UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address, and Telephone Number Identification No.
1-11377 CINERGY CORP. 31-1385023
(A Delaware Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 287-2644
1-1232 THE CINCINNATI GAS & ELECTRIC COMPANY 31-0240030
(An Ohio Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 287-2644
1-3543 PSI ENERGY, INC. 35-0594457
An Indiana Corporation)
1000 East Main Street
Plainfield, Indiana 46168
(317) 839-9611
2-7793 THE UNION LIGHT, HEAT AND POWER COMPANY 31-0473080
(A Kentucky Corporation)
139 East Fourth Street
Cincinnati, Ohio 45202
(513) 287-2644
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
This combined Form 10-Q is separately filed by Cinergy Corp., The Cincinnati Gas
& Electric Company, PSI Energy, Inc., and The Union Light, Heat and Power
Company. Information contained herein relating to any individual registrant is
filed by such registrant on its own behalf. Each registrant makes no
representation as to information relating to the other registrants.
The Union Light, Heat and Power Company meets the conditions set forth in
General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing its
company specific information with the reduced disclosure format.
As of July 31, 1999, shares of Common Stock outstanding for each registrant were
as listed:
Company _ Shares _
- --------------------------------------------------------- ------------
Cinergy Corp., par value $.01 per share 158,886,167
The Cincinnati Gas & Electric Company, par value $8.50
per share 89,663,086
PSI Energy, Inc., without par value, stated value $.01
per share 53,913,701
The Union Light, Heat and Power Company, par value $15.00
per share 585,333
<PAGE>
TABLE OF CONTENTS
Item Page
Number Number
Glossary of Terms . . . . . . . . . . . . . . . . . . . 3
PART I. FINANCIAL INFORMATION
1 Financial Statements
Cinergy Corp.
Consolidated Balance Sheets . . . . . . . . . . . . . 7
Consolidated Statements of Income (Loss). . . . . . . 9
Consolidated Statements of Changes in Common
Stock Equity. . . . . . . . . . . . . . . . . . . . 10
Consolidated Statements of Cash Flows . . . . . . . . 12
Results of Operations . . . . . . . . . . . . . . . . 13
The Cincinnati Gas & Electric Company
Consolidated Balance Sheets . . . . . . . . . . . . . 21
Consolidated Statements of Income and Comprehensive
Income. . . . . . . . . . . . . . . . . . . . . . . 23
Consolidated Statements of Cash Flows . . . . . . . . 24
Results of Operations . . . . . . . . . . . . . . . . 25
PSI Energy, Inc.
Consolidated Balance Sheets. . . . . . . . . . . . 31
Consolidated Statements of Income (Loss) and
Comprehensive Income (Loss). . . . . . . . . . . . 33
Consolidated Statements of Cash Flows. . . . . . . . 34
Results of Operations . . . . . . . . . . . . . . . . 35
The Union Light, Heat and Power Company
Balance Sheets. . . . . . . . . . . . . . . . . . . . 40
Statements of Income (Loss) . . . . . . . . . . . . . 42
Statements of Cash Flows. . . . . . . . . . . . . . . 43
Results of Operations . . . . . . . . . . . . . . . . 44
Notes to Financial Statements . . . . . . . . . . . . . 47
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 56
3 Quantitative and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . . . 64
PART II. OTHER INFORMATION
1 Legal Proceedings . . . . . . . . . . . . . . . . . . . 65
6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . 65
Signatures. . . . . . . . . . . . . . . . . . . . . . . 66
<PAGE>
GLOSSARY OF TERMS
The following abbreviations or acronyms used in the text of this combined Form
10-Q are defined below:
TERM DEFINITION
- -------------- ------------------------------------------------------
1998 Form Combined 1998 Annual Report on Form 10-K filed separately by
10-K Cinergy, CG&E, PSI, and ULH&P
Avon Energy Avon Energy Partners Holdings, an Unlimited Liability
Company and its wholly-owned subsidiary Avon Energy
Partners PLC, a Limited Liability Company
Beckjord CG&E's W.C. Beckjord Generating Station (steam electric
generating plant)
CAAA Clean Air Act Amendments of 1990
Cayuga PSI's Cayuga Generating Station (steam electric generating
plant)
CC&T Cinergy Capital & Trading, Inc. (a subsidiary of
Investments)
CERCLA Comprehensive Environmental Response, Compensation and
Liability Act
CG&E The Cincinnati Gas & Electric Company (a subsidiary of
Cinergy)
CIBU Cinergy Investments Business Unit
Cinergy or Cinergy Corp.
Company
CM&T Cinergy Marketing & Trading, LLC (a subsidiary of CC&T),
formerly Producers Energy Marketing, LLC (ProEnergy),
which is engaged in the marketing of natural gas
Committed Lines A line of credit providing short-term loans on a
committed basis
Court of Appeals U.S. Circuit Court of Appeals for the District of Columbia
Destec Destec Energy, Inc.
DOE United States Department of Energy
Dynegy Dynegy Inc.
ECBU Energy Commodities Business Unit
EDBU Energy Delivery Business Unit
EITF Issue 98-10 Emerging Issues Task Force Issue No. 98-10, Accounting for
Contracts Involved in Energy Trading and Risk Management
Activities
EPA United States Environmental Protection Agency
EPS Earnings per share
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
<PAGE>
GLOSSARY OF TERMS (Continued)
TERM DEFINITION
- -------------- ------------------------------------------------------
Gibson PSI's Gibson Generating Station (steam electric generating
plant)
Global Resources Cinergy Global Resources, Inc. (a subsidiary of Cinergy)
GPU GPU Inc.
House U.S. House of Representatives
IBU International Business Unit
ICR Mercury Information Collection Request
IDEM Indiana Department of Environmental Management
IGC Indiana Gas Company, Inc., formerly Indiana Gas and Water
Company, Inc.
Investments Cinergy Investments, Inc. (a subsidiary of Cinergy)
IT Information Technology
IURC Indiana Utility Regulatory Commission
JUMPS(sm) Junior Maturing Principal Securities
KWh Kilowatt-hour
mcf Thousand cubic feet
MGP Manufactured gas plant
Midlands Midlands Electricity plc, a United Kingdom regional electric
company (a wholly-owned subsidiary of Avon Energy)
Midwest ISO Midwest Independent System Operator
MW Megawatts
N/A Not applicable
NERC North American Electric Reliability Council
NIPSCO Northern Indiana Public Service Company
NOx Nitrogen oxide
NSR New Source Review
PSI PSI Energy, Inc. (a subsidiary of Cinergy)
PUCO Public Utilities Commission of Ohio
PUHCA Public Utility Holding Company Act of 1935
SEC United States Securities and Exchange Commission
Senate U.S. Senate
<PAGE>
GLOSSARY OF TERMS (Continued)
TERM DEFINITION
- -------------- ------------------------------------------------------
September 1996 An IURC order issued in September 1996 on PSI's retail
Order rate proceeding
SIP State Implementation Plan
SO2 Sulfur dioxide
Statement 131 Statement of Financial Accounting Standards No. 131,
Disclosures About Segments of an Enterprise and Related
Information
Statement 133 Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities
Statement 137 Statement of Financial Accounting Standards No. 137,
Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB
Statement 133
UCC The Indiana Office of the Utility Consumer Counselor
ULH&P The Union Light, Heat and Power Company (a wholly-owned
subsidiary of CG&E)
Uncommitted A line of credit providing short-term loans on an
Lines uncommitted basis
US United States
WVPA Wabash Valley Power Association, Inc.
Zimmer CG&E's William H. Zimmer Generating Station (steam
electric generating plant)
<PAGE>
CINERGY CORP.
AND SUBSIDIARY COMPANIES
<PAGE>
CINERGY CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
June 30 December 31
1999 1998
(unaudited)
(dollars in thousands)
Current Assets
Cash and temporary cash investments $ 77,059 $ 100,154
Restricted deposits 1,340 3,587
Accounts receivable less accumulated provision
for doubtful accounts of $31,321 at June
30, 1999, and $25,622 at December 31, 1998 400,493 580,305
Materials, supplies, and fuel - at average cost 197,423 202,747
Energy risk management assets 185,592 283,924
Prepayments and other 88,551 74,913
----------- -----------
950,458 1,245,630
Utility Plant - Original Cost
In service
Electric 9,295,375 9,222,261
Gas 803,473 786,188
Common 198,067 186,364
----------- -----------
10,296,915 10,194,813
Accumulated depreciation 4,167,497 4,040,247
----------- -----------
6,129,418 6,154,566
Construction work in progress 240,810 189,883
----------- -----------
Total utility plant 6,370,228 6,344,449
Other Assets
Regulatory assets 911,754 970,767
Investments in unconsolidated subsidiaries 616,347 574,401
Energy risk management assets 52,825 73,662
Other 491,237 478,472
----------- -----------
2,072,163 2,097,302
$ 9,392,849 $ 9,687,381
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
CINERGY CORP.
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
June 30 December 31
1999 1998
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 516,458 $ 668,860
Accrued taxes 207,873 228,347
Accrued interest 47,017 51,679
Notes payable and other short-term obligations 837,184 903,700
Long-term debt due within one year 25,959 136,000
Energy risk management liabilities 264,639 398,538
Other 77,945 93,376
---------- ----------
1,977,075 2,480,500
Non-Current Liabilities
Long-term debt 2,782,798 2,604,467
Deferred income taxes 1,105,478 1,091,075
Unamortized investment tax credits 152,004 156,757
Accrued pension and other postretirement
benefit costs 333,703 315,147
Energy risk management liabilities 101,924 107,194
Other 264,825 298,370
---------- ----------
4,740,732 4,573,010
Total liabilities 6,717,807 7,053,510
Cumulative Preferred Stock of Subsidiaries
Not subject to mandatory redemption 92,606 92,640
Common Stock Equity
Common stock - $.01 par value; authorized
shares - 600,000,000; outstanding shares -
158,886,167 at June 30, 1999, and
158,664,532 at December 31, 1998 1,589 1,587
Paid-in capital 1,602,608 1,595,237
Retained earnings 988,598 945,214
Accumulated other comprehensive loss (10,359) (807)
---------- ----------
Total common stock equity 2,582,436 2,541,231
$9,392,849 $9,687,381
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(unaudited)
<S> <C> <C> <C> <C>
Quarter Ended Year to Date
June 30 June 30
1999 1998 1999 1998
(in thousands, except per share amounts)
Operating Revenues
Electric $ 942,093 $1,021,922 $1,910,625 $2,180,646
Gas 328,667 142,247 749,975 327,093
Other 4,639 3,540 17,078 8,431
---------- ---------- ---------- ----------
1,275,399 1,167,709 2,677,678 2,516,170
Operating Expenses
Fuel and purchased and exchanged power 451,066 595,467 884,235 1,247,871
Gas purchased 293,513 112,757 627,915 220,343
Other operation and maintenance 236,432 307,384 480,980 520,077
Depreciation and amortization 88,201 80,751 174,678 160,686
Taxes other than income taxes 69,077 68,644 138,611 138,779
---------- ---------- ---------- ----------
1,138,289 1,165,003 2,306,419 2,287,756
Operating Income 137,110 2,706 371,259 228,414
Equity in Earnings of Unconsolidated
Subsidiaries 13,022 9,717 57,704 21,571
Other Income and (Expenses) - Net 192 80 (11,694) (11,735)
Interest 60,781 60,755 121,553 120,560
---------- ---------- ---------- ----------
Income (Loss) Before Taxes 89,543 (48,252) 295,716 117,690
Income Taxes 29,120 (23,685) 106,684 33,764
Preferred Dividend Requirements
of Subsidiaries 1,365 1,366 2,729 3,788
---------- ---------- ---------- ----------
Net Income (Loss) $ 59,058 $ (25,933) $ 186,303 $ 80,138
Earnings Per Common Share
Basic $0.37 $(0.16) $1.17 $0.51
Assuming dilution $0.37 $(0.16) $1.17 $0.51
Dividends Declared Per Common Share $0.45 $ 0.45 $0.90 $0.90
Average Common Shares Outstanding
Basic 158,877 158,018 158,812 157,892
Common stock options 418 689 415 738
Contingently issuable common stock 26 113 19 118
------- ------- ------- -------
Assuming dilution 159,321 158,820 159,246 158,748
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Other Total Total
Common Paid-in Retained Comprehensive Comprehensive Common Stock
Stock Capital Earnings Loss Income (Loss) Equity
Quarter Ended June 30, 1999
Balance at April 1, 1999 $1,588 $1,598,884 $1,001,034 $ (9,273) $2,592,233
Comprehensive income
Net income 59,058 $ 59,058 59,058
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (1,581) (1,581)
Unrealized gain on grantor
trust 495 495
--------
Other comprehensive income
(loss) total (1,086) (1,086)
--------
Comprehensive income (loss) total $ 57,972
========
Issuance of 106,267 shares of
common stock - net 1 2,299 2,300
Treasury shares reissued 1,425 1,425
Dividends on common stock (see
page 9 for per share amounts) (71,492) (71,492)
Other (2) (2)
------ ---------- ---------- -------- ----------
Balance at June 30, 1999 $1,589 $1,602,608 $ 988,598 $(10,359) $2,582,436
Quarter Ended June 30, 1998
Balance at April 1, 1998 $1,578 $1,574,080 $1,002,495 $ (3,279) $2,574,874
Comprehensive income
Net income (loss) (25,933) $(25,933) (25,933)
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (51) (51)
--------
Other comprehensive income
(loss) total (51) (51)
--------
Comprehensive income (loss) total $(25,984)
========
Issuance of 771,258 shares of
common stock - net 7 26,504 26,511
Treasury shares purchased (1) (3,502) (3,503)
Treasury shares reissued 1 2,329 2,330
Dividends on common stock (see
page 9 for per share amounts) (71,006) (71,006)
Other 24 24
------ ---------- ---------- -------- ----------
Balance at June 30, 1998 $1,585 $1,599,435 $ 905,556 $ (3,330) $2,503,246
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY (CONTINUED)
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Other Total Total
Common Paid-in Retained Comprehensive Comprehensive Common Stock
Stock Capital Earnings Loss Income Equity
Six Months Ended June 30, 1999
Balance January 1, 1999 $1,587 $1,595,237 $ 945,214 $ (807) $2,541,231
Comprehensive income
Net income 186,303 $186,303 186,303
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (10,032) (10,032)
Unrealized gain on grantor
trust 480 480
--------
Other comprehensive income
(loss) total (9,552) (9,552)
--------
Comprehensive income total $176,751
========
Issuance of 221,635 shares of
common stock - net 2 4,277 4,279
Treasury shares purchased (233) (233)
Treasury shares reissued 3,327 3,327
Dividends on common stock (see
page 9 for per share amounts) (142,914) (142,914)
Other (5) (5)
------ ---------- --------- -------- ----------
Balance June 30, 1999 $1,589 $1,602,608 $ 988,598 $(10,359) $2,582,436
Six Months Ended June 30, 1998
Balance January 1, 1998 $1,577 $1,573,064 $ 967,420 $ (2,861) $2,539,200
Comprehensive income
Net income 80,138 $ 80,138 80,138
Other comprehensive income,
net of tax
Foreign currency translation
adjustment (418) (418)
Minimum pension liability
adjustment (51) (51)
--------
Other comprehensive income
(loss) total (469) (469)
--------
Comprehensive income total $ 79,669
========
Issuance of 790,620 shares of
common stock - net 8 26,793 26,801
Treasury shares purchased (2) (4,932) (4,934)
Treasury shares reissued 2 4,478 4,480
Dividends on common stock (see
page 9 for per share amounts) (142,000) (142,000)
Other 32 (2) 30
------ ---------- --------- -------- ----------
Balance June 30, 1998 $1,585 $1,599,435 $ 905,556 $ (3,330) $2,503,246
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CINERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<S> <C> <C>
Year to Date
June 30
1999 1998
(in thousands)
Operating Activities
Net income $ 186,303 $ 80,138
Items providing (using) cash currently:
Depreciation and amortization 174,678 160,686
WVPA settlement - 80,000
Deferred income taxes and investment
tax credits - net 20,900 (61,871)
Equity in earnings of unconsolidated
subsidiaries (45,687) (21,571)
Allowance for equity funds used during
construction (1,279) (132)
Regulatory assets - net 14,925 18,208
Changes in current assets and current
liabilities
Restricted deposits 2,247 812
Accounts and notes receivable,
net of reserves on receivables so 179,251 (1,456)
Materials, supplies, and fuel 5,324 (4,667)
Accounts payable (152,402) 40,353
Accrued taxes and interest (25,136) (11,038)
Energy risk management - net (20,000) 67,000
Other items - net (25,319) 23,519
--------- ---------
Net cash provided by operating
activities 313,805 369,981
Financing Activities
Issuance of common stock 4,279 290
Issuance of long-term debt 522,097 321,921
Retirement of preferred stock of subsidiaries (29) (85,269)
Redemption of long-term debt (455,657) (220,409)
Change in short-term debt (66,516) 972
Dividends on common stock (142,914) (141,599)
--------- ---------
Net cash used in financing activities (138,740) (124,094)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (174,705) (144,524)
Acquisition of businesses (net of cash acquired) - (46,141)
Investments in unconsolidated subsidiaries (23,455) (21,598)
--------- ---------
Net cash used in investing activities (198,160) (212,263)
Net increase (decrease) in cash and temporary
cash investments (23,095) 33,624
Cash and temporary cash investments at beginning
of period 100,154 53,310
--------- ---------
Cash and temporary cash investments at end of period $ 77,059 $ 86,934
<FN>
The accompanying notes as they relate to Cinergy Corp. are an integral part of
these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
CINERGY CORP.
Below is information concerning the consolidated results of operations for
Cinergy for the quarter and six months ended June 30, 1999. For information
concerning the results of operations for each of the other registrants for the
quarter and six months ended June 30, 1999, see the discussion under the heading
"Results of Operations" following the financial statements of each registrant.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1999
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related KWh sales are
shown below:
Quarter Ended
June 30
Revenue KWh Sales
-----------------------------------------
1999 1998 1999 1998
---- ---- ---- -----
($ and KWh in millions)
Retail $623 $ 608 11,521 11,207
Sales for resale 285 403 10,652 16,373
Other 34 11 185 -
---- ------ ------ -------
Total $942 $1,022 22,358 27,580
Electric operating revenues decreased $80 million (8%) for the quarter ended
June 30, 1999, when compared to the same period for 1998. This decrease was
primarily due to decreased volumes on non-firm power sales for resale
transactions related to energy marketing and trading operations and milder
weather. Partially offsetting the decline was an increase in the average price
per KWh for non-firm power customers, higher retail and firm power KWh sales
resulting from growth in the average number of residential and commercial
customers, and increased international operations.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Quarter Ended
June 30
Revenue Mcf Sales
--------------------------------------
1999 1998 1999 1998
---- ---- ---- -----
($ and mcf in millions)
Sales for resale $266 $ 84 123 42
Retail 52 49 6 6
Transportation 11 9 9 14
---- ---- --- ---
Total $329 $142 138 62
Gas operating revenues increased $187 million in the second quarter of 1999,
when compared to the same period last year, primarily due to the gas operating
revenues of CM&T, which was acquired in June 1998. Retail revenues increased
primarily due to an increase in sales by the non-regulated businesses.
Transportation revenues increased as more residential and commercial customers
continued to purchase gas directly from suppliers, using transportation services
provided by CG&E. This increase in transportation revenues was partially offset
by a decrease in mcf transportation volumes resulting from the loss of a large
industrial transportation customer during late 1998.
Other Revenues
Other revenues increased $1 million (31%) for the quarter ended June 30, 1999,
over the same period of 1998. This increase was primarily the result of
increased sales and new initiatives by certain of Cinergy's non-regulated
entities.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Quarter Ended
June 30
1999 1998
(in millions)
Fuel $186 $155
Purchased and exchanged power 265 440
---- ----
Total $451 $595
Electric fuel costs increased $31 million (20%) for the quarter ended June 30,
1999, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Quarter Ended
June 30
(in millions)
Fuel expense - June 30, 1998 $155
Increase (Decrease) due to change in:
Price of fuel (2)
Deferred fuel cost 16
KWh generation 11
Other 6
----
Fuel expense - June 30, 1999 $186
Purchased and exchanged power expense decreased $175 million (40%) for the
quarter ended June 30, 1999, as compared to the same period last year, primarily
reflecting decreased purchases of non-firm power for resale to others as a
result of a decline in sales for resale volumes in the energy marketing and
trading operations. Additionally, during the quarter ended June 30, 1999, a
favorable adjustment of $18 million after tax was recorded as a result of a
re-evaluation of transactions included in the trading portfolio as of December
31, 1998, at the time of adoption of EITF Issue 98-10. Also contributing to the
decline was the provision of $61 million of reserves for the energy marketing
and trading business recorded during the second quarter of 1998.
Gas Purchased
Gas purchased for the quarter ended June 30, 1999, increased $181 million, when
compared to the same period last year, primarily due to the gas purchased
expenses of CM&T, which was acquired in June 1998. Partially offsetting this
increase was a lower average cost per mcf of gas purchased.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Quarter Ended
June 30
1999 1998
(in millions)
Other operation $172 $252
Maintenance 64 55
---- ----
Total $236 $307
Other operation expenses decreased $80 million (32%) for the quarter ended June
30, 1999, as compared to the same period last year. This decrease is primarily
due to the one-time charge of $80 million recorded during the second quarter of
1998, reflecting the implementation of a 1989 settlement of a dispute with the
WVPA. Also, during the second quarter of 1998, a provision of $4 million for
potential bad debts related to certain energy marketing and trading accounts was
recorded. This decrease was partially offset by the increased growth in expenses
associated with existing and new initiatives by certain of Cinergy's
consolidated non-regulated businesses.
Maintenance expenses increased $9 million (16%) for the quarter ended June 30,
1999, as compared to the same period of 1998. This increase is due to an
increase in maintenance activities associated with planned outages at certain
production facilities and other repairs performed at certain facilities.
Depreciation and Amortization
The components of depreciation and amortization expenses are shown below:
Quarter Ended
June 30
1999 1998
(in millions)
Depreciation $81 $74
Amortization of phase-in deferrals 6 6
Amortization of post-in-service
deferred operating expenses 1 1
--- ---
Total $88 $81
Depreciation expense increased $7 million (9%) for the quarter ended June 30,
1999, as compared to the same period last year, primarily due to additions to
depreciable plant.
Equity in Earnings of Unconsolidated Subsidiaries
The $3 million (34%) increase in equity in earnings of unconsolidated
subsidiaries for the quarter ended June 30, 1999, as compared to the same period
of 1998, is primarily attributable to an increase in the earnings of Avon Energy
resulting from increased profits related to Midlands' supply business and lower
costs of purchased electricity. On July 15, 1999, Cinergy and GPU completed a
transaction whereby GPU acquired Cinergy's 50% ownership interest in Avon
Energy, the parent company of Midlands. (See Note 12 of the "Notes to Financial
Statements" in "Part I. Financial Information.")
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related KWh sales are
shown below:
Six Months Ended
June 30
Revenue KWh Sales
1999 1998 1999 1998
($ and KWh in millions)
Retail $1,300 $1,242 23,796 22,885
Sales for resale 551 918 21,346 38,106
Other 60 21 358 -
------ ------ ------ ------
Total $1,911 $2,181 45,500 60,991
Electric operating revenues decreased $270 million (12%) for the six months
ended June 30, 1999, from the comparable period of 1998. This decrease was
primarily due to decreased volumes on non-firm power sales for resale
transactions related to energy marketing and trading operations. Partially
offsetting the decline was an increase in the average price per KWh for retail
customers and non-firm power customers, higher retail and firm power KWh sales
resulting from growth in the average number of residential and commercial
customers, a return to more normal weather, and increased international
operations for the six months ended June 30, 1999, as compared to 1998.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Six Months Ended
June 30
Revenue Mcf Sales
1999 1998 1999 1998
($ and mcf in millions)
Sales for resale $509 $ 84 265 42
Retail 210 223 32 32
Transportation 31 20 22 30
---- ---- --- ---
Total $750 $327 319 104
Gas operating revenues increased $423 million for the six months ended June 30,
1999, when compared to the same period last year. This increase is primarily due
to the gas operating revenues of CM&T, which was acquired in June 1998.
Transportation revenues increased as customers continued the trend of purchasing
gas directly from suppliers, using transportation services provided by CG&E.
These increases were partially offset by a decline in retail sales due to a
lower cost per mcf purchased that was passed on to the customer, and a reduction
in the average number of retail, commercial, and industrial customers.
Other Revenues
Other revenues for the six months ended June 30, 1999, increased $9 million,
over the same period of 1998. This increase was primarily the result of
increased sales and new initiatives by certain of Cinergy's non-regulated
entities.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Six Months Ended
June 30
1999 1998
(in millions)
Fuel $384 $ 336
Purchased and exchanged power 500 912
---- ------
Total $884 $1,248
Electric fuel costs increased $48 million (14%) for the first six months of
1999, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Six Months Ended
June 30
(in millions)
Fuel expense - June 30, 1998 $336
$336 Increase (Decrease) due to change in:
Price of fuel (4)
Deferred fuel cost 21
KWh generation 20
Other 11
----
Fuel expense - June 30, 1999 $384
Purchased and exchanged power expense decreased $412 million (45%) for the six
months ended June 30, 1999, when compared to the same period last year,
primarily reflecting decreased purchases of non-firm power for resale to others
as a result of a decline in sales for resale volumes in the energy marketing and
trading operations. Additionally, during the quarter ended June 30, 1999, a
favorable adjustment of $18 million after tax was recorded as a result of a
re-evaluation of transactions included in the trading portfolio as of December
31, 1998, at the time of adoption of EITF Issue 98-10. Also contributing to the
decline was the provision of $63 million of reserves for the energy marketing
and trading business recorded during the six months ended June 30, 1998.
Gas Purchased
Gas purchased for the six months ended June 30, 1999, increased $408 million
when compared to the same period last year, primarily due to the acquisition of
CM&T in June 1998, and its related gas purchased expense. Slightly offsetting
this increase is a lower average cost per mcf of gas paid by CG&E.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Six Months Ended
June 30
1999 1998
(in millions)
Other operation $366 $425
Maintenance 115 95
---- ----
Total $481 $520
Other operation expenses decreased $59 million (14%) for the six months ended
June 30, 1999, as compared to the same period last year. This decrease is
primarily due to the one-time charge of $80 million recorded during the second
quarter of 1998, reflecting the implementation of a 1989 settlement of a dispute
with the WVPA. This decrease was partially offset by the increased growth in
expenses associated with existing and new initiatives by certain of Cinergy's
consolidated non-regulated businesses.
Maintenance expenses increased $20 million (21%) for the six months ended June
30, 1999, as compared to the same period last year. This increase is due to an
increase in maintenance activities associated with planned outages at certain
production facilities and other repairs performed at certain facilities.
Depreciation and Amortization
The components of depreciation and amortization expenses are shown below:
Six Months Ended
June 30
1999 1998
(in millions)
Depreciation $160 $148
Amortization of phase-in deferrals 13 11
Amortization of post-in-service
deferred operating expenses 2 2
---- ----
Total $175 $161
Depreciation expense increased $12 million (8%) for the six months ended June
30, 1999, as compared to the same period last year, primarily due to additions
to depreciable plant. Amortization of phase-in deferrals reflects the PUCO
ordered phase-in plan for Zimmer.
Equity in Earnings of Unconsolidated Subsidiaries
For the six months ended June 30, 1999, the equity in earnings of unconsolidated
subsidiaries increased $36 million, as compared to the same period of last year.
This increase is primarily attributable to an increase in the earnings of Avon
Energy resulting from increased profits related to Midlands' supply business and
lower costs of purchased electricity. On July 15, 1999, Cinergy and GPU
completed a transaction whereby GPU acquired Cinergy's 50% ownership interest in
Avon Energy, the parent company of Midlands. (See Note 12 of the "Notes to
Financial Statements" in "Part I. Financial Information.")
Preferred Dividend Requirements of Subsidiaries
The decrease in preferred dividend requirements of subsidiaries of $1 million
(28%) for the six months ended June 30, 1999, as compared to the same period of
1998, is primarily attributable to PSI's redemption of all outstanding shares of
its 7.44% Series Cumulative Preferred Stock on March 1, 1998.
<PAGE>
THE CINCINNATI GAS &
ELECTRIC COMPANY
AND SUBSIDIARY COMPANIES
<PAGE>
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
<S> <C> <C>
June 30 December 31
1999 1998
(unaudited)
(dollars in thousands)
Current Assets
Cash and temporary cash investments $ 20,670 $ 26,989
Restricted deposits 1,173 1,173
Notes receivable from affiliated companies 43,869 84,358
Accounts receivable less accumulated provision
for doubtful accounts of $18,406 at June 30,
1999, and $17,607 at December 31, 1998 122,353 205,060
Accounts receivable from affiliated companies 2,801 22,635
Materials, supplies, and fuel - at average cost 105,004 115,294
Energy risk management assets 92,796 141,962
Prepayments and other 48,384 40,158
---------- ----------
437,050 637,629
Utility Plant - Original Cost
In service
Electric 4,838,075 4,806,958
Gas 803,473 786,188
Common 198,067 186,364
---------- ----------
5,839,615 5,779,510
Accumulated depreciation 2,224,800 2,147,298
---------- ----------
3,614,815 3,632,212
Construction work in progress 140,878 119,993
---------- ----------
Total utility plant 3,755,693 3,752,205
Other Assets
Regulatory assets 605,342 627,035
Energy risk management assets 26,412 36,831
Other 100,354 100,061
---------- ----------
732,108 763,927
$4,924,851 $5,153,761
<FN>
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C> <C>
June 30 December 31
1999 1998
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 212,082 $ 282,743
Accounts payable to affiliated companies 19,230 13,166
Accrued taxes 123,430 151,455
Accrued interest 20,286 20,571
Long-term debt due within one year 20,000 130,000
Notes payable and other short-term obligations 265,924 189,283
Notes payable to affiliated companies 9,815 17,020
Energy risk management liabilities 132,319 199,269
Other 23,354 26,422
---------- ----------
826,440 1,029,929
Non-Current Liabilities
Long-term debt 1,220,001 1,219,778
Deferred income taxes 772,327 771,145
Unamortized investment tax credits 107,718 110,801
Accrued pension and other postretirement
benefit costs 151,897 146,361
Energy risk management liabilities 50,962 53,597
Other 132,541 134,990
---------- ----------
2,435,446 2,436,672
Total liabilities 3,261,886 3,466,601
Cumulative Preferred Stock
Not subject to mandatory redemption 20,687 20,717
Common Stock Equity
Common stock - $8.50 par value;
authorized shares - 120,000,000; outstanding
shares - 89,663,086 at June 30, 1999, and
December 31, 1998 762,136 762,136
Paid-in capital 553,931 553,926
Retained earnings 327,335 351,505
Accumulated other comprehensive loss (1,124) (1,124)
---------- ----------
Total common stock equity 1,642,278 1,666,443
$4,924,851 $5,153,761
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
<S> <C> <C> <C> <C>
Quarter Ended Year To Date
June 30 June 30
1999 1998 1999 1998
(in thousands)
Operating Revenues
Electric $477,037 $539,642 $ 958,623 $1,132,947
Gas 53,548 50,470 217,345 223,932
-------- -------- ---------- ----------
530,585 590,112 1,175,968 1,356,879
Operating Expenses
Fuel and purchased and
exchanged power 216,255 318,440 415,126 643,611
Gas purchased 20,428 21,657 99,306 118,245
Other operation and
maintenance 100,221 105,167 208,377 206,572
Depreciation and
amortization 50,726 47,950 101,296 95,610
Taxes other than income
taxes 54,869 53,712 108,983 108,395
-------- -------- ---------- -----------
442,499 546,926 933,088 1,172,433
Operating Income 88,086 43,186 242,880 184,446
Other Income and (Expenses)
- Net 637 (365) (624) (2,859)
Interest 24,571 25,173 48,978 51,962
-------- -------- ---------- -----------
Income Before Taxes 64,152 17,648 193,278 129,625
Income Taxes 25,230 4,962 74,119 45,747
-------- -------- ---------- -----------
Net Income $ 38,922 $ 12,686 $ 119,159 $ 83,878
Preferred Dividend
Requirement 214 215 428 430
-------- -------- ---------- ----------
Net Income Applicable
to Common Stock $ 38,708 $ 12,471 $ 118,731 $ 83,448
Other Comprehensive Income
(Loss), Net Of Tax - - - (155)
-------- -------- ---------- ----------
Comprehensive Income $ 38,708 $ 12,471 $ 118,731 $ 83,293
<FN>
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE CINCINNATI GAS & ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<S> <C> <C>
Year to Date
June 30
1999 1998
(in thousands)
Operating Activities
Net income $ 119,159 $ 83,878
Items providing (using) cash currently:
Depreciation and amortization 101,296 95,610
Deferred income taxes and investment
tax credits - net 2,660 (14,433)
Allowance for equity funds used during
construction (1,284) (107)
Regulatory assets - net 6,276 1,162
Changes in current assets and current
liabilities
Accounts and notes receivable,
net of reserves on receivables
sold 142,297 (22,325)
Materials, supplies, and fuel 10,290 15,173
Accounts payable (64,597) 20,257
Accrued taxes and interest (28,310) 10,775
Energy risk management - net (10,000) 59,000
Other items - net (12,447) (4,146)
--------- ----------
Net cash provided by operating
activities 265,340 244,844
Financing Activities
Issuance of long-term debt - 223,020
Retirement of preferred stock (26) (39)
Redemption of long-term debt (110,000) (220,409)
Change in short-term debt 69,436 (75,891)
Dividends on preferred stock (428) (430)
Dividends on common stock (142,900) (85,200)
--------- ---------
Net cash used in financing
activities (183,918) (158,949)
Investing Activities
Construction expenditures
(less allowance for equity funds
used during construction (87,741) (75,571)
--------- ---------
Net cash used in investing
activities (87,741) (75,571)
Net increase (decrease) in cash and
temporary cash investments (6,319) 10,324
Cash and temporary cash investments at
beginning of period 26,989 2,349
--------- ---------
Cash and temporary cash investments at
end of period $ 20,670 $ 12,673
<FN>
The accompanying notes as they relate to The Cincinnati Gas & Electric Company
are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
THE CINCINNATI GAS & ELECTRIC COMPANY
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1999
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related KWh sales are
shown below:
Quarter Ended
June 30
Revenue ____KWh Sales_ _
1999 1998 1999 1998
($ and KWh in millions)
Retail $345 $342 5,629 5,496
Sales for resale 126 194 4,754 7,824
Other 6 4 - -
---- ---- ------ -------
Total $477 $540 10,383 13,320
Electric operating revenues decreased $63 million (12%) for the quarter ended
June 30, 1999, when compared to the same period for 1998. This decrease was
primarily due to decreased volumes on non-firm power sales for resale
transactions related to Cinergy's energy marketing and trading operations.
Partially offsetting the decline was higher retail KWh sales resulting from
growth in the average number of residential and commercial customers.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Quarter Ended
June 30
Revenue ___ Mcf Sales
1999 1998 1999 1998
---- ---- ---- ----
($ and mcf in millions)
Retail $43 $41 6 6
Transportation 11 9 9 14
--- --- --- ---
Total $54 $50 15 20
Gas operating revenues increased $4 million (8%) in the second quarter of 1999,
when compared to the same period last year. Transportation revenues increased as
more residential and commercial customers continued to purchase gas directly
from suppliers, using transportation services provided by CG&E.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Quarter Ended
June 30
1999 1998
(in millions)
Fuel $ 76 $ 78
Purchased and exchanged power 140 240
---- ----
Total $216 $318
Electric fuel costs decreased $2 million (3%) for the quarter ended June 30,
1999, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Quarter Ended
June 30
(in millions)
Fuel expense - June 30, 1998 $78
Increase (Decrease) due to change in:
Deferred fuel cost (5)
KWh generation 3
---
Fuel expense - June 30, 1999 $76
Purchased and exchanged power expense decreased $100 million (42%) for the
quarter ended June 30, 1999, as compared to the same period last year. This
decline primarily reflects decreased purchases of non-firm power for resale to
others as a result of a decline in sales for resale volumes in Cinergy's energy
marketing and trading operations. Additionally, during the quarter ended June
30, 1999, a favorable adjustment of $9 million after tax was recorded as a
result of a re-evaluation of transactions included in the trading portfolio as
of December 31, 1998, at the time of adoption of EITF Issue 98-10. Also
contributing to the decline was the provision of $56 million of reserves for the
energy marketing and trading business recorded during the second quarter of
1998.
Gas Purchased
Gas purchased for the quarter ended June 30, 1999, decreased $1 million (6%),
when compared to the same period last year, primarily due to a decrease in the
volume of gas purchased.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Quarter Ended
June 30
1999 1998
(in millions)
Other operation $ 70 $ 77
Maintenance 30 28
---- ----
Total $100 $105
Other operation expenses decreased $7 million (9%) for the quarter ended June
30, 1999, as compared to the same period of 1998. The decline is due primarily
to activities occurring in 1998 related to Year 2000 expenditures and other
transmission and underground line expenses which did not occur in 1999. Also,
during the second quarter of 1998, a provision of $2 million for potential bad
debts related to certain energy marketing and trading accounts was recorded.
Maintenance expenses increased $2 million (7%) for the quarter ended June 30,
1999, as compared to the same period of 1998, primarily due to an increase in
maintenance activities associated with planned outages at certain production
facilities and overhead line maintenance.
Depreciation and Amortization
The components of depreciation and amortization expenses are shown below:
Quarter Ended
June 30
1999 1998
(in millions)
Depreciation $43 $41
Amortization of phase-in deferrals 7 6
Amortization of post-in-service
deferred operating expenses 1 1
--- ---
Total $51 $48
Depreciation expense increased $2 million (5%) for the quarter ended June 30,
1999, as compared to the same period of 1998, primarily due to additions to
depreciable plant.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $1 million for the quarter
ended June 30, 1999, as compared to the same period of 1998, is primarily
attributable to an increase in miscellaneous non-utility revenues.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999
Operating Revenues
Electric Operating Revenues
The components of electric operating revenues and the related KWh sales are
shown below:
Six Months Ended
June 30
Revenue KWh Sales
------------------- --------------------
1999 1998 1999 1998
------ ------ ------ -------
($ and KWh in millions)
Retail $703 $ 678 11,511 10,934
Sales for resale 247 448 9,672 18,617
Other 9 7 N/A N/A
---- ------ ------ ------
Total $959 $1,133 21,183 29,551
Electric operating revenues decreased $174 million (15%) for the six months
ended June 30, 1999, from the comparable period of 1998. This decrease was
primarily due to decreased volumes on sales for resale transactions. There was
also a decrease in the average price per KWh paid for the corresponding
purchases of purchased and exchanged power described below. Offsetting the
decrease were higher retail KWh sales due to the return to more normal weather
and growth in the average number of residential and commercial customers.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Six Months Ended
June 30
Revenue Mcf Sales
------------------- --------------------
1999 1998 1999 1998
---- ---- ---- -----
($ and mcf in millions)
Retail $186 $204 32 32
Transportation 31 20 23 30
---- ---- -- --
Total $217 $224 55 62
Gas operating revenues decreased $7 million (3%) for the six months ended June
30, 1999, when compared to the same period last year. A lower average cost per
mcf of gas purchased, which was passed on to end users, was the primary reason
for this decrease. Transportation revenues increased as residential and
commercial customers continued to purchase gas directly from suppliers, using
transportation services provided by CG&E. This increase in transportation
revenues was partially offset by a decrease in mcf transportation volumes
resulting from the loss of a large industrial customer during late 1998.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Six Months Ended
June 30
1999 1998
(in millions)
Fuel $162 $166
Purchased and exchanged power 253 478
---- ----
Total $415 $644
Electric fuel costs decreased $4 million (2%) for the six months ended June 30,
1999, as compared to the same period last year.
An analysis of these fuel costs is shown below:
Six Months Ended
June 30
(in millions)
Fuel expense - June 30, 1998 $166
Increase (Decrease) due to change in:
Price of fuel 1
Deferred fuel cost (12)
KWh generation 7
----
Fuel expense - June 30, 1999 $162
Purchased and exchanged power expense decreased $225 million (47%) for the six
months ended June 30, 1999, when compared to the same period last year,
primarily reflecting decreased purchases of power for resale to others.
Additionally, during the quarter ended June 30, 1999, a favorable adjustment of
$9 million after tax was recorded as a result of a re-evaluation of transactions
included in the trading portfolio as of December 31, 1998, at the time of
adoption of EITF Issue 98-10. Also contributing to the decline was the provision
of $57 million of reserves for the energy marketing and trading business
recorded during the six months ended June 30, 1998.
Gas Purchased
Gas purchased for the six months ended June 30, 1999, decreased $19 million
(16%) when compared to the same period last year, primarily reflecting a
decrease in the average cost per mcf of gas purchased.
Depreciation and Amortization
The components of depreciation and amortization expenses are shown below:
Six Months Ended
June 30
1999 1998
(in millions)
Depreciation $ 86 $83
Amortization of phase-in deferrals 13 11
Amortization of post-in-service
deferred operating expenses 2 2
---- ---
Total $101 $96
Amortization of phase-in deferrals reflects the PUCO ordered phase-in plan for
Zimmer.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $2 million for the six months
ended June 30, 1999, as compared to the same period of 1998, is largely due to
an increase in miscellaneous non-utility revenues.
Interest
The decrease in interest expense of $3 million (6%) for the six months ended
June 30, 1999, as compared to the same period last year, was due to decreases in
both interest on long-term debt and other interest expense. The decrease in
interest expense on long-term debt was primarily due to the maturity of
approximately $110 million of long-term debt in February 1999. The decrease in
other interest is due to a reduction in average short-term borrowings and lower
short-term interest rates.
<PAGE>
PSI ENERGY, INC.
AND SUBSIDIARY COMPANY
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<S> <C> <C>
June 30 December 31
1999 1998
(unaudited)
(dollars in thousands)
Current Assets
Cash and temporary cash investments $ 19,242 $ 18,788
Restricted deposits 167 2,414
Notes receivable from affiliated companies 10,124 17,097
Accounts receivable less accumulated provision
for doubtful accounts of $12,847 at June 30,
1999, and $7,893 at December 31, 1998 134,303 225,449
Accounts receivable from affiliated companies 326 384
Materials, supplies, and fuel - at average cost 90,283 80,445
Energy risk management assets 92,796 141,962
Prepayments and other 34,068 31,461
---------- ----------
Total current assets 381,409 518,000
Electric Utility Plant - Original Cost
In service 4,457,300 4,415,303
Accumulated depreciation 1,942,697 1,892,949
---------- ----------
2,514,603 2,522,354
Construction work in progress 99,932 69,891
---------- ----------
Total electric utility plant 2,614,535 2,592,245
Other Assets
Regulatory assets 306,412 343,731
Energy risk management assets 26,413 36,831
Other 94,241 93,012
---------- ----------
Total other assets 427,066 473,574
$3,423,010 $3,583,819
<FN>
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C> <C>
June 30 December 31
1999 1998
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 158,472 $ 217,959
Accounts payable to affiliated companies 14,934 30,145
Accrued taxes 82,104 58,901
Accrued interest 20,642 28,335
Notes payable and other short-term obligations 157,600 173,162
Notes payable to affiliated companies 43,867 102,946
Long-term debt due within one year 5,959 6,000
Energy risk management liabilities 132,320 199,269
Other 2,127 2,227
---------- ----------
618,025 818,944
Non-Current Liabilities
Long-term debt 1,013,473 1,025,659
Deferred income taxes 369,787 364,049
Unamortized investment tax credits 44,286 45,956
Accrued pension and other postretirement
benefit costs 120,526 112,387
Energy risk management liabilities 50,962 53,597
Other 94,782 115,656
---------- ----------
1,693,816 1,717,304
Total liabilities 2,311,841 2,536,248
Cumulative Preferred Stock
Not subject to mandatory redemption 71,919 71,923
Common Stock Equity
Common stock - without par value; $0.01
stated value; authorized shares -
60,000,000; outstanding shares -
53,913,701 at June 30, 1999,
and December 31, 1998 539 539
Paid-in capital 410,740 410,739
Retained earnings 627,986 564,865
Accumulated other comprehensive loss (15) (495)
---------- -----------
Total common stock equity 1,039,250 975,648
$3,423,010 $3,583,819
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(unaudited)
<S> <C> <C> <C> <C>
Quarter Ended Year To Date
June 30 June 30
1999 1998 1999 1998
(in thousands)
Operating Revenues
Electric $463,486 $511,530 $945,951 $1,103,655
Operating Expenses
Fuel and purchased and exchanged
power 237,157 305,092 472,084 657,838
Other operation and maintenance 117,240 188,695 230,480 290,380
Depreciation and amortization 34,121 32,470 67,864 64,745
Taxes other than income taxes 14,269 14,507 28,757 29,474
-------- -------- -------- ----------
402,787 540,764 799,185 1,042,437
Operating Income (Loss) 60,699 (29,234) 146,766 61,218
Other Income and (Expenses) - Net 375 213 698 1,931
Interest 20,496 22,898 41,860 45,796
-------- -------- -------- ----------
Income (Loss) Before Taxes 40,578 (51,919) 105,604 17,353
Income Taxes 14,998 (20,901) 40,183 5,043
-------- -------- -------- ----------
Net Income (Loss) $ 25,580 $(31,018) $ 65,421 $ 12,310
Preferred Dividend Requirement 1,151 1,150 2,301 3,358
------- -------- -------- ----------
Net Income (Loss) Applicable to
Common Stock $ 24,429 $(32,168) $ 63,120 $ 8,952
Other Comprehensive Income,
Net Of Tax 495 - 480 944
-------- -------- -------- ----------
Comprehensive Income (Loss) $ 24,924 $(32,168) $ 63,600 $ 9,896
<FN>
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PSI ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Year to Date
<S> <C> <C>
June 30
1999 1998
(in thousands)
Operating Activities
Net income $ 65,421 $ 12,310
Items providing (using) cash currently:
Depreciation and amortization 67,864 64,745
WVPA settlement - 80,000
Deferred income taxes and investment tax
credits - net 6,578 (32,596)
Allowance for equity funds used during
construction 5 (25)
Regulatory assets - net 8,649 17,046
Changes in current assets and current
liabilities
Restricted deposits 2,247 812
Accounts and notes receivable, net of
reserves on receivables sold 98,478 (19,676)
Materials, supplies, and fuel (9,838) (19,377)
Accounts payable (74,698) 51,742
Accrued taxes and interest 15,510 (24,303)
Energy risk management - net (10,000) 8,000
Other items - net 3,600 (1,142)
--------- --------
Net cash provided by operating
activities 173,816 137,536
Financing Activities
Issuance of long-term debt 323,593 98,901
Retirement of preferred stock (3) (85,230)
Redemption of long-term debt (336,213) -
Change in short-term debt (74,641) (11,616)
Dividends on preferred stock (2,301) (3,887)
Dividends on common stock - (56,800)
--------- --------
Net cash used in financing
activities (89,565) (58,632)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (83,797) (60,329)
--------- --------
Net cash used in investing activities (83,797) (60,329)
Net increase in cash and temporary cash
investments 454 18,575
Cash and temporary cash investments at
beginning of period 18,788 18,169
--------- --------
Cash and temporary cash investments at
end of period $ 19,242 $ 36,744
<FN>
The accompanying notes as they relate to PSI Energy, Inc. are an integral part
of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
PSI ENERGY, INC.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1999
Operating Revenues
The components of operating revenues and the related KWh sales are shown below:
Quarter Ended
June 30
Revenue KWh Sales
1999 1998 1999 1998
($ and KWh in millions)
Retail $278 $267 5,892 5,711
Sales for resale 174 237 6,606 9,624
Other 11 8 - -
---- ---- ------ ------
Total $463 $512 12,498 15,335
Operating revenues decreased $49 million (10%) for the quarter ended June 30,
1999, when compared to the same period for 1998. This decrease was primarily due
to decreased volumes on non-firm power sales for resale transactions related to
Cinergy's energy marketing and trading operations. Partially offsetting the
decline was an increase in the average price per KWh for retail customers and
higher retail and firm power KWh sales resulting from growth in the average
number of residential and commercial customers.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Quarter Ended
June 30
1999 1998
(in millions)
Fuel $104 $ 78
Purchased and exchanged power 133 227
---- ----
Total $237 $305
Fuel costs increased $26 million (33%) for the second quarter of 1999, as
compared to the same period last year.
An analysis of fuel costs is shown below:
Quarter Ended
June 30
(in millions)
Fuel expense - June 30, 1998 $ 78
Increase (Decrease) due to change in:
Price of fuel (2)
Deferred fuel cost 20
KWh generation 8
----
Fuel expense - June 30, 1999 $104
Purchased and exchanged power expense decreased $94 million (41%) for the
quarter ended June 30, 1999, as compared to the same period last year. This
decline primarily reflects decreased purchases of non-firm power for resale to
others as a result of a decline in sales for resale volumes in Cinergy's energy
marketing and trading operations. Additionally, during the quarter ended June
30, 1999, a favorable adjustment of $9 million after tax was recorded as a
result of a re-evaluation of transactions included in the trading portfolio as
of December 31, 1998, at the time of adoption of EITF Issue 98-10. Also
contributing to the decline was the provision of $5 million of reserves for the
energy marketing and trading business recorded during the second quarter of
1998.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Quarter Ended
June 30
1999 1998
(in millions)
Other operation $ 82 $161
Maintenance 35 28
---- ----
Total $117 $189
Other operation expenses decreased $79 million (49%) for the quarter ended June
30, 1999, as compared to the same period of 1998. This decrease is primarily due
to the one-time charge of $80 million recorded during the second quarter of 1998
reflecting the implementation of a 1989 settlement of a dispute with the WVPA.
Maintenance expense increased $7 million (25%) for the quarter ended June 30,
1999, as compared to the same period of 1998. This increase is due to an
increase in maintenance activities associated with planned outages at certain
production facilities.
Depreciation and Amortization
Depreciation and amortization expense increased $2 million (5%) for the quarter
ended June 30, 1999, as compared to the same period of 1998, primarily due to
additions to depreciable plant.
Interest
The $2 million (10%) decrease in interest expense for the quarter ended June 30,
1999, as compared to the same period of 1998, is primarily due to a decrease in
other interest expense resulting from a reduction in average short-term
borrowings and lower short-term interest rates.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999
Operating Revenues
The components of operating revenues and the related KWh sales are shown below:
Six Months Ended
June 30
Revenue KWh Sales
1999 1998 1999 1998
($ and KWh in millions)
Retail $596 $ 564 12,285 11,951
Sales for resale 331 523 12,888 21,809
Other 19 17 N/A N/A
---- ------ ------ ------
Total $946 $1,104 25,173 33,760
Total operating revenues decreased $158 million (14%) for the six months ended
June 30, 1999, when compared to the same period last year. This decrease was
primarily due to decreased volumes on non-firm power sales for resale
transactions related to Cinergy's energy marketing and trading operations.
Partially offsetting this decrease were increased volumes on retail sales and
firm sales and a higher average price per KWh received on retail and non-firm
sales for resale transactions. Also contributing to the increase were higher
retail KWh sales resulting from an increase in retail and industrial customers.
Operating Expenses
Fuel and Purchased and Exchanged Power
The components of fuel and purchased and exchanged power are shown below:
Six Months Ended
June 30
1999 1998
(in millions)
Fuel $211 $170
Purchased and exchanged power 261 488
---- ----
Total $472 $658
Fuel costs increased $41 million (24%) for the six months ended June 30, 1999,
when compared to the same period last year.
An analysis of fuel costs is shown below:
Six Months Ended
June 30
(in millions)
Fuel expense - June 30, 1998 $170
Increase (Decrease) due to change in:
Price of fuel (6)
Deferred fuel cost 33
KWh generation 14
----
Fuel expense - June 30, 1999 $211
Purchased and exchanged power expense decreased $227 million (47%) for the six
months ended June 30, 1999, when compared to the same period last year,
primarily reflecting decreased purchases of non-firm power for resale to others.
Additionally, during the quarter ended June 30, 1999, a favorable adjustment of
$9 million after tax was recorded as a result of a re-evaluation of transactions
included in the trading portfolio as of December 31, 1998, at the time of
adoption of EITF Issue 98-10. Also contributing to the decline was the provision
of $6 million of reserves for the energy marketing and trading business recorded
during the six months ended June 30, 1998.
Other Operation and Maintenance
The components of other operation and maintenance expenses are shown below:
Six Months Ended
June 30
1999 1998
(in millions)
Other operation $170 $243
Maintenance 60 47
---- ----
Total $230 $290
Other operation expenses decreased $73 million (30%) for the six months ended
June 30, 1999, as compared to the same period last year. This decrease is
primarily due to the one-time charge of $80 million recorded during the second
quarter of 1998, reflecting the implementation of a 1989 settlement of a dispute
with the WVPA.
Maintenance expenses increased $13 million (28%) for the six months ended June
30, 1999, as compared to the same period of 1998. The increase was primarily due
to an increase in production maintenance activities associated with planned
outages at certain production facilities.
Depreciation and Amortization
Depreciation and amortization expense increased $3 million (5%) for the six
months ended June 30, 1999, as compared to the same period of 1998, primarily
due to additions to depreciable plant.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $1 million for the six months
ended June 30, 1999, as compared to the same period of 1998, is due primarily to
a decrease in interest income and a decrease in the level of expenses associated
with the sales of accounts receivable.
Interest
The decrease in interest expense of $4 million (9%) for the six months ended
June 30, 1999, as compared to the same period last year, was primarily due to a
decrease in other interest expense resulting from a reduction in average
short-term borrowings and lower short-term interest rates.
Preferred Dividend Requirement
The decrease in preferred dividend requirement of $1 million (31%) for the six
months ended June 30, 1999, as compared to the same period of 1998, is primarily
attributable to PSI's redemption of all outstanding shares of its 7.44% Series
Cumulative Preferred Stock on March 1, 1998.
<PAGE>
THE UNION LIGHT, HEAT AND POWER COMPANY
<PAGE>
<TABLE>
<CAPTION>
THE UNION LIGHT, HEAT AND POWER COMPANY
BALANCE SHEETS
ASSETS
<S> <C> <C>
June 30 December 31
1999 1998
(unaudited)
(dollars in thousands)
Current Assets
Cash and temporary cash investments $ 4,027 $ 3,244
Accounts receivable less accumulated provision
for doubtful accounts of $1,309 at
June 30, 1999, and $1,248 at December
31, 1998 5,866 14,125
Accounts receivable from affiliated companies 82 666
Materials, supplies, and fuel - at average cost 6,155 8,269
Prepayments and other 42 308
-------- --------
Total current assets 16,172 26,612
Utility Plant - Original Cost
In service
Electric 238,600 232,222
Gas 168,421 164,040
Common 20,450 18,908
-------- --------
427,471 415,170
Accumulated depreciation 148,906 143,386
-------- --------
278,565 271,784
Construction work in progress 10,339 11,444
-------- --------
Total utility plant 288,904 283,228
Other Assets
Regulatory assets 10,808 10,978
Other 4,873 3,767
-------- --------
15,681 14,745
$320,757 $324,585
<FN>
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE UNION LIGHT, HEAT AND POWER COMPANY
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C> <C>
June 30 December 31
1999 1998
(unaudited)
(dollars in thousands)
Current Liabilities
Accounts payable $ 5,344 $ 5,903
Accounts payable to affiliated companies 18,523 14,986
Accrued taxes 3,699 3,216
Accrued interest 1,440 1,959
Long-term debt due within one year 20,000 20,000
Notes payable to affiliated companies 20,470 31,817
Other 4,023 4,247
-------- --------
73,499 82,128
Non-Current Liabilities
Long-term debt 54,590 54,553
Deferred income taxes 24,347 26,134
Unamortized investment tax credits 4,098 4,238
Accrued pension and other postretirement
benefit costs 12,077 11,678
Amounts due to customers - income taxes 9,547 8,959
Other 10,795 8,077
-------- --------
115,454 113,639
Total liabilities 188,953 195,767
Common Stock Equity
Common stock - $15.00 par value; authorized
shares - 1,000,000; outstanding shares -
585,333 at June 30, 1999, and December 31, 1998 8,780 8,780
Paid-in capital 19,525 19,525
Retained earnings 103,499 100,513
-------- --------
Total common stock equity 131,804 128,818
$320,257 $324,585
</TABLE>
<TABLE>
<CAPTION>
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF INCOME (LOSS)
(unaudited)
<S> <C> <C> <C> <C>
Quarter Ended Year To Date
June 30 June 30
1999 1998 1999 1998
(in thousands)
Operating Revenues
Electric $48,581 $41,536 $ 97,740 $ 88,535
Gas 9,084 8,626 42,084 37,106
------- ------- -------- --------
57,665 50,162 139,824 125,641
Operating Expenses
Electricity purchased from parent
company for resale 36,842 34,421 73,590 68,511
Gas purchased 3,561 4,167 20,883 20,520
Other operation and maintenance 8,685 8,902 18,875 18,332
Depreciation 3,506 3,209 7,077 6,441
Taxes other than income taxes 1,027 1,029 2,110 2,034
------- ------- -------- --------
53,621 51,728 122,535 115,838
Operating Income (Loss) 4,044 (1,566) 17,289 9,803
Other Income and (Expenses) - Net (299) (380) (689) (876)
Interest 1,432 969 2,995 2,084
------- ------- -------- --------
Income (Loss) Before Taxes 2,313 (2,915) 13,605 6,843
Income Taxes 894 (1,267) 5,643 2,722
------- -------- -------- --------
Net Income (Loss) $ 1,419 $(1,648) $ 7,962 $ 4,121
<FN>
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE UNION LIGHT, HEAT AND POWER COMPANY
STATEMENTS OF CASH FLOWS
(unaudited)
<S> <C> <C>
Year to Date
June 30
1999 1998
(in thousands)
Operating Activities
Net income $ 7,962 $ 4,121
Items providing (using) cash currently:
Depreciation 7,077 6,441
Deferred income taxes and investment tax
credits - net (1,339) 1,192
Allowance for equity funds used during
construction (48) (10)
Regulatory assets 69 (13)
Changes in current assets and current
liabilities
Accounts and notes receivable, net of
reserves on receivables sold 7,801 4,671
Materials, supplies, and fuel 2,114 (402)
Accounts payable 2,978 (5,147)
Accrued taxes and interest (36) (6,041)
Other items - net 3,244 1,481
-------- --------
Net cash provided by operating
activities 29,822 6,293
Financing Activities
Issuance of long-term debt - 20,127
Redemption of long-term debt - (10,118)
Change in short-term debt (11,347) 3,836
Dividends on common stock (4,975) (4,975)
-------- --------
Net cash used in financing
activities (16,322) (8,870)
Investing Activities
Construction expenditures (less allowance
for equity funds used during construction) (12,717) (14,824)
-------- --------
Net cash used in investing
activities (12,717) (14,824)
Net increase (decrease) in cash and temporary
cash investments 783 339
Cash and temporary cash investments at
beginning of period 3,244 546
-------- --------
Cash and temporary cash investments at
end of period $ 4,027 $ 885
<FN>
The accompanying notes as they relate to The Union Light, Heat and Power Company
are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
THE UNION LIGHT, HEAT AND POWER COMPANY
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 1999
Operating Revenues
Electric Operating Revenues
Electric operating revenues increased $7 million (17%) for the quarter ended
June 30, 1999, as compared to the same period last year. This increase primarily
reflects higher retail KWh sales resulting from growth in the average number of
residential and commercial customers and an increase in unbilled revenues.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Quarter Ended
June 30
Revenue Mcf Sales
1999 1998 1999_ 1998_
($ and mcf in thousands)
Retail $8,024 $7,756 1,099 1,188
Transportation 1,060 870 976 850
------ ------ ----- -----
Total $9,084 $8,626 2,075 2,038
Gas operating revenues increased $.5 million (5%) in the second quarter of 1999,
when compared to the same period last year, primarily due to an increase in the
price per mcf which was partially offset by a decrease in the volume of mcfs
sold.
Operating Expenses
Electricity Purchased from Parent Company for Resale
Electricity purchased increased $2 million (7%) for the quarter ended June 30,
1999, as compared to the same period last year. This increase reflects higher
volume purchased from CG&E.
Gas Purchased
Gas purchased for the quarter ended June 30, 1999, decreased $.6 million (15%),
when compared to the same period last year, primarily due to a decrease in the
volumes of gas purchased.
Depreciation
Depreciation increased $.3 million (9%) for the quarter ended June 30, 1999, as
compared to the same period last year, due to additions to depreciable plant.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $80 thousand for the quarter
ended June 30, 1999, as compared to the same period of 1998, is primarily due to
a decrease in the level of expenses associated with the sales of accounts
receivable.
Interest
The increase in interest expense of $.5 million (48%) for the quarter ended June
30, 1999, as compared to the same period last year, was primarily due to the net
issuance of approximately $30 million of long-term debt during the period of
April through December 1998.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999
Operating Revenues
Electric Operating Revenues
Electric operating revenues increased $9 million (10%) for the six months ended
June 30, 1999, from the comparable period of 1998. This increase primarily
reflects higher retail KWh sales resulting from growth in the average number of
residential and commercial customers and an increase in unbilled revenues.
Gas Operating Revenues
The components of gas operating revenues and the related mcf sales are shown
below:
Six Months Ended
June 30
Revenue Mcf Sales
1999 1998 1999 1998
($ and mcf in thousands)
Retail $39,579 $35,022 6,318 5,679
Transportation 2,505 2,084 2,054 1,956
------- ------- ----- -----
Total $42,084 $37,106 8,372 7,635
Gas operating revenues increased $5 million (13%) for the six months ended June
30, 1999, when compared to the same period of last year. An increase in mcf
volumes sold and used per customer primarily attributed to the revenue increase.
Operating Expenses
Electricity Purchased from Parent Company for Resale
Electricity purchased increased $5 million (7%) for the six months ended June
30, 1999, as compared to the same period last year. This increase reflects
higher volumes purchased from CG&E.
Gas Purchased
Gas purchased for the six months ended June 30, 1999, increased $.4 million
(2%), when compared to the same period in 1998. This increase reflects an
increase in the volumes and average cost per mcf of gas purchased.
Depreciation
Depreciation increased $.6 million (10%) for the six months ended June 30, 1999,
as compared to the same period last year, due to additions to depreciable plant.
Other Income and (Expenses) - Net
The change in other income and (expenses) - net of $.2 million for the six
months ended June 30, 1999, as compared to the same period of 1998, is due
primarily to a decrease in the level of expenses associated with the sales of
accounts receivable.
Interest
The increase in interest expense of $.9 million (44%) for the six months ended
June 30, 1999, as compared to the same period last year, was due to changes in
interest on long-term debt and allowance for borrowed funds used during
construction. The increase in interest on long-term debt was due primarily to
the net issuance of approximately $30 million of long-term debt during the
period from April through December 1998.
NOTES TO FINANCIAL STATEMENTS
Cinergy, CG&E, PSI, and ULH&P
1. These Financial Statements reflect all adjustments (which include normal,
recurring adjustments) necessary in the opinion of the registrants for a
fair presentation of the interim results. These statements should be read
in conjunction with the Financial Statements and the notes thereto included
in the combined 1998 Form 10-K of the registrants.
Certain amounts in the 1998 Financial Statements have been reclassified to
conform to the 1999 presentation.
Cinergy
2. On April 16, 1999, Cinergy issued and sold $200 million principal amount of
its 6.125% Debentures due 2004. Proceeds from the sale were used to repay a
portion of short-term indebtedness and for general corporate purposes.
Cinergy and CG&E
3. On July 14, 1999, CG&E redeemed early an $11.5 million principal amount of
its 7.20% First Mortgage Bonds, due October 1, 2023, at a redemption price
of 97.75%.
On July 27, 1999, CG&E redeemed early a $23 million principal amount of its
7.20% First Mortgage Bonds, due October 1, 2023, at a redemption price of
96.75%.
Cinergy and PSI
4. On April 30, 1999, PSI issued: $124.7 million principal amount of its 8%
First Mortgage Bonds, Series BBB, due July 15, 2009, in exchange for $125.7
million principal amount of certain outstanding Secured Medium-term Notes,
Series A; $60.1 million principal amount of its 8.85% First Mortgage Bonds,
Series CCC, due January 15, 2022, in exchange for $60.5 million principal
amount of certain outstanding Secured Medium-term Notes, Series A; and $38
million principal amount of its 8.31% First Mortgage Bonds, Series DDD, due
September 1, 2032, in exchange for $38 million principal amount of certain
outstanding Secured Medium-term Notes, Series B.
Also on April 30, 1999, PSI issued $97 million principal amount of its
6.52% Senior Notes due 2009 in exchange for a like principal amount of
outstanding 7.25% JUMPS(sm) due 2028.
The Secured Medium-term Notes and JUMPS(sm) received by PSI in the exchange
transactions described above have been cancelled.
5. On May 3, 1999, PSI redeemed and retired $7 million principal amount of its
8.85% First Mortgage Bonds, Series CCC, due January 15, 2022, at a
redemption price of 123.804%.
6. On August 4, 1999, PSI redeemed early a $13 million principal amount of its
7.125% First Mortgage Bonds, Series AAA, due February 1, 2024, at a
redemption price of 94.875%.
On August 12, 1999, PSI redeemed early a $7 million principal amount of its
7.125% First Mortgage Bonds, Series AAA, due February 1, 2024, at a
redemption price of 95%.
Cinergy, CG&E, and PSI
7. Cinergy's energy marketing and trading operations, conducted primarily
through its ECBU, markets and trades electricity, natural gas, and other
energy-related products.The power marketing and trading operation has both
physical and trading activities. Generation not required to meet native
load requirements is available to be sold to third parties, either under
long-term contracts, such as full requirements transactions or firm forward
sales contracts, or in short-term and spot market transactions. When
transactions are entered into, each transaction is designated as either a
physical or trading transaction In order for a transaction to be designated
as physical, there must be intent and ability to physically deliver the
power from company-owned generation. Physical transactions are accounted
for on a settlement basis. All other transactions are considered trading
transactions and are accounted for using the mark-to-market method of
accounting. The inclusion of transactions in both the trading and physical
portfolios is periodically evaluated, and under certain circumstances
transaction may be reclassified between portfolios. Under the
mark-to-market method of accounting, these trading transactions are
reflected at fair value as "Energy risk management assets" and "Energy risk
management liabilities." Changes in fair value, resulting in unrealized
gains and losses, are reflected in "Fuel and purchased and exchanged
power." Revenues and costs for all transactions are recorded gross in the
Consolidate Statements of Income as contracts are settled. Revenues are
recognized in "Operating Revenues - Electric" and costs are recorded in
"Fuel and purchased and exchanged power."
Although physical transactions are entered with the intent and ability to
settle the contract with company-owned generation, it is likely, that from
time to time, due to numerous factors such as generating station outages,
native load requirements, and weather power used to settle the physical
transactions will be required to be purchased on the open market. Depending
on the factors giving rise to these open market purchases, the cost of such
purchases could be in excess of the associated revenues. Losses such as
this will be recognized as the power is delivered. In addition, physical
contracts are subject to permanent impairment tests. At June 30, 1999,
management has concluded that there is no impairment.
Prior to December 31,1998, the transactions now included in the trading
portfolio were accounted for and valued at the aggregate lower of cost or
market. Under this method, only the net value of the entire portfolio was
recorded as a liability in the Consolidated Balance Sheets.
During the quarter ended June 30, 1999, a favorable adjustment of $18
million after tax was recorded as a result of a re-evaluation of
transactions included in the trading portfolio as of December 31, 1998 at
the time of adoption of EITF Issue 98-10.
Contracts in the trading portfolio are valued at end-of-period market
prices, utilizing factors such as closing exchange prices, broker and
over-the-counter quotations, and model pricing. Model pricing considers
time value and volatility factors underlying any options and contractual
commitments. Management expects that some of these obligations, even though
considered as trading contracts, will ultimately be settled from time to
time by using company-owned generation. The cost of this generation is
typically below the market prices at which the trading portfolio has been
valued.
Because of the volatility currently experienced in the power markets, and
the factors discussed above pertaining to both the physical and trading
activities, volatility in future earnings losses) from period to period in
the ECBU is likely (see Note 16).
Cinergy's ECBU also physically markets natural gas and trades natural gas
and other energy-related products. All of these operations are accounted
for n the mark-to-market method f accounting. evenues and costs from
physical marketing are recorded gross in the Consolidated Statements of
Income as contracts are settled due to the exchanging of title to the
natural gas throughout the earnings process. All non-physical transactions
are recorded net in the Consolidated Statements of Income. Energy risk
management assets and liabilities and gross margins from these trading
activities currently are not significant.
Cinergy, CG&E, and PSI
8. Cinergy and its subsidiaries use derivativ financial instruments to hedge
exposures to foreign currency exchange rates, lower funding costs, and
manage exposures to fluctuations in interest rates. Instruments used as
hedges must be designated as a hedge at the inception of the contract and
must be effective at reducing the risk associated with the exposure being
hedged. Accordingly, changes in market values of designated hedge
instruments must be highly correlated with changes in market values of the
underlying hedged items at inception of the hedge and over the life of the
hedge contract.
Cinergy and its subsidiaries utilize foreign exchange forward contracts and
currency swaps to hedge certain of its net investments in foreign
operations. Accordingly, any translation gains or losses related to the
foreign exchange forward contracts or the principal exchange on the
currency swap are recorded in "Accumulated other comprehensive loss," which
is a separate component of common stock equity. Aggregate translation
losses related to these instruments are reflected in "Current Liabilitie in
the Consolidated Balance Sheets. In connection with the sale of its
interest in Avon Energy (see Note 12), Cinergy terminated the hedging
contracts related to its investment in July 1999. After closing out these
contracts, the remaining foreign exchange hedging contracts are not
significant.
Interest rate swaps are accounted for under the accrual method.
Accordingly, gains and losses based on any interest differential between
fixed-rate and floating-rate interes amounts, calculated on agreed upon
notional principal amounts, ar recognized in the Consolidated Statements of
Income as a component of interest expense as realized over the life of the
agreement.
Additionally, during the second quarter of 1999, the Company settled the
forward exchange contracts related to its investments in the Czech
Republic. The settlement costs were not material.
Cinergy, CG&E, PSI, and ULH&P
9. As discussed in the 1998 Form 10-K, prior to the 1950s, gas was produced at
MGP sites through a process that involved the heating of coal and/or oil.
The gas produced from this process was sold for residential, commercial,
and industrial uses.
Cinergy and PSI
Coal tar residues, related hydrocarbons, and various metals associated with
MGP sites have been found at former MGP sites in Indiana, including at
least 21 MGP sites which PSI or its predecessors previously owned. PSI
acquired four of the sites from NIPSCO in 1931 and at the same time it sold
NIPSCO the sites located in Goshen and Warsaw, Indiana. In 1945, PSI sold
19 of these sites (including the four it acquired from NIPSCO) to Indiana
Gas and Water Company, Inc. (now IGC). One of the 19 sites, located in
Rochester, Indiana, was later sold by IGC to NIPSCO.
IGC and NIPSCO both made claims against PSI, contending that PSI is a
Potentially Responsible Party under the CERCLA with respect to the 21 MGP
sites, and therefore legally responsible for the costs of investigating and
remediating these sites. Moreover, in August 1997, NIPSCO filed suit
against PSI in federal court, claiming, pursuant to CERCLA, recovery from
PSI of NIPSCO's past and future costs of investigating and remediating MGP
related contamination at the Goshen MGP site.
In November 1998, NIPSCO, IGC, and PSI entered into a Site Participation
and Cost Sharing Agreement by which they settled allocation of CERCLA
liability for past and future costs, among the three companies, at seven
MGP sites in Indiana. Pursuant to this agreement, NIPSCO's lawsuit against
PSI was dismissed. The parties have assigned one of the parties lead
responsibility for managing further investigation and remediation
activities at each of the sites. Similar agreements were reached between
IGC and PSI which allocate CERCLA liability at 14 MGP sites with which
NIPSCO had no involvement. These agreements conclude all CERCLA and similar
claims between the three companies relative to MGP sites. Pursuant to the
agreements and applicable laws, the parties are continuing to investigate
and remediate the sites as appropriate. Investigation and cleanup of some
of the sites is subject to oversight by the IDEM.
PSI has placed its insurance carriers on notice of IGC's, NIPSCO's, and the
IDEM's claims related to MGP sites. In April 1998, PSI filed suit in
Hendricks County Circuit Court against its general liability insurance
carriers seeking, among other matters, a declaratory judgment that its
insurance carriers are obligated to defend MGP claims against PSI or pay
PSI's costs of defense and to indemnify PSI for its costs of investigating,
preventing, mitigating, and remediating damage to property and paying
claims associated with MGP sites. The case was moved to the Hendricks
Superior Court 1 on a motion for change of judge. The Hendricks Superior
Court 1 has set the case for trial beginning on September 11, 2000, and
ordered the parties to meet certain deadlines for discovery proceedings
based upon this trial date. PSI cannot predict the outcome of this
litigation.
Based upon the work performed to date, PSI has accrued costs for the sites
related to investigation, remediation, and groundwater monitoring.
Estimated costs of certain remedial activities are accrued when such costs
are reasonably estimable. PSI does not believe it can provide an estimate
of the reasonably possible total remediation costs for any site prior to
completion of a remedial investigation/feasibility study and the
development of some sense of the timing for the implementation of the
potential remedial alternatives, to the extent such remediation may be
required. Accordingly, the total costs that may be incurred in connection
with the remediation of all sites, to the extent remediation is necessary,
cannot be determined at this time. These future costs at the 21 Indiana MGP
sites, based on information currently available, are not material to
Cinergy's financial condition or results of operations. However, as further
investigation and remediation activities are undertaken at these sites, the
potential liability for the 21 MGP sites could be material to Cinergy's and
PSI's financial condition or results of operations.
Cinergy, CG&E, and ULH&P
CG&E and its utility subsidiaries are aware of potential sites where MGP
activities have occurred at some time in the past. None of these sites is
known to present a risk to the environment. CG&E and its utility
subsidiaries have undertaken preliminary site assessments to obtain more
information about some of these MGP sites.
Cinergy, CG&E, PSI, and ULH&P
10. During the second quarter of 1998, the FASB issued Statement 133. The new
standard requires companies to record derivative instruments, as defined in
Statement 133, as assets or liabilities, measured at fair value. The
Statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate,
and assess the effectiveness of transactions that receive hedge accounting
treatment. The standard, as subsequently amended by Statement 137, is
effective for fiscal years beginning after June 15, 2000. Cinergy expects
to reflect the adoption of this standard in financial statements issued
beginning in the first quarter of 2001.
The Company has not yet quantified the impacts of adopting Statement 133 on
its consolidated financial statements. However, accounting prescribed under
Statement 133 could increase volatility in earnings and other comprehensive
income.
Cinergy
11. Options to purchase shares of common stock are excluded from the
calculation of EPS-assuming dilution when the exercise prices of these
options are greater than the average market price of the common shares
during the period. Options to purchase approximately 1,683,000 and 931,000
shares were excluded from the calculation of EPS-assuming dilution for this
reason for the quarters ended June 30, 1999, and 1998, respectively.
Options to purchase approximately 1,736,000 and 695,000 shares were
excluded fro . the calculation of EPS-assuming dilution for this reason for
the six months ended June 30, 1999, and 1998, respectively.
Cinergy
12. On July 15, 1999, Cinergy and GPU completed a transaction whereby GPU
acquired Cinergy's 50% ownership interest in Avon Energy, the parent
company of Midlands. In exchange for its interest in Avon Energy, Cinergy
received 452.5 million pounds sterling (approximately $700 million). As a
result of the transaction, Cinergy will realize a gain of approximately
$.50 cents per share in the third quarter. After deducting financing,
transaction, and currency costs, the net contribution to earnings will be .
approximately $.43 cents per share.
<TABLE>
<CAPTION>
Pro forma information is presented below:
<S> <C> <C> <C> <C>
Quarter Ended Six Months Ended
June 30, 1999 June 30, 1999
Net Earnings Net Earnings
Income Per Share(1) Income Per Share(1)
------ ------------ ------ -----------
(in millions, except for earnings per share)
(unaudited)
Cinergy $59 $.37 $186 $1.17
Pro forma adjustments:
Equity in earnings
of Avon Energy (13) (58)
Interest expense 11 22
Income taxes 5 20
--- ----
Pro forma result $62 $.39 $170 $1.07
</TABLE>
(1) Both Basic and Fully Diluted.
Cinergy and PSI
13. As discussed in the 1998 Form 10-K, PSI and Dynegy (formerly Destec)
entered into a 25-year contractual agreement for the provision of coal
gasification services in November 1995. The agreement requires PSI to pay
Dynegy a base monthly fee including certain monthly operating expenses. PSI
received authorization in the September 1996 Order for the inclusion of
these costs in retail rates. In addition, PSI received authorization to
defer, for subsequent recovery in retail rates, the base monthly fees and
expenses incurred prior to the effective date of the September 1996 Order.
Over the next five years, the base monthly fees and expenses for the coal
gasification service agreement are expected to total $201 million.
<PAGE>
During the third quarter of 1998, PSI reached an agreement with Dynegy to
purchase the remainder of its 25-year contract for coal gasification
services. The settlement agreement specifies a purchase price of $249
million. The proposed purchase, which is contingent upon regulatory
approval satisfactory to PSI, could be completed in 1999. PSI is
investigating financing alternatives. The transaction, if approved as
proposed, is not expected to have a material impact on PSI's earnings.
In anticipation of the buyout, PSI and the UCC have come to a settlement
agreement with respect to the proper ratemaking treatment of the buyout fee
and other buyout implementation costs. The agreement, entered into on June
21, 1999, provides for PSI's retail electric rates to be decreased to
eliminate jurisdictional costs associated with the gasification services
agreement. Additionally, the agreement allows PSI to recover the retail
electric jurisdictional portion of the buyout fee and the associated buyout
implementation costs through its rates with carrying costs on unrecovered
amounts, over an eighteen-year period. The settlement agreement has been
submitted to the IURC for approval.
14. As discussed in the 1998 Form 10-K, the collective-bargaining agreement
with the International Brotherhood of Electrical Workers Local No. 1393,
covering approximately 1,470 employees, expired on May 1, 1999. A new labor
agreement was ratified April 22, 1999, and is effective from May 1, 1999,
through April 30, 2002.
Cinergy, CG&E, PSI, and ULH&P
15. As discussed in the 1998 Form 10-K, during 1998, Cinergy and its
subsidiaries adopted the provisions of Statement 131. During the first
quarter of 1999, Cinergy reorganized its reportable segments. The business
unit structure effective with that reorganization is described below.
The ECBU operates and maintains, exclusive of certain jointly-owned plant,
all of the Company's domestic electric generation facilities. In addition
to the production of electric power, all energy risk management, marketing,
and proprietary arbitrage trading, with the exception of electric and gas
retail sales, is conducted through the ECBU. Revenues from external
customers are derived from the ECBU's marketing, trading, and risk
management activities. Intersegment revenues are derived from the sale of
electric power to the EDBU.
The EDBU plans, constructs, operates, and maintains the Company's
transmission and distribution systems and provides gas and electric energy
to end users. Revenues from customers other than end users are primarily
derived from the transmission of electric power through the Company's
transmission system.
The CIBU manages the development, sales, and marketing of domestic,
non-regulated wholesale energy and energy-related products and services.
Most of the CIBU's revenues are derived from the sales of such products and
services to external, end-use customers. In addition, some of the CIBU's
activities are conducted through joint-venture affiliates, including the
construction and sale or lease of cogeneration and trigeneration facilities
to large commercial/industrial customers and energy management services to
third parties.
The IBU directs and manages all of the Company's international business
holdings, which include wholly-owned subsidiaries and equity investments.
Revenues and equity earnings from unconsolidated companies are primarily
derived from energy-related businesses.
Transfer pricing for sales of electric energy and sales of electric and gas
transmission and distribution services between the ECBU and EDBU are
derived from the operating utilities' retail and wholesale rate structures.
<PAGE>
<TABLE>
<CAPTION>
Financial results by business unit for the quarters ended June 30, 1999, and
1998, are as follows:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
________ 1999_____________________________________________________
All Reconciling
Cinergy Business Units Other Eliminations
ECBU EDBU CIBU IBU Total (1) (2) Consolidated_
-------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues -
External Customers $ 542,002 $ 707,193 $10,884 $ 15,320 $1,275,399 $ - $ - $1,275,399
Intersegment
Revenues 423,777 - - - 423,777 - (423,777) -
Segment Profit (Loss)
Before Taxes 45,758 47,129 (4,934) 5,377 93,330 (3,787) - 89,543
________ 1998___ ______________________________________________________
All Reconciling
Cinergy Business Units Other Eliminations
ECBU EDBU CIBU IBU Total (1) (2) Consolidated_
--------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues -
External Customers $ 467,360 $ 689,077 $10,643 $ 629 $1,167,709 $ - $ - $1,167,709
Intersegment
Revenues 433,340 - - - 433,340 - (433,340) -
Segment Profit (Loss)
Before Taxes (49,246) 11,054 (4,426) (3,965) (46,583) (1,669) - (48,252)
<FN>
Financial results by business unit for the six months ended June 30, 1999, and
1998, are as follows:
</FN>
________ 1999_________________________________________________________
All Reconciling
Cinergy Business Units Other Eliminations
ECBU EDBU CIBU IBU Total (1) (2) Consolidated
------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues -
External Customers $1,045,640 $1,575,560 $28,284 $ 28,194 $2,677,678 $ - $ - $2,677,678
Intersegment
Revenues 880,314 - - - 880,314 - (880,314) -
Segment Profit (Loss)
Before Taxes 129,075 149,888 (7,664) 29,509 300,808 (5,092) - 295,716
________ 1998_________________________________________________________
All Reconciling
Cinergy Business Units Other Eliminations
ECBU EDBU CIBU IBU Total (1) (2) Consolidated_
-------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues -
External Customers $ 969,458 $1,521,530 $24,408 $ 774 $2,516,170 $ - $ - $2,516,170
Intersegment
Revenues 868,272 - - - 868,272 - (868,272) -
Segment Profit (Loss)
Before Taxes 41,907 101,603 (7,671) (4,926) 130,913 (13,223) - 117,690
Total segment assets at June 30, 1999, and December 31, 1998, are as follows:
________ _________________________________________ ________________
------------------------------------------------------------------------------------------------------
All Reconciling
Cinergy Business Units Other Eliminations
ECBU EDBU CIBU IBU Total (1) (2) Consolidated_
-------------------------------------------------------------------------------------------------------------
(in thousands)
Total Segment Assets
at June 30, 1999 $4,595,911 $3,925,844 $48,996 $774,459 $9,345,210 $47,639 $ - $9,392,849
Total Segment Assets
at December
31, 1998 $4,863,014 $3,987,055 $42,107 $751,861 $9,644,037 $43,344 $ - $9,687,381
<FN>
(1) The all other category represents miscellaneous corporate items, which are
not allocated to business units for the purposes of segment profit
measurement.
(2) The reconciling eliminations category eliminates the intersegment revenues
of the ECBU and the EDBU.
</FN>
</TABLE>
<PAGE>
Cinergy, CG&E, and PSI
16. During late July, the geographic region in which Cinergy operates
experienced extreme weather conditions. As a result of these conditions,
Cinergy expects a reduction in net income for July of $57 million (after
tax, $16 million and $41 million for CG&E and PSI, respectively), or $.36
per share basic and dilutive. Cash losses reflecting costs to serve
wholesale power contracts and anticipated liquidated damage claims totaled
$73 million, $27 million, and $46 million after tax or $.46 per share basic
and dilutive for Cinergy, CG&E, and PSI, respectively. Also, as a result of
the extreme weather, increased sales from retail operations contributed $16
million, $11 million, and $5 million or $.10 per share basic and dilutive
after tax for Cinergy, CG&E, and PSI, respectively.
The extreme weather conditions required the purchase of power needed to
supplement generation to meet record wholesale and retail customer demand.
The anticipated liquidated damages are related to supply curtailments to
eight power marketers for four-to six hours on July 30.
These weather conditions in Cinergy's service area included record-setting
temperatures and extraordinary levels of demand. Preliminary figures
indicate electric demand in the Cinergy system's tri-state service
territory peaked at 10,858 MW July 22. On July 30 demand peaked at an
estimated 10,811 MW. An aggressive call for voluntary conservation,
including 2,600 contacts with large-volume power users as well as the
triggering of standard industrial interruptible contracts, reduced the
potential peak by more than 600 MW.
Additionally, the Company experienced regional transmission constraints
which prevented it from receiving significant amounts of prescheduled power
and further limited hourly purchases from the north, east, and west for
both service territory and other wholesale obligations.
The Company is continuing to consider a number of strategies to address the
electricity market volatility being encountered as the industry
restructures, including construction of additional generation capacity,
securing additional sources of supply, possible expansion of or exit from
the power supply business, and pursuit of asset flexibility and customer
choice in all states where it operates. The Company intends to pursue the
alternatives which it believes will appropriately enable it to address the
volatility of the developing eletricity market.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cinergy, CG&E, PSI, and ULH&P
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION Matters discussed in
this "Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations" in "Part I. Financial Information" reflect and elucidate
Cinergy's corporate vision of the future and, as a part of that, outline goals
and aspirations, as well as specific projections. These goals and projections
are considered forward-looking statements and are based on management's beliefs,
as well as certain assumptions made by management. Forward-looking statements
involve risks and uncertainties which may cause actual results to differ
materially from the forward-looking statements. In addition to any assumptions
and other factors that are referred to specifically in connection with these
statements, other factors that could cause actual results to differ materially
from those indicated in any forward-looking statements include, among others:
factors generally affecting operations, such as unusual weather conditions,
unscheduled generation outages; unusual maintenance or repairs, unanticipated
changes in fuel costs, environmental incidents, or system constraints;
legislative and regulatory initiatives regarding deregulation and restructuring
of the industry; increased competition in the electric and gas utility
environment; challenges related to Year 2000 readiness; regulatory factors;
changes in accounting principles or policies; adverse political, legal, or
economic conditions; changing market conditions; success of efforts to invest in
and develop new opportunities in non-traditional business; availability or cost
of capital; employee workforce factors; legal and regulatory delays and other
obstacles associated with mergers, acquisitions, and investments in joint
ventures; costs and effects of legal and administrative proceedings; changes in
legislative requirements; and other risks. The SEC's rules do not require
forward-looking statements to be revised or updated, and Cinergy does not intend
to do so.
FINANCIAL CONDITION
Recent Developments
Cinergy
Acquisitions During the first six months of 1999, Cinergy, through its
international subsidiaries, invested an additional $27 million in international
unconsolidated subsidiaries.
Dispositions See Note 12 of the "Notes to Financial Statements" in "Part I.
Financial Information."
Subsequent Event See Note 16 of the "Notes to Financial Statements" in "Part I.
Financial Information."
Competitive Pressures
Cinergy, CG&E, PSI, and ULH&P
Federal The Clinton Administration has introduced a bill--the Comprehensive
Electricity Competition Act--that would grant all retail customers of
electricity the right to choose their electricity supplier beginning January 1,
2003. The legislation would allow a state regulatory authority to opt out of the
retail competition system if the authority conducted a public proceeding and
determined that the electric customers of that state would be better served by a
monopoly system or an alternative retail competition plan. A "compromise
bipartisan" deregulation bill introduced on May 26 by Representatives Largent
(R-Ok.) and Markey (D-Mass.) included similar mandate and opt out provisions
with an effective date of January 1, 2002.
<PAGE>
Both the House and the Senate continue to hold hearings on electric
restructuring and to see if consensus legislation can be developed, but it is
uncertain whether federal retail customer choice legislation will be passed by
this Congress.
Ohio As discussed in the 1998 Form 10-K, comprehensive electric restructuring
legislation was reintroduced in 1999 in both houses of the Ohio General
Assembly. One of these bills--Senate Bill 3--subsequently received approval by
both houses, and in July 1999, Ohio Governor Robert Taft signed the
restructuring legislation into law. The new law becomes effective in October
1999.
The new law calls for a competitive retail electric market starting January 1,
2001. Other details of the law include:
- - A 5% cut in the generation component of rates for every residential
customer beginning January 1, 2001;
- - Utility rates otherwise are frozen for non-switching customers through each
utility's market development period (ending no later than December 31,
2005);
- - The filing of a transition plan by each utility within 90 days of the
effective date of the law (the PUCO is given 275 days to approve or reject
a utility's filing). The transition plan must include a rate unbundling
plan, a corporate separation plan, an operational support plan, an employee
assistance plan, and a consumer education plan. The plan may also include a
quantification of utility transition costs and application to receive
transition revenues;
- - The establishment of a market development period, which is the transition
period to full market competition;
- - The recovery of transition costs throughout the market development period,
as determined by the PUCO;
- - The recovery of regulatory assets through December 31, 2010, as approved by
the PUCO;
- - The transfer of either ownership or control of the transmission system to
an independent transmission entity before December 31, 2003; and
- - The establishment of incentives to induce twenty percent (20%) of the loads
by customer class to switch providers by no later than December 31, 2003.
At this time, CG&E has not completed its transition plan and as such cannot
predict the ultimate financial impact the electric restructuring legislation
will have on future earnings and financial position.
Indiana As discussed in the 1998 Form 10-K, electric restructuring legislation
supported by a group of large industrial customers was introduced into the
Indiana legislature in January 1999. This legislation did not pass in the 1999
session of the Indiana General Assembly, which ended in April, 1999. Cinergy
anticipates that electric restructuring legislation will again be introduced in
the "short session" in Indiana in 2000.
Kentucky Throughout 1999, a task force convened by the Kentucky legislature has
been meeting to study the issue of electric restructuring. The legislature next
meets in January 2000, and it is not certain whether an electric restructuring
bill will be introduced at that time.
Regulatory Matters
Cinergy and PSI
Coal Contract Buyout Costs See Note 13 of the "Notes to Financial Statements" in
"Part I. Financial Information."
Cinergy and CG&E
PUCO Order - CG&E's Gas Rate Order As discussed in the 1998 Form 10-K, in April
1997, CG&E filed a notice of appeal with the Supreme Court of Ohio challenging
the disallowance of information systems costs and imputation of certain revenues
by the PUCO when it approved an overall average increase in CG&E's gas revenues
in December 1996. On July 7, 1999, the Supreme Court issued a ruling on the
appeal supporting the PUCO's decision to exclude a portion of the development
costs of the information systems from the rate based calculation. However, the
Supreme Court ruled in favor of CG&E on the imputed revenue appeal, deciding the
PUCO acted unlawfully in imputing certain revenues. The ruling will,
prospectively, result in a revision in rates generating a $3 million increase in
annual revenues for CG&E, which represents less than a one percentage increase
in retail rates.
Other Matters
Midwest ISO In July of 1999, the Midwest ISO named Matthew Cordaro as the first
President and Chief Executive Officer of the organization. It also updated its
expectations to begin operations in June of 2001.
As of August 1, 1999, there are 12 transmission owners participating in the
Midwest ISO. The participating transmission owners cover territories with over
47,000 miles of transmission lines extending into 11 states, and includes over
$7 billion of transmission investment, forming one of the largest ISOs in the
country.
Repeal of the PUHCA As discussed in the 1998 Form 10-K, in February 1999, S.
313, a bill to repeal significant portions of PUHCA, was introduced in the
Senate. The bill is currently awaiting action by the full Senate. In June 1999,
H.R. 2363, a bill to repeal PUHCA, was introduced in the House as a companion
bill to S. 313. H.R. 2363 is currently awaiting action by the House Commerce
Committee.
While it is uncertain whether these bills will be enacted into law, Cinergy
continues to support the repeal of this act either as part of comprehensive
reform of the electric industry or as separate legislation.
Environmental Issues
Cinergy, CG&E, and PSI
Ozone Transport Rulemaking As discussed in the 1998 Form 10-K, in October 1998,
the EPA finalized its Ozone Transport Rule (or NOx SIP Call). It applies to 22
states in the eastern half of the US, including the three states in which the
Cinergy electric utilities operate, and also proposes a model NOx trading
program. This rule recommends that states reduce NOx emissions from primarily
industrial and utility sources to a certain limit by May 2003. The EPA gave the
affected states until September 30, 1999, to incorporate utility NOx reductions
with a trading program into their SIPs. Ohio, Indiana, a number of other states,
and various industry groups, including some of which Cinergy is a member, filed
legal challenges to the NOx SIP Call in late 1998. Ohio and Indiana have also
provided preliminary indications that they will seek fewer NOx reductions from
the utility sector in their implementing regulations than the EPA has budgeted
in its rulemaking.
On April 30, 1999, the EPA made an affirmative technical determination on the
February 1998 northeast state CAAA Section 126 petitions seeking to reduce ozone
in the eastern US. By affirming these Section 126 petitions, the EPA makes a
finding that the named Midwest stationary sources (including all of Cinergy's
facilities) are significantly contributing to ozone problems in the northeast
for both the one- and eight-hour ozone standard. The EPA has stated that the
Section 126 petitions and the NOx SIP call requirements should be coordinated.
Therefore, the EPA will defer fully granting the relief sought by petitioners
until the affected states file their proposed SIPs in September 1999.
On May 25, 1999, the Court of Appeals granted the petitioners' request for a
stay of the rule and indefinitely suspended the September 30 filing deadline,
pending further review by the Court of Appeals. The Court of Appeals is now
scheduled to hear arguments on the case in the fall of 1999, making a decision
in early 2000.
Based on the May 14 court decision (see below) and the May 25 court decision, in
mid-June the EPA modified and re-proposed the Section 126 petitions to only
address the one-hour ozone standard. The EPA also limited the petitions to 12
states instead of the original 22 states. NOx sources in the states of Indiana,
Kentucky, and Ohio would still be required to meet the same emissions
requirements. The new rulemaking is scheduled for completion by November 1999.
Ambient Air Standards and Regional Haze As discussed in the 1998 Form 10-K, in
1997, the EPA revised the National Ambient Air Quality Standards for ozone and
fine particulate matter. Utility NOx reductions called for in the EPA's final
NOx SIP call were anticipated to address both the one-hour and the new
eight-hour ozone standard. With the recent challenges to the NOx SIP call it is
unclear to what extent additional NOx reductions would be required of utilities
to address eight-hour ozone non-attainment issues.
On May 14, 1999, the Court of Appeals ruled that both the new eight-hour ozone
standard and the fine particulate matter standard were unconstitutional and
therefore unenforceable by the EPA. In June, the EPA appealed the decision. At
this time, the outcome of the appeals process and the effects on future
emissions reduction requirements cannot be determined.
The EPA published the final regional haze rule on July 1, 1999. This rule
establishes planning and emission reduction timelines for states to use to
improve visibility in national parks throughout the US. The ultimate effect of
the new regional haze rule could be requirements for newer and cleaner
technologies and additional controls on conventional particulates and/or
reductions in SO2 and NOx emissions from utility sources. If more utility
emissions reductions are required, the compliance cost could be significant. The
outcome or effects of the states' determination cannot currently be predicted.
Air Toxics As discussed in the 1998 Form 10-K, in November 1998, the EPA
finalized its ICR. Pursuant to the ICR, all generating units must provide
detailed information about coal use and mercury content. The EPA has since
selected about 100 generating units for one-time stack sampling, including
Cinergy's Gibson Unit No. 3 and the Wabash River Repowering Project. The EPA is
planning to make its regulatory determination on the need for additional
regulation by the fourth quarter of 2000. If more air toxics regulations are
issued, the compliance cost could be significant. The outcome or effects of the
EPA's determination cannot currently be predicted.
NSR On July 21, 1992, the EPA published final regulations governing the
application of new source rules to electric generating plant repairs and
pollution control projects undertaken to comply with the CAAA. Generally, the
rule provides that plants undertaking pollution control projects will not
trigger NSR requirements. The Natural Resources Defense Council and a group of
utilities including CG&E and PSI have filed petitions for review of the
regulations with the Court of Appeals. In July 1998, the EPA requested comment
on proposed revisions to the NSR rules which would change NSR applicability by
eliminating exemptions contained in the current regulation.
On July 13 and 14, 1999, CG&E and PSI received from the EPA (Region 5) requests
under section 114 of the CAAA seeking documents and information regarding
capital and maintenance expenditures at Beckjord and Cayuga, respectively. These
activities are part of an industry-wide investigation assessing compliance with
the NSR and New Source Performance Standards of the CAAA at electric generating
units.
MGP Sites See Note 9 of the "Notes to Financial Statements" in "Part I.
Financial Information."
Accounting Issues
Cinergy, CG&E, PSI, and ULH&P
New Accounting Standards See Note 10 of the "Notes to Financial Statements" in
"Part I. Financial Information."
Market Risk Sensitive Instruments and Positions
Cinergy, CG&E, and PSI
Energy Commodities Sensitivity The Company markets and trades electricity,
natural gas, and other energy-related products. The Company utilizes
over-the-counter forward and option contracts for the purchase and sale of
electricity and also trades exchange-traded futures contracts. See Notes 7 and 8
of the "Notes to Financial Statements" in "Part I. Financial Information" for
the Company's accounting policies for certain derivative instruments. The
Company's market risks have not changed materially from the market risks
reported in the 1998 Form 10-K.
Cinergy
Exchange Rate Sensitivity The Company utilizes foreign exchange forward
contracts and currency swaps to hedge certain of its net investments in foreign
operations. As part of the sale of the investment in Avon Energy, Cinergy
eliminated the hedges related to the Midlands investment in July 1999.
Additionally, the Company eliminated the forward exchange contracts related to
its investment in the Czech Republic. See Notes 7 and 8 of the "Notes to
Financial Statements" in "Part I. Financial Information" for the Company's
accounting policies for certain derivative instruments.
Cinergy, CG&E, PSI, and ULH&P
Interest Rate Sensitivity The Company's net exposure to changes in interest
rates primarily consists of debt instruments with floating interest rates that
are benchmarked to various market indices. To manage the Company's exposure to
fluctuations in interest rates and to lower funding costs, the Company evaluates
the use of, and has entered into, interest rate swaps. See Notes 7 and 8 of the
"Notes to Financial Statements" in "Part I. Financial Information" for the
Company's accounting policies for certain derivative instruments. The Company's
market risks have not changed materially from the market risks reported in the
1998 Form 10-K.
CAPITAL RESOURCES AND REQUIREMENTS
Cinergy, CG&E, PSI, and ULH&P
Long-term Debt For information regarding recent issuances and redemptions of
long-term debt securities, see Notes 2, 3, 4, 5, and 6 of the "Notes to
Financial Statements" in "Part I. Financial Information."
As of July 31, 1999, CG&E and PSI have remaining state regulatory authority for
long-term debt issuance of $200 million and $30 million, respectively. ULH&P
received a state regulatory order for authority to issue long-term debt of up to
$50 million on August 5, 1999, that will expire on December 31, 2001.
<PAGE>
Cinergy, CG&E, PSI, and ULH&P
Short-term Debt Obligations representing notes payable and other short-term
obligations (excluding notes payable to affiliated companies) at June 30, 1999,
were as follows:
Cinergy
Established
Lines Outstanding
(in millions)
Cinergy
Committed lines
Acquisition line $ 160 $ 160
Revolving line 600 -
Commercial paper - 165
Uncommitted line 45 46*
Utility subsidiaries
Committed lines 215 -
Uncommitted lines 380 157
Pollution control notes 267 267
Non-utility subsidiary 142 42
------ ------
Total $1,809 $ 837
* Excess over Established Line represents amount sold by dealers to other
investors.
CG&E
Established
Lines Outstanding
(in millions)
Committed lines $ 85 $ -
Uncommitted lines 185 82
Pollution control notes 184 184
---- ----
Total $454 $266
PSI
Established
Lines Outstanding
(in millions)
Committed lines $130 $ -
Uncommitted lines 195 75
Pollution control notes 83 83
---- ----
Total $408 $158
Cinergy, CG&E, and PSI
Cinergy's committed lines are comprised of an acquisition line and a revolving
line. The established revolving line also provides credit support for Cinergy's
commercial paper program, which is limited to a maximum principal amount of $400
million. The proceeds from the commercial paper sales were used for general
corporate purposes.
The established committed lines for CG&E and PSI each included $75 million
designated as backup for certain of the uncommitted lines at June 30, 1999;
however, if not in use as backup, these amounts would be available for
borrowing. CG&E and PSI also have the capacity to issue commercial paper that
must be supported by committed lines of the respective company. Neither CG&E nor
PSI issued commercial paper during the second quarter of 1999.
Both CG&E and PSI have issued variable rate pollution control notes. Holders of
these pollution control notes have the right to put their notes to the issuing
company for redemption on any business day. Accordingly, these issuances are
reflected in the Consolidated Balance Sheets as "Notes payable and other
short-term obligations."
Cinergy
Global Resources has established a $100 million revolving credit agreement,
which was due to expire in June 1999 and has been extended to August 1999.
During mid-July, Cinergy's acquisition line was settled due to the sale of
Cinergy's 50% ownership interest in Avon Energy. (See Note 12 of the "Notes to
Financial Statements" in "Part I. Financial Information.")
Cinergy, CG&E, PSI, and ULH&P
Year 2000 The Year 2000 issue generally exists because many computer systems and
applications, including those embedded in equipment and facilities, use
two-digit rather than four-digit date fields to designate an applicable year. As
a result, the systems and applications may not properly recognize dates
including and beyond the year 2000 or accurately process data in which such
dates are included, potentially causing data miscalculations and inaccuracies or
operational malfunctions and failures, which could materially affect a
business's financial condition, results of operations, and cash flows.
Cinergy has established a centrally managed, company-wide initiative, known as
the Cinergy Year 2000 Readiness Program, to identify, evaluate, and address Year
2000 issues. The Cinergy Year 2000 Readiness Program, which began in the fourth
quarter of 1996, is generally focused on three elements that are integral to
this initiative: (1) business continuity, (2) risk management, and (3)
regulatory compliance. Business continuity includes providing reliable electric
and gas supply and service in a safe and cost-effective manner. This element
encompasses mission-critical generation, transmission, and distribution systems
and related infrastructure, as well as operational and financial IT systems and
applications, end-user computing resources, and building systems (such as
security, elevator, and heating and cooling systems). Risk management includes a
review of the Year 2000 readiness efforts of Cinergy's critical suppliers, key
customers and other principal business partners, and, as appropriate, the
development of joint business support, contingency plans, and the inclusion of
Year 2000 concerns as a regular part of the due diligence process in any new
business venture. Regulatory compliance includes communications with regulatory
agencies, other utilities, and various industry groups. While this initiative is
broad in scope, it has been structured to identify and prioritize efforts for
mission-critical electric and gas systems and services and key business
partners.
Under the Cinergy Year 2000 Readiness Program, Cinergy achieved a target date of
June 30, 1999, for the remediation and testing of its mission-critical
generation, transmission, and distribution systems, components, and applications
(gas and electric). An innovative remediation and testing effort, which Cinergy
also completed on June 30, 1999, involved resetting the clocks on all of the
generation units it operates in Ohio, Indiana, and Kentucky so that they are now
operating as if it were already January 1, 2000. Cinergy's experience has been
that those units have continued to operate without any material adverse result
relating to a Year 2000 issue. Cinergy will continue to monitor its
mission-critical systems, components and applications for the remainder of the
year to maintain their Year 2000 readiness status.
Cinergy has also reviewed its existing contingency and business continuity plans
and modified them in light of the Year 2000 issue. Contingency planning to
maintain and restore service in the event of natural and other disasters
(including software- and hardware-related problems) has been part of Cinergy's
standard operation for many years, and Cinergy is working to leverage this
experience in the review of existing plans to address Year 2000-related
challenges. These reviews have assessed the potential for business disruption in
various scenarios, including the most reasonably likely worst-case scenario, and
to provide for key operational back up, recovery, and restoration alternatives.
Cinergy cannot guarantee that third parties on whom it depends for essential
goods and services (those where the interruption of the supply of such goods and
services could lead to issues involving the safety of employees, customers, or
the public; the continued reliable delivery of gas and/or electricity; and the
ability to comply with applicable laws or regulations) will convert their
mission-critical systems, components, and applications in a timely manner.
Failure or delay by any of these third parties could significantly disrupt
business. However, to address this issue, Cinergy has established a supplier
compliance program, and is working with its critical suppliers in an effort to
minimize such risks.
In addition, Cinergy is coordinating its findings and other issues with other
utilities and various industry groups via the Electric Power Research Institute
Year 2000 Embedded Systems Project and the Year 2000 Readiness Assessment
Program of the NERC, acting at the request of the DOE. The DOE has asked NERC to
report on the integrity of the transmission system for North America and to
coordinate and assess the preparation of the electric systems in North America
for the Year 2000. NERC submitted its initial quarterly status report and
coordination plan to the DOE in September 1998, and a second quarterly status
report for the fourth quarter of 1998 was submitted on January 11, 1999. A third
quarterly status report for the first quarter of 1999 was submitted on April 30,
1999. A fourth and final quarterly status report for the second quarter of 1999
was submitted to the DOE by NERC on August 3, 1999, in which Cinergy was listed
as a "Y2k Ready" organization.
Cinergy plans to participate in a NERC-sponsored national preparedness drill on
September 8 and 9, 1999, involving its Year 2000 contingency plans.
Cinergy currently estimates that the total cost for the inventory, assessment,
remediation, testing, and upgrading of its systems as a result of the Year 2000
effort is approximately $13 million. Approximately $12 million in expenses have
been incurred through June 30, 1999, for such things as external labor, for
hardware and software upgrades, and for Cinergy employees who are dedicated
full-time to the Cinergy Year 2000 Readiness Program. The timing of these
expenses may vary and is not necessarily indicative of readiness efforts or
progress to date. Cinergy anticipates that a portion of its Year 2000 expenses
will not be incremental costs, but rather, will represent the redeployment of
existing IT resources. Since its formation, Cinergy has incurred, and will
continue to incur, significant capital improvement costs related to planned
system upgrades or replacements required in the normal course of business. These
costs have not been accelerated as a result of the Year 2000 issue.
The above information is based on Cinergy's current best estimates, which were
derived using numerous assumptions of future events, including the availability
and future costs of certain technological and other resources, third-party
modification actions, and other factors. Given the complexity of these issues
and possible unidentified risks, actual results may vary materially from those
anticipated and discussed above. Specific factors that might cause such
differences include, among others; the ability to locate and correct all
affected computer code, the timing and success of remedial efforts of
third-party suppliers, and similar uncertainties.
The above information is a Year 2000 Readiness Disclosure pursuant to the
Federal Year 2000 Information and Readiness Disclosure Act.
Cinergy
Other Commitments At June 30, 1999, Cinergy had issued $321 million in
guarantees primarily related to the energy marketing and trading activities of
its subsidiaries and affiliates. In addition, Cinergy had guaranteed $258
million of the debt securities of its subsidiaries and affiliates.
RESULTS OF OPERATIONS
Cinergy, CG&E, PSI, and ULH&P
Reference is made to "Item 1. Financial Statements" in "Part I. Financial
Information."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Cinergy, CG&E, PSI, and ULH&P
Reference is made to the "Market Risk Sensitive Instruments and Positions"
section in "Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations" in "Part I. Financial Information" and Notes 7 and 8
of the "Notes to Financial Statements" in "Part I. Financial Information."
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Cinergy, CG&E, and PSI
Manufactured Gas Plant Sites
See Note 9 of the "Notes to Financial Statements" in Part I. Financial
Information.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits identified with a pound sign (#) are being filed herewith by
the registrant identified in the exhibit discussion below and are
incorporated herein by reference with respect to any other designated
registrant. Exhibits not so identified are filed herewith:
Exhibit
Designation Nature of Exhibit
Cinergy, CG&E, PSI, and ULH&P
27 Financial Data Schedules (included in electronic
submission only)
(b) The following reports on Form 8-K were filed during the quarter or
prior to the filing of the Form 10-Q for the quarter ended June 30, 1999.
Date of Report Item Filed
Cinergy
July 6, 1999 Item 5. Other Events
Item 7. Financial Statements and Exhibits
July 15, 1999 Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements and Exhibits
August 10, 1999 Item 5. Other Events
Item 7. Financial Statements and Exhibits
CG&E
August 10, 1999 Item 5. Other Events
PSI
August 10, 1999 Item 5. Other Events
<PAGE>
SIGNATURES
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
Cinergy, CG&E, PSI, and ULH&P believe that the disclosures are adequate to make
the information presented not misleading. In the opinion of Cinergy, CG&E, PSI,
and ULH&P, these statements reflect all adjustments (which include normal,
recurring adjustments) necessary to reflect the results of operations for the
respective periods. The unaudited statements are subject to such adjustments as
the annual audit by independent public accountants may disclose to be necessary.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrants have duly caused this report to be signed by an
officer and the chief accounting officer on their behalf by the undersigned
thereunto duly authorized.
CINERGY CORP.
THE CINCINNATI GAS & ELECTRIC COMPANY
PSI ENERGY, INC.
THE UNION LIGHT, HEAT AND POWER COMPANY
Registrants
Date: August 13, 1999 /s/Bernard F. Roberts_ __
--------------------------------------
Bernard F. Roberts
Duly Authorized Officer
and
Chief Accounting Officer
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED
STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 6,370,228
<OTHER-PROPERTY-AND-INVEST> 616,347
<TOTAL-CURRENT-ASSETS> 950,458
<TOTAL-DEFERRED-CHARGES> 911,754
<OTHER-ASSETS> 544,062
<TOTAL-ASSETS> 9,392,849
<COMMON> 1,589
<CAPITAL-SURPLUS-PAID-IN> 1,602,608
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<TOTAL-COMMON-STOCKHOLDERS-EQ> 2,582,436
0
92,606
<LONG-TERM-DEBT-NET> 2,782,798
<SHORT-TERM-NOTES> 837,184
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<CAPITAL-LEASE-OBLIGATIONS> 0
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<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,071,866
<TOT-CAPITALIZATION-AND-LIAB> 9,392,849
<GROSS-OPERATING-REVENUE> 1,275,399
<INCOME-TAX-EXPENSE> 29,120
<OTHER-OPERATING-EXPENSES> 1,138,289
<TOTAL-OPERATING-EXPENSES> 1,167,409
<OPERATING-INCOME-LOSS> 107,990
<OTHER-INCOME-NET> 13,214
<INCOME-BEFORE-INTEREST-EXPEN> 121,204
<TOTAL-INTEREST-EXPENSE> 60,781
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<EARNINGS-AVAILABLE-FOR-COMM> 59,058
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