______________________________________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1993
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 1-3543
PSI ENERGY, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-0594457
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 East Main Street
Plainfield, Indiana 46168
(Address of principal executive offices)
Registrant's telephone number: (317) 839-9611
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Cumulative Preferred Stock
4.32%, 4.16%, 7.15%, 7.44%,
and 6 7/8% Series New York Stock Exchange
First Mortgage Bonds
Series S and Y New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has 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
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ( )
As of February 28, 1994, the aggregate market value of Cumulative Preferred
Stock held by non-affiliates was $181 million.
As of February 28, 1994, 53,913,701 shares of Common Stock (without par value,
$.01 stated value) were outstanding, all of which were held by PSI Resources,
Inc.
DOCUMENTS INCORPORATED BY REFERENCE
The Information Statement of PSI Energy, Inc. dated March 9, 1994, is
incorporated by reference into Part III of this report.
______________________________________________________________________________
PSI ENERGY, INC.
TABLE OF CONTENTS
Item Page
Number Number
PART I
1 Business
Organization . . . . . . . . . . . . . . . . . . . . . . 3
The Company. . . . . . . . . . . . . . . . . . . . . . . 3
Regulation . . . . . . . . . . . . . . . . . . . . . . . 3
Fuel Supplies. . . . . . . . . . . . . . . . . . . . . . 4
Customer, Kilowatt-hour Sales, and Revenue Data. . . . . 4
Power Supply . . . . . . . . . . . . . . . . . . . . . . 4
Competition. . . . . . . . . . . . . . . . . . . . . . . 4
Environmental Matters. . . . . . . . . . . . . . . . . . 5
Employees. . . . . . . . . . . . . . . . . . . . . . . . 5
2 Properties . . . . . . . . . . . . . . . . . . . . . . . . 5
3 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 6
4 Submission of Matters to a Vote of Security Holders. . . . 8
Executive Officers of the Registrant . . . . . . . . . . . 9
PART II
5 Market for Registrant's Common Equity
and Related Stockholder Matters. . . . . . . . . . . . . 11
6 Selected Financial Data. . . . . . . . . . . . . . . . . . 11
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . 12
Index to Financial Statements and Financial Statement
Schedules. . . . . . . . . . . . . . . . . . . . . . . . 33
8 Financial Statements and Supplementary Data. . . . . . . . 34
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . 66
PART III
10 Directors and Executive Officers of the Registrant . . . . 67
11 Executive Compensation . . . . . . . . . . . . . . . . . . 67
12 Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . 67
13 Certain Relationships and Related Transactions . . . . . . 67
PART IV
14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
Reports on Form 8-K. . . . . . . . . . . . . . . . . . 68
Exhibits . . . . . . . . . . . . . . . . . . . . . . . 69
Financial Statement Schedules. . . . . . . . . . . . . 79
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 88
PART I
ITEM 1. BUSINESS
Organization
PSI Energy, Inc. (Energy) is a wholly-owned subsidiary of PSI Resources, Inc.
(Resources).
. Merger Agreement with The Cincinnati Gas & Electric Company (CG&E) - Refer
to the information appearing in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" beginning on page 17 and
Notes 19, 20, and 21 of the "Notes to Consolidated Financial Statements"
beginning on page 61.
. IPALCO Enterprises, Inc.'s Withdrawn Acquisition Offer - Refer to the
information appearing in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page 19.
The Company
Energy is an Indiana corporation engaged in the production, transmission, dis-
tribution, and sale of electric energy in north central, central, and southern
Indiana. It serves an estimated population of 1.9 million people located in
69 of the state's 92 counties including the cities of Terre Haute, Kokomo,
Columbus, Lafayette, Bloomington, and New Albany.
PSI Energy Argentina, Inc. (PSI Energy Argentina), a wholly-owned subsidiary
of Energy, is an Indiana corporation which was incorporated in 1992. The
corporation was formed for the purpose of acquiring, purchasing, owning, and
holding the stock of other energy, environmental, or functionally-related
corporations and as a holding company for Energy's other energy ventures. PSI
Energy Argentina is a member of a multinational consortium which has
controlling ownership of Edesur, S.A. (Edesur). Edesur is an electricity-
distribution network serving the southern half of Buenos Aires, Argentina.
Edesur provides distribution services to 1.8 million customers. PSI Energy
Argentina owns a small equity interest in this project and provides operating
and consulting services.
Regulation
Energy, being a public utility under the laws of Indiana, is regulated by the
Indiana Utility Regulatory Commission (IURC) as to its retail rates, services,
accounts, depreciation, issuance of securities, acquisitions and sales of
utility properties, and in other respects as provided by Indiana law. Energy
is also subject to regulation by the Federal Energy Regulatory Commission
(FERC) with respect to borrowings and the issuance of securities not regulated
by the IURC, the classification of accounts, rates to wholesale customers,
interconnection agreements, and acquisitions and sales of certain utility
properties as provided by Federal law.
Fuel Supplies
Energy has both long- and short-term coal supply agreements for a major
portion of the coal requirements for its generating stations from mines
located principally in Indiana and Illinois. Several of these agreements
include extension options, and some are subject to price revision. Energy
monitors alternative sources to assure a continuing availability of economical
fuel supplies. At the present time, Energy is evaluating the use of western
and midwestern coal blends in connection with its plans to comply with the
acid rain provisions of the Clean Air Act Amendments of 1990.
Refer to the information appearing in Note 15(c) of the "Notes to Consolidated
Financial Statements" on page 59.
Customer, Kilowatt-hour Sales, and Revenue Data
The area served by Energy is a residential, agricultural, and widely diver-
sified industrial territory. Approximately 98% of Energy's operating revenues
are derived from sales of electricity. As of December 31, 1993, Energy
supplied electric service to over 624,000 customers in approximately 700
cities, towns, unincorporated communities, and adjacent rural areas, including
municipal utilities and rural electric cooperatives. No one customer accounts
for more than 5% of electric operating revenues. Sales of electricity by
Energy are affected by the various seasonal patterns throughout the year and,
therefore, its operating revenues and associated operating expenses are not
generated evenly during the year.
Power Supply
Energy and 28 other electric utilities in an eight-state area are
participating in the East Central Area Reliability Coordination Agreement for
the purpose of coordinating the planning and operation of generating and
transmission facilities to provide for maximum reliability of regional bulk
power supply.
Energy's electric system is interconnected with the electric systems of CG&E,
Kentucky Utilities Company, Louisville Gas and Electric Company, Indianapolis
Power & Light Company, Indiana Michigan Power Company, Northern Indiana Public
Service Company, Central Illinois Public Service Company, Southern Indiana Gas
and Electric Company, and Hoosier Energy R.E.C., Inc. In addition, Energy has
a power supply relationship with Wabash Valley Power Association, Inc. (WVPA)
and Indiana Municipal Power Agency (IMPA) through power coordination
agreements. These two entities are also parties with Energy to a Joint
Transmission and Local Facilities Agreement.
Competition
Refer to the information appearing under the caption "Competitive Pressures"
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 12.
Environmental Matters
Refer to the information appearing in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" beginning on page 12.
Employees
The number of employees of Energy at December 31, 1993, was 4,235.
ITEM 2. PROPERTIES
Refer to the information appearing in Note 17 of the "Notes to Consolidated
Financial Statements" on page 60.
Substantially all electric utility plant is subject to the lien of Energy's
first mortgage bond indenture.
Energy operates six steam electric generating stations, one hydroelectric
generating station, and 16 rapid-start internal combustion generating units,
all within the State of Indiana. Energy owns all of the above, except for
49.95% of Gibson Unit 5 which is jointly owned with WVPA (25%) and IMPA
(24.95%). Company-owned system generating capability as of December 31, 1993,
was 5,807 megawatts (mw). Additionally, in May 1993, the IURC issued
"certificates of need" for Energy and Destec Energy, Inc.'s 262-mw clean coal
power generating facility to be located at Energy's Wabash River Generating
Station. The clean coal facility consists of a coal gasification plant and a
gas turbine generator. Exhaust heat from the gas turbine (192 mw) will
produce steam to repower an existing steam turbine (70 mw). Refer to the
information appearing under the caption "New Generation" in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
page 26.
Energy's 1993 summer peak load, which occurred on August 26, was 4,812 mw, and
its 1993 winter peak load, which occurred on February 18, was 4,155 mw, exclu-
sive of off-system transactions. For the period 1994 to 2003, summer and
winter peak load and kilowatt-hour (kwh) sales are each forecasted to have
annual growth rates of 2%. These forecasts reflect Energy's assessment of
load growth, alternative fuel choices, population growth, and housing starts.
These forecasts exclude non-firm power transactions and any potential long-
term firm power sales at market-based prices.
As of December 31, 1993, Energy's transmission system consisted of 719 circuit
miles of 345,000 volt line, 656 circuit miles of 230,000 volt line, 1,601
circuit miles of 138,000 volt line, and 2,418 circuit miles of 69,000 volt
line, all within the State of Indiana. As of the same date, Energy's
transmission substations had a combined capacity of 20,520,154 kilovolt-
amperes and the distribution substations had a combined capacity of 5,952,175
kilovolt-amperes.
For the year ended December 31, 1993, 99% and 1% of Energy's kwh production
was obtained from coal-fired generation and hydroelectric generation,
respectively.
ITEM 3. LEGAL PROCEEDINGS
Merger Agreement Litigation Resources' original merger agreement with CG&E
was amended in response to a June 25, 1993, ruling by the IURC which dismissed
a petition by Energy for approval of the transfer of its license or property
to CINergy Corp., an Ohio corporation, pursuant to the original merger
agreement. The IURC held that such transfer could not be made to a
corporation incorporated outside of Indiana. Under the terms of the amended
merger agreement, CINergy Corp. (CINergy), a Delaware corporation, will be the
parent holding company of Energy and CG&E and will be required to register
under the Public Utility Holding Company Act of 1935 (PUHCA). Pursuant to the
amended merger agreement, Energy agreed to appeal the IURC's decision or take
other action to obtain the permission of the IURC for a non-Indiana
corporation to own Energy's assets. Energy has appealed the IURC's decision.
In the event the appeal or other action is successful, the parties to the
amended merger agreement could take actions to achieve the original merger
structure. The original structure provided that Resources, Energy, and CG&E
would be merged into CINergy Corp., an Ohio corporation. Under this
structure, Energy and CG&E would become operating divisions of CINergy Corp.,
ceasing to exist as separate corporations, and CINergy Corp. would not be a
registered holding company under the PUHCA. Any action taken with respect to
this litigation is not expected to delay the merger of Resources and CG&E
under a registered holding company structure.
The Katz Action On March 16, 1993, after the announcement of IPALCO
Enterprises, Inc.'s acquisition offer, a purported class action was filed by
Moise Katz (Katz Action) in the Superior Court for Hendricks County in the
State of Indiana (Superior Court) in which Resources and the directors of
Resources and Energy were named as defendants. The Katz Action alleges, among
other things, that the directors breached their fiduciary duties in connection
with the original merger agreement, Resources Stock Option Agreement (see Note
19 of the "Notes to Consolidated Financial Statements" beginning on page 61),
and Resources Shareholder Rights Plan and seeks, among other things, to enjoin
the CINergy merger transaction and to require that an auction for Resources be
held. On April 7, 1993, Resources and the other defendants filed a motion to
dismiss the Katz Action, and on July 1, 1993, the Superior Court granted that
motion. On July 19, 1993, the Superior Court issued an order which vacated
its July 1, 1993, order but granted Resources' motion to dismiss Count I of
the Katz Action for failure to bring the breach of fiduciary duty claims in a
derivative proceeding.
On August 18, 1993, a purported third amended class action and derivative
complaint was filed in the Katz Action, seeking injunctive relief and damages
for alleged breach of fiduciary duty by the directors of Resources. Among
other things, this complaint alleges that the defendants failed to disclose
(i) the factors that Resources' Board of Directors considered in reaffirming
its recommendation that Resources' shareholders approve the merger with CG&E
and whether those factors included a consideration of the divestiture of the
CG&E gas operations; (ii) whether and to what extent Lehman Brothers took into
consideration the divestiture of the CG&E gas operations, and the
ramifications thereof, in rendering its July 2, 1993, fairness opinion
regarding the merger with CG&E; (iii) the pro forma effect on the merged
company taking into consideration the divestiture of the CG&E gas operations;
(iv) whether the "comparable" company analysis performed by Lehman Brothers
consisted of companies operating electrical systems or gas and electrical
systems and whether such analysis included or excluded the CG&E gas
operations; and (v) whether Resources' Board of Directors was informed of the
ramifications of the divestiture of the CG&E gas operations and to what
extent, if any, Resources' Board of Directors took into consideration such
ramifications before it endorsed the amended merger agreement to Resources'
shareholders. Resources denies these allegations. Resources anticipates that
the dismissal of the PSI Merger Shareholder Action and the resolution of
related attorney fees, as discussed below, will result in the dismissal of the
Katz Action.
The foregoing descriptions of the July 1993 orders and the August 18, 1993,
third amended complaint in the Katz Action are qualified in their entirety by
reference to copies of such orders incorporated by reference as exhibits
hereto.
The PSI Merger Shareholder Action On March 17, 1993, a purported class action
was filed by Lydia Grady (Grady Action) in the Superior Court in which
Resources and 13 directors of Resources and Energy were named as defendants.
On April 13, 1993, the Indiana District Court issued an order which, among
other things, consolidated the Grady Action with the following cases: J.E. and
Z.B. Butler Foundation v. PSI Resources, Inc., et al.; Lamont Carpenter, et
al. v. PSI Resources, Inc., et al.; Ronald Gaudiano, et al. v. PSI Resources,
Inc., et al.; and Sonny Merrit v. PSI Resources, Inc., et al. (together, the
"PSI Merger Shareholder Action").
On July 19, 1993, a hearing was held in the Indiana District Court in the PSI
Merger Shareholder Action on the plaintiffs' motion for a preliminary
injunction. On August 5, 1993, the Indiana District Court issued an order
granting the preliminary injunction sought by the plaintiffs and ordered
Resources, within 20 days, to provide shareholders with certain additional
information relating to the pro forma effect on CINergy Corp.'s financial
condition of the possible divestiture of CG&E's gas operations. The Indiana
District Court also ordered additional disclosure concerning, among other
things, Lehman Brothers' consideration of that possibility in connection with
its July 2, 1993, fairness opinion to Resources' Board of Directors.
Resources complied with this order in its Proxy Statement Supplement dated
August 12, 1993.
In January 1994, the parties in the PSI Merger Shareholder Action as well as
the parties to the Katz Action signed a Stipulation and Agreement of Dismissal
(the "Stipulation"). The Stipulation contemplates, among other things, that
the parties will jointly move the Indiana District Court for entry of a final
order dismissing the PSI Merger Shareholder Action with prejudice and ruling
on the plaintiffs' application for fees and expenses. The parties to the
Stipulation have agreed to provide notice to Resources' shareholders of a
hearing during which the proposed final order will be considered by the
Indiana District Court. If the plaintiffs are entitled to recover these fees,
Resources does not anticipate this cost to have a material adverse effect on
its financial condition.
The foregoing descriptions of the April 13, 1993, class actions consolidation
order, and the August 5, 1993, Indiana District Court order are qualified in
their entirety by reference to copies of such documents incorporated by
reference as exhibits hereto.
In addition to the above litigation, see Notes 2, 3(a), and 15(b) and (c)
beginning on pages 43, 45, and 58, respectively, of the "Notes to Consolidated
Financial Statements".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Age at
Dec. 31,
Name 1993 Office & Date Elected or in Job
James E. Rogers 46 Chairman, President and Chief Executive
Officer - 1990
Chairman and Chief Executive
Officer - 1988
Jon D. Noland 55 Executive Vice President and Chief
Administration Officer - 1992
Executive Vice President - 1990
Executive Vice President -
Law and Regulation - 1989
Executive Vice President - Law and
Financial Services - 1986
Joseph W. Messick, Jr. 54 Senior Vice President and Chief Engineering
and Construction Officer - 1992
Senior Vice President and Chief Operating
Officer - Power System Operations - 1990
Senior Vice President - Power System
Operations - 1989
Senior Vice President - Power - 1988
Larry E. Thomas 48 Senior Vice President and Chief Operations
Officer - 1992
Senior Vice President and Chief Operating
Officer - Customer Operations - 1990
Senior Vice President - Customer
Operations - 1986
J. Wayne Leonard 43 Senior Vice President and Chief Financial
Officer - 1992
Vice President and Chief Financial
Officer - 1989
Vice President - Corporate Planning - 1987
Cheryl M. Foley 1/ 46 Vice President, General Counsel and
Secretary - 1991
Vice President and General Counsel - 1989
Vice President and General Counsel -
Interstate Pipelines - Enron
Corporation 2/ - 1987
M. Stephen Harkness 45 Treasurer - 1991
Treasurer and Assistant Secretary - 1986
Charles J. Winger 48 Comptroller - 1984
EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
None of the officers are related in any manner. Executive officers of Energy
are elected to the offices set opposite their respective names until the next
annual meeting of the Board of Directors and until their successors shall have
been duly elected and shall have been qualified.
1/ Prior to joining Energy, Mrs. Foley was vice president and general
counsel for various divisions/subsidiaries of Enron Corporation, a
diversified energy company headquartered in Houston, Texas.
2/ Non-affiliate of Energy.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
All Energy common stock is held by Resources; therefore, there is no public
trading market for Energy common stock. All Energy cumulative preferred stock
sold publicly (except 3 1/2% Series) is listed on the New York Stock Exchange.
Refer to the information in Notes 6 and 7 of the "Notes to Consolidated
Financial Statements" beginning on page 48.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
(in millions)
<S> <C> <C> <C> <C> <C>
Operating revenues (1) $1 078 $1 072 $1 120 $1 106 $1 139
Net income (1) 125 107 30 128 138
Total assets 2 648 2 304 2 098 2 044 1 971
Cumulative preferred stock
subject to mandatory redemption (2) - - 26 29 33
Long-term debt 816 737 642 650 626
Long-term debt due within one year - 40 90 - 39
Notes payable 127 121 - 17 8
(1) See Note 3(a) of the "Notes to Consolidated Financial Statements" beginning on
page 45.
(2) Includes $3 million per year for 1989 to 1991 to be redeemed within one year.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 12 and Notes 2, 15, 19, and 21 of the "Notes to Consolidated
Financial Statements" beginning on pages 43, 58, 61, and 66, respectively, for discussions
of material uncertainties.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The financial condition of PSI Energy, Inc. (Energy), the principal subsidiary
of PSI Resources, Inc. (Resources), is currently, and will continue to be,
significantly affected by:
. The changing competitive environment for electric utilities, including
more intense competition in wholesale power markets and emerging
competition for the provision of energy services to retail customers,
particularly industrial;
. The regulatory response to the changing competitive environment, including
the application of incentive ratemaking, the need for more flexible
pricing, and the treatment of business alliances entered into in response
to such changes (e.g., the merger with The Cincinnati Gas & Electric
Company [CG&E] discussed further herein); and
. The substantial costs associated with Energy's construction program,
including environmental compliance and the regulatory response to the
potentially significant earnings attrition resulting from such program.
Energy's goal is to achieve the financial measures necessary to assure access,
at a reasonable cost, to the capital required to finance its construction
program, which is necessary to provide adequate and reliable service to its
customers. Specific financial objectives include achieving and maintaining
common equity at a minimum of 45% of capitalization, achieving at least an "A"
credit rating on senior securities, and increasing the common dividend in an
orderly manner. Energy's achievement of its goal is increasingly dependent
upon maintaining its favorable competitive position.
Competitive Pressures
The increasing competitive pressures in the electric utility industry are
primarily driven by the need of U.S. industries for low cost power in order to
remain competitive in the global marketplace. The restrictions on access to
low cost power are exacerbated by cost-of-service regulation which has
produced average industrial rates to customers that vary substantially across
the U.S. (from 3 cents per kilowatt-hour [kwh] to over 10 cents per kwh).
Although the electric utility industry has already experienced substantial
competition in the wholesale power market, the effect of competition has
arguably had only a marginal effect on the overall profitability of the
industry. The effect of the Energy Policy Act of 1992 (Energy Act), the most
comprehensive energy legislation enacted since the late 1970s, is to
essentially provide open competition, at the wholesale level, for new
generation resources. The Energy Act increases the level of competition by
creating a new class of wholesale power providers that are not subject to the
restrictive requirements of the Public Utility Holding Company Act of 1935
(PUHCA) nor the ownership restrictions of the Public Utility Regulatory
Policies Act of 1978. This, combined with the provision of the Energy Act
granting the Federal Energy Regulatory Commission (FERC) the authority to
order wholesale transmission access, makes the competition real in the
wholesale power market. However, by prohibiting the FERC from ordering
utilities to provide transmission access to retail customers (retail
wheeling), Congress clearly intended to allow states to decide whether a
competitive generation market will extend to retail customers. In the face of
ongoing international competition, Energy believes major industrial customers
of electric utilities will continue to pressure state legislatures and utility
regulatory commissions to permit retail wheeling. Although specific proposals
for retail wheeling have not been advanced in Indiana, at least eight states
are at various stages in considering proposals for retail wheeling.
In the fourth quarter of 1993, major credit rating agencies issued reports
sounding a warning as to the long-term effect of competition on the electric
utility industry. Standard & Poor's (S&P), in particular, announced
fundamental changes in the way it evaluates credit quality of electric
utilities, essentially declaring its view that business risk is increasing, in
part, because electric utility prices will be capped at some level established
by competition, regardless of the particular company's costs. Not only will
it be difficult for high cost producers to secure further rate increases, they
also will likely experience substantial price decreases as competition
intensifies. Consequently, it appears inevitable that high cost producers
will require better financial fundamentals than low cost producers to secure
the same credit rating. Specifically, S&P has categorized each electric
utility's business position, ranking it as being above average, average, or
below average. As a result, S&P revised the rating outlooks of approximately
one-third of the electric utility industry from stable to negative and placed
several electric utilities on CreditWatch with negative implications.
Energy believes the concerns raised by S&P and other major credit rating
agencies, in part, explain recent activity in the electric utility segment of
the stock market. The electric utility group dropped substantially more in
the fourth quarter of 1993 than the bond market (usually a barometer for
electric utility stocks). As a result, the yield spread between long-term
U.S. Treasuries and electric utility stocks dropped from the 3 to 5 year
average of 110 to 120 basis points to 20 to 30 basis points.
During this same period, several "sell-side" equity analysts have expressed
their concerns in written reports that investors, particularly small retail
investors, do not currently understand the increased business risk facing
electric utilities due to competitive pressures, the threat of lower prices to
customers, and the threat of "regulated competition". As a result, some
equity analysts believe that electric utility stock prices were driven upwards
to near record market to book levels by investors seeking higher yields during
a period of lower interest rates without full recognition of the changed risks
in the industry. Similar to S&P's analysis of fixed income securities, Energy
believes that many equity analysts are now basing their buy-sell equity
recommendations for electric utility stocks, in large part, on (i) the price
position of the utility relative to neighboring competition, (ii) the
elasticity of the current customer make-up, particularly industrial, (iii) the
response of state regulators to competitive issues, and (iv) the
aggressiveness of management in "inventing its own future".
Energy believes it is well positioned to succeed in the increasingly
competitive environment. Energy's favorable competitive position is a result
of and/or will be enhanced by:
. The consummation of the merger with CG&E which will combine two low
cost providers of electric energy and provide substantial competitive
benefits and opportunities;
. Energy's demonstrated ability to be a low cost producer of electric
energy. Energy has consistently held operating cost increases below
inflation and has current average retail rates below 1983 levels. This
low cost position is further illustrated in a December 1993 report
(using 1992 data) by Bear, Stearns & Co., Inc. which listed Energy as
the third lowest cost (fixed plus variable production costs) provider
of generation among 28 utilities in the North Central Region of the
U.S. Additionally, in a May 1993 study (using 1992 data) by Regulatory
Research Associates, Inc. (RRA) of 135 major investor-owned operating
utilities and holding companies, Energy's average industrial rate of
3.5 cents per kwh was approximately 30% lower than the national average
industrial rate of 5.1 cents per kwh. This same study also indicated
that the average rate for Energy's retail customers of 4.6 cents per
kwh was at least 35% below the national average of 7.1 cents per kwh,
and lower than at least 85% of the companies included in the study.
Further, Energy's average industrial and retail rates were both at
least 15% below the North Central Region of the U.S. average rates
derived from the data relating to these utilities included in the May
1993 RRA report;
. Management's focus on flexible strategies which are directed toward
reducing its cost structure and reducing operating leverage, in part,
by shifting the cost mix from fixed to variable. For example, Energy
is actively enforcing its rights under its existing coal contracts,
litigating where necessary, in order to significantly lower fuel costs.
Energy has also recently received approval of its emission allowance
banking strategy, which is expected not only to substantially reduce
Energy's future cost structure and capital outlays, but also to greatly
enhance its flexibility to meet future energy needs and environmental
requirements. Additionally, Energy intends to purchase power to defer
the construction of new generation which will likely be further
deferred if the merger with CG&E is consummated; and
. Energy's success at creating customer value, as demonstrated by
customer satisfaction levels at the top of a peer group of 16 electric
and combination electric and gas utilities. This success was further
demonstrated during 1993 as several mayors and leaders of communities
within Energy's service territory, including over 30 economic
development organizations across Energy's service territory and eight
Indiana environmental groups, actively supported Energy in its response
to IPALCO Enterprises, Inc.'s (IPALCO) hostile takeover attempt, as the
electric utility of choice to serve their communities.
Energy further believes its low cost position and strategic initiatives will
allow it to maintain, and perhaps expand, its wholesale market share and its
current base of industrial customers. Sales to industrial customers
represented approximately 28% of Energy's 1993 total operating revenues.
During the fourth quarter of 1993, S&P, using its revised benchmarks for
rating electric utility senior securities, placed Energy in an above average
business position. At the same time, certain sell-side equity analysts
placed Energy near the top of their lists of those best equipped to handle
increasing competitive pressures. Energy believes that the reaction of these
equity analysts and the stock market in 1993 supports its position that its
competitive strategy will be successful. According to a January 1994 edition
of Electric Utility Week, the 32.5% increase in Resources' stock price was the
third highest of the 105 utilities studied, while the group as a whole
averaged only a 5.5% gain over 1992.
Increasing competitive pressures, and the regulatory response thereto, may
ultimately result in some electric utilities being unable to continue their
current basis of accounting. The basis of accounting currently followed by
most regulated electric utilities is based on the premise that customer rates
authorized by regulators are cost based and that a utility will be able to
charge and collect rates based on its costs. To the extent regulators no
longer provide assurances for recovery of a utility's costs or the marketplace
does not allow the pricing necessary to fully recover costs, a regulated
utility could be required to prepare its financial statements on the same
basis as enterprises in general for all or some portion of its business.
Energy believes its low cost position and competitive strategy, combined with
its current regulatory environment, would mitigate the potentially adverse
effects of such changes.
Securities Ratings
The current ratings of Energy's senior securities reflect the risk associated
with the costs of achieving compliance with environmental laws and
regulations. However, Duff & Phelps, Fitch Investors Service, and S&P
continue to place Energy's debt ratings on review for possible upgrade
primarily as a result of the announced merger with CG&E. The ratings are
currently as follows:
First Mortgage Bonds
and Secured Preferred
Medium-term Notes Stock
Duff & Phelps BBB+ BBB
Fitch Investors Service BBB+ BBB
Moody's Baa1 baa2
Standard & Poor's BBB+ BBB
These securities ratings may be revised or withdrawn at any time, and each
rating should be evaluated independently of any other rating.
Significant Achievements
The following events during 1993 indicate Energy's progress towards achieving
its financial objectives:
. The announced merger with CG&E, which was initiated in response to the
changing competitive environment in the electric utility industry, was
approved by shareholders of Resources and CG&E in November 1993 (see
Merger Agreement with CG&E discussion beginning on page 17);
. In October 1993, Resources' Board of Directors increased its quarterly
common dividend 3 cents (10.7%), to 31 cents per share. This marks the
fourth consecutive year in which the dividend has increased at a
double-digit rate and is an integral part of the ongoing effort to
strengthen and broaden the market for Resources' common stock. Future
increases in Resources' common dividend will continue to be influenced
by Energy's financial condition (see Dividend Restrictions discussion
on page 32). Resources currently has an effective shelf registration
statement for the sale of up to eight million shares of common stock;
. The Indiana Utility Regulatory Commission (IURC) issued an order
approving Energy's plan for complying with Phase I of the acid rain
provisions of the Clean Air Act Amendments of 1990 (CAAA) and Energy's
emission allowance banking strategy (see Regulatory Matters and Capital
Needs discussions beginning on pages 20 and 23, respectively);
. Energy filed testimony with the IURC in support of a $103 million,
11.6% retail rate increase. This testimony also includes proposals
for certain innovative ratemaking mechanisms designed to reduce
business and regulatory risks over the next three years (see Regulatory
Matters discussion beginning on page 20);
. In accordance with a January 1993 IURC order, Energy implemented
accounting changes on certain major capital projects to offset the
effects of regulatory lag, i.e., earnings attrition. These accounting
changes favorably affected 1993 earnings by approximately $7 million.
Energy's current retail rate proceeding includes a proposal to continue
this accounting treatment for certain major capital projects (see
Regulatory Matters discussion beginning on page 20);
. Energy refinanced $223 million of long-term debt and preferred stock to
take advantage of lower interest and dividend rates. Energy expects to
save approximately $4 million in annualized interest and preferred
stock dividends as a result of these refinancings; and
. The IURC approved a settlement agreement which resolved outstanding
issues related to the IURC's April 1990 rate order (April 1990 Order)
and June 1987 tax order (June 1987 Order) (see Regulatory Matters
discussion beginning on page 20). Although this settlement resulted in
a significant customer refund, it resolved major uncertainties with
respect to Energy's financial condition.
Recent Developments
Merger Agreement with CG&E
General Resources, Energy, and CG&E entered into an Agreement and Plan of
Reorganization dated as of December 11, 1992, which was subsequently amended
and restated on July 2, 1993, and as of September 10, 1993 (as amended and
restated, the "Merger Agreement"). Under the Merger Agreement, Resources will
be merged with and into a newly formed corporation named CINergy Corp.
(CINergy) and a subsidiary of CINergy will be merged with and into CG&E ("CG&E
Merger", collectively referred to as the "Mergers"). Following the Mergers,
CINergy will be the parent holding company of Energy and CG&E and will be
required to register under the PUHCA. The combined entity will be the 13th
largest investor-owned electric utility in the nation, based on generating
capacity, and will serve approximately 1.3 million electric customers and
420,000 gas customers in a 25,000-square-mile area of Indiana, Ohio, and
Kentucky. See the discussion under "Shareholder and Regulatory Approvals" for
information concerning the possible divestiture of CG&E's gas operations as a
consequence of the Mergers. Customer revenue requirement savings as a result
of the Mergers are estimated to be approximately $1.5 billion over the first
10 years. These savings are expected to include the elimination or deferral
of certain capital expenditures and a reduction in production, administrative,
and financing costs.
The Merger Agreement can be terminated by any party, without financial
penalty, if the Mergers are not consummated by June 30, 1994. Under certain
circumstances, the termination of the Merger Agreement would result in the
payment of termination fees, which may not exceed $70 million, if Resources is
required to pay, or $130 million, if CG&E is required to pay.
Exchange Ratio The Merger Agreement provides that, upon consummation of the
Mergers, each outstanding share of common stock of Resources will be converted
into the right to receive not less than .909 nor more than 1.023 shares of
common stock of CINergy depending on certain closing sales prices of the
common stock of CG&E during a period prior to the consummation of the Mergers.
The Merger Agreement also provides that, upon consummation of the Mergers,
each outstanding share of common stock of CG&E will be converted into the
right to receive one share of common stock of CINergy. The outstanding
preferred stock and debt securities of Energy and CG&E will not be affected.
Shareholder and Regulatory Approvals In November 1993, the Mergers were
approved by the shareholders of Resources and CG&E. In August 1993, the FERC
conditionally approved the Mergers. This conditional approval was made by the
FERC without a formal hearing and, according to public statements by the FERC
Commissioners, was done in reliance, in part, on the FERC's belief that the
regulatory commissions of the affected states would have authority to approve
or disapprove the Mergers. The companies accepted the FERC's conditions and
indicated their belief that none of the conditions would have a material
adverse effect on the operations, financial condition, or business prospects
of CINergy. Certain parties petitioned for rehearing of the FERC's
conditional approval. On September 15, 1993, Energy and CG&E filed a
statement with the FERC clarifying their conclusions at that time that the
Mergers would not require any prior approval of a state commission under state
law. Given the issues raised on the requests for rehearing and the lack of
certainty in the record regarding state regulatory powers, on January 12,
1994, the FERC issued an order withdrawing its prior conditional approval of
the Mergers and initiating a 60-day, FERC-sponsored settlement procedure. The
settlement procedure is expected to be concluded prior to the end of March
1994. The FERC has indicated that, if the settlement procedure is not
successful, it intends to issue a further order setting appropriate issues for
hearing.
The companies are currently participating in a collaborative process with
representatives from the IURC, the Public Utilities Commission of Ohio,
various consumer groups, and other parties to settle all merger-related
issues. Discussions have also taken place with representatives of the
Kentucky Public Service Commission (KPSC) regarding merger-related issues at
the FERC. In conjunction with the FERC-sponsored settlement procedure, on
February 11, 1994, Energy filed a petition with the IURC requesting approval
of various proposals regarding state regulation after consummation of the
Mergers. These proposals do not address the allocation between shareholders
and customers of projected revenue requirement savings as a result of the
Mergers. This allocation will be the subject of a subsequent IURC proceeding.
In connection with the 60-day, FERC-sponsored settlement procedure and the
collaborative process, Resources, Energy, CINergy, the Indiana Utility
Consumer Counselor, the Citizens Action Coalition of Indiana, Inc., and
industrial customer representatives reached a global settlement agreement on
merger-related issues. This agreement was filed with the IURC on March 2,
1994, and is expressly conditioned upon approval by the IURC in its entirety
and without any change or condition that is unacceptable to any party. On
March 4, 1994, CG&E, the Public Utilities Commission of Ohio, and the Ohio
Office of Consumers Counsel reached an agreement substantially similar to the
Indiana agreement. Both settlement agreements were filed with the FERC on
March 4, 1994. Energy expects the FERC settlement judge to forward the
settlements to FERC Commissioners on or about March 21, 1994, beginning what
is normally a 30-day comment period. The Indiana settlement addresses, among
other things, the coordination of state and Federal regulation, the operation
of the combined Energy and CG&E electric utility system, the allocation of
costs and their effect on customer rates, and a retail "hold harmless"
provision that provides that Energy's retail rates will not reflect merger-
related costs to the extent that they are not offset entirely by merger-
related benefits.
IURC hearings on the Indiana settlement were held on March 17, 1994. Energy
has asked the IURC for an order approving the settlement agreement by early
April 1994, which should fall within the expected comment period at the FERC.
CG&E also filed with the FERC a unilateral offer of settlement addressing all
issues raised in the KPSC's application for rehearing with the FERC. On March
15, 1994, CG&E filed an application with the KPSC seeking approval of the
indirect acquisition of control of CG&E's Kentucky subsidiary, The Union
Light, Heat and Power Company.
Also included in the filings with the FERC were settlement agreements with
WVPA and the city of Hamilton, Ohio. These agreements resolve issues related
to the transmission of power and operation of Energy's jointly owned
transmission system. Negotiations with other parties at the FERC are
continuing.
Energy and CG&E also filed with the FERC the operating agreement among Energy,
CG&E, and CINergy Services, Inc., a subsidiary of CINergy. The parties to the
Indiana and Ohio FERC settlements have agreed to support or not oppose the
operating agreement, and the settlements are conditioned upon the FERC
approving the filed operating agreement without material change.
The Mergers are also subject to the approval of the Securities and Exchange
Commission (SEC) under the PUHCA. An application requesting such SEC approval
is expected to be filed during the first quarter or early second quarter of
1994. The PUHCA imposes restrictions on the operations of registered holding
company systems. Among these are requirements that securities issuances,
sales and acquisitions of utility assets or of securities of utility
companies, and acquisitions of interests in any other business be approved by
the SEC. The PUHCA also limits the ability of registered holding companies to
engage in non-utility ventures and regulates holding company system service
companies and the rendering of services by holding company affiliates to the
system's utilities. Also, under the PUHCA, the divestiture of CG&E's gas
operations may be required. The companies believe they have a justifiable
basis for retention of CG&E's gas operations and will request SEC approval to
retain this portion of the business. Divestiture, if ordered, would occur
after the consummation of the Mergers. Historically, the SEC has allowed
companies sufficient time to accomplish divestitures in a manner that protects
shareholder value, which, in some cases, has been 10 to 20 years.
The companies' goal is to consummate the Mergers during the third quarter of
1994. However, if the settlement procedure is not successful and a hearing is
convened by the FERC, the consummation of the Mergers would likely be further
extended. There can be no assurance that the Mergers will be consummated.
See Notes 19, 20, and 21 beginning on page 61.
IPALCO's Withdrawn Acquisition Offer
On March 15, 1993, IPALCO announced its intention to make an offer to exchange
IPALCO common stock and cash for all of the outstanding shares of Resources'
common stock (Exchange Offer). IPALCO also announced its intention to solicit
proxies to vote (i) in favor of its slate of five nominees for the Board of
Directors of Resources at Resources' 1993 Annual Meeting of Shareholders and
(ii) against the merger with CG&E. On April 21, 1993, IPALCO commenced its
Exchange Offer and also commenced solicitation of proxies. On August 23,
1993, at Resources' 1993 Annual Meeting of Shareholders, IPALCO announced that
it had received insufficient proxies to elect its nominees to Resources' Board
of Directors, and on that same date, terminated its Exchange Offer.
On October 27, 1993, Resources, Energy, CG&E, IPALCO, and other parties
entered into a settlement agreement pursuant to which the parties agreed to
settle all pending issues related to IPALCO's Exchange Offer. Among other
things, the parties agreed, for a period of five years, to grant one another
transmission access rights to other utilities, in certain circumstances, if
those rights are required for one of the parties to obtain approval for a
business combination with another utility. The parties would be fully
compensated for any facilities made available. Energy currently has an open
access tariff that allows other utilities to use its transmission facilities
to deliver power, which it believes should be sufficient to satisfy this
provision of the settlement agreement. The settlement agreement also provides
that Indianapolis Power & Light (IP&L), IPALCO's principal subsidiary, will
have the right to purchase power from Energy at current market prices. Energy
has offered to sell IP&L up to 100 megawatts of power for each month in 1996
and up to 250 megawatts for each month in the years 1997 through 2000. The
offer will remain open for one year, and if IP&L does not accept the offer, it
will have a right of first refusal on the power for an additional six months.
Regulatory Matters
Environmental Order In 1992, Energy filed its plan for complying with Phase I
of the acid rain provisions of the CAAA with the IURC. This filing was made
pursuant to a state law enacted in 1991 which allows utilities to seek pre-
approval of their compliance plans. In October 1993, the IURC issued an order
approving Energy's Phase I compliance plan. The IURC's order also approved
Energy's emission allowance banking strategy, which will afford Energy greater
flexibility in developing its plan for complying with Phase II of the acid
rain provisions of the CAAA. The IURC accepted Energy's proposal to annually
review the implementation of its Phase I compliance plan and ordered a semi-
annual review of Energy's emission allowance banking plan.
Energy had proposed innovative performance incentive mechanisms as part of its
Phase I compliance plan and emission allowance banking strategy. In its post-
hearing filing, Energy requested that the IURC defer consideration of such
incentives to Energy's pending retail rate proceeding in which Energy has
proposed modified environmental compliance incentives with respect to its
emission allowance banking strategy.
Rate Case Energy filed testimony with the IURC in support of a $103 million,
11.6% retail rate increase. This rate proceeding addresses the financial and
operating requirements of Energy on a "stand-alone" basis without
consideration of the anticipated effects of the Mergers. Approximately 3.7%
of the rate increase is needed to meet new environmental requirements, 6.6% is
primarily needed to meet Energy's growing electric needs, including
construction and operation of one combustion turbine generating unit and
implementation of demand-side management (DSM) programs, and 1.3% of the
increase is necessary for the recognition of postretirement benefits other
than pensions on an accrual basis. Energy's petition for an increase in
retail rates includes a "performance efficiency plan" which would allow Energy
to retain all earnings up to a 12.5% common equity return and provide for
sharing of common equity returns from 12.5% to 14.5% between shareholders and
ratepayers depending upon Energy's performance on measures of customer prices,
customer satisfaction, customer service reliability, equivalent availability
of its generating units, and employee safety. All earnings above a 14.5%
return on common equity would be returned to ratepayers. In addition, Energy
is requesting approval of various ratemaking mechanisms to address regulatory
lag on specific environmental and new generation projects to ensure that the
interests of ratepayers and shareholders are properly aligned. One such
mechanism includes capital costs associated with major environmental
compliance projects and the applicable portion of its Wabash River clean coal
project (Clean Coal Project) in rate base while the projects are under
construction, as permitted by state law, thus allowing Energy to earn a cash
return on these costs prior to the projects' in-service dates. Hearings are
expected to begin in April 1994, and a final rate order is anticipated in late
1994 or early 1995. Energy cannot predict what action the IURC may take with
respect to this proposed rate increase.
Settlement Agreement In December 1993, the IURC issued an order (December
1993 Order) approving a settlement agreement entered into by Energy, the
appellants, and certain other intervenors which resolved the outstanding
issues related to the appeals of the IURC's April 1990 Order and June 1987
Order. At issue with respect to the April 1990 Order was whether the level of
return on common equity allowed Energy was adequately supported by factual
findings. The April 1990 Order had been remanded to the IURC by the Indiana
Court of Appeals for further proceedings, including redetermination of the
cost of equity and its components. The June 1987 Order, which related to the
effect on Energy of the 1987 reduction in the Federal income tax rate, had
been remanded to the IURC by the Indiana Supreme Court and was awaiting a
final order from the IURC. The December 1993 Order provides for Energy to
refund $150 million to its retail customers ($119 million applicable to the
June 1987 Order and $31 million applicable to the April 1990 Order). The
December 1993 Order further provides for Energy to reduce its retail rates by
1.5% (approximately $13.5 million on an annual basis) to reflect a return on
common equity of 14.25%. The refunds and rate reduction commenced in December
1993 (see Note 3 beginning on page 45).
Energy had previously recognized a loss of $139 million for the June 1987
Order. The difference between the $139 million and the $119 million portion
of the refund applicable to the June 1987 Order is reflected in the
Consolidated Statement of Income for the year ended December 31, 1993, as a
reduction of the loss. The $31 million portion of the refund applicable to
the April 1990 Order is reflected in the Consolidated Statement of Income for
the same period as a reduction in operating revenues.
Energy has an agreement through January 1996 to sell, with limited recourse,
an undivided percentage interest in certain of its accounts receivable from
customers up to a maximum of $90 million. The refund provided for by the
December 1993 Order reduced Energy's accounts receivable available for sale
and caused a termination event under the agreement governing the sale of
accounts receivable. Due to the temporary nature of the event, Energy
obtained a waiver of the termination event provision of the agreement as it
relates to the refund (see Note 9 beginning on page 49).
Manufactured Gas Plants
Coal tar residues and other substances associated with manufactured gas plant
(MGP) sites have been found at former MGP sites in Indiana, including, but not
limited to, two sites previously owned by Energy. Energy has identified at
least 21 MGP sites which it previously owned, including 19 it sold in 1945 to
Indiana Gas and Water Company, Inc. (now Indiana Gas Company [IGC]).
In April 1993, IGC filed testimony with the IURC seeking recovery of costs
incurred in complying with Federal, state, and local environmental regulations
related to MGP sites in which it has an interest, including sites acquired
from Energy. In its testimony, IGC stated that it would also seek to recover
a portion of these costs from other potentially responsible parties, including
previous owners. The IURC has not ruled on IGC's petition.
With the exception of one site (Shelbyville), it is premature for Energy to
predict the nature, extent, and costs of, or Energy's responsibility for, any
environmental investigations and remediations which may be required at MGP
sites owned, or previously owned, by Energy. With respect to the Shelbyville
site, for which Energy and IGC are sharing the costs, based upon environmental
investigations completed to date, Energy believes that any required
investigation and remediation will not have a material adverse effect on its
financial condition (see Note 15 beginning on page 58).
Other Industry Issues
Global Climate Change Concern has been expressed by environmentalists,
scientists, and policymakers as to the potential climate change from
increasing amounts of "greenhouse" gases released as by-products of burning
fossil fuel and other industrial processes. In response to this concern, in
October 1993, the Clinton Administration announced its plan to reduce
greenhouse gases to 1990 levels by the year 2000. The plan calls for the
reduction of 109 million metric tons of carbon equivalents of all greenhouse
gases. Initially, the plan would rely largely on voluntary participation of
many industries, with a substantial contribution expected from the utility
industry. Numerous utilities, including Energy, have agreed to study
voluntary, cost-effective emission reduction programs. Energy's voluntary
participation would likely include its residential, commercial, and industrial
DSM programs, increased use of natural gas in generation, and other energy
efficiency improvements, and possibly other pollution prevention measures.
The Clinton Administration has stated it will monitor the progress of industry
to determine whether targeted reductions are being achieved. If the Clinton
Administration or Congress should conclude that further reductions are needed,
legislation requiring utilities to achieve additional reductions is possible.
Air Toxics The air toxics provisions of the CAAA exempt fossil-fueled steam
utility plants from mandatory reduction of 189 listed air toxics until the
Environmental Protection Agency (EPA) completes a study on the risk of these
emissions on public health. The EPA is not expected to complete its study
until November 1995. If additional air toxics regulations are established,
the cost of compliance could be significant. Energy cannot predict the
outcome of this EPA study.
Future Outlook
Notwithstanding the anticipated benefits from the timely consummation of the
Mergers, further improvement in Energy's financial condition is largely
dependent on:
. Effectively responding to the increasing competitive pressures in the
electric utility industry;
. Effectively managing its substantial construction program and achieving
favorable results from related regulatory proceedings, including the
current retail rate proceeding;
. Maintaining a regulatory climate that is responsive to and supportive
of changes in the utility industry, including increased competition,
business alliances, and the need to more closely align the economic
interests of customers and shareholders through the application of
incentive ratemaking, and more flexible pricing strategies; and
. Successfully accessing financial markets for capital needs, including
issuance by Resources of significant amounts of common stock (see
Capital Resources discussion beginning on page 27).
CAPITAL NEEDS
Construction
Energy's total construction expenditures over the 1994 to 1998 period are
forecasted to be $1.1 billion, of which approximately $.8 billion is for
capital improvements to, and expansion of, Energy's operating facilities, $.2
billion is for new generation, and $.1 billion is for environmental
compliance. Total construction expenditures for 1993 and forecasted
construction expenditures for the 1994 to 1997 period are approximately $.2
billion less than forecasted amounts for the same period reflected in Energy's
1992 Annual Report on Form 10-K, as amended. This reduction reflects
continued aggressive management by Energy of its substantial construction
program consistent with maintaining its competitive position and providing
adequate and reliable service to its customers. (All forecasted amounts are
in nominal dollars and reflect assumptions as to the economy, capital markets,
construction program, legislative and regulatory actions, frequency and timing
of rate increase requests, and other related factors which may be subject to
significant change. In addition, forecasted construction expenditures do not
reflect any consideration for the effects of the Mergers.)
Forecasted construction expenditures by year for new business, system
reliability, new generation, environmental, and other projects are presented
in the following table:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
(in millions)
<S> <C> <C> <C> <C>
New business . . . . . . . . . . $ 61 $ 66 $ 67 $ 59 $ 57
System reliability . . . . . . . 44 69 58 51 65
New generation . . . . . . . . . 42 84 19 7 7
Environmental. . . . . . . . . . 96 21 2 3 5
Other. . . . . . . . . . . . . . 66 67 44 41 45
Total. . . . . . . . . . . . . $309 $307 $190 $161 $179
</TABLE>
Environmental
The acid rain provisions of the CAAA require reductions in both sulfur dioxide
(SO2) and nitrogen oxide (NOx) emissions from utility sources. Reductions of
both SO2 and NOx emissions will be accomplished in two phases. Compliance
under Phase I affects Energy's four largest coal-fired generating stations and
is required by January 1, 1995. Phase II includes all of Energy's existing
power plants, and compliance is required by January 1, 2000.
To achieve the SO2 reduction objectives of the CAAA, SO2 emission allowances
will be allocated by the EPA to affected sources. Each allowance permits one
ton of SO2 emissions. Energy will receive approximately 277,000 of these
emission allowances per year during Phase I. As one of the most affected
utilities, Energy will also be entitled to approximately 35,000 "midwestern"
bonus allowances per year from 1995 through 1999. In addition, as a member of
the Utility Extension Allowance Pooling Group, a group composed of a majority
of the affected utilities currently planning to use qualifying Phase I
technologies, e.g., flue-gas desulfurization (scrubbers), Energy expects to
receive approximately 150,000 allowances during the Phase I period. The CAAA
allows compliance to be achieved on a national level, which provides companies
the option to achieve compliance by reducing emissions or purchasing emission
allowances.
The Chicago Board of Trade (CBOT) was authorized to establish a futures-
options market, and the CBOT also plans to administer a cash market in
emission allowances. In addition, the CBOT will administer the EPA's annual
auction and direct sales of emission allowances. In March 1993, the first
annual auction of emission allowances was held. The EPA provided 150,000
allowances for this auction with the intent of stimulating the allowance
trading market. The allowances provided by the EPA for auction become useable
in either the year 1995 or 2000. The average price paid at the auction for an
allowance first useable in 1995 was $156, with prices ranging from $131 to
$450. Energy purchased 10,000 of these allowances for $150 each. The prices
paid at the auction for an allowance first useable in the year 2000 ranged
from $122 to $310 with an average of $136. The availability and economic
value of allowances in the long-term is still uncertain.
As previously discussed, in October 1993, the IURC issued an order approving
Energy's Phase I compliance plan and emission allowance banking strategy. To
comply with Phase I of the CAAA SO2 requirements, Energy will have to reduce
SO2 emissions by approximately 34% (based on an approximate 334,000 ton annual
target) from 1991 levels or acquire offsetting emission allowances. Energy's
compliance plan for the Phase I SO2 reduction requirements includes the
addition of one scrubber at Gibson Unit 4 by late 1994, installation of flue-
gas conditioning equipment on certain units, upgrading certain precipitators,
implementation of its DSM programs, burning lower-sulfur coal at its four
major coal-fired generating stations, and inclusion of the value of emission
allowances in the economic dispatch process. To meet NOx reductions required
by Phase I, Energy is installing low-NOx burners on affected units at these
same stations. Energy's capital expenditures for Phase I compliance projects
totaled approximately $290 million through December 31, 1993. In addition,
the successful operation of Energy's Clean Coal Project will further reduce
SO2 and NOx emissions (see New Generation discussion on page 26).
To comply with Phase II SO2 requirements, Energy must reduce SO2 emissions an
additional 38% from 1991 levels (based on an approximate 143,000 ton annual
cap) or acquire offsetting emission allowances. Own-system compliance
alternatives could include additional scrubbers, use of western and midwestern
coal blends, installation of precipitators, and installation of flue-gas
conditioning equipment. Energy is evaluating these alternatives in order to
provide the most cost-effective strategy for meeting Phase II SO2 requirements
while maintaining optimal flexibility to meet potentially significant new
environmental demands. To meet NOx reductions required by Phase II, Energy
plans to install low-NOx burners on affected units. Energy anticipates filing
its Phase II plan with the IURC as early as the fourth quarter of 1994.
Energy's implementation of its emission allowance banking strategy is a
critical component of maintaining optimal flexibility in its Phase II
compliance plan. In order to delay or eliminate own-system compliance
alternatives, which could be significantly more costly, Energy intends to
utilize its emission allowance banking strategy to the extent a viable
emission allowance market is available. Energy is forecasting environmental
compliance expenditures to meet the acid rain provisions of the CAAA ranging
from $.6 billion to $1.2 billion during the 1994 to 2005 period. Energy's
Phase I plan is expected to result in banked emission allowances by the year
2000 sufficient to meet its Phase II SO2 requirements for approximately three
years. The low-end of the capital costs range assumes that Energy achieves
Phase II compliance primarily by purchasing additional emission allowances and
continuing to delay, or eliminate, capital intensive alternatives. However,
as previously stated, the availability and economic value of emission
allowances in the long-term is still uncertain. As such, the high-end of the
range assumes that Energy is forced to achieve compliance through the own-
system compliance alternatives previously discussed.
New Generation
In 1992, the United States Department of Energy (DOE) approved for partial
funding a joint proposal by Energy and Destec Energy, Inc. (Destec) for a 262-
megawatt clean coal power generating facility to be located at Energy's Wabash
River Generating Station. In May 1993, the IURC issued "certificates of need"
for the project. The total project cost, including construction, Destec's
operating costs for a three-year demonstration period, and Energy's operating
costs for a one-year demonstration period, is estimated to be $550 million.
The DOE awarded the project up to $198 million. Of this amount, Energy will
receive approximately $53 million to be used to offset project costs. The
remainder of the project costs will be funded by Energy and Destec, with
Energy's portion being approximately $108 million. The project is currently
under construction and the three-year demonstration period of the project is
expected to commence in the third quarter of 1995.
In 1992, the IURC issued certificates of need to Energy for the construction
of two 100-megawatt combustion turbine generating units adjacent to its Cayuga
Generating Station. The first unit went into service in June 1993. Energy
intends to defer the second unit until 1996 and will purchase power during the
interim period.
Other
Mandatory redemptions of long-term debt total $97 million during the 1994 to
1998 period (see Note 8 on page 49). Additionally, funds are required to make
a payment of $80 million in accordance with the settlement of the Wabash
Valley Power Association, Inc. (WVPA) litigation. This payment is not
currently expected to occur before 1995 (see Note 2 beginning on page 43).
Since 1990, Energy has focused its marketing efforts on the aggressive
implementation of various DSM programs. DSM generally refers to actions taken
by a utility to affect customers' energy usage patterns. DSM programs are
evaluated on an "equal footing" with supply-side options, with the goal of
deferring the need for new generating capacity. The expenditures for these
programs over the next five years are forecasted to be approximately $185
million. It is anticipated that these expenditures will result in a summer
peak demand reduction of 236 megawatts by 1998, of which approximately 77
megawatts have already been achieved. The IURC has authorized Energy to defer
DSM expenditures, with carrying costs, for subsequent recovery through rates.
In its current retail rate proceeding, Energy has proposed to amortize and
recover amounts deferred through July 1993 ($35 million), together with
carrying costs, over a four-year period commencing with the effective date of
the IURC's order in the current retail rate proceeding. Deferred DSM costs as
of the effective date of an order in Energy's current retail rate proceeding,
which are not included for recovery in the current proceeding, will continue
to be deferred, with carrying costs, for recovery in subsequent rate
proceedings. In addition, Energy has proposed the recovery of approximately
$23 million of DSM expenditures in base rates on an annual basis. Energy has
also requested that the IURC approve the deferral of reasonably incurred DSM
expenditures which exceed the base level of $23 million.
CAPITAL RESOURCES
Cash flows from operations are forecasted to provide approximately 70% of the
capital needs during the 1994 to 1998 period. External funds required during
this period are estimated to be $.6 billion. (All forecasted amounts are in
nominal dollars and reflect assumptions as to the economy, capital markets,
construction program, legislative and regulatory actions, frequency and timing
of rate increase requests, and other related factors which may be subject to
significant change. In addition, forecasted cash flows from operations do not
reflect any consideration for the effects of the Mergers.)
Internal Cash Flows
Over the next several years, Energy's internal cash flows are heavily
dependent upon timely retail rate relief and obtaining the related requested
modifications to traditional regulation. Integral to this effort is Energy's
success in controlling its costs, obtaining performance based regulatory
incentives, and securing alternative measures where necessary that allow for
ultimate, although deferred, recovery of its costs, including a return to
investors. This is especially important during the next three years when
Energy's substantial construction program creates potentially significant
regulatory lag (i.e., scheduling of capital investment projects cannot be
fully synchronized with rate case timing). As previously discussed, Energy
has filed testimony with the IURC in support of a $103 million, 11.6% retail
rate increase. Approximately 10.3% of the pending rate increase request is
needed to meet new environmental requirements and Energy's growing electric
needs. Energy is also requesting approval of ratemaking mechanisms to provide
more timely recovery of the costs associated with environmental and new
generation projects. One such mechanism includes capital costs associated
with major environmental compliance projects and the applicable portion of its
Clean Coal Project in rate base, while the projects are under construction, as
permitted by state law, thus allowing Energy to earn a cash return on these
costs prior to the projects' in-service dates. The IURC's ruling in this
proceeding is anticipated in late 1994 or early 1995.
Where the adverse effects on earnings and cash flows cannot be mitigated by
rate relief, Energy is further addressing the issue of regulatory lag through
accounting and ratemaking mechanisms that align the interests of customers and
shareholders. In January 1993, Energy received authority from the IURC to
continue accrual of the debt component of the allowance for funds used during
construction (AFUDC) and to defer depreciation expense on its planned
combustion turbine generating units and major environmental compliance
projects from the respective in-service dates until the effective date of an
order in its current retail rate proceeding. Energy has requested similar
accounting treatment to mitigate regulatory lag in its current retail rate
proceeding.
Energy's construction program will require rate relief during the next three
years in addition to the current petition. Specifically, Energy expects to
file for additional rate relief, primarily to reflect the costs of the Gibson
Unit 4 scrubber, the Clean Coal Project, and potentially two additional
combustion turbine generating units in rates. All of the major projects
(Phase I environmental compliance, the Clean Coal Project, and one of the two
combustion turbines) creating the need for retail rate relief have received
pre-approval from the IURC for construction. Pre-approval of the second
combustion turbine generating unit would be required before commencement of
the project. Given its current low cost position, Energy believes that these
rate increases, while significant, will not prevent it from maintaining
competitive rates over the long-term.
Cash flows will be adversely affected by the $150 million refund resulting
from the December 1993 Order, which will be partially offset by tax refunds in
1994 of approximately $29 million to realize the remaining tax consequences of
the refund.
External Financing
Energy currently has IURC authority to issue up to an additional $428 million
of long-term debt and $40 million of preferred stock. Energy will request
regulatory approval to issue additional amounts of debt securities and
preferred stock on an as needed basis. As of December 31, 1993, Energy has
effective shelf registration statements for the sale of up to $315 million of
debt securities and $40 million of preferred stock. In addition, as of
December 31, 1993, Resources has an effective shelf registration statement for
the sale of up to eight million shares of Resources' common stock. A public
offering of Resources' common stock is expected to occur by mid-1994. The net
proceeds from the issuance and sale of this common stock will be used by
Resources to reduce its short-term indebtedness, with the balance contributed
to the equity capital of Energy. Energy will use this contributed capital for
general purposes, including construction expenditures.
Energy has regulatory authority to borrow up to $200 million under short-term
credit arrangements. In connection with this authority, Energy has unsecured,
but committed, lines of credit (Committed Lines) which currently permit
borrowings of up to $155 million. In addition, Energy has temporary Committed
Lines of $15 million. As of December 31, 1993, Energy had $111 million
outstanding under these short-term borrowing arrangements. Energy also has
Board of Directors approval to arrange for additional short-term borrowings of
up to $100 million with various banks (Uncommitted Lines). The Uncommitted
Lines are on an "as offered" basis with such banks. Under these arrangements,
$16 million was outstanding as of December 31, 1993 (see Note 12 beginning on
page 53).
Energy believes its current borrowing capacity and Resources' planned common
stock issuance will be sufficient to meet short-term cash needs.
RESULTS OF OPERATIONS
Kilowatt-hour Sales
New customers and a return to more normal weather contributed to the 4%
increase in total kwh sales in 1993, as compared to 1992. In addition, growth
in the primary metals, transportation equipment, and precision instruments,
photographic and optical goods sectors resulted in increased industrial sales.
Partially offsetting these increases was a reduction in non-firm power sales
for resale, which reflected a significant decrease in sales associated with
third party short-term power to other utilities through Energy's system.
The reduction of sales for resale in 1992 was largely responsible for a 5%
decrease in total kwh sales, as compared to 1991. Reflected in this decrease
was the reduction of firm power sales to WVPA and the Indiana Municipal Power
Agency (IMPA) as they served more of their customers' requirements from their
portion of the jointly owned Gibson Unit 5. This resulted from the final
(January 1, 1992) scheduled reduction and elimination of Energy's purchase
obligations from WVPA and IMPA under the Gibson Unit 5 joint ownership
arrangement. In addition, beginning August 1, 1992, WVPA substantially
reduced its purchases associated with an interim scheduled power agreement
between Energy and WVPA. Non-firm power sales also decreased, partially
reflecting a reduction in sales associated with third party short-term power
sales to other utilities through Energy's system. The decrease in domestic
and commercial sales due to the milder weather experienced in 1992 was offset,
in part, by continued growth in industrial sales.
Sales increases in 1991 were primarily related to higher sales to retail
customers. Specifically, unusually hot temperatures experienced during the
second and third quarters of 1991 contributed to increased sales to domestic
and commercial customers, whereas industrial sales increased, in part, due to
continued growth in production at Nucor Steel. Partially offsetting these
increases were decreased sales for resale due to reduced sales to WVPA and
IMPA. They served more of their customers' requirements from their portion of
the jointly owned Gibson Unit 5 as a consequence of a scheduled (January 1,
1991) reduction (from 156 megawatts to 78 megawatts) in Energy's purchase
obligations from WVPA and IMPA under the Gibson Unit 5 joint ownership
arrangement.
Year-to-year changes in kwh sales for each class of customer are shown below:
<TABLE>
Increase (Decrease) from Prior Year
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Retail
Domestic. . . . . . . . . . . . . . . 12.2% (5.6)% 11.3%
Commercial. . . . . . . . . . . . . . 7.2 (1.1) 7.3
Industrial. . . . . . . . . . . . . . 5.5 4.8 3.3
Total retail. . . . . . . . . . . . . . 8.0 (0.1) 6.8
Sales for resale
Firm power obligations. . . . . . . . 2.2 (28.6) (3.9)
Non-firm power transactions . . . . . (15.4) (12.4) (6.3)
Total sales for resale. . . . . . . . . (9.8) (18.3) (5.4)
Total sales . . . . . . . . . . . . . . 3.6 (5.3) 3.1
</TABLE>
Energy currently forecasts a 2% annual compound growth rate in kwh sales over
the 1994 to 2003 period. This forecast excludes non-firm power transactions
and any potential long-term firm power sales at market-based prices.
Revenues
Revenues in 1993 remained relatively unchanged, reflecting increased kwh sales
which were substantially offset by the $31 million refund resulting from the
settlement of the April 1990 Order (see Note 3 beginning on page 45) and the
effects of lower fuel costs.
Total operating revenues decreased $48 million (4%) in 1992, as compared to
1991, primarily as a result of the lower kwh sales previously discussed.
In 1991, revenues increased $14 million (1%). The increases realized from kwh
sales were partially offset by the effects of the April 1990 (4.25%) retail
rate reduction.
An analysis of operating revenues for the past three years is shown below:
<TABLE>
<CAPTION>
1993 1992 1991
(in millions)
<S> <C> <C> <C>
Previous year's operating revenues . . . . . $1 072 $1 120 $1 106
Increase (decrease) due to change in:
Price per kwh
Retail. . . . . . . . . . . . . . . . . . (58) (5) (24)
Sales for resale
Firm power obligations . . . . . . . . . (1) 4 (5)
Non-firm power transactions. . . . . . . 7 (12) (4)
Total change in price per kwh . . . . . . . (52) (13) (33)
Kwh sales
Retail. . . . . . . . . . . . . . . . . . 72 (1) 60
Sales for resale
Firm power obligations . . . . . . . . . 1 (28) (4)
Non-firm power transactions . . . . . . (12) (12) (7)
Total change in kwh sales . . . . . . . . . 61 (41) 49
Other . . . . . . . . . . . . . . . . . . . (3) 6 (2)
Current year's operating revenues. . . . . . $1 078 $1 072 $1 120
</TABLE>
Operating Expenses
Fuel
Fuel costs, Energy's largest operating expense, decreased $6 million (2%) in
1993. This decrease reflects Energy's continuing efforts to reduce the unit
cost of fuel, which include increased purchases in the spot market and
realized benefits from price reopener provisions of existing contracts. The
following is an analysis of fuel costs for the past three years:
<TABLE>
<CAPTION>
1993 1992 1991
(in millions)
<S> <C> <C> <C>
Previous year's fuel expense . . . . . . . . $392 $402 $392
Increase (decrease) due to change in:
Price of fuel. . . . . . . . . . . . . . . (15) (5) -
Kwh generation . . . . . . . . . . . . . . 9 (5) 10
Current year's fuel expense. . . . . . . . . $386 $392 $402
</TABLE>
Purchased and Exchanged Power
In 1993, Energy increased its purchases of non-firm power primarily to serve
its own load, which resulted in an increase in purchased and exchanged power
of $11 million (77%), as compared to 1992.
Purchased and exchanged power decreased $40 million (74%) in 1992, as compared
to 1991, reflecting the reduction in third party short-term power sales to
other utilities through Energy's system and the scheduled reduction in
Energy's purchase obligations from WVPA and IMPA under the Gibson Unit 5 joint
ownership arrangement, as previously discussed.
Other Operation and Maintenance
Charges in 1991 for the incremental non-capital portion ($5 million) of the
costs associated with a severe ice and wind storm primarily attributed to the
$8 million (3%) decrease in 1992, as compared to 1991.
The incremental non-capital portion ($5 million) of storm damage repair costs
described above and general inflationary effects on operating costs
contributed to other operation and maintenance expenses increasing $15 million
(6%) in 1991.
Depreciation
Additions to electric utility plant led to increases in depreciation expense
of $10 million (8%) in 1993 and $6 million (5%) in 1992, when compared to each
of the prior years.
In 1991, depreciation expense increased $9 million (8%) primarily reflecting
additional plant ($7 million) and a full year's effect of the May 1990
revision in depreciation rates ($2 million), following approval by the IURC in
its April 1990 Order.
Other Income and Expense - Net
Other income and expense, excluding the effects of the loss related to the
IURC's June 1987 Order, increased $6 million in 1993, as compared to 1992.
This increase was due, in part, to the implementation of the January 1993 IURC
order authorizing the accrual of post-in-service carrying costs (see Note 1
beginning on page 42). In addition, the equity component of AFUDC increased
primarily as a result of increased construction.
Interest and Preferred Dividends
Increased borrowings and accrued interest of $4 million in connection with the
loss related to the IURC's June 1987 Order resulted in increased interest and
preferred dividends of $7 million (10%) in 1992, as compared to 1991.
ACCOUNTING CHANGES
In 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 112, Employers' Accounting for
Postemployment Benefits (Statement 112). Statement 112 establishes accounting
standards for the costs of benefits provided to former or inactive employees,
including their beneficiaries and dependents, after employment but before
retirement. Under the provisions of Statement 112, the costs of these
benefits will be recognized for accounting purposes when the employees or
their beneficiaries become eligible for such benefits (accrual basis) rather
than when such benefits are paid, which is Energy's current practice.
Energy's unrecognized and unfunded obligation for these benefits (the
transition obligation) as of September 30, 1993, measured in accordance with
the new accounting standard, is $8.5 million. The new standard requires
immediate recognition of the transition obligation at the date the new
standard is adopted. Energy is required to adopt Statement 112 effective
January 1, 1994. In connection with its current retail rate proceeding,
Energy has requested deferral of the transition obligation for recovery over a
reasonable period of time beginning with an order in its next retail rate
proceeding.
INFLATION
In a capital-intensive business such as the utility industry, inflation causes
the internal generation of funds to be inadequate to replace and add to
productive facilities. Depreciation, based on the original cost of property,
does not adequately reflect the current cost of plant and equipment consumed
during the year. Accounting based on historical cost does not recognize this
economic loss nor the partially offsetting gain that arises through financing
facilities with fixed-rate obligations such as long-term debt and preferred
stock. Under the ratemaking prescribed by regulatory bodies, depreciation
expense recoverable through Energy's rates is based on historical cost.
Consequently, cash flows are inadequate to replace property in future years or
preserve the purchasing power of common equity capital previously invested.
As a result, the common shareholder may experience a significant net
purchasing power loss under inflationary conditions.
DIVIDEND RESTRICTIONS
See Note 6 on page 48 for a discussion of the restrictions on common
dividends.
Index to Financial Statements and Financial Statement Schedules
Page Number
Financial Statements
Report of Independent Public Accountants. . . . . . . . . 34-35
Consolidated Statements of Income for the
three years ended December 31, 1993 . . . . . . . . . . 36
Consolidated Balance Sheets at
December 31, 1993 and 1992. . . . . . . . . . . . . . . 37-38
Consolidated Statements of Changes in
Common Stock Equity for the three years
ended December 31, 1993 . . . . . . . . . . . . . . . . 39
Consolidated Statements of Cash Flows
for the three years ended December 31, 1993 . . . . . . 40
Cumulative Preferred Stock. . . . . . . . . . . . . . . . 41
Long-term Debt. . . . . . . . . . . . . . . . . . . . . . 41
Notes to Consolidated Financial Statements. . . . . . . . 42-66
Page Number
Financial Statement Schedules
Schedule V - Electric Utility Plant . . . . . . . . . . . 79-81
Schedule VI - Accumulated Depreciation. . . . . . . . . . 82-84
Schedule VIII - Valuation and Qualifying Accounts . . . . 85-87
The information required to be submitted in schedules other than those
indicated above has been included in the consolidated balance sheets, the
consolidated statements of income, related schedules, the notes thereto or
omitted as not required by the Rules of Regulation S-X.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of PSI Energy, Inc.:
We have audited the consolidated balance sheets of PSI Energy, Inc. (Energy)
(a wholly owned subsidiary of PSI Resources, Inc.) and subsidiary as of
December 31, 1993 and 1992, and the related consolidated statements of income,
changes in common stock equity and cash flows for each of the three years in
the period ended December 31, 1993. These financial statements are the
responsibility of the management of Energy. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly in
all material respects, the financial position of Energy and subsidiary as of
December 31, 1993 and 1992, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles.
As more fully discussed in Note 2, Wabash Valley Power Association, Inc.
(WVPA) filed suit against Energy for $478 million plus interest and other
damages to recover its share of Marble Hill Nuclear Project (Marble Hill)
costs. The suit was amended to include as defendants several officers of
Energy and certain other parties, and to allege claims under the Racketeer
Influenced and Corrupt Organizations Act, which would permit trebling of
damages and assessment of attorneys' fees. The suit was further amended to
add claims of common law fraud, constructive fraud and deceit and negligent
misrepresentation against Energy and the other defendants. Energy and its
officers have reached a settlement with WVPA that is subject to the approval
of judicial and regulatory authorities and has recorded an estimated loss
related to the litigation. The eventual outcome of this litigation cannot
presently be determined.
As more fully discussed in Notes 11 and 14, effective January 1, 1993, Energy
implemented the provisions of Statements of Financial Accounting Standards
Nos. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" and 109, "Accounting for Income Taxes."
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index on
page 33 are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not a required part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in our audit of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Indianapolis, Indiana,
February 22, 1994.
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
OPERATING REVENUES (Note 3) . . . . . . . . . . . . . . . . $1 078 269 $1 072 183 $1 119 820
OPERATING EXPENSES
Operation
Fuel . . . . . . . . . . . . . . . . . . . . . . . . 385 927 392 288 401 897
Purchased and exchanged power. . . . . . . . . . . . 24 273 13 729 53 822
Other operation. . . . . . . . . . . . . . . . . . . 186 695 185 859 192 770
Maintenance . . . . . . . . . . . . . . . . . . . . . . 84 020 86 046 86 993
Depreciation. . . . . . . . . . . . . . . . . . . . . . 126 821 117 092 111 428
Post-in-service deferred
depreciation . . . . . . . . . . . . . . . . . . . . (5 069) - -
Taxes
Federal and state income (Note 14) . . . . . . . . . 64 911 66 390 66 387
State, local, and other. . . . . . . . . . . . . . . 45 477 42 334 41 493
913 055 903 738 954 790
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . 165 214 168 445 165 030
OTHER INCOME AND EXPENSE - NET
Loss related to the IURC's
June 1987 Order (Note 3) . . . . . . . . . . . . . . 20 134 - (135 000)
Applicable income tax effects. . . . . . . . . . . . (7 444) - 49 910
12 690 - (85 090)
Allowance for equity funds used
during construction. . . . . . . . . . . . . . . . . 11 173 4 833 6 418
Post-in-service carrying costs. . . . . . . . . . . . . 6 005 - -
Other - net . . . . . . . . . . . . . . . . . . . . . . (6 201) 32 646
23 667 4 865 (78 026)
INCOME BEFORE INTEREST. . . . . . . . . . . . . . . . . . . 188 881 173 310 87 004
INTEREST
Interest on long-term debt. . . . . . . . . . . . . . . 68 946 62 460 57 772
Other interest. . . . . . . . . . . . . . . . . . . . . 4 191 9 552 2 463
Allowance for borrowed funds used
during construction. . . . . . . . . . . . . . . . . (9 154) (5 672) (3 643)
63 983 66 340 56 592
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 124 898 106 970 30 412
PREFERRED DIVIDEND REQUIREMENT. . . . . . . . . . . . . . . 12 825 7 286 10 169
INCOME APPLICABLE TO COMMON STOCK . . . . . . . . . . . . . $ 112 073 $ 99 684 $ 20 243
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31
1993 1992
(dollars in thousands)
<S> <C> <C>
ELECTRIC UTILITY PLANT - ORIGINAL COST
In service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3 449 127 $3 139 830
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 455 871 1 380 442
1 993 256 1 759 388
Construction work in progress. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 802 232 105
Total electric utility plant. . . . . . . . . . . . . . . . . . . . . . . . . 2 237 058 1 991 493
CURRENT ASSETS
Cash and temporary cash investments. . . . . . . . . . . . . . . . . . . . . . . . . . 4 582 9 061
Restricted deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 111 17 700
Accounts receivable (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 657 35 825
Income tax refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 900 -
Fossil fuel - at average cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 315 100 871
Materials and supplies - at average cost . . . . . . . . . . . . . . . . . . . . . . . 31 212 35 077
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 669 3 074
190 446 201 608
OTHER ASSETS
Regulatory assets (Note 16). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 809 30 051
Unamortized costs of reacquiring debt. . . . . . . . . . . . . . . . . . . . . . . . . 39 504 36 795
Unamortized debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 332 6 358
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 280 38 080
220 925 111 284
$2 648 429 $2 304 385
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CAPITALIZATION AND LIABILITIES
December 31
1993 1992
(dollars in thousands)
<S> <C> <C>
COMMON STOCK EQUITY (Note 6)
Common stock - without par value; $.01 stated
value; authorized shares - 60,000,000; outstanding
shares - 53,913,701 in 1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . . $ 539 $ 539
Paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229 288 221 812
Accumulated earnings subsequent to November 30, 1986
quasi-reorganization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483 242 432 747
Total common stock equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 713 069 655 098
CUMULATIVE PREFERRED STOCK - NOT SUBJECT
TO MANDATORY REDEMPTION (Page 41, Note 7) . . . . . . . . . . . . . . . . . . . . . . 187 989 87 074
LONG-TERM DEBT (Page 41, Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 816 152 737 083
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 717 210 1 479 255
CURRENT LIABILITIES
Long-term debt due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . 160 40 000
Notes payable (Note 12). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 701 120 801
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 093 87 678
Refund due to customers (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 832 139 134
Litigation settlement (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 000 80 000
Advance under accounts receivable
purchase agreement (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 940 -
Accrued taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 269 46 396
Accrued interest and customers' deposits . . . . . . . . . . . . . . . . . . . . . . . 25 792 27 362
545 787 541 371
OTHER LIABILITIES
Deferred income taxes (Note 14). . . . . . . . . . . . . . . . . . . . . . . . . . . . 281 417 188 252
Unamortized investment tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . 64 721 68 965
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 294 26 542
385 432 283 759
COMMITMENTS AND CONTINGENCIES (Notes 2, 15, 19, and 21)
$2 648 429 $2 304 385
</TABLE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
Common Paid-in Accumulated
Stock Capital Earnings
(in thousands)
<S> <C> <C> <C>
BALANCE DECEMBER 31, 1990. . . . . . . . . . . . . . . . . . . . $539 $220 845 $413 939
Net income . . . . . . . . . . . . . . . . . . . . . . . . . 30 412
Gain on retiring preferred stock . . . . . . . . . . . . . . 3
Dividends on preferred stock . . . . . . . . . . . . . . . . (10 202)
Dividends on common stock. . . . . . . . . . . . . . . . . . (47 237)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 394 61
BALANCE DECEMBER 31, 1991. . . . . . . . . . . . . . . . . . . . 539 223 242 386 973
Net income . . . . . . . . . . . . . . . . . . . . . . . . . 106 970
Costs of retiring preferred stock. . . . . . . . . . . . . . (1 430)
Dividends on preferred stock . . . . . . . . . . . . . . . . (7 568)
Dividends on common stock. . . . . . . . . . . . . . . . . . (53 589)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . (39)
BALANCE DECEMBER 31, 1992. . . . . . . . . . . . . . . . . . . . 539 221 812 432 747
Net income . . . . . . . . . . . . . . . . . . . . . . . . . 124 898
Costs of issuing and retiring
preferred stock. . . . . . . . . . . . . . . . . . . . . . (5 062)
Dividends on preferred stock . . . . . . . . . . . . . . . . (12 288)
Dividends on common stock. . . . . . . . . . . . . . . . . . (62 191)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 538 76
BALANCE DECEMBER 31, 1993. . . . . . . . . . . . . . . . . . . . $539 $229 288 $483 242
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
1993 1992 1991
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 124 898 $ 106 970 $ 30 412
Items providing (using) cash currently:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 821 117 092 111 428
Deferred income taxes and investment tax
credits - net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 103 8 917 (32 390)
Allowance for equity funds used during
construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11 173) (4 833) (6 418)
Regulatory assets - excluding demand-side
management costs . . . . . . . . . . . . . . . . . . . . . . . . . . . (29 909) (6 681) (448)
Changes in current assets and current
liabilities
Restricted deposits . . . . . . . . . . . . . . . . . . . . . . . . (69) (9 724) (207)
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . 7 168 8 916 8 395
Income tax refunds. . . . . . . . . . . . . . . . . . . . . . . . . (28 900) - -
Fossil fuel and materials and supplies. . . . . . . . . . . . . . . 59 421 (20 901) 17 618
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . 56 415 (7 834) 3 636
Refund due to customers . . . . . . . . . . . . . . . . . . . . . . (57 302) 4 134 135 000
Litigation settlement . . . . . . . . . . . . . . . . . . . . . . . - - (94 400)
Advance under accounts receivable
purchase agreement. . . . . . . . . . . . . . . . . . . . . . . . 49 940 - -
Accrued taxes and interest. . . . . . . . . . . . . . . . . . . . . (8 504) 16 189 4 171
Other items - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22 783) (7 857) 2 088
Net cash provided by (used in) operating
activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 334 126 204 388 178 885
FINANCING ACTIVITIES
Issuance of preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . 156 325 - -
Issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 241 704 224 331 139 045
Funds on deposit from issuance of long-term
debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (31 342) 12 733 1 211
Retirement of preferred stock. . . . . . . . . . . . . . . . . . . . . . . . (60 107) (26 912) (3 002)
Redemption of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . (207 880) (184 135) (59 530)
Change in short-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . 5 900 120 801 (17 000)
Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . (12 288) (7 568) (10 202)
Dividends on common stock. . . . . . . . . . . . . . . . . . . . . . . . . . (62 191) (53 589) (47 237)
Other items - net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 538 - 2 394
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 659 85 661 5 679
INVESTING ACTIVITIES
Utility plant additions. . . . . . . . . . . . . . . . . . . . . . . . . . . (361 607) (289 862) (168 788)
Allowance for equity funds used during
construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 173 4 833 6 418
Demand-side management costs . . . . . . . . . . . . . . . . . . . . . . . . (30 736) (16 670) (3 656)
Equity investment in Argentine utility . . . . . . . . . . . . . . . . . . . (94) (505) -
Net cash provided by (used in) investing
activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . (381 264) (302 204) (166 026)
Net increase (decrease) in cash and temporary
cash investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4 479) (12 155) 18 538
Cash and temporary cash investments at
beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 061 21 216 2 678
Cash and temporary cash investments at end
of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4 582 $ 9 061 $ 21 216
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest (net of amount capitalized). . . . . . . . . . . . . . . . . . . $ 60 653 $ 49 305 $ 55 422
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 376 51 497 45 702
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CUMULATIVE PREFERRED STOCK - NOT SUBJECT
TO MANDATORY REDEMPTION
December 31
1993 1992
(dollars in thousands)
<S> <C> <C>
Par value $25 per share - authorized 5,000,000 shares - outstanding
4.32% Series 169,162 shares in 1993 and 1992 . . . . . . . . . . . . . . . $ 4 229 $ 4 229
4.16% Series 148,763 shares in 1993 and 1992 . . . . . . . . . . . . . . . 3 719 3 719
7.44% Series 4,000,000 shares in 1993. . . . . . . . . . . . . . . . . . . . 100 000 -
Par value $100 per share - authorized 5,000,000 shares - outstanding
3 1/2% Series 41,770 shares in 1993 and 42,007 shares in 1992. . . . . . . 4 177 4 201
6 7/8% Series 600,000 shares in 1993. . . . . . . . . . . . . . . . . . . . 60 000 -
7.15% Series 158,640 shares in 1993 and 1992 . . . . . . . . . . . . . . . 15 864 15 864
8.52% Series 211,190 shares in 1992. . . . . . . . . . . . . . . . . . . . - 21 119
8.38% Series 162,520 shares in 1992. . . . . . . . . . . . . . . . . . . . - 16 252
8.96% Series 216,900 shares in 1992. . . . . . . . . . . . . . . . . . . . - 21 690
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $187 989 $ 87 074
LONG-TERM DEBT
December 31
1993 1992
(dollars in thousands)
First Mortgage Bonds (excluding amounts due within one year)
Series P, 7 1/8%, due January 1, 1999 . . . . . . . . . . . . . . . . . . . $ - $ 34 649
Series R, 7 5/8%, due January 1, 2001 . . . . . . . . . . . . . . . . . . . - 30 199
Series S, 7%, due January 1, 2002 . . . . . . . . . . . . . . . . . . . 26 429 26 429
Series T, 8%, due February 1, 2004. . . . . . . . . . . . . . . . . . . - 28 513
Series Y, 7 5/8%, due January 1, 2007 . . . . . . . . . . . . . . . . . . . 24 140 24 140
Series Z, 8 1/8%, due October 1, 2007 . . . . . . . . . . . . . . . . . . . - 70 450
Series BB, 6 5/8%, due March 1, 2004 (Pollution Control) . . . . . . . . . . 5 000 5 000
Series NN, 7.60%, due March 15, 2012 (Pollution Control) . . . . . . . . . 35 000 35 000
Series QQ, 8 1/4%, due June 15, 2013 (Pollution Control) . . . . . . . . . . 23 000 23 000
Series RR, 9 3/4%, due August 1, 1996 . . . . . . . . . . . . . . . . . . . 50 000 50 000
Series TT, 7 3/8%, due March 15, 2012 (Pollution Control). . . . . . . . . . 10 000 10 000
Series UU, 7 1/2%, due March 15, 2015 (Pollution Control). . . . . . . . . . 14 250 14 250
Series YY, 5.6%, due February 15, 2023 (Pollution Control) . . . . . . . . 30 000 -
Series ZZ, 5 3/4%, due February 15, 2028 (Pollution Control) . . . . . . . . 50 000 -
Total first mortgage bonds . . . . . . . . . . . . . . . . . . . . . . . . 267 819 351 630
Secured Medium-term Notes
Series A, 6.65% to 8.88%, due January 3, 1997 to June 1, 2022 . . . . . . . 300 000 300 000
Series B, 5.22% to 8.26%, due September 17, 1998 to August 22, 2022. . . . . 230 000 66 000
(Series A and B, 7.64% weighted average interest rate and
18 year weighted average remaining life)
Pollution Control Notes (excluding amounts due within one year)
5 3/4%, due December 15, 1994 to December 15, 2003 . . . . . . . . . . . . . 20 000 20 160
Unamortized Premium and Discount - Net . . . . . . . . . . . . . . . . . . . . (1 667) (707)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $816 152 $737 083
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
(a) Consolidation Policy PSI Energy, Inc. (Energy) is a wholly-owned
subsidiary of PSI Resources, Inc. (Resources). The accompanying Consolidated
Financial Statements include the accounts of Energy and its subsidiary, PSI
Energy Argentina, Inc., after elimination of intercompany transactions and
balances.
(b) Regulation Energy is subject to regulation by the Indiana Utility
Regulatory Commission (IURC) and the Federal Energy Regulatory Commission
(FERC). Energy's accounting policies conform to generally accepted accounting
principles, as applied to regulated public utilities, and to the accounting
requirements and ratemaking practices of these regulatory authorities.
(c) Electric Utility Plant, Depreciation, and Maintenance Substantially all
electric utility plant is subject to the lien of Energy's first mortgage bond
indenture (Indenture).
Construction work in progress is charged with a proportionate share of
overhead costs. Construction overhead costs include salaries, payroll taxes,
fringe benefits, and other expenses. Energy capitalizes an allowance for
funds used during construction (AFUDC), an item not representing cash income,
which is defined in the regulatory system of accounts prescribed by the FERC
as the cost of capital used for construction purposes. The AFUDC rate was
9.5% in 1993, 8.5% in 1992, and 12.0% in 1991, and is compounded semi-
annually.
Energy's provision for depreciation is determined by using the straight-line
method applied to the cost of depreciable plant in service. The composite
depreciation rate was 3.8% per year during 1991 to 1993.
In January 1993, Energy received authority from the IURC to continue accrual
of the debt component of AFUDC (post-in-service carrying costs) and to defer
depreciation expense (post-in-service deferred depreciation) on its planned
combustion turbine generating units and major environmental compliance
projects from the date the projects are placed in service until the effective
date of an order in Energy's current retail rate proceeding. This proceeding
includes a request for authorization to recover a portion of these deferrals
and to continue similar accounting treatment on these projects until an order
in Energy's next retail rate proceeding.
Maintenance and repairs of property units and replacements of minor items of
property are charged to maintenance expense. The costs of replacements of
property units are capitalized. The original cost of the property retired and
the related cost of removal, less salvage recovered, are charged to
accumulated depreciation.
(d) Federal and State Income Taxes Deferred tax assets and liabilities are
recognized for the expected future tax consequences of existing differences
between the financial reporting and tax reporting bases of assets and
liabilities. Investment tax credits utilized to reduce Federal income taxes
payable have been deferred for financial reporting purposes and are being
amortized over the useful lives of the property which gave rise to such
credits.
(e) Operating Revenues and Fuel Costs Energy records revenues each period
for energy delivered during the period.
Revenues reflect fuel cost charges based on the actual costs of fuel. Fuel
cost charges applicable to all of Energy's metered kilowatt-hour sales are
included in customer billings based on the estimated costs of fuel. Customer
bills are adjusted in subsequent months to reflect the difference between
actual and estimated costs of fuel. Indiana law subjects the recovery of fuel
costs to a determination that such recovery will not result in earning a
return in excess of that allowed by the IURC in its last general rate order.
(f) Debt Discount, Premium, and Issuance Expense and Costs of Reacquiring
Debt Debt discount, premium, and issuance expense on Energy's outstanding
long-term debt are amortized over the lives of the respective issues.
Energy defers costs (principally call premiums) arising from the reacquisition
of long-term debt and amortizes such amounts over the remaining life of the
debt reacquired.
(g) Consolidated Statements of Cash Flows All temporary cash investments
with maturities of three months or less, when acquired, are reported as cash
equivalents. Energy and its subsidiary had no material non-cash investing or
financing transactions during the years 1991 to 1993.
(h) Reclassification Certain amounts in the 1991 and 1992 Consolidated
Financial Statements have been reclassified to conform to the 1993
presentation.
2. WVPA Litigation
In February 1984, Wabash Valley Power Association, Inc. (WVPA) discontinued
payments to Energy for its 17% share of Marble Hill, a nuclear project jointly
owned by Energy and WVPA which was cancelled by Energy in 1984, and filed suit
against Energy in the United States District Court for the Southern District
of Indiana (Indiana District Court), seeking $478 million plus interest and
other damages to recover its Marble Hill costs. The suit was amended to
include as defendants several officers of Energy along with certain
contractors and their officers involved in the Marble Hill project, and to
allege claims against all defendants under the Racketeer Influenced and
Corrupt Organizations Act (RICO). Claims proven and damages allowed under
RICO may be trebled and attorneys' fees assessed against the defendants. The
suit was further amended to add claims of common law fraud, constructive fraud
and deceit, and negligent misrepresentation against Energy and the other
defendants.
In May 1985, WVPA filed for protection under Chapter 11 of the Federal Bank-
ruptcy Code. Due to the Chapter 11 filing, Energy and WVPA entered into an
agreement under which Energy agreed to place in escrow 17% of all salvage
proceeds received from the sales of Marble Hill equipment, materials, and
nuclear fuel after May 23, 1985.
In February 1989, Energy and its officers reached a settlement with WVPA
which, if approved by judicial and regulatory authorities, will settle the
suit filed by WVPA. The settlement is also contingent on the resolution of
the WVPA bankruptcy proceeding.
The principal terms of the settlement are:
. Energy, on behalf of itself and its officers, will pay $80 million on
behalf of WVPA to the Rural Electrification Administration (REA) and
the National Rural Utilities Cooperative Finance Corporation (CFC).
The $80 million obligation, net of insurance proceeds, other credits,
and applicable income tax effects, was charged to income in 1988 and
1989.
. Energy will consent to the disbursement to REA and CFC of the balance
in the Marble Hill salvage escrow account.
. Energy will pay to REA and CFC 17% of future Marble Hill salvage pro-
ceeds, net of related salvage program expenses.
. WVPA will transfer its 17% interest in the Marble Hill site to Energy
(exclusive of WVPA's interest in future salvage). Energy will assume
responsibility for all future costs associated with the site, other
than WVPA's 17% share of future salvage program expenses.
. Energy will enter into a 35-year take-or-pay power supply agreement for
the sale of 70 megawatts of firm power to WVPA. Such power will be
supplied from Gibson Unit 1 and will be priced at Energy's firm power
rates for service to WVPA. The difference between the revenues
received from WVPA and the costs of operating Gibson Unit 1 (the
Margin) will be remitted annually by Energy, on behalf of itself and
its officers, to REA and CFC to discharge a $90 million obligation,
plus accrued interest. If, at the end of the term of the power supply
agreement, the $90 million obligation plus accrued interest has not
been fully discharged, Energy must do so within 60 days. The
settlement provides that in the event Energy is party to a merger or
acquisition, Energy and WVPA will use their best efforts to obtain
regulatory approval to price the power sale exclusive of the effects of
the merger or acquisition.
Certain aspects of the settlement are subject to approval by the FERC and
potentially by the IURC and the Michigan Public Service Commission. At such
time as the necessary approvals from these regulatory authorities are
received, Energy will record a $90 million regulatory asset. Concurrently, a
$90 million obligation to REA and CFC will be recorded as a long-term
commitment. Recognition of the asset is based, in part, on projections which
indicate that the Margin will be sufficient to discharge the $90 million
obligation to REA and CFC, plus accrued interest, within the 35-year term of
the power supply agreement. If, in some future period, projections indicate
the Margin would not be sufficient to discharge the obligation plus accrued
interest within the 35-year term, the deficiency would be recognized as a
loss.
The alternative plans of reorganization sponsored by WVPA and REA incorporate
the settlement agreement. However, REA's proposed plan provides for full
recovery of principal and interest on WVPA's debt to REA, which is
substantially in excess of the amount to be recovered under WVPA's proposed
plan. In August 1991, the U.S. Bankruptcy Court for the Southern District of
Indiana (Bankruptcy Court) confirmed WVPA's plan of reorganization and denied
confirmation of REA's opposing plan. The Bankruptcy Court's approval of
WVPA's reorganization plan is contingent upon WVPA's receipt of regulatory
approval to increase its rates. REA appealed the Bankruptcy Court's decision
to the Indiana District Court. Energy cannot predict the outcome of this
appeal, nor is it known whether WVPA can obtain regulatory approval to
increase its rates. If reasonable progress is not made in satisfying
conditions to the settlement by February 1, 1995, either party may terminate
the settlement agreement.
3. Rates
(a) Settlement Agreement In April 1993, the Indiana Court of Appeals (Court
of Appeals) issued a decision in the appeal of the IURC's April 1990 retail
rate order (April 1990 Order). In its decision, the Court of Appeals ruled
that the level of return on common equity allowed Energy in the April 1990
Order, including the range of common equity return, was not adequately
supported by factual findings. The April 1990 Order was remanded to the IURC
by the Court of Appeals for further proceedings including a redetermination of
the cost of equity and its components.
In December 1993, the IURC issued an order (December 1993 Order) approving a
settlement agreement entered into by Energy, the appellants, and certain other
intervenors which resolved the outstanding issues related to the appeals of
the April 1990 Order and the IURC's June 1987 tax order (June 1987 Order),
which related to the effect on Energy of the 1987 reduction in the Federal
income tax rate. The June 1987 Order had been remanded to the IURC by the
Indiana Supreme Court and was awaiting a final order from the IURC. The
December 1993 Order provides for Energy to refund $150 million to its retail
customers ($119 million applicable to the June 1987 Order and $31 million
applicable to the April 1990 Order). The December 1993 Order further provides
for Energy to reduce its retail rates by 1.5% (approximately $13.5 million on
an annual basis) to reflect a return on common equity of 14.25%. The refunds
and rate reduction commenced in December 1993. As of December 31, 1993,
approximately $68 million of the $150 million refund has been reflected as a
reduction in accounts receivable, with the remaining amount reflected in the
accompanying Consolidated Balance Sheet at December 31, 1993, as "Refund due
to customers".
Energy had previously recognized a loss of $139 million for the June 1987
Order. The difference between the $139 million and the $119 million portion
of the refund applicable to the June 1987 Order is reflected in the
Consolidated Statement of Income for the year ended December 31, 1993, as a
reduction of the loss. The $31 million portion of the refund applicable to
the April 1990 Order is reflected in the Consolidated Statement of Income for
the same period as a reduction in operating revenues.
(b) Current Retail Rate Proceeding Energy filed testimony with the IURC in
support of a $103 million, 11.6% retail rate increase. The rate increase is
needed to meet new environmental requirements, Energy's growing electric
needs, including construction and operation of one combustion turbine
generating unit and implementation of demand-side management (DSM) programs,
and to recognize postretirement benefits other than pensions on an accrual
basis. In addition, Energy is requesting approval of various ratemaking
mechanisms to address regulatory lag on specific environmental and new
generation projects. Hearings are expected to begin in April 1994, and a
final rate order is anticipated in late 1994 or early 1995.
4. Resources' Common Stock
Resources' common stock shares reserved for issuance at December 31, 1993, and
the shares issued in 1993, 1992, and 1991 were as follows:
<TABLE>
<CAPTION>
Shares
Reserved at Shares Issued
Dec. 31, 1993 1993 1992 1991
<S> <C> <C> <C> <C>
401(k) Savings Plans. . . . . . . 712 297 301 803 284 686 144 779
Dividend Reinvestment and Stock
Purchase Plan . . . . . . . . . 3 523 458 111 889 140 383 106 183
Directors' Deferred Compensation
Plan. . . . . . . . . . . . . . 40 111 59 889 - -
Performance Shares Plan . . . . . 120 536 27 807 25 568 38 318
Employee Stock Purchase and
Savings Plan. . . . . . . . . . 803 283 238 126 616 343
1989 Stock Option Plan. . . . . . 1 337 500 135 900 - 100
</TABLE>
Resources is a party to two Master Trust Agreements whereby all accrued
benefit payments or awards under certain benefit plans are to be funded in the
event of a "potential change in control" (as defined in the Master Trust
Agreements). The Master Trust Agreements provide for the payment of amounts
which may become due under such plans, subject only to claims of general
creditors of Resources in the event Resources were to become bankrupt or
insolvent. In addition to the above issuances of common stock, as of December
31, 1993, Resources had issued to the trustee of its Master Trust Agreements
1,093,520 shares of common stock for all employees and directors participating
in the 1989 Stock Option Plan, and the Employee Stock Purchase and Savings
Plan. These issuances were required as a result of the announcement of the
merger with The Cincinnati Gas & Electric Company (CG&E) (see Note 19
beginning on page 61).
In April 1990, the shareholders of Resources approved an Employee Stock
Purchase and Savings Plan designed to conform with Section 423 of the Internal
Revenue Code. The initial offering under the plan allowed eligible employees,
through payroll deductions, the option to purchase Resources' common stock at
$16.51 per share on August 31, 1992, and the second offering under this plan
allows for the purchase of Resources' common stock at $18.05 per share on
October 31, 1994. With respect to the second offering, eligible employees
purchased 71,188 shares of Resources' common stock at $18.05 per share on
February 2, 1994. This accelerated opportunity was a result of the approval
of the merger with CG&E by Resources' shareholders in November 1993.
In January 1994, Resources' Board of Directors approved the issuance of up to
94,364 shares, distributable over two years, under the Performance Shares
Plan, a long-term incentive compensation plan for certain officers.
Resources currently has an effective shelf registration statement for the sale
of up to eight million shares of common stock.
5. Resources' Stock Option Plan
In April 1989, the shareholders of Resources approved a stock option plan
(1989 Stock Option Plan) under which incentive and non-qualified stock options
and stock appreciation rights may be granted to key employees, officers, and
outside directors. Common stock granted under the 1989 Stock Option Plan may
not exceed 2.5 million shares. Options are granted at the fair market value
of the shares on the date of grant, except that non-qualified stock options
were granted to two executive officers when the plan was adopted at an option
price equal to 91% of the fair market value of the shares at the date of
grant. Options have a purchase term of up to 10 years, and all options, not
previously vested, became vested upon approval of the merger with CG&E by
Resources' shareholders. No incentive stock options may be granted under the
plan after January 31, 1999.
The 1989 Stock Option Plan activity for 1991, 1992, and 1993 is summarized as
follows:
<TABLE>
<CAPTION>
Range of
Shares Subject Option Prices
to Option Per Share
<S> <C> <C>
Balance at December 31, 1990. . . . . . . . 1 122 500 $12.54 to 17.31
Options Granted . . . . . . . . . . . . . . 62 500 16.38 to 16.63
Options Exercised . . . . . . . . . . . . . (100) 13.44
Balance at December 31, 1991. . . . . . . . 1 184 900 $12.54 to 17.31
Options Granted . . . . . . . . . . . . . . 25 000 17.75
Options Cancelled . . . . . . . . . . . . . (50 000) 16.94
Balance at December 31, 1992. . . . . . . . 1 159 900 $12.54 to 17.75
Options Exercised . . . . . . . . . . . . . (135 900) 12.54 to 16.94
Balance at December 31, 1993. . . . . . . . 1 024 000 $12.79 to 17.75
Shares Reserved for Future Grants
At December 31, 1991. . . . . . . . . . 1 312 500
At December 31, 1992. . . . . . . . . . 1 337 500
At December 31, 1993. . . . . . . . . . 1 337 500
</TABLE>
No stock appreciation rights have been granted under this plan. The total
options exercisable at December 31, 1993, 1992, and 1991, were 1,024,000,
714,900, and 542,400, respectively.
6. Common Stock
All of Energy's common stock is held by Resources. No common dividends can be
paid by Energy if there are dividends in arrears on its preferred stock.
Energy's Indenture provides that, so long as any bonds are outstanding under
the Indenture, Energy shall not declare or pay cash dividends on shares of its
capital stock (other than on preferred stock) except out of its earned surplus
or net profits. In addition, Energy's Amended Articles of Consolidation limit
dividends on common stock to 75% of net income available for common stock if
the ratio of common stock equity to total capitalization is less than 25%, or
to 50% of such net income available if such ratio is less than 20%.
Compliance with this provision is determined based on income available for
common stock during the preceding 12-month period and the common stock equity
balance after payment of the applicable dividend. At December 31, 1993,
Energy's common stock equity was 42% of total capitalization, excluding debt
due within one year. The above restrictions would limit Energy's common
dividends to $347 million as of December 31, 1993.
7. Preferred Stock
In 1993, Energy issued $100 million of 7.44% Series Cumulative Preferred
Stock, $25 par value. This preferred stock is not redeemable prior to March
1, 1998, and is redeemable thereafter at the option of Energy. In addition,
Energy issued $60 million of 6 7/8% Series Cumulative Preferred Stock, $100
par value. This preferred stock is not redeemable prior to October 1, 2003,
and is redeemable thereafter at the option of Energy. Energy applied the net
proceeds of the $60 million issuance to the refinancing of 162,520 shares of
8.38% Series and 211,190 shares of 8.52% Series, $100 par value, Cumulative
Preferred Stock at $101 per share and 216,900 shares of 8.96% Series, $100 par
value, Cumulative Preferred Stock at $103 per share in December 1993. As of
December 31, 1993, Energy can sell up to an additional $40 million of
preferred stock under an effective shelf registration statement and IURC
authority.
Energy retired 237 shares, 10 shares, and 50 shares in 1993, 1992, and 1991,
respectively, of its $100 par value, 3 1/2% Series Cumulative Preferred Stock.
In addition, Energy redeemed all 255,000 outstanding shares of its $100 par
value, 13.25% Series Cumulative Preferred Stock in 1992 and redeemed 30,000
shares of this series in 1991.
8. Long-term Debt
The sinking fund requirements with respect to Energy's long-term debt
outstanding at December 31, 1993, are $.2 million in 1994, $.4 million per
year during 1995 to 1997, and $.5 million in 1998.
Long-term debt maturities for the next five years are $50 million in 1996, $10
million in 1997, and $35 million in 1998.
Energy currently has IURC authority to issue up to $428 million of first
mortgage bonds or other long-term debt. As of December 31, 1993, Energy can
sell up to $315 million of these debt securities under an effective shelf
registration statement.
9. Sale of Accounts Receivable
Energy has an agreement through January 1996 to sell, with limited recourse,
an undivided percentage interest in certain of its accounts receivable from
customers up to a maximum of $90 million. As of December 31, 1993, Energy's
obligation under the limited recourse provision is $22 million. The refund
provided for by the December 1993 Order, as previously discussed (see Note 3
beginning on page 45), reduced accounts receivable available for sale at
December 31, 1993, to $40 million. Accounts receivable on the Consolidated
Balance Sheets are net of the $40 million and $90 million interest sold at
December 31, 1993, and December 31, 1992, respectively. The excess of $90
million over the accounts receivable available for sale at December 31, 1993,
is reflected in the Consolidated Balance Sheet as "Advance under accounts
receivable purchase agreement".
The refund provided for by the December 1993 Order caused a termination event
under the agreement governing the sale of accounts receivable. Due to the
temporary nature of this event, Energy obtained a waiver of the termination
event provision of the agreement as it relates to the refund.
Effective February 1, 1991, Energy entered into an interest rate swap
agreement which effectively changed Energy's variable interest rate exposure
on its sale of accounts receivable to a fixed rate of 8.19%. The interest
rate swap agreement matures January 31, 1996. In the event of nonperformance
by the other parties to the interest rate swap agreement, Energy would be
exposed to floating rate conditions.
10. Pension Plan
Energy's defined benefit pension plan (Plan) covers all employees meeting
certain minimum age and service requirements. Plan benefits are determined
under a final average pay formula with consideration of years of
participation, age at retirement, and the applicable average Social Security
wage base.
Energy's funding policy is to maintain the Plan on an actuarially sound basis.
Energy's contribution for the 1993 plan year is $8.2 million. Contributions
applicable to the 1992 and 1991 plan years were $7.4 million and $7.9 million,
respectively. The Plan's assets consist of investments in equity and fixed
income securities.
Pension costs for 1993, 1992, and 1991 include the following components:
<TABLE>
<CAPTION>
1993 1992 1991
(in millions)
<S> <C> <C> <C>
Benefits earned during the period . . . . . . . $ 7.7 $ 7.1 $ 6.6
Interest accrued on projected
benefit obligation. . . . . . . . . . . . . . 19.4 18.3 17.0
Return on Plan assets
Actual. . . . . . . . . . . . . . . . . . . . (38.5) (24.1) (38.8)
Deferred gain . . . . . . . . . . . . . . . . 19.5 6.8 23.2
Net amortization. . . . . . . . . . . . . . . . .6 .6 .6
Total pension costs . . . . . . . . . . . . . . $ 8.7 $ 8.7 $ 8.6
</TABLE>
The following table reconciles the Plan's funded status at September 30, 1993,
1992, and 1991 with amounts recorded in the Consolidated Financial Statements.
Under the provisions of Statement of Financial Accounting Standards No. 87,
Employers' Accounting for Pensions (Statement 87), certain assets and
obligations of the Plan are deferred and recognized in the Consolidated
Financial Statements in subsequent periods.
<TABLE>
<CAPTION>
1993 1992 1991
(in millions)
<S> <C> <C> <C>
Actuarial present value of benefits
Vested benefits . . . . . . . . . . . . . . . $206.1 $172.3 $163.6
Non-vested benefits . . . . . . . . . . . . . 8.5 6.8 6.0
Effect of future compensation increases . . . 55.4 55.3 50.8
Projected benefit obligation. . . . . . . . 270.0 234.4 220.4
Plan assets at fair value . . . . . . . . . . . 266.0 231.4 209.8
Projected benefit obligation in
excess of Plan assets . . . . . . . . . . . . (4.0) (3.0) (10.6)
Remaining balance of net Plan assets existing
at date of initial application of Statement
87 to be recognized as a reduction of
pension cost in future periods. . . . . . . . (6.4) (7.1) (7.8)
Unrecognized net (gain) loss resulting from
experience different from that assumed and
effects of changes in assumptions . . . . . . (.9) (2.7) 4.4
Prior service cost not yet recognized in net
periodic pension costs. . . . . . . . . . . . 14.9 17.4 18.7
Prepaid pension costs at December 31. . . . . . $ 3.6 $ 4.6 $ 4.7
</TABLE>
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Actuarial Assumptions:
For determination of projected benefit
obligation
Weighted average discount rate . . . . . . . 7.5% 8.5% 8.5%
Rate of increase in future compensation. . . 4.5 5.5 5.5
For determination of pension costs
Rate of return on Plan assets. . . . . . . . 9.0 9.0 9.0
</TABLE>
11. Other Postretirement and Postemployment Benefits
(a) Postretirement Benefits Energy provides certain health care and life
insurance benefits to retired employees and their eligible dependents.
Energy's employees are eligible for postretirement health care benefits if
they retire at age 55 or older with at least 10 years of service and are
eligible for life insurance if they retire with unreduced pension benefits.
The health care benefits provided include medical, prescription drugs, and
dental. Prior to 1993, the cost of retiree health care was charged to expense
as claims were paid and the cost of life insurance benefits was charged to
expense at retirement. Energy does not currently pre-fund its obligation for
these postretirement benefits.
Effective with the first quarter of 1993, Energy implemented the provisions of
Statement of Financial Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions (Statement 106). Under the
provisions of Statement 106, the costs of health care and life insurance
benefits provided to retirees are recognized for accounting purposes during
periods of employee service (accrual basis). The unrecognized and unfunded
Accumulated Postretirement Benefit Obligation (APBO) existing at the date of
initial application of Statement 106 (i.e., the transition obligation) of
$107.6 million is being amortized over a 20-year period.
Postretirement benefit costs for 1993 include the following components:
Amount
(in millions)
Benefits earned during the period. . . . . . . . $ 3.4
Interest accrued on APBO . . . . . . . . . . . . 9.3
Amortization of transition obligation. . . . . . 5.4
Total postretirement benefit costs . . . . . . . $18.1
In December 1993, the IURC issued a generic order regarding regulatory
treatment of postretirement benefit costs other than pensions determined in
accordance with the provisions of Statement 106. In accordance with the
provisions of this order, Energy has included a request for recovery of these
costs on an accrual basis in its current retail rate proceeding. Prior to the
recovery of these costs in customers' rates on an accrual basis, the
difference between postretirement benefit costs determined in accordance with
the provisions of Statement 106 and the costs determined in accordance with
Energy's previous accounting practice is being deferred for future recovery in
accordance with the provisions of the generic order.
Postretirement benefit costs for 1993, 1992, and 1991, determined in
accordance with Energy's previous accounting practice, were $5.3 million, $5.0
million, and $4.6 million, respectively.
The following table reconciles the APBO of the health care and life insurance
plans at September 30, 1993, with amounts recorded in the Consolidated
Financial Statements:
Amount
(in millions)
Actuarial present value of benefits
Fully eligible active plan participants . . . . . $ (20.8)
Other active plan participants. . . . . . . . . . (54.7)
Retirees and beneficiaries. . . . . . . . . . . . (61.5)
Projected APBO. . . . . . . . . . . . . . . . . . . (137.0)
Unamortized transition obligation . . . . . . . . . 102.2
Benefit payments subsequent to
September 30, 1993. . . . . . . . . . . . . . . . 1.1
Unrecognized net loss resulting from
experience different from that assumed
and effect of changes in assumptions. . . . . . . 16.0
Accrued postretirement benefit obligation at
December 31, 1993 . . . . . . . . . . . . . . . . $ (17.7)
The weighted-average discount rate used in determining the APBO at September
30, 1993, was 7.5%. The assumed initial health care cost trend rate used in
measuring the APBO was 8% for dental and post-65 medical and 12% for pre-65
medical and prescription drugs. These rates are assumed to decrease gradually
to an ultimate level of 5% by the year 2007. Increasing the health care cost
trend rate by one percentage point in each year would increase the APBO as of
September 30, 1993, by approximately $19 million (14%) and the aggregate of
the service and interest cost components of the postretirement benefit costs
for 1993 by approximately $2 million (17%).
(b) Postemployment Benefits In 1992, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 112, Employers'
Accounting for Postemployment Benefits (Statement 112). Statement 112
establishes accounting standards for the costs of benefits provided to former
or inactive employees, including their beneficiaries and dependents, after
employment but before retirement. Under the provisions of Statement 112, the
costs of these benefits will be recognized for accounting purposes when the
employees or their beneficiaries become eligible for such benefits (accrual
basis) rather than when such benefits are paid, which is Energy's current
practice. Energy's unrecognized and unfunded obligation for these benefits
(the transition obligation) as of September 30, 1993, measured in accordance
with the new accounting standard, is $8.5 million. The new standard requires
immediate recognition of the transition obligation at the date the new
standard is adopted. Energy is required to adopt Statement 112 effective
January 1, 1994. In connection with its current retail rate proceeding,
Energy has requested deferral of the transition obligation for recovery over a
reasonable period of time beginning with an order in its next retail rate
proceeding.
12. Notes Payable
Energy currently has IURC authority to borrow up to $200 million under short-
term credit arrangements. In connection with this authority, Energy has
established agreements with 11 banks for unsecured, but committed, lines of
credit (Committed Lines) which currently permit borrowings of up to $155
million. These Committed Lines provide for maturities of one year and one day
with interest rate options at or below prime rate. In addition, Energy has a
temporary Committed Line with one bank of $15 million which provides for
maturities of less than one year. Energy also issues commercial paper from
time to time. All outstanding commercial paper is supported by Energy's
Committed Lines.
Amounts outstanding under the above lines of credit would become immediately
due upon an event of default which includes non-payment, default under other
agreements governing company indebtedness, bankruptcy, or insolvency.
Commitment fees, which are assessed on the daily unused portion of the
Committed Lines, were immaterial during 1991 to 1993.
Energy also has Board of Directors' approval to arrange for additional short-
term borrowings of up to $100 million with various banks on an "as offered"
basis (Uncommitted Lines). All Uncommitted Lines provide for maturities of
364 days with various interest rate options.
For the years 1993, 1992, and 1991, short-term borrowings outstanding at
various times were as follows:
<TABLE>
<CAPTION>
Weighted
Weighted Maximum Average Average
Average Amount Amount Interest
Balance Interest Outstanding Outstanding Rate
at Rate at at Any During the During
Dec. 31 Dec. 31 Month End Year the Year
(dollars in millions)
<S> <C> <C> <C> <C> <C>
1993
Bank loans. . . . . . $126.7 3.4% $126.7 $69.8 3.4%
Commercial paper. . . - - 24.8 6.4 3.3
1992
Bank loans. . . . . . 120.8 3.9 120.8 77.3 4.0
Commercial paper. . . - - 30.7 8.2 3.8
1991
Bank loans. . . . . . - - 34.5 6.9 5.7
</TABLE>
13. Fair Value of Financial Instruments
The estimated fair values of Energy's financial instruments were as follows:
December 31 December 31
1993 1992
Carrying Fair Carrying Fair
Financial Instrument Amount Value Amount Value
(in millions)
Cash and temporary
cash investments. . . . . . . $ 5 $ 5 $ 9 $ 9
Restricted deposits . . . . . . 49 49 18 18
Long-term debt (includes
amounts due within one year). 816 896 777 807
Notes payable . . . . . . . . . 127 127 121 121
The following methods and assumptions were used to estimate the fair values of
these financial instruments:
Cash and temporary cash investments, restricted deposits, and notes payable
The carrying amounts approximate fair values.
Long-term debt The fair value of Energy's long-term debt issues, excluding
tax-exempt bonds, was estimated based on the latest quoted market prices or,
if not publicly traded, on the current rates offered to Energy for debt of the
same remaining maturities. The fair value of tax-exempt bonds was estimated
by obtaining broker quotes.
Under current regulatory treatment, gains and losses on reacquisition of long-
term debt are amortized in customers' rates over the remaining life of the
debt reacquired. Accordingly, any reacquisition would not have a material
effect on Energy's financial position or results of operations.
14. Income Taxes
Effective with the first quarter of 1993, Energy implemented the provisions of
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes (Statement 109). Statement 109 requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of existing
differences between the financial reporting and tax reporting bases of assets
and liabilities. Energy adopted this new accounting standard as the
cumulative effect of a change in accounting principle with no restatement of
prior periods. The adoption of Statement 109 had no material effect on
Energy's consolidated earnings or the Consolidated Balance Sheet.
In August 1993, Congress enacted the Omnibus Budget Reconciliation Act of 1993
(Act), which included a provision to increase the Federal corporate income tax
rate from 34% to 35%, retroactive to January 1, 1993. Statement 109 requires
adjustment of deferred income taxes upon enacted changes in income tax rates.
The change in the income tax rate resulted in an increase in the net deferred
income tax liability of approximately $12 million and recognition of a
regulatory asset of approximately $12 million to reflect expected future
recovery of the increased liability in customers' rates.
The significant components of Energy's net deferred income tax liability at
December 31, 1993, and January 1, 1993, after adoption of the provisions of
Statement 109, are as follows:
<TABLE>
<CAPTION>
December 31, January 1,
1993 1993
(in millions)
<S> <C> <C>
Deferred Income Tax Liabilities
Electric utility plant. . . . . . . . . . . $309.6 $288.3
Unamortized costs of reacquiring debt . . . 15.0 13.6
Regulatory assets . . . . . . . . . . . . . 27.5 9.5
Other . . . . . . . . . . . . . . . . . . . 3.2 4.8
Total deferred income tax liabilities . . 355.3 316.2
Deferred Income Tax Assets
Unamortized investment tax credits. . . . . 24.5 25.5
Litigation settlement . . . . . . . . . . . 29.8 29.0
Refund due to customers . . . . . . . . . . - 51.4
Other . . . . . . . . . . . . . . . . . . . 19.6 20.3
Total deferred income tax assets. . . . . 73.9 126.2
Net Deferred Income Tax Liability . . . . . . $281.4 $190.0
</TABLE>
A summary of Federal and state income taxes charged (credited) to income and
the allocation of such amounts is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
(in millions)
<S> <C> <C> <C>
Current Income Taxes
Federal . . . . . . . . . . . . . . . . . . . $ .6 $47.3 $ 42.9
State . . . . . . . . . . . . . . . . . . . . .4 7.4 6.5
Total current income taxes. . . . . . . . 1.0 54.7 49.4
Deferred Income Taxes
Federal
Depreciation. . . . . . . . . . . . . . . . 9.6 7.5 (1.8)
Loss related to the IURC's
June 1987 Order (Note 3). . . . . . . . . 45.9 - (45.9)
Litigation settlement . . . . . . . . . . . - - 24.7
Demand-side management costs. . . . . . . . 10.6 5.3 1.2
Other items - net . . . . . . . . . . . . . (.7) (.8) (4.4)
Total deferred Federal income taxes . . . 65.4 12.0 (26.2)
State
Depreciation. . . . . . . . . . . . . . . . 1.6 .7 (2.2)
Loss related to the IURC's
June 1987 Order (Note 3). . . . . . . . . 4.0 - (4.0)
Litigation settlement . . . . . . . . . . . - - 3.4
Other items - net . . . . . . . . . . . . . 1.4 .6 2.3
Total deferred state income taxes . . . . 7.0 1.3 (.5)
Total deferred income taxes . . . . . . . 72.4 13.3 (26.7)
Investment Tax Credits - Net. . . . . . . . . . (4.2) (4.4) (5.7)
Total Income Taxes. . . . . . . . . . . . $69.2 $63.6 $ 17.0
Allocated to:
Operating income. . . . . . . . . . . . . . . $64.9 $66.4 $ 66.4
Other income and expense - net. . . . . . . . 4.3 (2.8) (49.4)
$69.2 $63.6 $ 17.0
</TABLE>
Energy participates in the filing of a consolidated Federal income tax return
with its parent, Resources, and other affiliated companies. The current tax
liability is determined on a stand-alone basis for each member of the group
pursuant to a tax sharing agreement. As a result of the $150 million refund
resulting from the December 1993 Order, Energy incurred an alternative minimum
tax (AMT) liability of approximately $6.9 million ($2.3 million for the
consolidated group) for 1993. AMT paid can be used as a tax credit to offset
income taxes (other than AMT) payable in future years. Resources expects to
be able to utilize the AMT credit in 1994. Pursuant to the tax sharing
agreement, Energy reported the tax benefits of Resources' consolidated net
operating loss of approximately $22 million and income taxes paid during 1993
in excess of the AMT liability as "Income tax refunds" on the December 31,
1993, Consolidated Balance Sheet.
Federal income taxes computed by applying the statutory Federal income tax
rate to book income before Federal income tax are reconciled to Federal income
tax expense reported in the Consolidated Statements of Income as follows:
<TABLE>
<CAPTION>
1993 1992 1991
(in millions)
<S> <C> <C> <C>
Statutory Federal income tax provision. . . . . $65.3 $55.0 $13.9
Increases (Reductions) in taxes resulting from:
Investment tax credits. . . . . . . . . . . . (4.2) (4.4) (4.2)
Depreciation and other utility plant-
related differences . . . . . . . . . . . . 4.1 4.2 3.4
AFUDC equity. . . . . . . . . . . . . . . . . (3.9) (1.6) (2.2)
Other - net . . . . . . . . . . . . . . . . . .5 1.7 .1
Federal income tax expense. . . . . . . . . . . $61.8 $54.9 $11.0
Resources' consolidated Federal income tax returns for the years 1989 and 1990
are currently under examination by the Internal Revenue Service. Resources
believes it has adequate reserves to cover issues which may be raised in
conjunction with this examination and does not believe the outcome of the
examination will have a material effect on its financial condition or results
of operations.
15. Commitments and Contingencies
(a) Construction Energy will have substantial commitments in connection with
its construction program for capital improvements to, and expansion of, its
operating facilities, new generation, and environmental compliance. Aggregate
expenditures for Energy's construction program for the years 1994 to 1998 are
estimated to be $1.1 billion.
(b) Manufactured Gas Plants Coal tar residues and other substances
associated with manufactured gas plant (MGP) sites have been found at former
MGP sites in Indiana, including, but not limited to, sites in Shelbyville and
Lafayette, two sites previously owned by Energy. Energy has identified at
least 21 MGP sites which it previously owned, including 19 it sold in 1945 to
Indiana Gas and Water Company, Inc. (now Indiana Gas Company [IGC]), including
the Shelbyville and Lafayette sites.
The Shelbyville site has been the subject of an investigation and cleanup
enforcement action by the Indiana Department of Environmental Management
(IDEM) against IGC and Energy. Without admitting liability, Energy and IGC
have jointly negotiated with the IDEM for a consent order to conduct a
remedial investigation and feasibility study of the Shelbyville site. Energy
and IGC are sharing equally in the costs of investigation and cleanup of this
site.
In 1992, the IDEM issued an order to IGC, naming IGC as a responsible party as
defined by the Comprehensive Environmental Response, Compensation and
Liability Act, which requires investigation and remediation of the Lafayette
MGP site. IGC entered into an agreed order with the IDEM for the removal of
MGP contamination at the site.
In April 1993, IGC filed testimony with the IURC seeking recovery of costs
incurred in complying with Federal, state, and local environmental regulations
related to MGP sites in which it has an interest, including sites acquired
from Energy. In its testimony, IGC stated that it would also seek to recover
a portion of these costs from other potentially responsible parties, including
previous owners. At this time, the IURC has not ruled on IGC's petition.
Except for the Shelbyville site, Energy has not assumed any responsibility to
reimburse IGC for its costs for investigating and cleaning up MGP sites. With
respect to the Shelbyville site, based upon environmental investigations
completed to date, Energy believes that any required investigation and
remediation will not have a material adverse effect on its financial
condition. At this time, it is premature for Energy to predict the nature,
extent, and costs of, or Energy's responsibility for, any environmental
investigations and remediations which may be required at other MGP sites
owned, or previously owned, by Energy.
(c) Fuel Litigation Energy is currently involved in litigation with Exxon
Coal USA, Inc. and Exxon Corporation (Exxon) regarding, among other things,
coal quality and pricing disputes, including whether the price for coal
delivered under a coal supply contract should be $23.266 or $30 per ton. On
February 22, 1994, the United States Court of Appeals for the Seventh Circuit
established the contract price at $30 per ton, reversing the trial court's
decision determining the price at $23.266 per ton. During 1993, Energy paid
$23.266 per ton. Energy believes the additional cost to be incurred as a
result of this decision should be recoverable through rates. Additionally,
Exxon is seeking $17 million to $63 million in damages for Energy's failure to
take coal after Energy terminated the contract pursuant to a December 1992
court decision, which was subsequently reversed. Energy believes the damages,
if any, will be less than $17 million. Exxon has also alleged anticipatory
breach of the contract; however, after reversal of the December 1992 court
decision and reinstatement of the contract, Energy resumed acceptance of
deliveries and has moved for summary judgment on this issue. At this time,
Energy cannot predict the outcome of the remaining litigation, but no material
adverse effect on Energy's financial condition is expected.
Energy initiated several arbitration proceedings to resolve disputes,
including disputes related to price and coal quality, which have arisen under
agreements between Amax Coal Company (Amax) and Energy. Energy cannot predict
the ultimate resolution of the remaining issues subject to arbitration, but in
the event the arbitrators decide that Amax is due additional amounts, Energy
believes that Indiana's fuel adjustment clause process provides for recovery
of such amounts from its customers.
16. Regulatory Assets
The IURC has authorized Energy to defer DSM expenditures, with carrying costs,
for subsequent recovery through rates. In its current retail rate proceeding,
Energy has proposed to amortize and recover amounts deferred through July 1993
($35 million), together with carrying costs, over a four-year period
commencing with the effective date of the IURC's order in the current retail
rate proceeding. Deferred DSM costs as of the effective date of an order in
Energy's current retail rate proceeding, which are not included for recovery
in the current proceeding, will continue to be deferred, with carrying costs,
for recovery in subsequent rate proceedings. In addition, Energy has proposed
the recovery of approximately $23 million of DSM expenditures in base rates on
an annual basis. Energy has also requested that the IURC approve the deferral
of reasonably incurred DSM expenditures which exceed the base level of $23
million. Deferred DSM expenditures totaled $53 million and $23 million at
December 31, 1993, and 1992, respectively.
Additionally, consistent with authorized ratemaking treatment, Energy is
deferring certain costs associated with income taxes, postretirement benefits
other than pensions, and its planned combustion turbine generating units and
major environmental compliance projects. These deferrals totaled $45 million
and $3 million at December 31, 1993, and 1992, respectively. Finally, in
Energy's current retail rate proceeding, it is requesting ratemaking treatment
for deferred costs associated with the merger with CG&E and certain fuel
litigation. These deferrals totaled $21 million and $4 million at December
31, 1993, and 1992, respectively (see Notes 1, 3, 11, and 20 beginning on
pages 42, 45, 51, and 63, respectively).
17. Jointly Owned Plant
Energy is a joint owner of Gibson Unit 5 with WVPA and the Indiana Municipal
Power Agency (IMPA). Energy is also a joint owner with WVPA and IMPA of
transmission property and local facilities. These facilities constitute part
of the integrated transmission and distribution systems which are operated and
maintained by Energy. Proportionate operating expenses are billed to WVPA and
IMPA and are reflected as a reduction of operating expenses in the
Consolidated Statements of Income.
Energy's investment in jointly owned plant is as follows:
</TABLE>
<TABLE>
<CAPTION>
1993 1992
Accumulated Accumulated
(dollars in millions) Share Investment Depreciation Share Investment Depreciation
<S> <C> <C> <C> <C> <C> <C>
Gibson Unit 5 . . . . . . 50.05% $ 207 $ 84 50.05% $ 207 $ 76
Transmission property
and local facilities. . 93.59 1 521 532 93.89 1 430 503
</TABLE>
18. 1993 and 1992 Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
Operating Operating Net
Quarter Ended Revenues Income Income
(in millions)
<S> <C> <C> <C>
1993
March 31. . . . . . . . . . . . . $ 286 $ 51 $ 35
June 30 . . . . . . . . . . . . . 221 17 16
September 30. . . . . . . . . . . 293 49 36
December 31 . . . . . . . . . . . 278 48 38
Total . . . . . . . . . . . . . $1 078 $165 $125
1992
March 31. . . . . . . . . . . . . $ 272 $ 43 $ 28
June 30 . . . . . . . . . . . . . 257 36 21
September 30. . . . . . . . . . . 273 44 27
December 31 . . . . . . . . . . . 270 45 31
Total . . . . . . . . . . . . . $1 072 $168 $107
</TABLE>
19. Pending Merger
General Resources, Energy, and CG&E entered into an Agreement and Plan of
Reorganization dated as of December 11, 1992, which was subsequently amended
and restated on July 2, 1993, and as of September 10, 1993 (as amended and
restated, the "Merger Agreement"). Under the Merger Agreement, Resources will
be merged with and into a newly formed corporation named CINergy Corp.
(CINergy) and a subsidiary of CINergy will be merged with and into CG&E ("CG&E
Merger", collectively referred to as the "Mergers"). Following the Mergers,
CINergy will be the parent holding company of Energy and CG&E and will be
required to register under the Public Utility Holding Company Act of 1935
(PUHCA).
The Merger Agreement can be terminated by any party, without financial
penalty, if the Mergers are not consummated by June 30, 1994. Under certain
circumstances, the termination of the Merger Agreement would result in the
payment of termination fees which may not exceed $70 million, if Resources is
required to pay, or $130 million, if CG&E is required to pay.
In August 1993, Resources established a $70 million irrevocable standby letter
of credit in favor of CG&E to fund the aggregate amounts (not to exceed $70
million) payable in certain circumstances pursuant to the provisions of the
Merger Agreement and the related Resources Stock Option Agreement as
termination fees, option repurchase payments, and related expenses.
Exchange Ratio The Merger Agreement provides that, upon consummation of the
Mergers, each outstanding share of common stock of Resources will be converted
into the right to receive that number of shares of the common stock, par value
of $.01 each, of CINergy obtained by dividing $30.69 by the average closing
sales price of common stock, par value of $8.50 each, of CG&E as reported on
the Transaction Reporting System operated by the Consolidated Tape Association
for the 15 consecutive trading days preceding the fifth trading day prior to
the Mergers; provided that, if the actual quotient obtained thereby is less
than .909, the quotient shall be .909, and if the actual quotient obtained
thereby is more than 1.023, the quotient shall be 1.023. The Merger Agreement
also provides that, upon consummation of the Mergers, each outstanding share
of common stock of CG&E will be converted into the right to receive one share
of common stock of CINergy. The outstanding preferred stock and debt
securities of Energy and CG&E will not be affected.
Shareholder and Regulatory Approvals In November 1993, the Mergers were
approved by the shareholders of Resources and CG&E. In August 1993, the FERC
conditionally approved the Mergers. This conditional approval was made by the
FERC without a formal hearing and, according to public statements by the FERC
Commissioners, was done in reliance, in part, on the FERC's belief that the
regulatory commissions of the affected states would have authority to approve
or disapprove the Mergers. The companies accepted the FERC's conditions and
indicated their belief that none of the conditions would have a material
adverse effect on the operations, financial condition, or business prospects
of CINergy. Certain parties petitioned for rehearing of the FERC's
conditional approval. On September 15, 1993, Energy and CG&E filed a
statement with the FERC clarifying their conclusions at that time that the
Mergers would not require any prior approval of a state commission under state
law. Given the issues raised on the requests for rehearing and the lack of
certainty in the record regarding state regulatory powers, on January 12,
1994, the FERC issued an order withdrawing its prior conditional approval of
the Mergers and initiating a 60-day, FERC-sponsored settlement procedure. The
settlement procedure is expected to be concluded prior to the end of March
1994. The FERC has indicated that, if the settlement procedure is not
successful, it intends to issue a further order setting appropriate issues for
hearing.
The companies are currently participating in a collaborative process with
representatives from the IURC, the Public Utilities Commission of Ohio, the
Kentucky Public Service Commission (KPSC), various consumer groups, and other
parties to settle all merger-related issues. In conjunction with the FERC-
sponsored settlement procedure, on February 11, 1994, Energy filed a petition
with the IURC requesting approval of various proposals regarding state
regulation after consummation of the Mergers. These proposals do not address
the allocation between shareholders and customers of projected revenue
requirement savings as a result of the Mergers. This allocation will be the
subject of a subsequent IURC proceeding. Hearings on the current petition are
expected to conclude prior to the end of the 60-day settlement period
established by the FERC. In addition, CG&E had originally intended to file,
in January 1994, an application with the KPSC for approval of the CG&E Merger.
However, given the initiation of the FERC settlement procedure, CG&E notified
the KPSC, and the KPSC agreed, that CG&E would temporarily defer such filing
(see Note 21 on page 66 for a discussion of subsequent events).
The Mergers are also subject to the approval of the Securities and Exchange
Commission (SEC) under the PUHCA. An application requesting such SEC approval
is expected to be filed during the first quarter or early second quarter of
1994. Under the PUHCA, the divestiture of CG&E's gas operations may be
required. The companies believe they have a justifiable basis for retention
of CG&E's gas operations and will request SEC approval to retain this portion
of the business. Divestiture, if ordered, would occur after the consummation
of the Mergers. Historically, the SEC has allowed companies sufficient time
to accomplish divestitures in a manner that protects shareholder value, which,
in some cases, has been 10 to 20 years.
The companies' goal is to consummate the Mergers during the third quarter of
1994. However, if the settlement procedure is not successful and a hearing is
convened by the FERC, the consummation of the Mergers would likely be further
extended. There can be no assurance that the Mergers will be consummated.
Stock Option Agreements Concurrently with the Merger Agreement, Resources and
CG&E have entered into reciprocal stock option agreements granting each other
the right to purchase certain shares of their common stock under certain
circumstances if the Merger Agreement becomes terminable, or is terminated,
because of a breach or a third party proposal for a business combination.
Specifically, under these certain circumstances, CG&E has the option to
purchase 10 million shares of common stock of Resources at a price of $18.65
per share, and Resources has the option to purchase approximately 7.7 million
shares of common stock of CG&E at a price of $24.325 per share. These options
will terminate upon the earlier of the consummation of the Mergers,
termination of the Merger Agreement pursuant to its terms (other than a breach
or a third party proposal for a business combination), 180 days, or longer
under certain circumstances, following the termination of the Merger Agreement
due to a breach or a third party proposal for a business combination, or June
30, 1994.
20. Pro Forma Condensed Consolidated Financial Information (unaudited)
The following pro forma condensed consolidated financial information combines
the historical Consolidated Statements of Income and Consolidated Balance
Sheets of Resources and CG&E after giving effect to the Mergers. The
unaudited Pro Forma Condensed Consolidated Statements of Income for each of
the three years ended December 31, 1993, give effect to the Mergers as if the
Mergers had occurred at January 1, 1991. The unaudited Pro Forma Condensed
Consolidated Balance Sheet at December 31, 1993, gives effect to the Mergers
as if the Mergers had occurred at December 31, 1993. These statements are
prepared on the basis of accounting for the Mergers as a pooling of interests
and are based on the assumptions set forth in the notes thereto. In addition,
the following pro forma condensed consolidated financial information should be
read in conjunction with the historical consolidated financial statements and
related notes thereto of Resources, Energy, and CG&E. The following
information is not necessarily indicative of the operating results or
financial position that would have occurred had the Mergers been consummated
at the beginning of the periods, or on the date, for which the Mergers are
being given effect, nor is it necessarily indicative of future operating
results or financial position.
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in millions, except per share amounts)
1993 1992 1991
Historical Pro Forma Historical Pro Forma Historical Pro Forma
Resources CG&E CINergy Resources CG&E CINergy Resources CG&E CINergy
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues. . . $1 088 $1 752 $ 2 840 $1 081 $1 553 $ 2 634 $1 122 $1 518 $ 2 640
Operating expenses. . . 938 1 432 2 370 916 1 293 2 209 958 1 305 2 263
Operating income. . . . 150 320 470 165 260 425 164 213 377
Other income and
expense - net . . . . 24 (173)* (149) 5 100 105 (79) 141 62
Interest charges - net. 65 156 221 67 158 225 56 147 203
Preferred dividend
requirement of
subsidiaries . . . . 13 25 38 7 27 34 10 25 35
Net income (loss) . . . $ 96 $ (34) $ 62 $ 96 $ 175 $ 271 $ 19 $ 182 $ 201
Average common shares
outstanding 1/ 2/. . 56 87 138/144 55 86 136/142 55 82 132/138
Earnings (Loss) per
common share 1/ 2/ . $1.73 $(.39) $.45/.43 $1.75 $2.04 $2.00/1.91 $.35 $2.21 $1.53/1.46
Dividends declared per
common share 1/ 2/ . $1.15 $1.67 1/2 $1.52/1.46 $1.03 $1.65 1/3 $1.46/1.39 $.91 $1.65 1/3 $1.39/1.33
* Reflects write-off of a portion of Wm. H. Zimmer Generating Station ($223 million net of tax).
See Notes to Pro Forma Condensed Consolidated Financial Information.
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1993
(unaudited)
(in millions)
Historical Pro Forma
Resources CG&E CINergy
ASSETS
<S> <C> <C> <C>
Utility plant - original cost
In service . . . . . . . . . . . . . . . . . . . . . . . . . . . $3 449 $5 188 $8 637
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . 1 456 1 472 2 928
1 993 3 716 5 709
Construction work in progress. . . . . . . . . . . . . . . . . . 244 70 314
Total utility plant. . . . . . . . . . . . . . . . . . . . . 2 237 3 786 6 023
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 197 606 803
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 230 752 982
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $2 664 $5 144 $7 808
CAPITALIZATION AND LIABILITIES
Common stock 3/. . . . . . . . . . . . . . . . . . . . . . . . . . $ 1 $ 749 $ 1
Paid-in capital 3/ . . . . . . . . . . . . . . . . . . . . . . . . 251 314 1 314
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . 451 456 907
Total common stock equity. . . . . . . . . . . . . . . . . . 703 1 519 2 222
Cumulative preferred stock of subsidiaries . . . . . . . . . . . . 188 330 518
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . 816 1 829 2 645
Total capitalization . . . . . . . . . . . . . . . . . . . . 1 707 3 678 5 385
Current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 567 441 1 008
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . 286 734 1 020
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 104 291 395
Total capitalization and liabilities . . . . . . . . . . . . $2 664 $5 144 $7 808
Notes to Pro Forma Condensed Consolidated Financial Information
1/ Outstanding shares of CG&E's common stock have been restated for a 3-for-2 stock split paid in the form of a dividend in
December 1992.
2/ The Pro Forma Condensed Consolidated Statements of Income reflect the conversion of each share of Resources' common
stock outstanding into (a) .909 share and (b) 1.023 shares of CINergy common stock and each share of CG&E's common stock
outstanding into one share of CINergy common stock. The actual Resources conversion ratio may be lower than 1.023 or
higher than .909 depending upon closing sales prices of CG&E's common stock during a period prior to the consummation of
the Mergers. Pro forma dividends declared per common share reflect the historical dividends declared by Resources and
CG&E, divided by the pro forma average number of CINergy common stock shares outstanding.
3/ The pro forma "Common stock" and "Paid-in capital" amounts reflected in the Pro Forma Condensed Consolidated Balance
Sheet are based on the conversion of each share of Resources' common stock outstanding into 1.023 shares of CINergy
common stock ($.01 par value) and each share of CG&E's common stock outstanding into one share of CINergy common stock
($.01 par value). Any Resources conversion ratio lower than 1.023 would result in a reallocation of amounts between
"Common stock" and "Paid-in capital". However, any such reallocation would have no effect on "Total common stock
equity".
4/ Intercompany transactions (including purchased and exchanged power transactions) between Resources and CG&E during the
periods presented were not material and accordingly no pro forma adjustments were made to eliminate such transactions.
5/ Transaction costs, estimated to be approximately $47 million, are being deferred by Resources and CG&E. Resources'
portion of the costs are being deferred for post-Mergers recovery through customers' rates. In a settlement agreement
filed with the Public Utilities Commission of Ohio, CG&E has agreed to, among other things, amortize its portion of
merger-related transaction costs over a period ending by January 1, 1999. CG&E will be permitted to retain all of its
non-fuel savings from the Mergers until 1999.
</TABLE>
21. Events Subsequent to Date of Report of Independent Public
Accountants - Pending Merger (unaudited)
In connection with the 60-day, FERC-sponsored settlement procedure and the
collaborative process, Resources, Energy, CINergy, the Indiana Utility
Consumer Counselor, the Citizens Action Coalition of Indiana, Inc., and
industrial customer representatives reached a global settlement agreement on
merger-related issues. This agreement was filed with the IURC on March 2,
1994, and is expressly conditioned upon approval by the IURC in its entirety
and without any change or condition that is unacceptable to any party. On
March 4, 1994, CG&E, the Public Utilities Commission of Ohio, and the Ohio
Office of Consumers Counsel reached an agreement substantially similar to the
Indiana agreement. Both settlement agreements were filed with the FERC on
March 4, 1994. Energy expects the FERC settlement judge to forward the
settlements to FERC Commissioners on or about March 21, 1994, beginning what
is normally a 30-day comment period. The Indiana settlement addresses, among
other things, the coordination of state and Federal regulation, the operation
of the combined Energy and CG&E electric utility system, the allocation of
costs and their effect on customer rates, and a retail "hold harmless"
provision that provides that Energy's retail rates will not reflect merger-
related costs to the extent that they are not offset entirely by merger-
related benefits.
IURC hearings on the Indiana settlement were held on March 17, 1994. Energy
has asked the IURC for an order approving the settlement agreement by early
April 1994, which should fall within the expected comment period at the FERC.
CG&E also filed with the FERC a unilateral offer of settlement addressing all
issues raised in the KPSC's application for rehearing with the FERC. On March
15, 1994, CG&E filed an application with the KPSC seeking approval of the
indirect acquisition of control of CG&E's Kentucky subsidiary, The Union
Light, Heat and Power Company.
Also included in the filings with the FERC were settlement agreements with
WVPA and the city of Hamilton, Ohio. These agreements resolve issues related
to the transmission of power and operation of Energy's jointly owned
transmission system. Negotiations with other parties at the FERC are
continuing.
Energy and CG&E also filed with the FERC the operating agreement among Energy,
CG&E, and CINergy Services, Inc., a subsidiary of CINergy. The parties to the
Indiana and Ohio FERC settlements have agreed to support or not oppose the
operating agreement, and the settlements are conditioned upon the FERC
approving the filed operating agreement without material change.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Board of Directors
Reference is made to pages 6 through 9 of the 1994 Information Statement,
"Election of Directors", with respect to identification of directors and their
current principal occupations. In addition, reference is made to pages 21 and
22 of the 1994 Information Statement, "Directors' Compensation", regarding
compliance with Section 16 of the Securities Exchange Act of 1934.
Executive Officers
The information included in Part I of this report on pages 9 and 10 under the
caption "Executive Officers of the Registrant" is referenced in reliance upon
General Instruction G to Form 10-K and Instruction 3 to Item 401(b) of
Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the discussion "Executive Compensation and Other
Transactions" on pages 17 through 26 of the 1994 Information Statement with
respect to executive compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Reference is made to the discussions "Introduction", "Voting Securities and
Principal Shareholders", and "Security Ownership of Management" on pages 2
through 5 of the 1994 Information Statement with respect to security ownership
of certain beneficial owners, security ownership of management, and changes in
control.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the discussion "Election of Directors" on pages 6 through
9 of the 1994 Information Statement concerning certain relationships and
related transactions.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules.
Refer to the page captioned "Index to Financial Statements and Financial
Statement Schedules", page 33 of this report, for an index of the financial
statements and financial statement schedules included in this report.
(b) Reports on Form 8-K.
The following reports on Form 8-K or Form 8-K/A were filed during the last
quarter of 1993 and through March 18, 1994:
Date of Report Items Filed
Form 8-K:
October 27, 1993 Item 5 - Other Events.
(On October 27, 1993, PSI Resources, Inc., PSI Energy,
Inc., IPALCO Enterprises, Inc., Indianapolis Power &
Light Company, The Cincinnati Gas & Electric Company,
CINergy Corp., James E. Rogers, John R. Hodowal, and
Ramon L. Humke entered into an agreement pursuant to
which, among other things, the parties agreed to settle
certain pending lawsuits and other issues in connection
with IPALCO Enterprises, Inc.'s attempted acquisition of
PSI Resources, Inc. and IPALCO Enterprises, Inc.'s
opposition to the merger of PSI Resources, Inc. and The
Cincinnati Gas & Electric Company to create CINergy
Corp.)
Item 7 - Financial Statements and Exhibits.
(Text of Agreement dated October 27, 1993, by and among
PSI Resources, Inc., PSI Energy, Inc., The Cincinnati Gas
& Electric Company, CINergy Corp., IPALCO Enterprises,
Inc., Indianapolis Power & Light Company, James E.
Rogers, John R. Hodowal, and Ramon L. Humke (together
with the exhibits and schedules thereto) and text of
joint press release issued by PSI Resources, Inc. and The
Cincinnati Gas & Electric Company on October 27, 1993.)
November 19, 1993 Item 7 - Financial Statements and Exhibits.
(The Cincinnati Gas & Electric Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1993.)
Date of Report Items Filed
Form 8-K (continued):
January 12, 1994 Item 5 - Other Events.
(On January 12, 1994, the Federal Energy Regulatory
Commission issued an order withdrawing its prior
conditional approval of PSI Resources, Inc.'s merger with
The Cincinnati Gas & Electric Company and initiating a
60-day, FERC-sponsored settlement procedure.)
Form 8-K/A:
November 26, 1993 Item 7 - Financial Statements and Exhibits.
(Amendment No. 1 filed by The Cincinnati Gas & Electric
Company on Form 10-K/A dated November 26, 1993, to The
Cincinnati Gas & Electric Company's Annual Report on Form
10-K for the year ended December 31, 1992, and Consent of
Independent Public Accountants.)
(c) Exhibits.
Refer to the page captioned "Exhibits", page 70 of this report, for a listing
of all exhibits included in this report.
Exhibits
Copies of the documents listed below which are identified with an asterisk (*)
have heretofore been filed with the Securities and Exchange Commission and are
incorporated herein by reference and made a part hereof; and the exhibit
number and file number of the document so filed, and incorporated herein by
reference, are stated in parentheses in the description of such exhibit.
Exhibits not so identified are filed herewith.
Exhibit
Designation Nature of Exhibit
2-a *Amended and Restated Agreement and Plan of
Reorganization by and among The Cincinnati
Gas & Electric Company, PSI Resources, Inc.,
PSI Energy, Inc., CINergy Corp., an Ohio
corporation, CINergy Corp., a Delaware
corporation, and CINergy Sub, Inc. dated as
of December 11, 1992, as amended and
restated on July 2, 1993 (Exhibit to
Amendment No. 21 to the Schedule 14D-9 filed
by PSI Resources, Inc. (Commission File No.
1-9941) on July 2, 1993), as further amended
and restated on September 10, 1993.
(Exhibit to PSI Energy, Inc.'s Form 8-K
dated September 27, 1993.)
2-b *Press release issued by The Cincinnati Gas
& Electric Company and PSI Resources, Inc.
dated July 2, 1993, announcing the
restructured merger transaction. (Exhibit
to Amendment No. 21 to Schedule 14D-9 filed
by PSI Resources, Inc. (Commission File No.
1-9941) on July 2, 1993.)
2-c *Letter Agreement dated as of August 13,
1993, between PSI Resources, Inc. and The
Cincinnati Gas & Electric Company (with
attachments thereto). (Exhibit to Amendment
No. 32 to the Schedule 14D-9 filed by PSI
Resources, Inc. (Commission File No. 1-9941)
on August 16, 1993 (PSI Resources, Inc.'s
Schedule 14D-9, Amendment No. 32).)
Exhibit
Designation Nature of Exhibit
2-d *Press release issued by PSI Resources, Inc.
and The Cincinnati Gas & Electric Company
dated August 16, 1993, announcing that The
Cincinnati Gas & Electric Company, under a
letter agreement, will increase the exchange
ratio of CINergy Corp. common stock for PSI
Resources, Inc. common stock in the proposed
merger to form CINergy Corp., contingent on
PSI Resources, Inc.'s nominees for directors
being elected at PSI Resources, Inc.'s
Annual Shareholders Meeting. (Exhibit to
PSI Resources, Inc.'s Schedule 14D-9,
Amendment No. 32.)
3-a *Amended Articles of Consolidation dated May
13, 1992. (Exhibit to PSI Energy, Inc.'s
June 30, 1992, Form 10-Q.)
3-b *By-laws, as amended January 28, 1993, of
PSI Energy, Inc. (Exhibit to PSI Energy,
Inc.'s 1992 Form 10-K.)
4-a *Original Indenture (First Mortgage Bonds)
dated September 1, 1939, between PSI Energy,
Inc. and The First National Bank of Chicago,
as Trustee (Exhibit A-Part 3 in File No. 70-
258), and LaSalle National Bank as Successor
Trustee (supplemental indenture dated March
30, 1984) and the indentures supplemental
thereto dated, respectively, January 1,
1969, January 1, 1971, January 1, 1972,
February 1, 1974, January 1, 1977, October
1, 1977, September 1, 1978, September 1,
1978, and March 1, 1979, between PSI Energy,
Inc. and said Trustee.
(Exhibit 2-5 in Second Amendment File No. 2-
30779; Exhibit 2-3 in File No. 2-38994;
Exhibit 2-4 in File No. 2-42545; Exhibit 2-5
in File No. 2-50007; Exhibit 2-5 in File No.
2-57828; Exhibit 2-5 in File No. 2-59833;
Exhibit 2-4 in File No. 2-62543; Exhibit 2-6
in File No. 2-62543; Exhibit 2-5 in File No.
2-63753.)
4-b *Thirty-fifth Supplemental Indenture dated
March 30, 1984. (Exhibit to PSI Energy,
Inc.'s, formerly Public Service Company of
Indiana, Inc., 1984 Form 10-K.)
Exhibit
Designation Nature of Exhibit
4-c *Thirty-ninth Supplemental Indenture dated
March 15, 1987. (Exhibit to PSI Energy,
Inc.'s 1987 Form 10-K.)
4-d *Forty-first Supplemental Indenture dated
June 15, 1988. (Exhibit to PSI Energy,
Inc.'s 1988 Form 10-K.)
4-e *Forty-second Supplemental Indenture dated
August 1, 1988. (Exhibit to PSI Energy,
Inc.'s 1988 Form 10-K.)
4-f *Forty-third Supplemental Indenture dated
September 15, 1988. (Exhibit to PSI Energy,
Inc.'s 1988 Form 10-K.)
4-g *Forty-fourth Supplemental Indenture dated
March 15, 1990. (Exhibit to PSI Energy,
Inc.'s 1990 Form 10-K.)
4-h *Forty-fifth Supplemental Indenture dated
March 15, 1990. (Exhibit to PSI Energy,
Inc.'s 1990 Form 10-K.)
4-i *Forty-sixth Supplemental Indenture dated
June 1, 1990. (Exhibit to PSI Energy,
Inc.'s 1991 Form 10-K.)
4-j *Forty-seventh Supplemental Indenture dated
July 15, 1991. (Exhibit to PSI Energy,
Inc.'s 1991 Form 10-K.)
4-k *Forty-eighth Supplemental Indenture dated
July 15, 1992. (Exhibit to PSI Energy,
Inc.'s 1992 Form 10-K.)
4-l *Forty-ninth Supplemental Indenture dated
February 15, 1993. (Exhibit to PSI Energy,
Inc.'s 1992 Form 10-K.)
4-m *Fiftieth Supplemental Indenture dated
February 15, 1993. (Exhibit to PSI Energy,
Inc.'s 1992 Form 10-K.)
4-n Fifty-first Supplemental Indenture dated
February 1, 1994.
Exhibit
Designation Nature of Exhibit
4-o *Indenture (Secured Medium-term Notes,
Series A), dated July 15, 1991, between PSI
Energy, Inc. and The First National Bank of
Chicago, as Trustee. (Exhibit to PSI
Energy, Inc.'s Form 10-K/A, Amendment No. 2,
dated July 15, 1993.)
4-p *Indenture (Secured Medium-term Notes,
Series B), dated July 15, 1992, between PSI
Energy, Inc. and The First National Bank of
Chicago, as Trustee. (Exhibit to PSI
Energy, Inc.'s Form 10-K/A, Amendment No. 2,
dated July 15, 1993.)
10-a +PSI Energy, Inc. Annual Incentive Plan,
amended and restated July 30, 1991,
retroactively effective July 1, 1991.
10-b *+Supplemental Retirement Plan amended and
restated December 16, 1992, retroactively
effective January 1, 1989. (Exhibit to PSI
Energy, Inc.'s 1992 Form 10-K.)
10-c *+Excess Benefit Plan, formerly named the
Supplemental Pension Plan, amended and
restated December 16, 1992, retroactively
effective January 1, 1989. (Exhibit to PSI
Energy, Inc.'s 1992 Form 10-K.)
10-d *+Performance Shares Plan, amended and
restated January 30, 1992, retroactively
effective January 1, 1992. (Exhibit to PSI
Energy, Inc.'s 1992 Form 10-K.)
10-e *+Amendment to Annual Incentive Plan dated
December 1, 1992. (Exhibit to PSI Energy,
Inc.'s 1992 Form 10-K.)
10-f *+Employment Agreement dated May 17, 1990,
among PSI Resources, Inc., PSI Energy, Inc.
and James E. Rogers, Jr. (Exhibit to the
Schedule 14D-9 filed by PSI Resources, Inc.
(Commission File No. 1-9941) on April 7,
1993 (the "Resources Schedule 14D-9").)
Exhibit
Designation Nature of Exhibit
10-g *+Deferred Compensation Agreement, effective
as of January 1, 1992, between PSI Energy,
Inc. and James E. Rogers, Jr. (Exhibit to
PSI Energy, Inc.'s Form 10-K/A, Amendment
No. 1, dated April 29, 1993.)
10-h *+Split Dollar Life Insurance Agreement,
effective as of January 1, 1992, between PSI
Energy, Inc. and James E. Rogers, Jr.
(Exhibit to PSI Energy, Inc.'s Form 10-K/A,
Amendment No. 1, dated April 29, 1993.)
10-i *+First Amendment to Split Dollar Life
Insurance Agreement between PSI Energy, Inc.
and James E. Rogers, Jr. dated December 11,
1992. (Exhibit to PSI Energy, Inc.'s Form
10-K/A, Amendment No. 1, dated April 29,
1993.)
10-j *+Employment Agreement dated December 11,
1992, among PSI Resources, Inc., PSI Energy,
Inc., The Cincinnati Gas & Electric Company,
CINergy Corp. and James E. Rogers, Jr.
(Exhibit to the Form S-4 filed by CINergy
Corp. (Commission File No. 33-59964) filed
March 23, 1993).
10-k *+Severance Agreement dated December 11,
1992, among PSI Resources, Inc., PSI Energy,
Inc. and James E. Rogers, Jr. (Exhibit to
PSI Energy, Inc.'s Form 10-K/A, Amendment
No. 1, dated April 29, 1993.)
10-l *+Form of Severance Agreement dated December
11, 1992, among PSI Resources, Inc., PSI
Energy, Inc. and each of Cheryl M. Foley,
Joseph W. Messick, Jr., Jon D. Noland, J.
Wayne Leonard, and Larry E. Thomas.
(Exhibit to PSI Energy, Inc.'s Form 10-K/A,
Amendment No. 1, dated April 29, 1993.)
10-m *PSI Energy, Inc. Pension Plan, amended and
restated December 16, 1992, retroactively
effective January 1, 1989. (Exhibit to the
Resources Schedule 14D-9.)
Exhibit
Designation Nature of Exhibit
10-n *+Master Trust Agreement for Employees'
Plans (the "Employees' Trust Agreement")
between PSI Resources, Inc. and National
City Bank, Indiana. (Exhibit to the
Resources Schedule 14D-9.)
10-o *+Master Trust Agreement for Directors'
Plans (the "Directors' Trust Agreement")
between PSI Resources, Inc. and National
City Bank, Indiana. (Exhibit to the
Resources Schedule 14D-9.)
10-p *+PSI Energy, Inc. Executive Supplemental
Life Insurance Program. (Exhibit to the
Resources Schedule 14D-9.)
10-q *PSI Energy, Inc. Severance Pay Plan.
(Exhibit to the Resources Schedule 14D-9.)
10-r *+Amendment No. 1 to each of the Employees'
Trust Agreement and the Directors' Trust
Agreement. (Exhibit to the Resources
Schedule 14D-9.)
10-s *+Form of Amendment No. 2 to the Employees'
Trust Agreement. (Exhibit to Amendment No.
1 to the Resources Schedule 14D-9 filed
April 23, 1993.)
10-t *Employment Agreement dated October 4, 1993,
among PSI Resources, Inc., PSI Energy, Inc.,
and John M. Mutz. (Exhibit to PSI Energy,
Inc.'s September 30, 1993, Form 10-Q.)
10-u *Text of Settlement Agreement dated October
27, 1993, by and among PSI Resources, Inc.,
PSI Energy, Inc., The Cincinnati Gas &
Electric Company, CINergy Corp., IPALCO
Enterprises, Inc., Indianapolis Power &
Light Company, James E. Rogers, John R.
Hodowal, and Ramon L. Humke (together with
the exhibits and schedules thereto).
(Exhibit to PSI Energy, Inc.'s Form 8-K
dated October 27, 1993.)
10-v +Amendment to PSI Energy, Inc.'s Annual
Incentive Plan dated July 2, 1993.
Exhibit
Designation Nature of Exhibit
10-w +Amendment No. 2 to the Directors' Trust
Agreement.
10-x +Amendment No. 3 to the Employees' Trust
Agreement.
10-y +Amendment No. 3 to the Directors' Trust
Agreement.
10-z +Amendment No. 4 to the Employees' Trust
Agreement.
21 Subsidiaries of PSI Energy, Inc.
23 Consent of Independent Public Accountants.
24 Power of Attorney.
99-a *Complaint of Lydia Grady, as Plaintiff, and
PSI Resources, Inc. et al., as Defendants
dated March 17, 1993. Superior Court No. 1
of Hendricks County in the State of Indiana.
(Exhibit to PSI Energy, Inc.'s 1992 Form
10-K.)
99-b *Complaint of Moise Katz, as Plaintiff, and
PSI Resources, Inc. et al., as Defendants
dated March 16, 1993. Superior Court No. 2
of Hendricks County in the State of Indiana.
(Exhibit to PSI Energy, Inc.'s 1992 Form
10-K.)
99-c *Complaint of J. E. and Z. B. Butler
Foundation, as Plaintiff, and PSI Resources,
Inc., et al., as Defendants dated March 17,
1993. U.S. District Court for the Southern
District of Indiana, Indianapolis Division.
(Exhibit to PSI Energy, Inc.'s 1992 Form
10-K.)
99-d *Amended Complaint of J. E. and Z. B. Butler
Foundation, as Plaintiff, and PSI Resources,
Inc., et al., as Defendants dated March 23,
1993. U.S. District Court for the Southern
District of Indiana, Indianapolis Division.
(Exhibit to PSI Energy, Inc.'s 1992 Form
10-K.)
Exhibit
Designation Nature of Exhibit
99-e *Class Action Complaint of Lamont Carpenter,
individually, and on behalf of all others
situated, as Plaintiffs, and PSI Resources,
Inc., et al., as Defendants dated March 26,
1993. U.S. District Court for the Southern
District of Indiana, Indianapolis Division.
(Exhibit to the Resources Schedule 14D-9.)
99-f *Complaint of Ronald Gaudiano and Gladys
Post, as Plaintiffs, and PSI Resources,
Inc., et al., as Defendants dated March 26,
1993. U.S. District Court for the Southern
District of Indiana, Indianapolis Division.
(Exhibit to the Resources Schedule 14D-9.)
99-g *Stipulated Order of Consolidation and
Appointment of Co-Lead Counsel and Liaison
Counsel, dated April 13, 1993, in the case
entitled Lydia Grady v. PSI Resources, Inc.
et al., (Case No. IP-93-345-C), U.S.
District Court for the Southern District of
Indiana. (Exhibit to Amendment No. 1 to
Schedule 14D-9 filed by PSI Resources, Inc.
(Commission File No. 1-9941) on April 23,
1993.)
99-h *Order of Dismissal dated July 1, 1993,
issued in Katz v. PSI Resources, Inc., et
al., (Case No. 32D02-9303-CP-27) Superior
Court for Hendricks County in the State of
Indiana. (Exhibit to Amendment No. 22 to
the Schedule 14D-9 filed by PSI Resources,
Inc. (Commission File No. 1-9941) on July 6,
1993.)
99-i *Order entered on July 19, 1993, in Katz v.
PSI Resources, Inc., et al., (Case No.
32D02-9303-CP-27), Superior Court for
Hendricks County in the State of Indiana.
(Exhibit to Amendment No. 26 to the Schedule
14D-9 filed by PSI Resources, Inc.
(Commission File No. 1-9941) on July 23,
1993.)
Exhibit
Designation Nature of Exhibit
99-j *Text of an Order Granting Preliminary
Injunction dated August 5, 1993, in In re:
PSI Merger Shareholder Litigation,
(Consolidated Master File No. IP 93-345-C),
U.S. District Court for the Southern
District of Indiana, Indianapolis Division;
Entry Regarding Motion for Preliminary
Injunction in the foregoing case. (Exhibit
to Amendment No. 29 to the Schedule 14D-9
filed by PSI Resources, Inc. (Commission
File No. 1-9941) on August 6, 1993.)
99-k *Third amended complaint of Moise Katz, as
Plaintiff, and PSI Resources, Inc., et al.,
as Defendants dated August 18, 1993.
Superior Court No. 2 of Hendricks County in
the State of Indiana. (Exhibit to PSI
Energy, Inc.'s September 30, 1993, Form 10-
Q.)
99-l *Press release issued by PSI Resources, Inc.
and The Cincinnati Gas & Electric Company
announcing that PSI Resources, Inc., The
Cincinnati Gas & Electric Company, and
IPALCO Enterprises, Inc. had reached a
settlement agreement. (Exhibit to PSI
Energy, Inc.'s Form 8-K dated October 27,
1993.)
________________________
+ Management contract, compensatory plan or arrangement required to be filed
as an exhibit pursuant to Item 14(c) of Form 10-K.
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
SCHEDULE V - ELECTRIC UTILITY PLANT*
FOR THE YEAR ENDED DECEMBER 31, 1993
Col. A Col. B Col. C Col. D Col. E Col. F
Retirements at Transfers & Re-
Balance at Original Cost classifications Balance at
Beginning Additions or Estimated Debits or Close of
Classification of Period at Cost Original Cost (Credits) Period
(in thousands)
<S> <C> <C> <C> <C> <C>
Electric utility plant in service
Production
Steam $1 520 298 $181 957 $27 048 $ 775 $1 675 982
Hydro 20 578 129 24 - 20 683
Other 17 824 50 440 1 023 - 67 241
Transmission 509 881 26 954 613 (442) 535 780
Distribution 920 229 75 645 10 288 442 986 028
General 151 020 14 017 1 617 (7) 163 413
Total electric utility plant
in service 3 139 830 349 142 40 613 768 3 449 127
Construction work in progress 232 105 11 697 - - 243 802
Total electric utility plant $3 371 935 $360 839 $40 613 $ 768 $3 692 929
*Reference is made to Note 1(c) of the "Notes to Consolidated Financial Statements" on page 42.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
SCHEDULE V - ELECTRIC UTILITY PLANT*
FOR THE YEAR ENDED DECEMBER 31, 1992
Col. A Col. B Col. C Col. D Col. E Col. F
Retirements at Transfers & Re-
Balance at Original Cost classifications Balance at
Beginning Additions or Estimated Debits or Close of
Classification of Period at Cost Original Cost (Credits) Period
(in thousands)
<S> <C> <C> <C> <C> <C>
Electric utility plant in service
Production
Steam $1 458 516 $ 69 333 $ 7 534 $ (17) $1 520 298
Hydro 20 261 406 89 - 20 578
Other 17 713 123 12 - 17 824
Transmission 491 111 19 858 1 917 829 509 881
Distribution 855 652 76 780 12 057 (146) 920 229
General 125 856 26 056 895 3 151 020
Total electric utility plant
in service 2 969 109 192 556 22 504 669 3 139 830
Construction work in progress 135 468 96 637 - - 232 105
Total electric utility plant $3 104 577 $289 193 $22 504 $ 669 $3 371 935
*Reference is made to Note 1(c) of the "Notes to Consolidated Financial Statements" on page 42.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
SCHEDULE V - ELECTRIC UTILITY PLANT*
FOR THE YEAR ENDED DECEMBER 31, 1991
Col. A Col. B Col. C Col. D Col. E Col. F
Retirements at Transfers & Re-
Balance at Original Cost classifications Balance at
Beginning Additions or Estimated Debits or Close of
Classification of Period at Cost Original Cost (Credits) Period
(in thousands)
<S> <C> <C> <C> <C> <C>
Electric utility plant in service
Production
Steam $1 431 056 $ 40 537 $13 089 $ 12 $1 458 516
Hydro 20 129 221 89 - 20 261
Other 17 715 2 4 - 17 713
Transmission 469 357 24 360 2 463 (143) 491 111
Distribution 801 613 65 799 11 888 128 855 652
General 111 796 15 689 1 615 (14) 125 856
Total electric utility plant
in service 2 851 666 146 608 29 148 (17) 2 969 109
Construction work in progress 113 271 22 197 - - 135 468
Total electric utility plant $2 964 937 $168 805 $29 148 $ (17) $3 104 577
*Reference is made to Note 1(c) of the "Notes to Consolidated Financial Statements" on page 42.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
SCHEDULE VI - ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1993
Col. A Col. B Col. C Col. D Col. E
Additions Deductions
Property Retired
Charged at Original Salvage
Balance at to Income as Cost or Less Balance at
Beginning Provision for Charged to Estimated Removal Close of
Classification of Period Depreciation Other Accounts Original Cost Cost Other Period
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Electric utility plant
in service
Production
Steam $ 805 679 $ 72 027 $347 $27 048 $ 5 986 $(243) $ 845 262
Hydro 10 915 472 - 24 (27) - 11 390
Other 17 762 1 220 - 1 023 - - 17 959
Transmission 195 603 11 720 - 613 636 (262) 206 336
Distribution 307 465 33 457 - 10 288 4 217 263 326 154
General 43 018 7 925 45 1 617 642 (41) 48 770
Total electric
utility plant
in service $1 380 442 $126 821 $392 $40 613 $11 454 $(283) $1 455 871
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
SCHEDULE VI - ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1992
Col. A Col. B Col. C Col. D Col. E
Additions Deductions
Property Retired
Charged at Original Salvage
Balance at to Income as Cost or Less Balance at
Beginning Provision for Charged to Estimated Removal Close of
Classification of Period Depreciation Other Accounts Original Cost Cost Other Period
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Electric utility plant
in service
Production
Steam $ 751 773 $ 66 804 $347 $ 7 534 $5 728 $ (17) $ 805 679
Hydro 10 595 466 - 89 57 - 10 915
Other 17 413 362 - 12 1 - 17 762
Transmission 186 679 11 170 - 1 917 130 (40) 195 842
Distribution 292 012 31 033 - 12 057 3 684 (161) 307 465
General 36 319 7 257 50 895 (52) 4 42 779
Total electric
utility plant
in service $1 294 791 $117 092 $397 $22 504 $9 548 $(214) $1 380 442
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
SCHEDULE VI - ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1991
Col. A Col. B Col. C Col. D Col. E
Additions Deductions
Property Retired
Charged at Original Salvage
Balance at to Income as Cost or Less Balance at
Beginning Provision for Charged to Estimated Removal Close of
Classification of Period Depreciation Other Accounts Original Cost Cost Other Period
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Electric utility plant
in service
Production
Steam $ 701 304 $ 64 935 $347 $13 089 $1 725 $ (1) $ 751 773
Hydro 10 229 463 - 89 8 - 10 595
Other 17 062 361 - 4 6 - 17 413
Transmission 179 371 10 723 - 2 463 1 007 (55) 186 679
Distribution 278 817 29 119 - 11 888 3 977 59 292 012
General 31 857 5 827 53 1 615 (193) (4) 36 319
Total electric
utility plant
in service $1 218 640 $111 428 $400 $29 148 $6 530 $ (1) $1 294 791
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1993
Col. A Col. B Col. C Col. D Col. E
Additions Deductions
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Accumulated Provisions Deducted from
Applicable Assets
Uncollectible accounts $ 76 275 $ 4 459 $ - $ 2 167 $ - $ 78 567 1/
Loss on generating station repair parts 7 493 554 - 2 356 - 5 691
Obsolete and/or excess materials 1 351 - - - 190 1 161
Deferred Income Taxes 2/ $188 252 $109 967 $20 818 $37 620 $ - $281 417
Other Accumulated Provisions
Injuries and damages $ 4 134 $ 2 529 $ - $ 3 559 $ - $ 3 104
Guaranteed death benefits applicable to
retired employees 4 828 188 - 160 94 4 762
Comprehensive health care for
active and retired employees and
their dependents 3 362 4 249 14 309 4 901 - 17 019
Major power outages 2 737 - - - - 2 737
Directors Deferred Compensation Plan 1 114 296 - 1 396 - 14
Long-term disability 186 17 5 - - 208
Executive supplemental life insurance 1 223 193 129 135 - 1 410
Voluntary Work Force Reduction Plan
supplemental benefit 4 570 292 92 770 - 4 184
Supplemental Pension Plans 1 803 532 426 517 - 2 244
Retirement Plan for Directors 823 233 - 37 18 1 001
Miscellaneous benefits 160 - - - - 160
Reserve for recourse obligation on sale
of accounts receivable 225 45 - 45 - 225
Total other accumulated provisions $ 25 165 $ 8 574 $14 961 $11 520 $112 $ 37 068
Notes: 1/ Includes $78,174 for the WVPA Marble Hill receivable. See Note 2 of the "Notes to Consolidated Financial
Statements" beginning on page 43.
2/ See Notes 1(d) and 14 of the "Notes to Consolidated Financial Statements" beginning on pages 42 and 55,
respectively, for further information with respect to deferred income taxes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1992
Col. A Col. B Col. C Col. D Col. E
Additions Deductions
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Accumulated Provisions Deducted from
Applicable Assets
Uncollectible accounts $ 73 744 $ 4 632 $ - $ 2 101 $ - $ 76 275 1/
Loss on generating station repair parts 7 339 872 - 718 - 7 493
Obsolete and/or excess materials 1 135 76 140 - - 1 351
Deferred Income Taxes 2/ $174 923 $38 634 $ - $25 282 $ 23 $188 252
Other Accumulated Provisions
Injuries and damages $ 3 243 $ 3 912 $ - $ 3 021 $ - $ 4 134
Guaranteed death benefits applicable to
retired employees 4 677 224 56 129 - 4 828
Comprehensive health care for
active and retired employees and
their dependents 3 852 65 16 - 571 3 362
Major power outages 2 737 - - - - 2 737
Directors Deferred Compensation Plan 873 241 - - - 1 114
Long-term disability 93 74 19 - - 186
Executive supplemental life insurance 1 139 190 47 95 58 1 223
Voluntary Work Force Reduction Plan
supplemental benefit 5 050 296 74 850 - 4 570
Supplemental Pension Plans 1 677 400 133 407 - 1 803
Retirement Plan for Directors 742 224 - 37 106 823
Miscellaneous benefits 160 - - - - 160
Reserve for recourse obligation on sale
of accounts receivable 225 38 - 38 - 225
Total other accumulated provisions $ 24 468 $ 5 664 $345 $ 4 577 $735 $ 25 165
Notes: 1/ Includes $75,838 for the WVPA Marble Hill receivable. See Note 2 of the "Notes to Consolidated Financial
Statements" beginning on page 43.
2/ See Notes 1(d) and 14 of the "Notes to Consolidated Financial Statements" beginning on pages 42 and 55,
respectively, for further information with respect to deferred income taxes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1991
Col. A Col. B Col. C Col. D Col. E
Additions Deductions
For Purposes
Balance at Charged For Which Balance at
Beginning Charged to to Other Reserves Were Close of
Description of Period Income Accounts Created Other Period
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Accumulated Provisions Deducted from
Applicable Assets
Uncollectible accounts $ 71 107 $ 5 096 $ - $ 2 459 $ - $ 73 744 1/
Loss on generating station repair parts 6 894 445 - - - 7 339
Obsolete and/or excess materials 550 205 380 - - 1 135
Deferred Income Taxes 2/ $201 609 $48 051 $ 36 $74 773 $ - $174 923
Other Accumulated Provisions
Injuries and damages $ 3 222 $ 1 861 $ - $ 1 840 $ - $ 3 243
Guaranteed death benefits applicable to
retired employees 4 637 170 30 160 - 4 677
Comprehensive health care for
active and retired employees and
their dependents 3 875 271 48 - 342 3 852
Major power outages 2 737 - - - - 2 737
Directors Deferred Compensation Plan 811 222 - 160 - 873
Long-term disability 170 - - 77 - 93
Executive supplemental life insurance 994 182 55 92 - 1 139
Voluntary Work Force Reduction Plan
supplemental benefit 5 343 544 96 933 - 5 050
Supplemental Pension Plans 1 695 278 68 218 146 1 677
Retirement Plan for Directors 533 203 26 20 - 742
Miscellaneous benefits 160 - - - - 160
Reserve for recourse obligation on sale
of accounts receivable 200 25 - - - 225
Total other accumulated provisions $ 24 377 $ 3 756 $323 $ 3 500 $488 $ 24 468
Notes: 1/ Includes $73,414 for the WVPA Marble Hill receivable. See Note 2 of the "Notes to Consolidated Financial
Statements" beginning on page 43.
2/ See Notes 1(d) and 14 of the "Notes to Consolidated Financial Statements" beginning on pages 42 and 55,
respectively, for further information with respect to deferred income taxes.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PSI ENERGY, INC.
Registrant
Dated: March 18, 1994
By /s/ James E. Rogers
(James E. Rogers) Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
James K. Baker Director
Hugh A. Barker Director
Michael G. Browning Director
Kenneth M. Duberstein Director
John A. Hillenbrand, II Director
John M. Mutz Director
Melvin Perelman, Ph.D. Director
Van P. Smith Director
Robert L. Thompson, Ph.D. Director
/s/ J. Wayne Leonard Senior Vice President and March 18, 1994
(J. Wayne Leonard) Director
Attorney-in-fact for all (Principal Financial Officer)
the foregoing persons
/s/ James E. Rogers Chairman, President and Director March 18, 1994
(James E. Rogers) (Principal Executive Officer)
/s/ Charles J. Winger Comptroller March 18, 1994
(Charles J. Winger) (Principal Accounting Officer)
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Exhibit 4-n
FIFTY-FIRST SUPPLEMENTAL
INDENTURE
TO
INDENTURE DATED SEPTEMBER 1, 1939.
----------------
PSI ENERGY, INC.
(FORMERLY NAMED "PUBLIC SERVICE COMPANY OF INDIANA, INC." AND
SUCCESSOR BY CONSOLIDATION TO PUBLIC SERVICE COMPANY OF INDIANA)
TO
LASALLE NATIONAL BANK
AS TRUSTEE
(SUCCESSOR TO THE FIRST NATIONAL BANK OF CHICAGO)
----------------
DATED AS OF FEBRUARY 1, 1994
----------------
CREATING FIRST MORTGAGE BONDS, SERIES AAA, 7 1/8%,
DUE FEBRUARY 1, 2024
AND
OTHERWISE SUPPLEMENTING AND AMENDING THE INDENTURE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Parties:
Company (PSI Energy, Inc. formerly named Public Service Company of
Indiana, Inc., successor by consolidation to Initial Mortgagor
(Public Service Company of Indiana)), and Trustee............... 1
Recitals:
Indenture of the Initial Mortgagor, dated September 1, 1939, and
First Supplemental Indenture thereto of the Initial Mortgagor,
dated as of March 1, 1941....................................... 1
Consolidation of Initial Mortgagor (and four other companies) into
the Company..................................................... 1
Execution by Company of Second Supplemental Indenture to the orig-
inal Indenture.................................................. 1
Company substituted for Initial Mortgagor under Indenture......... 2
Execution by Company of Third through the Fiftieth Supplemental
Indentures to the original Indenture............................ 2
LaSalle National Bank, successor to original Trustee.............. 3
Change of name of Company from Public Service Company of Indiana,
Inc. to PSI Energy, Inc......................................... 3
Amount of bonds presently outstanding under the Indenture......... 3
Fifty-First Supplemental Indenture and bonds of Series AAA autho-
rized........................................................... 4
Conditions precedent performed.................................... 5
Executing Clause................................................... 5
ARTICLE I.
First Mortgage Bonds, Series AAA, 7 1/8%,
Due February 1, 2024
Section 1. Creation and designation of bonds of Series AAA........ 5
Section 2. Bonds of Series AAA to be in registered form only...... 5
Form of face of bonds of Series AAA.................... 6
Form of reverse of bonds of Series AAA and Trustee's
certificate.......................................... 8
Section 3. Date of bonds of Series AAA............................ 11
Section 4. Maturity date and interest rate of bonds of Series AAA. 11
Section 5. Place and manner of payment of bonds of Series AAA..... 11
Section 6. Denominations and numbering of definitive bonds of Se-
ries AAA............................................. 11
Temporary bonds of Series AAA and exchange thereof for
definitive bonds..................................... 11
</TABLE>
<PAGE>
PAGE
----
ARTICLE II.
Issuance of Bonds of Series AAA.
<TABLE>
<S> <C> <C>
Section 1. $50,000,000 of bonds of Series AAA issuable at once...... 12
Section 2. Issuance of additional bonds of Series AAA............... 12
</TABLE>
ARTICLE III.
Indenture Amendments.
<TABLE>
<S> <C> <C>
Section 1. Amendments to Article I of the original Indenture........ 12
Section 2. Amendments to Article VII of the original Indenture...... 13
Section 3. No sinking fund for bonds of Series AAA.................. 13
</TABLE>
ARTICLE IV.
Concerning the Trustee.
<TABLE>
<S> <C>
Acceptance of trust by Trustee............................................. 13
Trustee not responsible for validity or sufficiency of Fifty-First Sup-
plemental Indenture, etc................................................. 13
Terms and conditions of Article XVII of the original Indenture to be ap-
plied to the Fifty-First Supplemental Indenture.......................... 13
</TABLE>
ARTICLE V.
Miscellaneous Provisions.
<TABLE>
<S> <C> <C>
Section 1. References in any article or section of the original
Indenture refer to such article or section as amended
by all Fifty-One Supplemental Indentures thereto..... 14
Section 2. Operation and construction of amendments to the origi-
nal Indenture........................................ 14
Section 3. All covenants, etc., for sole benefit of parties to the
Fifty-First Supplemental Indenture and holders of
bonds................................................ 14
Section 4. Table of contents and headings of articles not part of
Fifty-First Supplemental Indenture................... 14
Section 5. Execution of Fifty-First Supplemental Indenture in
counterparts......................................... 14
Section 6. Payments Due on Legal Holidays......................... 14
</TABLE>
<TABLE>
<S> <C>
Attestation Clause.......................................................... 15
Signatures.................................................................. 15
Acknowledgment by Company................................................... 16
Acknowledgment by Trustee................................................... 17
</TABLE>
ii
<PAGE>
FIFTY-FIRST SUPPLEMENTAL INDENTURE dated as of the first day of February,
1994, made and entered into by and between PSI Energy, Inc. (hereinafter com-
monly referred to as the "Company"), a corporation organized and existing un-
der the laws of the State of Indiana, formerly named Public Service Company of
Indiana, Inc., and the successor by consolidation to Public Service Company of
Indiana, an Indiana corporation, party of the first part, and LaSalle National
Bank, a national banking association organized and existing under the laws of
the United States and having its office or place of business in the City of
Chicago, State of Illinois and the successor trustee to The First National
Bank of Chicago (hereinafter commonly referred to as the "Trustee"), party of
the second part,
Witnesseth:
Whereas, Public Service Company of Indiana (hereinafter commonly referred to
as the "Initial Mortgagor"), prior to its consolidation with certain other
corporations to form the Company, executed and delivered to the Trustee a cer-
tain indenture of mortgage or deed of trust (hereinafter called the "original
Indenture" when referred to as existing prior to any amendment thereto, and
the "Indenture" when referred to as heretofore, now or hereafter amended),
dated September 1, 1939, and a First Supplemental Indenture thereto, dated as
of March 1, 1941, to secure the bonds of the Initial Mortgagor, its successors
and assigns, issued from time to time under the Indenture in series for the
purposes of and subject to the limitations specified in the Indenture; and
Whereas, the Company on September 6, 1941 became, through a consolidation,
the successor of the Initial Mortgagor (and four other companies) and suc-
ceeded to all the rights and became liable for all the obligations of the Ini-
tial Mortgagor (and such other companies); and
Whereas, after said consolidation, the Company executed and delivered a Sec-
ond Supplemental Indenture, dated as of November 1, 1941, to the original In-
denture for the purposes, among others, of (i) the making by the Company of an
agreement of assumption and adoption by it of the Indenture, (ii) the assump-
tion by the Company of the bonds (and interest and premium, if any, thereon)
issued or to be issued under the Indenture, and of all terms, covenants and
conditions binding upon it under the Indenture, and the agreeing by the Com-
pany to pay, perform and fulfill the same, and (iii) the conveying to the
Trustee upon the trusts
<PAGE>
declared in the Indenture, but subject to any outstanding liens and encum-
brances, all the property which the Company then owned or which it might
thereafter acquire, except property of a character similar to the property of
the Initial Mortgagor which is excluded from the lien of the Indenture; and
Whereas, all conditions have been met and all acts and things necessary have
been done and performed to make the Indenture the valid and binding agreement
of the Company and to substitute the Company for the Initial Mortgagor under
the Indenture, and to vest the Company with each and every right and power of
the Initial Mortgagor, including the right and power to issue bonds thereun-
der; and
Whereas, the Company has subsequently executed and delivered, for purposes
authorized under the Indenture, a Third Supplemental Indenture dated as of
March 1, 1942, a Fourth Supplemental Indenture dated as of May 1, 1943, a
Fifth Supplemental Indenture dated as of August 1, 1944, a Sixth Supplemental
Indenture dated as of September 1, 1945, a Seventh Supplemental Indenture
dated as of November 1, 1947, an Eighth Supplemental Indenture dated as of
January 1, 1949, a Ninth Supplemental Indenture dated as of May 1, 1950, a
Tenth Supplemental Indenture dated as of July 1, 1952, an Eleventh Supplemen-
tal Indenture dated as of January 1, 1954, a Twelfth Supplemental Indenture
dated as of October 1, 1957, a Thirteenth Supplemental Indenture dated as of
February 1, 1959, a Fourteenth Supplemental Indenture dated as of July 15,
1960, a Fifteenth Supplemental Indenture dated as of June 15, 1964, a Six-
teenth Supplemental Indenture dated as of January 1, 1969, a Seventeenth Sup-
plemental Indenture dated as of March 1, 1970, an Eighteenth Supplemental In-
denture dated as of January 1, 1971, a Nineteenth Supplemental Indenture dated
as of January 1, 1972, a Twentieth Supplemental Indenture dated as of February
1, 1974, a Twenty-First Supplemental Indenture dated as of August 1, 1974, a
Twenty-Second Supplemental Indenture dated as of August 1, 1975, a Twenty-
Third Supplemental Indenture dated as of January 1, 1977, a Twenty-Fourth Sup-
plemental Indenture dated as of October 1, 1977, a Twenty-Fifth Supplemental
Indenture dated as of September 1, 1978, a Twenty-Sixth Supplemental Indenture
dated as of September 1, 1978, a Twenty-Seventh Supplemental Indenture dated
as of March 1, 1979, a Twenty-Eighth Supplemental Indenture dated as of May 1,
1979, a Twenty-Ninth Supplemental Indenture dated as of March 1, 1980, a Thir-
tieth Supple-
2
<PAGE>
mental Indenture dated as of August 1, 1980, a Thirty-First Supplemental In-
denture dated as of February 1, 1981, a Thirty-Second Supplemental Indenture
dated as of August 1, 1981, a Thirty-Third Supplemental Indenture dated as of
December 1, 1981, a Thirty-Fourth Supplemental Indenture dated as of December
1, 1982, a Thirty-Fifth Supplemental Indenture dated as of March 30, 1984, a
Thirty-Sixth Supplemental Indenture dated as of November 15, 1984, a Thirty-
Seventh Supplemental Indenture dated as of August 15, 1985, a Thirty-Eighth
Supplemental Indenture dated as of October 1, 1986, a Thirty-Ninth Supplemen-
tal Indenture dated as of March 15, 1987, a Fortieth Supplemental Indenture
dated as of June 1, 1987, a Forty-First Supplemental Indenture dated as of
June 15, 1988, a Forty-Second Supplemental Indenture dated as of August 1,
1988, a Forty-Third Supplemental Indenture dated as of September 15, 1989, a
Forty-Fourth Supplemental Indenture dated as of March 15, 1990, a Forty-Fifth
Supplemental Indenture dated as of March 15, 1990, a Forty-Sixth Supplemental
Indenture dated as of June 1, 1990, a Forty-Seventh Supplemental Indenture
dated as of July 15, 1991, a Forty-Eighth Supplemental Indenture dated as of
July 15, 1992, a Forty-Ninth Supplemental Indenture dated as of February 15,
1993, and a Fiftieth Supplemental Indenture dated as of February 15, 1993,
each supplementing and amending the Indenture, and
Whereas, the Thirty-Fifth Supplemental Indenture, authorized and appointed
LaSalle National Bank, a national banking association, duly organized and ex-
isting under the law of the United States of America, with its principal of-
fice in Chicago, Illinois, as Successor Trustee to The First National Bank of
Chicago, which appointment was accepted, and all trust powers under the Inden-
ture were thereby transferred from The First National Bank of Chicago to
LaSalle National Bank; and
Whereas, the Forty-Sixth Supplemental Indenture amended the Indenture to
reflect a change in the name of the Company from Public Service Company of
Indiana, Inc. to PSI Energy, Inc. effective as of April 20, 1990; and
Whereas, as of February 1, 1994, the only bonds that have been heretofore is-
sued under the Indenture which are now outstanding are $26,429,000. aggregate
principal amount of "Public Service Company of
3
<PAGE>
Indiana, Inc. First Mortgage Bonds, Series S, 7%, Due January 1, 2002" and
$24,140,000. aggregate principal amount of "Public Service Company of Indiana,
Inc. First Mortgage Bonds, Series Y, 7 5/8%, Due January 1, 2007" and
$5,000,000. aggregate principal amount of "Public Service Company of Indiana,
Inc. First Mortgage Bonds, Series BB, 6 5/8%, Due March 1, 2004" and
$35,000,000. aggregate principal amount of "Public Service Company of Indiana,
Inc. First Mortgage Bonds, Series NN, 7.60%, Due March 15, 2012" and
$23,000,000. aggregate principal amount of "Public Service Company of Indiana,
Inc. First Mortgage Bonds, Series QQ, 8 1/4%, Due June 15, 2013" and
$50,000,000. aggregate principal amount of "Public Service Company of Indiana,
Inc. First Mortgage Bonds, Series RR, 9 3/4%, Due August 1, 1996" and
$10,000,000. aggregate principal amount of "Public Service Company of Indiana,
Inc. First Mortgage Bonds, Series TT, 7 3/8%, Due March 15, 2012" and
$14,250,000. aggregate principal amount of "Public Service Company of Indiana,
Inc. First Mortgage Bonds, Series UU, 7 1/2%, Due March 15, 2015" and
$300,000,000. aggregate principal amount of "PSI Energy, Inc. First Mortgage
Bonds, Series VV, Due July 15, 2026" and $230,000,000. aggregate principal
amount of "PSI Energy, Inc. First Mortgage Bonds, Series WW, Due August 15,
2027" and $30,000,000. aggregate principal amount of "PSI Energy, Inc. First
Mortgage Bonds, Series YY, 5.60%, Due February 15, 2023" and $50,000,000. ag-
gregate principal amount of "PSI Energy, Inc. First Mortgage Bonds, Series ZZ,
5 3/4%, Due February 15, 2028"; and
Whereas, in accordance with the provisions of Section 1 of Article XVIII of
the Indenture, the Board of Directors has authorized the execution and deliv-
ery by the Company of a Fifty-First Supplemental Indenture, substantially in
the form of this Fifty-First Supplemental Indenture, for the purpose of creat-
ing a forty-sixth series of bonds to be issued under the Indenture, to be
known as "PSI Energy, Inc. First Mortgage Bonds, Series AAA, 7 1/8%, Due Feb-
ruary 1, 2024" (such bonds being hereinafter referred to as "bonds of Series
AAA") and prescribing the form and substance of the bonds of Series AAA and
the terms, provisions and characteristics thereof, and for the purpose of add-
ing to the covenants and agreements of the Company for the protection of the
bondholders and of the trust estate and of making such changes in the Inden-
ture as are deemed necessary or desirable and as are permitted by the Inden-
ture; and
4
<PAGE>
Whereas, all conditions and requirements necessary to make this Fifty-First
Supplemental Indenture a valid, binding and legal instrument
have been done, performed and fulfilled and the execution and delivery hereof
have been in all respects duly authorized:
Now, Therefore, in consideration of the premises, and of the acceptance and
purchase of the bonds of Series AAA by the holders and registered owners
thereof, and of the sum of One Dollar ($1.00) duly paid by the Trustee to the
Company, the receipt whereof is hereby acknowledged, and in accordance with
and subject to the terms and provisions of the Indenture, the Company and the
Trustee, respectively, have entered into, executed and delivered this Fifty-
First Supplemental Indenture for the uses and purposes hereinafter expressed,
that is to say:
ARTICLE I.
First Mortgage Bonds, Series AAA, 7 1/8%,
Due February 1, 2024
Section 1. There is hereby created a forty-sixth series of bonds to be is-
sued under and secured by the Indenture, to be designated as "PSI Energy, Inc.
First Mortgage Bonds, Series AAA, 7 1/8%, Due February 1, 2024", being the
bonds of Series AAA hereinbefore referred to.
Section 2. The bonds of Series AAA shall be issued only in the form of reg-
istered bonds without coupons.
The bonds of Series AAA and the Trustee's certificate to be endorsed thereon
shall be substantially in the following forms, respectively:
5
<PAGE>
(form of face of series aaa bond)
No. AAA- $............
PSI Energy, Inc.
First Mortgage Bond, Series AAA, 7 1/8%,
Due February 1, 2024
PSI Energy, Inc., an Indiana corporation (hereinafter called the "Company"),
for value received, hereby promises to pay to .................................
............., or registered assigns, the principal sum of ....................
........................................................................Dollars
on the first day of February, 2024 and to pay to the registered owner hereof
interest on said sum from the date hereof, until said principal sum is paid,
at the rate of seven and one-eighth per centum (7 1/8%) per annum, payable
semi-annually on the first day of February and August in each year. Both the
principal of and the interest on this bond shall be payable in any coin or
currency of the United States of America which at the time of payment is legal
tender for the payment of public and private debts at the office or agency of
the Company in Plainfield, Indiana, or, at the option of the registered owner
hereof, at the office or agency of the Company in the Borough of Manhattan,
the City of New York, State of New York, except that interest on this bond may
be paid, at the option of the Company, by check or draft mailed to the address
of the person entitled thereto as it appears on the books of the Company main-
tained for that purpose.
REFERENCE IS MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH ON THE RE-
VERSE HEREOF. SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME
EFFECT AS THOUGH FULLY SET FORTH AT THIS PLACE.
This bond shall not be valid or become obligatory for any purpose unless and
until it shall have been authenticated by the execution by the Trustee, or its
successor in trust under the Indenture, of the certificate endorsed hereon.
6
<PAGE>
In Witness Whereof, PSI Energy, Inc. has caused this bond to be executed in
its name by the manual or facsimile signature of its President or an Executive
Vice President or one of its Vice Presidents, and its corporate seal or a fac-
simile thereof to be hereto affixed and attested by the manual or facsimile
signature of its Secretary or one of its Assistant Secretaries.
Dated as of:
PSI Energy, Inc.
By.............................................
......................................President
Attest:
..................................
.........................Secretary
7
<PAGE>
(form of reverse of series aaa bond)
This bond is one of the bonds of the Company issued and to be issued from
time to time under and in accordance with and all secured by an indenture of
mortgage or deed of trust, dated September 1, 1939, from Public Service
Company of Indiana (predecessor of the Company) to The First National Bank of
Chicago, as Trustee, to which LaSalle National Bank is successor trustee,
(which indenture as amended by all supplemental indentures is hereinafter
referred to as the "Indenture"). Said Trustee or its successor in trust under
the Indenture is hereinafter sometimes referred to as the "Trustee". Reference
is hereby made to the Indenture for a description of the property mortgaged
and pledged and the nature and extent of the security for said bonds. By the
terms of the Indenture the bonds secured thereby are issuable in series which
may vary as to date, amount, date of maturity, rate of interest and in other
respects as in the Indenture provided.
This bond is one of a series designated as "PSI Energy, Inc. First Mortgage
Bonds, Series AAA, 7 1/8%, Due February 1, 2024" (hereinafter referred to as
"bonds of Series AAA") of the Company issued under and secured by the
Indenture and created by a Fifty-First Supplemental Indenture, dated as of
February 1, 1994, which also amends the Indenture.
The rights and obligations of the Company and of the bearers and registered
owners of bonds may be modified or amended with the consent of the Company by
an affirmative vote of the bearers or registered owners entitled to vote of at
least seventy-five per centum (75%) in principal amount of the bonds then
outstanding at a meeting of bondholders called for the purpose (and by an
affirmative vote of the bearers or registered owners entitled to vote of at
least seventy-five per centum (75%) in principal amount of bonds of any series
affected by such modification or amendment in case one or more, but less than
all, series of bonds are so affected), all in the manner and subject to the
limitations set forth in the Indenture, any consent by the bearer or
registered owner of any bond being conclusive and binding upon such bearer or
registered owner and upon all future bearers or registered owners of such
bond, irrespective of whether or not any notation of such consent is made on
such bond; provided that no such modification or amendment shall, among other
things, extend the maturity or reduce the amount of, or
8
<PAGE>
reduce the rate of interest on, or otherwise modify the terms of the payment
of the principal of, or interest or premium (if any) on this bond, which
obligations are absolute and unconditional, or permit the creation of any lien
ranking prior to or equal with the lien of the Indenture on any of the
mortgaged property.
The bonds of Series AAA are not subject to redemption prior to February 1,
2004. On or after that date, the bonds of Series AAA are subject to redemption
prior to maturity, upon at least thirty (30) days' notice given in the manner
and with the effect provided in the Indenture and the Fifty-First Supplemental
Indenture, as a whole at any time or in part from time to time at the option
of the Company, upon payment of the percentages of the principal amount
thereof set forth in the tabulation below under the heading "Optional
Redemption Price" during the respective twelve (12) months' period beginning
February 1 in each of the years mentioned in said tabulation, to-wit:
<TABLE>
<CAPTION>
BEGINNING OPTIONAL
FEBRUARY REDEMPTION
1 PRICE
--------- ----------
<S> <C>
2004................. 102.58%
2005................. 102.32%
2006................. 102.06%
2007................. 101.80%
2008................. 101.55%
2009................. 101.29%
</TABLE>
<TABLE>
<CAPTION>
BEGINNING OPTIONAL
FEBRUARY REDEMPTION
1 PRICE
--------- ----------
<S> <C>
2010................. 101.03%
2011................. 100.77%
2012................. 100.52%
2013................. 100.26%
2014 and thereafter.. 100.00%
</TABLE>
together in any case with interest accrued thereon to the redemption date.
In the case of any of certain events of default specified in the Indenture,
the principal of this bond may be declared or may become due and payable prior
to the stated date of maturity hereof in the manner and with the effect
provided in the Indenture.
No recourse shall be had for the payment of the principal of or interest on
this bond, or for any claim based hereon, or otherwise in respect hereof or of
the Indenture, to or against any incorporator, shareholder, officer or direc-
tor, past, present or future, of the Company or of any predecessor or succes-
sor company, either directly or through the Company or such predecessor or
successor company, under any constitution or statute or rule of law, or by the
enforcement of any assessment or penalty, or otherwise, all such liability of
incorporators, shareholders,
9
<PAGE>
directors and officers being waived and released by the registered owner
hereof by the acceptance of this bond and being likewise waived and released
by the terms of the Indenture.
The bonds of Series AAA are issuable only in registered form without coupons.
This bond is transferable by the registered owner hereof, in person or by
attorney duly authorized, at the principal office or place of business of
LaSalle National Bank, the Trustee, or its successor in trust under the
Indenture, or, at the option of the registered owner, at the office or agency
of the Company in the Borough of Manhattan, the City of New York, State of New
York, upon the surrender and cancellation of this bond, and upon any such
transfer a new registered bond or bonds of the same series and maturity date
and for the same aggregate principal amount will be issued to the transferee
in exchange herefor.
The bonds of Series AAA are issuable in the denomination of $1,000 and in
such multiples thereof as shall from time to time be determined and authorized
by the Board of Directors of the Company. In the manner and subject to the
limitations provided in the Indenture, bonds of Series AAA are exchangeable as
between authorized denominations, upon presentation thereof for such purpose
by the registered owner, at the principal office or place of business of
LaSalle National Bank, the Trustee, or its successor in trust under the
Indenture, or, at the option of the registered owner, at the office or agency
of the Company in the Borough of Manhattan, the City of New York, State of New
York.
No service charge will be made for any transfer or exchange of this bond, but
the Company may require a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
(form of trustee's certificate)
TRUSTEE'S CERTIFICATE
This bond is one of the bonds of the series designated therein referred to
and described in the within mentioned Indenture and Fifty-First Supplemental
Indenture.
LaSalle National Bank,
as Trustee,
By.............................................
Authorized Officer
10
<PAGE>
Section 3. Each bond of Series AAA issued prior to the first interest pay-
ment date shall be dated as of February 1, 1994, and otherwise shall be dated
as provided in Section 1 of Article II of the Indenture.
Section 4. All bonds of Series AAA shall be due and payable on February 1,
2024, and shall bear interest from the date thereof at the rate of seven and
one-eighth per centum (7 1/8%) per annum, payable semi-annually on the first
day of February and August in each year, commencing August 1, 1994.
Section 5. Both the principal of and the interest on the bonds of Series AAA
shall be payable in any coin or currency of the United States of America which
at the time of payment is legal tender for the payment of public and private
debts, at the office or agency of the Company in Plainfield, Indiana, or, at
the option of the holder thereof, at the office or agency of the Company in
the Borough of Manhattan, the City of New York, State of New York, except that
interest on the bonds of Series AAA may be paid, at the option of the Company,
by check or draft mailed to the address of the person entitled thereto as it
appears on the books of the Company maintained for that purpose.
Section 6. Definitive bonds of Series AAA shall be issuable in any de-
nomination which is a multiple of $1,000 numbered consecutively from "AAA-1"
upward.
All bonds of Series AAA shall be executed on behalf of the Company by the
manual or facsimile signature of its President or an Executive Vice President
or one of its Vice Presidents and shall have affixed thereto the seal of the
Company or a facsimile thereof attested by the manual or facsimile signature
of its Secretary or one of its Assistant Secretaries and shall be authenti-
cated by the execution by the Trustee of the certificate endorsed on said
bonds.
No service charge will be made by the Company for the transfer or for the ex-
change of bonds of Series AAA, except, in the case of transfer, a charge suf-
ficient to reimburse the Company for any tax or other governmental charge pay-
able in connection therewith.
Pursuant to the provisions of Section 11 of Article II of the Indenture,
bonds of Series AAA may be issued in temporary form, and if temporary bonds be
issued, the Company shall, with all reasonable dispatch, at its own expense
and without charge to the holders of the temporary bonds,
11
<PAGE>
prepare and execute definitive bonds of Series AAA and exchange the temporary
bonds for such definitive bonds in the manner provided for in said section,
provided, however, no presentation or surrender of temporary bonds of Series
AAA shall be necessary in order for the holders entitled to interest thereon
to receive such interest.
ARTICLE II.
Issuance of Bonds of Series AAA.
Section 1. An initial issue of bonds of Series AAA, in the aggregate prin-
cipal amount not exceeding fifty million dollars ($50,000,000), may be exe-
cuted by the Company and delivered to the Trustee for authenti-
cation, and shall be authenticated and delivered by the Trustee to or upon the
order of the Company (which authentication and delivery may be made without
awaiting the filing or recording of this Fifty-First Supplemental Indenture),
upon receipt by the Trustee of the resolutions, certificates, orders, opinions
and other instruments required by the provisions of Section 3 of Article IV of
the Indenture to be received by the Trustee as a condition to the authentica-
tion and delivery by the Trustee of bonds pursuant to said Section 3.
Section 2. Subject to the limitations provided in Section 24 of Article V of
the Indenture, additional bonds of Series AAA may be issued by the Company un-
der the provisions of Sections 2, 3 or 4 of Article IV of the Indenture.
ARTICLE III.
Indenture Amendments.
Section 1. Article I of the Indenture, as heretofore amended, is hereby fur-
ther amended (i) by adding immediately after subdivision "(90)" thereof an ad-
ditional subdivision numbered "(91)" and reading as follows:
"(91) The term "Fifty-First Supplemental Indenture' shall mean the Fifty-
First Supplemental Indenture executed by the Company and the Trustee,
dated as of February 1, 1994, supplementing and amending the Indenture,
and the term "bonds of Series AAA' shall mean the "PSI Energy, Inc. First
Mortgage Bonds, Series AAA, 7 1/8%, Due February 1, 2024,' created by the
Fifty-First Supplemental Indenture."
and (ii) by changing the numbering of the present subdivision "(91)" thereof
to "(92)".
12
<PAGE>
Section 2. Article VII of the Indenture, as heretofore amended, is hereby
further amended by inserting therein immediately after Section 35 thereof, a
new section designated "Section 36" and reading as follows:
"Section 36. The bonds of Series AAA are not subject to redemption prior
to February 1, 2004. On or after that date, at the option of the Company,
and upon the notice and in the manner and with the effect provided in this
article, the bonds of Series AAA may be redeemed by the Company as a whole
at any time, or in part from time to time, prior to the maturity thereof,
by the payment of the principal amount of the bonds called for redemption
and accrued interest thereon to the date of redemption and a premium equal
to a percentage of the principal amount, as follows:
<TABLE>
<CAPTION>
IF REDEEMED
DURING
THE TWELVE
MONTHS'
PERIOD
COMMENCING
WITH THE FIRST
DAY OF A
FEBRUARY IN THE PREMIUM
YEAR: OF
--------------- -------
<C> <S> <C>
2004.......... 2.58%
2005.......... 2.32%
2006.......... 2.06%
2007.......... 1.80%
2008.......... 1.55%
2009.......... 1.29%
</TABLE>
<TABLE>
<CAPTION>
IF REDEEMED
DURING
THE TWELVE
MONTHS'
PERIOD
COMMENCING
WITH THE FIRST
DAY OF A
FEBRUARY IN THE PREMIUM
YEAR: OF
- --------------- -------
<S> <C> <C>
2010............. 1.03%
2011............. .77%
2012............. .52%
2013............. .26%
2014 and there-
after....... .00%
</TABLE>
Section 3. The bonds of Series AAA shall not be entitled to the benefit of a
sinking fund.
ARTICLE IV.
Concerning the Trustee.
The Trustee hereby accepts the trusts hereby declared and agrees to perform
the same upon the terms and conditions in the Indenture and in this Fifty-
First Supplemental Indenture set forth. The Trustee shall not be responsible
in any manner whatsoever for or in respect of the validity or sufficiency of
this Fifty-First Supplemental Indenture or the due execution hereof by the
Company or for or in respect of the recitals contained herein, all of which
recitals are made by the Company solely. In general, each and every term and
condition contained in Article XVII of the Indenture shall apply to this Fif-
ty-First Supplemental Indenture.
13
<PAGE>
ARTICLE V.
Miscellaneous Provisions.
Section 1. Wherever in the original Indenture or in any of the fifty- one
supplemental indentures thereto reference is made to any article or section of
the original Indenture, such reference shall be deemed to refer to such arti-
cle or section as amended by such supplemental indentures.
Section 2. Upon the execution and delivery hereof, the Indenture shall
thereupon be deemed to be amended as hereinabove set forth as fully and with
the same effect as if the amendments made hereby were set forth in the
original Indenture and each of the fifty-one supplemental indentures to the
Indenture shall henceforth be read, taken and construed as one and the same
instrument; but such amendments shall not operate so as to render invalid or
improper any action heretofore taken under the original Indenture or said
supplemental indentures.
Section 3. All the covenants, stipulations and agreements in this Fifty-First
Supplemental Indenture contained are and shall be for the sole and exclusive
benefit of the parties hereto, their successors and assigns, and of the hold-
ers from time to time of the bonds.
Section 4. The table of contents to, and the headings of the different arti-
cles of, this Fifty-First Supplemental Indenture are inserted for convenience
of reference, and are not to be taken to be any part of the provisions hereof,
nor to control or affect the meaning, construction or effect of the same.
Section 5. This Fifty-First Supplemental Indenture may be simultaneously exe-
cuted in any number of counterparts, and all such counterparts shall consti-
tute but one and the same instrument.
Section 6. Whenever a payment of principal or interest in respect of the
bonds of Series AAA is due on any day other than a Business Day (as hereinaf-
ter defined), such payment shall be payable on the first Business Day next
following such date, and, in the case of a principal payment, interest on such
principal payment shall accrue to the date of such principal payment. For the
purposes of this Section 6 the term Business Day shall mean any day other than
a day on which the Trustee is authorized by law to close.
14
<PAGE>
In Witness Whereof, said PSI Energy, Inc. has caused this instru-
ment to be executed in its corporate name by its President or one
of its Vice Presidents and to be attested by its Secretary or one
of its Assistant Secretaries and said LaSalle National Bank has
caused this instrument to be executed in its corporate name by one
of its Vice Presidents and to be attested by one of its Assistant
Secretaries, in several counterparts, all as of the day and year
first above written.
PSI Energy, Inc.
By /s/ J. Wayne Leonard
(J. Wayne Leonard)
Vice President
(Corporate Seal)
Attest:
/s/ E. Renae Conley
(E. Renae Conley) Assistant Secretary
Signed and delivered by PSI Energy,
Inc. in the presence of:
/s/ Glen Kingseed
(Glen Kingseed)
Witness
/s/ G. W. Roberts
(G. W. Roberts )
Witness
LaSalle National Bank
By /s/ Sarah H. Webb
(Sarah H. Webb) Vice President
Attest:
/s/ Lars P. Anderson
(Lars P. Anderson) Assistant
Secretary
Signed and delivered by LaSalle Na-
tional Bank in the presence of:
/s/ Diane S. Swanson
(Diane S. Swanson)
Witness
/s/ Mark F. Rimkus
(Mark F. Rimkus)
Witness
15
<PAGE>
State of Indiana ) ss:
County of Hendricks )
Be It Remembered, that on this 18th day of February, 1994, before me, the un-
dersigned, a notary public in and for the County and State aforesaid, duly
commissioned and qualified, personally appeared J. Wayne Leonard and E. Renae
Conley, personally known to me to be the same persons whose names are sub-
scribed to the foregoing instrument, and personally known to me to be a Vice
President and an Assistant Secretary, respectively, of PSI Energy, Inc., an
Indiana corporation, and acknowledged that they signed and delivered said in-
strument as their free and voluntary act as such Vice President and Assistant
Secretary, respectively, and as the free and voluntary act of said PSI Energy
Inc., for the uses and purposes therein set forth; in pursuance of the power
and authority granted to them by resolution of the Board of Directors of said
Company.
In Witness Whereof, I have hereunto set my hand and affixed my notarial seal
the day and year aforesaid.
(Notarial Seal)
/s/ Kerri L. Hitchcock
(Kerri L. Hitchcock) Notary Public
My commission expires February 2, 1998.
County of residence: Hendricks
16
<PAGE>
State of Illinois ^^ ss:
County of Cook ^^
Be It Remembered, that on this 17th day of February, 1994, before me, the
undersigned, a notary public in and for the County and State aforesaid, duly
commissioned and qualified, personally appeared Sarah H. Webb and Lars P.
Anderson, personally known to me to be the same persons whose names are
subscribed to the foregoing instrument, and personally known to me to be a
Vice President and an Assistant Secretary, respectively, of LaSalle National
Bank, a national banking association, and acknowledged that they signed and
delivered said instrument as their free and voluntary act as such Vice
President and Assistant Secretary, respectively, and as the free and voluntary
act of said LaSalle National Bank, for the uses and purposes therein set
forth; in pursuance of the power and authority granted to them by the bylaws
of said association.
In Witness Whereof, I have hereunto set my hand and affixed my notarial seal
the day and year aforesaid.
(Notarial Seal)
/s/ Helen S. Phillips
(Helen S. Phillips) Notary Public
My commission expires November 24, 1996.
County of residence: Cook
This instrument was prepared by Frank T. Lewis, Attorney-at-Law and Associate
General Counsel of PSI Energy, Inc., 1000 East Main Street, Plainfield, Indi-
ana.
17
Exhibit 10-a
Adopted by Board of Directors
July 30, 1991
PSI ENERGY, INC.
ANNUAL INCENTIVE PLAN
(As Amended and Restated Effective July 1, 1991)
INTRODUCTION
Effective January 1, 1987, PSI Energy, Inc. (formerly
Public Service Company of Indiana, Inc.) adopted a short-term
incentive compensation plan (Annual Incentive Plan) for the
exclusive benefit of its eligible employees. The Plan is an
incentive compensation plan in which certain employees are
granted awards payable in cash based upon the extent to which
certain predetermined goals are attained during the applicable
calendar year.
This document is a continuation of and complete restatement
of the Plan. The Plan, effective July 1, 1991, is set forth in
its entirety.
ARTICLE 1
DEFINITIONS
Whenever used in this document, the following terms shall
have the respective meanings set forth below, unless a different
meaning is plainly required by the context:
1.1 "Actual Incentive" means, with respect to each
Participant, the Minimum Incentive which when adjusted
in the manner set forth in Article 6 (Annual
Performance Award), constitutes the percentage applied
to a Participant's Earnings as of the applicable date
as determined by PSI's Committee which is the actual
amount of incentive compensation opportunity available
for a particular Performance Period. However, a
Participant's Actual Incentive may not exceed his
Maximum Incentive.
1.2 "Annual Performance Award" means, with respect to each
Participant, the short-term incentive compensation
award to which a Participant becomes entitled upon the
attainment of certain Corporate Target Goals and
Individual Goals for a particular Performance Period,
and which is calculated in the manner set forth in
Article 6 (Annual Performance Award).
1.3 "Beneficiary" means, with respect to each Participant,
the recipient designated by the Participant and, upon
the Participant's death entitled in accordance with
the Plan's terms to receive the benefits to be paid
with respect to the Participant.
1.4 "Chief Executive Officer" means the Employee elected
by PSI's Board of Directors to serve as the chief
executive officer of PSI.
1.5 "Corporate Target Goal" means an objective performance
criterion pertaining to PSI performance, efficiency,
or profitability such as, but not limited to, cash
flow, cost per kilowatt-hour, retained earnings, or
return on equity, used in determining whether a
Participant is entitled to receive an Annual
Performance Award at the end of a Performance Period.
1.6 "Earnings" means (a) with respect to an Exempt
Employee, the amount of the Employee's total annual
base salary (based on the Employee's monthly base
salary received as remuneration for services performed
for the Performance Period, exclusive of any
allowances, premiums, bonuses, overtime, or other
forms or types of compensation) for the Performance
Period; and (b) with respect to either a Non-Exempt
Employee or a Union Employee, the amount of the
Employee's total annual base wage (based on the
Employee's hourly base rate of pay received for
services performed for the Performance Period,
exclusive of any allowances, premiums, bonuses,
overtime, or other forms or types of compensation) for
the Performance Period.
1.7 "Employee" means any person in the employ of PSI at
any time on or after July 1, 1991.
1.8 "Employees' Life Insurance Plan" means PSI's general
employee life insurance plan known as the "PSI Energy,
Inc. Employees' Life Insurance Plan," and as the same
may be, from time to time, amended.
1.9 "Exempt Employee" means an Employee who is regularly
employed by his Employer for 30 or more hours per
week, whose pay is customarily computed on a monthly
basis, and whose employment is not subject to FLSA
overtime and record keeping provisions.
1.10 "FLSA" means the Fair Labor Standards Act of 1938, as
amended from time to time, and interpretive rulings
and regulations.
1.11 "Incentive Factor" means the numerical variable
assigned by PSI's Committee which corresponds to the
extent to which a Corporate Target Goal or an
Individual Goal has been met for a particular
Performance Period.
1.12 "Individual Goal" means an objective performance
criterion pertaining to individual performance or
achievement used in determining whether a Participant
is entitled to receive an Annual Performance Award at
the end of a Performance Period.
1.13 "Maximum Incentive" means, with respect to each
Participant, the percentage applied to a Participant's
Earnings as of the applicable date determined by PSI's
Committee to be the appropriate maximum incentive
compensation opportunity for a particular Performance
Period.
1.14 "Minimum Incentive" means, with respect to each
Participant, the percentage applied to a Participant's
Earnings as of the applicable date determined by PSI's
Committee to be the appropriate minimum incentive
compensation opportunity for a particular Performance
Period.
1.15 "1934 Act" means the Securities Exchange Act of 1934,
as amended from time to time, and interpretive rulings
and regulations.
1.16 "Non-Exempt Employee" means an Employee who is
regularly employed by his Employer for 30 or more
hours per week, whose pay is customarily computed on
an hourly, weekly, or bi-weekly basis, whose
employment is subject to FLSA overtime and record
keeping provisions, and who is not assigned to an
employment position covered by a collective bargaining
agreement to which his Employer is a party.
1.17 "Participant" means any Exempt Employee, Non-Exempt
Employee, or Union Employee selected by PSI's Board of
Directors to participate in the Plan pursuant to
Article 5 (Eligibility).
1.18 "Performance Period" means the period of time over
which performance with respect to a Corporate Target
Goal or an Individual Goal is measured. Each
Performance Period shall consist of a one year period
beginning on January 1 of each calendar year and
ending on December 31 of the same calendar year.
1.19 "Plan" means the short-term incentive compensation
plan known as the "PSI Energy, Inc. Annual Incentive
Plan," and as the same may be, from time to time,
amended. Effective July l, l991, this document sets
forth the Plan.
1.20 "PSI" means PSI Energy, Inc., an Indiana corporation,
and any corporation which shall succeed to the
business of that corporation as described in Article
17 (Continuance By a Successor).
1.21 "PSI's Board of Directors" means PSI's duly
constituted Board of Directors on the applicable date.
1.22 "PSI's Committee" means the duly designated
Compensation and Nominating Committee of PSI's Board
of Directors.
1.23 "Resources" means PSI Resources, Inc., an Indiana
corporation, or any other corporation whose common
stock is registered and traded on the New York Stock
Exchange and which owns all of the issued and
outstanding common stock of PSI.
1.24 "Resources' Board of Directors" means the duly
constituted board of directors of Resources on the
applicable date.
1.25 "Total Disability" means, with respect to any
Participant, a mental or physical condition as result
of an illness or injury which, in the judgment of
PSI's Committee, based upon medical reports and other
evidence satisfactory to PSI's Committee, prevents the
Participant from engaging in any gainful occupation
for which the Participant is reasonably qualified by
reason of education, training, or experience.
1.26 "Union Employee" means an Employee who is regularly
employed by his Employer for 30 or more hours per
week, whose pay is customarily computed on an hourly,
weekly, or bi-weekly basis, whose employment is
subject to FLSA overtime and record keeping
provisions, and who is assigned to an employment
position covered by a collective bargaining agreement
to which his Employer is a party.
The uses of singular and masculine words are for practical
purposes only and shall be deemed to include the plural and
feminine, respectively, unless the context plainly indicates a
distinction. Certain other definitions, as required, appear in
the following Articles of the Plan.
ARTICLE 2
EFFECTIVE DATE OF PLAN
The Plan's provisions, as originally adopted, were
effective January 1, 1987. The Plan's provisions, as amended
and set forth in this document, are effective July 1, 1991.
ARTICLE 3
PURPOSE OF PLAN
One of the Plan's purposes is to benefit shareholders and
ratepayers by the accomplishment of specific challenging and
demanding corporate and personalized goals, enhancement of
teamwork, motivation, high achievement, and the attraction and
retention of qualified Employees. Upon the accomplishment of
these corporate and personalized goals, the Plan provides a
reward for performance and maximum effort by Employees who
contribute to PSI's success. The Plan is an annual incentive
compensation plan in which an Exempt Employee, a Non-Exempt
Employee, or a Union Employee who is selected to participate in
the Plan is granted an award payable in cash, but only to the
extent that certain predetermined goals are attained during the
applicable calendar year used to measure performance.
ARTICLE 4
ADMINISTRATION
(a) The Plan shall be administered by PSI's Committee which
shall consist of members of PSI's Board of Directors who are
disinterested persons under Rule 16b-3 promulgated under the
1934 Act and successor rules. PSI's Committee is authorized to
establish all rules and regulations and to appoint any agents as
it deems appropriate for the Plan's proper administration and to
make any determinations under and to take any steps in
connection with the Plan for the benefits provided under the
Plan as it deems necessary or advisable. PSI's Committee may
require PSI to enter into agreements with each Participant as it
deems appropriate to reflect each Participant's interests under
the Plan.
(b) PSI's Committee shall have exclusive discretionary
authority and right to determine eligibility for participation
in the Plan and to interpret, construe, and regulate the Plan.
The decision of PSI's Committee with respect to any questions
arising as to the Employees selected to participate in the Plan,
the amount, and time of payment of benefits under the Plan or
any other matters concerning the Plan, including its
interpretation, construction, or regulation, shall be final,
conclusive and binding on PSI, Employees, Participants, and
Beneficiaries.
ARTICLE 5
ELIGIBILITY
(a) The group of Employees eligible to participate in the
Plan shall consist of Exempt Employees, Non-Exempt Employees,
and Union Employees who have the potential to contribute to
PSI's future success.
(b) From time to time, the Chief Executive Officer may
recommend to PSI's Committee that any eligible Employee
participate in the Plan. After reviewing the recommendations,
and after considering the duties of each recommended Employee,
his present and potential contribution to PSI's success, his
other compensation provided by PSI and any other factors as it
deems relevant, PSI's Board of Directors shall select those
Employees who will participate in the Plan. When an eligible
Employee becomes a Participant in the Plan at other than the
beginning of a Performance Period, the amount of any Annual
Performance Award to which he may become entitled shall be
adjusted to reflect his actual time of service as a Participant
during the Performance Period.
ARTICLE 6
ANNUAL PERFORMANCE AWARD
The Annual Performance Award, with respect to each
Participant, for each Performance Period shall be calculated in
the following manner:
(a) The appropriate weight for achieving a particular
Corporate Target Goal shall be determined by multiplying the
Incentive Factor attributable to the extent to which the
particular Corporate Target Goal has been met for the
Performance Period times the weight (expressed as a percentage)
assigned to that Corporate Target Goal. If there are two or
more Corporate Target Goals for a particular Performance Period,
then the weight for achieving each Corporate Target Goal shall
be calculated in the manner set forth in the immediately
preceding sentence;
(b) The appropriate weight for achieving a particular
Individual Goal shall be determined by multiplying the Incentive
Factor attributable to the extent to which the particular
Individual Goal has been met for the Performance Period times
the weight (expressed as a percentage) assigned to that
Individual Goal. If there are two or more Individual Goals for
a particular Performance Period, then the weight for achieving
each Individual Goal shall be calculated in the manner set forth
in the immediately preceding sentence;
(c) After the weight for achieving each Corporate Target
Goal and Individual Goal for the particular Performance Period
has been calculated in the manner set forth in Paragraphs (a)
and (b), the resulting percentages shall be added and the total
sum shall be multiplied by the Participant's Minimum Incentive
in order to determine the Participant's Actual Incentive; and
(d) The Participant's Actual Incentive shall then be
multiplied by the Participant's Earnings for the applicable
Performance Period. The resulting number, expressed in terms of
the nearest whole dollar, is the Participant's Annual
Performance Award.
ARTICLE 7
CORPORATE TARGET GOALS AND INDIVIDUAL GOALS
(a) The Corporate Target Goal for each Performance Period,
which Corporate Target Goal shall be applicable to all
Participants, shall be determined by PSI's Committee. When
there are more than one Corporate Target Goal for a particular
Performance Period, PSI's Committee may, but is not required to,
assign each goal equal weight and PSI's Committee may, but is
not required to, condition the entitlement to an Annual
Performance Award upon the attainment of one or more Corporate
Target Goals.
(b) PSI's Committee may, but is not required to, establish
one or more Individual Goals for a Participant for each
Performance Period in addition to establishing one or more
Corporate Target Goals. When there are more than one Individual
Goal for a Participant for a particular Performance Period,
PSI's Committee may, but is not required to, assign each goal
equal weight.
ARTICLE 8
DISTRIBUTION
After a determination has been made by PSI's Committee as
to the amount of Annual Performance Award to which a Participant
is entitled at the end of a Performance Period, the resulting
Annual Performance Award shall be paid to the Participant in
cash in one lump sum on the first business day of March
following the end of the Performance Period for which the
Performance Award was made.
ARTICLE 9
CONDITIONS TO ANNUAL PERFORMANCE AWARDS
9.1 Government Regulations
The Plan shall be subject to all applicable laws, rules,
and regulations and to all approvals by any governmental
agencies as may be required.
9.2 Continued Employment
(a) A Participant whose employment terminates by reason of
a quit, resignation, or discharge prior to the end of the
particular Performance Period shall be automatically divested of
any interest in or to any Annual Performance Award for that
Performance Period. If a Participant who has quit, resigned, or
who has been discharged is re-employed by PSI prior to the end
of the Performance Period in which the quit, resignation, or
discharge occurred, the Employee shall be reinstated as a
Participant for that Performance Period, but any Annual
Performance Award shall be adjusted to reflect the actual time
of service of the re-employed Participant during the Performance
Period.
(b) A Participant whose employment terminates by reason of
retirement or death prior to the end of the particular
Performance Period shall not necessarily be totally divested of
his interest in or to any Annual Performance Award for that
Performance Period. Instead, a determination shall be made by
PSI's Committee with respect to the retired or deceased
Participant as to the amount of the Annual Performance Award to
which he would have been entitled had he been a Participant on
the last day of the applicable Performance Period as though the
retirement or death had not occurred. However, any
determination shall be adjusted to reflect the actual time of
service of the retired or deceased Participant during the
Performance Period prior to the effective date of his retirement
or the date of his death.
(c) A Participant who during an applicable Performance
Period has incurred Total Disability shall not necessarily be
totally divested of his interest in or to any Annual Performance
Award for that Performance Period. Instead, a determination
shall be made by PSI's Committee with respect to the totally
disabled Participant as to the amount of the Annual Performance
Award to which he would have been entitled had he not been
totally disabled during the applicable Performance Period.
However, any determination shall be adjusted to reflect the
actual time of service of the totally disabled Participant
during the Performance Period.
ARTICLE 10
BENEFICIARY
If a Participant dies prior to the date on which an Annual
Performance Award or any installment thereof, is distributed,
the Annual Performance Award shall be paid to the highest
priority person or persons surviving at the time distribution is
actually paid or commences. Distribution priorities are as
follows:
(a) The Participant's Beneficiary
designated under the Participant's
last will and testament;
(b) The Participant's Beneficiary
designated under PSI's Employees'
Life Insurance Plan;
(c) The Participant's surviving spouse;
(d) The Participant's surviving
children, including adopted
children;
(e) The Participant's surviving parents;
(f) The Participant's surviving brothers
and sisters; or
(g) The Participant's estate.
Distribution of the Annual Performance Award to a Beneficiary
shall be made on the same date or dates as the Annual
Performance Award would have been made to the Participant as if
then living.
ARTICLE 11
NON-ALIENATION OF BENEFITS
The Plan shall not in any manner be liable for, or subject
to, the debts or liabilities of any Participant or Beneficiary.
No payee may assign any payment due him under the Plan. No
benefits at any time payable under the Plan shall be subject in
any manner to anticipation, alienation, sale, transfer,
assignment, pledge, attachment, garnishment, levy, execution, or
other legal or equitable process, or encumbrance of any kind.
ARTICLE 12
FUNDING POLICY AND METHOD
The Plan shall be totally unfunded. No benefit or promise
under the Plan shall be secured by any specific assets of PSI,
nor shall any assets of PSI be designated as attributable or
allocated to the satisfaction of PSI's obligations under the
Plan.
ARTICLE 13
CHANGE IN CONTROL
If a Change in Control of Resources occurs, each Corporate
Target Goal and Individual Goal shall be deemed to have been
fully satisfied at the Maximum Incentive level and each
Participant shall be entitled to receive an Incentive Award in
the same manner as though the Maximum Incentive level had been
obtained for the full Performance Period.
A Change in Control of Resources shall occur if (a) any
"person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the 1934 Act) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the 1934 Act) of more than 50
percent of the then outstanding voting stock of Resources,
otherwise than through a transaction arranged by, or consummated
with the prior approval of, Resources' Board of Directors, (b)
Resources' shareholders approve a definitive agreement to merge
or consolidate Resources with or into another corporation in a
transaction in which neither Resources nor any of its
subsidiaries or affiliates will be the surviving corporation, or
to sell or otherwise dispose of all or substantially all of
Resources' assets to any person or group other than Resources or
any of its subsidiaries or affiliates, other than a merger or a
sale which will result in the voting securities of Resources
outstanding prior to the merger or sale continuing to represent
at least 50 percent of the combined voting power of the voting
securities of the corporation surviving the merger or purchasing
the assets; or (c) during any period of two consecutive years,
individuals who at the beginning of that period constitute
Resources' Board of Directors (and any new director whose
election by the Board of Directors or whose nomination for
election by Resources' shareholders was approved by a vote of at
least two-thirds of the directors then still in office who
either were directors at the beginning of that period or whose
election or nomination for election was previously so approved)
cease for any reason, with the exception of the exercise of the
voting rights conferred upon the record holders of Resources'
cumulative preferred stock pursuant to the provision of
subparagraph (iii) of Article V(B)(iii) of Resources' Articles
of Incorporation, to constitute a majority of Resources' Board
of Directors.
Notwithstanding the provisions of Article 16 (Amendment and
Termination), the provisions of this Article may not be amended
by an amendment to the Plan effected within three years
following a Change in Control.
ARTICLE 14
MISCELLANEOUS
14.1 No Enlargement of Employee Benefits
This Plan is strictly a voluntary undertaking on the part
of PSI and shall not be deemed to constitute a contract between
PSI and any Participant or to be consideration for, or an
inducement to, or a condition of, the employment of any
Participant. Nothing contained in the Plan shall be deemed to
give any Participant the right to be retained in the service of
PSI or to interfere with the right of PSI to discharge any
Participant at any time. No Participant shall have any right to
benefits except to the extent provided in the Plan. Nothing
contained in the Plan shall be deemed to give any Participant a
continued entitlement to receive an Annual Performance Award for
any Performance Period. Any award under this Plan shall not be
deemed compensation for purposes of computing benefits or
contributions under any retirement plan of PSI unless otherwise
provided by that plan, and shall not affect any benefits under
any other PSI benefit plan of any kind or subsequently in effect
under which the availability or amount of benefits is related to
the level of compensation.
14.2 Notice of Address
Each Participant and Beneficiary entitled to benefits under
the Plan must file with the Company's Committee, in writing, his
post office address and each change of post office address. Any
communication, statement, or notice addressed to a person at his
latest post office address as filed with PSI's Committee will,
upon deposit in the United States mail with postage prepaid, be
binding upon that person for all purposes of the Plan.
14.3 No Individual Liability
It is the Plan's express purpose and intention that, except
as otherwise required by law, no individual liability whatever
shall attach to, or be incurred by, the shareholders, officers,
or members of PSI's Board of Directors, or any representatives
appointed by PSI, under or by reason of any of the terms or
conditions of the Plan. Each Participant shall be legally bound
by the Plan's provisions.
14.4 Delegation of Administrative Duties
Administrative duties imposed by this Plan may be delegated
by PSI's Committee to a PSI Employee charged with those duties.
14.5 Governing Laws
The Plan shall be construed and administered according to
the laws of the State of Indiana to the extent that those laws
are not preempted by the laws of the United States of America.
14.6 Risk of Participation
Nothing contained in the Plan shall be construed either as
a guarantee by PSI, or shareholders, officers, employees or
members of PSI's Board of Directors, of the value of any assets
of the Plan or as an agreement by the Plan or PSI, or its
shareholders, officers, employees or members of PSI's Board of
Directors, to indemnify anyone for any losses, damages, costs
and/or expenses resulting from participation in the Plan or any
investment, reinvestment, sale, distribution or retention of any
Plan assets.
14.7 Headings
The headings of articles, sections, subsections, paragraphs
or other parts of the Plan are for convenience of reference only
and do not define, limit, construe or otherwise affect the
contents of the Plan.
ARTICLE 15
CONTRIBUTIONS
No contributions to the Plan by Participants shall be
required or permitted under the Plan.
ARTICLE 16
AMENDMENT AND TERMINATION
PSI, by resolution of PSI's Board of Directors, shall have
the right, authority and power to alter, amend, modify, revoke
or terminate the Plan, and PSI, by resolution of PSI's Board of
Directors, shall also have the right, authority and power to
discontinue or suspend the payment of benefits under the Plan.
ARTICLE 17
CONTINUANCE BY A SUCCESSOR
If PSI is reorganized by way of merger, consolidation,
transfer of assets or otherwise, so that another corporation,
partnership or person shall succeed to all or substantially all
of PSI's business, the successor may be substituted for PSI
under the Plan by adopting the Plan.
IN WITNESS WHEREOF, PSI Energy, Inc. by action of its
shareholders has caused this master plan document to be executed
and approved by its duly authorized officers effective as of
July 1, 1991.
BY:/s/ James E. Rogers, Jr.
(James E. Rogers, Jr.) Chairman
APPROVED:/s/ Cheryl M. Foley
(Cheryl M. Foley)
Vice President and
General Counsel
Exhibit 10-v
Adopted by Board of Directors
July 2, 1993
AMENDMENT TO PSI ENERGY, INC.
ANNUAL INCENTIVE PLAN
(Effective July 2, 1993)
The PSI Energy, Inc. Annual Incentive Plan, as amended
and restated July 1, 1991, and amended December 11, 1992,
effective as of December 1, 1992, is hereby amended, effective
as of July 2, 1993, with respect to the modification of Article
13.
(1) Explanation of Amendment.
Article 13 is amended by excluding from the definition
of "Change in Control" any merger, consolidation or similar
transaction between PSI Energy, Inc. ("Energy") and either (1)
The Cincinnati Gas & Electric Company ("CG&E") that is approved
by Energy's Board of Directors, or (2) CINergy Corp., a
corporation to be formed under the laws of the State of Delaware
("CINergy"), pursuant to the terms of an amended and restated
agreement and plan of reorganization, entered into by and among
Energy, PSI Resources, Inc., CG&E, CINergy, and CINergy Sub,
Inc., a corporation to be formed under the laws of the State of
Ohio.
(2) Article 13 as Amended.
Article 13, as hereby amended, reads as follows:
"ARTICLE 13
CHANGE IN CONTROL
If a Change in Control of Energy occurs, each Corporate
Target Goal and Individual Goal shall be deemed to have been
fully satisfied at the Maximum Incentive level and each
Participant shall be entitled to receive an Incentive Award in
the same manner as though the Maximum Incentive level had been
obtained for the full Performance Period.
A 'Change in Control' of Energy shall occur if (a) any
'person' or 'group' (within the meaning of Sections 13(d) and
14(d)(2) of the 1934 Act) becomes the 'beneficial owner' (as
defined in Rule 13d-3 under the 1934 Act) of more than 50
percent of the then outstanding voting stock of Energy,
otherwise than through a transaction arranged by, or consummated
with the prior approval of, Energy's Board of Directors; (b)
Energy's shareholders approve a definitive agreement to merge or
consolidate Energy with or into another corporation in a
transaction in which neither Energy nor any of its subsidiaries
or affiliates will be the surviving corporation, or to sell or
otherwise dispose of all or substantially all of Energy's assets
to any person or group other than Energy or any of its
subsidiaries or affiliates, other than a merger or a sale which
will result in the voting securities of Energy outstanding prior
to the merger or sale continuing to represent at least 50
percent of the combined voting power of the voting securities of
the corporation surviving the merger or purchasing the assets;
or (c) during any period of two consecutive years, individuals
who at the beginning of that period constitute Energy's Board of
Directors (and any new director whose election by the Board of
Directors or whose nomination for election by Energy's
shareholders was approved by a vote of at least two-thirds of
the directors then still in office who either were directors at
the beginning of that period or whose election or nomination for
election was previously so approved) cease for any reason, with
the exception of the exercise of the voting rights conferred
upon the record holders of Energy's cumulative preferred stock
pursuant to the provision of Article V(B)(iii) of Energy's
Articles of Incorporation, to constitute a majority of Energy's
Board of Directors. Notwithstanding the foregoing, a Change in
Control shall not include any merger, consolidation or similar
transaction between Energy and either The Cincinnati Gas &
Electric Company ('CG&E') that is approved by Energy's Board of
Directors, or (2) CINergy Corp., a corporation to be formed
under the laws of the State of Delaware ('CINergy'), pursuant to
the terms of an amended and restated agreement and plan of
reorganization, entered into by and among Energy, PSI Resources,
Inc., CG&E, CINergy, and CINergy Sub, Inc., a corporation to be
formed under the laws of the State of Ohio.
Notwithstanding the provisions of Article 16 (Amendment
and Termination), the provisions of this Article may not be
amended by an amendment to the Plan effected within three years
following a Change in Control."
This Amendment is executed and approved by the duly
authorized officers of PSI Energy, Inc., effective as of
July 2, 1993.
By: /s/ James E. Rogers
James E. Rogers (Chairman,
President, and Chief Executive Officer)
Approved:
/s/ Cheryl M. Foley
Cheryl M. Foley (Vice President,
General Counsel, and Secretary)
Exhibit 10-w
SECOND AMENDMENT TO THE MASTER TRUST
AGREEMENT FOR DIRECTORS' PLANS
This Second Amendment to the Master Trust Agreement for
Directors' Plans, entered into effective July 2, 1993, expressly
amends and modifies that certain Master Trust Agreement dated as
of October 26, 1989, by and between PSI Resources, Inc.
(formerly PSI Holdings, Inc.) (the "Company"), and National City
Bank, Indiana (formerly Merchants National Bank & Trust Company)
("National City"), as trustee, to which U.S. Trust Company of
California, N.A. is the successor trustee (the "Trustee").
WHEREAS, effective as of October 26, 1989, the Company
and National City entered into a Master Trust Agreement
concerning the contributions of funds in trust with regard to
certain benefit plans applicable to directors of the Company
upon a "Potential Change in Control" or a "Change in Control" of
the Company as those terms are defined in the Master Trust
Agreement; and
WHEREAS, effective December 1, 1992, the Master Trust
Agreement was amended with respect to the definitions of
"Potential Change in Control" and "Change in Control" so as to
exclude from those definitions, with regard to any plan the
benefits of which are payable to participants solely in terms of
cash, the contemplated merger between the Company, PSI Energy,
Inc. ("Energy"), and The Cincinnati Gas & Electric Company
("CG&E"); and
WHEREAS, the Company desires to further amend the
Master Trust Agreement with respect to the definitions of
"Potential Change in Control" and "Change in Control" so as to
exclude from those definitions, with regard to any plan the
benefits of which are payable to participants solely in terms of
cash, any merger, consolidation, or similar transaction between
the Company and either (1) CG&E that is approved by the
Company's board of directors, or (2) CINergy Corp., a
corporation to be formed under the laws of the State of Delaware
("CINergy"), pursuant to the terms of an amended and restated
agreement and plan of reorganization, entered into by and among
the Company, Energy, CG&E, CINergy, and CINergy Sub, Inc., a
corporation to be formed under the laws of the State of Ohio;
WHEREAS, The Master Trust Agreement permits the Company
to amend the trust by means of a written document signed by the
Company and with the written consent of directors having at
least 65 percent of all amounts then held in the Trust credited
to their accounts, and such consents have been obtained.
NOW, THEREFORE, the parties agree as follows:
1. Effective as of July 2, 1993, the Company and the
Trustee agree that Article III of the Master Trust Agreement
shall be amended to read in full as follows:
"ARTICLE III
CHANGE IN CONTROL
SECTION 3.1 Definition of Potential Change in Control.
For purposes of this Trust, a Potential Change in Control of
the Company shall have occurred if (i) any corporation,
person, other entity or group becomes the 'beneficial owner'
(as defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of 25 percent or more of the then outstanding
voting stock of the Company; (ii) any such corporation,
person, entity or group beneficially owning 25 percent or
more of such securities increases its beneficial ownership
of such securities by five percent or more of the voting
power of such securities; or (iii) any person (including the
Company) publicly announces an intention to take actions
which, if consummated, would constitute a Change in Control
of the Company. Notwithstanding the foregoing, and only
with regard to any Plan covered by this Agreement the
benefits of which are payable to participants solely in
terms of cash, a Change in Control shall not include any
merger, consolidation or similar transaction between the
Company and The Cincinnati Gas & Electric Company ('CG&E')
approved by the Company's Board of Directors, or (ii)
CINergy, Corp., a corporation to be formed under the laws of
the State of Delaware ('CINergy'), pursuant to the terms of
an amended and restated agreement and plan of
reorganization, entered into by and among the Company, CG&E,
PSI Energy, Inc., CINergy, and CINergy Sub, Inc., a
corporation to be formed under the laws of the State of
Ohio."
SECTION 3.2 Definition of Change in Control. For
purposes of this Trust, a Change in Control of the Company
shall have occurred if (i) any corporation, person, other
entity or group, becomes the 'beneficial owner' (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934) of
more than 50 percent of the then outstanding voting stock of
the Company, otherwise than through a transaction arranged
by, or consummated with the prior approval of, the Company's
Board of Directors; (ii) the stockholders of the Company
approve a definitive agreement to merge or consolidate the
Company with or into another corporation in a transaction in
which neither the Company nor any of its subsidiaries or
affiliates will be the surviving corporation, or to sell or
otherwise dispose of all or substantially all of the
Company's assets to any person or group other than the
Company or any of its subsidiaries or affiliates, other than
a merger or a sale which will result in the voting
securities of the Company outstanding prior to the merger or
sale continuing to represent at least 50 percent of the
combined voting power of the voting securities of the
corporation surviving the merger or purchasing the assets;
or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constitute
the Company's Board of Directors (and any new director whose
election by the Board of Directors or whose nomination for
election by the Company's stockholders was approved by a
vote of at least two-thirds of the Directors then still in
office who either were Directors at the beginning of such
period or whose election or nomination for election was
previously so approved) cease for any reason, with the
exception of the exercise of the voting rights conferred
upon the record holders of the Company's cumulative
preferred stock pursuant to the provision of Article
V(B)(iii) of the Company's Articles of Incorporation, to
constitute a majority of the Company's Board of Directors.
Notwithstanding the foregoing, and only with regard to any
Plan covered by this Agreement the benefits of which are
payable to participants solely in terms of cash, a Change in
Control shall not include any merger, consolidation or
similar transaction between the Company and The Cincinnati
Gas & Electric Company ('CG&E') approved by the Company's
Board of Directors, or (ii) CINergy, Corp., a corporation to
be formed under the laws of the State of Delaware
('CINergy'), pursuant to the terms of an amended and
restated agreement and plan of reorganization, entered into
by and among the Company, CG&E, PSI Energy, Inc., CINergy,
and CINergy Sub, Inc., a corporation to be formed under the
laws of the State of Ohio."
2. The Master Trust Agreement otherwise remains in
full force and effect.
IN WITNESS WHEREOF, the parties have executed this
Second Amendment to the Master Trust Agreement for Directors'
Plans effective as of the date first above written.
PSI RESOURCES, INC.
By: /s/ James E. Rogers
James E. Rogers
Chairman
U.S TRUST COMPANY OF
CALIFORNIA, N.A.
By: /s/ Dennis M. Kunisaki
Name: Dennis M. Kunisaki
Title: Vice President
Exhibit 10-x
THIRD AMENDMENT TO THE MASTER TRUST
AGREEMENT FOR EMPLOYEES' PLANS
This Third Amendment to the Master Trust Agreement for
Employees' Plans, entered into effective July 2, 1993, expressly
amends and modifies that certain Master Trust Agreement dated as
of October 26, 1989, by and between PSI Resources, Inc.
(formerly PSI Holdings, Inc.) (the "Company"), and National City
Bank, Indiana (formerly Merchants National Bank & Trust Company)
("National City"), as trustee, to which U.S. Trust Company of
California, N.A. is the successor trustee (the "Trustee").
WHEREAS, effective as of October 26, 1989, the Company
and National City entered into a Master Trust Agreement
concerning the contribution of funds in trust with regard to
certain benefit plans applicable to employees upon a "Potential
Change in Control" or a "Change in Control" of the Company as
those terms are defined in the Master Trust Agreement; and
WHEREAS, effective December 1, 1992, the Master Trust
Agreement was amended with respect to the definitions of
"Potential Change in Control" and "Change in Control" so as to
exclude from those definitions, with regard to any plan the
benefits of which are payable to participants solely in terms of
cash, the contemplated merger between the Company, PSI Energy,
Inc. ("Energy"), and The Cincinnati Gas & Electric Company
("CG&E"); and
WHEREAS, the Company desires to further amend the
Master Trust Agreement with respect to the definitions of
"Potential Change in Control" and "Change in Control" so as to
exclude from those definitions, with regard to any plan the
benefits of which are payable to participants solely in terms of
cash, any merger, consolidation, or similar transaction between
the Company and either (1) CG&E that is approved by the
Company's board of directors, or (2) CINergy Corp., a
corporation to be formed under the laws of the State of Delaware
("CINergy"), pursuant to the terms of an amended and restated
agreement and plan of reorganization, entered into by and among
the Company, Energy, CG&E, CINergy, and CINergy Sub, Inc., a
corporation to be formed under the laws of the State of Ohio;
and
WHEREAS, the Master Trust Agreement permits the Company
to amend the trust by means of a written document signed by the
Company and with the written consent of employees having at
least 65 percent of all amounts then held in the Trust credited
to their accounts, and such consents have been obtained.
NOW, THEREFORE, the parties agree as follows:
1. Effective as of July 2, 1993, the Company and the
Trustee agree that Article III of the Master Trust Agreement
shall be amended to read in full as follows:
"ARTICLE III
CHANGE IN CONTROL
SECTION 3.1 Definition of Potential Change in Control.
For purposes of this Trust, a Potential Change in Control of
the Company shall have occurred if (i) any corporation,
person, other entity or group becomes the 'beneficial owner'
(as defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of 25 percent or more of the then outstanding
voting stock of the Company; (ii) any such corporation,
person, entity or group beneficially owning 25 percent or
more of such securities increases its beneficial ownership
of such securities by five percent or more of the voting
power of such securities; or (iii) any person (including the
Company) publicly announces an intention to take actions
which, if consummated, would constitute a Change in Control
of the Company. Notwithstanding the foregoing, and only
with regard to any Plan covered by this Agreement the
benefits of which are payable to participants solely in
terms of cash, a Change in Control shall not include any
merger, consolidation or similar transaction between the
Company and The Cincinnati Gas & Electric Company ('CG&E')
approved by the Company's Board of Directors, or (ii)
CINergy, Corp., a corporation to be formed under the laws of
the State of Delaware ('CINergy'), pursuant to the terms of
an amended and restated agreement and plan of
reorganization, entered into by and among the Company, CG&E,
PSI Energy, Inc., CINergy, and CINergy Sub, Inc., a
corporation to be formed under the laws of the State of
Ohio."
SECTION 3.2 Definition of Change in Control. For
purposes of this Trust, a Change in Control of the Company
shall have occurred if (i) any corporation, person, other
entity or group, becomes the 'beneficial owner' (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934) of
more than 50 percent of the then outstanding voting stock
of the Company, otherwise than through a transaction
arranged by, or consummated with the prior approval of, the
Company's Board of Directors; (ii) the stockholders of the
Company approve a definitive agreement to merge or
consolidate the Company with or into another corporation in
a transaction in which neither the Company nor any of its
subsidiaries or affiliates will be the surviving
corporation, or to sell or otherwise dispose of all or
substantially all of the Company's assets to any person or
group other than the Company or any of its subsidiaries or
affiliates, other than a merger or a sale which will result
in the voting securities of the Company outstanding prior to
the merger or sale continuing to represent at least 50
percent of the combined voting power of the voting
securities of the corporation surviving the merger or
purchasing the assets; or (iii) during any period of two
consecutive years, individuals who at the beginning of such
period constitute the Company's Board of Directors (and any
new director whose election by the Board of Directors or
whose nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds of the
Directors then still in office who either were Directors at
the beginning of such period or whose election or nomination
for election was previously so approved) cease for any
reason, with the exception of the exercise of the voting
rights conferred upon the record holders of the Company's
cumulative preferred stock pursuant to the provision of
Article V(B)(iii) of the Company's Articles of
Incorporation, to constitute a majority of the Company's
Board of Directors. Notwithstanding the foregoing, and only
with regard to any Plan covered by this Agreement the
benefits of which are payable to participants solely in
terms of cash, a Change in Control shall not include any
merger, consolidation or similar transaction between the
Company and The Cincinnati Gas & Electric Company ('CG&E')
approved by the Company's Board of Directors, or (ii)
CINergy, Corp., a corporation to be formed under the laws of
the State of Delaware ('CINergy'), pursuant to the terms of
an amended and restated agreement and plan of
reorganization, entered into by and among the Company, CG&E,
PSI Energy, Inc., CINergy, and CINergy Sub, Inc., a
corporation to be formed under the laws of the State of
Ohio."
2. The Master Trust Agreement otherwise remains in
full force and effect.
IN WITNESS WHEREOF, the parties have executed this
Third Amendment to the Master Trust Agreement for Employees'
Plans effective as of the date first above written.
PSI RESOURCES, INC.
By: /s/ James E. Rogers
James E. Rogers
Chairman
U.S. TRUST COMPANY OF
CALIFORNIA, N.A.
By: /s/ Dennis M. Kunisaki
Name: Dennis M. Kunisaki
Title: Vice President
Exhibit 10-Y
THIRD AMENDMENT TO THE MASTER
TRUST AGREEMENT FOR DIRECTORS' PLANS
This Third Amendment to the Master Trust Agreement for
Directors' Plans, entered into effective April 1, 1993,
expressly amends and modifies that certain Master Trust
Agreement dated as of October 26, 1989, by and between PSI
Resources, Inc. (formerly PSI Holdings, Inc.) (the "Company"),
and National City Bank, Indiana (formerly Merchants National
Bank & Trust Company) (the "National City"), as trustee, to
which U.S. Trust Company of California, N.A. is the successor
trustee (the "Trustee").
WHEREAS, effective as of October 26, 1989, the Company
and National City entered into a Master Trust Agreement
concerning the contribution of funds in trust with regard to
certain benefit plans applicable to directors upon a "Potential
Change in Control" or a "Change in Control" of the Company as
those terms are defined in the Master Trust Agreement;
WHEREAS, the Master Trust Agreement was previously
amended effective December 1, 1992, and July 2, 1993;
WHEREAS, the Company desires to further amend the
Master Trust Agreement to allow funding of non-equity benefit
plans by way of a letter of credit; to extend to three years the
period of time the trust corpus is to be held by the Trustee in
the absence of a Change in Control following a Potential Change
in Control before it is returned to the Company; and to
authorize the Company to determine, in its discretion, that the
threat associated with a "Potential Change in Control" ceases to
exist so that funding of non-equity benefit plans is not
necessary and that previously deposited funds may be returned to
the Company earlier than otherwise allowed by the Master Trust
Agreement; and
WHEREAS, the Company and the Trustee have determined
that none of the amendments is subject to the written consent
requirement of Section 6.2 of the Master Trust Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Effective April 1, 1993, the Company and the
Trustee agree that Sections 2.1(a) and 2.1(b) of the Master
Trust Agreement shall be amended to read in full as follows:
"SECTION 2.1 Trust. (a) The 'Required Funding Amount,'
as defined in the next sentence, shall be delivered by the
Company to the Trustee not later than 30 days after the
occurrence of a Potential Change in Control of the Company (as
defined in Article III) to be held in trust and to be
administered and disposed of by the Trustee as provided. The
Required Funding Amount shall consist of the sum of the amounts,
determined as provided in Section 2.1(b), which will be
sufficient to fund the obligations to pay to the Directors
benefits due to them pursuant to the Plans, plus an amount to
provide for expenses and other costs of maintaining the Trust.
The Required Funding Amount may be made by tendering either a
sum of cash (or in marketable securities having a fair market
value equal to such amount, or some combination thereof) or a
letter of credit equal to such amount, plus shares of the Common
Stock in respect of the Deferred Compensation Plan for Directors
and the 1989 Stock Option Plan.
(b) In the event of a Potential Change in Control of the
Company, the Company shall, every 6 months from the date of the
Potential Change in Control, unless the Trust Corpus shall
theretofore have been released pursuant to Article IV,
recalculate the Required Funding Amount as of the end of the
month immediately preceding the 6-month interval date as if the
Potential Change in Control had occurred at the end of that
month. If the amount so calculated exceeds the fair market
value of the assets then held in Trust, or, in the case of
Common Stock, if the number of shares required to provide
benefits under the Deferred Compensation Plan for Directors and
the 1989 Stock Option Plan exceeds the number then held in
Trust, the Company shall promptly (and in no event later than 30
days from the date of such 6-month interval date) either pay to
the Trustee an amount in cash (or marketable securities, or any
combination thereof) or tender to the Trustee a letter of credit
equal to the excess and an amount in Common Stock equal to the
excess number of shares. If the Required Funding Amount so
calculated is less than the fair market value of the assets held
in Trust, or with respect to the Deferred Compensation Plan for
Directors and the 1989 Stock Option Plan less than the number of
shares of Common Stock held in Trust, the Trustee, upon receipt
of written request from the Company, shall distribute to the
Company the difference. The Trustee receives and holds the
Required Funding Amount pursuant to this Trust's terms. The
Trustee has no affirmative duty to collect the Required Funding
Amount from the Company."
2. Effective April 1, 1993, the Company and the
Trustee agree that Section 2.1(e) shall be added to the Master
Trust Agreement as follows:
"(e) Notwithstanding anything in this Agreement to the
contrary, the Company, in its sole discretion, may determine
that, with regard to any plan covered by this Agreement the
benefits of which are payable to participants solely in terms of
cash, there is no obligation to deposit the Required Funding
Amount under Section 2.1(a) or to recalculate the Required
Funding Amount under Section 2.1(b) because the occurrence of a
Change in Control of the Company is not likely to occur in that
the threat associated with a Potential Change in Control no
longer exists."
3. Effective as of April 1, 1993, the Company and the
Trustee agree that Section 2.2(a) of the Master Trust Agreement
shall be amended to read in full as follows:
"SECTION 2.2 Trust Corpus. (a) The term "Trust
Corpus" means the amounts (including any letter of credit)
delivered to the Trustee as described in Section 2.1(a) plus all
amounts delivered thereafter pursuant to Section 2.1(b) (and
less amounts distributed from the Trust pursuant to Section
2.1(b) and Sections 4.2 and 4.3, or otherwise pursuant to this
Trust's terms), in whatever form held or invested as provided.
The Trust Corpus shall be held, invested, and reinvested by the
Trustee in cash or marketable securities or shares of Common
Stock only in accordance with this Section. Except for shares
of Common Stock delivered to the Trustee pursuant to Section
2.1(a) and (b), which shares shall be held by the Trustee until
distributed under Article IV, the Trustee shall use its good
faith efforts to invest or reinvest from time to time all or
such part of the Trust Corpus as it believes prudent under the
circumstances (taking into account, among other things,
anticipated cash requirements for the payment of benefits under
the Plans) in either one or a combination of the following
investments:
(i) Investments in direct obligations of the
United States of America or agencies of the United States of
America or obligations unconditionally and fully guaranteed as
to principal and interest by the United States of America, in
each case maturing within 1 year or less from the date of
acquisition, or in mutual funds investing in any such
obligations; or
(ii) Investments in negotiable certificates of
deposit (in each case maturing within 1 year or less from the
date of acquisition) issued by a commercial bank organized and
existing under the laws of the United States of America or any
state thereof having a combined capital and surplus of at least
$1 billion.
provided, however, that the Trustee shall not be liable for any
failure to maximize the income earned on that portion of the
Trust Corpus as is from time to time invested or reinvested as
set forth above, nor for any loss of income due to liquidation
of any investment which the Trustee, in its sole discretion,
believes necessary to make payments or to reimburse expenses
under the terms of this Trust. The Trustee may commingle the
funds constituting the Trust Corpus regardless of the fact that
each Plan may have a separate and distinct Required Funding
Amount."
4. Effective as of April 1, 1993, the Company and the
Trustee agree that Section 4.1 of the Master Trust Agreement
shall be amended to read in full as follows:
"SECTION 4.1 Delivery to the Company. (a) If the
Company delivers the Required Funding Amount to the Trustee upon
a Potential Change in Control, that amount and interest thereon,
if any, if the interest has not been previously paid to the
Company shall be returned to the Company 3 years after delivery
to the Trustee unless a Change in Control shall have occurred
during the 3-year period. The 3-year period shall be renewed in
the event of any subsequent Potential Change in Control
occurring during the initial period. The Company shall notify
the Trustee of the occurrence of a Change in Control or
Potential Change in Control, and the Trustee may rely on the
notice or on any other actual notice, satisfactory to the
Trustee, of a change or potential change which the Trustee may
receive.
(b) Notwithstanding anything in this Agreement to the contrary,
the Required Funding Amount with regard to any plan covered by
this Agreement the benefits of which are payable to participants
solely in terms of cash, shall be returned to the Company prior
to the conclusion of the initial 3-year period or any renewal
thereof if, in the Company's sole discretion, it is determined
that the occurrence of a Change in Control of the Company is not
likely to occur within the time period set forth in Section 4.1
because the threat associated with a Potential Change in Control
no longer exists."
5. The Master Trust Agreement, as previously amended,
otherwise remains in full force and effect.
IN WITNESS WHEREOF, the parties have executed this
Third Amendment to the Master Trust Agreement for Directors'
Plans effective as of the date first written above.
PSI RESOURCES, INC.
BY: /s/ James E. Rogers
James E. Rogers
Chairman
U.S. TRUST COMPANY OF
CALIFORNIA, N.A.
By: /s/ Dennis M. Kunisaki
Name: Dennis M. Kunisaki
Title: Vice President
Exhibit 10-z
FOURTH AMENDMENT TO THE MASTER
TRUST AGREEMENT FOR EMPLOYEES' PLANS
This Fourth Amendment to the Master Trust Agreement for
Employees' Plans, entered into effective April 1, 1993,
expressly amends and modifies that certain Master Trust
Agreement dated as of October 26, 1989, by and between PSI
Resources, Inc. (formerly PSI Holdings, Inc.) (the "Company"),
and National City Bank, Indiana (formerly Merchants National
Bank & Trust Company) ("National City"), as trustee, to which
U.S. Trust Company of California, N.A. is the successor trustee
(the "Trustee").
WHEREAS, effective as of October 26, 1989, the Company
and National City entered into a Master Trust Agreement
concerning the contribution of funds in trust with regard to
certain benefit plans applicable to employees upon a "Potential
Change in Control" or a "Change in Control" of the Company as
those terms are defined in the Master Trust Agreement;
WHEREAS, the Master Trust Agreement was previously
amended effective December 1, 1992, April 1, 1993, and July 2,
1993, with respect to certain provisions;
WHEREAS, the Company desires to further amend the Master
Trust Agreement to allow funding of non-equity benefit plans by
way of a letter of credit; to extend to three years the period
of time the trust corpus is to be held by the Trustee in the
absence of a Change in Control following a Potential Change in
Control before it is returned to the Company; to authorize the
Company, in its discretion, to determine that the threat
associated with a "Potential Change in Control" ceases to exist
so that funding of non-equity benefit plans is not necessary and
that previously deposited funds may be returned to the Company
earlier than otherwise allowed by the Master Trust Agreement;
and to modify the "Required Funding Amount" for the PSI Energy,
Inc. (formerly Public Service Company of Indiana, Inc.)
Severance Pay Plan to be determined by the Board of Directors on
a case-by-case basis in light of the existing circumstances;
WHEREAS, the Company and the Trustee have determined
that only the amendment to the funding requirement of the PSI
Energy, Inc. Severance Pay Plan is subject to the written
consent requirement of Section 6.2 of the Master Trust
Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Effective April 1, 1993, the Company and the Trustee
agree that Article II of the Master Trust Agreement shall be
amended to read in full as follows:
"ARTICLE II
TRUST AND THE TRUST CORPUS
Section 2.1 Trust. (a) The 'Required Funding Amount,' as
defined in the next sentence, shall be delivered by the Company
to the Trustee to be held in trust and to be administered and
disposed of by the Trustee as provided not later than 30 days
after the occurrence of a Potential Change in Control of the
Company (as defined in Article III) as to the Performance Shares
Plan, the 1989 Stock Option Plan, and the Employee Stock
Purchase and Savings Plan, and not later than 180 days after
such Potential Change in Control as to all other plans. The
Required Funding Amount shall consist of the sum of the amounts,
determined as provided in Section 2.1(b), which will be
sufficient to fund the obligations to pay to the Employees
benefits due to them pursuant to the Plans, plus an amount to
provide for expenses and other costs of maintaining the Trust.
The Required Funding Amount may be made by tendering either a
sum of cash (or in marketable securities having a fair market
value equal to such amount, or some combination thereof) or a
letter of credit equal to such amount, plus shares of the Common
Stock in respect of the Performance Shares Plan, the 1989 Stock
Option Plan, and the Employee Stock Purchase and Savings Plan.
(b) In the event of a Potential Change in Control of the
Company, the Company shall, every 6 months from the date of the
Potential Change in Control, unless the Trust Corpus shall
theretofore have been released pursuant to Article IV,
recalculate the Required Funding Amount as of the end of the
month immediately preceding the 6-month interval date as if the
Potential Change in Control had occurred at the end of that
month. If the amount so calculated exceeds the fair market
value of the assets then held in Trust, or, in the case of
Common Stock, if the number of shares required to provide
benefits under the Performance Shares Plan, the 1989 Stock
Option Plan, and the Employee Stock Purchase and Savings Plan
exceeds the number then held in Trust, the Company shall
promptly (and in no event later than 30 days from the date of
such 6-month interval date) either pay to the Trustee an amount
in cash (or marketable securities, or any combination thereof)
or tender to the Trustee a letter of credit equal to the excess
and an amount in Common Stock equal to the excess number of
shares. If the Required Funding Amount so calculated is less
than the fair market value of the assets held in Trust, or with
respect to the Performance Shares Plan, the 1989 Stock Option
Plan, and the Employee Stock Purchase and Savings Plan less than
the number of shares of Common Stock held in Trust, the Trustee,
upon receipt of written request from the Company, shall
distribute to the Company the difference. The Trustee receives
and holds the Required Funding Amount pursuant to this Trust's
terms. The Trustee has no affirmative duty to collect the
Required Funding Amount from the Company.
(c) The Required Funding Amount shall be determined as to
each of the Plans as follows:
(i) Under the Public Service Company of
Indiana, Inc. Executive Supplemental Life Insurance Program, an
amount of cash, on an undiscounted basis, equal to the face
value of all life insurance policies issued under the Plan as of
the date of the Potential Change in Control;
(ii) Under the Public Service Company of
Indiana, Inc. Supplemental Pension Plan, an amount of cash, on
an undiscounted basis, equal to the sum of all payments that
would become due at age 65 and thereafter if the Employee's
employment terminated on the date of the Potential Change in
Control, using the actuarial life expectancies used under Public
Service Company of Indiana, Inc.'s qualified Pension Plan;
(iii) Under the Public Service Company of
Indiana, Inc. Supplemental Retirement Plan, an amount of cash,
on an undiscounted basis, equal to the sum of all payments that
would become due at age 65 and thereafter if the Employee's
employment terminated on the date of the Potential Change in
Control;
(iv) Under the Public Service Company of
Indiana, Inc. Performance Shares Plan, a number of shares of
Common Stock equal to the vested but not distributed stock
awards and an amount of cash equal to the earnings on the vested
but not distributed stock awards under the Plan as of the date
of the Potential Change in Control;
(v) Under the Public Service Company of
Indiana, Inc. Annual Incentive Plan, an amount of cash, on an
undiscounted basis, equal to the cash awards vested but not
distributed under the Plan as of the date of the Potential
Change in Control;
(vi) Under the Public Service Company of
Indiana, Inc. 1989 Voluntary Work Force Reduction Plan, an
amount of cash, on an undiscounted basis, equal to the unpaid
separation, supplemental, and actuarial reduction replacement
benefits which will be paid to those Employees who elected to
participate in the Plan as of the date of the Potential Change
in Control;
(vii) Under the PSI Holdings, Inc. 1989 Stock
Option Plan, a number of shares of Common Stock equal to the
number of shares in stock options granted to Employees under the
Plan as of the date of the Potential Change in Control;
(viii) Under the Public Service Company of
Indiana, Inc. Severance Pay Plan, an amount of cash, on an
undiscounted basis, which in the opinion of the Company's Board
of Directors determined, in light of existing facts and
circumstances, to be sufficient to protect the interest of the
Company's employees; and
(ix) Under the PSI Holdings, Inc. Employee Stock
Purchase and Savings Plan, a number of shares of Common Stock
equal to the number of shares in stock options granted to
Employees under the Plan as of the date of the Potential Change
in Control, and an amount of cash, on an undiscounted basis,
equal to the amount of cash in the Employees' purchase savings
accounts under the Plan as of that date.
(d) The payment by the Company, its subsidiaries or
affiliates pursuant to Section 2.1(a) and (b) shall be
accompanied by a schedule of the individual Employees for whose
accounts such payment is being made, which sets forth the
amounts delivered in respect of each Employee in respect of each
of the Plans and the address of each Employee."
2. Effective April 1, 1993, the Company and the
Trustee agree that Section 2.1 (e) shall be added to the Master
Trust Agreement as follows:
"(e) Notwithstanding anything in this Agreement to the
contrary, the Company, in its sole discretion, may determine
that, with regard to any plan covered by this Agreement the
benefits of which are payable to participants solely in terms of
cash, there is no obligation to deposit the Required Funding
Amount under Section 2.1(a) or to recalculate the Required Fund
Amount under Section 2.1(b) because the occurrence of a Change
in Control of the Company is not likely to occur in that the
threat associated with a Potential Change in Control no longer
exists."
3. Effective as of April 1, 1993, the Company and the
Trustee agree that Section 2.2(a) of the Master Trust Agreement
shall be amended to read in full as follows:
"SECTION 2.2 Trust Corpus. (a) The term "Trust
Corpus" means the amounts (including any letter of credit)
delivered to the Trustee as described in Section 2.1(a) plus all
amounts delivered thereafter pursuant to Section 2.1(b) (and
less amounts distributed from the Trust pursuant to Section
2.1(b) and Sections 4.2 and 4.3, or otherwise pursuant to this
Trust's terms), in whatever form held or invested as provided.
The Trust Corpus shall be held, invested, and reinvested by the
Trustee in cash or marketable securities or shares of Common
Stock only in accordance with this Section. Except for shares
of Common Stock delivered to the Trustee pursuant to Section
2.1(a) and (b), which shares shall be held by the Trustee until
distributed under Article IV, the Trustee shall use its good
faith efforts to invest or reinvest from time to time all or
such part of the Trust Corpus as it believes prudent under the
circumstances (taking into account, among other things,
anticipated cash requirements for the payment of benefits under
the Plans) in either one or a combination of the following
investments:
(i) Investments in direct obligations of the
United States of America or agencies of the United States of
America or obligations unconditionally and fully guaranteed as
to principal and interest by the United States of America, in
each case maturing within 1 year or less from the date of
acquisition, or in mutual funds investing in any such
obligations; or
(ii) Investments in negotiable certificates of
deposit (in each case maturing within 1 year or less from the
date of acquisition) issued by a commercial bank organized and
existing under the laws of the United States of America or any
state thereof having a combined capital and surplus of at least
$1 billion.
provided, however, that the Trustee shall not be liable for any
failure to maximize the income earned on that portion of the
Trust Corpus as is from time to time invested or reinvested as
set forth above, nor for any loss of income due to liquidation
of any investment which the Trustee, in its sole discretion,
believes necessary to make payments or to reimburse expenses
under the terms of this Trust. The Trustee may commingle the
funds constituting the Trust Corpus regardless of the fact that
each Plan may have a separate and distinct Required Funding
Amount."
4. Effective as of April 1, 1993, the Company and the
Trustee agree that Section 4.1 of the Master Trust Agreement
shall be amended to read in full as follows:
"SECTION 4.1 Delivery to the Company. (a) If the
Company delivers the Required Funding Amount to the Trustee upon
a Potential Change in Control, that amount and interest thereon,
if any, if the interest has not been previously paid to the
Company shall be returned to the Company 3 years after delivery
to the Trustee unless a Change in Control shall have occurred
during the 3-year period. The 3-year period shall be renewed in
the event of any subsequent Potential Change in Control
occurring during the initial period. The Company shall notify
the Trustee of the occurrence of a Change in Control or
Potential Change in Control, and the Trustee may rely on the
notice or on any other actual notice, satisfactory to the
Trustee, of a change or potential change which the Trustee may
receive.
(b) Notwithstanding anything in this Agreement to the
contrary, the Required Funding Amount with regard to any plan
covered by this Agreement the benefits of which are payable to
participants solely in terms of cash, shall be returned to the
Company prior to the conclusion of the initial 3-year period or
any renewal thereof if, in the Company's sole discretion, it is
determined that the occurrence of a Change in Control of the
Company is not likely to occur within the time period set forth
in Section 4.1 because the threat associated with a Potential
Change in Control no longer exists."
5. The Master Trust Agreement, as previously amended,
otherwise remains in full force and effect.
IN WITNESS WHEREOF, the parties have executed this
Fourth Amendment to the Master Trust Agreement for Employees'
Plans effective as of the date first written above.
PSI RESOURCES, INC.
By: /s/ James E. Rogers
James E. Rogers
Chairman
U.S. TRUST COMPANY OF
CALIFORNIA, N.A.
By: /s/ Dennis M. Kunisaki
Name: Dennis M. Kunisaki
Title: Vice President
EXHIBIT 21
SUBSIDIARIES OF PSI ENERGY, INC.
COMPANY STATE OF INCORPORATION
PSI Energy Argentina, Inc. Indiana
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into PSI Energy,
Inc.'s previously filed Registration Statement File Nos. 33-48612 and
33-57064.
ARTHUR ANDERSEN & CO.
Indianapolis, Indiana,
March 18, 1994.
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, James K. Baker, of
the City of Columbus and State of Indiana, do hereby constitute
and appoint James E. Rogers and J. Wayne Leonard, or either of
them, of the Town of Plainfield and State of Indiana, my true and
lawful attorney for me and in my name to sign my name as a
director of PSI Resources, Inc. and PSI Energy, Inc., Indiana
corporations, to the Form 10-K Annual Report of each corporation
for the fiscal year ended December 31, 1993, and to deliver said
Form 10-K Annual Reports so signed for filing with the Securities
and Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Columbus and State of Indiana on this 4th day of
March, 1994.
James K. Baker
STATE OF INDIANA )
) SS:
COUNTY OF BARTHOLOMEW )
Before me, Velma Pauline McBride , a notary public in
and for the aforesaid County and State, personally appeared this
day James K. Baker, to me known, and known to me to be the same
person whose name is signed to the foregoing instrument, and he
acknowledged that he executed the same as his free and voluntary
act and deed for the uses and purposes therein set forth.
WITNESS my hand and notarial seal this 4th day of March,
1994.
Velma Pauline McBride (SEAL)
Notary Public
My commission expires:
May 4, 1994
My county of residence:
Bartholomew
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Hugh A. Barker, of
the Town of Plainfield and State of Indiana, do hereby constitute
and appoint James E. Rogers and J. Wayne Leonard, or either of
them, of the Town of Plainfield and State of Indiana, my true and
lawful attorney for me and in my name to sign my name as a
director of PSI Resources, Inc. and PSI Energy, Inc., Indiana
corporations, to the Form 10-K Annual Report of each corporation
for the fiscal year ended December 31, 1993, and to deliver said
Form 10-K Annual Reports so signed for filing with the Securities
and Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the Town of Plainfield and State of Indiana on this 7th day of
March, 1994.
Hugh A. Barker
STATE OF INDIANA )
) SS:
COUNTY OF HENDRICKS )
Before me, Linda D. Walker , a notary public in
and for the aforesaid County and State, personally appeared this
day Hugh A. Barker, to me known, and known to me to be the same
person whose name is signed to the foregoing instrument, and he
acknowledged that he executed the same as his free and voluntary
act and deed for the uses and purposes therein set forth.
WITNESS my hand and notarial seal this 7th day of March,
1994.
Linda D. Walker (SEAL)
Notary Public
My commission expires:
July 6, 1994
My county of residence:
Hendricks
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Michael G. Browning,
of the City of Carmel and State of Indiana, do hereby constitute
and appoint James E. Rogers and J. Wayne Leonard, or either of
them, of the Town of Plainfield and State of Indiana, my true and
lawful attorney for me and in my name to sign my name as a
director of PSI Resources, Inc. and PSI Energy, Inc., Indiana
corporations, to the Form 10-K Annual Report of each corporation
for the fiscal year ended December 31, 1993, and to deliver said
Form 10-K Annual Reports so signed for filing with the Securities
and Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Carmel and State of Indiana on this 9th day of
March, 1994.
Michael G. Browning
STATE OF INDIANA )
) SS:
COUNTY OF HAMILTON )
Before me, Bonny J. Light , a notary public in
and for the aforesaid County and State, personally appeared this
day Michael G. Browning, to me known, and known to me to be the
same person whose name is signed to the foregoing instrument, and
he acknowledged that he executed the same as his free and
voluntary act and deed for the uses and purposes therein set
forth.
WITNESS my hand and notarial seal this 9th day of March,
1994.
Bonny J. Light (SEAL)
Notary Public
My commission expires:
January 18, 1996
My county of residence:
Hamilton
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Kenneth M.
Duberstein, of the City of Washington and District of Columbia,
do hereby constitute and appoint James E. Rogers and J. Wayne
Leonard, or either of them, of the Town of Plainfield and State
of Indiana, my true and lawful attorney for me and in my name to
sign my name as a director of PSI Resources, Inc. and PSI Energy,
Inc., Indiana corporations, to the Form 10-K Annual Report of
each corporation for the fiscal year ended December 31, 1993, and
to deliver said Form 10-K Annual Reports so signed for filing
with the Securities and Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Washington and District of Columbia on this 8th day
of March, 1994.
Kenneth M. Duberstein
DISTRICT OF COLUMBIA )
) SS:
CITY OF WASHINGTON )
Before me, Leslie P. Warren , a notary public in
and for the aforesaid County and State, personally appeared this
day Kenneth M. Duberstein, to me known, and known to me to be the
same person whose name is signed to the foregoing instrument, and
he acknowledged that he executed the same as his free and
voluntary act and deed for the uses and purposes therein set
forth.
WITNESS my hand and notarial seal this 8th day of March,
1994.
Leslie P. Warren (SEAL)
Notary Public
My commission expires:
July 14, 1998
My county of residence:
N/A
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, John A. Hillenbrand
II, of the City of Batesville and State of Indiana, do hereby
constitute and appoint James E. Rogers and J. Wayne Leonard, or
either of them, of the Town of Plainfield and State of Indiana,
my true and lawful attorney for me and in my name to sign my name
as a director of PSI Resources, Inc. and PSI Energy, Inc.,
Indiana corporations, to the Form 10-K Annual Report of each
corporation for the fiscal year ended December 31, 1993, and to
deliver said Form 10-K Annual Reports so signed for filing with
the Securities and Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Batesville and State of Indiana on this 7th day of
March, 1994.
John A. Hillenbrand, II
STATE OF INDIANA )
) SS:
COUNTY OF RIPLEY )
Before me, Carolyn Hahn , a notary public in
and for the aforesaid County and State, personally appeared this
day John A. Hillenbrand II, to me known, and known to me to be
the same person whose name is signed to the foregoing instrument,
and he acknowledged that he executed the same as his free and
voluntary act and deed for the uses and purposes therein set
forth.
WITNESS my hand and notarial seal this 7th day of March,
1994.
Carolyn Hahn (SEAL)
Notary Public
My commission expires:
December 17, 1997
My county of residence:
Ripley
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, John M. Mutz, of the
City of Indianapolis and State of Indiana, do hereby constitute
and appoint James E. Rogers and J. Wayne Leonard, or either of
them, of the Town of Plainfield and State of Indiana, my true and
lawful attorney for me and in my name to sign my name as a
director of PSI Resources, Inc. and PSI Energy, Inc., Indiana
corporations, to the Form 10-K Annual Report of each corporation
for the fiscal year ended December 31, 1993, and to deliver said
Form 10-K Annual Reports so signed for filing with the Securities
and Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Indianapolis and State of Indiana on this 7th day
of March, 1994.
John M. Mutz
STATE OF INDIANA )
) SS:
COUNTY OF MARION )
Before me, Barbara F. Steffel , a notary public in
and for the aforesaid County and State, personally appeared this
day John M. Mutz, to me known, and known to me to be the same
person whose name is signed to the foregoing instrument, and he
acknowledged that he executed the same as his free and voluntary
act and deed for the uses and purposes therein set forth.
WITNESS my hand and notarial seal this 7th day of March,
1994.
Barbara F. Steffel (SEAL)
Notary Public
My commission expires:
November 3, 1996
My county of residence:
Hamilton
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Melvin Perelman, of
the City of Indianapolis and State of Indiana, do hereby
constitute and appoint James E. Rogers and J. Wayne Leonard, or
either of them, of the Town of Plainfield and State of Indiana,
my true and lawful attorney for me and in my name to sign my name
as a director of PSI Resources, Inc. and PSI Energy, Inc.,
Indiana corporations, to the Form 10-K Annual Report of each
corporation for the fiscal year ended December 31, 1993, and to
deliver said Form 10-K Annual Reports so signed for filing with
the Securities and Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of indianapolis and State of Indiana on this 15th day
of March, 1994.
Melvin Perelman
STATE OF INDIANA )
) SS:
COUNTY OF HENDRICKS )
Before me, Linda D. Walker , a notary public in
and for the aforesaid County and State, personally appeared this
day Melvin Perelman, to me known, and known to me to be the same
person whose name is signed to the foregoing instrument, and he
acknowledged that he executed the same as his free and voluntary
act and deed for the uses and purposes therein set forth.
WITNESS my hand and notarial seal this 15th day of March,
1994.
Linda D. Walker (SEAL)
Notary Public
My commission expires:
July 6, 1994
My county of residence:
Hendricks
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Van P. Smith, of the
City of Muncie and State of Indiana, do hereby constitute and
appoint James E. Rogers and J. Wayne Leonard, or either of them,
of the Town of Plainfield and State of Indiana, my true and
lawful attorney for me and in my name to sign my name as a
director of PSI Resources, Inc. and PSI Energy, Inc., Indiana
corporations, to the Form 10-K Annual Report of each corporation
for the fiscal year ended December 31, 1993, and to deliver said
Form 10-K Annual Reports so signed for filing with the Securities
and Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Muncie and State of Indiana on this 7th day of
March, 1994.
Van P. Smith
STATE OF INDIANA )
) SS:
COUNTY OF HENDRICKS )
Before me, Linda D. Walker , a notary public in
and for the aforesaid County and State, personally appeared this
day Van P. Smith, to me known, and known to me to be the same
person whose name is signed to the foregoing instrument, and he
acknowledged that he executed the same as his free and voluntary
act and deed for the uses and purposes therein set forth.
WITNESS my hand and notarial seal this 7th day of March,
1994.
Linda D. Walker (SEAL)
Notary Public
My commission expires:
July 6, 1994
My county of residence:
Hendricks
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Robert L. Thompson,
of the City of Morrilton and State of Arkansas, do hereby
constitute and appoint James E. Rogers and J. Wayne Leonard, or
either of them, of the Town of Plainfield and State of Indiana,
my true and lawful attorney for me and in my name to sign my name
as a director of PSI Resources, Inc. and PSI Energy, Inc.,
Indiana corporations, to the Form 10-K Annual Report of each
corporation for the fiscal year ended December 31, 1993, and to
deliver said Form 10-K Annual Reports so signed for filing with
the Securities and Exchange Commission in Washington, D.C.
I DO HEREBY RATIFY and confirm all that my said agents and
attorneys, or any one of them, shall lawfully do by virtue
hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal in
the City of Morrilton and State of Arkansas on this 7th day of
March, 1994.
Robert L. Thompson
STATE OF ARKANSAS )
) SS:
COUNTY OF CONWAY )
Before me, Patricia Ann Allison , a notary public in
and for the aforesaid County and State, personally appeared this
day Robert L. Thompson, to me known, and known to me to be the
same person whose name is signed to the foregoing instrument, and
he acknowledged that he executed the same as his free and
voluntary act and deed for the uses and purposes therein set
forth.
WITNESS my hand and notarial seal this 7th day of March,
1994.
Patricia Ann Allison (SEAL)
Notary Public
My commission expires:
December 2, 2003
My county of residence:
Conway
