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) March 28, 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
<PAGE>
PSI ENERGY, INC.
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 . . . . . . 3
7. Financial Statements and Exhibits . . . . . . . . 3
Index to Financial Statements and Exhibits . . . . 3
8. Change in Fiscal Year. . . . . . . . . . . . . . . 3
Signatures . . . . . . . . . . . . . . . . . . . . 4
<PAGE>
1. Changes in Control of Registrant
None
2. Acquisition or Disposition of Assets
None
3. Bankruptcy or Receivership
None
4. Changes in Registrant's Certifying Accountant
None
5. Other Events
None
6. Resignations of Registrant's Directors
None
7. Financial Statements and Exhibits
Index to Financial Statements and Exhibits
Exhibits
23-A Consent of Independent Public Accountants
99-A The Cincinnati Gas & Electric Company's
Annual Report on Form 10-K for the year
ended December 31, 1993
8. Change in Fiscal Year
None
<PAGE>
SIGNATURES
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.
Registrant
Date: March 28, 1994
By: /s/ Charles J. Winger
(Charles J. Winger)
Comptroller and Principal
Accounting Officer
Exhibit 23-A
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation by reference of our report dated January 24, 1994, related to
the consolidated financial statements of The Cincinnati Gas & Electric
Company, included in this Form 8-K, into PSI Energy, Inc.'s previously filed
Registration Statement File Nos. 33-48612 and 33-57064.
ARTHUR ANDERSEN & CO.
Cincinnati, Ohio,
March 28, 1994
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ 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
Commission file number 1-1232
THE CINCINNATI GAS & ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
OHIO 31-0240030
(State of incorporation) (I.R.S. Employer Identification No.)
139 EAST FOURTH STREET, CINCINNATI, OHIO 45202
(Address of principal executive offices) (Zip Code)
513-381-2000
(Registrant's telephone number)
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Cumulative Preferred Stock, par )
value $100 per share )
4 % series )
4-3/4% series ) Cincinnati Stock Exchange-
7.44 % series ) New York Stock Exchange
9.28 % series )
9.15 % series )
7-7/8% series )
7-3/8% series )
Common Stock, par value $8.50 per Cincinnati Stock Exchange-
share New York Stock Exchange-
Chicago Stock Exchange-
Pacific Stock Exchange
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 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. [X]
The aggregate market value of the voting stock held by non-affiliates was
approximately $2,165 million as of February 28, 1994.
88,458,656 shares of Common Stock ($8.50 Par Value) were outstanding as of
February 28, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement for the Annual Meeting
of Shareholders to be held on May 18, 1994 are incorporated by reference in Part
III of this Report.
<PAGE>
TABLE OF CONTENTS
Page
Number
------
Part I
Item 1. Business............................................. 1
General............................................ 1
Merger Agreement................................... 1
General Problems of the Industry................... 4
Construction Program and Capital Requirements...... 4
Electric Operations and Fuel Supply................ 5
Gas Operations and Gas Supply...................... 7
Regulation......................................... 7
Rate Matters....................................... 8
Environmental Matters.............................. 11
Employee Relations................................. 16
Executive Officers of the Registrant............... 16
Operating Statistics............................... 18
Item 2. Properties........................................... 20
Item 3. Legal Proceedings.................................... 22
Item 4. Submission of Matters to a Vote of Security Holders.. 23
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.................... 24
Item 6. Selected Financial Data.............................. 25
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 25
Item 8. Financial Statements and Supplementary Data.......... 36
Report of Independent Public Accountants............. 66
Item 9. ..................................................... 67
Part III
Items 10., 11., 12. and 13...................................... 67
Part IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K............................ 67
Signatures...................................................... 81
<PAGE>
PART I
Item 1. Business--Registrant (CG&E and Subsidiaries)
- ------- --------------------------------------------
General
- -------
CG&E and its subsidiary companies, The Union Light, Heat and Power
Company (Union Light), Miami Power Corporation, The West Harrison Gas and
Electric Company, and Lawrenceburg Gas Company, operate in contiguous
territories. Tri-State Improvement Company is a wholly-owned real estate
development company. CGE Corp, a wholly-owned non-regulated subsidiary of
CG&E formed in 1994, serves as the parent company of two non-utility
subsidiaries, Enertech Associates International Inc., which provides energy
related services, and CG&E Resource Marketing, Inc., which provides gas
marketing services. All of the companies are managed by substantially the
same officers.
CG&E and its subsidiaries are primarily engaged in providing electric and
gas service in the southwestern portion of Ohio and adjacent areas in Kentucky
and Indiana. The area served with electricity or gas, or both, covers
approximately 3,000 square miles with an estimated population of 1.8 million
and includes the cities of Cincinnati and Middletown in Ohio, Covington and
Newport in Kentucky, and Lawrenceburg in Indiana. The area is, for the most
part, heavily populated and highly industrialized. The industrial activities
are diversified and include the manufacturing or processing of iron and steel,
machinery and machine tools, non-ferrous metals, jet engines, transportation
equipment, fabricated metal products, industrial chemicals, soaps and
detergents, food and beverage products, paper and printing, electrical
machinery, rubber and plastic products, and petroleum refining and related
products.
Merger Agreement
- ----------------
In December 1992, CG&E, PSI Resources, Inc. (PSI) and PSI Energy, Inc.,
PSI's principal subsidiary, an Indiana electric utility (PSI Energy), entered
into an agreement which, as subsequently amended (the Merger Agreement)
provides for the merger of PSI into a newly formed corporation named CINergy
Corp. (CINergy) and the merger of a newly formed subsidiary of CINergy into
CG&E. For 1993, PSI had operating revenues of $1.1 billion and earnings on
common shares of $96.4 million. As a result of the merger, holders of CG&E
Common Stock and PSI Common Stock will become the holders of CINergy Common
Stock. CINergy will become a holding company required to be registered under
the Public Utility Holding Company Act of 1935 (PUHCA) with two operating
subsidiaries, CG&E and PSI Energy. Union Light will remain a subsidiary of
CG&E. Under the Merger Agreement, each share of CG&E Common Stock will be
converted into the right to receive one share of CINergy Common Stock. Each
share of PSI Common Stock will be converted into the right to receive that
number of shares of CINergy Common Stock obtained by dividing $30.69 by the
<PAGE>
average closing price of CG&E Common Stock for the 15 consecutive trading days
preceding the fifth trading day prior to the merger; 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. At December 31, 1993, CG&E and PSI had 88.1 million
and 57.0 million common shares outstanding, respectively.
The merger will be accounted for as a "pooling of interests", and it is
anticipated that the transaction will be completed in the third quarter of
1994. The merger is subject to approval by the Securities and Exchange
Commission (SEC) and the Federal Energy Regulatory Commission (FERC).
Shareholders of both companies approved the merger in November 1993.
FERC issued conditional approval of the CINergy merger in August 1993,
but several intervenors, including The Public Utilities Commission of Ohio
(PUCO) and the Kentucky Public Service Commission (KPSC), filed for rehearing
of that order. On January 12, 1994, FERC withdrew its conditional approval of
the merger and ordered the setting of FERC-sponsored settlement procedures to
be held.
On March 4, 1994, CG&E reached a settlement agreement with the PUCO and
the Ohio Office of Consumers' Counsel (OCC) on merger issues identified by
FERC. On March 2, PSI Energy and Indiana's consumer representatives had
reached a similar agreement. Both settlement agreements have been filed with
FERC. These documents address, among other things, the coordination of state
and federal regulation and the commitment that neither CG&E nor PSI electric
base rates, nor CG&E's gas base rates, will rise because of the merger, except
to reflect any effects that may result from the divestiture of CG&E's gas
operations if ordered by the SEC in accordance with the requirements of PUHCA
discussed below.
CG&E also filed with FERC a unilateral offer of settlement addressing all
issues raised in the KPSC's application for rehearing with FERC. Although it
is the belief of CG&E and PSI that no state utility commissions have
jurisdiction over approval of the proposed merger, an application has been
filed with the KPSC to comply with the Staff of the KPSC's position that the
KPSC's authorization is required for the indirect acquisition of control of
CG&E's Kentucky subsidiary, The Union Light, Heat and Power Company, by
CINergy. As part of the settlement offer, Union Light will agree not to
increase gas base rates as a result of the merger except to reflect any
effects that may result from the divestiture of Union Light's gas operations
discussed below.
Also included in the filings with FERC were settlement agreements with
the city of Hamilton, Ohio, and the Wabash Valley Power Association in
Indiana. These agreements resolve issues related to the transmission of power
in Ohio and Indiana.
If the settlement agreements filed with FERC are not acceptable, FERC
could set issues for hearing. If a hearing is held by FERC, consummation of
the merger would likely be extended beyond the third quarter of 1994.
<PAGE>
CG&E and PSI also submitted to FERC the operating agreement among CINergy
Services, Inc., a subsidiary of CINergy, and CG&E and PSI Energy that provides
for the coordinated planning and operation of the electric generation and
transmission and other facilities of CG&E and PSI as an integrated utility
system. It also establishes a framework for the equitable sharing of the
benefits and costs of such coordinated operations between CG&E and PSI. The
parties to the Ohio and Indiana FERC settlements have agreed to support or not
oppose the operating agreement, and the settlements are conditioned upon FERC
approving the filed operating agreement without material changes.
CG&E's filing with FERC also references a separate agreement among CG&E,
the Staff of the PUCO, the OCC, and other parties settling issues raised by a
November 1993 ruling of the Supreme Court of Ohio on the phased-in electric
rate increase ordered by the PUCO in May 1992. The agreement includes a
moratorium on increases in base electric rates prior to January 1, 1999
(except under certain circumstances), authorization for CG&E to retain all
non-fuel merger savings until 1999, and a commitment by the PUCO that it will
support CG&E's efforts to retain CG&E's gas operations in its PUHCA filing
with the SEC (see below). Reference is made to "Rate Matters" for additional
information.
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.
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. The SEC has interpreted the PUHCA to preclude registered holding
companies, with some exceptions, from owning both electric and gas utility
systems. The SEC may require that CG&E divest its gas properties within a
reasonable time after the merger in order to approve the merger as it has done
in many cases involving the acquisition by a holding company of a combination
gas and electric company. In some cases, the SEC has allowed the retention of
the gas properties or deferred the question of divestiture for a substantial
period of time. In those cases in which divestiture has taken place, the SEC
usually has allowed companies sufficient time to accomplish the divestiture in
a manner that protects shareholder value. CG&E believes good arguments exist
to allow retention of the gas assets, and CG&E will request that it be allowed
to do so.
Discussions contained in the following pages of this Report, except where
noted, pertain to CG&E and its subsidiary companies, and projections or
estimates contained therein do not reflect the pending merger.
<PAGE>
General Problems of the Industry
- --------------------------------
CG&E is experiencing, or may experience in the future, certain problems
which are general to the utility industry, including increased costs of
complying with evolving environmental regulations, uncertainty regarding
adequate and timely rate treatment for operating expenses and costs incurred
in constructing facilities, uncertainty as to the deregulation of the utility
industry (primarily resulting from the Energy Policy Act of 1992 (Energy
Act)), uncertainties in the gas industry resulting from FERC Order 636,
difficulty in accurately forecasting demand for utility service, and the
effects of customer conservation practices on gas and electric usage.
Reference is made to "Electric Operations and Fuel Supply" and "Gas Operations
and Gas Supply" herein regarding the Energy Act and FERC Order 636,
respectively.
Construction Program and Capital Requirements
- ---------------------------------------------
A comparison of actual and estimated construction programs, including
allowance for funds used during construction, for CG&E and its subsidiaries
for the years 1993-1998 is set forth below. These estimates are under
continuing review and subject to adjustment.
<TABLE>
<CAPTION>
Actual Estimated
------ ---------------------------
1993 1994 1995 1994-1998
------ ---- ---- ---------
(Millions of Dollars)
<S> <C> <C> <C> <C>
Peaking units......................... $ 3 $ 6 $ 7 $ 183
Other electric generation and
transmission projects commonly owned
with neighboring utilities.......... 24 28 35 190
Other electric generation and
transmission facilities............. 34 34 30 284
Electric distribution facilities...... 80 70 70 379
Demand side management
and other electric facilities....... 3 8 10 55
Gas facilities........................ 37 41 39 230
Common and other facilities........... 21 5 4 22
---- ---- ---- ------
Total......................... $202 $192 $195 $1,343
==== ==== ==== ======
</TABLE>
During 1994-1998, long-term debt of CG&E and its subsidiaries will mature
or be subject to mandatory redemption as follows: $.3 million in 1994 and
$130 million in 1997. For information relating to the redemption of preferred
stock, see Note 4 to the Consolidated Financial Statements.
<PAGE>
CG&E, The Dayton Power and Light Company (DP&L), and Columbus Southern
Power Company (Columbus) have constructed electric generating units and
related transmission facilities on varying common ownership bases as set forth
in Note 10 to the Consolidated Financial Statements. Agreements among CG&E,
DP&L, and Columbus obligate each company, severally and not jointly, to pay
the cost of constructing and operating only its ownership share of commonly
owned electric facilities. Each of the three companies is paying its share of
the cost of operating commonly owned facilities.
Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Environmental Matters" herein for
information as to estimated capital expenditures relating to compliance with
the Clean Air Act Amendments of 1990.
Electric Operations and Fuel Supply
- -----------------------------------
During 1993, almost all of the electricity generated by units owned by
CG&E or in which it has an ownership interest was produced by coal-fired
generating units. Those units generate most of the electric requirements of
CG&E and its subsidiaries. A new all-time electric system peak load of
4,493,000 Kw was set on July 28, 1993. This was 8.0% greater than the
previous record of 4,161,000 Kw set in 1991. For the next five years
(1994-1998) peak demands are expected to increase at an average annual rate of
1.8%. CG&E's presently installed summer net generating capability is
5,120,750 Kw, consisting of 1,884,400 Kw of capacity which it solely owns, and
3,236,350 Kw of capacity which is its interest in units commonly owned with
Columbus and/or DP&L. In addition, CG&E, DP&L, and Columbus have a commonly
owned transmission network, and CG&E has interconnections with other utilities
for the purchase, sale, and interchange of electricity.
CG&E and East Kentucky Power Cooperative, Inc. have an agreement for the
interchange of electric power, subject to availability, during certain times
of the year through March 2000. Under the agreement, CG&E, a summer peaking
company, has the right to obtain up to 150 megawatts of electricity through
March 31, 1997 and up to 50 megawatts from April 1, 1997 through March 31,
2000 from East Kentucky Power during the months of June, July and August.
East Kentucky Power, a winter peaking company, has the right to receive up to
150 megawatts through March 31, 1997 and up to 50 megawatts from April 1, 1997
through March 31, 2000 from CG&E in December, January and February.
CG&E currently attempts to maintain its coal inventory at a supply of
approximately 50 days. On December 31, 1993, based on an estimated daily
burn, the coal reserve for the four coal-burning stations (W. C. Beckjord,
East Bend, Miami Fort and Zimmer Stations) operated by CG&E represented a
49-day supply. Based upon information received from DP&L and Columbus, the
reserve at Stuart and Killen Stations (operated by DP&L) represented a 52-day
supply, and the reserve at Conesville Station (operated by Columbus)
represented a 107-day supply.
<PAGE>
The coal requirements for generating units operated by CG&E (including
commonly owned units) were approximately 9.1 million tons in 1993, and are
estimated to be 9.8 million tons in 1994. The coal required for units
commonly owned with and operated by DP&L or Columbus is obtained by them.
A major portion of the coal required by CG&E is obtained through contract
purchases, with the remaining requirements purchased on the spot market. The
prices to be paid by CG&E under its contracts are subject to adjustment to
reflect suppliers' costs and certain other factors, and the contracts may be
terminated by virtue of certain provisions pertaining to coal quality. The
coal delivered under these contracts is primarily from mines located in Ohio,
Kentucky, West Virginia and Pennsylvania. CG&E intends to continue purchasing
a portion of its coal requirements on the spot market.
CG&E believes that it will be able to obtain sufficient coal to meet its
generating requirements. The average sulfur content of coal to be supplied to
CG&E under its present contracts will permit compliance with the current
Federal sulfur dioxide plan for Ohio (see "Environmental Matters--Air
Quality"). CG&E is unable to predict the extent to which coal availability
and price may ultimately be affected by future environmental requirements,
although CG&E expects the cost of coal to rise in the long run as the supply
of more accessible and higher-grade coal diminishes and as mining,
transportation, and other related costs continue an upward trend.
The Energy Policy Act of 1992 addresses several matters affecting
electric utilities including mandated open access to the electric transmission
system and greater encouragement of independent power production and
cogeneration. Although CG&E cannot predict the long-term consequences the
Energy Act will have, CG&E intends to aggressively pursue the opportunities
presented by the Act.
Administrative rules of the PUCO on integrated resource planning (IRP)
require electric utilities to show that least-cost options are pursued when
planning for future load growth. The primary emphasis of IRP is on procedures
for the evaluation of long-term electric forecasts and the integration of
demand and supply alternatives for meeting future electric needs. In
February 1994, the PUCO approved CG&E's 1992 Electric Long-Term Forecast
Report, which included its IRP.
In December 1992, the PUCO issued proposed rules to establish competitive
bidding for new power capacity additions and transmission access. The
proposed rules purport to require open access to the intrastate transmission
grid for winning bidders for that amount of capacity offered by the winning
bidders. While bidding is not mandatory, if a utility decides not to conduct
a competitive bidding to meet additional capacity needs, the utility must
demonstrate that, in developing its IRP, it considered all reasonable and
practical resource options. CG&E is awaiting the issuance of final rules to
determine the effect, if any, on its electric operations.
<PAGE>
Gas Operations and Gas Supply
- -----------------------------
In 1992, FERC issued Order 636 which restructures the relationships
between interstate gas pipeline companies and their customers for gas sales
and transportation services. Order 636 has changed the way CG&E and Union
Light purchase gas supplies and contract for transportation and storage
services. CG&E and Union Light have contracts that provide adequate supply
and storage capacity, including transportation services, to meet normal
demand, as well as unanticipated load swings. CG&E and Union Light expect to
purchase approximately 5% of their annual firm gas requirements on the spot
market.
Order 636 also allows pipelines to recover transition costs they incur in
complying with the Order from customers, including CG&E and Union Light. An
agreement between CG&E and residential and industrial customer groups
regarding recovery of these transition costs has been submitted to the PUCO
for approval. The KPSC has issued an order which allows Union Light to
recover these transition costs through its purchased gas adjustment clause.
Order 636 transition costs are not expected to significantly impact the
Company.
CG&E and Union Light each have an approved rate structure for the
transportation of gas which contributes in making gas prices competitive with
alternate fuels. CG&E and Union Light are transporting gas for more than 90
large-volume customers. Without these programs, CG&E and Union Light would
have lost many of these customers to alternate fuels. CG&E and Union Light
can either transport gas purchased by its customers for a transportation
charge, or buy spot market gas which is then sold to customers at a rate
competitive with alternate fuels.
Due to extremely cold weather, an all-time record for 24-hour gas sendout
was set on January 18, 1994. Gas customers consumed 1 million dekatherms, 8%
higher than the previous record which was set in 1972.
Regulation
- ----------
CG&E is a public utility under the laws of Ohio and is subject to
regulation as to intrastate electric and gas rates and other matters by the
PUCO. Rates within municipalities are subject to original regulation by the
municipalities. As to intrastate rates and other matters, Union Light is
regulated by the KPSC, and The West Harrison Gas and Electric Company and
Lawrenceburg Gas Company by the Indiana Utility Regulatory Commission. The
Ohio Power Siting Board, a division of the PUCO, has jurisdiction over the
location, construction, and initial operation of new electric generating
facilities, and certain electric and gas transmission lines, of the capacities
presently utilized by CG&E.
<PAGE>
CG&E, Union Light, and Miami Power Corporation are subject to rate
regulation under Part II of the Federal Power Act, principally as to CG&E's
wholesale of electricity to Union Light. Transportation of gas between CG&E
and Union Light is subject to regulation under the Natural Gas Act.
CG&E and its utility subsidiaries follow the Uniform Systems of Accounts
prescribed by FERC.
CG&E is exempt from the Public Utility Holding Company Act of 1935
(PUHCA) (except Section 9(a)(2)) by virtue of having filed an exemption
statement with the SEC. CINergy plans to file for registered holding company
status under PUHCA (see "Merger Agreement").
See also "Environmental Matters".
Rate Matters
- ------------
In April 1991, CG&E filed a request with The Public Utilities Commission
of Ohio (PUCO) to increase electric rates by approximately $200 million
annually. The primary reason for the request was recovery of costs associated
with Zimmer Station.
In a 1992 rate decision, the PUCO authorized CG&E to increase electric
revenues by $116.4 million to be phased in over a three-year period through
annual increases of $37.8 million, $38.8 million and $39.8 million in the
first, second and third years, respectively. The PUCO also disallowed from
rate base approximately $230 million, representing costs related to Zimmer
Station for nuclear fuel, nuclear wind-down activities during the conversion
to a coal-fired facility and a portion of the allowance for funds used during
construction (AFC) accrued by CG&E on Zimmer.
In August 1992, CG&E filed an appeal with the Supreme Court of Ohio to
overturn the rate order issued by the PUCO including the rate base
disallowances. In the appeal, CG&E stated that the PUCO did not have
authority to order a phased-in rate increase and erroneously determined the
amount of CG&E's required cash working capital.
On November 3, 1993, the Supreme Court of Ohio issued its decision on
CG&E's appeal. The Court ruled that the PUCO does not have the authority to
order a phase-in of amounts granted in a rate proceeding and remanded the case
to the PUCO to set rates that provide the gross annual revenues determined in
accordance with Ohio statutes. The Court also said the PUCO must provide a
mechanism by which CG&E may recover costs already deferred under the phase-in
plan through the date of the order on remand. At December 31, 1993, CG&E had
deferred $70 million of costs, net of taxes, related to the phase-in plan. On
the other issues, the Court ruled in favor of the PUCO, stating the PUCO
properly determined CG&E's cash working capital allowance and properly
excluded costs related to nuclear fuel, nuclear wind-down activities, and AFC
from rate base. As a result of the Supreme Court decision, CG&E wrote off
Zimmer Station costs of approximately $223 million, net of tax, in November
1993.
<PAGE>
In March 1994, CG&E negotiated a settlement agreement with the PUCO
Staff, the Ohio Office of Consumers' Counsel and other intervenors to address
the November 1993 ruling by the Supreme Court of Ohio. As part of the
agreement, CG&E has agreed not to seek early implementation of the third phase
of the 1992 rate increase, which means the $39.8 million increase will take
effect in May 1994 as originally scheduled. CG&E also agreed that it would
not seek accelerated recovery of deferrals related to the phase-in plan.
These deferrals will be recovered over the remaining seven year period
contemplated in the 1992 PUCO order. In addition, if the merger with PSI is
consummated, CG&E has agreed not to increase base electric rates prior to
January 1, 1999, except for increases in taxes, changes in federal or state
environmental laws, PUCO actions affecting electric utilities in general and
financial emergencies.
The settlement agreement also permits CG&E to retain all non-fuel savings
from the merger until 1999 and calls for merger-related transaction costs, or
any other accounting deferrals, to be amortized over a period ending by
January 1, 1999.
Other provisions of the agreement are: (i) if the merger is not
completed, CG&E can raise electric rates in May 1995 by $21 million to provide
accelerated recovery of phase-in deferrals; (ii) the PUCO and OCC will have
access to information about CINergy and affiliated companies; (iii) the PUCO
will support, before the Securities and Exchange Commission, CG&E's efforts to
retain its gas operations and other parties will not oppose efforts to retain
the gas properties; and (iv) contracts of CG&E with affiliated companies under
the merger that are to be filed with the Securities and Exchange Commission
must first be filed with the PUCO for its review and copies provided to the
OCC.
In September 1992, CG&E filed applications with the PUCO requesting
increases in annual electric and gas revenues of approximately $86 million and
$35 million, respectively. In August 1993, the PUCO approved a stipulation
providing for annual increases of approximately $41 million (5%) in electric
revenues and $19 million (6%) in gas revenues effective immediately. As part
of the stipulation, CG&E agreed, among other things, not to increase electric
or gas base rates prior to June 1, 1995. This would not include rate filings
made under certain circumstances, such as to address financial emergencies or
to reflect any savings associated with the prospective merger with PSI
Resources, Inc. (see Note 9 to the Consolidated Financial Statements).
In September 1992, Union Light filed a request with the KPSC to increase
annual gas revenues by approximately $9 million. Orders issued in mid-1993 by
the KPSC authorized Union Light to increase annual gas revenues by $4.2
million.
<PAGE>
Ohio's rate base law prescribes the net original cost method of
determining rate base. The law permits the PUCO, at its discretion, to allow
normalization of accounting for income taxes and to include in rate base
construction work in progress (CWIP) on projects at least 75% complete, in an
amount up to 10% of the rate base excluding CWIP. The amount of air pollution
control construction, together with any other allowance for CWIP, allowed in
rate base may not exceed 20% of the rate base excluding CWIP. Rate increases
requested under the law will be permitted to go into effect, subject to
refund, nine months after the date of filing. The law prohibits a utility
from filing an application for a rate increase if it has another pending.
Revenues collected after 18 months from the date of filing, without a final
order of the PUCO, will not be subject to refund. The law also provides for a
Consumers' Counsel to participate in rate cases before the PUCO on behalf of
residential consumers.
In accordance with rules established by the PUCO, CG&E is permitted to
make changes in the electric fuel adjustment charge every six months,
following hearings by the PUCO. The rules also require reconciliation of
over- or under-recovery of fuel costs and annual audits of the application of
the adjustment charge and fuel procurement practices. Rules pertaining to
purchased gas costs permit quarterly adjustments, reconciliation of over- or
under-recovery of gas costs, and require annual hearings and audits. In
conjunction with these rules, CG&E expenses the cost of fuel used to generate
electricity and purchased gas costs as recovered through revenue and defers
the portion of these costs recoverable or refundable in future periods.
Rules established by the KPSC pertaining to Union Light's electric fuel
adjustment clause provide for public hearings at six-month intervals to review
past calculations, reconciliation of over- or under-recovery of fuel costs,
and a public hearing every two years to review the application of the
adjustment charge and fuel procurement practices. In accordance with a
purchased gas adjustment clause approved by the KPSC, Union Light is permitted
to make quarterly adjustments in gas costs and reconciliation of over- or
under-recovery of gas costs. In conjunction with these rules, Union Light
expenses the costs of gas and electricity purchased as recovered through
revenue and defers the portion of these costs recoverable or refundable in
future periods.
<PAGE>
Environmental Matters
- ---------------------
GENERAL
CG&E and its subsidiaries are subject to regulation by various Federal,
state, and local authorities relative to air and water quality, solid and
hazardous waste disposal, and other environmental matters. During 1993,
CG&E's capital expenditures for pollution control facilities, including those
commonly owned with Columbus and/or DP&L, amounted to $26 million. During the
year 1994, CG&E expects to spend $21 million for pollution control facilities.
CG&E is expected to incur other substantial capital expenditures and operating
costs relating to efforts to comply with environmental statutes and
regulations as described below, but it is not able to estimate the
expenditures and costs which would be necessary to meet environmental
requirements imposed in the future by governmental authorities or to estimate
the effect of delays that may result from rigid application of existing
standards.
CG&E's inability to comply with potential environmental regulations and
more rigid enforcement policies with respect to existing standards and
regulations could cause substantial capital expenditures in addition to those
included in its construction program, and increase the cost per Kwh of
generation by reducing the amount of electricity available for delivery or by
necessitating increased fuel and/or operating and capital costs, and may cause
serious fuel supply problems for CG&E, or require it to cease operating a
portion of its generating facilities.
Pursuant to Federal law, the Director of the Ohio Environmental
Protection Agency (Ohio EPA) administers regulations prescribing air and water
quality standards, and regulations pertaining to solid waste, and is generally
empowered by Ohio environmental laws to issue construction and operating
permits and variances for facilities which may contribute to air pollution and
to issue similar permits for facilities which discharge pollutants into the
waters of the state as well as permits for the disposal of solid waste. The
Secretary of the Natural Resources and Environmental Protection Cabinet
(NREPC) exercises similar functions in Kentucky.
AIR QUALITY
Pursuant to the Federal Clean Air Act (Air Act), the U.S. Environmental
Protection Agency (U.S. EPA) promulgated national ambient air quality
standards for specified pollutants, including particulate matter, sulfur
dioxide, and nitrogen oxide. The Air Act places primary responsibility on the
states to develop implementation plans which include emission controls and
other methods to attain those standards. All implementation plans are subject
to approval by the U.S. EPA. The Ohio and Kentucky implementation plans are
fully enforceable by those states and, to the extent approved by the U.S. EPA,
are also enforceable by it.
<PAGE>
The U.S. EPA has promulgated various regulations under the Air Act.
Included are regulations dealing with significant deterioration of air
quality, imposition of more stringent control standards on new emission
sources, and construction of new sources in areas presently not meeting
ambient air quality standards. For facilities found to be in violation of an
applicable implementation plan, the Air Act provides for civil penalties of up
to $25,000 per day and criminal penalties. Noncompliance penalties are also
provided for and are generally based on the economic savings resulting from a
failure to comply with applicable emission limitations.
In 1990, the Air Act was amended by adding numerous requirements
including provisions pertaining to the nonattainment, hazardous air pollutant,
permitting, and enforcement programs. A new acid deposition ("acid rain")
program in the law governs emission of nitrogen oxides and establishes a cap
on sulfur dioxide emissions. The Air Act requires a 10 million ton per year
reduction nationwide in sulfur dioxide emissions by the year 2000, and
nationwide reductions in nitrogen oxide emissions of approximately two million
tons per year. The impact of these changes to the Air Act on CG&E will depend
upon regulations which remain to be promulgated by the U.S. EPA. However, as
a result of compliance, CG&E's operating and capital costs will increase.
AIR ACT COMPLIANCE. In June 1992, CG&E submitted its strategy for
complying with the acid rain provision of the Air Act to the PUCO, as part of
its Electric Long-Term Forecast Report (Electric LTFR). An Order approving
CG&E's Electric LTFR was issued by the PUCO in February 1994. In a separate
PUCO filing, CG&E requested approval of its plan for compliance with Phase I
of the Air Act. Approval of the compliance plan by the PUCO is needed so that
the costs of compliance can be recovered through rates. In February 1994, the
PUCO approved the compliance plan submitted in a stipulation and
recommendation. The PUCO emphasized that the approval did not limit their
authority to review CG&E's costs of compliance, and also indicated that it
intended to use the approved compliance plan as a baseline to measure the
effects of the proposed merger of CG&E and PSI.
CG&E's compliance strategy is a flexible program, which will allow
utilization of the emission allowance trading market as it develops and will
take full advantage of CG&E's existing sulfur dioxide removal equipment. To
comply with the new sulfur dioxide requirements, CG&E will increase the amount
of sulfur dioxide being removed by one of its existing scrubbers and will use
coal with a lower sulfur content at some of its generating stations. In
addition, CG&E will rely on demand side management and energy conservation
programs to reduce electric usage and demand. Reductions in nitrogen oxide
emissions will be achieved by installing low nitrogen oxide burners on certain
boilers. Emission monitors will be installed to continuously monitor sulfur
dioxide and nitrogen oxide emissions.
<PAGE>
CG&E presently estimates that capital expenditures needed to comply with
the Air Act will be between $125 million and $150 million through the year
2000. The construction program discussed in "Construction Program and Capital
Requirements" herein reflects expenditures of $73 million over the next five
years in order to comply with the Air Act. In addition, operating costs will
also increase. These estimates are under continuing review and subject to
adjustment based on such things as a change in regulatory requirements or a
change in compliance strategy.
SULFUR DIOXIDE STANDARDS. The U.S. EPA has approved portions of the Ohio
EPA sulfur dioxide plan applicable to CG&E. CG&E believes that the units
operated by it in Ohio are in compliance with applicable existing sulfur
dioxide regulations. CG&E also believes that East Bend Unit 2 is operating in
compliance with applicable existing Federal and Kentucky regulations.
In December 1988, the U.S. EPA notified the State of Ohio that the
portion of its state implementation plan (SIP) dealing with sulfur dioxide
emission limitations for Hamilton County (in southwestern Ohio) was deficient
and required the Ohio EPA to develop a new SIP with revised emission
limitations. The notice affects industrial and utility sources. The Ohio EPA
adopted a rule that required CG&E to construct a new smoke stack for two units
at CG&E's Miami Fort Generating Station, located in southwestern Hamilton
County.
In a separate action, the U.S. EPA, in January 1991, requested that
Hamilton and Butler Counties be redesignated nonattainment areas for sulfur
dioxide. The State of Ohio provided a response to the U.S. EPA stating that
Hamilton County should not be redesignated to nonattainment. The U.S. EPA has
not taken final action on the redesignation. This action by the U.S. EPA
could lead to the need for significant emission reductions at CG&E's Miami
Fort Generating Station and possibly at certain peaking facilities, in
addition to the new smoke stack mentioned above.
In August 1985, CG&E, as part of an industry group, filed a Petition for
Review in the U.S. Court of Appeals for the District of Columbia Circuit and,
in September 1985, filed a Petition for Reconsideration with the U.S. EPA,
regarding final regulations promulgated in June 1985 which relate to the
height of smokestacks at power plants. In January 1988, the Court of Appeals
issued its decision upholding certain provisions and remanding others to the
U.S. EPA for further rulemaking. CG&E believes that the Miami Fort Station
will not be affected by the regulations. CG&E has been informed by Columbus
that Conesville Unit 4 may be affected by the regulations. CG&E owns an
undivided 40% interest in Unit 4. CG&E has been informed by DP&L that the
Ohio EPA has determined that Killen Station will not be affected by the
regulations, but that the U.S. EPA has not made its determination. CG&E owns
an undivided 33% interest in Killen Station. CG&E, Columbus, and DP&L are not
able to state the ultimate impact of the regulations or of the Court of
Appeals' remand.
<PAGE>
STATE IMPLEMENTATION PLANS. Ohio has adopted its SIP applicable to the
units operated by CG&E in Ohio, portions of which have been approved by the
U.S. EPA. The Ohio implementation plan requires CG&E to obtain permits from
the Ohio EPA for operation of present generating facilities and for
construction and operation of new facilities.
Kentucky has adopted, and the U.S. EPA has approved, its SIP which
contains emission limitations and licensing requirements which are
substantially similar to U.S. EPA regulations.
As a result of the Air Act discussed above, prior to 1995, CG&E will need
to obtain an acid rain permit for those Phase I units operated by it which
will be affected by the acid rain provisions of the Air Act. This permit will
be issued by the U.S. EPA until Ohio and Kentucky are authorized by the U.S.
EPA to issue these permits. CG&E has complied with the application procedures
for the acid rain permits for the units. It has received some of the permits
and is awaiting action on the remaining applications.
CG&E has applied for or obtained all other state and federal
environmental permits for all generating units operated by it.
PARTICULATE MATTER STANDARDS. CG&E believes that existing generating
units operated by it in Ohio are in compliance with applicable Federal and
state standards for emission of particulate matter. East Bend Unit 2, located
in Kentucky, is in compliance with applicable Federal and state standards,
except for opacity standards, for which an application for a variance has been
filed and is still pending.
WATER QUALITY
Under the Water Act, effluent limitations requiring application of the
best available technology economically achievable are to be applied, and those
limitations require that no pollutants be discharged if the U.S. EPA finds
elimination of such discharges is technologically and economically achievable.
In 1987, the Water Act was amended to prohibit issuance of permits with less
stringent effluent limitations and to increase civil and criminal penalties
for violations. The Water Act provides for penalties of up to $25,000 per day
for each discharge violation. CG&E believes that it is in compliance with
applicable provisions of the Water Act.
<PAGE>
SOLID AND HAZARDOUS WASTE
The Resource Conservation and Recovery Act (RCRA) and the Hazardous and
Solid Waste Amendments of 1984 (Amendments), which substantially expand
Federal enforcement for violations of RCRA, provide for maximum corporate
fines of $1 million. The Amendments provide for a deferral of the
identification as a hazardous waste of high volume solid wastes of the type
generated at CG&E's electric generating stations, such as fly ash, bottom ash,
boiler slag, and flue gas emission control waste. In August 1993, the U.S.
EPA made the regulatory determination that these generating station products
should not be regulated under RCRA. Additional waste streams are under study
and a determination is expected by 1998. The Amendments also provide that the
states may adopt regulations governing the treatment, processing, and storage
of hazardous wastes which are more stringent than the Federal regulations.
RCRA Amendment provisions include a regulatory program for performance
standards for new underground storage tanks as well as standards covering leak
detection, leak prevention and corrective action for both new and existing
underground storage tanks.
The Comprehensive Environmental Response Compensation and Liability Act
(CERCLA) expanded reporting and liability requirements covering the release of
hazardous substances into the environment. Some of these substances,
including polychlorinated biphenyls (PCBs), a substance regulated under the
Toxic Substances Control Act, are contained in certain equipment currently
used by CG&E and its subsidiaries. CG&E cannot predict the occurrence and
effect of a release of such substances.
CERCLA provides, among other things, for a trust fund, drawn from
industry and Federal appropriations, to finance clean up and containment
efforts of improperly managed hazardous waste sites. Under CERCLA, and other
laws, responsible parties may be strictly, and jointly and severally, liable
for money expended by the government to take necessary corrective action at
such sites.
In October 1986, the Superfund Amendments and Reauthorization Act of 1986
(SARA) was signed into law. SARA significantly amended CERCLA and established
programs dealing with emergency preparedness and community right-to-know,
leaking underground storage tanks, and other matters. SARA provides for a
significant increase in CERCLA funding, adopts strict cleanup standards and
schedules, places limitations on the timing and scope of court review of
government cleanup decisions, authorizes state and citizen participation in
cleanup plans, enforcement actions, and court proceedings, including provision
for citizens' suits against both private and public entities to enforce
CERCLA's requirements, expands liability provisions, and increases civil and
criminal penalties for violations of CERCLA.
In June 1991, CG&E was notified by the U.S. EPA that, in accordance with
CERCLA, the U.S. EPA alleges that CG&E is a Potentially Responsible Party
(PRP) liable for cleanup of the United Scrap Lead site in Troy, Ohio. CG&E
was one of approximately 200 companies so notified. CG&E believes it is not a
PRP and should not be responsible for cleanup of the site. Under CERCLA, CG&E
could be jointly and severally liable for costs incurred in cleaning the site,
estimated by the U.S. EPA to be $27 million.
<PAGE>
Employee Relations
- ------------------
CG&E and its subsidiaries presently have about 5,000 employees, of whom
about 3,300 belong to bargaining units. Approximately 1,600 employees are
represented by the International Brotherhood of Electrical Workers (IBEW), 500
by the United Steelworkers of America (USWA) and 1,200 by the Independent
Utilities Union (IUU).
The collective bargaining agreements with the IBEW and the USWA expire on
April 1, 1994 and May 15, 1994, respectively. The three year agreement with
the IUU, which expires in March 1995, has a wage reopener for the third year
of the contract. Negotiations with the IBEW and IUU are presently under way.
Executive Officers of the Registrant
- ------------------------------------
Term
Name Position Age Began
- ---- -------- --- -----
Jackson H. Randolph Chairman of the Board, 5/19/93
President and Chief Executive Officer 63 10/ 1/86
C. Robert Everman Senior Vice-President--Finance 57 2/ 1/87
Robert P. Wiwi Senior Vice-President--Customer and
Corporate Services 52 2/ 1/87
Donald R. Blum Secretary 62 4/26/78
Terry E. Bruck Vice-President--Electric Operations 48 4/21/88
Daniel R. Herche Controller 47 2/ 1/87
Donald I. Marshall Vice-President--Rates and
Economic Research 47 4/17/91
James J. Mayer Vice-President and 9/18/91
General Counsel 55 1/ 1/86
Stephen G. Salay Vice-President--Electric Production
and Fuel Supply 57 4/21/88
William L. Sheafer Treasurer 50 2/ 1/87
George H. Stinson Vice-President--Gas Operations 48 1/16/91
W. Denis Waymire Vice-President--Marketing and
Customer Relations 61 10/ 1/89
All of the executive officers of CG&E have been actively engaged in the
business of the Company for more than the past five years. Officers are
elected annually for a term of one year. The present terms end May 18, 1994.
<PAGE>
Under the Amended and Restated Agreement and Plan of Reorganization (the
Merger Agreement) by and among CG&E, PSI Resources, Inc., PSI Energy, Inc.,
CINergy Corp. and CINergy Sub, Inc., dated as of December 11, 1992, as amended
on July 2, 1993 and as of September 10, 1993, Jackson H. Randolph will be
entitled to serve as chief executive officer (CEO) of CINergy until
November 30, 1995 and Chairman of CINergy until November 30, 2000. James E.
Rogers, Jr., the current Chairman and CEO of PSI Resources, Inc. and Chairman,
CEO and President of PSI Energy, Inc., will be entitled to serve as Vice
Chairman of the Board, President and Chief Operating Officer of CINergy until
November 30, 1995, at which time he will be entitled to assume the additional
role of CEO. Reference is made to "Merger Agreement" herein for information
on the proposed merger.
<PAGE>
<TABLE>
<CAPTION>
OPERATING STATISTICS
The following tables are indicative of the general development of the business
conducted by CG&E and its subsidiaries during the periods indicated:
Year Ended December 31
-----------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
ELECTRIC DEPARTMENT
Sources of Electric Energy (million Kwh)
Generated (net send out)....................... 22,338 21,040 21,428
Purchased and interchanged -- net.............. 1,373 1,441 774
--------- --------- ---------
Available for deliveries............. 23,711 22,481 22,202
========= ========= =========
Fuel Cost per Kwh Generated (cents)............... 1.492 1.527 1.590
Fuel Cost per Million BTU (cents)................. 152.3 156.6 160.9
Fuel Cost per Ton Burned (dollars)................ 36.11 35.96 37.02
Sales (million Kwh)
Residential.................................... 7,149 6,583 7,110
Commercial..................................... 5,471 5,189 5,294
Industrial..................................... 6,067 5,926 5,539
Other retail................................... 1,672 1,551 1,587
Other electric utilities--non-affiliated....... 2,010 1,987 1,483
--------- --------- ---------
Total sales.......................... 22,369 21,236 21,013
Unaccounted For and Company Use.................. 1,342 1,245 1,189
--------- --------- ---------
Total distribution................... 23,711 22,481 22,202
========= ========= =========
Gross Revenues ($000 omitted)
Residential.................................... 502,399 436,416 456,378
Commercial..................................... 353,363 325,402 318,238
Industrial..................................... 277,021 263,212 245,177
Other retail................................... 92,498 84,577 82,597
Other electric utilities -- non-affiliated..... 46,208 40,076 35,128
--------- --------- ---------
Total................................ 1,271,489 1,149,683 1,137,518
Other departmental revenues.................... 10,956 9,773 9,877
--------- --------- ---------
Total revenues....................... 1,282,445 1,159,456 1,147,395
========= ========= =========
Customers at End of Period
Residential.................................... 621,111 621,685 612,875
Commercial..................................... 68,494 69,210 68,025
Industrial..................................... 3,108 3,194 3,185
Other retail................................... 4,388 4,472 4,361
Other electric utilities -- non-affiliated..... 13 13 15
--------- --------- ---------
Total customers...................... 697,114 698,574 688,461
========= ========= =========
Average Revenue per Kwh (cents)
Residential.................................... 7.03 6.63 6.42
Commercial..................................... 6.46 6.27 6.01
Industrial..................................... 4.57 4.44 4.43
<FN>
- ----------------
Note: See Note 12 to the Consolidated Financial Statements for additional financial
information by business segments.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OPERATING STATISTICS-(Continued)
Year Ended December 31
-----------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
GAS DEPARTMENT
Sources of Gas (million cubic feet)
Natural gas purchased.......................... 79,393 75,851 74,618
Gas produced................................... 18 14 8
Transportation gas received.................... 29,115 25,611 20,916
------- ------- -------
Total available for deliveries....... 108,526 101,476 95,542
======= ======= =======
Average Cost per Mcf Purchased (cents)............ 353.7 300.9 284.1
Distribution of Gas (million cubic feet)
Gas sales
Residential.................................. 43,514 39,754 38,048
Commercial................................... 20,370 20,142 19,373
Industrial................................... 10,011 10,091 10,663
Other retail................................. 3,996 3,941 3,709
Other gas utilities.......................... 307 285 273
------- ------- -------
Total gas sales...................... 78,198 74,213 72,066
Gas transported ............................... 28,593 25,372 20,748
------- ------- -------
Total gas sales and gas
transported........................ 106,791 99,585 92,814
Unaccounted for and company use................ 1,735 1,891 2,728
------- ------- -------
Total distribution................... 108,526 101,476 95,542
======= ======= =======
Gross Revenues ($000 omitted)
Residential.................................... 269,684 220,140 205,790
Commercial..................................... 114,957 99,827 94,399
Industrial..................................... 47,403 42,091 41,445
Other retail................................... 20,219 17,024 15,588
Other gas utilities............................ 1,354 927 967
------- ------- -------
Total................................ 453,617 380,009 358,189
Other departmental revenues (including
gas transported)............................. 15,679 13,961 12,514
------- ------- -------
Total revenues....................... 469,296 393,970 370,703
======= ======= =======
Customers at End of Period
Residential.................................... 375,992 372,395 364,437
Commercial..................................... 40,471 40,303 39,829
Industrial..................................... 2,108 2,229 2,229
Other retail................................... 1,484 1,458 1,437
Other gas utilities............................ 1 1 1
------- ------- -------
Total customers...................... 420,056 416,386 407,933
======= ======= =======
Average Revenue per Mcf Sold (cents)
Residential.................................... 619.77 553.75 540.87
Commercial..................................... 564.34 495.63 487.29
Industrial..................................... 473.49 417.11 388.67
<FN>
- ----------------
Note: See Note 12 to the Consolidated Financial Statements for additional financial
information by business segments.
</TABLE>
<PAGE>
Item 2. Properties
- ------- ----------
CG&E wholly owns two of four steam electric generating units and six
combustion turbine units with a combined net capability of 395,800 Kw at Miami
Fort Station, located in Ohio. This station is on the Ohio River and is about
20 miles west of the center of Cincinnati. CG&E has an undivided interest in
the third and fourth units, commonly owned units, at this station with CG&E's
share of net capability being 320,000 Kw each.
CG&E wholly owns five of six steam electric generating units and four
combustion turbine units with a combined net capability of 890,400 Kw at the
Walter C. Beckjord Station, located in Ohio. This station is on the Ohio
River and is about 20 miles southeast of the center of Cincinnati. CG&E has an
undivided interest in the sixth unit, a commonly owned unit, at this station
with CG&E's share of net capability being 155,250 Kw.
CG&E wholly owns six combustion turbine electric generating units with a
combined net capability of 462,000 Kw at Woodsdale Generating Station, located
in Ohio. This station is in Butler County and is about 24 miles north of the
center of Cincinnati.
CG&E has undivided interests in four commonly owned steam electric
generating units at the J. M. Stuart Station, located in Ohio, with CG&E's
share of net capability being 912,600 Kw. This station is on the Ohio River
near Aberdeen, Ohio and is about 65 miles southeast of the center of
Cincinnati.
CG&E has an undivided interest in a commonly owned steam electric
generating unit at the Conesville Station, located in Ohio, with CG&E's share
of net capability being 312,000 Kw. This station is located on the Muskingum
River and is about 60 miles east of Columbus, Ohio.
CG&E has an undivided interest in a commonly owned steam electric
generating unit at the East Bend Station, located in Kentucky, with CG&E's
share of net capability being 414,000 Kw. This station is on the Ohio River
and is about 40 miles southwest of the center of Cincinnati.
CG&E has an undivided interest in a commonly owned steam electric
generating unit at the Killen Station, located in Ohio, with CG&E's share of
net capability being 198,000 Kw. This station is on the Ohio River and is
about 80 miles southeast of the center of Cincinnati.
CG&E has an undivided interest in a commonly owned steam electric
generating unit at the Wm. H. Zimmer Generating Station, located in Ohio, with
CG&E's share of net capability being 604,500 Kw. This station is located on
the Ohio River near Moscow, Ohio and is about 25 miles southeast of the center
of Cincinnati.
CG&E wholly owns a combustion turbine electric generating station, Dicks
Creek Station, with a net capability of 136,200 Kw. This station is located
in the City of Middletown, Ohio.
<PAGE>
CG&E's presently installed summer net generating capability is 5,120,750
Kw.
CG&E owns an overhead electric transmission system, an underground
electric transmission system and an electric distribution system in
Cincinnati, and other incorporated communities and adjacent rural territory
within all or parts of the Counties of Hamilton, Butler, Warren, Clermont,
Preble, Montgomery, Clinton, Highland, Adams, and Brown, in southwestern Ohio.
In addition, CG&E, Columbus, and DP&L have a commonly owned transmission
network. CG&E also owns electric transmission lines within the Counties of
Boone, Kenton, Pendleton, and Campbell, in northern Kentucky.
CG&E owns a 7,000,000 gallon capacity underground cavern located in the
Village of Monroe, Ohio, for the storage of liquid propane and a related
vaporization and mixing plant, located in Middletown, Ohio, and an 8,000,000
gallon capacity underground cavern for the storage of liquid propane and a
related vaporization and mixing plant located in the City of Cincinnati, which
are used primarily to augment CG&E's supply of natural gas during periods of
peak demand and emergencies. CG&E has gas distribution systems in Cincinnati,
Middletown, and other incorporated communities and in contiguous rural
territory within all or parts of the Counties of Hamilton, Butler, Warren,
Clermont, Clinton, Montgomery, Brown, and Adams, in southwestern Ohio.
Union Light, a subsidiary, owns an electric transmission system and an
electric distribution system in Covington, Newport, and other smaller
communities and in adjacent rural territory within all or parts of the
Counties of Kenton, Campbell, Boone, Grant, and Pendleton, in Kentucky. Union
Light owns a gas distribution system in Covington, Newport, and other smaller
communities and in adjacent rural territory within all or parts of the
Counties of Kenton, Campbell, Boone, Grant, Gallatin, and Pendleton, in
Kentucky. Union Light owns a 7,000,000 gallon capacity underground cavern for
the storage of liquid propane and a related vaporization and mixing plant and
feeder lines, located in Kenton County, Kentucky near the Kentucky-Ohio line
and adjacent to one of the gas lines that transports natural gas to CG&E. The
cavern and vaporization and mixing plant are used primarily to augment CG&E's
and Union Light's supply of natural gas during periods of peak demand and
emergencies.
Lawrenceburg Gas Company, a subsidiary, owns a gas distribution system in
and around Lawrenceburg, Greendale, Brookville, Rising Sun, Cedar Grove, and
West Harrison, Indiana, which are adjacent to the western part of CG&E's
service area. Lawrenceburg Gas is connected with and sells gas at wholesale
to the City of Aurora, Indiana, and also is connected within Indiana with the
lines of Texas Gas Transmission Corporation and Texas Eastern Transmission
Corporation.
The West Harrison Gas and Electric Company, a subsidiary, renders
electric service in a small community in Indiana adjacent to CG&E's service
area. Miami Power Corporation, a subsidiary, owns 40 miles of 138,000 volt
transmission line connecting the lines of Louisville Gas and Electric Company
with those of CG&E. Tri-State Improvement Company is a wholly-owned real
estate development company.
<PAGE>
Under the terms of the respective mortgage indentures securing first
mortgage bonds issued by CG&E and its subsidiaries, substantially all property
is subject to a direct first mortgage lien.
Item 3. Legal Proceedings
- ------- -----------------
In March 1993, two purported class action suits were filed with the
Superior Court for Hendricks County in the State of Indiana, in which PSI and
13 directors of PSI and PSI Energy were named as defendants. The complaints
alleged, among other things, that the directors breached their fiduciary
duties in connection with the Merger Agreement, the PSI Stock Option Agreement
and the PSI Rights Agreement and sought, among other things, to enjoin the
merger and to require that an auction for PSI be held. Four other purported
class action suits were filed in the U.S. District Court for the Southern
District of Indiana making substantially similar allegations, including
alleged violations of federal securities laws. Three of these suits named
CG&E and CINergy as defendants in addition to the defendants named in the
state actions above.
In April 1993, the U.S. District Court for the Southern District of
Indiana, with respect to discovery and injunctive relief, ordered five of the
pending suits to be consolidated. One of the purported class action suits
filed in Hendricks County was not included in the U.S. District Court's order
of consolidation. In May 1993, the Shareholder Plaintiffs filed a Unified
Complaint in the Consolidated Action alleging, among other things, that the
PSI directors breached their fiduciary duties in connection with the merger
and the PSI Rights Agreement, violated the federal securities laws and further
alleging that PSI failed to hold its annual meeting of shareholders and
sought, among other things, to enjoin the merger. The Consolidated Action
alleged that CG&E was a primary violator and aider and abettor of the
foregoing allegations.
In early 1994, the parties agreed to a Stipulation and Agreement of
Dismissal of the Consolidated action and the one remaining suit filed in the
Superior Court for Hendricks County. By the terms of the Stipulation and
Agreement of Dismissal the parties agreed that since 1) the Annual Meeting of
PSI stockholders was held in accordance with the orders of the U.S. District
Court for the Southern District of Indiana; 2) the supplemental disclosure was
made by PSI in accordance with the district court's order in August 1993; 3)
PSI's nominees were elected to the Board of Directors; and 4) both PSI
shareholders and CG&E shareholders have approved the merger, all class members
have received all the meaningful relief they could have received through the
litigation and that some or all of the claims are now moot and no longer
meritorious.
The parties also agreed to jointly move the court for an entry 1) of a
Final Order certifying the Consolidated Action as a class action on behalf of
the Class for the purpose of consideration of the Final Order; 2) dismissing
the Consolidated Action and remaining state action with prejudice; and 3)
settling all claims between the parties except that the U.S. District Court
for the Southern District of Indiana and the Superior Court for Hendricks
<PAGE>
County reserve jurisdiction to hold a hearing on the application by the
Shareholder Plaintiffs for attorney fees and expenses without waiving any
rights of the defendants to appeal. The Agreement of Dismissal also provides
that should the court find upon plaintiff's application that attorney fees and
expenses are recoverable by the Shareholder Plaintiffs, such fees and expenses
shall be paid by PSI. The parties are currently awaiting a ruling from the
District Court.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
(a) A special meeting of shareholders of The Cincinnati Gas & Electric
Company was held on November 16, 1993.
(c) At the meeting, the shareholders adopted the Amended and Restated
Agreement and Plan of Reorganization dated as of December 11, 1992,
as amended and restated on July 2, 1993 and as of September 10,
1993 (as amended and restated, the "Merger Agreement"), as set
forth in its entirety in the Joint Proxy Statement/Prospectus dated
October 8, 1993. Of the 87,654,430 common shares outstanding and
entitled to vote at the meeting, 75,051,985 common shares were for
the adoption of the Merger Agreement, 1,123,450 against, 1,138,032
abstentions and 5,367,016 broker nonvotes.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related
- ------- -------------------------------------------------
Stockholder Matters
-------------------
CG&E's common stock is listed on the New York, Cincinnati, Chicago, and
Pacific Stock Exchanges.
The table below sets forth the high and low sale prices as reported on
the New York Stock Exchange-Composite and dividend information for CG&E's
common stock.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Common Stock $:
1993 . . . . . -High 27 27 3/4 29 29 5/8
. . . . . -Low 23 7/8 24 1/4 27 1/8 26 1/8
1992 . . . . . -High 26 5/8 25 1/8 25 3/8 25 3/8
. . . . . -Low 23 5/8 22 1/4 22 7/8 23 1/4
Dividends Paid
per Common Share $:
1993 . . . . . .41 1/2 .41 1/2 .41 1/2 .43
1992 . . . . . .41 1/3 .41 1/3 .41 1/3 .41 1/3
</TABLE>
As of December 31, 1993, CG&E had approximately 58,000 common
shareholders of record.
<PAGE>
Item 6. Selected Financial Data
- ------- -----------------------
<TABLE>
<CAPTION>
1993(a) 1992 1991 1990 1989
------- ------ ------ ------ ------
(Thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating Revenues................... $1,751,741 $1,553,426 $1,518,098 $1,438,468 $1,437,511
Operating Income..................... $ 319,500 $ 259,701 $ 213,172 $ 226,629 $ 240,621
Allowance for Borrowed and
Other Funds Used During
Construction....................... $ 6,740 $ 17,583 $ 68,130 $ 135,682 $ 112,598
Post-in-Service Carrying Costs
and Phase-in Deferred
Return (b)......................... $ 47,434 $ 63,264 $ 50,079 $ -- $ --
Net Income (Loss).................... $ (8,724) $ 202,261 $ 206,996 $ 234,736 $ 239,693
Preferred Dividends.................. $ 25,160 $ 27,610 $ 24,529 $ 22,165 $ 20,259
Earnings (Loss) on Common Shares..... $ (33,884) $ 174,651 $ 182,467 $ 212,571 $ 219,434
Earnings (Loss) Per Common
Share.............................. $ (0.39) $ 2.04 $ 2.21 $ 2.74 $ 2.89
Cash Dividends Declared per
Common Share....................... $ 1.67 1/2 $ 1.65 1/3 $ 1.65 1/3 $ 1.60 $ 1.53 1/3
Total Assets......................... $5,143,523 $4,802,192 $4,583,786 $4,156,484 $3,777,579
Long-Term Debt and
Redeemable Preferred Stock......... $2,039,061 $2,019,863 $1,863,802 $1,740,249 $1,388,624
<FN>
Notes: (a) See "Rate Matters" herein for information concerning the write-off of a portion of Zimmer
Station.
(b) See Note 1 to the Consolidated Financial Statements for additional information.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations
-----------------------------------
RESULTS OF OPERATIONS
- ---------------------
Earnings
- --------
The Company incurred a loss in 1993 of $.39 per common share. The
write-off of a portion of Zimmer Station, discussed below, reduced 1993
earnings per common share by $2.55. Without the write-off, earnings per share
would have been $2.16, compared to $2.04 in 1992. Earnings for 1993 were
positively affected by gas and electric rate increases received in 1992 and
1993, higher electric sales volumes, higher gas sales and transportation
volumes and continued cost control efforts.
Operating Revenues
- ------------------
Electric operating revenues increased $123 million in 1993 over 1992, as
a result of electric rate increases granted by regulatory bodies in 1992 and
1993, and an increase in total electric sales volumes of 5.3%. In 1992,
electric operating revenues increased $12 million due to rate increases
granted by regulatory bodies, partially offset by a 1.4% decrease in retail
<PAGE>
electric kwh sales due to mild weather. Electric operating revenues increased
$27 million in 1991 primarily as a result of a 7.8% increase in retail
electric sales volumes.
Gas operating revenues increased $75 million in 1993. The increase
resulted from gas rate increases granted by regulatory bodies in 1993, a 7.2%
increase in total volumes of gas sold and transported, and the operation of
adjustment clauses reflecting an increase in the average cost of gas
purchased. Gas operating revenues increased $23 million in 1992 due to a 7.3%
increase in total volumes sold and transported and to the operation of
adjustment clauses reflecting an increase in the average cost of gas
purchased. The $53 million increase in gas operating revenues for 1991 was
the result of an 8.9% increase in total volumes sold and transported and rate
increases granted by regulatory bodies.
Operating Expenses
- ------------------
Gas purchased expense for 1993 increased $53 million as a result of an
increase in the average cost per Mcf purchased of 17.5% and an increase in
volumes purchased of 4.7%. For 1992, gas purchased expense increased
$16 million as a result of an increase in volumes purchased of 1.7% and an
increase in the average cost per Mcf purchased of 5.9%. Gas purchased expense
increased $8 million in 1991 primarily as a result of a 3.3% increase in
volumes purchased.
Fuel used in electric production increased $12 million in 1993 due to a
6.2% increase in the amount of electricity generated. Fuel used in electric
production decreased $10 million in 1992 due to a 4.0% decrease in the cost of
fuel per kwh generated. In 1991, fuel used in electric production decreased
$6 million due to a 2.6% decrease in the amount of electricity generated.
The $15 million increase in other operation expense for 1993 was due to a
number of factors, including wage increases, the adoption of two accounting
standards involving postemployment and postretirement benefits, and increases
in gas production expenses. For information on new accounting standards, see
"Future Outlook" herein. The $22 million increase in other operation expense
for 1991 was due to a number of factors, including wage increases, increases
in gas and electric distribution expenses, and operating costs associated with
Zimmer Station which were not being recovered in rates charged to customers.
Maintenance expense decreased $16 million in 1992 primarily due to
decreased maintenance on electric generating units and gas and electric
distribution facilities.
Depreciation expense increased $11 million in 1993 primarily due to a
full year's effect of the first five units of Woodsdale Station being placed
in commercial operation in 1992, and from the sixth unit being placed in
commercial operation during 1993. Depreciation expense increased $10 million
in 1992 primarily due to a full year's effect of Zimmer Station being placed
in commercial operation in March 1991, and from the first five units at
Woodsdale being placed in commercial operation in 1992. In 1991, depreciation
<PAGE>
expense increased $37 million primarily due to an increase in depreciable
plant resulting from Zimmer Station being placed in commercial operation.
Post-in-service deferred operating expenses (net) of $6 million and $28
million in 1993 and 1992, respectively, reflect deferral of depreciation,
operation and maintenance expenses (exclusive of fuel costs), and property
taxes related to the first five units of Woodsdale Station between the time
the units began commercial operation and the effective date of new rates which
reflect these costs, in accordance with a stipulation approved by The Public
Utilities Commission of Ohio (PUCO) in August 1993. Post-in-service deferred
operating expenses in 1992 also reflect deferral of depreciation, operation
and maintenance expenses (exclusive of fuel costs), and property taxes related
to Zimmer Station from January 1992 through May 1992, the effective date of
new rates which reflected Zimmer Station costs. In accordance with a May 1992
rate order, CG&E began amortizing the deferred expenses associated with Zimmer
Station over a 10-year period. CG&E began amortizing the deferred Woodsdale
expenses over a 10-year period in accordance with the stipulation approved by
the PUCO in August 1993.
Phase-in deferred depreciation was $8 million for each of 1993 and 1992
as a result of a PUCO ordered phase-in plan, in which rates charged to
customers in the early years of the plan are less than that required to fully
recover the depreciation expenses related to Zimmer Station (see "Future
Outlook" herein).
Taxes other than income taxes increased $9 million in 1993, $24 million
in 1992 and $11 million in 1991 primarily due to increased property taxes
resulting from a greater investment in taxable property (including Zimmer and
Woodsdale Stations) and higher property tax rates in 1992 and 1991.
Other Income and Deductions
- ---------------------------
Allowance for funds used during construction (AFC) decreased $11 million
for 1993 primarily due to a decrease in construction work in progress
associated with the sixth unit of Woodsdale Station being placed in commercial
operation in 1993 and the first five units of Woodsdale being placed in
commercial operation during 1992. AFC decreased $51 million for 1992 and
$68 million in 1991 due to decreases in construction work in progress
associated with Zimmer Station being placed in commercial operation in March
1991 and the commercial operation of the first five units of Woodsdale Station
in 1992.
Post-in-service carrying costs decreased $25 million in 1993 and $13
million in 1992 as a result of discontinuing the accrual of carrying costs on
Zimmer Station when it was reflected in rates in May 1992. Post-in-service
carrying costs for 1993 and 1992 also reflect the accrual of carrying costs on
the first five units of Woodsdale Station between the time they began
commercial operation and the effective date of new rates approved by the PUCO
in August 1993 which reflect Woodsdale Station. Post-in-service carrying
costs were $50 million for 1991 as a result of accruing carrying costs on
Zimmer Station after it began commercial operation, in accordance with an
order of the PUCO. In accordance with the stipulation approved by the PUCO in
<PAGE>
August 1993, CG&E began amortizing the post-in-service carrying costs on
Zimmer and a portion of the carrying costs on Woodsdale over the useful life
of the applicable plant.
Phase-in deferred return was $35 million for 1993 and $27 million for
1992 as a result of the PUCO ordered phase-in plan, in which rates charged to
customers in the early years of the plan will be less than that required to
provide the authorized return on investment (see "Future Outlook" herein).
In November 1993, CG&E wrote off costs associated with Zimmer Station of
approximately $223 million, net of taxes. The write-off represents amounts
disallowed from rate base by the PUCO in its May 1992 rate order. CG&E had
appealed the rate order to the Supreme Court of Ohio; however, in November
1993, the Supreme Court upheld the PUCO on the issue of the disallowance,
ruling that the PUCO properly excluded costs related to nuclear fuel, nuclear
wind-down activities and AFC from CG&E's rate base.
Other (net) decreased $10 million in 1993 due to a number of factors,
including costs associated with IPALCO Enterprises, Inc.'s intervention in the
proposed merger between CG&E and PSI Resources.
Interest on long-term debt increased $8 million in 1992 and $18 million
in 1991 due to the issuance of additional first mortgage bonds.
Other interest decreased $12 million for 1992 primarily due to interest
accrued in 1991 on an Internal Revenue Service settlement regarding the timing
of the tax deduction on the 1985 abandonment of facilities not used in the
conversion of Zimmer Station.
FUTURE OUTLOOK
- --------------
Merger Agreement
- ----------------
CG&E has entered into a merger agreement with PSI Resources, Inc., whose
principal subsidiary is an Indiana electric utility with a service area
contiguous to that of CG&E. Under the merger agreement, CG&E and PSI will
become subsidiaries of a newly formed corporation named CINergy Corp., which
will be a registered holding company under the Public Utility Holding Company
Act of 1935 (PUHCA). In order to effect the merger, each share of CG&E common
stock will be converted into one share of CINergy common stock, and each share
of PSI common stock will be converted into that number of shares of CINergy
common stock obtained by dividing $30.69 by the average closing price of CG&E
common stock for the 15 trading days preceding the fifth day prior to
consummation of the merger, provided that the number of shares of CINergy
stock to be exchanged for each share of PSI will be no greater than 1.023 and
no less than .909. At December 31, 1993, CG&E and PSI had 88.1 million and
57.0 million common shares outstanding, respectively. The merger will be
accounted for as a "pooling-of-interests", and will be tax-free for
shareholders.
<PAGE>
The merger is subject to approval by the Securities and Exchange
Commission (SEC) and the Federal Energy Regulatory Commission (FERC).
Shareholders of each company have already approved the CINergy merger at
special meetings held in November 1993.
FERC issued conditional approval of the CINergy merger in August 1993,
but several intervenors, including The Public Utilities Commission of Ohio
(PUCO) and the Kentucky Public Service Commission (KPSC), filed for rehearing
of that order. On January 12, 1994, FERC withdrew its conditional approval of
the merger and ordered the setting of FERC-sponsored settlement procedures to
be held.
On March 4, 1994, CG&E reached a settlement agreement with the PUCO and
the Ohio Office of Consumers' Counsel (OCC) on merger issues identified by
FERC. On March 2, PSI Energy and Indiana's consumer representatives had
reached a similar agreement. Both settlement agreements have been filed with
FERC. These documents address, among other things, the coordination of state
and federal regulation and the commitment that neither CG&E nor PSI electric
base rates, nor CG&E's gas base rates, will rise because of the merger, except
to reflect any effects that may result from the divestiture of CG&E's gas
operations if ordered by the SEC in accordance with the requirements of PUHCA
discussed below.
CG&E also filed with FERC a unilateral offer of settlement addressing all
issues raised in the KPSC's application for rehearing with FERC. Although it
is the belief of CG&E and PSI that no state utility commissions have
jurisdiction over approval of the proposed merger, an application has been
filed with the KPSC to comply with the Staff of the KPSC's position that the
KPSC's authorization is required for the indirect acquisition of control of
CG&E's Kentucky subsidiary, The Union Light, Heat and Power Company, by
CINergy. As part of the settlement offer, Union Light will agree not to
increase gas base rates as a result of the merger except to reflect any
effects that may result from the divestiture of Union Light's gas operations
discussed below.
Also included in the filings with FERC were settlement agreements with
the city of Hamilton, Ohio, and the Wabash Valley Power Association in
Indiana. These agreements resolve issues related to the transmission of power
in Ohio and Indiana.
If the settlement agreements filed with FERC are not acceptable, FERC
could set issues for hearing. If a hearing is held by FERC, consummation of
the merger would likely be extended beyond the third quarter of 1994.
CG&E and PSI also submitted to FERC the operating agreement among CINergy
Services, Inc., a subsidiary of CINergy, and CG&E and PSI Energy that provides
for the coordinated planning and operation of the electric generation and
transmission and other facilities of CG&E and PSI as an integrated utility
system. It also establishes a framework for the equitable sharing of the
benefits and costs of such coordinated operations between CG&E and PSI. The
parties to the Ohio and Indiana FERC settlements have agreed to support or not
oppose the operating agreement, and the settlements are conditioned upon FERC
approving the filed operating agreement without material changes.
<PAGE>
CG&E's filing with FERC also references a separate agreement among CG&E,
the Staff of the PUCO, the OCC, and other parties settling issues raised by a
November 1993 ruling of the Supreme Court of Ohio on the phased-in electric
rate increase ordered by the PUCO in May 1992. The agreement includes a
moratorium on increases in base electric rates prior to January 1, 1999
(except under certain circumstances), authorization for CG&E to retain all
non-fuel merger savings until 1999, and a commitment by the PUCO that it will
support CG&E's efforts to retain CG&E's gas operations in its PUHCA filing
with the SEC (see below). Reference is made to "Rate Matters" for additional
information.
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.
PUHCA also limits the ability of registered holding companies to engage in
non-utility ventures and regulates the rendering of services by holding
company affiliates to the system's utilities. PUHCA has been interpreted to
preclude the ownership of both electric and gas utility systems. As a result,
the SEC may require divestiture of the Company's gas properties within a
reasonable time after the merger. CG&E believes good arguments exist to allow
retention of its gas assets and will request that it be allowed to do so.
Originally, the merger agreement provided that CG&E and PSI would be
merged into CINergy as an Ohio corporation. Under this structure CG&E and PSI
would have become operating divisions of CINergy, ceasing to exist as separate
corporations, and CINergy would not have been subject to the restrictions
imposed by PUHCA. However, The Indiana Utility Regulatory Commission (IURC)
dismissed PSI's application for approval of the transfer of its license or
property to a non-Indiana corporation. The IURC's decision has been appealed
and the original merger structure could be reinstated if the appeal is
successful.
Unless otherwise noted, the following discussion pertains solely to CG&E
and its subsidiary companies, and any projections or estimates contained
therein do not reflect the pending merger.
Capital Requirements
- --------------------
For 1994, construction expenditures are estimated to be $192 million,
including $5 million of AFC, and over the next five years, (1994-1998),
construction expenditures are estimated to be $1,343 million, including
$54 million of AFC. These estimates are under continuing review and subject
to adjustment. Also during the next five years, a total of $142 million will
be required for the redemption of long-term debt and cumulative preferred
stock.
Included in CG&E's five-year construction program is $566 million for
electric production projects, $91 million for electric transmission
facilities, $379 million in electric distribution expenditures and $224
million in gas distribution expenditures. Of the projected expenditures,
<PAGE>
about $248 million is associated with construction of additional baseload and
peaking capacity, some of which will be deferred under the CINergy merger.
Capital Resources
- -----------------
Internally generated funds provided 85% of the amount needed for
construction during 1993. Over the past five years, internally generated
funds provided 47% of the amount needed for construction. For the next five
years (1994-1998), CG&E expects funds from operations to provide a greater
portion of the amount needed for construction expenditures than in the prior
five-year period, primarily as a result of decreased construction requirements
and the recovery through rates of CG&E's investment in Zimmer and Woodsdale
Stations.
CG&E contemplates future debt and equity financings in the capital
markets and the issuance of additional shares of common stock through its
employee stock purchase plans and Dividend Reinvestment and Stock Purchase
Plan. Short-term indebtedness will be used to supplement internal sources of
funds for the interim financing of the construction program. The Company may
continue to sell additional securities, from time to time, beyond what is
needed for capital requirements to allow the early refinancing of existing
securities. For information regarding the refinancing of long-term debt, see
Note 2 to the Consolidated Financial Statements.
Under the terms of CG&E's first mortgage indenture, at December 31, 1993,
CG&E would have been able to issue approximately $900 million of additional
first mortgage bonds at current interest rates.
As a result of the write-off of a portion of Zimmer Station in November
1993, CG&E will have inadequate coverage to meet the requirements of its
articles of incorporation for issuing additional shares of preferred stock
from March 1994 to late December 1994.
CG&E has a $200 million bank revolving credit agreement that will expire
in September 1996. The agreement provides a back-up source of funds for
CG&E's commercial paper program. CG&E has not made any borrowings under this
agreement.
CG&E and its subsidiaries had lines of credit at December 31, 1993, of
$123 million, of which $102 million remained unused. CG&E and its
subsidiaries are currently authorized to have a maximum of $235 million of
short-term notes outstanding.
<PAGE>
Current credit ratings for the Companies securities are provided in the
following table.
<TABLE>
<CAPTION>
Moody s
Investors Standard Duff &
Service & Poor's Phelps, Inc.
--------- -------- ------------
<S> <C> <C> <C>
The Cincinnati Gas & Electric Company
First Mortgage Bonds............... Baa1 BBB+ BBB+
Preferred Stock.................... baa2 BBB BBB
The Union Light, Heat and Power Company
First Mortgage Bonds............... Baa1 BBB+ Not Rated
</TABLE>
CG&E's securities have been placed on credit watch by Standard & Poor s
and Duff & Phelps for a possible upgrade upon consummation of the merger with
PSI.
Rate Matters
- ------------
Over the past two years, the Company has received a number of electric
and gas rate increases that will positively impact future earnings. The
primary reasons for the electric rate increases were recovery of CG&E's
investment in Zimmer Station, Woodsdale Station and other facilities used to
serve customers. The gas rate increases reflect investments in new and
replacement gas mains and facilities. As part of an August 1993 stipulation,
CG&E has agreed not to increase electric or gas base rates prior to June 1,
1995, excluding rate filings made under certain circumstances, such as to
address financial emergencies or to reflect savings associated with the merger
with PSI.
In August 1993, the PUCO approved a stipulation authorizing CG&E to
increase annual electric revenues by $41.1 million and increase annual gas
revenues by $19.1 million. In May 1992, the PUCO authorized CG&E to increase
electric revenues by $116.4 million to be phased in over a three-year period
through annual increases beginning each May of $37.8 million in 1992, $38.8
million in 1993 and $39.8 million in 1994.
In response to an appeal by CG&E of the PUCO's May 1992 rate order, the
Supreme Court of Ohio ruled, in November 1993, that the PUCO did not have
authority to order the phased-in rate increase, and remanded the case to the
PUCO to set rates that provide the gross annual revenues determined in
accordance with Ohio statutes. The Court also said the PUCO must provide a
mechanism which allows CG&E to recover costs being deferred under the phase-in
plan through the date of the order on remand. At December 31, 1993, CG&E had
deferred $70 million of costs, net of taxes, related to the phase-in plan.
In March 1994, CG&E negotiated a settlement agreement with the PUCO
Staff, the Ohio Office of Consumers' Counsel and other intervenors to address
the November 1993 ruling by the Supreme Court of Ohio. As part of the
agreement, CG&E has agreed not to seek early implementation of the third phase
of the May 1992 rate increase, which means the $39.8 million increase will
<PAGE>
take effect in May 1994 as originally scheduled. CG&E also agreed that it
would not seek accelerated recovery of deferrals related to the phase-in plan.
These deferrals will be recovered over the remaining seven year period
contemplated in the May 1992 PUCO order. In addition, if the merger with PSI
is consummated, CG&E has agreed not to increase base electric rates prior to
January 1, 1999, except for increases in taxes, changes in federal or state
environmental laws, PUCO actions affecting electric utilities in general and
financial emergencies.
The settlement agreement also permits CG&E to retain all non-fuel savings
from the merger until 1999 and calls for merger-related transaction costs, or
any other accounting deferrals, to be amortized over a period ending by
January 1, 1999.
Other provisions of the agreement are: (i) if the merger is not
completed, CG&E can raise electric rates in May 1995 by $21 million to provide
accelerated recovery of phase-in deferrals; (ii) the PUCO and OCC will have
access to information about CINergy and affiliated companies; (iii) the PUCO
will support, before the Securities and Exchange Commission, CG&E's efforts to
retain its gas operations and other parties will not oppose efforts to retain
the gas properties; and (iv) contracts of CG&E with affiliated companies under
the merger that are to be filed with the Securities and Exchange Commission
must first be filed with the PUCO for its review and copies provided to the
OCC.
Regulation and Legislation
- --------------------------
CG&E presently estimates that capital expenditures needed to comply with
the Clean Air Act Amendments of 1990 (Air Act) will be between $125 million
and $150 million through the year 2000. The construction program discussed
under "Capital Requirements" includes expenditures of $73 million over the
next five years in order to comply with the Air Act. Compliance with the Air
Act also will increase operating costs. CG&E expects that its cost of
compliance with the Air Act will be recoverable through rates.
In April 1992, FERC issued Order 636 which restructures the
relationships between interstate gas pipelines and their customers for gas
sales and transportation services. Order 636 will result in changes in the
way CG&E and Union Light purchase gas supplies and contract for transportation
and storage services, and will result in increased risks in managing the
ability to meet demand.
Order 636 also allows pipelines to recover transition costs they incur
in complying with the Order from customers, including CG&E and Union Light.
An agreement between CG&E and residential and industrial customer groups
regarding recovery of these transition costs has been submitted to the PUCO
for approval. Order 636 transition costs are not expected to significantly
impact the Company.
The Energy Policy Act of 1992 addresses several matters affecting
electric utilities including mandated open access to the electric transmission
system and greater encouragement of independent power production and
<PAGE>
cogeneration. Although CG&E cannot predict the long-term consequences the
Energy Act will have, the Company intends to aggressively pursue the
opportunities presented by the Act.
Environmental Issues
- --------------------
The United States Environmental Protection Agency (U.S. EPA) alleges
that CG&E is a Potentially Responsible Party (PRP) under the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA) liable for
cleanup of the United Scrap Lead site in Troy, Ohio. CG&E was one of
approximately 200 companies so named. CG&E believes it is not a PRP and
should not be responsible for cleanup of the site. Under CERCLA, CG&E could be
jointly and severally liable for costs incurred in cleaning the site,
estimated by the U.S. EPA to be $27 million.
Accounting Standards
- --------------------
In recent years several new accounting standards have been issued by the
Financial Accounting Standards Board. While the impact on earnings and cash
flow associated with the new standards has been relatively minor, these
accounting changes do affect the recognition and presentation of amounts
reported in the Company's financial statements. For information in addition
to that provided below on recently adopted accounting standards, see Note 1 to
the Consolidated Financial Statements.
In 1993, CG&E and its subsidiaries adopted Statement of Financial
Accounting Standards No. 106, "Employers Accounting for Postretirement
Benefits Other Than Pensions" (SFAS No. 106). SFAS No. 106 requires the
accrual of the expected cost of providing postretirement benefits other than
pensions to an employee and the employee's covered dependents during the
employee's active working career. SFAS No. 106 also requires the recognition
of the actuarially determined total postretirement benefit obligation earned
by existing retirees. In August 1993, the PUCO, under whose jurisdiction the
majority of these costs fall, authorized CG&E to begin recovering SFAS No. 106
costs. The adoption of SFAS No. 106 did not have a material effect on results
of operations.
Also in 1993, CG&E and its subsidiaries adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109).
SFAS No. 109 requires deferred tax recognition for all temporary differences
in accordance with the liability method, requires that deferred tax
liabilities and assets be adjusted for enacted changes in tax laws or rates
and prohibits net-of-tax accounting and reporting. The Company believes it is
probable that the net future increases in income taxes payable will be
recovered from customers through future rates and, accordingly, has recorded a
net regulatory asset at December 31, 1993. Adoption of SFAS No. 109 had no
impact on results of operations.
In 1993, CG&E and its subsidiaries adopted Statement of Financial
Accounting Standards No. 112, "Employers Accounting for Postemployment
Benefits" (SFAS No. 112). SFAS No. 112 requires the accrual of the cost of
<PAGE>
certain postemployment benefits provided to former or inactive employees. The
adoption of SFAS No. 112 did not have a material effect on results of
operations.
Inflation
- ---------
Over the past several years, the rate of inflation has been relatively
low. The Company believes that the recent inflation rates do not materially
affect its results of operations or financial condition. However, under
existing regulatory practice, only the historical cost of plant is recoverable
from customers. As a result, cash flows designed to provide recovery of
historical plant costs may not be adequate to replace plant in future years.
<PAGE>
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
<TABLE>
<CAPTION>
The Cincinnati Gas & Electric Company
And Subsidiary Companies
CONSOLIDATED STATEMENT OF INCOME
for the years ended December 31,
1993 1992 1991
(Thousands of Dollars)
<S> <C> <C> <C>
OPERATING REVENUES
Electric............................................. $1,282,445 $1,159,456 $1,147,395
Gas.................................................. 469,296 393,970 370,703
---------- ---------- ----------
Total operating revenues......................... 1,751,741 1,553,426 1,518,098
---------- ---------- ----------
OPERATING EXPENSES
Gas purchased........................................ 280,836 228,272 212,004
Fuel used in electric production..................... 333,279 321,074 331,012
Other operation...................................... 279,866 264,779 270,261
Maintenance.......................................... 108,857 104,780 120,796
Provision for depreciation........................... 152,061 140,996 130,592
Post-in-service deferred operating
expenses - net (Note 1)............................ (6,471) (27,799) --
Phase-in deferred depreciation (Note 1).............. (8,524) (8,468) --
Taxes other than income taxes (Schedule on page 43).. 183,367 174,072 150,480
Income taxes (Schedule on page 43)................... 108,970 96,019 89,781
---------- ---------- ----------
Total operating expenses......................... 1,432,241 1,293,725 1,304,926
---------- ---------- ----------
OPERATING INCOME 319,500 259,701 213,172
---------- ---------- ----------
OTHER INCOME AND DEDUCTIONS
Allowance for other funds used during construction... 3,154 9,966 44,596
Post-in-service carrying costs (Note 1).............. 12,100 36,655 50,079
Phase-in deferred return (Note 1).................... 35,334 26,609 --
Write-off of a portion of Zimmer Station (Note 5).... (234,844) -- --
Income taxes-credit (Schedule on page 43 and Note 1)
Related to write-off of a portion of Zimmer
Station......................................... 12,085 -- --
Other............................................ 9,405 27,386 40,686
Other - net.......................................... (9,551) 376 5,256
---------- ---------- ----------
Total other income and deductions................ (172,317) 100,992 140,617
---------- ---------- ----------
INCOME BEFORE INTEREST CHARGES............................. 147,183 360,693 353,789
---------- ---------- ----------
INTEREST CHARGES
Interest on long-term debt........................... 153,693 159,330 150,953
Other interest....................................... 2,449 2,801 14,960
Amortization of debt discount, premium and other..... 3,351 3,918 4,414
Allowance for borrowed funds used during
construction - credit.............................. (3,586) (7,617) (23,534)
---------- ---------- ----------
Net interest charges............................. 155,907 158,432 146,793
---------- ---------- ----------
NET INCOME (LOSS).......................................... (8,724) 202,261 206,996
Preferred dividends.................................. 25,160 27,610 24,529
---------- ---------- ----------
EARNINGS (LOSS) ON COMMON SHARES........................... $ (33,884) $ 174,651 $ 182,467
========== ========== ==========
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (000) (Note 3)........................... 87,335 85,593 82,311
EARNINGS (LOSS) PER COMMON SHARE (Note 3).................. $ (.39) $ 2.04 $ 2.21
DIVIDENDS DECLARED PER COMMON SHARE (Note 3)............... $ 1.67 1/2 $ 1.65 1/3 $ 1.65 1/3
<FN>
The accompanying notes are an integral part of the financial statements and schedules.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The Cincinnati Gas & Electric Company
And Subsidiary Companies
CONSOLIDATED STATEMENT OF CASH FLOWS
for the years ended December 31,
1993 1992 1991
(Thousands of Dollars)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS
Net Income (Loss).......................................... $ (8,724) $ 202,261 $ 206,996
---------- ---------- ----------
Adjustments to reconcile net income to net cash:
Deferred gas and electric fuel costs - net............... 3,914 (1,394) 16,949
Depreciation............................................. 152,061 140,996 130,592
Post-in-service deferred operating expenses-net (Note 1). (6,471) (27,799) --
Phase-in deferred depreciation (Note 1).................. (8,524) (8,468) --
Allowance for other funds used during construction....... (3,154) (9,966) (44,596)
Post-in-service carrying costs (Note 1).................. (12,100) (36,655) (50,079)
Phase-in deferred return (Note 1)........................ (35,334) (26,609) --
Deferred income taxes and investment tax credits-net..... 35,720 46,451 15,203
Write-off of a portion of Zimmer Station (Note 5)........ 234,844 -- --
Deferred income taxes and investment tax credits related
to write-off of a portion of Zimmer Station........... (12,085) -- --
Other - net.............................................. 19,403 13,666 (3,002)
Change in current assets and liabilities:
Receivables and unbilled revenues..................... (38,040) (15,279) (32,011)
Materials, supplies and fuel.......................... 3,567 (12,206) (11,219)
Other current assets.................................. (4,543) (10,142) (20,779)
Accounts payable and other current liabilities........ 20,564 7,225 14,866
---------- ---------- ----------
Total adjustments................................... 349,822 59,820 15,924
---------- ---------- ----------
Net cash provided by operations..................... 341,098 262,081 222,920
---------- ---------- ----------
CASH FLOWS FROM INVESTING
Construction expenditures (less allowance for other funds
used during construction)................................ (198,709) (219,767) (365,648)
Zimmer Station escrow fund................................. -- -- 23,250
---------- ---------- ----------
Net cash used in investing activities............... (198,709) (219,767) (342,398)
---------- ---------- ----------
CASH FLOWS FROM FINANCING
Common stock proceeds...................................... 43,986 41,210 137,278
Preferred stock proceeds................................... -- 79,300 79,300
Long-term debt proceeds.................................... 297,000 361,835 109,398
Retirement of long-term debt and cumulative
preferred stock.......................................... (294,455) (440,561) (3,033)
Net short-term borrowings.................................. (15,500) 21,500 15,988
Dividends paid on common shares............................ (145,942) (141,132) (134,361)
Dividends paid on preferred shares......................... (25,160) (27,452) (24,567)
---------- ---------- ----------
Net cash provided by (used in) financing activities. (140,071) (105,300) 180,003
---------- ---------- ----------
Net increase (decrease) in cash and temporary
cash investments................................ 2,318 (62,986) 60,525
Cash and temporary cash investments - beginning of year...... 2,252 65,238 4,713
---------- ---------- ----------
Cash and temporary cash investments - end of year............ $ 4,570 $ 2,252 $ 65,238
========== ========== ==========
<FN>
The accompanying notes are an integral part of the financial statements and schedules.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The Cincinnati Gas & Electric Company
And Subsidiary Companies
CONSOLIDATED BALANCE SHEET
December 31,
1993 1992
(Thousands of Dollars)
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT, at original cost (Notes 2, 9 and 10)
In service -
Electric............................................................... $4,393,798 $4,469,479
Gas.................................................................... 611,579 577,097
Common................................................................. 183,225 116,459
---------- ----------
5,188,602 5,163,035
Less - Accumulated provisions for depreciation......................... 1,472,313 1,362,468
---------- ----------
Net property, plant and equipment in service......................... 3,716,289 3,800,567
Construction work in progress............................................ 69,351 144,848
---------- ----------
3,785,640 3,945,415
---------- ----------
OTHER PROPERTY AND INVESTMENTS............................................. 18,559 19,783
---------- ----------
CURRENT ASSETS
Cash (Note 6)............................................................ 4,570 2,252
Accounts receivable less accumulated provision of $14,906,000 in 1993
and $12,114,000 in 1992 for doubtful accounts.......................... 206,210 197,809
Accrued unbilled revenues................................................ 105,955 76,316
Materials supplies and fuel at average cost
Fuel for use in electric production.................................... 54,358 65,783
Gas stored for current use............................................. 36,048 26,960
Other.................................................................. 62,111 63,341
Property taxes applicable to subsequent year............................. 107,410 102,316
Prepayments.............................................................. 29,053 29,495
Other.................................................................... 133 242
---------- ----------
605,848 564,514
---------- ----------
OTHER ASSETS
Post-in-service carrying costs and deferred operating expenses (Note 1).. 154,636 114,533
Phase-in deferred return and depreciation (Note 1)....................... 83,431 35,077
Amounts due from customers-income taxes (Note 1)......................... 387,748 --
Other.................................................................... 107,661 122,870
---------- ----------
733,476 272,480
---------- ----------
$5,143,523 $4,802,192
========== ==========
<FN>
The accompanying notes are an integral part of the financial statements and schedules.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The Cincinnati Gas & Electric Company
And Subsidiary Companies
CONSOLIDATED BALANCE SHEET
December 31,
1993 1992
(Thousands of Dollars)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CAPITALIZATION (Schedules on pages 41 and 42)
Common shareholders equity............................................... $1,519,257 $1,655,130
Cumulative preferred shares (Note 4) -
Not subject to mandatory redemption.................................... 120,000 120,000
Subject to mandatory redemption........................................ 210,000 210,000
Long-term debt (Note 2).................................................. 1,829,061 1,809,863
---------- ----------
3,678,318 3,794,993
---------- ----------
CURRENT LIABILITIES
Current portion of bonds................................................. -- 6,500
Notes payable (Note 6)
-bank................................................................ 31,000 33,500
-commercial paper.................................................... -- 13,000
-other............................................................... 13 13
Accounts payable......................................................... 122,620 117,268
Dividends payable on preferred shares ................................... 6,290 6,290
Accrued taxes............................................................ 222,219 207,197
Accrued interest on debt................................................. 29,123 28,434
Other current and accrued liabilities.................................... 29,496 29,995
---------- ----------
440,761 442,197
---------- ----------
DEFERRED CREDITS AND OTHER
Deferred income taxes (Note 1)........................................... 733,224 307,139
Investment tax credits................................................... 141,520 147,663
Accrued pension cost (Note 1)............................................ 41,826 37,295
Other liabilities and deferred credits................................... 107,874 72,905
---------- ----------
1,024,444 565,002
---------- ----------
$5,143,523 $4,802,192
========== ==========
<FN>
The accompanying notes are an integral part of the financial statements and schedules.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The Cincinnati Gas & Electric Company
And Subsidiary Companies
CONSOLIDATED STATEMENT OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
for the years ended December 31,
1993 1992 1991
(Thousands of Dollars)
<S> <C> <C> <C>
COMMON SHARES (Note 3)
Balance, beginning of year...................................... $ 734,307 $ 719,893 $ 664,040
$8.50 par value of 1,673,058, 1,695,770, and 6,570,879 shares
sold in 1993, 1992 and 1991, respectively................... 14,221 14,414 55,853
---------- ---------- ----------
Balance, end of year............................................ $ 748,528 $ 734,307 $ 719,893
========== ========== ==========
ADDITIONAL PAID-IN CAPITAL (Note 3)
Balance, beginning of year...................................... $ 284,486 $ 257,215 $ 176,557
Premium on sale of common shares.............................. 29,765 26,796 84,528
Retirement of cumulative preferred stock...................... -- 1,757 40
Common stock issuance expenses................................ (33) (407) (3,134)
Cumulative preferred stock issuance expenses.................. -- (875) (776)
---------- ---------- ----------
Balance, end of year............................................ $ 314,218 $ 284,486 $ 257,215
========== ========== ==========
RETAINED EARNINGS
Balance, beginning of year...................................... $ 636,337 $ 606,478 $ 558,412
Net income (loss)............................................. (8,724) 202,261 206,996
Cash dividends declared on capital shares -
Cumulative preferred (See page 41 for rates)................ (25,160) (27,610) (24,529)
Common (See page 36 for rates).............................. (145,942) (141,132) (134,361)
Retirement of cumulative preferred stock...................... -- (3,660) (40)
---------- ---------- ----------
Balance, end of year............................................ $ 456,511 $ 636,337 $ 606,478
========== ========== ==========
<FN>
The accompanying notes are an integral part of the financial statements and schedules.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The Cincinnati Gas & Electric Company
And Subsidiary Companies
SCHEDULE OF COMMON SHAREHOLDERS' EQUITY AND CUMULATIVE PREFERRED SHARES
December 31,
1993 1992
(Thousands of Dollars)
<S> <C> <C>
COMMON SHAREHOLDERS' EQUITY
Common shares, par value $8.50 per share (Note 3) -
Authorized-120,000,000 shares
Outstanding-88,062,083 and 86,389,025 shares, respectively........ $ 748,528 $ 734,307
Additional paid-in capital.......................................... 314,218 284,486
Retained earnings................................................... 456,511 636,337
---------- ----------
Total common shareholders equity.............................. $1,519,257 $1,655,130
========== ==========
CUMULATIVE PREFERRED SHARES - not subject to mandatory redemption
Par value $100 per share (Note 4) -
Outstanding -
4% series-270,000 shares (redeemable, upon call, at $108)....... $ 27,000 $ 27,000
4 3/4% series-130,000 shares (redeemable, upon call, at $101)... 13,000 13,000
7.44% series-400,000 shares (redeemable, upon call, at $101).... 40,000 40,000
9.28% series-400,000 shares (redeemable, upon call, at $101).... 40,000 40,000
---------- ----------
$ 120,000 $ 120,000
========== ==========
CUMULATIVE PREFERRED SHARES - subject to mandatory redemption
Par value $100 per share (Note 4) -
Outstanding -
9.15% series-500,000 shares (redeemable, upon call, prior to
July 1, 1994 at $107.32; reduced amounts thereafter).......... $ 50,000 $ 50,000
7 7/8% series-800,000 shares (subject to mandatory redemption on
January 1, 2004 at $100; not redeemable prior to that date)... 80,000 80,000
7 3/8% series-800,000 shares (redeemable, upon call, after
August 1, 2002 at $100)....................................... 80,000 80,000
---------- ----------
$ 210,000 $ 210,000
========== ==========
<FN>
The accompanying notes are an integral part of the financial statements and schedules.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The Cincinnati Gas & Electric Company
And Subsidiary Companies
SCHEDULE OF LONG-TERM DEBT
December 31,
1993 1992
(Thousands of Dollars)
<S> <C> <C>
The Cincinnati Gas & Electric Company
First mortgage bonds -
8 3/4 % series due 1996........................................... -- 110,000
5 7/8 % series due 1997........................................... 30,000 30,000
6 1/4 % series due 1997........................................... 100,000 100,000
7 3/8 % series due 1999........................................... 50,000 50,000
8 5/8 % series due 2000........................................... 60,000 60,000
7 3/8 % series due 2001........................................... 60,000 60,000
7 1/4 % series due 2002........................................... 100,000 100,000
8 1/8 % series due 2003........................................... 60,000 60,000
9.15 % series due 2004........................................... -- 60,000
8.55 % series due 2006........................................... 75,000 75,000
9 1/8 % series due 2008........................................... 75,000 75,000
9 5/8 % series A and B due 2013................................... 31,700 31,700
10 1/8% series due 2015........................................... 84,000 84,000
9 1/4 % series due 2016........................................... -- 110,000
9.70 % series due 2019........................................... 100,000 100,000
10 1/8% series due 2020........................................... 100,000 100,000
10.20 % series due 2020........................................... 150,000 150,000
8.95 % series due 2021........................................... 100,000 100,000
8 1/2 % series due 2022........................................... 100,000 100,000
7.20 % series due 2023........................................... 300,000 --
---------- ---------
1,575,700 1,555,700
---------- ---------
Other long-term debt -
6.50% through 8 1/2% due 1993 through 2022........................ 75,733 75,746
Variable rate due 2013 and 2015................................... 100,000 100,000
---------- ---------
175,733 175,746
---------- ---------
1,751,433 1,731,446
---------- ---------
The Union Light Heat and Power Company
First mortgage bonds -
4 3/8 % series due 1993........................................... -- 6,500
6 1/2 % series due 1999........................................... 20,000 20,000
8 % series due 2003........................................... 10,000 10,000
9 1/2 % series due 2008........................................... 10,000 10,000
9.70 % series due 2019........................................... 20,000 20,000
10 1/4% series due 2020........................................... 30,000 30,000
---------- ---------
90,000 96,500
---------- ---------
Other Subsidiary Companies' Debt....................................... 1,475 1,475
Less current maturities................................................ 13 6,513
Unamortized premium (discount) - net................................... (13,834) (13,045)
---------- ---------
Total long-term debt......................................... $1,829,061 $1,809,863
========== =========
<FN>
The accompanying notes are an integral part of the financial statements and schedules.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The Cincinnati Gas & Electric Company
And Subsidiary Companies
SCHEDULE OF TAXES
for the years ended December 31,
1993 1992 1991
(Thousands of Dollars)
<S> <C> <C> <C>
TAXES OTHER THAN INCOME TAXES
Property....................................................... $ 104,979 $ 98,426 $ 77,444
Public Utility Gross Receipts.................................. 61,765 59,441 56,785
Payroll........................................................ 12,202 12,136 12,075
Other.......................................................... 4,421 4,069 4,176
--------- --------- ---------
$ 183,367 $ 174,072 $ 150,480
========= ========= =========
INCOME TAXES
Included in operating expenses -
Currently payable............................................ $ 69,009 $ 53,640 $ 74,366
Deferred - net
Liberalized depreciation................................... 42,787 41,902 27,985
Gas costs.................................................. 806 2,328 (6,053)
Post-in-service deferred operating expenses................ 2,406 7,520 --
Alternative minimum tax credit carryforward................ 6,598 (6,598) --
Property taxes............................................. (11,416) 6,463 1,547
Systems costs capitalized.................................. (46) (190) 6,441
Other...................................................... 3,856 (3,207) (9,387)
Investment tax credits - net................................. (5,030) (5,839) (5,118)
--------- --------- ---------
Total................................................. 108,970 96,019 89,781
--------- --------- ---------
Included in other income and deductions (Note 1) -
Currently payable............................................ (5,164) (31,457) (40,468)
Deferred - net
Alternative minimum tax credit carryforward................ (2,759) 2,759 --
Write-off of a portion of Zimmer Station................... (10,972) -- --
Other...................................................... (1,482) 1,312 (218)
Investment tax credits related to write-off of a portion
of Zimmer Station........................................ (1,113) -- --
--------- --------- ---------
Total................................................. (21,490) (27,386) (40,686)
--------- --------- ---------
Total provision....................................... $ 87,480 $ 68,633 $ 49,095
========= ========= =========
Analysis of provision -
Federal income taxes......................................... $ 84,885 $ 67,335 $ 47,341
State income taxes........................................... 2,595 1,298 1,754
--------- --------- ---------
$ 87,480 $ 68,633 $ 49,095
========= ========= =========
COMPUTATION OF FEDERAL INCOME TAX PROVISION
Pre-tax income................................................. $ 76,161 $ 269,596 $ 254,337
========= ========= =========
Tax at statutory Federal income tax rate applied
to pre-tax income............................................ $ 26,656 $ 91,663 $ 86,474
Changes in Federal income taxes resulting from -
Allowance for funds used during construction
which does not constitute taxable income................... (8,266) (24,898) (36,796)
Excess of book depreciation over tax depreciation............ 8,529 7,721 9,753
Cost of removal for property retired......................... (1,625) (2,235) (2,064)
Amortization of investment tax credits....................... (5,833) (5,473) (5,849)
Write-off of a portion of Zimmer Station..................... 69,365 -- --
Other-net.................................................... (3,941) 557 (4,177)
--------- --------- ---------
Federal income tax provision.......................... $ 84,885 $ 67,335 $ 47,341
========= ========= =========
<FN>
The accompanying notes are an integral part of the financial statements and schedules.
</TABLE>
<PAGE>
The Cincinnati Gas & Electric Company
And Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: CG&E and its subsidiaries
follow the Uniform Systems of Accounts prescribed by the Federal Energy
Regulatory Commission (FERC), and are subject to the provisions of Statement
of Financial Accounting Standards No. 71, "Accounting for the Effects of
Certain Types of Regulation". The more significant accounting policies are
summarized below:
PRINCIPLES OF CONSOLIDATION. All subsidiaries of CG&E are included in the
consolidated statements. Intercompany items and transactions have been
eliminated.
UTILITY PLANT. Property, plant and equipment is stated at the original cost
of construction, which includes payroll and related costs such as taxes,
pensions and other fringe benefits, general and administrative costs, and an
allowance for funds used during construction.
REVENUES AND FUEL. CG&E and its subsidiaries recognize revenues for gas and
electric service rendered during the month, which includes revenue for sales
unbilled at the end of each month. CG&E and The Union Light, Heat and Power
Company (Union Light) expense the costs of gas and electricity purchased and
the cost of fuel used in electric production as recovered through revenues and
defer the portion of these costs recoverable or refundable in future periods.
DEPRECIATION AND MAINTENANCE. The Companies determine their provision for
depreciation using the straight-line method and by the application of rates to
various classes of property, plant and equipment. The rates are based on
periodic studies of the estimated service lives and net cost of removal of the
properties. The percentages of the annual provisions for depreciation to the
weighted average of depreciable property during the three years ended
December 31, 1993, were equivalent to:
1993 1992 1991
------------------------
Electric . . . . 2.9 2.9 3.0
Gas . . . . . . 2.7 2.6 2.6
Common . . . . . 4.0 3.1 3.1
In a May 1992 rate order, The Public Utilities Commission of Ohio (PUCO)
authorized changes in depreciation accrual rates on CG&E's electric and common
plant. The changes resulted in an annual decrease in depreciation expense of
about $9 million.
Expenditures for maintenance and repairs of units of property, including
renewals of minor items, are charged to the appropriate maintenance expense
accounts. A betterment or replacement of a unit of property is accounted for
as an addition and retirement of property, plant and equipment. At the time of
such a retirement, the accumulated provision for depreciation is charged with
<PAGE>
the original cost of the property retired and also for the net cost of
removal.
INCOME TAXES. For income tax purposes, CG&E and its subsidiaries use
liberalized depreciation methods and deduct removal costs as incurred.
Consistent with regulatory treatment, CG&E and its subsidiaries currently
provide for deferred taxes arising from the use of liberalized depreciation
for operations regulated by state utility commissions, and for income tax
deferrals on all timing differences for operations regulated by FERC.
Although CG&E does not provide for deferred taxes resulting from the use of
liberalized depreciation for property additions subject to PUCO jurisdiction
made prior to October 1978, CG&E is allowed to collect through rates the
income taxes payable in the future as a result of using liberalized
depreciation for such property.
CG&E and its subsidiaries adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109), in 1993.
SFAS No. 109 requires deferred tax recognition for all temporary differences
in accordance with the liability method, requires that deferred tax
liabilities and assets be adjusted for enacted changes in tax laws or rates
and prohibits net-of-tax accounting and reporting. The Company believes it is
probable that the net future increases in income taxes payable will be
recovered from customers through future rates and, accordingly, has recorded a
net regulatory asset at December 31, 1993. Adoption of SFAS No. 109 had no
impact on results of operations.
The following are the tax effects of temporary differences resulting in
deferred tax assets and liabilities:
<TABLE>
<CAPTION>
December 31, January 1,
1993 1993
------------ ----------
(Thousands)
<S> <C> <C>
Deferred tax liabilities
Depreciation and other plant related items--net... $ 631,602 $ 641,597
Income taxes due from customers--net.............. 106,111 113,383
Deferred expenses and carrying costs.............. 70,569 57,064
Other liabilities................................. 38,407 49,694
--------- ---------
846,689 861,738
--------- ---------
Deferred tax assets
Investment tax credits............................ 49,867 50,538
Other assets...................................... 63,598 55,705
--------- ---------
113,465 106,243
--------- ---------
Net deferred tax liability................. $ 733,224 $ 755,495
========= =========
</TABLE>
<PAGE>
The following table reconciles the change in the net deferred tax
liability to the deferred income tax expense included in the accompanying
Consolidated Statement of Income for the year ended December 31, 1993:
<TABLE>
<CAPTION>
(Thousands)
<S> <C>
Net change in deferred tax liability per above table............. $(22,271)
Change in amounts due from customers - income taxes.............. 52,049
--------
Deferred income tax expense for the year
ended December 31, 1993..................................... $ 29,778
========
</TABLE>
In August 1993, President Clinton signed into law the Omnibus Budget
Reconciliation Act of 1993. Among the Act's provisions is an increase in the
corporate Federal income tax rate from 34% to 35%, retroactive to January 1,
1993. Under SFAS No. 109, the increase in the tax rate has resulted in an
increase in the net deferred tax liability and in income tax related
regulatory assets. In the above table, this increase in regulatory assets has
been included in "Change in amounts due from customers - income taxes". The
increase in the Federal income tax rate has not had a material impact on the
Company's results of operations.
RETIREMENT INCOME PLANS. CG&E and its subsidiaries have trusteed
non-contributory retirement income plans covering substantially all regular
employees. The benefits are based on the employee's compensation, years of
service, and age at retirement. The Companies funding policy is to
contribute annually to the plans an amount which is not less than the minimum
amount required by the Employee Retirement Income Security Act of 1974 and not
more than the maximum amount deductible for income tax purposes.
The plans funded status and amounts recognized on the Consolidated
Balance Sheet for the years 1993 and 1992 are presented below:
<TABLE>
<CAPTION>
December 31,
1993 1992
-------- --------
(Thousands)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation....................................... $328,075 $294,114
Nonvested benefit obligation.................................... 32,286 26,891
-------- --------
Total accumulated benefit obligation................................ 360,361 321,005
Projected future compensation increases............................. 110,332 101,915
-------- --------
Projected benefit obligation for service rendered................... 470,693 422,920
Plans' assets at fair value, primarily stocks and bonds............. 423,052 417,551
-------- --------
Plans' assets in excess of (less than) projected benefit obligation. (47,641) (5,369)
Unrecognized net gain............................................... (15,970) (55,936)
Unrecognized prior service cost..................................... 29,149 31,995
Unrecognized net transition asset................................... (7,364) (7,985)
-------- --------
Accrued pension cost........................................ $(41,826) $(37,295)
======== ========
</TABLE>
<PAGE>
During 1992, the Company recorded $28.4 million of accrued pension cost
in accordance with Statement of Financial Accounting Standards No. 88,
"Employers Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits". This amount represented the
costs associated with additional benefits extended in connection with an early
retirement program and workforce reduction discussed below.
The following assumptions were used in accounting for pensions:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Discount rate used to determine actuarial present value of the
projected benefit obligation............................... 7.50% 8.25% 8.25%
Assumed rate of increase in future compensation levels used to
determine actuarial present value of the projected
benefit obligation......................................... 5.00% 5.75% 5.75%
Expected long-term rate of return on plans' assets................ 9.50% 9.50% 9.50%
</TABLE>
Net pension cost for the years 1993, 1992 and 1991 included the
following components:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(Thousands)
<S> <C> <C> <C>
Service cost -- benefits earned........................... $ 9,174 $ 8,767 $ 7,973
Interest cost on projected benefit obligation............. 34,475 30,424 27,903
Reduction in pension costs from actual return on assets... (31,371) (27,015) (76,705)
Net amortization and deferral............................. (4,666) (7,472) 43,857
-------- -------- --------
Net periodic pension cost.......................... $ 7,612 $ 4,704 $ 3,028
======== ======== ========
</TABLE>
EARLY RETIREMENT PROGRAM AND WORKFORCE REDUCTIONS. As a result of unfavorable
rate orders received in 1992, CG&E and its subsidiaries eliminated
approximately 900 regular, temporary and contract positions. The workforce
reduction was accomplished through a voluntary early retirement program and
involuntary separations. At December 31, 1992, the accrued liability
associated with the workforce reduction was $30.4 million (including
$28.4 million of additional pension benefits discussed above). In accordance
with a stipulation approved by the PUCO in August 1993, CG&E is recovering the
majority of these costs through rates over a period of three years. The
balance of unrecovered costs at December 31, 1993, totaled $27.2 million, and
is reflected in "Other Assets--Other" on the Consolidated Balance Sheet.
POSTRETIREMENT BENEFITS. Effective January 1, 1993, CG&E and its subsidiaries
adopted Statement of Financial Accounting Standards No. 106, "Employers
Accounting for Postretirement Benefits Other Than Pensions" (SFAS No. 106).
SFAS No. 106 requires the accrual of the expected cost of providing
postretirement benefits other than pensions to an employee and the employee s
covered dependents during the employee's active working career. SFAS No. 106
also requires the recognition of the actuarially determined total
postretirement benefit obligation earned by existing retirees. CG&E offers
health care and life insurance benefits which are subject to SFAS No. 106.
<PAGE>
Life insurance benefits are fully paid by the Company for qualified
employees. Eligibility to receive postretirement coverage is limited to those
employees who had participated in the plans and earned the right to
postretirement benefits prior to January 1, 1991.
In 1988, CG&E and its subsidiaries recognized the actuarially determined
accumulated benefit obligation for postretirement life insurance benefits
earned by retirees. The accumulated benefit obligation for active employees
is being amortized over 15 years, the employees estimated remaining service
lives. The accounting for postretirement life insurance benefits is not
impacted by the adoption of SFAS No. 106.
Postretirement health care benefits are subject to deductibles,
copayment provisions and other limitations. Retirees can participate in
health care plans by paying 100% of the group coverage premium. Prior to the
adoption of SFAS No. 106, the cost of postretirement health care benefits was
expensed by the Companies as paid. Beginning in 1993, the Companies began
recognizing the accumulated postretirement benefit obligation over 20 years in
accordance with SFAS No. 106.
The PUCO, under whose jurisdiction the majority of SFAS No. 106 costs
fall, authorized CG&E to begin recovering these costs in September 1993. The
adoption of SFAS No. 106 did not have a material effect on results of
operations.
The net periodic postretirement cost for the Companies postretirement
benefit plans for 1993 are presented below:
<TABLE>
<CAPTION>
Health Life
Care Insurance Total
------ --------- -------
(Thousands)
<S> <C> <C> <C>
Service cost...................... $ 995 $ 116 $ 1,111
Interest cost..................... 4,269 1,924 6,193
Amortization of the unrecognized
transition obligation........... 2,584 415 2,999
------ ------ -------
Postretirement benefit cost.. $7,848 $2,455 $10,303
====== ====== =======
</TABLE>
<PAGE>
The Companies accumulated postretirement benefit obligation and accrued
postretirement benefit cost under the plans at December 31, 1993 are as
follows:
<TABLE>
<CAPTION>
Health Life
Care Insurance Total
------ --------- -------
(Thousands)
<S> <C> <C> <C>
Retirees................................. $22,753 $22,271 $45,024
Active employees eligible to retire...... 2,363 1,494 3,857
Other active employees who are
plan participants...................... 27,501 2,912 30,413
------- ------- -------
Accumulated postretirement benefit
obligation............................. 52,617 26,677 79,294
Unrecognized net gain (loss)............. 3,822 (249) 3,573
Unrecognized transition obligation....... (49,104) (3,733) (52,837)
------- ------- -------
Accrued postretirement benefit cost.. $ 7,335 $22,695 $30,030
======= ======= =======
</TABLE>
The following assumptions were used to determine the accumulated
postretirement benefit obligation:
<TABLE>
<CAPTION>
December 31, January 1,
1993 1993
------------ ----------
<S> <C> <C>
Discount rate................................... 7.50% 8.25%
Health care cost trend rate, gradually declining 10.00% to 12.00% to
to 5% in 2002 and 2003, respectively.......... 13.00% 15.00%
</TABLE>
Increasing the assumed medical care cost trend rates by one percentage point
in each year would increase the estimated accumulated postretirement benefit
obligation as of December 31, 1993 by $10.5 million and the net periodic
postretirement cost by $1.2 million. No funding has been established by the
Companies for postretirement benefits.
POSTEMPLOYMENT BENEFITS. In 1993, CG&E and its subsidiaries adopted Statement
of Financial Accounting Standards No. 112, "Employers Accounting for
Postemployment Benefits" (SFAS No. 112). SFAS No. 112 requires the accrual of
the cost of certain postemployment benefits provided to former or inactive
employees. The adoption of SFAS No. 112 did not have a material effect on
results of operations.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION. The applicable regulatory
uniform systems of accounts define "allowance for funds used during
construction" (AFC) as including "the net cost for the period of construction
of borrowed funds used for construction purposes and a reasonable rate on
other funds when so used." This amount of AFC constitutes an actual cost of
construction and, under established regulatory rate practices, a return on and
<PAGE>
recovery of such costs heretofore has been permitted in determining the rates
charged for utility services.
For 1993, 1992 and 1991, AFC was accrued at average pre-tax rates of
8.33%, 10.18% and 10.38%, respectively, compounded semi-annually. AFC was
accrued at an average net-of-tax rate of 10.25% compounded semi-annually for
1991 on construction projects that commenced before December 31, 1982
(primarily Zimmer Station). AFC represents non-cash earnings and, as a
result, does not affect current cash flow.
PHASE-IN DEFERRED DEPRECIATION AND DEFERRED RETURN. In a 1992 rate order, the
PUCO authorized CG&E an annual increase in electric revenues of approximately
$116.4 million, to be phased in over a three-year period under a plan that met
the requirements of Statement of Financial Accounting Standards No. 92,
"Regulated Enterprises - Accounting for Phase-in Plans". The phase-in plan
was designed so that the three rate increases will provide revenues sufficient
to recover all operating expenses and provide a fair rate of return on plant
investment. In the first three years of the phase-in plan ordered by the
PUCO, rates charged to customers do not fully recover depreciation expense and
return on shareholders investment. This deficiency is being capitalized on
the Consolidated Balance Sheet and will be recovered over a 10-year period.
Beginning in the fourth year, the revenue levels authorized pursuant to the
phase-in plan are designed to be sufficient to recover that period's operating
expenses, a fair return on the unrecovered investment, and amortization of
deferred depreciation and deferred return recorded during the first three
years of the plan. Under the rate order, the amount of deferred depreciation
and deferred return, including carrying costs on the deferrals, estimated to
be recorded in 1994 totaled approximately $15 million, net of tax, in addition
to the $70 million already deferred. For information on the recovery of
phase-in deferrals, the write-off of a portion of Zimmer Station and other
matters related to the phased-in rate increase, see Note 5.
POST-IN-SERVICE DEFERRED OPERATING EXPENSES AND CARRYING COSTS. In accordance
with an order of the PUCO, CG&E capitalized carrying costs for Zimmer Station
from the time it was placed in service in March 1991 until the effective date
of new rates authorized by the PUCO's 1992 rate order which reflected Zimmer
Station. CG&E began recovering these carrying costs over the useful life of
Zimmer Station in accordance with a stipulation approved by the PUCO in August
1993 (see Note 5 herein). At December 31, 1993, the unamortized amount of
post-in-service carrying costs associated with Zimmer Station was $102.7
million and is reflected in "Other Assets--Post-in-service carrying costs and
deferred operating expenses" on the Consolidated Balance Sheet.
Effective in January 1992, the PUCO, at CG&E's request, authorized the
Company to defer Zimmer Station depreciation, operation and maintenance
expenses (exclusive of fuel costs) and property taxes, which were not being
recovered in rates charged to customers. The PUCO also authorized CG&E to
accrue carrying costs on the deferred expenses. In its 1992 rate order, the
PUCO authorized CG&E to begin recovering these deferred expenses and
associated carrying costs over a 10-year period. At December 31, 1993, the
unamortized amount of post-in-service deferred operating expenses associated
with Zimmer Station was $18.7 million and is reflected in "Other Assets--
<PAGE>
Post-in-service carrying costs and deferred operating expenses" on the
Consolidated Balance Sheet.
In May 1992, the first three units at the Woodsdale Generating Station
began commercial operation and, in July 1992, two additional units were
declared operational. In accordance with an order issued by the PUCO, CG&E
capitalized carrying costs on the first five units at Woodsdale Station and
deferred depreciation, operation and maintenance expenses (exclusive of fuel
costs) and property taxes from the time these units were placed in service
until the effective date of new rates approved by the PUCO in August 1993
which reflected the Woodsdale units. CG&E began recovering a portion of
carrying costs over the useful life of Woodsdale Station and the deferred
expenses over a 10-year period in accordance with the stipulation approved by
the PUCO in August 1993 (see Note 5 herein). At December 31, 1993,
unamortized carrying costs and deferred expenses associated with Woodsdale
Station were $19.2 million and $14.0 million, respectively, and are reflected
in "Other Assets--Post-in-service carrying costs and deferred operating
expenses" on the Consolidated Balance Sheet.
STATEMENT OF CASH FLOWS. For purposes of the Statement of Cash Flows, CG&E
and its subsidiaries consider short-term investments having maturities of
three months or less at time of purchase to be cash equivalents.
The cash amounts of interest (net of allowance for borrowed funds used
during construction) and income taxes paid by CG&E and its subsidiaries in
1993, 1992 and 1991 are as follows:
1993 1992 1991
-------- -------- --------
Interest (000).............. $151,867 $151,821 $142,269
Income taxes (000).......... $53,786 $26,021 $46,573
(2) LONG-TERM DEBT: Under the terms of the respective mortgage indentures
securing first mortgage bonds issued by CG&E and its subsidiaries,
substantially all property is subject to a direct first mortgage lien.
Improvement and sinking fund provisions contained in the indentures
applicable to the First Mortgage Bonds of CG&E issued prior to 1980, and of
Union Light issued prior to 1981, require deposits with the Trustee, on or
before April 30 of each year, of amounts in cash and/or principal amount of
bonds equal to 1% ($4,300,000) of the principal amount of bonds of the
applicable series originally outstanding less certain designated retirements.
In lieu of such cash deposits or delivery of bonds and as permitted
under the terms of the indentures, historically the companies have followed
the practice of pledging unfunded property additions to the extent of 166 2/3%
of the annual sinking fund requirements.
Over the next five years, long-term debt of CG&E and its subsidiaries
will mature or be subject to mandatory redemption as follows: $.3 million in
1994 and $130.0 million in 1997.
<PAGE>
In November 1993, CG&E redeemed $280 million principal amount of First
Mortgage Bonds, consisting of the 8 3/4% Series due 1996, 9.15% Series due
2004 and 9 1/4% Series due 2016. Reacquisition expenses associated with the
extinguishment of these First Mortgage Bonds are reflected in "Other Assets -
Other" on the Consolidated Balance Sheet ($9.5 million as of December 31,
1993) and, consistent with past regulatory treatment, are being amortized over
a period of 12 years. The total balance of reacquisition expenses associated
with early retirements of long-term debt reflected in "Other Assets - Other"
on the Consolidated Balance Sheet at December 31, 1993, is $27.4 million.
In January 1994, the Company issued $94.7 million principal amount of
pollution control revenue refunding bonds at interest rates of 5.45% and
5 1/2%, the proceeds from which were used to refund six different series of
pollution control revenue bonds with interest rates ranging from 6.70% to
9 5/8%.
In February 1994, the Company issued $220 million principal amount of
first mortgage bonds with interest rates of 5.80% and 6.45%, the proceeds from
which will be used to refund $210 million principal amount of First Mortgage
Bonds, consisting of the 8 5/8% Series due 2000, 8.55% Series due 2006 and
9 1/8% Series due 2008.
(3) COMMON STOCK: On December 2, 1992, a three-for-two stock split in the
form of a stock dividend was paid to shareholders of record November 2, 1992,
at which time there were 57,338,284 shares of common stock outstanding. The
split was accomplished through a reduction in additional paid-in capital and
an increase in common shares. In connection with the split, fractional
interests totalling 4,438 shares were retired for cash. The accompanying
consolidated financial statements have been retroactively adjusted to reflect
the split.
CG&E issued authorized but previously unissued shares of Common Stock as
follows:
<TABLE>
<CAPTION>
Shares Issued Shares Reserved
-------------------------- for Issuance at
1993 1992 December 31, 1993
----------------------------------------------
<S> <C> <C> <C>
Dividend Reinvestment and Stock Purchase Plan... 829,706 797,516 724,641
Employee Stock Purchase Plans................... 843,352 902,692 2,476,419
--------- --------- ---------
1,673,058 1,700,208 3,201,060
========= ========= =========
</TABLE>
Pursuant to a Shareholders Rights Plan adopted by CG&E in 1992, one
right is presently attached to and trading with each share of outstanding CG&E
common stock. The rights will be exercisable, if not otherwise approved by
the Board of Directors, only if a person or group becomes the beneficial owner
of 20% or more of CG&E's common stock, commences a tender or exchange offer
for 25% or more of the common stock, or is declared an Adverse Person by the
Board of Directors.
<PAGE>
(4) CUMULATIVE PREFERRED STOCK: Under CG&E's Articles of Incorporation,
the Company presently is authorized to issue a maximum of 6,000,000 shares of
preferred stock at a par value of $100 per share.
The Cumulative Preferred Stock, 9.15% Series is subject to mandatory
redemption each July 1, beginning in 1996, in an amount sufficient to retire
25,000 shares, and the 7 3/8% Series is subject to mandatory redemption each
August 1, beginning in 1998, in an amount sufficient to retire 40,000 shares,
each at $100 per share, plus accrued dividends. For both series, CG&E has the
noncumulative option to redeem up to a like amount of additional shares in
each year. CG&E has the option to satisfy the mandatory redemption
requirements in whole or in part by crediting shares acquired by CG&E. To the
extent CG&E does not satisfy its mandatory sinking fund obligation in any
year, such obligation must be satisfied in the succeeding year or years. If
CG&E is in arrears in the redemption pursuant to the mandatory sinking fund
requirement, CG&E shall not purchase or otherwise acquire for value, or pay
dividends on, Common Stock.
The Cumulative Preferred Stock, 7 7/8% Series is subject to mandatory
redemption on January 1, 2004, at $100 per share plus accrued dividends to the
redemption date.
On February 25, 1994, CG&E gave notice to the holders of the Cumulative
Preferred Stock, 9.28% Series of its intention to redeem all outstanding
shares at $101 per share, on April 1, 1994.
(5) RATES: In April 1991, CG&E filed a request with the PUCO to increase
electric rates by approximately $200 million annually. The primary reason for
the request was recovery of costs associated with Zimmer Station.
In a 1992 rate decision, the PUCO authorized CG&E to increase electric
revenues by $116.4 million to be phased in over a three-year period through
annual increases of $37.8 million, $38.8 million and $39.8 million in the
first, second and third years, respectively. The PUCO also disallowed from
rate base approximately $230 million, representing costs related to Zimmer
Station for nuclear fuel, nuclear wind-down activities during the conversion
to a coal-fired facility and a portion of the AFC accrued by CG&E on Zimmer.
In August 1992, CG&E filed an appeal with the Supreme Court of Ohio to
overturn the rate order issued by the PUCO including the rate base
disallowances. In the appeal, CG&E stated that the PUCO did not have
authority to order a phased-in rate increase and erroneously determined the
amount of CG&E's required cash working capital.
On November 3, 1993, the Supreme Court of Ohio issued its decision on
CG&E's appeal. The Court ruled that the PUCO does not have the authority to
order a phase-in of amounts granted in a rate proceeding and remanded the case
to the PUCO to set rates that provide the gross annual revenues determined in
accordance with Ohio statutes. The Court also said the PUCO must provide a
mechanism by which CG&E may recover costs already deferred under the phase-in
plan through the date of the order on remand. At December 31, 1993, CG&E had
deferred $70 million of costs, net of taxes, related to the phase-in plan. On
the other issues, the Court ruled in favor of the PUCO, stating the PUCO
<PAGE>
properly determined CG&E's cash working capital allowance and properly
excluded costs related to nuclear fuel, nuclear wind-down activities, and AFC
from rate base. As a result of the Supreme Court decision, CG&E wrote off
Zimmer Station costs of approximately $223 million, net of taxes, in November
1993.
In March 1994, CG&E negotiated a settlement agreement with the PUCO
Staff, the Ohio Office of Consumers' Counsel and other intervenors to address
the November 1993 ruling by the Supreme Court of Ohio. As part of the
agreement, CG&E has agreed not to seek early implementation of the third phase
of the 1992 rate increase, which means the $39.8 million increase will take
effect in May 1994 as originally scheduled. CG&E also agreed that it would
not seek accelerated recovery of deferrals related to the phase-in plan.
These deferrals will be recovered over the remaining seven year period
contemplated in the 1992 PUCO order. In addition, if the merger with PSI is
consummated, CG&E has agreed not to increase base electric rates prior to
January 1, 1999, except for increases in taxes, changes in federal or state
environmental laws, PUCO actions affecting electric utilities in general and
financial emergencies.
The settlement agreement also permits CG&E to retain all non-fuel savings
from the merger until 1999 and calls for merger-related transaction costs, or
any other accounting deferrals, to be amortized over a period ending by
January 1, 1999.
Other provisions of the agreement are: (i) if the merger is not
completed, CG&E can raise electric rates in May 1995 by $21 million to provide
accelerated recovery of phase-in deferrals; (ii) the PUCO and OCC will have
access to information about CINergy and affiliated companies; (iii) the PUCO
will support, before the Securities and Exchange Commission, CG&E's efforts to
retain its gas operations and other parties will not oppose efforts to retain
the gas properties; and (iv) contracts of CG&E with affiliated companies under
the merger that are to be filed with the Securities and Exchange Commission
must first be filed with the PUCO for its review and copies provided to the
OCC.
In September 1992, CG&E filed applications with the PUCO requesting
increases in annual electric and gas revenues of approximately $86 million and
$35 million, respectively. In August 1993, the PUCO approved a stipulation
providing for annual increases of approximately $41 million (5%) in electric
revenues and $19 million (6%) in gas revenues effective immediately. As part
of the stipulation, CG&E agreed, among other things, not to increase electric
or gas base rates prior to June 1, 1995. This would not include rate filings
made under certain circumstances, such as to address financial emergencies or
to reflect any savings associated with the prospective merger with PSI
Resources, Inc. (see Note 9).
In September 1992, Union Light filed a request with the Kentucky Public
Service Commission (KPSC) to increase annual gas revenues by approximately
$9 million. Orders issued in mid-1993 by the KPSC authorized Union Light to
increase annual gas revenues by $4.2 million.
<PAGE>
(6) BANK LINES OF CREDIT AND REVOLVING CREDIT AGREEMENT: At December 31,
1993, CG&E and its subsidiaries had lines of credit totaling $123.4 million,
which were maintained by compensating balances and/or fees. Unused lines of
credit at December 31, 1993, totaled $102.4 million (generally subject to
withdrawal by the banks). Substantially all of the cash balances of CG&E and
its subsidiaries are maintained to compensate the respective banks for banking
services and to obtain lines of credit; however, CG&E and its subsidiaries
have the right of withdrawal of such funds. The maximum amount of outstanding
short-term notes payable, including commercial paper, authorized by the PUCO
to be incurred by CG&E at any time through June 30, 1994 is $200 million and,
in addition, FERC authorized Union Light to issue a maximum of $35 million of
short-term notes payable through December 31, 1994.
CG&E has a bank revolving credit agreement providing for borrowings of
up to $200 million through September 1, 1996. At the option of CG&E, interest
rates on borrowings under the agreement may be based upon the prevailing prime
rate or certain other interest measurements. CG&E must pay a commitment fee
of 3/16% on the total amount of the credit agreement. CG&E has not made any
borrowings under this agreement.
(7) LEASES: CG&E and its subsidiaries have entered into operating leases
covering various facilities and properties, including office space, and
computer, communications and miscellaneous equipment. Rental payments for
operating leases are primarily charged to operating expenses. Total rental
payments for all operating leases were $21,756,000, $22,882,000 and
$20,984,000 for the years 1993, 1992 and 1991, respectively. Future minimum
lease payments required by CG&E and its subsidiaries under such operating
leases that have initial or remaining noncancelable lease terms in excess of
one year as of December 31, 1993 were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, (Thousands)
--------------------------------------------------
<S> <C>
1994............................. $ 16,344
1995............................. 14,731
1996............................. 9,214
1997............................. 6,506
1998............................. 3,323
Future Years..................... 14,470
---------
Total Minimum Lease Commitments.. $ 64,588
=========
</TABLE>
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS: The Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of Financial
Instruments" (SFAS No. 107), requires disclosure of the estimated fair value
of certain financial instruments of the Company. This information does not
purport to be a valuation of the Company as a whole.
<PAGE>
The following methods and assumptions were used to estimate the fair
value of each major class of financial instrument of CG&E and its subsidiaries
as required by SFAS No. 107:
Cash, Notes Payable, Accounts Receivable and Accounts Payable. The carrying
amount as reflected on the Consolidated Balance Sheet approximates the fair
value of these instruments due to the short period to maturity.
Long-Term Debt. The aggregate fair values for the first mortgage bonds and
other long-term debt of CG&E and its subsidiaries are based on the present
value of future cash flows. The discount rates used approximate the
incremental borrowing costs for similar instruments. Certain notes payable
have been excluded due to immateriality.
Cumulative Preferred Stock. The aggregate fair value for CG&E's preferred
stock is based on the latest closing prices quoted on the New York Stock
Exchange for each series.
The estimated fair values of long-term debt and preferred stock at
December 31, 1993 and 1992, are as follows:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
(Thousands)
<S> <C> <C>
Long-Term Debt:
First mortgage bonds................ $ 1,847,150 $ 1,739,635
Other long-term debt................ $ 192,953 $ 185,929
Preferred Stock:
Not subject to mandatory redemption. $ 105,235 $ 101,935
Subject to mandatory redemption..... $ 230,363 $ 217,938
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES: In December 1992, CG&E, PSI Resources,
Inc. (PSI) and PSI Energy, Inc., PSI's principal subsidiary, an Indiana
electric utility (PSI Energy), entered into an agreement which, as
subsequently amended (the Merger Agreement) provides for the merger of PSI
into a newly formed corporation named CINergy Corp. (CINergy) and the merger
of a newly formed subsidiary of CINergy into CG&E. For 1993, PSI had
operating revenues of $1.1 billion and earnings on common shares of
$96.4 million. As a result of the merger, holders of CG&E Common Stock and
PSI Common Stock will become the holders of CINergy Common Stock. CINergy
will become a holding company required to be registered under the Public
Utility Holding Company Act of 1935 (PUHCA) with two operating subsidiaries,
CG&E and PSI Energy. Union Light will remain a subsidiary of CG&E. Under the
Merger Agreement, each share of CG&E Common Stock will be converted into the
right to receive one share of CINergy Common Stock. Each share of PSI Common
Stock will be converted into the right to receive that number of shares of
CINergy Common Stock obtained by dividing $30.69 by the average closing price
of CG&E Common Stock for the 15 consecutive trading days preceding the fifth
trading day prior to the merger; 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.
<PAGE>
The merger will be accounted for as a "pooling of interests", and it is
anticipated that the transaction will be completed in the third quarter of
1994. The merger is subject to approval by the Securities and Exchange
Commission (SEC) and FERC. Shareholders of both companies approved the merger
in November 1993.
FERC issued conditional approval of the CINergy merger in August 1993,
but several intervenors, including The Public Utilities Commission of Ohio
(PUCO) and the Kentucky Public Service Commission (KPSC), filed for rehearing
of that order. On January 12, 1994, FERC withdrew its conditional approval of
the merger and ordered the setting of FERC-sponsored settlement procedures to
be held.
On March 4, 1994, CG&E reached a settlement agreement with the PUCO and
the Ohio Office of Consumers' Counsel (OCC) on merger issues identified by
FERC. On March 2, PSI Energy and Indiana's consumer representatives had
reached a similar agreement. Both settlement agreements have been filed with
FERC. These documents address, among other things, the coordination of state
and federal regulation and the commitment that neither CG&E nor PSI electric
base rates, nor CG&E's gas base rates, will rise because of the merger, except
to reflect any effects that may result from the divestiture of CG&E's gas
operations if ordered by the SEC in accordance with the requirements of PUHCA
discussed below.
CG&E also filed with FERC a unilateral offer of settlement addressing
all issues raised in the KPSC's application for rehearing with FERC.
Although it is the belief of CG&E and PSI that no state utility commissions
have jurisdiction over approval of the proposed merger, an application has
been filed with the KPSC to comply with the Staff of the KPSC's position that
the KPSC's authorization is required for the indirect acquisition of control
of CG&E's Kentucky subsidiary, The Union Light, Heat and Power Company, by
CINergy. As part of the settlement offer, Union Light will agree not to
increase gas base rates as a result of the merger except to reflect any
effects that may result from the divestiture of Union Light's gas operations
discussed below.
Also included in the filings with FERC were settlement agreements with
the city of Hamilton, Ohio, and the Wabash Valley Power Association in
Indiana. These agreements resolve issues related to the transmission of power
in Ohio and Indiana.
If the settlement agreements filed with FERC are not acceptable, FERC
could set issues for hearing. If a hearing is held by FERC, consummation of
the merger would likely be extended beyond the third quarter of 1994.
<PAGE>
CG&E and PSI also submitted to FERC the operating agreement among
CINergy Services, Inc., a subsidiary of CINergy, and CG&E and PSI Energy that
provides for the coordinated planning and operation of the electric generation
and transmission and other facilities of CG&E and PSI as an integrated utility
system. It also establishes a framework for the equitable sharing of the
benefits and costs of such coordinated operations between CG&E and PSI. The
parties to the Ohio and Indiana FERC settlements have agreed to support or not
oppose the operating agreement, and the settlements are conditioned upon FERC
approving the filed operating agreement without material changes.
CG&E's filing with FERC also references a separate agreement among CG&E,
the Staff of the PUCO, the OCC, and other parties settling issues raised by a
November 1993 ruling of the Supreme Court of Ohio on the phased-in electric
rate increase ordered by the PUCO in May 1992. The agreement includes a
moratorium on increases in base electric rates prior to January 1, 1999
(except under certain circumstances), authorization for CG&E to retain all
non-fuel merger savings until 1999, and a commitment by the PUCO that it will
support CG&E's efforts to retain CG&E's gas operations in its PUHCA filing
with the SEC (see below). Reference is made to Note 5 for additional
information.
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. 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. The SEC has interpreted the PUHCA to preclude registered holding
companies, with some exceptions, from owning both electric and gas utility
systems. The SEC may require that CG&E divest its gas properties within a
reasonable time after the merger in order to approve the merger as it has done
in many cases involving the acquisition by a holding company of a combination
gas and electric company. In some cases, the SEC has allowed the retention of
the gas properties or deferred the question of divestiture for a substantial
period of time. In those cases in which divestiture has taken place, the SEC
usually has allowed companies sufficient time to accomplish the divestiture in
a manner that protects shareholder value. CG&E believes good arguments exist
to allow retention of the gas assets, and CG&E will request that it be allowed
to do so.
CG&E and its subsidiaries are subject to regulation by various Federal,
state and local authorities relative to air and water quality, solid and
hazardous waste disposal, and other environmental matters. Compliance
programs necessary to meet existing and future environmental laws and
regulations will increase the cost of utility service. Capital expenditures
related to environmental compliance are included in the Companies estimated
construction programs (see "Construction Program and Capital Requirements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" herein) and are expected to be recoverable through rates.
<PAGE>
In April 1992, FERC issued Order 636 which restructures the
relationships between interstate gas pipelines and their customers for gas
sales and transportation services. Order 636 will result in changes in the
way CG&E and Union Light purchase gas supplies and contract for transportation
and storage services, and will result in increased risks in managing the
ability to meet demand.
Order 636 also allows pipelines to recover transition costs they incur
in complying with the Order from customers, including CG&E and Union Light.
An agreement between CG&E and residential and industrial customer groups
regarding recovery of these transition costs has been submitted to the PUCO
for approval. Order 636 transition costs are not expected to significantly
impact the Company.
The United States Environmental Protection Agency (U.S. EPA) alleges
that CG&E is a Potentially Responsible Party (PRP) under the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA) liable for
cleanup of the United Scrap Lead site in Troy, Ohio. CG&E was one of
approximately 200 companies so named. CG&E believes it is not a PRP and
should not be responsible for cleanup of the site. Under CERCLA, CG&E could be
jointly and severally liable for costs incurred in cleaning the site,
estimated by the U.S. EPA to be $27 million.
(10) COMMON OWNERSHIP OF ELECTRIC UTILITY PLANT: CG&E, Columbus Southern
Power Company, and The Dayton Power and Light Company have constructed
electric generating units and related transmission facilities on varying
common ownership bases as follows:
<TABLE>
<CAPTION>
CG&E's share at December 31, 1993
-----------------------------------------------
Percent Property, Plant Accumulated Construction
Owned by and Equipment Provisions for Work In
CG&E In Service (a) Depreciation Progress (b)
--------- -------------- --------------- ------------
(Thousands)
<S> <C> <C> <C> <C>
Production
Miami Fort Station (Units 7 and 8). 64 $ 197,865 $ 94,653 $ 825
W.C. Beckjord Station (Unit 6)..... 37.5 $ 37,741 $ 21,042 $ 251
J.M. Stuart Station................ 39 $ 251,542 $ 99,029 $ 10,377
Conesville Station (Unit 4)........ 40 $ 69,355 $ 29,218 $ 2,511
Wm. H. Zimmer Station.............. 46.5 $ 1,209,632 $ 97,763 $ 2,048
East Bend Station.................. 69 $ 324,165 $ 131,984 $ 1,568
Killen Station..................... 33 $ 186,055 $ 65,990 $ 271
Transmission......................... various $ 62,139 $ 26,346 $ 4
<FN>
(a) The Consolidated Statement of Income reflects CG&E's portion of all operating costs
associated with the commonly owned facilities.
(b) Each participant must provide funds for its share of the construction project.
</TABLE>
<PAGE>
(11) UNAUDITED QUARTERLY FINANCIAL DATA (THOUSANDS):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993
Total Operating Revenues......... $ 493,476 $ 367,470 $ 408,638 $ 482,157 $ 1,751,741
Operating Income................. $ 89,683 $ 63,652 $ 85,356 $ 80,809 $ 319,500
Net Income (Loss)................ $ 68,401 $ 39,928 $ 59,519 $(176,572)(a) $ (8,724)(a)
Earnings (Loss) on Common Shares. $ 62,111 $ 33,638 $ 53,228 $(182,861)(a) $ (33,884)(a)
Average Number of Common
Shares Outstanding............ 86,722 87,143 87,539 87,937
Earnings (Loss) per Common Share. $ .71 $ .38 $ .61 $ (2.08)(a) (b)
1992
Total Operating Revenues......... $ 446,529 $ 334,353 $ 352,139 $ 420,405 $ 1,553,426
Operating Income................. $ 72,333 $ 50,212 $ 68,460 $ 68,696 $ 259,701
Net Income....................... $ 67,086 $ 44,050 $ 46,063 $ 45,062 $ 202,261
Earnings on Common Shares........ $ 59,838 $ 37,350 $ 38,691 $ 38,772 $ 174,651
Average Number of Common Shares
Outstanding................... 84,946 85,376 85,797 86,251
Earnings per Common Share........ $ .70 $ .43 $ .45 $ .45 (b)
<FN>
(a) Reflects the write-off of a portion of Zimmer Station of approximately $223 million, net of
taxes.
(b) Total does not equal annual earnings per share due to change in shares outstanding.
</TABLE>
<PAGE>
(12) FINANCIAL INFORMATION BY BUSINESS SEGMENTS (THOUSANDS):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Operating Operating Income Provision for Construction
Revenues Income Taxes Depreciation Expenditures(a)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Electric................ $1,282,445 $286,609 $102,034 $134,121 $ 157,194
Gas..................... 469,296 32,891 6,936 17,940 44,720
---------- -------- -------- -------- ---------
Total............... $1,751,741 $319,500 $108,970 $152,061 $ 201,914
========== ======== ======== ======== =========
YEAR ENDED DECEMBER 31, 1992
Electric................ $1,159,456 $236,152 $ 93,286 $125,298 $ 185,592
Gas..................... 393,970 23,549 2,733 15,698 41,447
---------- -------- -------- -------- ---------
Total............... $1,553,426 $259,701 $ 96,019 $140,996 $ 227,039
========== ======== ======== ======== =========
Year Ended December 31, 1991
Electric................ $1,147,395 $196,982 $ 90,709 $116,282 $ 343,631
Gas..................... 370,703 16,190 (928) 14,310 66,704
---------- -------- -------- -------- ---------
Total............... $1,518,098 $213,172 $ 89,781 $130,592 $ 410,335
========== ======== ======== ======== =========
<FN>
(a) Excludes construction expenditures for non-utility plant of $(51,000) in 1993, $2,694,000
in 1992, and $(90,000) in 1991.
</TABLE>
<TABLE>
<CAPTION>
December 31,
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Property, Plant and Equipment, net--
Electric....................... $3,281,620 $3,469,018 $3,410,782
Gas............................ 504,020 476,397 450,399
---------- ---------- ----------
3,785,640 3,945,415 3,861,181
Other Corporate Assets.............. 1,357,883 856,777 722,605
---------- ---------- ----------
Total Assets.............. $5,143,523 $4,802,192 $4,583,786
========== ========== ==========
</TABLE>
<PAGE>
(13) UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION: The
following pro forma condensed consolidated financial information combines the
historical consolidated statements of income and consolidated balance sheets
of CG&E and PSI after giving effect to the merger. The unaudited Pro Forma
Condensed Consolidated Statements of Income for each of the three years ended
December 31, 1993, give effect to the merger as if it had occurred at January
1, 1991. The unaudited Pro Forma Condensed Consolidated Balance Sheet at
December 31, 1993, gives effect to the merger as if it had occurred at
December 31, 1993. These statements are prepared on the basis of accounting
for the merger 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 CG&E
and PSI. The following information is not necessarily indicative of the
operating results or financial position that would have occurred had the
merger been consummated at the beginning of the periods, or on the date, for
which the merger is being given effect, nor is it necessarily indicative of
future operating results or financial position.
Pro Forma Condensed Consolidated Statements of Income (in millions, except per
share amounts):
<TABLE>
<CAPTION>
1993
-----------------------------------
Pro
Historical Forma
--------------------- ----------
CG&E PSI CINergy
--------- --------- ----------
<S> <C> <C> <C>
Operating revenues.............................. $ 1,752 $ 1,088 $ 2,840
Operating expenses.............................. 1,432 938 2,370
--------- -------- ----------
Operating income................................ 320 150 470
Other income and deductions -- net.............. (173)* 24 (149)
Interest charges -- net......................... 156 65 221
Preferred dividend requirement.................. 25 13 38
--------- -------- ----------
Net income (loss)............................... $ (34) $ 96 $ 62
========= ======== ==========
Average common shares outstanding (1,2)......... 87 56 138/144
Earnings (Loss) per common share (1,2).......... $ (.39) $ 1.73 $ .45/.43
<FN>
*Reflects the write-off of a portion of Zimmer Station of approximately $223 million, net of taxes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1992
-----------------------------------
Pro
Historical Forma
--------------------- ----------
CG&E PSI CINergy
--------- --------- ----------
<S> <C> <C> <C>
Operating revenues.............................. $ 1,553 $ 1,081 $ 2,634
Operating expenses.............................. 1,293 916 2,209
--------- -------- ----------
Operating income................................ 260 165 425
Other income and deductions -- net.............. 100 5 105
Interest charges -- net......................... 158 67 225
Preferred dividend requirement.................. 27 7 34
--------- -------- ----------
Net income...................................... $ 175 $ 96 $ 271
========= ======== ==========
Average common shares outstanding (1,2)......... 86 55 136/142
Earnings per common share (1,2)................. $ 2.04 $ 1.75 $2.00/1.91
</TABLE>
<TABLE>
<CAPTION>
1991
-----------------------------------
Pro
Historical Forma
--------------------- ----------
CG&E PSI CINergy
--------- --------- ----------
<S> <C> <C> <C>
Operating revenues.............................. $ 1,518 $ 1,122 $ 2,640
Operating expenses.............................. 1,305 958 2,263
--------- -------- ----------
Operating income................................ 213 164 377
Other income and deductions -- net.............. 141 (79) 62
Interest charges -- net......................... 147 56 203
Preferred dividend requirement.................. 25 10 35
--------- -------- ----------
Net income...................................... $ 182 $ 19 $ 201
========= ======== ==========
Average common shares outstanding (1,2)......... 82 55 132/138
Earnings per common share (1,2)................. $ 2.21 $ .35 $1.53/1.46
</TABLE>
<PAGE>
Pro Forma Condensed Consolidated Balance Sheet (in millions):
<TABLE>
<CAPTION>
December 31, 1993
---------------------------------------
Historical Pro Forma
------------------------ ---------
CG&E PSI CINergy
--------- --------- ---------
<S> <C> <C> <C>
Assets
Utility plant -- original cost
In service...................................... $ 5,188 $ 3,449 $ 8,637
Accumulated depreciation........................ 1,472 1,456 2,928
--------- --------- ---------
3,716 1,993 5,709
Construction work in progress................... 70 244 314
--------- --------- ---------
Total utility plant........................... 3,786 2,237 6,023
Current assets.................................... 606 197 803
Other assets...................................... 752 230 982
--------- --------- ---------
Total assets.................................. $ 5,144 $ 2,664 $ 7,808
========= ========= =========
Capitalization and Liabilities
Common stock (3).................................. $ 749 $ 1 $ 1
Paid-in capital (3)............................... 314 251 1,314
Retained earnings................................. 456 451 907
--------- --------- ---------
Total common stock equity..................... 1,519 703 2,222
Cumulative preferred stock........................ 330 188 518
Long-term debt.................................... 1,829 816 2,645
--------- --------- ---------
Total capitalization.......................... 3,678 1,707 5,385
Current liabilities............................... 441 567 1,008
Deferred income taxes............................. 734 286 1,020
Other liabilities................................. 291 104 395
--------- --------- ---------
Total capitalization and other liabilities.... $ 5,144 $ 2,664 $ 7,808
========= ========= =========
</TABLE>
<PAGE>
Notes to Pro Forma Condensed Consolidated Financial Information:
(1) Outstanding shares of CG&E 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 CG&E common stock outstanding into one share
of CINergy common stock and each share of PSI common stock outstanding
into (a) .909 share and (b) 1.023 shares of CINergy common stock. The
actual PSI conversion ratio may be lower than 1.023 or higher than .909
depending upon the closing sales price of CG&E common stock during a
period prior to the consummation of the merger.
(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 CG&E common stock outstanding into one share
of CINergy common stock ($.01 par value) and each share of PSI common
stock outstanding into 1.023 shares of CINergy common stock ($.01 par
value). Any PSI 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 CG&E and PSI 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 CG&E and PSI. In a settlement agreement filed with the
PUCO, 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 also be permitted to retain all of its non-fuel savings
from the merger until 1999. For additional information on the
settlement agreement, see Note 5 to the Consolidated Financial
Statements. PSI's portion of the costs are being deferred for post-
merger recovery through customer rates.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Cincinnati Gas & Electric Company:
We have audited the accompanying consolidated balance sheet and
schedules of common shareholders' equity and cumulative preferred shares and
long-term debt of THE CINCINNATI GAS & ELECTRIC COMPANY (an Ohio Corporation)
and its subsidiary companies as of December 31, 1993 and 1992, and the related
consolidated statements of income, changes in common shareholders' equity and
cash flows and schedule of taxes for each of the three years in the period
ended December 31, 1993. These financial statements and the schedules referred
to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules 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 The Cincinnati Gas
& Electric Company and its subsidiary companies 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 explained in Note 1 to the consolidated financial statements, the
Company changed its methods of accounting for income taxes, postretirement
health care benefits and postemployment benefits effective January 1,1993.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules listed in
Item 14 are presented for purposes of complying with the Securities and
Exchange Commission's Rules and Regulations under the Securities Exchange Act
of 1934 and are not a required part of the basic financial statements. The
supplemental schedules have been subjected to the auditing procedures applied
in the audits 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.
Cincinnati, Ohio,
January 24, 1994.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------- ---------------------------------------------------------------
Financial Disclosure
--------------------
Not Applicable.
PART III
Items 10., 11., 12. and 13.
- ---------------------------
The information required by Items 11, 12, and 13 will be included in
CG&E's definitive proxy statement which will be filed with the Securities and
Exchange Commission in connection with the 1994 Annual meeting of Shareholders
and is incorporated herein by reference. The information regarding executive
officers of CG&E, called for by Item 10, is furnished in Part I of this Annual
Report.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- -------- ----------------------------------------------------------------
(a) Listed below are all financial statements, schedules, and exhibits
attached hereto, incorporated herein, and filed as a part of this
Annual Report.
(1) Consolidated Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheet, December 31, 1993 and 1992
Consolidated Statement of Income for the three years ended
December 31, 1993
Consolidated Statement of Cash Flows for the three years ended
December 31, 1993
Consolidated Statement of Changes In Common Shareholders' Equity
for the three years ended December 31, 1993
Schedule of Common Shareholders' Equity and Cumulative Preferred
Shares, December 31, 1993 and 1992
Schedule of Long-Term Debt, December 31, 1993 and 1992
Schedule of Taxes for the three years ended December 31, 1993
Notes to Consolidated Financial Statements
<PAGE>
(2) Financial Statement Schedules:
#Schedule V -- Property, Plant and Equipment (1993, 1992 and
1991)
#Schedule VI -- Accumulated Provisions for Depreciation (1993,
1992 and 1991)
#Schedule VIII -- Other Accumulated Provisions (1993, 1992 and
1991)
#Schedule IX -- Short-Term Borrowings (1993, 1992 and 1991)
(3) Exhibits:
Exhibit
No.
-------
*2-A-1 -- Amended and Restated Agreement and Plan of
Reorganization by and among CG&E, PSI Resources,
Inc., PSI Energy, Inc., CINergy Corp. and CINergy Sub,
Inc., dated as of December 11, 1992, as amended on
July 2, 1993 and as of September 10, 1993 (filed as
Annex A to Amendment No. 3 to Registration Statement
No. 33-59964 on Form S-4)
*2-A-2 -- Form of CG&E Stock Option Agreement by and between
CG&E and PSI Resources, Inc. dated December 11, 1992
(filed as Exhibit 28 to Form 8-K dated December 11,
1992)
*2-A-3 -- Form of PSI Stock Option Agreement by and among CG&E,
PSI Resources, Inc. and PSI Energy, Inc. dated
December 11, 1992 (filed as Exhibit 28 to Form 8-K
dated December 11, 1992)
3-A-1 -- Copy of Amended Articles of Incorporation of CG&E
effective January 24, 1994
*3-B -- Copy of Regulations of CG&E as amended, adopted by
shareholders April 16, 1987 (filed as Exhibit 3-B to
Form 10-Q for the quarter ended March 31, 1987)
*4-A-1 -- Copy of Indenture between CG&E and The Bank of New
York dated as of August 1, 1936 (filed as Exhibit B-2
to Registration Statement No. 2-2374)
*4-A-2 -- Copy of Tenth Supplemental Indenture between CG&E and
The Bank of New York dated as of July 1, 1967 (filed
as Exhibit 2-B-11 to Registration Statement No.
2-26549)
*4-A-3 -- Copy of Eleventh Supplemental Indenture between CG&E
and The Bank of New York dated as of May 1, 1969
(filed as Exhibit 2-B-12 to Registration Statement No.
2-32063)
*4-A-4 -- Copy of Twelfth Supplemental Indenture between CG&E
and The Bank of New York dated as of December 1, 1970
(filed as Exhibit 2-B-13 to Registration Statement No.
2-38551)
<PAGE>
*4-A-5 -- Copy of Thirteenth Supplemental Indenture between CG&E
and The Bank of New York dated as of November 1, 1971
(filed as Exhibit 2-B-14 to Registration Statement No.
2-41974)
*4-A-6 -- Copy of Fourteenth Supplemental Indenture between CG&E
and The Bank of New York dated as of November 2, 1972
(filed as Exhibit 2-B-15 to Registration Statement No.
2-60961)
*4-A-7 -- Copy of Fifteenth Supplemental Indenture between CG&E
and The Bank of New York dated as of August 1, 1973
(filed as Exhibit 2-B-16 to Registration Statement No.
2-60961)
*4-A-8 -- Copy of Eighteenth Supplemental Indenture between CG&E
and The Bank of New York dated as of October 15, 1976
(filed as Exhibit 2-B-19 to Registration Statement No.
2-57243)
*4-A-9 -- Copy of Nineteenth Supplemental Indenture between CG&E
and The Bank of New York dated as of April 15, 1978
(filed as Exhibit 1 to Form 10-Q for the quarter ended
June 30, 1978)
*4-A-10 -- Copy of Twenty-fifth Supplemental Indenture between
CG&E and The Bank of New York dated as of December 1,
1985 (filed as Exhibit 4-A-20 to Form 10-K for the
year ended December 31, 1985)
*4-A-11 -- Copy of Twenty-ninth Supplemental Indenture between
CG&E and The Bank of New York dated as of June 15,
1989 (filed as Exhibit 4-A to Form 10-Q for the
quarter ended June 30, 1989)
*4-A-12 -- Copy of Thirtieth Supplemental Indenture between CG&E
and The Bank of New York dated as of May 1, 1990
(filed as Exhibit 4-A to Form 10-Q for the quarter
ended June 30, 1990)
*4-A-13 -- Copy of Thirty-first Supplemental Indenture between
CG&E and The Bank of New York dated as of December 1,
1990 (filed as Exhibit 4-A-21 to Form 10-K for the
year ended December 31, 1990)
*4-A-14 -- Copy of Thirty-second Supplemental Indenture between
CG&E and The Bank of New York dated as of December 15,
1991 (filed as Exhibit 4-A-29 to Registration
Statement No. 33-45115 of CG&E)
*4-A-15 -- Copy of Thirty-third Supplemental Indenture between
CG&E and The Bank of New York dated as of September 1,
1992 (filed as Exhibit 4-A-30 to Registration
Statement No. 33-53578 of CG&E)
*4-A-16 -- Copy of Thirty-fourth Supplemental Indenture between
CG&E and The Bank of New York dated as of October 1,
1993 (filed as Exhibit 4-A to Form 10-Q for the
quarter ended September 30, 1993)
*4-A-17 -- Copy of Thirty-fifth Supplemental Indenture between
CG&E and The Bank of New York dated as of January 1,
1994 (filed as Exhibit 4-A-32 to Registration
Statement No. 33-52335 of CG&E)
<PAGE>
*4-A-18 -- Copy of Thirty-sixth Supplemental Indenture between
CG&E and The Bank of New York dated as of February 15,
1994 (filed as Exhibit 4-A-33 to Registration
Statement No. 33-52335 of CG&E)
*4-A-19 -- Copy of Loan Agreement between CG&E and County of
Boone, Kentucky dated as of February 1, 1985 (filed as
Exhibit 4-A-26 to 1984 Form 10-K of CG&E)
*4-A-20 -- Copy of Loan Agreement between CG&E and State of Ohio
Air Quality Development Authority dated as of
December 1, 1985 (filed as Exhibit 4-A-28 to Form 10-K
for the year ended December 31, 1985)
*4-A-21 -- Copy of Loan Agreement between CG&E and State of Ohio
Air Quality Development Authority dated as of
December 1, 1985 (filed as Exhibit 4-A-29 to Form 10-K
for the year ended December 31, 1985)
*4-A-22 -- Copy of Loan Agreement between CG&E and State of Ohio
Air Quality Development Authority dated as of
December 1, 1985 (filed as Exhibit 4-A-30 to Form 10-K
for the year ended December 31, 1985)
*4-A-23 -- Copy of Repayment Agreement between CG&E and The
Dayton Power and Light Company dated as of
December 23, 1992 (filed as Exhibit 4-A-29 to Form
10-K for the year ended December 31, 1992)
4-A-24 -- Copy of Loan Agreement between CG&E and State of Ohio
Water Development Authority dated as of January 1,
1994
4-A-25 -- Copy of Loan Agreement between CG&E and State of Ohio
Air Quality Development Authority dated as of
January 1, 1994
4-A-26 -- Copy of Loan Agreement between CG&E and County of
Boone, Kentucky dated as of January 1, 1994
*4-B-1 -- Copy of First Mortgage between Union Light and The
Bank of New York dated as of February 1, 1949 (filed
as Exhibit 7 to Registration Statement No. 2-7793)
*4-B-2 -- Copy of Fifth Supplemental Indenture between Union
Light and The Bank of New York dated as of January 1,
1967 (filed as Exhibit 2-C-6 to Registration Statement
No. 2-60961 of CG&E)
*4-B-3 -- Copy of Seventh Supplemental Indenture between Union
Light and The Bank of New York dated as of October 1,
1973 (filed as Exhibit 2-C-7 to Registration Statement
No. 2-60961 of CG&E)
*4-B-4 -- Copy of Eighth Supplemental Indenture between Union
Light and The Bank of New York dated as of December 1,
1978 (filed as Exhibit 2-C-8 to Registration Statement
No. 2-63591 of CG&E)
*4-B-5 -- Copy of Tenth Supplemental Indenture between Union
Light and The Bank of New York dated as of July 1,
1989 (filed as Exhibit 4-B to Form 10-Q of CG&E for
the quarter ended June 30, 1989)
<PAGE>
*4-B-6 -- Copy of Eleventh Supplemental Indenture between Union
Light and The Bank of New York dated as of June 1,
1990 (filed as Exhibit 4-B to Form 10-Q of CG&E for
the quarter ended June 30, 1990)
*4-B-7 -- Copy of Twelfth Supplemental Indenture between Union
Light and The Bank of New York dated as of November
15, 1990 (filed as Exhibit 4-B-8 to Form 10-K for the
year ended December 31, 1990)
*4-B-8 -- Copy of Thirteenth Supplemental Indenture between
Union Light and The Bank of New York dated as of
August 1, 1992 (filed as Exhibit 4-B-9 to Form 10-K
for the year ended December 31, 1992)
*4-C -- Rights Agreement between The Cincinnati Gas & Electric
Company and The Fifth Third Bank, as Rights Agent,
dated as of July 15, 1992 (filed as Exhibit 4 to Form
8-K dated June 17, 1992)
*10-A-1 -- Copy of Deferred Compensation Agreement between
Jackson H. Randolph and CG&E dated January 1, 1992
(filed as Exhibit 10-B-1 to Form 10-K for the year
ended December 31, 1992)
*10-A-2 -- Copy of Supplemental Executive Retirement Income Plan
between CG&E and certain executive officers (filed as
Exhibit 10-B-4 to 1988 Form 10-K of CG&E)
*10-A-3 -- Copy of Amendment to Supplemental Executive
Retirement Income Plan between CG&E and certain
executive officers (filed as Exhibit 10-B-3 to Form
10-K for the year ended December 31, 1992)
*10-A-4 -- Copy of Key Employee Annual Incentive Plan offered by
CG&E to executive officers and other key employees
(filed as Exhibit 10-B-5 to 1988 Form 10-K of CG&E)
*10-A-5 -- Copy of Executive Severance Agreement between CG&E and
each of its executive officers (filed as Exhibit 10-B-
6 to 1989 Form 10-K of CG&E)
*10-A-6 -- Copy of Amendment to Executive Severance Agreement
between CG&E and each of its executive officers (filed
as Exhibit 10-B-6 to Form 10-K for the year ended
December 31, 1992)
*10-A-7 -- Copy of Employment Agreement by and among CG&E,
CINergy Corp., PSI Resources, Inc., PSI Energy, Inc.
and Jackson H. Randolph dated December 11, 1992
(filed as Exhibit 10-B-7 to Form 10-K for the year
ended December 31, 1992)
*10-A-8 -- Copy of Employment Agreement by and among PSI
Resources, Inc., PSI Energy, Inc., CG&E, CINergy Corp.
and James E. Rogers, Jr., dated December 11, 1992
(filed as Exhibit 10-B-8 to Form 10-K for the year
ended December 31, 1992)
21 -- Not applicable
23 -- Consent of Independent Public Accountants dated as of
March 15, 1994
<PAGE>
(b) Reports on Form 8-K filed during the quarter ended December 31,
1993:
Date of Report Item Reported
-------------- -------------
October 20, 1993 Item 7. Financial Statements
and Exhibits
October 26, 1993 Item 5. Other Events
Item 7. Financial Statements
and Exhibits
- -----------------
# All schedules, other than Schedules V, VI, VIII, and IX, are omitted as the
information is not required or is otherwise furnished, per Title 17, Section
210.5-04, CFR.
* The exhibits with an asterisk have been filed with the Securities and
Exchange Commission and are incorporated herein by reference.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE V
THE CINCINNATI GAS & ELECTRIC COMPANY
-------------------------------------
AND SUBSIDIARY COMPANIES CONSOLIDATED
-------------------------------------
Property, Plant and Equipment
-----------------------------
For the Year Ended December 31, 1993
------------------------------------
(Thousands of Dollars)
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Balance at Other changes-- Balance at
December 31, Additions Retirements debit or December 31,
Classification 1992 at cost or sales (credit)(a) 1993
-------------- ------------ --------- ----------- --------------- ------------
<S> <C> <C> <C> <C> <C>
ELECTRIC
Production $3,045,705 $ 47,717 (b) $ 3,899 $ (229,868)(c) $2,859,655
Transmission 357,056 9,549 1,161 (57) 365,387
Distribution 941,419 65,853 11,185 187 996,274
General 60,608 3,143 1,751 (1,116) 60,884
Plant held for future use 2,193 -- -- (130) 2,063
Completed construction--not classified (d) 62,498 47,037 -- -- 109,535
---------- -------- ------- ---------- ----------
Total electric 4,469,479 173,299 17,996 (230,984) 4,393,798
---------- -------- ------- ---------- ----------
GAS
Production 10,064 51 1 -- 10,114
Storage 22 -- -- -- 22
Distribution 537,244 40,353 2,800 -- 574,797
General 16,691 1,822 931 7 17,589
Plant held for future use 25 -- -- -- 25
Completed construction--not classified (d) 13,051 (4,019) -- -- 9,032
---------- -------- ------- ---------- ----------
Total gas 577,097 38,207 3,732 7 611,579
---------- -------- ------- ---------- ----------
COMMON 114,753 64,533 602 1,127 179,811
Completed construction--not classified (d) 1,706 1,708 -- -- 3,414
---------- -------- ------- ---------- ----------
Total common 116,459 66,241 602 1,127 183,225
---------- -------- ------- ---------- ----------
Property, plant and equipment in service $5,163,035 $277,747 $22,330 $ (229,850) $5,188,602
========== ======== ======= ========== ==========
CONSTRUCTION WORK IN PROGRESS (d)
Electric $ 91,311 $(29,764) $ -- $ 340 (e) $ 61,887
Gas 6,887 (925) -- -- 5,962
Common 46,650 (45,148) -- -- 1,502
---------- -------- ------- ---------- ----------
Total construction work in progress $ 144,848 $(75,837) $ -- $ 340 $ 69,351
========== ======== ======= ========== ==========
<FN>
Notes: (a) Amounts in Column E represent transfers between plant accounts.
(b) Includes Unit 1 at the Woodsdale Generating Station which began commercial operation in May 1993.
(c) Reflects the write-off of a portion of Zimmer Station. See Note 5 to the Consolidated Financial Statements for
additional information.
(d) Additions are net of transfers to plant in service.
(e) Represents a reclassification from non-utility property.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE V
THE CINCINNATI GAS & ELECTRIC COMPANY
-------------------------------------
AND SUBSIDIARY COMPANIES CONSOLIDATED
-------------------------------------
Property, Plant and Equipment
-----------------------------
For the Year Ended December 31, 1992
------------------------------------
(Thousands of Dollars)
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Balance at Other changes-- Balance at
December 31, Additions Retirements debit or December 31,
Classification 1991 at cost or sales (credit)(a) 1992
-------------- ------------ --------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
ELECTRIC
Production $2,808,314 $ 245,604 (b) $ 8,282 $ 69 $3,045,705
Transmission 336,893 21,389 1,225 (1) 357,056
Distribution 895,956 56,390 10,927 -- 941,419
General 56,897 7,594 3,857 (26) 60,608
Plant held for future use 2,261 -- -- (68) 2,193
Completed construction--not classified (c) 53,717 8,781 -- -- 62,498
---------- --------- ------- ---------- ----------
Total electric 4,154,038 339,758 24,291 (26) 4,469,479
---------- --------- ------- ---------- ----------
GAS
Production 9,873 200 9 -- 10,064
Storage 21 1 -- -- 22
Distribution 498,808 41,302 2,866 -- 537,244
General 15,399 2,705 1,441 28 16,691
Plant held for future use 58 -- 33 -- 25
Completed construction--not classified (c) 20,200 (7,149) -- -- 13,051
---------- --------- ------- ---------- ----------
Total gas 544,359 37,059 4,349 28 577,097
---------- --------- ------- ---------- ----------
COMMON 93,329 22,172 746 (2) 114,753
Completed construction--not classified (c) 18,375 (16,669) -- -- 1,706
---------- --------- ------- ---------- ----------
Total common 111,704 5,503 746 (2) 116,459
---------- --------- ------- ---------- ----------
Property, plant and equipment in service $4,810,101 $ 382,320 $29,386 $ -- $5,163,035
========== ========= ======= ========== ==========
CONSTRUCTION WORK IN PROGRESS (c)
Electric $ 253,417 $(162,114)(b) $ -- $ 8 (d) $ 91,311
Gas 5,670 1,217 -- -- 6,887
Common 41,039 5,611 -- -- 46,650
---------- --------- ------- ---------- ----------
Total construction work in progress $ 300,126 $(155,286) $ -- $ 8 $ 144,848
========== ========= ======= ========== ==========
<FN>
Notes: (a) Amounts in Column E represent transfers between plant accounts.
(b) Includes the Woodsdale Generating Station which began commercial operation in May 1992.
(c) Additions are net of transfers to plant in service.
(d) Represents a reclassification from non-utility property.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE V
THE CINCINNATI GAS & ELECTRIC COMPANY
-------------------------------------
AND SUBSIDIARY COMPANIES CONSOLIDATED
-------------------------------------
Property, Plant and Equipment
-----------------------------
For the Year Ended December 31, 1991
------------------------------------
(Thousands of Dollars)
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Balance at Other changes-- Balance at
December 31, Additions Retirements debit or December 31,
Classification 1990 at cost or sales (credit)(a) 1991
-------------- ------------ --------- ----------- --------------- ------------
<S> <C> <C> <C> <C> <C>
ELECTRIC
Production $1,362,584 $ 1,454,855 (b) $ 9,508 $ 383 $2,808,314
Transmission 307,561 30,699 734 (633) 336,893
Distribution 843,083 59,643 7,403 633 895,956
General 53,383 8,464 4,972 22 56,897
Plant held for future use 2,644 -- -- (383) 2,261
Completed construction--not classified (c) 44,562 9,155 -- -- 53,717
---------- ------------ ------- ---------- ----------
Total electric 2,613,817 1,562,816 22,617 22 4,154,038
---------- ------------ ------- ---------- ----------
GAS
Production 9,848 38 13 -- 9,873
Storage 21 -- -- -- 21
Distribution 447,383 54,168 2,743 -- 498,808
General 14,475 2,126 1,206 4 15,399
Plant held for future use 58 -- -- -- 58
Completed construction--not classified (c) 21,197 (997) -- -- 20,200
---------- ------------ ------- ---------- ----------
Total gas 492,982 55,335 3,962 4 544,359
---------- ------------ ------- ---------- ----------
COMMON 92,804 2,701 2,150 (26) 93,329
Completed construction--not classified (c) 4,902 13,473 -- -- 18,375
---------- ------------ ------- ---------- ----------
Total common 97,706 16,174 2,150 (26) 111,704
---------- ------------ ------- ---------- ----------
Property, plant and equipment in service $3,204,505 $ 1,634,325 $28,729 $ -- $4,810,101
========== ============ ======= ========== ==========
CONSTRUCTION WORK IN PROGRESS (c)
Electric $1,492,341 $ (1,239,182)(b) $ -- $ 258 (d) $ 253,417
Gas 7,736 (2,066) -- -- 5,670
Common 24,039 17,000 -- -- 41,039
---------- ------------ ------- ---------- ----------
Total construction work in progress $1,524,116 $ (1,224,248) $ -- $ 258 $ 300,126
========== ============ ======= ========== ==========
<FN>
Notes: (a) Amounts in Column E represent transfers between plant accounts.
(b) Includes the Wm. H. Zimmer Generating Station which began commercial
operation in March 1991.
(c) Additions are net of transfers to plant in service.
(d) Represents a reclassification from non-utility property.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VI
THE CINCINNATI GAS & ELECTRIC COMPANY
-------------------------------------
AND SUBSIDIARY COMPANIES CONSOLIDATED
-------------------------------------
Accumulated Provisions for Depreciation
---------------------------------------
For the Years Ended December 31, 1993, 1992 and 1991
----------------------------------------------------
(Thousands of Dollars)
Column A Column B Column C Column D Column E Column F
- -------- -------- ------------------------- -------------------------- -------- ----------
Additions Deductions
------------------------- --------------------------
Balance at Salvage and Balance at
beginning of Charged to Charged to Retirements cost of end of
Description period expenses clearing or sales removal, net Other period
- ----------- ------------ ---------- ---------- ------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
For the Year Ended December 31,
1993
Electric $1,196,987 $129,171 $2,789 $17,925 $2,470 $(17,369)(a) $1,291,183
Gas 159,334 15,798 1,067 3,731 (12) -- 172,480
Common 13,663 5,552 579 596 239 280 19,239
Retirement work in progress (7,516) -- -- -- 3,073 -- (10,589)
---------- -------- ------ ------- ------ -------- ----------
$1,362,468 $150,521 $4,435 $22,252 $5,770 $(17,089) $1,472,313
========== ======== ====== ======= ====== ======== ==========
For the Year Ended December 31,
1992
Electric $1,096,440 $122,840 $2,780 $24,120 $ 914 $ (39) $1,196,987
Gas 149,474 14,385 1,068 4,315 1,283 5 159,334
Common 10,812 3,304 599 745 341 34 13,663
Retirement work in progress (7,680) -- -- -- (164) -- (7,516)
---------- -------- ------ ------- ------ -------- -----------
$1,249,046 $140,529 $4,447 $29,180 $2,374 $ -- $1,362,468
========== ======== ====== ======= ====== ======== ===========
For the Year Ended December 31,
1991
Electric $1,006,455 $113,901 $2,704 $22,470 $4,159 $ 9 $1,096,440
Gas 140,483 13,159 996 3,961 1,203 -- 149,474
Common 10,025 2,994 600 2,150 648 (9) 10,812
Retirement work in progress (6,854) -- -- -- 826 -- (7,680)
---------- -------- ------ ------- ------ -------- -----------
$1,150,109 $130,054 $4,300 $28,581 $6,836 $ -- $1,249,046
========== ======== ====== ======= ====== ======== ===========
<FN>
Notes: (a) Reflects the accumulated provision for depreciation associated with the Zimmer Station write-off. See Note 5 to
the Consolidated Financial Statements for additional information.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VIII
THE CINCINNATI GAS & ELECTRIC COMPANY
-------------------------------------
AND SUBSIDIARY COMPANIES
------------------------
Other Accumulated Provisions
----------------------------
For the Year Ended December 31, 1993
------------------------------------
(Thousands of Dollars)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
-------------------------- Deductions for
Balance at Charged to purposes for which Balance at
December 31, Charged to other provisions December 31,
Description 1992 expenses accounts were made 1993
----------- ------------ ---------- ---------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Shown on asset side of balance sheet
- ------------------------------------
Doubtful accounts $ 12,114 $19,801 $ 1,032 $ 18,041 $ 14,906
======== ======= ======== ======== ========
Amounts due from customers
- income taxes (a) $ -- $ -- $387,748 $ -- $387,748
======== ======= ======== ======== ========
Deferred income taxes (a) (b) $ 35,569 $ -- $(35,569) $ -- $ --
======== ======= ======== ======== ========
Shown on liability side of balance sheet
- ----------------------------------------
Deferred income taxes (a) $307,139 $45,631 $396,307 $ 15,853 $733,224
======== ======= ======== ======== ========
Investment tax credits $147,663 $ 1,196 $ -- $ 7,339 $141,520
======== ======= ======== ======== ========
Accrued pension cost $ 37,295 $ 6,866 $ 746 $ 3,081 $ 41,826
======== ======= ======== ======== ========
Other liabilities and deferred credits-
Customers' advances for construction $ 9,850 $ -- $ (1,025) $ -- $ 8,825
Injuries and damages 1,078 5,035 -- 5,639 474
Other 61,977 20,580 197,081 181,063 98,575 (c)
-------- ------- -------- -------- --------
$ 72,905 $25,615 $196,056 $186,702 $107,874
======== ======= ======== ======== ========
<FN>
Notes: (a) Reflects the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes".
See Note 1 to the Consolidated Financial Statements for further information.
(b) Included in Other Assets on the Consolidated Balance Sheet.
(c) Includes $30.0 million of accrued post-retirement benefits and $8.1 million of gas costs refundable to customers.
See Note 1 to the Consolidated Financial Statements for further information.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VIII
THE CINCINNATI GAS & ELECTRIC COMPANY
-------------------------------------
AND SUBSIDIARY COMPANIES
------------------------
Other Accumulated Provisions
----------------------------
For the Year Ended December 31, 1992
------------------------------------
(Thousands of Dollars)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
-------------------------- Deductions for
Balance at Charged to purposes for which Balance at
December 31, Charged to other provisions December 31,
Description 1991 expenses accounts were made 1992
----------- ------------ ---------- ---------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Shown on asset side of balance sheet
- ------------------------------------
Doubtful accounts $ 12,003 $18,143 $ 989 $ 19,021 $ 12,114
======== ======= ======== ======== ========
Deferred income taxes (a) $ 26,734 $21,218 $ 586 $ 12,969 $ 35,569
======== ======= ======== ======== ========
Shown on liability side of balance sheet
- ----------------------------------------
Deferred income taxes $246,056 $80,074 $ 586 $ 19,577 $307,139
======== ======= ======== ======== ========
Investment tax credits $153,502 $ (30) $ -- $ 5,809 $147,663
======== ======= ======== ======== ========
Other liabilities and deferred credits-
Customers' advances for construction $ 9,972 $ -- $ (122) $ -- $ 9,850
Injuries and damages 1,572 10,275 -- 10,769 1,078
Other 56,982 18,804 149,098 125,612 99,272 (b)
-------- ------- -------- -------- --------
$ 68,526 $29,079 $148,976 $136,381 $110,200
======== ======= ======== ======== ========
<FN>
Notes: (a) Included in Other Assets on the Consolidated Balance Sheet.
(b) Includes $28.4 million of additional pension benefits extended in connection with an early retirement program and
workforce reduction, and $20.2 million of accrued post-retirement life insurance benefits. See Note 1 to the
Consolidated Financial Statements for further information.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VIII
THE CINCINNATI GAS & ELECTRIC COMPANY
-------------------------------------
AND SUBSIDIARY COMPANIES
------------------------
Other Accumulated Provisions
----------------------------
For the Year Ended December 31, 1991
------------------------------------
(Thousands of Dollars)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
-------------------------- Deductions for
Balance at Charged to purposes for which Balance at
December 31, Charged to other provisions December 31,
Description 1990 expenses accounts were made 1991
----------- ------------ ---------- ---------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Shown on asset side of balance sheet
- ------------------------------------
Doubtful accounts $ 11,752 $17,757 $ 796 $ 18,302 $ 12,003
======== ======= ======== ======== ========
Deferred income taxes (a) $ 20,089 $24,359 $ (3,125) $ 14,589 $ 26,734
======== ======= ======== ======== ========
Shown on liability side of balance sheet
- ----------------------------------------
Deferred income taxes $219,105 $56,373 $ (3,125) $ 26,297 $246,056
======== ======= ======== ======== ========
Investment tax credits $158,614 $ 737 $ -- $ 5,849 $153,502
======== ======= ======== ======== ========
Other liabilities and deferred credits-
Customers' advances for construction $ 9,104 $ -- $ 868 $ -- $ 9,972
Injuries and damages 2,046 5,299 -- 5,773 1,572
Other 52,352 22,959 (1,985) 16,344 56,982 (b)
-------- ------- -------- -------- --------
$ 63,502 $28,258 $ (1,117) $ 22,117 $ 68,526
======== ======= ======== ======== ========
<FN>
Notes: (a) Included in Other Assets on the Consolidated Balance Sheet.
(b) Includes $19.2 million of accrued post-retirement life insurance benefits and $4.6 million of gas costs refundable
to customers.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE IX
THE CINCINNATI GAS & ELECTRIC COMPANY
-------------------------------------
AND SUBSIDIARY COMPANIES CONSOLIDATED
-------------------------------------
Short-Term Borrowings
---------------------
For the Years Ended December 31, 1993, 1992 and 1991
----------------------------------------------------
(Thousands of Dollars)
Column A Column B Column C Column D Column E Column F
----------- ---------- ---------------- ------------------ -------------- -----------------
Category of Average amount Weighted
aggregate Balance Maximum amount outstanding average interest
short-term at end of Weighted average outstanding during during the rate during the
borrowings period interest rate the period (a) period (b) period (b)
----------- ---------- ---------------- ------------------ -------------- -----------------
<S> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1993
Notes payable--
Bank (c) $31,000 3.48% $ 56,080 $22,518 3.35%
Commercial paper (d) -- -- $ 28,000 $ 7,694 3.44%
For the Year Ended December 31, 1992
Notes payable--
Bank (c) $33,500 3.74% $ 72,500 $27,007 4.06%
Commercial paper (d) $13,000 4.22% $ 26,000 $ 3,098 3.82%
For the Year Ended December 31, 1991
Notes payable--
Bank (c) $25,000 4.81% $112,500 $39,656 5.90%
Commercial paper (d) -- -- $ 53,000 $24,852 6.09%
<FN>
Notes: (a) Reflects the maximum amount outstanding for each category of short-term borrowings but
not necessarily the maximum aggregate amount outstanding during the period.
(b) Computed by using the average daily borrowings outstanding during the period.
(c) Consists of bank notes issued for 90 days or less.
(d) Commercial paper is issued to a dealer at a discount with a term not to exceed nine months.
</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, on this 15th day
of March, 1994.
THE CINCINNATI GAS & ELECTRIC COMPANY
By Jackson H. Randolph
-------------------------------------
(Jackson H. Randolph,
Chairman of the Board, President and
Chief Executive Officer)
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.
(i) Principal Executive Officer:
Chairman of the Board,
President and Chief
Executive Officer
Jackson H. Randolph and Director March 15, 1994
- -------------------------------
(Jackson H. Randolph)
(ii) Principal Financial Officer:
Senior
Vice-President--
C. R. Everman Finance and Director March 15, 1994
- -------------------------------
(C. Robert Everman)
(iii) Principal Accounting Officer:
Daniel R. Herche Controller March 15, 1994
- -------------------------------
(Daniel R. Herche)
(iv) A Majority of the Board of Directors:
Neil A. Armstrong Director March 15, 1994
- -------------------------------
(Neil A. Armstrong)
<PAGE>
Oliver W. Birckhead Director March 15, 1994
- -------------------------------
(Oliver W. Birckhead)
Clement L. Buenger Director March 15, 1994
- -------------------------------
(Clement L. Buenger)
George C. Juilfs Director March 15, 1994
- -------------------------------
(George C. Juilfs)
Thomas E. Petry Director March 15, 1994
- -------------------------------
(Thomas E. Petry)
Director March 15, 1994
- -------------------------------
(Jane L. Rees)
John J. Schiff, Jr. Director March 15, 1994
- -------------------------------
(John J. Schiff, Jr.)
Dudley S. Taft Director March 15, 1994
- -------------------------------
(Dudley S. Taft)
Oliver W. Waddell Director March 15, 1994
- -------------------------------
(Oliver W. Waddell)
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report, dated January 24, 1994, included in the Annual
Report on Form 10-K for the year ended December 31, 1993, of The Cincinnati
Gas & Electric Company, into its previously filed Registration Statement Nos.
33-38396, 33-45116, 33-45133, 33-45134, 33-50443 and 33-52335.
ARTHUR ANDERSEN & CO.
Cincinnati, Ohio,
March 15, 1994.
