sales and Transportation
Mcf gas sales for the twelve months ended September 30, 1997, decreased 10.7%
while Mcf transportation volumes increased 10.4%, when compared to the same
period in 1996. Decreased Mcf sales reflect, in part, cold weather during the
twelve months ended September 1996, as compared to mild weather during the
same period of 1997, and were partially offset by an increase in the number of
residential, commercial and industrial customers. Industrial sales declined
and gas transportation volumes increased as customers continued the trend of
purchasing gas directly from suppliers, using transportation services provided
by Cinergy.
Operating Revenues
Electric Operating Revenues
Electric operating revenues increased $932 million (35%) for the twelve months
ended September 30, 1997, from the comparable period last year, reflecting
increased kwh sales as previously discussed and the effects of the December
1996 DSM Order, the September 1996 Order (as amended by the August 1997
Order), and the return of approximately $16 million to customers in 1996 in
accordance with the February 1995 Order. The February 1995 Order required all
retail operating income above a certain rate of return to be refunded to
customers. These increases were partially offset by the operation of CG&E's
fuel adjustment clauses reflecting a lower average cost per kwh.
An analysis of electric operating revenues is shown below:
Twelve Months
Ended September 30
(in millions)
Electric operating revenues - September 30, 1996 $2 700
Increase (Decrease) due to change in:
Price per kwh
Retail 34
Sales for resale
Firm power obligations (9)
Non-firm power transactions 30
Total change in price per kwh 55
Kwh sales
Retail (8)
Sales for resale
Firm power obligations 10
Non-firm power transactions 873
Total change in kwh sales 875
Other 2
Electric operating revenues - September 30, 1997 $3 632
Gas Operating Revenues
For a discussion of the continued trend of downward pressure on gas operating
revenues from increased transportation services, refer to the discussion under
the caption "Gas Operating Revenues" for Cinergy in "Results of Operations for
the Quarter Ended September 30, 1997."
Gas operating revenues increased $44 million (10%) for the twelve months ended
September 30, 1997, when compared to the same period last year. Contributing
to the increase was the December 1996 Order approving an overall average
increase in gas revenues for CG&E of 2.5% ($9 million annually) and the
operation of a gas cost recovery mechanism reflecting a higher average cost
per Mcf of gas purchased. This increase was partially offset by the previously
discussed changes in Mcf gas sales.
Operating Expenses
Fuel Used in Electric Production
Electric fuel costs decreased $29 million (4%), as compared to the same period
last year.
An analysis of these fuel costs is shown below:
Twelve Months
Ended September 30
(in millions)
Fuel expense - September 30, 1996 $711 Increase (Decrease) due to change in:
Price of fuel (11)
Deferred fuel cost (25)
Kwh generation 6
Fuel expense - September 30, 1997 $681
Gas Purchased
Gas purchased for the twelve months ended September 30, 1997, increased $48
million (21%) when compared to the same period last year, reflecting an
increase in the average cost per Mcf of gas purchased which was partially
offset by a decrease in volumes purchased.
Purchased and Exchanged Power
Purchased and exchanged power increased $917 million for the twelve months
ended September 30, 1997, when compared to the same period of last year,
primarily reflecting increased purchases of non-firm power for resale to
others as a result of increased activity in Cinergy's power marketing and
trading operations.
Other Operation
Other operation increased $81 million (14%) for the twelve months ended
September 30, 1997, as compared to the same period last year, due, in part, to
expenses associated with the Clean Coal Project and increases related to the
amortization of DSM deferred expenses and the amortization of deferred
expenses associated with the Clean Coal Project, all of which are being
recovered in revenues pursuant to the September 1996 Order and the December
1996 DSM Order. Also contributing to the increase were the charges for
disallowances associated with the December 1996 Order and the effect of PSI
discontinuing deferral of certain DSM-related costs in accordance with
provisions of the December 1996 DSM Order. Further adding to the increase is
the effect of CG&E curtailing certain deferrals, associated with its DSM
programs, for new participants after December 31, 1996, due to a December 1996
order issued by the PUCO that changed the benefit/cost tests that DSM programs
must surpass in Ohio in order for certain DSM- related costs to be eligible
for deferral.
Amortization of Post-in-service Deferred Operating Expenses
Amortization of post-in-service deferred operating expenses reflects the
amortization and related recovery in rates of various deferrals of
depreciation, operation and maintenance expenses (exclusive of fuel costs),
and property taxes on certain generating units and other utility plant from
the in-service date until the related plant was reflected in retail rates.
Other Income and Expenses - Net
Equity in Earnings of Unconsolidated Subsidiary
The increase in equity in earnings of unconsolidated subsidiary of $47 million
for the twelve months ended September 30, 1997, as compared to the same period
last year, represents the effect of the investment in Midlands for a full
twelve month period ending September 1997. Midlands was purchased during the
second quarter of 1996.
Other - net
The change in other - net of $18 million (92%) for the twelve months ended
September 30, 1997, as compared to the same period last year, is primarily due
to charges of approximately $14 million associated with the December 1996
Order and increased expenses of approximately $13 million associated with the
sales of accounts receivable for PSI, CG&E, and ULH&P. These expenses were
partially offset by a gain of approximately $4 million in 1997 on the sale of
a PSI investment and a loss of approximately $5 million in 1996 on the sale of
a foreign subsidiary.
Interest and Other Charges
Interest on Long-term Debt
Interest on long-term debt decreased $12 million (6%) for the twelve months
ended September 30, 1997, as compared to the same period last year, primarily
reflecting the net redemption of approximately $360 million of long-term debt
by CG&E, PSI, and ULH&P during the period from January 1996 through September
1997.
Other Interest
Other interest increased $34 million for the twelve months ended September 30,
1997, as compared to the same period last year, primarily reflecting interest
expense on increased short-term borrowings used to fund CG&E's redemption of
first mortgage bonds and Cinergy's investment in non-regulated companies,
including Avon Energy.
Preferred Dividend Requirements of Subsidiaries
The decrease in preferred dividend requirements of subsidiaries of $14 million
(52%) for the twelve months ended September 30, 1997, from the same period of
1996, is primarily attributable to the reacquisition of approximately 90% of
the outstanding preferred stock of CG&E, pursuant to Cinergy's tender offer in
September 1996.
Extraordinary Item - Equity Share of Windfall Profits Tax
Extraordinary item - equity share of windfall profits tax represents the
one-time charge for the windfall profits tax levied against Midlands and
recorded in the third quarter of 1997. (See Note 5 of the "Notes to Financial
Statements" in "Part I.
Financial Information.")
Costs of Reacquisition of Preferred Stock of Subsidiary
Costs of reacquisition of preferred stock of subsidiary represents the
difference between the par value of preferred stock of CG&E tendered pursuant
to Cinergy's tender offer in September 1996 and the purchase price paid
(including tender fees paid to dealer managers) by Cinergy for these shares.
<PAGE>
THE CINCINNATI GAS &
ELECTRIC COMPANY
AND SUBSIDIARY COMPANIES
<PAGE>
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
September 30 December 31
1997 1996
(dollars in thousands)
<S> <C> <C>
Utility Plant - Original Cost
In service
Electric $4,684,367 $4,631,605
Gas 737,681 713,829
Common 187,733 185,255
5,609,781 5,530,689
Accumulated depreciation 1,978,151 1,868,579
3,631,630 3,662,110
Construction work in progress 109,394 95,984
Total utility plant 3,741,024 3,758,094
Current Assets
Cash and temporary cash investments 8,211 5,120
Restricted deposits 1,173 1,171
Notes receivable from affiliated companies 9,764 31,740
Accounts receivable less accumulated
provision for doubtful accounts of $10,373
at September 30, 1997, and $9,178 at
December 31, 1996 176,933 117,912
Accounts receivable from affiliated
companies 8,725 2,453
Materials, supplies, and fuel - at average cost
Fuel for use in electric production 26,796 29,865
Gas stored for current use 37,680 32,951
Other materials and supplies 49,948 52,023
Property taxes applicable to subsequent year 30,895 123,580
Prepayments and other 23,245 32,433
373,370 429,248
Other Assets
Regulatory assets
Amounts due from customers - income taxes 332,677 344,126
Post-in-service carrying costs and
deferred operating expenses 136,377 141,492
Deferred merger costs 16,975 17,709
Deferred demand-side management costs 37,048 33,534
Phase-in deferred return and depreciation 91,057 95,163
Unamortized costs of reacquiring debt 37,472 38,439
Other 8,192 19,545
Other 97,823 89,908
757,621 779,916
$4,872,015 $4,967,258
<FN>
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
CAPITALIZATION AND LIABILITIES
September 30 December 31
1997 1996
(dollars in thousands)
<S> <C> <C>
Common Stock Equity
Common stock - $8.50 par value; authorized shares - 120,000,000; outstanding
shares - 89,663,086 at September 30, 1997, and
December 31, 1996 $ 762,136 $ 762,136
Paid-in capital 534,612 536,276
Retained earnings 275,399 247,403
Total common stock equity 1,572,147 1,545,815
Cumulative Preferred Stock
Not subject to mandatory redemption 20,907 21,146
Long-term Debt 1,222,831 1,381,108
Total capitalization 2,815,885 2,948,069
Current Liabilities
Long-term debt due within one year - 130,000
Notes payable and other short-term
obligations 358,000 214,488
Notes payable to affiliated companies 35,435 103
Accounts payable 246,398 166,064
Accounts payable to affiliated companies 17,937 12,726
Accrued taxes 171,721 267,841
Accrued interest 26,870 30,570
Other 28,087 32,191
884,448 853,983
Other Liabilities
Deferred income taxes 776,653 767,085
Unamortized investment tax credits 118,539 123,185
Accrued pension and other postretirement
benefit costs 175,473 165,282
Other 101,017 109,654
1,171,682 1,165,206
$4,872,015 $4,967,258
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Quarter Ended Year to Date
September 30 September 30
1997 1996 1997 1996
(in thousands)
<S> <C> <C> <C> <C>
Operating Revenues
Electric
Non-affiliated companies $667,301 $382,718 $1,467,043 $1,109,300
Affiliated companies 5,071 7,634 18,931 27,889
Gas
Non-affiliated companies 39,941 40,787 326,964 306,062
Affiliated companies 3 4 5 5
712,316 431,143 1,812,943 1,443,256
Operating Expenses
Fuel used in electric production 88,741 82,449 219,338 267,007
Gas purchased 15,601 17,133 175,395 150,313
Purchased and exchanged power
Non-affiliated companies 295,528 10,355 460,299 24,021
Affiliated companies 3,094 5,821 7,731 14,576
Other operation 75,842 66,786 235,014 235,513
Maintenance 21,009 22,844 72,302 68,745
Depreciation 40,834 40,322 122,116 120,557
Amortization of phase-in deferrals 3,371 3,399 10,112 10,198
Amortization of post-in-service
deferred operating expenses 823 786 2,468 2,431
Income taxes 36,014 41,675 106,851 115,902
Taxes other than income taxes 52,980 49,820 159,001 154,733
633,837 341,390 1,570,627 1,163,996
Operating Income 78,479 89,753 242,316 279,260
Other Income and Expenses - Net
Allowance for equity funds used
during construction (52) 358 154 1,206
Phase-in deferred return 2,002 2,093 6,006 6,279
Income taxes 3,290 819 10,026 4,299
Other - net (3,782) (1,505) (12,818) (6,095)
1,458 1,765 3,368 5,689
Income Before Interest 79,937 91,518 245,684 284,949
Interest
Interest on long-term debt 25,973 30,304 83,849 93,392
Other interest 3,002 522 7,260 1,466
Allowance for borrowed funds
used during construction (1,342) (813) (3,482) (2,598)
27,633 30,013 87,627 92,260
Net Income $ 52,304 $ 61,505 $ 158,057 $ 192,689
Preferred Dividend Requirement 217 3,475 653 10,423
Costs of reacquisition of
preferred stock - 18,175 - 18,175
Net Income Applicable to Common
Stock $ 52,087 $ 39,855 $ 157,404 $ 164,091
<FN> The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of
these consolidated financial statements.
</FN>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
September 30
1997 1996
(in thousands)
<S> <C> <C>
Operating Activities
Net income $ 158,057 $ 192,689
Items providing (using) cash currently:
Depreciation 122,116 120,557
Deferred income taxes and investment tax
credits - net 18,238 31,408
Allowance for equity funds used during
construction (154) (1,206)
Regulatory assets - net 22,261 25,226
Changes in current assets and current
liabilities
Restricted deposits (2) (27)
Accounts and notes receivable, net of
reserves on receivables sold (42,472) 201,972
Materials, supplies, and fuel 415 (2,379)
Accounts payable 85,545 (33,609)
Accrued taxes and interest (7,135) 5,974
Other items - net 329 (9,326)
Net cash provided by operating
activities 357,198 531,279
Financing Activities
Retirement of preferred stock (158) -
Redemption of long-term debt (290,612) (157,583)
Change in short-term debt 178,844 83,600
Dividends on preferred stock (655) (10,423)
Dividends on common stock (127,800) (327,020)
Net cash used in financing
activities (240,381) (411,426)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (106,612) (95,677)
Deferred demand-side management costs (7,114) (14,070)
Net cash used in investing
activities (113,726) (109,747)
Net increase in cash and temporary cash
investments 3,091 10,106
Cash and temporary cash investments at
beginning of period 5,120 6,612
Cash and temporary cash investments at
end of period $ 8,211 $ 16,718
<FN> The accompanying notes as they relate to The Cincinnati Gas & Electric Company are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
<PAGE>
THE CINCINNATI GAS & ELECTRIC COMPANY
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1997
Kwh Sales
For the quarter ended September 30, 1997, kwh sales increased 185.3% when
compared to the same period last year primarily due to increased activity in
Cinergy's power marketing and trading operations which led to higher non-firm
power sales for resale. Also contributing to the higher kwh sales were
increased industrial and commercial sales, primarily reflecting growth in the
primary metals sector and an increase in the number of commercial customers,
respectively. These increases were partially offset by decreased residential
sales for the quarter ended September 30, 1997, as compared to the same period
last year, as a result of mild weather.
Mcf Sales and Transportation
Mcf gas sales for the quarter ended September 30, 1997, decreased 1.5% while
Mcf transportation volumes increased 12.6%, when compared to the same period
in 1996. Industrial sales declined and gas transportation volumes increased as
customers continued the trend of purchasing gas directly from suppliers, using
transportation services provided by CG&E.
Operating Revenues
Electric Operating Revenues
Electric operating revenues for the quarter ended September 30, 1997,
increased $282 million (72%), from the comparable period of last year,
primarily reflecting increased kwh sales as previously discussed.
An analysis of electric operating revenues is shown below:
Quarter
Ended September 30
(in millions)
Electric operating revenues - September 30, 1996 $390 Increase (Decrease) due
to change in:
Price per kwh
Retail (2)
Sales for resale
Non-firm power transactions 19
Total change in price per kwh 17
Kwh sales
Retail 10
Sales for resale
Non-firm power transactions 255
Total change in kwh sales 265
Electric operating revenues - September 30, 1997 $672
Gas Operating Revenues
The increasing trend of industrial customers purchasing gas directly from
producers and utilizing CG&E facilities to transport the gas continues to put
downward pressure on gas operating revenues. When CG&E sells gas, the sales
price reflects the cost of gas purchased by CG&E to support the sale plus the
costs to deliver the gas. When gas is transported, CG&E does not incur any
purchased gas costs but delivers gas the customer has purchased from other
sources. Since providing transportation services does not necessitate recovery
of gas purchased costs, the revenue per Mcf transported is less than the
revenue per Mcf sold. As a result, a higher relative volume of gas transported
to gas sold translates into lower gas operating revenues.
Operating Expenses
Fuel Used in Electric Production
Electric fuel costs increased $7 million (8%) for the quarter ended September
30, 1997, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Quarter
Ended September 30
(in millions)
Fuel expense - September 30, 1996 $82
Increase due to change in:
Price of fuel 3
Deferred fuel cost 1
Kwh generation 3
Fuel expense - September 30, 1997 $89
Gas Purchased
Gas purchased for the quarter ended September 30 1997, decreased $2 million
(9%), when compared to the same period last year, reflecting decreased volumes
purchased which were partially offset by an increase in the average cost per
Mcf of gas purchased.
Purchased and Exchanged Power
Purchased and exchanged power for the quarter ended September 30, 1997,
increased $282 million over the comparable period of 1996, primarily
reflecting increased purchases of non-firm power for resale to others as a
result of increased activity in Cinergy's power marketing and trading
operations.
Other Operation
Other operation expenses increased $9 million (14%) for the quarter ended
September 30, 1997, as compared to the same period of 1996. This increase is
primarily attributable to the effect of CG&E curtailing certain deferrals
related to its DSM programs for new participants after December 31, 1996, due
to a December 1996 order issued by the PUCO that changed the benefit/cost
tests that DSM programs must surpass in Ohio in order for certain DSM-related
costs to be eligible for deferral.
Maintenance
The $2 million (8%) decrease in maintenance expenses for the quarter ended
September 30, 1997, as compared to the same period of 1996, is primarily
associated with electric production facilities. Partially offsetting this
decrease was an increase in maintenance expenses associated with electric
distribution facilities.
Taxes Other Than Income Taxes
The $3 million (6%) increase in taxes other than income taxes for the quarter
ended September 30, 1997, as compared to the same period last year, is
primarily due to an increase in the Ohio Gross Receipts Tax.
Other Income and Expenses - Net
Other - net
The change in other - net of $2 million for the quarter ended September 30,
1997, as compared to the same period last year, is primarily attributable to a
decrease in interest income due to a reduction in short-term loans to
affiliated companies through Cinergy's money pool arrangement.
Interest
Interest on Long-term Debt
Interest on long-term debt decreased $4 million (14%) for the quarter ended
September 30, 1997, as compared to the same period of 1996, primarily due to
the redemption of $290 million of long-term debt during 1997.
Other Interest
The $2 million increase in other interest for the third quarter of 1997, as
compared to the third quarter of 1996, is primarily due to increased interest
expense on short-term borrowings used to fund the acquisition of approximately
90% of the outstanding preferred stock of CG&E during the third quarter of
1996 and the redemption of first mortgage bonds.
Preferred Dividend Requirement
The preferred dividend requirement decreased $3 million (94%) for the third
quarter of 1997, as compared to the same period in 1996. This decrease is
primarily attributable to the reacquisition of approximately 90% of the
outstanding preferred stock of CG&E, pursuant to Cinergy's tender offer during
the third quarter of 1996.
Costs of Reacquisition of Preferred Stock
Costs of reacquisition of preferred stock represents the difference between
the par value of preferred stock of CG&E tendered pursuant to Cinergy's tender
offer in September 1996 and the purchase price paid (including tender fees
paid to dealer managers) by Cinergy for these shares.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
Kwh Sales
Kwh sales increased 93.2% for the nine months ended September 30, 1997, from
the comparable period of last year, primarily reflecting increased activity in
Cinergy's power marketing and trading operations which led to higher non-firm
power sales for resale. Also contributing to the higher kwh sales levels were
increased industrial and commercial sales, primarily reflecting growth in the
primary metals and food products sectors and an increase in the number of
commercial customers, respectively. These increases were partially offset by
decreased residential sales for the first nine months of 1997, as compared to
the same period last year, as a result of mild weather.
Mcf Sales and Transportation
Mcf gas sales for the nine months ended September 30, 1997, decreased 11.2%,
while Mcf transportation volumes increased 9.1%, when compared to the same
period in 1996. Decreased Mcf sales reflect, in part, cold weather during the
first nine months of 1996, as compared to the mild weather during the same
period of 1997, and were partially offset by an increase in residential and
commercial customers. Industrial sales declined and gas transportation volumes
increased as customers continued the trend of purchasing gas directly from
suppliers, using transportation services provided by CG&E.
Operating Revenues
Electric Operating Revenues
Electric operating revenues for the nine months ended September 30, 1997,
increased $349 million (31%), as compared to the same period last year. This
increase primarily reflects the increased kwh sales as previously discussed.
Partially offsetting this increase was the operation of CG&E's fuel adjustment
clauses reflecting a lower average cost per kwh.
An analysis of electric operating revenues is shown below:
Nine Months
Ended September 30
(in millions)
Electric operating revenues - September 30, 1996 $1 137
Increase (Decrease) due to change in:
Price per kwh
Retail (42)
Sales for resale
Non-firm power transactions 37
Total change in price per kwh (5)
Kwh sales
Retail (18)
Sales for resale
Firm power obligations (1)
Non-firm power transactions 374
Total change in kwh sales 355
Other (1)
Electric operating revenues - September 30, 1997 $1 486
Gas Operating Revenues
For a discussion of the continued trend of downward pressure on gas operating
revenues from increased transportation services, refer to the discussion under
the caption "Gas Operating Revenues" for CG&E in "Results of Operations for
the Quarter Ended September 30, 1997."
Gas operating revenues increased $21 million (7%) for the nine months ended
September 30, 1997, when compared to the same period last year. Contributing
to the increase was the December 1996 Order approving an overall average
increase in gas revenues for CG&E of 2.5% ($9 million annually) and the
operation of a gas cost recovery mechanism reflecting a higher average cost
per Mcf of gas purchased. This increase was partially offset by the previously
discussed changes in Mcf gas sales.
Operating Expenses
Fuel Used in Electric Production
Electric fuel costs decreased $48 million (18%) for the nine months ended
September 30, 1997, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Nine Months
Ended September 30
(in millions)
Fuel expense - September 30, 1996 $267 Increase (Decrease) due to change in:
Price of fuel 2
Deferred fuel cost (47)
Kwh generation (3)
Fuel expense - September 30, 1997 $219
Gas Purchased
Gas purchased for the nine months ended September 30, 1997, increased $25
million (17%) when compared to the same period last year, reflecting an
increase in the average cost per Mcf of gas purchased which was partially
offset by a decrease in volumes purchased.
Purchased and Exchanged Power
Purchased and exchanged power for the nine months ended September 30, 1997,
increased $429 million over the comparable period of 1996, primarily
reflecting increased purchases of non-firm power for resale to others as a
result of increased activity in Cinergy's power marketing and trading
operations.
Maintenance
The $4 million (5%) increase in maintenance expenses for the nine months ended
September 30, 1997, as compared to the same period of 1996, is primarily due
to scheduled outages at Beckjord and Miami Fort, and a forced outage at
Zimmer, all of which occurred during the first quarter of 1997. Increased
maintenance expenses, associated with electric distribution facilities, for
the current nine month time period also contributed to the higher level of
expenses.
Other Income and Expenses - Net
Other - net
The change in other - net of $7 million in the first nine months of 1997, as
compared to the same period of 1996, is attributable, in part, to a decrease
in interest income due to a reduction in short-term loans to affiliated
companies through Cinergy's money pool arrangement. Also contributing to the
increase was a higher level of expenses associated with CG&E's and ULH&P's
sales of accounts receivables.
Interest
Interest on Long-term Debt
Interest on long-term debt decreased $10 million (10%) for the nine months
ended September 30, 1997, as compared to the same period of 1996, primarily
due to the redemption or maturity of $290 million of long-term debt during the
period from March 1997 to September 1997.
Other Interest
The $6 million increase in other interest for the first nine months of 1997,
as compared to the first nine months of 1996, is primarily due to increased
interest expense on short-term borrowings used to fund the acquisition of
approximately 90% of the outstanding preferred stock of CG&E during the third
quarter of 1996 and the redemption of first mortgage bonds.
Preferred Dividend Requirement
The preferred dividend requirement decreased $10 million (94%) for the first
nine months of 1997, as compared to the same period in 1996. This decrease is
primarily attributable to the reacquisition of approximately 90% of the
outstanding preferred stock of CG&E, pursuant to Cinergy's tender offer during
the third quarter of 1996.
Costs of Reacquisition of Preferred Stock
Costs of reacquisition of preferred stock represents the difference between
the par value of preferred stock of CG&E tendered pursuant to Cinergy's tender
offer in September 1996 and the purchase price paid (including tender fees
paid to dealer managers) by Cinergy for these shares.
<PAGE>
PSI ENERGY, INC.
AND SUBSIDIARY COMPANIES
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
September 30 December 31
1997 1996
(dollars in thousands)
<S> <C> <C>
Electric Utility Plant - Original Cost
In service $4,260,374 $4,178,181
Accumulated depreciation 1,780,823 1,723,279
2,479,551 2,454,902
Construction work in progress 60,295 76,630
Total electric utility plant 2,539,846 2,531,532
Current Assets
Cash and temporary cash investments 21,230 2,911
Restricted deposits 777 550
Notes receivable 138 299
Notes receivable from affiliated companies 50,511 3
Accounts receivable less accumulated
provision for doubtful accounts of $808
at September 30, 1997, and $1,269 at
December 31, 1996 182,792 73,990
Accounts receivable from affiliated companies 17,582 4,016
Materials, supplies, and fuel - at average cost
Fuel 30,975 41,865
Other materials and supplies 29,702 28,268
Prepayments and other 4,681 3,184
338,388 155,086
Other Assets
Regulatory assets
Amounts due from customers - income taxes 35,661 33,068
Post-in-service carrying costs and
deferred operating expenses 44,100 44,904
Coal contract buyout costs 125,029 138,171
Deferred merger costs 74,887 76,290
Deferred demand-side management costs 78,683 101,208
Unamortized costs of reacquiring debt 30,305 32,079
Other 48,928 52,938
Other 134,972 129,667
572,565 608,325
$3,450,799 $3,294,943
<FN>
The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CAPITALIZATION AND LIABILITIES
September 30 December 31
1997 1996
(dollars in thousands)
<S> <C> <C>
Common Stock Equity
Common stock - without par value; $0.01 stated value; authorized shares -
60,000,000; outstanding shares - 53,913,701
at September 30, 1997, and December 31, 1996 $ 539 $ 539
Paid-in capital 400,855 402,947
Retained earnings 628,538 626,089
Total common stock equity 1,029,932 1,029,575
Cumulative Preferred Stock
Not subject to mandatory redemption 157,209 173,086
Long-term Debt 875,788 945,270
Total capitalization 2,062,929 2,147,931
Current Liabilities
Long-term debt due within one year 35,000 10,000
Notes payable and other short-term obligations 310,345 171,729
Notes payable to affiliated companies - 13,186
Accounts payable 222,932 114,330
Accounts payable to affiliated companies 4,555 12,850
Accrued taxes 98,693 73,206
Accrued interest 14,482 24,045
Other 2,688 17,107
688,695 436,453
Other Liabilities
Deferred income taxes 364,635 372,997
Unamortized investment tax credits 50,156 52,750
Accrued pension and other postretirement
benefit costs 111,880 98,037
Other 172,504 186,775
699,175 710,559
$3,450,799 $3,294,943
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Quarter Ended Year to Date
September 30 September 30
1997 1996 1997 1996
(in thousands)
<S> <C> <C> <C> <C>
Operating Revenues
Non-affiliated companies $647,864 $342,199 $1,456,612 $951,171
Affiliated companies 3,123 5,856 7,768 14,691
650,987 348,055 1,464,380 965,862
Operating Expenses
Fuel 108,375 101,644 288,126 272,343
Purchased and exchanged power
Non-affiliated companies 311,753 26,665 502,938 71,422
Affiliated companies 5,100 7,669 18,968 28,004
Other operation 81,253 62,434 243,040 188,443
Maintenance 21,489 23,059 67,251 68,964
Depreciation 31,551 30,489 93,996 91,046
Amortization of post-in-service
deferred operating expenses 268 (1,716) 804 (5,068)
Income taxes 16,159 23,445 49,451 55,597
Taxes other than income taxes 14,011 13,729 44,191 41,361
589,959 287,418 1,308,765 812,112
Operating Income 61,028 60,637 155,615 153,750
Other Income and Expenses - Net
Allowance for equity funds used
during construction (130) - 35 -
Post-in-service carrying costs - 391 - 1,228
Income taxes (5,795) (2,438) (6,639) (3,332)
Other - net 6,946 3,280 11,019 1,420
1,021 1,233 4,415 (684)
Income Before Interest 62,049 61,870 160,030 153,066
Interest
Interest on long-term debt 17,552 16,218 53,928 50,286
Other interest 4,098 3,790 10,630 10,386
Allowance for borrowed funds
used during construction (281) (642) (1,237) (1,637)
21,369 19,366 63,321 59,035
Net Income $ 40,680 $ 42,504 $ 96,709 $ 94,031
Preferred Dividend Requirement 2,925 3,020 8,964 9,518
Net Income Applicable to Common
Stock $ 37,755 $ 39,484 $ 87,745 $ 84,513
<FN>
The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
September 30
1997 1996
(in thousands)
<S> <C> <C>
Operating Activities
Net income $ 96,709 $ 94,031
Items providing (using) cash currently:
Depreciation 93,996 91,046
Deferred income taxes and investment tax
credits - net (13,548) 5,145
Allowance for equity funds used during
construction (35) -
Regulatory assets - net 35,055 (25,676)
Changes in current assets and current
liabilities
Restricted deposits (227) (335)
Accounts and notes receivable, net of
reserves on receivables sold (175,510) 23,039
Materials, supplies, and fuel 9,456 25,679
Accounts payable 100,307 17,058
Accrued taxes and interest 15,924 (12,467)
Other items - net (6,985) (810)
Net cash provided by operating
activities 155,142 216,710
Financing Activities
Funds on deposit from issuance of long-term debt - 973
Retirement of preferred stock (16,024) (15,114)
Redemption of long-term debt (45,700) (50,000)
Change in short-term debt 125,430 63,500
Dividends on preferred stock (9,059) (9,609)
Dividends on common stock (85,200) (82,363)
Net cash used in financing activities (30,553) (92,613)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (96,423) (107,061)
Deferred demand-side management costs (9,847) (18,356)
Net cash used in investing activities (106,270) (125,417)
Net increase (decrease) in cash and
temporary cash investments 18,319 (1,320)
Cash and temporary cash investments at
beginning of period 2,911 15,522
Cash and temporary cash investments at
end of period $ 21,230 $ 14,202
<FN>
The accompanying notes as they relate to PSI Energy, Inc. are an integral part of these consolidated financial statements.
</FN>
<PAGE>
</TABLE>
PSI ENERGY, INC.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1997
Kwh Sales
Kwh sales increased 129.9% for the third quarter of 1997, from the comparable
period last year, primarily due to higher non-firm power sales for resale
resulting from increased activity in Cinergy's power marketing and trading
operations. Also contributing to the higher kwh sales levels were increased
industrial and commercial sales, primarily reflecting growth in the primary
metals and transportation sectors and an increase in the number of commercial
customers, respectively. These increases were partially offset by decreased
residential sales for the quarter ended September 30, 1997, as compared to the
same period last year, as a result of mild weather.
Operating Revenues
Operating revenues increased $303 million (87%) for the quarter ended
September 30, 1997, when compared to the same period last year, reflecting, in
part, increased kwh sales as previously discussed. Also contributing to the
increase were the effects of the December 1996 DSM Order the September 1996
Order (as amended by the August 1997 Order).
An analysis of operating revenues is shown below:
Quarter
Ended September 30
(in millions)
Operating revenues - September 30, 1996 $348 Increase (Decrease) due to change
in:
Price per kwh
Retail 17
Sales for resale
Firm power obligations (2)
Non-firm power transactions 45
Total change in price per kwh 60
Kwh sales
Sales for resale
Firm power obligations 7
Non-firm power transactions 236
Total change in kwh sales 243
Operating revenues - September 30, 1997 $651
Operating Expenses
Fuel
Fuel costs increased $7 million (7%) for the third quarter of 1997, as
compared to the same period last year.
An analysis of fuel costs is shown below:
Quarter
Ended September 30
(in millions)
Fuel expense - September 30, 1996 $102 Increase (Decrease) due to change in:
Price of fuel 2
Deferred fuel cost (1)
Kwh generation 6
Fuel expense - September 30, 1997 $109
Purchased and Exchanged Power
For the quarter ended September 30, 1997, purchased and exchanged power
increased $283 million, as compared to the same period last year, due
primarily to increased purchases of non-firm power for resale to others as a
result of increased activity in Cinergy's power marketing and trading
operations.
Other Operation
Other operation expenses increased $19 million (30%) for the quarter ended
September 30, 1997, as compared to the same period last year. This increase is
primarily due to increased production expenses associated with the Clean Coal
Project and increases related to the amortization of deferred DSM expenses and
the amortization of deferred expenses associated with the Clean Coal Project,
all of which are being recovered in revenues pursuant to either the September
1996 Order or the December 1996 DSM Order. Also contributing to the increase
is the effect of discontinuing deferral of certain DSM-related costs in
accordance with provisions of the December 1996 DSM Order.
Maintenance
The $2 million (7%) decrease in maintenance expenses for the third quarter of
1997, as compared to the same period of 1996, is primarily due to reduced
outage related charges associated with PSI's production facilities.
Amortization of the Post-in-service Deferred Operating Expenses
Amortization of post-in-service deferred operating expenses reflects the
amortization and related recovery in rates of depreciation deferred on certain
major projects, primarily environmental in nature, from the in-service date
until the related projects are reflected in retail rates.
Other Income and Expenses - Net
Other - net
The change of $4 million for other - net for the quarter ended September 30,
1997, as compared to the same period of 1996, is primarily attributable to a
gain of approximately $4 million in 1997 on the sale of an investment and an
increase in interest income related to an increase of $.5 million in
short-term loans to affiliated companies through Cinergy's money pool
arrangement.
Interest
Interest on Long-term Debt
Interest on long-term debt increased $1 million (8%) for the quarter ended
September 30, 1997, as compared to the same period of 1996. The increase was
primarily due to the net issuance of approximately $100 million of long-term
debt during the third and fourth quarters of 1996.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
Kwh Sales
For the nine months ended September 30, 1997, kwh sales increased 73.1%, when
compared to the same period last year, primarily due to increased activity in
Cinergy's power marketing and trading operations which led to higher non-firm
power sales for resale. Also contributing to the higher kwh sales was an
increase in industrial sales primarily reflecting growth in the primary metals
sector. Partially offsetting these increases were the effects of mild weather
during the period.
Operating Revenues
Total operating revenues increased $498 million (52%) for the nine months
ended September 30, 1997, when compared to the same period last year,
primarily as a result of the increased kwh sales as previously discussed. Also
contributing to the increase were the effects of the December 1996 DSM Order
and the September 1996 Order (as amended by the August 1997 Order), and the
return of approximately $13 million to customers in 1996 in accordance with
the February 1995 Order. The February 1995 Order required all retail operating
income above a certain rate of return to be refunded to customers.
An analysis of operating revenues is shown below:
Nine Months
Ended September 30
(in millions)
Operating revenues - September 30, 1996 $ 966
Increase (Decrease) due to change in:
Price per kwh
Retail 65
Sales for resale
Firm power obligations (9)
Non-firm power transactions 77
Total change in price per kwh 133
Kwh sales
Retail 1
Sales for resale
Firm power obligations 8
Non-firm power transactions 355
Total change in kwh sales 364
Other 1
Operating revenues - September 30, 1997 $1 464
Operating Expenses
Fuel
Fuel costs for the nine months ended September 30, 1997, increased $16 million
(6%) when compared to the same period last year.
An analysis of fuel costs is shown below:
Nine Months
Ended September 30
(in millions)
Fuel expense - September 30, 1996 $272 Increase (Decrease) due to change in:
Price of fuel (4)
Deferred fuel cost 10
Kwh generation 10
Fuel expense - September 30, 1997 $288
Purchased and Exchanged Power
For the nine months ended September 30, 1997, purchased and exchanged power
increased $422 million, as compared to the same period last year, primarily
reflecting increased purchases of non-firm power for resale to others as a
result of increased activity in Cinergy's power marketing and trading
operations.
Other Operation
Other operation expenses increased $55 million (29%) for the nine months ended
September 30, 1997, as compared to the same period last year. This increase
was primarily due to increased production expenses associated with the Clean
Coal Project and increases related to the amortization of deferred DSM
expenses and the amortization of deferred expenses associated with the Clean
Coal Project, all of which are being recovered in revenues pursuant to either
the September 1996 Order or the December 1996 DSM Order. Also contributing to
the increase is the effect of discontinuing deferral of certain DSM-related
costs in accordance with provisions of the December 1996 DSM Order.
Amortization of Post-in-service Deferred Operating Expenses
Amortization of post-in-service deferred operating expenses reflects the
amortization and related recovery in rates of depreciation deferred on certain
major projects, primarily environmental in nature, from the in- service date
until the related projects are reflected in retail rates.
Taxes Other than Income Taxes
The $3 million (7%) increase in taxes other than income taxes for the nine
months ended September 30, 1997, as compared to the same period last year, is
primarily due to an increase in the Indiana Corporate Gross Income Tax.
Other Income and Expenses - Net
Other - net
The change of $10 million for other - net for the nine months ended September
30, 1997, as compared to the same period of 1996, is due to a number of
factors, including a gain of approximately $4 million in 1997 on the sale of
an investment and an increase of approximately $1 million in interest income
related to an increase in short-term loans to affiliated companies through
Cinergy's money pool arrangement.
Interest
Interest on Long-term Debt
Interest on long-term debt increased $4 million (7%) for the nine month period
ended September 30, 1997, as compared to the same period of 1996. The increase
was primarily due to the net issuance of approximately $90 million of
long-term debt during the period from August 1996 to March 1997.
<PAGE>
THE UNION LIGHT, HEAT
AND POWER COMPANY
<PAGE>
<TABLE>
<CAPTION>
THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS
(unaudited)
ASSETS
September 30 December 31
1997 1996
(dollars in thousands)
<S> <C> <C>
Utility Plant - Original Cost
In service
Electric $202,941 $195,053
Gas 152,758 148,203
Common 19,233 19,285
374,932 362,541
Accumulated depreciation 131,039 122,310
243,893 240,231
Construction work in progress 10,035 9,050
Total utility plant 253,928 249,281
Current Assets
Cash and temporary cash investments 2,790 1,197
Notes receivable from affiliated companies - 100
Accounts receivable less accumulated provision
for doubtful accounts of $1,350 at
September 30, 1997, and $1,024 at
December 31, 1996 4,657 12,763
Accounts receivable from affiliated companies 325 620
Materials, supplies, and fuel - at average cost
Gas stored for current use 6,727 6,351
Other materials and supplies 694 716
Property taxes applicable to subsequent year 650 2,600
Prepayments and other 520 370
16,363 24,717
Other Assets
Regulatory assets
Deferred merger costs 5,218 5,218
Unamortized costs of reacquiring debt 3,628 3,764
Other 2,669 2,357
Other 7,000 5,146
18,515 16,485
$288,806 $290,483
<FN>
The accompanying notes as they relate to The Union Light, Heat and Power
Company are an integral part of these financial statements.
</FN>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
THE UNION LIGHT, HEAT AND POWER COMPANY
CAPITALIZATION AND LIABILITIES
September 30 December 31
1997 1996
(dollars in thousands)
<S> <C> <C>
Common Stock Equity
Common stock - $15.00 par value; authorized shares - 1,000,000; outstanding
shares - 585,333
at September 30, 1997, and December 31, 1996 $ 8,780 $ 8,780
Paid-in capital 18,683 18,839
Retained earnings 97,025 92,484
Total common stock equity 124,488 120,103
Long-term Debt 44,657 44,617
Total capitalization 169,145 164,720
Current Liabilities
Notes payable to affiliated companies 24,661 30,649
Accounts payable 4,312 12,018
Accounts payable to affiliated companies 14,658 16,771
Accrued taxes 5,895 1,014
Accrued interest 957 1,284
Other 4,089 5,248
54,572 66,984
Other Liabilities
Deferred income taxes 31,495 33,463
Unamortized investment tax credits 4,587 4,797
Accrued pension and other postretirement benefit
costs 13,693 12,983
Income taxes refundable through rates 6,978 5,121
Other 8,336 2,415
65,089 58,779
$288,806 $290,483
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF INCOME
(unaudited)
Quarter Ended Year to Date
September 30 September 30
1997 1996 1997 1996
(in thousands)
<S> <C> <C> <C> <C>
Operating Revenues
Electric $56,666 $52,704 $152,560 $147,970
Gas
Non-affiliated companies 8,581 5,646 53,369 50,713
Affiliated companies 66 14 256 81
65,313 58,364 206,185 198,764
Operating Expenses
Electricity purchased from parent
company for resale 44,237 39,850 113,992 109,337
Gas purchased 3,002 2,129 30,006 26,252
Other operation 7,968 7,268 24,705 23,664
Maintenance 1,434 1,093 4,493 3,445
Depreciation 3,048 3,013 9,229 8,887
Income taxes 1,003 1,067 6,648 7,824
Taxes other than income taxes 905 986 3,119 3,092
61,597 55,406 192,192 182,501
Operating Income 3,716 2,958 13,993 16,263
Other Income and Expenses - Net
Allowance for equity funds used
during construction 10 42 33 21
Income taxes 272 4 570 31
Other - net (606) (436) (1,567) (1,079)
(324) (390) (964) (1,027)
Income Before Interest 3,392 2,568 13,029 15,236
Interest
Interest on long-term debt 881 881 2,643 3,135
Other interest 317 167 951 433
Allowance for borrowed funds
used during construction (45) (26) (82) (90)
1,153 1,022 3,512 3,478
Net Income $ 2,239 $ 1,546 $ 9,517 $ 11,758
<FN>
The accompanying notes as they relate to The Union Light, Heat and Power
Company are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
September 30
1997 1996
(in thousands)
<S> <C> <C>
Operating Activities
Net income $ 9,517 $ 11,758
Items providing (using) cash currently:
Depreciation 9,229 8,887
Deferred income taxes and investment tax
credits - net (322) 7,607
Allowance for equity funds used during
construction (33) (21)
Regulatory assets - net (312) 80
Changes in current assets and current
liabilities
Accounts and notes receivable, net of
reserves on receivables sold 7,687 29,590
Materials, supplies, and fuel (354) (2,621)
Accounts payable (9,819) (11,463)
Accrued taxes and interest 6,504 1,446
Other items - net 5,267 (3,866)
Net cash provided by operating
activities 27,364 41,397
Financing Activities
Redemption of long-term debt - (26,083)
Change in short-term debt (5,988) (1,450)
Dividends on common stock (4,975) -
Net cash used in financing
activities (10,963) (27,533)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (14,808) (12,827)
Net cash used in investing
activities (14,808) (12,827)
Net increase in cash and
temporary cash investment 1,593 1,037
Cash and temporary cash investments at
beginning of period 1,197 1,750
Cash and temporary cash investments at
end of period $ 2,790 $ 2,787
<FN> The accompanying notes as they relate to The Union Light, Heat and Power Company are an integral part of these
financial statements.
</FN>
</TABLE>
<PAGE>
THE UNION LIGHT, HEAT AND POWER COMPANY
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1997
Kwh Sales
Kwh sales increased 6.6% for the quarter ended September 30, 1997, from the
comparable period last year, primarily due to growth in residential and
commercial sales reflecting, in part, an increase in the number of customers.
Mcf Sales and Transportation
Mcf gas sales and transportation volumes for the quarter ended September 30,
1997, increased 31.5%, when compared to the same period in 1996. This increase
is primarily attributable to an adjustment resulting from the annual
reconciliation performed during the third quarter related to unbilled Mcf gas
sales. An increase in the number of residential customers and the trend of
industrial customers purchasing gas directly from suppliers, using
transportation services provided by ULH&P, also contributed to the increase.
Operating Revenues
Electric Operating Revenues
Electric operating revenues for the quarter ended September 30, 1997,
increased $4 million (8%), as compared to the same period last year, as a
result of the increased kwh sales as previously discussed.
Gas Operating Revenues
The increasing trend of industrial customers purchasing gas directly from
producers and utilizing ULH&P facilities to transport the gas continues to put
downward pressure on gas operating revenues. When ULH&P sells gas, the sales
price reflects the cost of gas purchased by ULH&P to support the sale plus the
costs to deliver the gas. When gas is transported, ULH&P does not incur any
purchased gas costs but delivers gas the customer has purchased from other
sources. Since providing transportation services does not necessitate recovery
of gas purchased costs, the revenue per Mcf transported is less than the
revenue per Mcf sold. As a result, a higher relative volume of gas transported
to gas sold translates into lower gas operating revenues.
Gas operating revenues increased $3 million (52.8%) in the third quarter of
1997, when compared to the same period of last year. The increase is primarily
attributable to the previously discussed increase in Mcf gas sales and the
operation of a gas cost recovery mechanism reflecting a higher average cost
per Mcf of gas purchased.
Operating Expenses
Electricity Purchased from Parent Company for Resale
Electricity purchased increased $4.4 million (11%) for the quarter ended
September 30, 1997, as compared to the same period last year. This increase is
primarily attributable to higher kwh purchased.
Gas Purchased
Gas purchased for the quarter ended September 30, 1997, increased $.9 million
(41%) from the third quarter of last year, reflecting an increase in the
average cost per Mcf of gas purchased.
Other Operation
The $.7 million (10%) increase in other operation expenses for the third
quarter of 1997, as compared to the same period of 1996, is primarily due to
higher administrative and general expenses. Partially offsetting this increase
were lower gas distribution and electric transmission expenses.
Maintenance
The $.3 million (31%) increase in maintenance expenses for the third quarter
of 1997, as compared to the same period of 1996, is primarily due to increased
maintenance expenses associated with gas and electric distribution facilities.
This increase was partially offset by decreased maintenance expenses
associated with gas production facilities.
Other Income and Expenses - Net
Other - net
The change in other - net of $.2 million (39%) for the quarter ended September
30, 1997, as compared to the same period of 1996, is primarily attributable to
a higher level of expenses associated with the sales of accounts receivables
and a decrease in interest income related to a reduction in short-term loans
to affiliated companies through Cinergy's money pool arrangement.
Interest
Other Interest
Other interest charges increased $.2 million (90%) for the quarter ended
September 30, 1997, as compared to the same period of 1996, primarily due to
increased short-term borrowings.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
Kwh Sales
Kwh sales remained relatively constant for the nine months ended September 30,
1997, from the comparable period of last year. Increased industrial and
commercial sales, primarily reflecting growth in the primary metals sector and
an increase in the number of commercial customers, respectively, were
substantially offset by decreased residential sales as a result of mild
weather.
Mcf Sales and Transportation
For the nine months ended September 30, 1997, Mcf gas sales and transportation
volumes decreased 2.3%, as compared to the same period in 1996. Decreased Mcf
gas sales reflect, in part, cold weather during the first nine months of 1996,
as compared to the same period of 1997, and were slightly offset by an
increase in the number of residential customers. Industrial sales declined and
gas transportation volumes increased as customers continued the trend of
purchasing gas directly from suppliers, using transportation services provided
by ULH&P.
Operating Revenues
Gas Operating Revenues
For a discussion of the continued trend of downward pressure on gas operating
revenues from increased transportation services, refer to the discussion under
the caption "Gas Operating Revenues" for ULH&P in "Results of Operations for
the Quarter Ended September 30, 1997."
Gas operating revenues increased $3 million (6%) for the nine month period
ended September 30, 1997, when compared to the same period of last year. This
increase is primarily attributable to the operation of a gas cost recovery
mechanism reflecting a higher average cost per Mcf of gas purchased and was
partially offset by the effect of the previously discussed changes in Mcf gas
sales.
Operating Expenses
Maintenance
The $1.0 million (30%) increase in maintenance expenses for the nine months
ended September 30, 1997, as compared to the same period of 1996, is primarily
due to increased maintenance expenses associated with gas and electric
distribution facilities. This increase is partially offset by decreased
maintenance expenses associated with gas production facilities.
Other Income and Expenses - Net
Other - net
The change of $.5 million (45%) for other - net for the nine months ended
September 30, 1997, as compared to the same period of 1996, is primarily
attributed to a higher level of expenses associated with the sales of accounts
receivables.
Interest
Interest on Long-term Debt
Interest charges decreased $.5 million (16%) for the nine months ended
September 30, 1997, from the same period of 1996, primarily due to the
redemption of $10 million of long-term debt in May 1996.
Other Interest
Other interest charges increased $.5 million for the nine months ended
September 30, 1997, as compared to the same period of 1996, primarily due to
increased short-term borrowings used to fund the redemption of first mortgage
bonds. This increase was partially offset by interest charges recorded in 1996
on customer rate refunds.
NOTES TO FINANCIAL STATEMENTS
Cinergy, CG&E, PSI, and ULH&P
1. These Financial Statements reflect all adjustments (which include only
normal, recurring adjustments) necessary in the opinion of 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 1996 Form 10-K of the registrants. Certain amounts in the 1996
Financial Statements have been reclassified to conform to the 1997
presentation.
Cinergy and CG&E
2. In March 1997, CG&E retired $16 million principal amount of its 8.95%
Series First Mortgage Bonds, due December 15, 2021. In April 1997, CG&E
redeemed the remaining $84 million principal amount of such bonds at a
price of 100% through the M&R Fund provisions of its first mortgage bond
indenture. CG&E also redeemed, in April 1997, the entire $60 million
principal amount of its 8 1/8% Series First Mortgage Bonds, due August
1, 2003, at a redemption price of 100.72% through the M&R Fund.
Cinergy and PSI
On September 1, 1997, PSI redeemed all outstanding shares of its 7.15%
Cumulative Preferred Stock (158,640 shares) at a redemption price of $101 per
share.
Cinergy and PSI
3. In February 1997, the City of Princeton, Indiana, loaned the proceeds from
the sale of its $35 million Pollution Control Revenue Refunding Bonds, 1997
Series, to PSI. Proceeds from the issuance were used to refund, in March 1997,
the outstanding $35 million City of Princeton, Indiana, 7.60% Pollution
Control Refunding Revenue Bonds, 1987 Series, which previously refunded the
City of Princeton, Indiana, 12.75% Pollution Control Revenue Bonds 1982 Series
B, which were issued to finance PSI's portion of the costs of acquiring and
constructing PSI's undivided interest in certain pollution control and solid
waste disposal facilities at Gibson.
The 1997 Series bonds were issued in an initial daily rate mode and will
mature April 1, 2022, subject to redemption prior to maturity. Pursuant to the
loan agreement between PSI and Princeton, PSI will make loan payments
sufficient to pay, when due, principal and interest on the 1997 Series bonds.
Holders of the 1997 Series and the 1996 Series bonds have the right to put
their bonds on any business day. Accordingly, these issuances are reflected in
the Consolidated Balance Sheets as "Notes payable and other short-term
obligations."
Cinergy and CG&E
On October 9, 1997, CG&E issued and sold $100 million principal amount of its
LANCEs. The LANCEs will mature on October 1, 2007 but are subject to optional
redemption prior to that date. Interest on the LANCEs will float during the
first two years at LIBOR plus an agreed upon spread, with a fixed rate being
set at 6.50% commencing October 1, 1999. Holders of not less than 66 2/3% in
aggregate principal amount of the LANCEs shall have the one-time right to
convert from the 6.50% fixed rate to a floating rate of LIBOR plus an agreed
upon spread at any interest rate payment date between October 1, 1999 and
October 1, 2002. Proceeds from the sale were used to repay a portion of CG&E's
outstanding short-term indebtedness.
Cinergy, CG&E, PSI, and ULH&P
4. In February 1997, the FASB issued Statement 128, which is effective
December 31, 1997, for Cinergy. Statement 128 replaces the calculation and
disclosure of primary and fully diluted earnings per share under Opinion 15
with basic and diluted earnings per share. Statement 128 also requires certain
disclosures regarding the determination of earnings per share amounts
presented in the accompanying income statements that were not previously
required under Opinion 15. Earnings per share presented in the accompanying
income statements has been computed in accordance with the provisions of
Opinion 15. Earnings per share for the quarter, year to date, and twelve
months ended September 30, 1997, determined in accordance with the provisions
of Statement 128, would not have been significantly different from amounts
shown.
Cinergy, CG&E, PSI, and ULH&P
In June 1997, the FASB issued Statement 130, which is effective for
fiscal years beginning after December 15, 1997. Statement 130 establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general-purpose financial statements.
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from nonowner sources.
Cinergy, CG&E, PSI, and ULH&P
In June 1997, the FASB issued Statement 131, which supersedes Statement
14. It is effective for fiscal years beginning after December 15, 1997, with
less detailed disclosures being required for interim periods beginning the
first quarter of 1999. Statement 131 requires that companies disclose segment
information based on how management makes decisions for allocating resources
to and measuring the performance of segments. It also requires certain
entity-wide disclosures to be made about revenues generated by types of
products and services, revenues generated from operations and the dollar
amount of long-lived asset balances maintained in the country of domicile as
well as foreign countries in which there are material operations, and the
identity of and amount of revenues generated from major customers.
Cinergy
5. Cinergy accounts for its 50% investment in Avon Energy, which owns 100% of
Midlands, using the equity method of accounting. Avon Energy acquired Midlands
during the second and third quarters of 1996, with substantially all of the
Midlands' common stock being acquired during the second quarter. Accordingly,
Midlands' results are fully reflected in the quarter, year to date, and twelve
months ended September 30, 1997.
During the third quarter, a "windfall profits tax" was enacted into law
in the UK. The tax was levied against a limited number of British companies,
including Midlands. The tax is intended to be recovery of funds by the
government due to the under valuing of the companies subject to the tax when
they were privatized by the government via public stock offerings several
years ago.
Cinergy's share of the tax to be paid by Midlands is approximately $109
million, to be paid in two equal installments due December 1, 1997 and 1998.
As management believes this charge to be unusual in nature, and does not
expect such a charge to reoccur, the tax has been recorded as an extraordinary
item in the Consolidated Statement of Income during the third quarter. No
related tax benefit has been recorded for the charge as the windfall profits
tax is not deductible for corporate income tax purposes in the UK, and Cinergy
expects that benefits, if any, derived for U.S. Federal income taxes will not
be significant.
Also, during the third quarter, legislation lowering the UK corporate
tax rate from 33% to 31% was enacted into law. As a result, deferred tax
liabilities at Avon Energy and Midlands were adjusted downward. The amount of
this adjustment, after giving effect to U.S. Federal income taxes with respect
to Cinergy's investment in Avon Energy, was not significant.
Cinergy and CG&E
6. As discussed in the 1996 Form 10-K, the PUCO issued its December 1996 Order
approving an overall average increase in gas revenues for CG&E of 2.5% ($9.3
million annually). The PUCO disallowed certain of CG&E's requests, including
the requested working capital allowance, recovery of certain capitalized
information systems development costs, and certain merger-related costs. These
disallowances resulted in a pretax charge to earnings during the fourth
quarter of $20 million ($15 million net of taxes or $.10 per share). CG&E's
request for a rehearing on the disallowed information systems costs and other
aspects of the order was denied.
On April 14, 1997, CG&E filed a notice of appeal with the Supreme Court of
Ohio challenging the disallowance of information systems costs and the
exclusion of certain imputed revenues. Cinergy and CG&E cannot predict what
action the Supreme Court of Ohio may take with respect to this appeal.
Cinergy, CG&E, and PSI
7. Cinergy and its subsidiaries use derivative financial instruments to hedge
exposures to foreign currency exchange rates, lower funding costs and reduce
exposures to fluctuations in interest rates. Instruments used as hedges must
be designated as a hedge at the inception of the contract and must be
effective at reducing the risk associated with the exposure being hedged.
Accordingly, changes in market values of designated hedge instruments must be
highly correlated with changes in market values of the underlying hedged items
at inception of the hedge and over the life of the hedge contract.
Cinergy uses a currency swap to hedge exposures to fluctuations in foreign
currency exchange rates. The currency swap is accounted for as a hedge of
Cinergy's pound sterling denominated net investment in Avon Energy.
Accordingly, any translation gains or losses on the currency swap are recorded
in the cumulative foreign currency translation adjustment which is a separate
component of common stock equity and the estimated fair value of the currency
swap is reflected in "Other Liabilities - Other" in the Consolidated Balance
Sheets.
Cinergy and its subsidiaries enter into interest rate swap agreements to lower
funding costs and manage exposures to fluctuations in interest rates. Interest
rate swaps are accounted for under the accrual method. Accordingly, gains and
losses based on any interest differential between fixed-rate and floating-rate
interest amounts, calculated on agreed upon notional principal amounts, are
recognized in the Consolidated Statements of Income as a component of interest
expense as realized over the life of the agreement.
Cinergy actively markets and trades over-the-counter contracts for the
purchase and sale of electricity. The majority of these contracts are
fixed-price forward purchase and sales contracts, which require physical
delivery of electricity. Cinergy also enters into option contracts, the
majority of these being on physical electricity. To the extent options are
exercised, they are settled via physical delivery of electricity or netted out
in accordance with industry trading standards. Option premiums are deferred
and included in the Consolidated Balance Sheet and amortized to "Operating
Revenues - Electric" or "Purchased and exchanged power" in the Consolidated
Statement of Income over the term of the option contract. Cinergy values its
portfolio of over-the-counter and option contracts using the aggregate lower
of cost or market method. To the extent there are net aggregate losses in the
portfolio, Cinergy will reserve for such losses. Net gains are recognized when
realized.
The use of these types of derivative instruments allows Cinergy to manage and
hedge its contractual commitments, reduce its exposure relative to the
volatility of cash market prices, and take advantage of selected arbitrage
opportunities. Option contracts and derivative instruments requiring
settlement in cash are used on a limited basis and the impacts of such
instruments are not significant to Cinergy's Consolidated Financial
Statements.
During June 1997, Capital & Trading acquired the assets of GEP. Capital &
Trading specializes in energy risk management, marketing, and proprietary
arbitrage trading. Capital & Trading actively trades derivative commodity
instruments including futures, forwards, swaps, and options. Capital & Trading
accounts for these derivatives at fair value with unrealized gains and losses
reflected in its statement of operations. At September 30, 1997, the
operations of Capital & Trading were not significant to the Consolidated
Financial Statements of Cinergy.
Cinergy, CG&E, PSI, and ULH&P
8. As discussed in the 1996 Form 10-K, in March 1997, Cinergy's utility
subsidiaries, including CG&E, PSI, and ULH&P and other Cinergy system
companies, which participate in the money pooling arrangement, filed an
application with the SEC under the PUHCA requesting authorization of the money
pool through December 31, 2002. In May 1997, the SEC issued an order
authorizing Cinergy's utility subsidiaries and other Cinergy system companies
to continue use of the money pool and granting other financing transactions
for which the companies requested approval, in each case, through December 31,
2002.
Cinergy and PSI
9. As discussed in the 1996 Form 10-K, the UCC and the CAC filed a Joint
Petition for the Reconsideration and Rehearing of the September 1996
Order with the IURC in October of 1996.
A settlement agreement was filed May 27, 1997, with the IURC regarding
the petition for rehearing and/or reconsideration filed by the UCC and the CAC
in PSI's latest rate order dated October 2, 1996. On August 27, 1997, the IURC
issued an order which approved the settlement agreement in its entirety. The
settlement agreement reduces the original rate increase by $2.1 million (.2%).
Major provisions of the settlement agreement include PSI increasing annual
amortization of certain regulatory assets by $4.1 million, the reflection of
an August 31, 1995 cut-off date for costs to achieve merger savings with
amounts subsequent to that date and prior to October 31, 1996 being deferred
for subsequent recovery (reduces rates $.9 million annually), and PSI reducing
its jurisdictional revenues by $1 million annually in addition to the $.9
million reduction related to costs to achieve merger savings.
Cinergy, CG&E, and ULH&P
10. As discussed in the 1996 Form 10-K, under the PUHCA, the divestiture of
CG&E's gas operations may be required. In its order approving the merger, the
SEC reserved judgment over Cinergy's ownership of CG&E's gas operations for
three years, at the end of which period Cinergy would be required to address
the matter, in light of the applicable requirements under the PUHCA, on the
merits. In August 1997, the SEC issued an order permitting another electric
registered holding company to retain gas operations comparable in size to
those of CG&E.
On October 17, 1997, Cinergy made a filing with the SEC requesting a
deferral on the gas retention issue for an additional year, until October 21,
1998, in order to afford Cinergy sufficient time to prepare a revised and
updated economic analysis of a hypothetical divestiture of the CG&E gas
operations in light of and consistent with, the SEC's recent order noted
above. That analysis is relevant to the SEC's ultimate determination on this
question. Cinergy believes it has a justifiable basis for retention of its gas
operations and will continue its pursuit of SEC approval.
Cinergy and PSI
11. As discussed in the 1996 Form 10-K, IGC and PSI had entered into
negotiations regarding IGC's claim that PSI should contribute to IGC's
response costs related to investigating and remediating contamination at 18 of
the 19 MGP sites which PSI sold to IGC.
In August 1997, PSI reached an agreement with IGC settling IGC's claims
against PSI pursuant to CERCLA and other laws for contribution to IGC's past
and future response costs involving 13 MGP sites conveyed by PSI to IGC in
1945. The agreement with IGC calls for sharing past and future response costs
equally (50/50) at the 13 sites. Further, the parties must jointly approve
future management of the sites and the decisions to spend additional funds.
The settlement does not address five sites PSI acquired from NIPSCO and
subsequently sold to IGC (including the Lafayette site). Resolution of
liability on these five sites will require further negotiations among all
three companies.
On August 29, 1997, NIPSCO filed suit against PSI in the United States
District Court for the Northern District of Indiana, South Bend Division,
claiming, pursuant to CERCLA, recovery from PSI of NIPSCO's past and future
costs of investigating and remediating MGP related contamination at the Goshen
MGP site. NIPSCO alleged that PSI and its predecessors previously owned and
operated the Goshen MGP. NIPSCO also alleged that it has already incurred
about $400,000 in response costs at the site and that remediation of the site
will cost about $2.7 million. PSI denied liability in its answer to the
complaint. The case has not yet been scheduled for trial.
PSI has notified its general liability insurance carriers of the settlement
with IGC and the NIPSCO lawsuit.
Based on information received to date, PSI's potential exposure to probable
and reasonably estimable liabilities associated with various MGP sites,
including the 13 sites which are the subject of the agreement with IGC and the
Goshen site which is the subject of NIPSCO's complaint, would not be material
to its financial condition or results of operations. However, further
investigation and remediation activities at these sites may indicate that the
potential liability for MGP sites could be material.
As also discussed in the 1996 Form 10-K, IGC petitioned the Indiana Supreme
Court to review the January 1997 Court of Appeals decision. The Court of
Appeals decision affirmed the IURC's denial of IGC's request for recovery of
MGP costs. In August 1997, the Indiana Supreme Court denied transfer of this
case. Accordingly, the IURC's decision denying rate recovery for these costs
by IGC remains intact. PSI is unable to predict the extent to which it will be
able to recover through rates any MGP site investigation and remediation costs
ultimately incurred.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Recent Developments
Cinergy
Securities Ratings In October 1997, Cinergy's newly instituted commercial
paper program received credit ratings of A-2, D-2, P-2, and F-2 from S&P, D&P,
Moody's, and Fitch, respectively. For additional information relating to such
commercial paper program, see "CAPITAL RESOURCES-Short-term Debt" herein.
During the second quarter of 1997, S&P, D&P, and Fitch assigned a BBB+ rating
to Cinergy and Moody's assigned a Baa2 rating to Cinergy. These ratings are
not assigned to specific issues of long-term debt, rather they are indicative
corporate ratings. In assigning the rating, Fitch stated, "The ratings
primarily reflect the credit strength and favorable competitive position of
CIN's two domestic operating companies, which are the principal source of the
parent company's cash flow."
Cinergy
Joint Venture In September 1997, Cinergy announced a joint venture with
Florida Progress Corporation and New Century Energies to form Cadence. The
three owners will each have a one-third interest in the new company. Cadence
will provide a single source for both energy management services and products
designed to lower energy costs for national companies that operate in multiple
locations across the country.
Cinergy, CG&E, PSI and ULH&P
Ambient Air Standards The EPA recently revised the NAAQS for ozone and fine
particulate matter. These new rules increase the pressure for additional
emissions reductions. On September 23, 1997, Cinergy announced a proposal to
reduce its NOx emissions rate by two-thirds to .25 pounds of NOx per million
Btu. Cinergy's preliminary cost estimate for the two-thirds reduction was
between $74 and $204 million. Subsequent to Cinergy's announcement, the EPA
announced on October 10, 1997, its proposed call for revisions to SIPs for
state wide reductions in NOx emissions, proposing utility NOx emissions at a
rate of .15 pounds per million Btu. The EPA's schedule calls for all
reductions to be in place by 2002. These initiatives will force significant
reductions in NOx emissions from many sources. The EPA has stated that
electric utility generating facilities specifically are targeted. The final
total level of NOx reductions will depend upon the outcome of the SIP revision
process. Reductions could be as high as 85% from 1990 levels during the summer
ozone season. Cinergy estimates that the capital costs for additional NOx
controls at its facilities at the rate proposed by the EPA could exceed $540
million over the next five years depending upon the final level of reductions
and the time frame.
The impact of the particulate standards cannot be determined at this time. The
EPA estimates it will take up to five years to collect sufficient ambient air
monitoring data. The states will then determine the sources of these
particulates and determine a reduction strategy. The ultimate effect of the
new standard could be requirements for newer and cleaner technologies and
additional controls on conventional particulates and/or reductions in sulfur
dioxide and NOx emissions from utility sources. Since these studies and
determinations have not been made, Cinergy cannot predict the outcome or
effect of the new particulate standards on its operation.
Regulatory Matters
Cinergy and CG&E
CG&E's Gas Rate Proceeding See Note 6 of the "Notes to Financial Statements"
in "Part I. Financial Information."
Cinergy and CG&E
CG&E's Customer Choice Pilot On July 2, 1997, the PUCO approved implementation
of a pilot program which will allow residential customers to choose their gas
supplier and have CG&E transport the gas for them effective November 1, 1997.
The pilot extends to residential customers the choice that has been available
for several years to large volume commercial and industrial customers.
Cinergy, CG&E, and ULH&P
Potential Divestiture of Gas Operations Under the PUHCA, the divestiture of
CG&E's gas operations may be required. In its order approving the merger, the
SEC reserved judgment over Cinergy's ownership of CG&E's gas operations for
three years, at the end of which period Cinergy would be required to address
the matter, in light of the applicable requirements under the PUHCA, on the
merits. In August 1997, the SEC issued an order permitting another electric
registered holding company to retain gas operations comparable in size to
those of CG&E.
On October 17, 1997, Cinergy made a filing with the SEC requesting a
deferral on the gas retention issue for an additional year, until October 21,
1998, in order to afford Cinergy sufficient time to prepare a revised and
updated economic analysis of a hypothetical divestiture of the CG&E gas
operations in light of and consistent with, the SEC's recent order noted
above. That analysis is relevant to the SEC's ultimate determination on this
question. Cinergy believes it has a justifiable basis for retention of its gas
operations and will continue its pursuit of SEC approval.
Cinergy and PSI
PSI's Retail Rate Proceeding See Note 9 of the "Notes to Financial
Statements" in "Part I. Financial Information."
Accounting Issues
Cinergy, CG&E, PSI, and ULH&P
New Accounting Standards See Note 4 of the "Notes to Financial Statements" in
"Part I. Financial Information."
CAPITAL RESOURCES
Cinergy, CG&E, PSI, and ULH&P
Long-term Debt For information regarding recent securities issuances and
redemptions, see Notes 2 and 3 of the "Notes to Financial Statements" in "Part
I. Financial Information."
In June 1997, CG&E received from the PUCO authorization through June 1998, to,
among other things: 1) issue and sell up to $400 million of debt securities;
and 2) enter into $200 million of capital lease obligations.
Also in June 1997, the KPSC authorized ULH&P to, among other things, issue and
sell through September 1999, up to $50 million of long-term debt.
On September 10, 1997, PSI received authorization from the IURC through March
31, 1999, to, among other things: 1) issue and sell up to $300 million of
debt securities; and 2) enter into $100 million of capital lease obligations.
Cinergy, CG&E, PSI, and ULH&P
Short-term Debt The operating subsidiary companies of Cinergy have the
following short-term debt authorizations and lines of credit:
Committed Unused
Authorized Lines__ Lines
(in millions)
Cinergy & Subsidiaries $853 $275 $162
CG&E & Subsidiaries 453 90 60
PSI 400 185 102
ULH&P 50 - -
Cinergy's $500 million acquisition commitment and $200 million revolving
agreement have $11 million and $127 million, respectively, unused as of
September 30, 1997. Both facilities expire in May 2001. The revolving credit
agreement was increased to $400 million on October 28, 1997, to provide credit
support for Cinergy's newly instituted commercial paper program. Such program
is limited to a maximum outstanding principal amount of $200 million. As of
November 13, 1997, Cinergy had sold $150 million of commercial paper under
this program, the proceeds of which were used to repay $150 million of the
$500 million acquisition commitment.
Cinergy UK's $40 million non-recourse credit agreement was terminated on
October 22, 1997. This agreement was replaced by a $115 million non-recourse
credit agreement which has $45 million outstanding as of November 13, 1997.
Lastly, as discussed in Note 5 of the "Notes to Financial Statements" in "Part
I. Financial Information," a windfall profits tax was levied against Midlands.
This tax will be paid in two equal installments due December 1, 1997 and 1998.
Cinergy anticipates that Midlands and/or Avon Energy will borrow the funds to
finance the tax payments.
POWER MARKETING AND TRADING
Cinergy, CG&E, and PSI
As discussed in the 1996 Form 10-K, the transactions associated with Cinergy's
power marketing and trading function give rise to market risk and credit risk.
Market risk represents the potential risk of loss from changes in the market
value of a particular commitment arising from adverse changes in market rates
and prices. Credit risk represents the potential risk of loss which would
occur as a result of nonperformance by counterparties pursuant to the terms of
their contractual obligations. Cinergy's power marketing and trading
operations are actively conducted in all regions of the United States. These
operations subject Cinergy to the risks and volatilities associated with the
energy commodities which it markets and trades. The wholesale power marketing
and trading business continues to be very competitive and, as a result,
margins have declined throughout the year. As Cinergy continues to develop and
expand its power marketing and trading business (and due to its substantial
investment in generating assets), its exposure to movements in the price of
electricity and other energy commodities will become greater. As a result,
Cinergy may ultimately be subject to increased earnings volatility. Cinergy
has established a risk management function and has implemented active risk
management policies and procedures designed to manage the Company's exposure
to market and credit risks. These policies and procedures are reviewed and
monitored on a continuous basis to ensure their responsiveness to changing
market and business conditions.
RESULTS OF OPERATIONS
Cinergy, CG&E, PSI, and ULH&P
Reference is made to "ITEM 1. FINANCIAL STATEMENTS" in "PART I. FINANCIAL
INFORMATION.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Cinergy, CG&E, and PSI
See Notes 6, 9, and 11 of the "Notes to Financial Statements" in "Part I.
Financial Information."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
Exhibit
Designation Nature of Exhibit
Cinergy and CG&E\tab \tab
4-a Third Supplemental Indenture between
CG&E and The Fifth Third Bank, as Trustee
dated October 9, 1997.
Cinergy, CG&E, PSI, and ULH&P
27 Financial Data Schedules (included in
electronic submission only).
Cinergy, CG&E, PSI, and ULH&P
(b) No reports on Form 8-K were filed during the quarter.
SIGNATURES
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although Cinergy, CG&E, PSI, and ULH&P believe that the
disclosures are adequate to make the information presented not misleading. In
the opinion of Cinergy, CG&E, PSI, and ULH&P, these statements reflect all
adjustments (which include only normal, recurring adjustments) necessary to
reflect the results of operations for the respective periods. The unaudited
statements are subject to such adjustments as the annual audit by independent
public accountants may disclose to be necessary.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrants have duly caused this report to be signed by an
officer and the chief accounting officer on their behalf by the undersigned
thereunto duly authorized.
CINERGY CORP.
THE CINCINNATI GAS & ELECTRIC COMPANY
PSI ENERGY, INC.
THE UNION LIGHT, HEAT AND POWER COMPANY
Registrants
Date: November 13, 1997 John P. Steffen
Duly Authorized Officer
and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED
STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<PERIOD-TYPE> 9-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 253,928
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 16,363
<TOTAL-DEFERRED-CHARGES> 11,515
<OTHER-ASSETS> 7,000
<TOTAL-ASSETS> 288,806
<COMMON> 8,780
<CAPITAL-SURPLUS-PAID-IN> 18,683
<RETAINED-EARNINGS> 97,025
<TOTAL-COMMON-STOCKHOLDERS-EQ> 124,488
0
0
<LONG-TERM-DEBT-NET> 44,657
<SHORT-TERM-NOTES> 24,661
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 95,000
<TOT-CAPITALIZATION-AND-LIAB> 288,806
<GROSS-OPERATING-REVENUE> 206,185
<INCOME-TAX-EXPENSE> 6,648
<OTHER-OPERATING-EXPENSES> 185,544
<TOTAL-OPERATING-EXPENSES> 192,192
<OPERATING-INCOME-LOSS> 13,993
<OTHER-INCOME-NET> (964)
<INCOME-BEFORE-INTEREST-EXPEN> 13,029
<TOTAL-INTEREST-EXPENSE> 3,512
<NET-INCOME> 9,517
0
<EARNINGS-AVAILABLE-FOR-COMM> 9,517
<COMMON-STOCK-DIVIDENDS> 4,975
<TOTAL-INTEREST-ON-BONDS> 2,643
<CASH-FLOW-OPERATIONS> 27,364
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
