SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 9, 1994
PSI ENERGY, INC.
(Exact name of registrant as specified in its charter)
Indiana 1-3543 35-0594457
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1000 East Main Street, Plainfield, Indiana 46168
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (317) 839-9611
FORM 8-K
TABLE OF CONTENTS
Item Page
Number Number
1. Changes in Control of Registrant . . . . . . . . . 3
2. Acquisition or Disposition of Assets . . . . . . . 3
3. Bankruptcy or Receivership . . . . . . . . . . . . 3
4. Changes in Registrant's Certifying Accountant . . 3
5. Other Events . . . . . . . . . . . . . . . . . . . 3
6. Resignations of Registrant's Directors . . . . . . 5
7. Financial Statements and Exhibits . . . . . . . . 5
8. Change in Fiscal Year. . . . . . . . . . . . . . . 5
Signatures . . . . . . . . . . . . . . . . . . . . 6
None
2. Acquisition or Disposition of Assets
None
3. Bankruptcy or Receivership
None
4. Changes in Registrant's Certifying Accountant
None
5. Other Events
On December 9, 1994, PSI Energy, Inc. (PSI), a wholly-owned subsidiary
of CINergy Corp. (CINergy), the Office of the Utility Consumer
Counselor, Citizens Action Coalition of Indiana, Inc., and the PSI-
Industrial Group entered into a settlement agreement concerning PSI's
petition for a $93 million retail rate increase ($103 million including
ratebase treatment of certain projects while under construction) and
PSI's previously filed plan for the allocation of its portion of merger
savings between PSI's customers and CINergy's shareholders. The
settlement agreement is subject to the approval of the Indiana Utility
Regulatory Commission (IURC) in its entirety without any change or
condition that is unacceptable to any party to the settlement agreement.
No assurance can be given that the IURC will approve the settlement
agreement. Significant provisions of the settlement agreement include:
. A retail rate increase of $33.1 million, excluding reductions for
customer credits for non-fuel, operation and maintenance expense
merger savings (Non-Fuel Merger Savings) and exclusive of increases
for ratemaking related to construction work in progress, both of
which are discussed below. The increase includes the recovery of the
costs of postretirement benefits other than pensions on an accrual
basis and, as further discussed herein, the recovery of demand-side
management (DSM) expenditures and the adoption of lower depreciation
rates. This rate increase reflects an 11.9% return on common equity
with an 8.23% overall rate of return on net original cost plant. The
settling parties have agreed to support an effective date of February
1, 1995, for the rate increase.
. A mechanism to allocate PSI's share of net merger savings through
December 31, 1997, between PSI's customers and CINergy's
shareholders. In essence, the mechanism guarantees PSI's customers
50% of PSI's portion of the projected net, Non-Fuel Merger Savings.
PSI's customers will receive these merger savings via credits to base
rates of $4.4 million in 1995, an additional $2.2 million in 1996,
and an additional $2.4 million in 1997. After 1997, the accumulated
credits shall continue until the effective date of an order in a PSI
merger savings allows PSI to recover its portion of transaction costs
(currently estimated at $27 million) and costs to achieve merger
savings (currently estimated at $21 million) over a 10-year period
commencing October 1, 1994. PSI will have to achieve these levels of
merger savings in order to realize the 11.9% return on equity.
The settlement agreement provides PSI with a financial incentive for
PSI to achieve, or exceed, merger savings projections and enhance
operating efficiencies by allowing PSI to earn up to a 13.25% return
on common equity until the effective date of an order in PSI's next
retail rate proceeding. PSI's next retail rate proceeding is
currently pending before the IURC, and PSI expects an order in this
proceeding by early 1996. Upon the effective date of an order in the
next retail rate proceeding, the settlement agreement provides PSI an
opportunity to earn an additional 100 basis points above the common
equity return to be granted by the IURC in such rate proceeding until
December 31, 1997. In return for the agreed upon sharing mechanism,
PSI will withdraw its previously filed "performance efficiency plan"
which would have provided for the sharing of merger savings with
shareholders. Any mechanism for sharing of merger savings after
December 31, 1997, will be determined in subsequent regulatory
proceedings.
. Recovery of DSM expenditures deferred through July 1993 ($35
million), together with carrying costs, over a five-year period
commencing with the effective date of new rates in the order
approving the settlement. Deferred DSM expenditures as of the
effective date of an IURC order approving the settlement agreement,
which are not included for recovery in the settlement agreement, will
continue to be deferred, with carrying costs, for recovery in
subsequent rate proceedings. In addition, base rates would include
$23 million on an annual basis for DSM expenditures. Future deferral
of DSM expenditures will be the amount by which actual expenditures
exceed the base level of $23 million. If DSM expenditures in any
calendar year are less than the $23 million in base rates, the
unamortized balance of deferred DSM expenditures would be reduced by
such difference.
. Ratemaking and accounting mechanisms to address regulatory lag. The
settlement agreement provides for the inclusion of capital costs
associated with environmental compliance projects and the applicable
portion of PSI's Wabash River Clean Coal project in rate base while
the projects are under construction, thus allowing PSI to earn a cash
return on these costs prior to the projects' in-service dates. In
addition, the agreement includes provisions for the deferral of
certain operating costs associated with the Wabash River Clean Coal
project, together with the debt component of carrying costs, and
continued accrual of the debt component of carrying costs and
deferral of depreciation expense on two major projects for subsequent
recovery in PSI's next retail rate proceeding.
. The adoption of lower depreciation rates, to be effective with the
IURC's orders in this settlement and PSI's next retail rate expense
by approximately $24 million from the level included in PSI's
initial request.
. The agreement to a procedural schedule in connection with PSI's
request filed in July 1994 for a retail rate increase, primarily to
recover the costs of the Gibson Unit No. 4 scrubber and the Wabash
River Clean Coal project, both of which were previously approved by
the IURC. Final action on this rate request is not expected until
early 1996.
By entering into the settlement, the company was able to:
. resolve a major uncertainty as to the ultimate level and timing of
the rate increase;
. substantially mitigate the risks of not being able to achieve its
allowed return on common equity due to the earnings attrition
resulting from the completion of two major construction projects
within a nine-month period; and
. timely provide a realistic opportunity to retain a portion of the
merger savings for shareholders.
The above description of the settlement agreement does not purport to be
complete and is qualified in its entirety by reference to the copy of
such settlement agreement attached hereto as Exhibit 10-a.
6. Resignations of Registrant's Directors
None
7. Financial Statements and Exhibits
Exhibits
10-a Settlement Agreement (Excluding Attachments A and C)
8. Change in Fiscal Year
None
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PSI Energy, Inc.
Date: December 9, 1994
By: Charles J. Winger
Comptroller and Principal
Accounting Officer
SETTLEMENT AGREEMENT IURC CAUSE NOS. 39584 AND 39584-S2
THIS SETTLEMENT AGREEMENT, dated as of the 9th day of
December, 1994, is made and entered into by and between the duly
authorized representatives of PSI Energy, Inc. ("PSI"), the
Office of the Utility Consumer Counselor ("UCC"), Citizens
Action Coalition of Indiana, Inc. ("CAC") and the PSI-Industrial
Group ("PSI-IG").
As a result of settlement discussions concerning IURC
Cause Nos. 39584 and 39584-S2, but subject in every particular
to the conditions set forth in this Settlement Agreement,
including the approval and acceptance by the Indiana Utility
Regulatory Commission ("IURC") of this Settlement Agreement, in
its entirety and without any change or condition that is
unacceptable to any party to this Settlement Agreement, and with
the understanding that each and every term of this Settlement
Agreement is in consideration and support of each and every
other term, the parties hereto have agreed as follows:
I. GENERAL CONDITIONS
This Settlement Agreement is expressly conditioned upon and
subject to the following general conditions:
(1) The communications and discussions had, and materials
produced and exchanged, concerning this settlement all
relate to offers of settlement, are privileged, without
prejudice to any party, and shall not be used for any
purpose other than as part of the negotiations which
led to this Settlement Agreement.
<PAGE>
(2) The making of this Settlement Agreement shall not
constitute an admission by any party to this Settlement
Agreement.
(3) It is understood that this Settlement Agreement is
reflective of a negotiated settlement.
(4) This Settlement Agreement shall not be used by any
party hereto as precedent in any other proceeding or
for any other purpose, except to the extent necessary
to implement or enforce this Settlement Agreement.
(5) This Settlement Agreement is subject to IURC acceptance
and approval in its entirety without any change or
condition that is unacceptable to any party to this
Settlement Agreement.
(6) If this Settlement Agreement is not accepted and
approved by the IURC in accordance with its terms, then
it will not be part of any record or used for any
purpose.
II. SUBSTANTIVE TERMS
A. Withdrawal Of Performance Efficiency Plan Proposal
(1) PSI will withdraw its proposed Standard
Contract Rider No. 63 (Performance Efficiency
Plan Revenue Credit Adjustment) in IURC Cause
Nos. 39584 and 39584-S2.
(2) PSI will withdraw its Performance Efficiency
Plan proposal in IURC Cause Nos. 39584 and
39584-S2.
B. Authorized Increase in Rates
(1) PSI will be allowed an increase in its general
retail electric rates and charges (after
reflecting the evidence introduced in IURC
Cause Nos. 39584 and 39584-S2) of $33,100,000
(before any applicable increase attributable to
Construction Work In Progress ("CWIP") pursuant
to Paragraph I below), and before any
applicable reduction because of the customer
credit for Reorganization expense reductions
pursuant to Paragraph X below. The rate
increase of $33,100,000 is subject to any
applicable adjustment because of the
capitalization "true-up" pursuant to Paragraph
C(2) below.
<PAGE>
C. Capital Structure
(1) PSI's estimated capitalization for retail
electric ratemaking purposes is as follows:
Amount Weighted
(In Thousands) Ratio Cost Cost
Common Equity $ 902,500 37.46% 11.90% 4.46%
Preferred Stock 188,000 7.80 7.01 0.55
Long Term Debt 925,300 38.41 7.74 2.97
Deferred Taxes/
Customer Advances 329,200 13.67 0.00 0.00
ITC 1970 & earlier 1,000 0.04 0.00 0.00
ITC 1971 & later 59,500 2.47 9.54 0.24
Customer Deposits 3,500 0.15 6.00 0.01
$2,409,000 100.00% 8.23%
(2) As of August 26, 1994, PSI, CAC, UCC and PSI-IG
entered into a Settlement Procedure For
Determining Capital Structure And Cost of
Capital in IURC Cause No. 39584 ("Partial
Settlement"). On October 12, 1994, the IURC
accepted and approved the Partial Settlement in
its entirety without any change or condition.
The Partial Settlement provides a specific
procedure for determining the capitalization
and cost of capital for PSI in IURC Cause No.
39584. PSI, UCC, CAC and PSI-IG agree that the
cost of common equity capital specified in
Paragraph C(1) above shall be used under the
Partial Settlement as the resulting cost of
common equity capital determined by the IURC
based upon the evidence introduced in IURC
Cause Nos. 39584 and 39584-S2. PSI UCC, CAC
and PSI-IG further agree that the remaining
provisions of the Partial Settlement shall be
followed to "true-up" (to the extent provided
in the Partial Settlement) the amount and cost
rates of the components of PSI's capitalization
from the above estimated basis to an actual
December 31, 1994 basis for purposes of retail
electric ratemaking for PSI under this
Settlement Agreement as a result of IURC Cause
Nos. 39584 and 39584-S2, except that:
(a) PSI shall file the late-filed exhibit
specified in the Partial Settlement on or
before January 13, 1995, rather than
January 26, 1995;
<PAGE>
(b) PSI will bring its witness(es) sponsoring
such late-filed exhibit, and all
supporting documentation, to the offices
of the UCC on January 17, 1995, to be
interviewed by UCC staff as a substitute
for written discovery.
(c) The hearing on such late-filed exhibit
shall occur on January 18, 1995, rather
than February 15, 1995, and the UCC may
present live testimony at such hearing
concerning such late-filed exhibit.
D. Overall Rate Of Return
(1) PSI's overall rate of return on net original
cost jurisdictional utility plant for retail
electric ratemaking purposes (after reflecting
the evidence introduced in IURC Cause Nos.
39584 and 39584-S2) will be set at 8.23%,
subject to any applicable adjustment because of
the capitalization "true-up" pursuant to
Paragraph C(2) above.
(2) PSI's overall rate of return on fair value
jurisdictional utility plant for retail
electric ratemaking purposes (after reflecting
the evidence introduced in IURC Cause Nos.
39584 and 39584-S2) will be set at 7.00%.
E. Net Operating Income
(1) PSI's authorized jurisdictional net operating
income for retail electric ratemaking purposes
(before any applicable increase attributable to
CWIP pursuant to Paragraph I below, before any
applicable adjustment because of Reorganization
expense reductions pursuant to Paragraph X
below, and subject to any applicable adjustment
because of the capitalization "true-up"
pursuant to Paragraph C(2) above) will be set
as follows:
(In Thousands)
Operating Revenues $921,989
Operating Expenses and Taxes
Operation & Maintenance Expenses 557,568
Depreciation & Amortization Expenses 93,027
<PAGE>
Taxes other than Income Taxes 43,128
Income Taxes 67,130
Total Operating Expenses & Taxes 760,853
Net Operating Income $161,136
(2) The authorized expenses, revenues and net
operating income under the IURC's Order
approving this Settlement Agreement will be
used without a phase-in for purposes of I.C.
8-1-2-42(d)(2) and (3).
F. August 4, 1993 Settlement In IURC Cause Nos. 39498
and 39786
(1) In full satisfaction of any "phase-in"
requirements of Section 3.2 of the August 4,
1993 settlement in IURC Cause Nos. 39498 and
39786 ("August 1993 Settlement"), PSI shall
refund to customers (through PSI's first fuel
adjustment charge filing subsequent to the
effective date of the IURC's Order accepting
and approving this Settlement Agreement in
accordance with its terms) a total of
$2,564,000, which amount equals the total
earnings shared with PSI's shareholders through
the phase-in of PSI's net operating income from
15.76% to 14.25% under the August 1993
Settlement.
G. Purchase Power Tracker
(1) PSI will withdraw its proposed Standard
Contract Rider No. 66 (Alternative Purchased
Power Resource Adjustment) in IURC Cause No.
39584.
(2) PSI will withdraw its proposed Standard
Contract Rider No. 70 (Interim Capacity
Transfer Charge (Credit) Adjustment) in IURC
Cause No. 39584-S2.
H. DSM
(1) PSI will commence amortization of deferred
demand-side management ("DSM") costs in the
annual amount of $8,706,000 at the effective
date of the Retail Electric Tariff approved
pursuant to the IURC's Order accepting and
approving this Settlement Agreement in
accordance with its terms. PSI will continue<PAGE>
to defer, for recovery in its subsequent
general retail electric rate proceeding(s), the
unamortized balance of such DSM costs, together
with carrying costs thereon. Future deferral
of DSM costs will be in the amount by which
actual expenditures (exclusive of carrying
costs) exceed the $22,834,000 level, which is
the ongoing annual amount included within basic
retail electric rates and charges by this
Settlement Agreement. If DSM expenditures in
any calendar year are less than the annual
amount included within PSI's basic retail
electric rates and charges, the principal
unamortized balance of deferred DSM costs shall
be reduced by such difference.
(2) PSI's modified Smart Saver rate (i.e.,
proposed Standard Contract Rider No. 6.3) will
be approved as proposed by PSI.
(3) Pursuant to the terms of the Settlement
Agreement in IURC Cause No. 38986 dated May 21,
1991, PSI will institute a proceeding no later
than July 1, 1995, for IURC review and approval
of PSI's ongoing DSM programs and any related
issues.
(4) PSI will allocate all of its retail DSM costs
to its retail electric customers, which
allocation shall be made directly to the
customer classes that participate in the
particular programs.
(5) This Settlement Agreement does not address
whether curtailable/interruptible and
time-of-use rate programs are cost based rate
options or DSM programs.
I. Construction Work In Progress Ratemaking Treatment
(1) PSI's proposed Standard Contract Rider No. 67
(Qualified Pollution Control Property Revenue
Adjustment), and accounting therefore, will be
approved by the IURC and implemented as
proposed by PSI in IURC Cause No. 39584. Such
Rider will be updated to reflect the
capitalization structure under Paragraph C
above. PSI's first increase in its retail
electric rates and charges under Standard
Contract Rider No. 67 shall be effective as of
March 1, 1995, based upon actual December 31,
1994 investment. PSI shall file supporting<PAGE>
information concerning such March 1, 1995
increase no later than January 26, 1995,
subject to informal discovery by all parties.
J. AFUDC Continuation
(1) PSI will be authorized by the IURC's Order
accepting and approving this Settlement
Agreement in accordance with its terms to
continue the accrual of the debt component of
Allowance For Funds Used During Construction
("AFUDC") on its Gibson Unit No. 4 Scrubber and
Wabash River Coal Gasification Repowering
Project after the commercial operation of said
projects to the extent that the costs of such
projects are not reflected in either PSI's
basic retail electric rates and charges or in
the charges authorized pursuant to Paragraph I
above. PSI will continue to defer, for
subsequent recovery in its general retail
electric rate proceeding in IURC Cause
No. 40003, the unamortized balance of AFUDC
continuation accumulated in accordance with the
Order in IURC Cause No. 39482 as such balance
exists on the effective date of the IURC's
Order accepting and approving this Settlement
Agreement in accordance with its terms.
Amortization of the amounts accrued as of
May 31, 1994, pursuant to IURC Cause No. 39482
will commence as of the effective date of the
IURC's Order accepting and approving this
Settlement Agreement in accordance with its
terms.
K. Depreciation Expense Deferral
(1) PSI will be authorized by the IURC's Order
accepting and approving this Settlement
Agreement in accordance with its terms to defer
depreciation expense on its Gibson Unit No. 4
Scrubber and Wabash River Coal Gasification
Repowering Project after the commercial
operation of said projects until the
depreciation expenses of such projects are
reflected in PSI's basic retail electric rates
and charges. PSI will continue to defer, for
subsequent recovery in its general retail
electric rate proceeding in IURC Cause No.
40003, the unamortized balance of depreciation
expense deferrals accumulated in accordance
with the Order in IURC Cause No. 39482 as such
balance exists on the effective date of the<PAGE>
IURC's Order accepting and approving this
Settlement Agreement in accordance with its
terms. Amortization of the amounts accrued as
of July 31, 1993, pursuant to IURC Cause No.
39482 will commence as of the effective date of
the IURC's Order accepting and approving this
Settlement Agreement in accordance with its
terms.
L. Non-Firm Wholesale Power Adjustment
(1) PSI's Standard Contract Rider No. 64 (Non-Firm
Wholesale Power Adjustment) shall be eliminated
from PSI's Retail Electric Tariff.
(2) PSI's basic retail electric rates and charges
authorized by this Settlement Agreement reflect
a level of annual net non-firm wholesale power
demand charge revenues of the applicable
Indiana retail jurisdictional portion of the
$2,400,000 (total company) amount.
M. Destec Energy, Inc. Fixed Monthly Expenses
(1) PSI will withdraw its proposed Standard
Contract Rider No. 68 (Destec Energy, Inc.
Fixed Monthly Expenses Adjustment).
(2) PSI shall be authorized to defer, for
subsequent recovery in PSI's general retail
electric rate proceeding in IURC Cause
No. 40003, its fixed monthly expenses
associated with the Gasification Services
Agreement with Destec Energy, Inc., together
with carrying costs thereon calculated at PSI's
short-term debt interest rate.
N. Post-Retirement Benefits Other Than Pensions And
Other Post-Employment Benefits
(1) PSI's proposals in IURC Cause No. 39584
concerning Post-Retirement Benefits Other Than
Pensions ("PBOP") and Other Post-Employment
Benefits will be approved by the IURC and
implemented as proposed by PSI, except that
PSI's PBOP accruals will be externally funded
on a cost-effective basis; provided that PSI
will seek UCC agreement on such external
funding before PSI so acts. In the event that
an agreement with the UCC cannot be reached,<PAGE>
PSI shall submit its proposal for external
funding to the IURC for hearing and
determination.
(2) In any future retail electric rate proceeding,
the settling parties will not object to the
level of earnings actually achieved on PSI's
PBOP accruals externally funded on the basis
that the return would have been greater if
internal funding had been used.
O. Environmental Compliance Incentives
(1) PSI will withdraw its proposals in IURC Cause
No. 39584 with respect to environmental
compliance incentives.
P. Emission Allowances
(1) PSI's proposed Standard Contract Rider No. 69
(Emission Allowance Charge), and accounting
therefore, will be approved by the IURC and
implemented as proposed by PSI in IURC Cause
Nos. 39584 and 39584-S2.
(2) The ratemaking and accounting treatment of
emission allowance(s) and the emission
allowance bank will be approved by the IURC and
implemented as proposed by PSI in IURC Cause
Nos. 39584 and 39584-S2.
(3) Before PSI files its first 30-day filing with
the IURC with respect to emission allowances,
PSI will meet with the UCC and attempt to
mutually agree upon the format of, and
information to be included in, such filing.
(4) The UCC reserves the right to request a hearing
on any of PSI's emission allowance 30-day
filings. PSI and the UCC agree to discuss and
attempt to resolve any disagreements concerning
PSI's emission allowance filings.
Q. Depreciation Rates
(1) The depreciation rates proposed by the UCC in
IURC Cause No. 39584 will be approved by the
IURC and implemented as proposed by the UCC.
(2) Any settling party may propose the same or
different depreciation rates in PSI's future<PAGE>
general retail electric rate proceedings after
PSI's next general retail electric rate
proceeding, currently denominated as IURC Cause
No. 40003; provided, however, that the
depreciation rates proposed by the UCC in IURC
Cause No. 39584 shall be reflected in the
retail electric rates and charges authorized by
the Order issued as a result of PSI's next
general retail electric rate proceeding,
currently denominated as (and herein referred
to as) IURC Cause No. 40003.
R. Rate Base
(1) The components of PSI's used and useful rate
base for ratemaking purposes will be approved
by the IURC as proposed by PSI in IURC Cause
No. 39584, adjusted for the change in
ratemaking attributable to the handling of the
ratepayer protection fund under Paragraph U
below.
(2) PSI's net original cost jurisdictional rate
base for retail electric ratemaking purposes
will be set at $1,957,911,000.
(3) PSI's fair value jurisdictional rate base for
retail electric ratemaking purposes will be set
at approximately $2,301,944,000; provided,
however, that such amount shall be subject to
any applicable adjustment resulting from the
"true-up" of PSI's capitalization under
Paragraph C(2) above.
S. Base Cost Of Fuel
(1) PSI's base cost of fuel will be set at 14.960
mills per kilowatt-hour.
T. Fuel Litigation
(1) PSI's request in IURC Cause No. 39584 for
deferred cost accounting and rate recovery of
deferred fuel litigation expenses has been
withdrawn.
(2) The revenue requirements authorized by this
Settlement Agreement reflect an annual going
level of fuel litigation expenses.
<PAGE>
U. Ratepayer Protection Fund
(1) The balance of the ratepayer protection fund
under I.C. 8-1-8.6 will be applied for and will
be distributed for the benefit of PSI's retail
electric customers through amortization as
retail miscellaneous revenues over a three-year
period commencing with the effective date of
the Retail Electric Tariff approved pursuant to
the IURC's Order accepting and approving this
Settlement Agreement in accordance with its
terms.
V. Taxes
(1) PSI's tax expense will be as set forth in
Paragraph E above, based upon a combined
statutory Federal and State income tax rate of
37.93%. Interest synchronization will be set
at 3.05%; provided, however, that such
percentage shall be subject to any applicable
adjustment resulting from the "true-up" of
PSI's capitalization under Paragraph C(2)
above.
W. Rate Design And Cost Of Service
(1) Only that portion of PSI's proposed rate design
changes described by it as the "first step" (as
conformed to the rate increase to be approved
herein) will be approved in IURC Cause No.
39584. Any settling party may present any
proposals with respect to rate design in IURC
Cause No. 40003.
(2) PSI's jurisdictional separation study and
retail electric cost of service study,
including the subsidy/excess adjustment, will
be approved as proposed by PSI in IURC Cause
No. 39584, except as otherwise provided in
Paragraph H(4) of this Settlement Agreement.
(3) At least three (3) days prior to the date on
which PSI provides conforming tariffs to the
IURC for review and approval, PSI will provide
conforming tariffs to the settling parties for
their review and comment.
X. Reorganization Benefits
(1) The parties to this Settlement Agreement have
agreed that the significant changes to PSI<PAGE>
associated with the Reorganization of PSI and
The Cincinnati Gas & Electric Company ("CG&E")
justify the following ratemaking provisions.
PSI's retail electric customers will have
applied against the increase in PSI's general
retail electric rates and charges otherwise
effective under Paragraph B above (or under the
IURC's Order issued as a result of PSI's
general retail electric rate proceeding in IURC
Cause No. 40003, whichever is applicable) the
following applicable amount reflecting a
portion of the projected Reorganization
non-fuel operation and maintenance expense
reductions for the particular period:
(a) An annual credit of $4,429,000 to be
included in basic retail electric rates
and charges under IURC Cause Nos. 39584
and 39584-S2 applicable for the period
beginning on the effective date of the
IURC's Order accepting and approving this
Settlement Agreement in accordance with
its terms and ending on December 31, 1995
("Period I");
(b) An annual credit (incremental to the
credit in Item (a) above) of $2,193,000
($6,622,000 - $4,429,000) to be included
in basic retail electric rates and charges
applicable for the period beginning on
January 1, 1996 and ending on the day
before the effective date of the Order
issued as a result of PSI's general retail
electric rate proceeding in IURC Cause No.
40003 ("Period IIA");
(c) An annual credit (in lieu of the credits
in Items (a) and (b) above but incremental
to the rates and charges otherwise
approved in IURC Cause No. 40003) of
$2,193,000 ($6,622,000 - $4,429,000) to be
included in basic retail electric rates
and charges under IURC Cause No. 40003
applicable for the period beginning on the
effective date of the IURC's Order issued
as a result of PSI's general retail
electric rate proceeding in IURC Cause No.
40003 and ending on December 31, 1996
("Period IIB"); and
<PAGE>
(d) An annual credit (incremental to the
credit in Item (c) above) of $2,444,000
($9,066,000 - 6,622,000) to be included in
basic retail electric rates and charges
applicable for the period beginning on
January 1, 1997 and ending on December 31,
1997 ("Period III"); provided, however,
that such annual credit included in PSI's
basic retail electric rates and charges
shall continue after the end of Period III
until modified or discontinued by an Order
issued by the IURC as a result of a PSI
general retail electric rate proceeding.
(2) Subject to the conditions hereinafter set forth
in Paragraph X(3) below, PSI's net operating
income amount otherwise effective under
Paragraph E above (or under the IURC's Order
issued as a result of PSI's general retail
electric rate proceeding in IURC Cause No.
40003, whichever is applicable) shall, for
purposes of I.C. 8-1-2-42(d)(3) only, be
increased by the following applicable amount in
order to assure realization of the maximum
Reorganization cost reductions for the
particular period, as described in Paragraph
X(1) above:
(a) An annual increase applicable for Periods
I and IIA of $9,985,000, subject to any
applicable adjustment because of the
capitalization "true-up" pursuant to
Paragraph C(2) above;
(b) An annual increase applicable for Periods
IIB and III reflecting a return of an
additional 100 basis points above the
return on common equity capital then
otherwise authorized by the Order issued
as a result of PSI's general retail
electric rate proceeding in IURC Cause No.
40003.
(c) The annual increase in PSI's net operating
income for purposes of I.C. 8-1-2-42(d)(3)
applicable for Period III under Item (b)
of this Paragraph X(2) shall be phased-out
ratably over twelve (12) months after the
end of Period III unless and until
modified by an Order<PAGE>
issued by the IURC as a result of a PSI
general retail electric rate proceeding.
(See the example set forth in Attachment A
attached hereto and incorporated herein by
this reference.)
(3) The quarterly portion of the applicable
increase in the net operating income amount
otherwise effective under Paragraph X(2) above
for a particular period shall occur only to the
extent that for such quarter:
(a) PSI utilizes a reserve margin of 17
percent or less as its reserve margin
planning criterion for the PSI electric
system for integrated resource planning
purposes;
(b) PSI utilizes the "Reserve Margin
Equalization" concept within the meaning
of the then effective Operating Agreement
between PSI and CG&E;
(c) PSI utilizes the "50/50 split-the-savings"
concept for the allocation of
Reorganization production cost savings
within the meaning of the then effective
Operating Agreement between PSI and CG&E;
(d) PSI has surrendered the Certificate of
Public Convenience and Necessity for the
Cayuga Combustion Turbine Peaking Unit No.
5 as issued by the IURC in IURC Cause No.
39175; and
(e) PSI satisfies the quality of service
provisions of Attachment B attached hereto
and incorporated herein by this reference.
(4) To the extent that an increase is made in the
net operating income amount otherwise effective
for a particular period in accordance with the
provisions of this Paragraph X, an appropriate
decrease shall, solely for purposes of
I.C. 8-1-2-42(d)(2), be made in PSI's total
authorized non-fuel operating expenses amount
then otherwise effective under Paragraph E
above (or under the IURC's Order issued as a
result of PSI's general retail electric rate
proceeding in<PAGE>
IURC Cause No. 40003, whichever is applicable)
for the particular period, which decrease shall
be equal to the amount of the total "annual
credit" for the applicable period in Paragraphs
X(1)(a), (b), (c) and (d), plus 1.611 times the
amount of the applicable net operating income
amount increases in Paragraphs X(2)(a) and (b)
(see the example set forth in Attachment C
attached hereto and incorporated herein by this
reference); provided, however, that such
appropriate decrease in PSI's total authorized
non-fuel operating expenses amount for purposes
of I.C. 8-1-2-42(d)(2) applicable for Period
III shall be phased-out ratably over twelve
(12) months after the end of Period III unless
and until modified by an Order issued by the
IURC as a reslt of a PSI general retail
electric rate proceeding. (See the example set
forth in Attachment A attached hereto and
incorporated herein by this reference.)
(5) Any settling party may advance in subsequent
PSI general retail electric rate proceeding(s)
its proposals concerning the appropriate retail
electric ratemaking treatment of Reorganization
non-fuel operation and maintenance expense
savings after Period III.
(6) PSI shall be authorized to defer the Indiana
jurisdictional portion of reasonable
Reorganization transaction costs incurred prior
to January 1, 1995, by PSI and appropriately
allocated to PSI's retail electric customers,
and to amortize such costs to operating
expenses over a 10-year period beginning on
October 1, 1994; PSI will reflect such
amortization of Reorganization transaction
costs in the rates and charges PSI proposes in
its general retail electric rate proceeding in
IURC Cause No. 40003; provided, however, that
PSI shall not recover through retail electric
rates, or as an offset to
Reorganization-related benefits, any of the
costs incurred by PSI or PSI Resources, Inc. to
defend against the hostile takeover attempt
initiated by IPALCO Enterprises, Inc. In PSI's
subsequent general retail electric rate
proceeding(s), the settling parties may present
evidence supporting or opposing the
reasonableness, prudency, amount or allocation<PAGE>
of PSI's proposed recovery of such transaction
costs.
(7) PSI shall be authorized to defer the Indiana
jurisdictional portion of reasonable costs to
achieve the benefits of the Reorganization,
incurred by PSI prior to October 31, 1996, and
appropriately allocated to PSI's retail
electric customers, and to amortize such costs
as a charge to operating expenses over a
10-year period beginning on October 1, 1994;
PSI will reflect such amortization of costs to
achieve the benefits of the Reorganization in
the rates and charges PSI proposes in its
general retail electric rate proceeding in IURC
Cause No. 40003; provided, however, that PSI
shall not recover through retail electric
rates, or as an offset to Reorganization-
related benefits, any of the costs incurred by
PSI or PSI Resources, Inc. to defend against
the hostile takeover attempt initiated by
IPALCO Enterprises, Inc. In PSI's subsequent
general retail electric rate proceeding(s), the
settling parties may present evidence
supporting or opposing the reasonableness,
prudency, amount or allocation of PSI's
proposed recovery of such costs to achieve.
(8) PSI will withdraw its proposed Standard
Contract No. 71 (Cayuga Unit No. 5 Cancelled
Plant Addition Shared Savings Adjustment) in
IURC Cause No. 39584-S2.
(9) PSI will withdraw its proposed Standard
Contract Rider No. 72 (Non-Fuel Operation And
Maintenance Expense Reorganization Shared
Savings Credit Adjustment) in IURC Cause No.
39584-S2.
(10) In the event that PSI incurs an expense for
which it believes deferral is appropriate and
for which it does not already have deferral
authorization from the IURC, PSI agrees that it
will seek UCC agreement for such deferral
within 14 days of the end of the month in which
any such new deferral of expense occurs. If
PSI and the UCC do not reach an agreement on
the deferral of such expenses within a 14-day
period, then PSI shall petition the IURC for
authorization to defer such expenses, subject
to any opposition from other parties. This
provision shall not apply<PAGE>
to expenses which are deferred in accordance
with the Federal Energy Regulatory Commission's
Uniform System of Accounts and Generally
Accepted Accounting Principles. This provision
shall terminate when the phase-out described in
Paragraph X(2) above is completed.
Y. PROCEDURAL MATTERS IN IURC CAUSE NO. 40003
PSI, UCC, CAC, and PSI-IG agree that the following shall
be incorporated into the Prehearing Conference Order in IURC
Cause No. 40003:
(1) PSI shall utilize a calendar 1994 test period,
adjusted for changes which are fixed, known and
measurable and which will occur on or before
December 31, 1995; the test period, when
coupled with the adjustments authorized in the
Prehearing Conference Order, should fairly
represent the annual operations of PSI at
present and proposed rates;
(2) PSI shall, consistent with Paragraph Y (1)
above, utilize a uniform cut-off date of
August 31, 1995 for actual net plant, actual
number of customers, average customer usage,
actual number of employees, operations of
CINergy Services, Inc., salary and wage rates,
all cost deferrals pursuant to IURC Orders or
agreements under this Settlement Agreement, and
property taxes (most recent actual assessed
valuation and effective tax rate at the cut-off
date); provided, however, that the annualized
effects of the Wabash River Coal Gasification
Repowering Project, including the costs of the
Destec Energy, Inc. fixed monthly expenses for
gasification services, shall be included for
ratemaking purposes so long as the Wabash River
Coal Gasification Repowering Project is
in-service and used and useful by November 30,
1995. The cost of capital and capitalization
structure evidence shall be as current as
possible and updated as of the prefiling dates
set forth in the Prehearing Conference Order;
provided, however, that to the extent that such
an update is made by PSI after the date for the
prefiling of the UCC's and intervenors'
respective testimony and exhibits in IURC Cause
No. 40003, the UCC and intervenors shall be
afforded a reasonable opportunity to respond to
such update in testimony before the IURC.
<PAGE>
(3) PSI shall prefile its case-in-chief (except
rate design) on or before May 15, 1995; PSI
shall prefile its case-in-chief rate design
testimony and exhibits on or before June 15,
1995. PSI shall include in its case-in-chief
testimony its best estimates of the items
specified in Paragraph Y(2) above, and, unless
good cause is shown to do otherwise, adjustment
methodologies to be employed in subsequent
updates of the same, and shall file its update
of such estimates to actual on or before
October 6, 1995. PSI shall informally provide
the parties with such actual update information
as it becomes available prior to October 6,
1995. The parties agree that PSI shall treat
the updated items per the general allocators
proposed by PSI in its case-in-chief in its
October 6, 1995 filing.
(4) A public hearing on PSI's case-in-chief shall
be held in mid-August, 1995.
(5) UCC, CAC, PSI-IG and any other intervenors
shall prefile their respective cases-in-chief
(except rate design) on or before November 1,
1995. UCC, CAC, PSI-IG and any intervenors
shall prefile their respective case-in-chief
rate design testimony and exhibits on or before
November 13, 1995. UCC, CAC, PSI-IG and any
other intervenors shall prefile their
respective cross-rebuttal cases on or before
November 27, 1995.
(6) PSI shall prefile its rebuttal case on or
before December 11, 1995.
(7) A public hearing on the UCC's, CAC's, PSI-IG's
and any other intervenors' respective
cases-in-chief and cross-rebuttal cases, and on
PSI's rebuttal case shall be held beginning no
sooner than January 22, 1996.
(8) UCC, CAC, PSI-IG and any other intervenor may
present proper live surrebuttal testimony at
the hearing scheduled to begin in mid-January,
1996. PSI may present proper live
sur-surrebuttal testimony at such hearing to
any such surrebuttal testimony of UCC, CAC,
PSI-IG or any other intervenors.
<PAGE>
Z. PROCEDURE
(1) PSI will file this Settlement Agreement in IURC
Cause Nos. 39584 and 39584-S2 and request that
a consolidated hearing be held thereon on
January 18, 1995.
(2) PSI will request IURC acceptance and approval
of this Settlement Agreement in its entirety,
without any change or condition that is
unacceptable to any party to this Settlement
Agreement.
(3) PSI will as soon as possible circulate to the
other settling parties, for their review and
agreement, draft supplemental testimony to be
filed by PSI in IURC Cause Nos. 39584 and
39584-S2 in support of this Settlement
Agreement.
(4) PSI will offer for introduction into evidence
at the consolidated hearing on this Settlement
Agreement in IURC Cause Nos. 39584 and 39584-S2
PSI's prefiled rebuttal testimony in IURC Cause
No. 39584, PSI's prefiled case-in-chief
testimony in IURC Cause No. 39584-S2, and the
agreed upon supplemental testimony supporting
this Settlement Agreement.
(5) None of the other settling parties will file or
offer any additional evidence or testimony in
IURC Cause Nos. 39584 or 39584-S2, except their
respective prefiled case-in-chief testimony in
IURC Cause No. 39584-S2 and any testimony with
respect to the subject matter referenced in
Section II, Paragraph C(2) above.
(6) The settling parties will waive
cross-examination of witnesses and their right
to further hearings in IURC Cause Nos. 39584
and 39584-S2, except with respect to the
portion of the hearing referenced in Section
II, Paragraph C(2) above.
(7) PSI will draft a Proposed Order and circulate
it as soon as possible to the other settling
parties for their review and agreement.
(8) PSI will file the agreed upon Proposed Order
with the IURC as soon as possible. The
settling parties will support the Proposed
Order in the proceeding and will request that<PAGE>
the IURC issue an Order accepting and approving
the same in accordance with its terms on or
before February 1, 1995.
(9) All of the settling parties will support on
rehearing, reconsideration and/or appeal the
IURC's Order accepting and approving this
Settlement Agreement in accordance with its
terms, including the submission of any
applicable briefs and pleadings.
AA. TERM
Except for the provisions of Section II, Paragraphs X(1),
X(2), X(3), X(4), X(5), X(6), X(7) and X(10) of this
Settlement Agreement, this Settlement Agreement shall
terminate on December 31, 1997. Because the current
operation of the fuel adjustment clause process and
particularly the tests contained in I.C. 8-1-2-42(d)(2)
and (3) are integral to this settlement, the settling
parties agree that those provisions of this Settlement
Agreement relating to the operation of the fuel
adjustment clause process and particularly the (d)(2) and
(d)(3) tests will be exercised in a manner consistent
with I.C. 8-1-2-42(d) as it currently exists and as that
statute is currently implemented by the Commission
regardless of whether that statute may during the term of
this Settlement Agreement be modified or abolished.
Agreed To And Accepted:
OFFICE OF THE UTILITY CONSUMER COUNSELOR
By:Robert M. Glennon
(Robert M. Glennon)
CITIZENS ACTION COALITION OF INDIANA, INC.
By:Michael A. Mullett
(Michael A. Mullett)
PSI-INDUSTRIAL GROUP
By:John F. Wickes, Jr.
(John F. Wickes, Jr.)
<PAGE>
PSI ENERGY, INC.
By:Ronald J. Brothers
(Ronald J. Brothers)
Date: December 9, 1994
<PAGE>
Attachment B
The settling parties have previously agreed that
Reorganization benefits should be achieved without causing a
material degradation in the adequacy and reliability of PSI's
retail electric service and PSI hereby reaffirms its commitment.
[Section 13.3 of the March 2, 1994 Settlement Agreement in IURC
Cause No. 39897.] The settling parties have also agreed that
PSI's performance as measured by the Transmission Line
Performance Index ("TLPI"), the System Average Interruption
Frequency Index ("SAIFI") and the System Average Interruption
Duration Index ("SAIDI") constitute a reasonable way to
demonstrate that no such material degradation of service has
occurred because of reduced non-fuel operation and maintenance
expenses as a result of the Reorganization. The settling
parties also recognize that these Indices may be affected by
events which are not related to the level of operation and
maintenance expense, and which are beyond the reasonable control
of PSI, such as, but not limited to, weather and vandalism.
Therefore, the quarterly portion of the applicable increase in
the net operating income amount otherwise effective under
Paragraph X(2) of the Settlement Agreement for a particular
period shall occur only to the extent that PSI demonstrates in
the applicable Fuel Adjustment Clause proceeding pursuant to
I.C. 8-1-2-42 ("FAC") that there has been no material
degradation in its TLPI, SAIFI, or SAIDI. Such demonstration
shall be made in accordance with the following provisions of
this Attachment A.
<PAGE>
The three indicators of customer service reliability
shall be calculated as follows:
(i) TLPI shall be calculated as follows:
Transmission Line Performance = TLIF x 100
Index ("TLPI") MTL
(ii) SAIFI shall be calculated as follows:
System Average Interruption = CO
Frequency Index ("SAIFI") CS
(iii) SAIDI shall be calculated as follows:
System Average Interruption = TO E 60
Duration Index ("SAIDI") CS
where:
CO = Total number of customers out of service for
all sustained (excluding momentary)
interruptions during the period according to
PSI's records.
TO = The total number of minutes customers were out
of service for all interruptions during the
period according to PSI's records.
CS = The number of customers at the end of the
period according to PSI's records.
<PAGE>
TLIF = Transmission line insulation failures for the
period according to PSI's records.
MTL = PSI's miles of transmission lines at the end of
the previous calendar year according to PSI's
records.
In each FAC proceeding during Period I, Period IIA,
Period IIB, Period III, and the phase-out period, PSI shall show
the IURC how its actual TLPI, SAIDI and SAIFI for the preceding
twelve months compares to target levels for TLPI, SAIDI and
SAIFI according to the following formula:
SAIDI SAIFI TLPI
Target 3.0 2.0 8.5
PSI shall divide the actual SAIDI, SAIFI and TLPI by
the target for each Index. The results shall be averaged.
In the event that such average is less than or equal to
1.0, the applicable increase in the net operating income shall
remain in effect.
In the event that such average is greater than 1.0, the
applicable increase in the net operating income amount otherwise
effective for the particular period may still occur to the
extent that PSI proves to the IURC that the deterioration in the
Indices for the prior twelve-month period did not occur because
of reductions in operation and maintenance expense.
<PAGE>
For purposes of this ongoing quality of service review,
PSI will calculate the Indices using the same methodologies as
it used as of the date of this Settlement Agreement.
<PAGE>
