ML17326A449
| ML17326A449 | |
| Person / Time | |
|---|---|
| Site: | Cook  |
| Issue date: | 02/19/1979 |
| From: | INDIANA MICHIGAN POWER CO., INDIANA MICHIGAN POWER CO. (FORMERLY INDIANA & MICHIG |
| To: | |
| Shared Package | |
| ML17326A448 | List: |
| References | |
| NUDOCS 8001040660 | |
| Download: ML17326A449 (28) | |
Text
ANNUALREPORT 1978 AMERICANELECTRIC PONER SYSTEM
The Company's Annual Report (Form 10-K) to the Securities and Exchange Commission willbe available on or about March 31, 1979 to shareowners upon their written request and at no cost.
Please address such requests to:
Mr. H. D. Post Assistant Treasurer American Electric Power Service Corporation 2 Broadway New York, N. Y. 10004 Transfer Agent of Cumulative Preferred Stock Morgan Guaranty Trust Company of iVew York 30 West Broadway, New York, N. Y. 10007 Registrar of Cumulative Preferred Stock Irving Trust Company 1 Wall Street, New York, N. Y. 10015
INDIANAMICHIGANELECTRIC COMPANY 210I Spj%un Avenue, Fort Wayne, Indiana 46801 Contents Background of the Company Consolidated Summary of Operations Management's Comments on Consolidated Summary of Auditors'pinion Consolidated Statement of Income Consolidated Balance Sheet Consolidated Statement of Sources of Funds for Plant and Property Additions Consolidated Statement of Retained Earnings Notes to Consolidated Financial Statements Operating Statistics and Balance Sheet Data Directors and OEcers of the Company Price Range of Cumulative Preferred Stock 4
Operations.....
6-7
~
~
~
9 10-11 12 13 14-23 24-25 26
~ ~
~ ~
27
INDIANA& MICHI~<
ELECTRIC COMPANY 2101 Spy Run Ave~ Fort Wayne, Indiana 46801 Background of the Company INDIANASc MtcHIGANELEGTRIc CoMPANY (the Company) is a subsidiary of American Electric Power Company, Inc. (AEP) and is engaged in the generation, purchase, transmission, and distribu-tion of electric power. The Company was.organized under the laws of Indiana on February 21, 1925, and is also authorized to transact business in Michigan and West Virginia. Its principal executive offices are in Fort Wayne, Indiana.
Indiana & Michigan Power Company, the generating subsidiary of the Company, was formed in 1971 to own, complete the construction of, and operate the Donald C. Cook Nuclear Plant (the Nuclear Plant). Unit No. 1 of the Nuclear Plant was placed in commercial operation on August 23, 1975. Unit No. 2 was placed in commercial operation on July 1, 1978. The subsidiary sells all of the plant's generation to the parent for distribution to the latter's customers.
The Company serves 231 communities and approximately 437,000 customers in a 7,740-square-mile area of northern and eastern Indiana and a portion of southwestern Michigan. This area has an estimated population of 1,566,000. Among the principal industries served are manufacturers of automobiles, trucks, automotive parts, aircraft parts, steel, ferrous and nonferrous castings, farm machinery, machine tools, electric motors, electric transformers, electric wire and cable,
- glass, textiles, rubber products, food products and electronic components.
In addition, the Company supplies wholesale electric power to other electric utilities, municipalities, and cooperatives.
The Company's generating plants and important load centers are interconnected by a high-voltage transmission network. This network in turn is interconnected either directly or indirectly with the following other AEP System companies to form a single major integrated power system:
Appalachian Power Company, Kentucky Power Company, Kingsport Power Company, Michigan Power Company, Ohio Power Company, and Wheeling Electric Company. The Company is also interconnected with the following other utilities: Central Illinois Public Service Company, The Cincinnati Gas 8c Electric Company, Consumers Power Company, Commonwealth Edison Com-pany, Illinois Power Company, Indiana-Kentucky Electric Corporation (a subsidiary of Ohio Valley Electric Corporation),
Indianapolis Power Sc Light Company, Northern Indiana Public Service Company, and Public Service Company of Indiana, Inc.
INDIANA & MI AN ELECTRIC COMPANY AN GENERATING SUBSIDIARY Consolidated Summary of Operations OPERATING REVENUES ELECTRIC Year Ended December 31, 1974 1978 1977 1976 1975 (In Thousands)
...$ 603,480
$512,824
$416,193
$363,355
$287,606 OPERATING EXPENSES:
Operation:
Fuel for Electric Generation............
Purchased and Interchange Power (Net)...
Other Maintenance Depreciation Taxes, Other Than Income Taxes..........
Federal and State Income Taxes Total Operating Expenses........
OPERATING INCOME 1259277 116@08 609001 32,724 599844 26,432 23,060 74,052 144,833 44,706 28,452 48)824 23,408 18,149 70,127 126,712 40,251 20,140 47,852 18,920 (8,625) 443,646 382,424 315,377 159)834 130,400 100,816 55,775 121,194 37,800 17,078 32,734 14,015 6,026 284,622 78,733 55,216 111,161 27,959 17,747 24,853 10,956 (3,086) 244,806 42,800 28,874(a) 45,482(a) 59,454(a)-
1)040 952 1,537 45,617 188)848 158,241 130,408 103,791 96,648 80,772 (22,627)
(19,651) 70,822 76,534 70,822 53,528 8,151 OTHER INCOME AND DEDUCTIONS:
Allowance for Fu'nds Used During Construction Allowance for Other Funds Used During Con-struction..................
27,974 26,889 Miscellaneous Nonoperating Income Less De-ductions 718 135 Total Other Income and Deductions 29,014 27,841 29,592 60,991 INCOME BEFORE INTEREST CHARGES 124,350 INTEREST CHARGES:
Total Interest Charges 76,534 Allowance for Borrowed Funds Used During Construction (Credit)
Net Interest Charges............
74,021 61,121 CONSOLIDATED INCOME BEFORE CUMULATIVE EFFEGT QF AccoUNTING CHANGEs........
114)827 97,120 53,874 NON-RECURRING CUMULATIVE EFFECT OF AC-coUNTING CHANGEs (Net of $603,000 Appli-cable Taxes)
CoitsoLIDATED NET INcoME................ $114)827
$ 97,120
$ 53,874
$ 53,528
$ 41,554 (a) Not reclassified into debt and equity components since allocation based on then existing capital structure would not necessarily be comparable to allocation under the FERC formula used after 1976.
Management's Comments on Consolidated Summary of Operations The amounts shown in the Consolidated Summary of Operations and discussed below reflect only the results of past operations and are not intended as any representation as to the results of operations for any future period. Reference is made to the consolidated financial statements, related
- notes, and Operating Statistics and Balance Sheet Data for additional infor-mation concerning results of operations.
Operating Revenues Electric Electric operating revenues increased by $96,631,000 (23% ) in 1977 over 1976 and by $90,656,000 (18% )
in 1978 over 1977.
Factors associated with the in-creases and related estimated amounts are as follows:
Cost of Fuel Consumed..
Generation Level and Fuel Mix.............
Overall Increase (Decrease)
Cost of Fuel Consumed..
Generation Level and Fuel Mix.............
Overall Increase........
Increase (Decrcasc) 1977 vs. 1976 (In Millions)
Coal Oil Nuclear Total
$ 5.1
$ 4.1
$ 2.4
$ 11.6 (2.8) 1.0 (5.9)
(7.7)
$ 2.3
$ 5.1
$ (3.5)
$ 3.9 1978 vs. 1977 (In Millions)
Coal Oil Nuclear Total
$23.7
$ 4.4
$ 3.3
$31.4 (2.2) 5.7 16.3 19.8
$21.5
$ 10.1
$ 19.6
$51.2 Increase (Dccreasc) 1977 vs.,1976 1978 vs. 1977 (In Millions)
Base Rates and Fuel Cost Adjust-ments
$ 109.3
$ 53.8 Sales Volume...................
(21.2) 51.1 Sales Mix 8.2 (14.2)
Other Operating Revenues.......
0.3 Overall Increase...
$ 96.6
$ 90.7 The increase in operating revenues in 1977 over 1976 was primarily attributable to rate increases placed in effect during 1976 and 1977 and to the recovery of increased fuel costs pursuant to the Company's fuel-adjustment clauses.
Growth in operating revenues dur-ing 1977 was limited due to a 17%%uo decrease in kilowatt-hour sales for resale. The increase in operating reven-ues in.1978 over 1977 reflected a 29%
increase in kilowatt-hour sales for resale, the recovery of increased fuel costs, and rate increases placed in effect during 1977 and 1978. Conservation measures by some cus-tomers have tended to limit the growth of operating revenues in both 1977 and 1978.
Operating Expenses Fuel for electric generation increased in 1977 over 1976 by $3,925,000 (6%) and in 1978 over 1977 by
$51,225,000 (69% ). Factors relating to these increases and the related estimated amounts are shown below:
The cost of fossil fuel consumed increased signifi-cantly in 1977 and 1978. The increase in 1977 was affected by there having been a refund of approximately
$4,000,000 to the Company in settlement of litigation with a supplier of fuel oil. (Such amount was recorded as a reduction to fuel for electric generation for 1976 and is reflected in the increase shown above in the cost of oil in 1977 from 1976.) A decrease in the quantity of nuclear fuel consumed in 1977 was related to the planned outage of Unit No.
1 of the Nuclear Plant for refueling. The increase in 1978 also reflected the placing of Unit No. 2 of the Nuclear Plant in com-mercial operation during July. The utilization of the relatively more expensive fuel oil (to conserve coal supplies) to generate electricity during the coal miners'trike which ended in March 1978 contributed to the increase in 1978 over 1977.
The purchased and interchange power increase of
$ 18,121,000 (14% )
in 1977 and decrease of
$28,525,000 (20%)
in 1978 primarily reflect the utilization of the Nuclear Plant as described above.
Other operation expense increased by $ 15,295,000 (34%) in 1978 over 1977 mainly due to higher costs of labor, materials, supplies, and services, and was also affected by test generation prior to, and increased generation due to, placing of Unit No. 2 of the Nuclear Plant into commercial operation.
The increase in maintenance expense in 1977 over 1976 of $8,312,000 (41%) was associated with cer-
IIVDIAIVA4 Ml rlIV ELECTRIC COMPANY AIV GEIVERATIBG SUBSIDlr!RY MANAGEMENT'S COMMENTS ON CONSOLIDATED
SUMMARY
OF OPERATIONS (Concluded) tain increased maintenance activity in 1977 which had previously been deferred and with higher "labor cost and increased costs of materials, supplies, and services as regards power production maintenance.
Maintenance expense increased by $4,272,000 (15% ) in 1978 over 1977 largely because of increasing cost levels and increased power plant, transmission and distribution maintenance activities.
The increase in depreciation expense in 1978 over 1977 of $ 11,020,000 (23%) was chiefly due to the placing of Unit No. 2 of the Nuclear Plant and certain environmental protection facilities at the Company's Tanners Creek Plant in commercial operation.
- Taxes, other than income taxes increased by
$4,488,000 (24%) in 1977. This was due to increases in utility plant in service and the completion in 1976 of the amortization (approximating
$3,000,000 for that year) of certain deferred credits associated with property taxes which had been deferred pursuant to regulatory authorization. The increase in taxes, other than income taxes in 1978 over 1977 of $3,024,000 (13%)
was largely attributable to increased Indiana Property Tax resulting from greater assessed valuation of property, increased Indiana Gross Income Tax at-tributable to increased applicable
- revenues, and to Michigan Single Business Tax pertaining to the Gen-erating Subsidiary.
Information concerning Federal income taxes (in-cluding a reconciliation of actual Federal income taxes to such taxes computed at statutory rates) is shown in Note 3 of Notes to Consolidated Financial statements.
Allowance for Funds Used During Construction The allowance for funds used during construction (AFUDC), including the portion shown as a credit to interest charges, increased by $ 17,666,000 (61%) in 1977. This increase was related to an increased amount invested in construction (including Unit No. 2 of the Nuclear Plant and precipitator installation projects at two of the Company's plants) and to the etfect of the
, Generating Subsidiary's compounding AFUDC begin-ning in 1977.
Interest Charges In
- 1978, total interest charges increased by
$ 15,876,000 (20% ) over 1977; this was related to ad-ditional long-term debt outstanding.
'(
Auditors'pinion To the Shareowners and the Board of Directors of Indiana &Michigan Electric Company AVe have examined the balance sheets of Indiana & Michigan Electric Company and its gen-erating subsidiary, Indiana & Michigan Power Company, consolidated, as of December 31, 1978 and 1977 and the related statements of consolidated income, retained earnirigs and sources of funds for plant and property additions for the respective years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
As discussed in paragraphs three and five of Note 2 of Notes to Consolidated Financial State-
- ments, the Company is collecting certain wholesale revenues subject to possible refund and has been incurring charges for interchange power subject to refund by its affiliated interchange power suppliers. An initial decision in the interchange power proceeding in February 1978, could, if sustained, result in substantial refunds to the Company. In addition, the Company is involved in antitrust matters discussed in paragraphs three and five of Note 10 of ¹tes to Consolidated Financial Statements.
In our opinion, subject to the effect on the financial statements identified above of such adjust-ments, ifany, as might have been required had the outcome of the rate and antitrust matters referred to in the preceding paragraph been known, such financial statements present fairly the financial position of the above companies, consolidated, as of December 31, 1978 and 1977 and the results of their operations and their sources of funds for plant and property additions for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.
New York, New York February 19, 1979 (March 2, 1979 as to paragraph five of Note 10 of Notes to Consolidated Financial Statements)
INDIANA dc MICHIGAN TRIC COMPANY AND GENERATING SUBSIDIARY Consolidated Statement of Income OPERATING REYENUEs ELEGTRIc (Notes 1 and 2)...........
Year Ended December 31, 2978 1977 (In Thousands)
$603,480
$312,824 OPERATING EXPENSES:
Operation:
Fuel for Electric Generation Purchased and Interchange Power (Net)
(Notes 2 and 9) 0ther
~
~
~
~
0 \\ ~
~
0
~
~
~
~
~
Maintenance (Note 1)
Depreciation (Note 1)
Taxes, Other Than Income Taxes (Note 9)
State Income Taxes Federal Income Taxes (Notes 1 and 3)
Total Operating Expenses
~
OPERATING INCOME 125,277 116,308 60,001 32,724 597844 26,432 (378) 23,438 443,646 159,834 74,052 144,833 44,706 28,452 48,824 23,408 704 17,445 382,424 130,400 OTHER INcoME AND DEDUcTIGNs (Notes 1 and 3);
Allowance for Other Funds Used During, Construction......
Miscellaneous Nonoperating Income Less Deductions......
Total Other Income and Deductions............
INCOME BEFORE INTEREST CHARGES.
INTEREST CHARGES:
Interest on Long-term Debt Interest on Short-term Debt Miscellaneous Interest Charges (Note 1)
Total Interest Charges Allowance for Borrowed Funds Used During Construction (Credit) (Note 1)...
Net Interest Charges CONSOLIDATED NET INCOME 27,974 1,040 291014 26,889 952 27,841 188,848 158,241 89,397 5,964 1,287 96,648 (22,627) 74,021 73,188 6,697 887 80,772 (19,651) 61,121
$1147827
$ 97,120 See Notes to Consolidated Financial Statements.
Consolidated Balance Sheet ASSETS AND OTHER DEBITS December 31, 1978 1977 (In Thousands)
ELEGTRIc UTILITYPLANT (Note 1):
Production Transmission Distribution General and Miscellaneous (includes Nuclear Fuel).........
Construction Work in Progress Total Electric Utility Plant Less Accumulated Provision for Depreciation ~.........,....
Electric Utility Plant, Less Provision...... ~......
OTHER PRQPERTY AND INVEsTMENTs (Notes 1 and 4)
$1@45,070 421,644 257,186 68,209 305,136 2,397,245 410,520 1,986,725 170,299 864,902 401,562 244,103 40,965 555,500 2,107,032 358,826 1,748,206 137,421 CURRENT AssBTs:
Cash (Note 8)
Special Deposits and Working Funds Temporary Cash Investments (at cost, which approximates market)
Accounts Receivable:
Customers Associated Companies Mtscellaneous Accumulated Provision for Uncollectible Accounts........
Materials and Supplies (at average cost or less):
Construction and Operation Materials and Supplies Fuel Accrued Utility Revenues Prepayments and Other Current Assets Total Current Assets 21,264 6,750 46,277 7,511 4,498 (299) 12,783 16,112 13,811 3,467 132,174 54,735 24,065 8,494 38,052 9,382 4,968 (221) 11,468 17,320 18,149 4,322 190,734 DEFERRED DEBITS:
Unamortized Debt Expense (Note 1)
Property Taxes Deferred Collection of Fuel Costs (Note 2)......
Other Work in Progress Other Deferred Debits
. ~.....................
Total Deferred Debits 3,143 1,422 1,584 9,010 45,606 60,765 2,172 1,450 1,655 4,780 36,521 46,578 Total.
$2,349,963
$2,122,939 See Notes to Consolidated Financial Statements.
10
INDIANA & MICHIGAiVELEC COMPANY AND GENERATIN SUBSIDIARY LIABILITIESAND OTHER CREDITS CAPITALIZATION:
December 31, 1978 1977 (In Thousands)
Common Stock iNo Par Value (Note 5):
Authorized 2,500,000 Shares Outstanding1,400,000 Shares Premium on Capital Stock (Note 5)
Other Paid-in Capital (Note 5)
Retained Earnings (Note 6)
Total Common Shareowner's Equity...........
Cumulative Preferred Stock (Note 7)
Long-term Debt (less portion due within one year) (Note 8)
Total Capitalization (less long-term debt due within one year)
CURRENT LIABILITIES:
Long-term Debt Due within One Year (Note 8)............
Short-term Debt (Note 8):
Notes Payable to Banks Commercial Paper Accounts Payable:
General Associated Companies Dividends Declared:
Common Stock Cumulative Preferred Stock Customer Deposits Taxes Accrued Interest Accrued Other Current Liabilities Total Current Liabilities CoMMITMENTsAND CQNTINGENcIEs (iNote 10)
DEFERRED CREDITs AND OPERATING REsERVEs:
S 56,5&4 381 470,228 136,829 664,022 227,000 1,043,090 1,934,112 7,536 69,490 55,450 50,460 15,305 14,252 4,754 1,909 20,005 18,338 16,439 273,938 S
56,584 381 410,228 104,566 571,759 187,000 977,062 1,735,821 61,421 49,650 52)200 19,650 16,306 11,360 3,854 1,739 18,804 19,041 16,653 270,678 Deferred Income Taxes (iNote 1)..
Deferred Investment Tax Credits (Notes I and 3)...........
Other Deferred Credits and Operating Reserves.............
Total Deferred Credits and Operating Reserves.....
Total 120,921 8,503 12,489 141,913 102,143 10,785 3,512 116,440
$2)349)963
$2,122,939
'I Consolidated Statement of Sources of Funds for Plant and Property Additions Year Ended December 31, 1978 1977 (In Thousands)
FUNDS FROM OPERATIONS:
Cohsolidated Net Income Principal Non-fund Charges (Credits) to Income:
Depreciation Provision for Deferred Income Taxes (Net)............
Deferred Investment Tax Credits (Net)
Allowance for Other Funds Used During Construction....
Other (Net)
Total Funds from Operations FUNDS FROM FINANCINGS:
Issuances and Contributions:
Long-term Debt Cumulative Preferred Stock Capital Contributions from Parent Company............"
Short-term Debt (Net)
Total Les~Retirements:
Long-term Debt Short-term Debt (Net)
Net Funds from Financings DIVIDENDS ON COMMON STOCK DIVIDENDS ON CUMULATIVEPREFERRED STOCK..............
SALEs oF PRoPERTY OTHER CHANGES (NET)
DEGREAsE (INGREAsE) IN WQRKING CAPITAL (Excluding Short-term Debt and Long-term Debt Due Within One Year) (a)
~
~.
Total PLANT AND PROPERTY ADDITIONS:
Gross Additions to Utility Plant Gross Other Additions Total Gross Additions Allowance for Other Funds Used During Construction......
Total (a) Represented by decrease (increase) as follows:
Cash and Cash Items Accounts Receivable Materials and Supplies Accounts Payable Taxes Accrued Other (Net)
$114,827 59,853 18,779 3,423 (27,974) 506 169,414 369,839 38,486 60,000 23,090
'491,415" 357,877 133,538 (62,692)
(18,357) 42,416 (13,675) 92,615
$343,259
$340,209 31,024 371,233 (27,974)
$343,259
$ 59,280 (5,806)
(107) 29,809 17201 8,238
$ 92,615
$ 97,120 48,837 13,535 5,038 (26,889) 72 137,713 135,391 38,120 58,000 231,511 10,873 46,163 174,475 (52,920)
(14,041) 97,311 (4,523)
(61,061)
$276,954
$272,433 31,410 303,843 (26,889)
$276,954
$ (30,020)
(3,534)
(5,851)
(11,096)
(1,087)
(9,473)
$ (61,061)
See Notes to Consolidated Financial Statements.
12
liVDIAIVA& MICHIGAIVEW"RIC COMPAIVY AIVD GEIVERATTJVG SUIISIDIARY Consolidated Statement of Retained Earnings Balance at Beginning of Year Consolidated Net Income Total December 31, 1978 1977 (In Thousands)
$104,566
$ 76,286 114,827 97,120 219,393 173,406 Deductions:
Cash Dividends Declared:
Common Stock Cumulative Preferred Stock:
4~/s % Series 4.56%
Series 4.12%
Series 7.08%
Series 7.76%
Series 8.68%
Series 12
% Series
$2.15 Series
$2.25 Series Total Cash Dividends Declared...............
Capital Stock Expense Total Deductions Balance at End of Year (Note 6) 62,692 495 273 165 2,124 2,716 2,604 3,600 3,440 2,940 81,049 1,515 82i564
$136,829 52,920 495 273 165 2,124 2,716 2,604 3,600 2,064 66,961 1,879 68,840
$ 104,566 See IVoies io Consolidated Financial Stasements.
Notes to Consolidated Financial Statements 1.
Significant Accounting Policies:
The common stock of the Company is wholly owned by American Electric Power Company, Inc. (AEP).
The consolidated financial statements include the ac-counts of the Company and its wholly owned subsidiary Indiana & Michigan Power Company (the Generating Subsidiary). The Generating Subsidiary was.formed to own, complete construction of and operate the Donald C. Cook Nuclear Plant, the first unit of which has been in commercial operation since 1975 and the second unit of which was placed in commercial operation during July 1978. Significant intercompany items have been eliminated in consolidation. A minor inactive subsidiary has not been consolidated.
The accounting and rates of the Company and the Generating Subsidiary are subject in certain respects to the requirements of state regulatory bodies and in cer-tain respects to the requirements of the Federal Energy Regulatory Commission (FERC).
The consolidated financial statements have been prepared, with full res-ervation of legal rights, on the basis of the accounts which are maintained for FERC purposes.
4.0%
3.1%
3.3%
3.5%
Utility Plant, Other Property and Investments and Depreciation Electric utility plant is stated at original cost. Gen-erally, the plant of the Company and the Generating Subsidiary is subject to first mortgage liens.
The companies capitalize, as a construction cost, an.
allowance for funds used during construction, an item not representing cash income, which is defined in the applicable regulatory systems of accounts as the net cost of borrowed funds used for construction purposes and a reasonable rate on other funds when so used.
The respective composite rates used by the Company and the Generating Subsidiary were increased to 10.5%
and 10.2%, respectively, during 1978 (effective Janu-ary 1) from 8.5%
used by both companies in 1977, (applied by the Company on an annual basis and by the Generating Subsidiary on a semiannual compound basis).
The companies provide for depreciation on a straight-line basis over the estimated useful lives of the property.
The current provisions are determined largely with the use of functional composite rates as follows:
Functional Composite Class of Annual
~PIO Cll Rate Production:
Steam Nuclear Steam Fossil. fired Transmission...........
Distribution General Income is charged with the costs of labor, materials, supervision, and other costs incurred in maintaining the properties. Property accounts are charged with costs of betterments and major replacements of property, and the accumulated provisions for depreciation are charged with retirements, together with removal costs less salvage.
Nonutility property, other property investments, and other investments are generally stated at cost.
'ncome Taxe's Deferred Federal income taxes, reduced where ap-plicable by investment tax credits, are provided by the Company and the Generating Subsidiary generally to the extent that such amounts are allowed for rate-making purposes.
On October 1, 1978, the Company and its Generating Subsidiary expanded deferred tax accounting to additional timing differences pursuant to an order of the Public Service Commission of Indiana.
The Company and the Generating Subsidiary prac-tice deferral accounting for the effect of tax reductions resulting from the application of investment tax credits to provisions for current and certain deferred Federal income taxes. The deferred investment tax credit ap-plicable to current Federal income taxes payable is amortized over 30 years.
Pension Plan The Company and the Generating Subsidiary par-ticipate with other companies in the AEP System in a trusteed plan to provide pensions for all employees, subject to certain eligibilityrequirements. The plan was previously contributory on the part of employees, but as of January 1, 1978, required employee contributions were eliminated as to substantially all employees.
The pension plan conforms to the Employee Retirement Income Security Act of 1974 (ERISA).
Pension costs for the years ended December 31, 1978 and 1977 were approximately
$2,624,000 and
$2,170,000, respectively, representing the cost of cur-rently accruing benefits. There were no unfunded prior service costs as of December 31, 1978. Effective Janu-ary 1, 1979, benefits of the plan were modified. The change resulted in unfunded prior service costs of approximately
$ 1,970,000, which will be amortized over 30 years. The plan may be modified or terminated at any time, subject to limitations of labor agreements.
Employees Savings Plan The Company and the Generating Subsidiary par-ticipate with other AEP System companies in a trusteed savings plan which became effective January 1, 1978 and is available to employees who have met eligibility requirements.
The savings plan conforms to the appli-cable provisions of ERISA. Each employer contributes
If>tDIAt>tA >it M~GAt>t ELECTRIC COMPANY A%VGEHERATlt>tG SVBSIDIARY to the plan an amount equal to 50% of its employee-participants'ontributions up to 6% of their regular compensation.
Benefits to participating employees are based solely upon amounts contributed to the partici-pants'ccounts.
By its nature the plan is<fully funded at all times. The cost of the plan for the year ended December 31, 1978 totaled $607,000.
Other The Company accrues unbilled revenues for services rendered subsequent to the last billing cycle through month-end.
miscellaneous nonoperating income for the years ended December 31, 1978 and 1977 includes gains amounting to $261,000 and $306,000, respectively, on certain long-term debt reacquired.
Debt discount or premium and debt expense are being amortized over the lives of the related debt issues and the amortization thereof is included within miscel-laneous interest charges.
2.
Operating Revenues and Operating Expenses:
The Company has collected retail revenues under final orders of the Public Service Commission of Indi-ana which became effective in February 1977 and September 1978. The 1977 order has been appealed to a court of appeals and certain parties have initiated proceedings looking toward an appeal from the 1978 order.
In September 1978, FERC ordered that the Com-pany refund approximately $3,000,000 to a municipal customer.
The Company recorded the refund in the third quarter of 1978. The effect of such refund on prior periods was not material.
Revenues collected by the Company from wholesale rate increases placed into effect subject to possible refund (exclusive of the amount refunded as described above) are estimated as follows:
(In Thousands) 1978...............
S 24>981 1977 27,968 Prior to 1977 50,368 Total 3103,317 On February 23,
- 1978, an administrative law judge of FERC issued an initial decision ordering one of the afiiliated interchange power suppliers to make certain refunds, after recomputing interchange charges for the period subsequent to June 1975 on the basis of the interconnection agreement in effect prior to that date, but excluding from such calculations as member ca-pacity, in the case of the Company, the capacity owned by the Generating Subsidiary and, in the case of an-other member of the System, the capacity owned by its generating subsidiary. If the change is finally ordered by FERC, the Company could become entitled to re-
-funds in a substantial amount. Certain intervenors have urged that changes be made in the interconnection agreement, which would have the opposite effect, in-creasing the amounts payable by the Company.'he AEP System subsidiaries, including the Company, have filed a brief which urges that the action of the admin-istrative law judge be revised so as to sustain the origi-nal amounts charged,'but cannot predict the final out-come of the proceeding or the effect thereof on the Company.
Operating revenues derived from domestic govern-mental entities represent approximately 8% and 10%
of total operating revenues for 1978 and 1977, respec-tively.
Operating revenues derived from a
certain wholesale customer represent approximately 12% and 7% of total operating revenues for 1978 and
- 1977, respectively.
In 1978 the Company received approval of the Public Service Commission of Indiana to collect, over a five-year period ending in 1983, substantially all of its deferred fuel costs.
1978 1977 Prior to 1977 Total (In Thousands)
$20,777 16,439 5,224
$42,440 3.
Federal Incoine Taxes:
The details of Federal income taxes are as follows:
Year Ended December 31, 1978 1977 See Note 10 for information with respect to an anti-trust decision enjoining the Company from charging certain wholesale rates.
Commencing in June 1975, operating expenses in-clude the effect of changes in rates charged for inter-change power transactions between the Company and other companies in the AEP System.
The effect of such changes was to increase the charges to the Com-
- pany, subject to possible refund by its interchange power suppliers, by the following estimated amounts:
S(1,128) 13,535 5,038 17,445 Charged (Credited) to Operating (In Thousands)
Expenses:
Current Federal Income Taxes (Net)
$ 1,357 Deferred Federal Income Taxes (Net) 18,658 Deferred Investment Tax Credits Total....................
23,438 Charged to Other Income and Deductions............
936(a) 537 Total Federal Income Taxes S24,374 S17,982 (a) Includes deferred income taxes of $ 121,000.
15
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)
The consolidated effective Federal income tax rates were less than the statutory rates for the years 1978 and 1977. The following is a reconciliation of the differences between the amount of Federal income tax expense reported in the Consolidated Statement of Income and the amount of Federal income taxes computed by multiplying consolidated net income before Federal income taxes by the statutory tax rate.
Consolidated Net Income Federal Income Taxes Pre-Tax Book Income Federal Income Tax on Prc-Tax Book Income at Statutory Rate of 48%
Increase (Decrease) in Federal Income Taxes Resulting from:
Excess of Tax over Book Dcprcciation Allowance for Funds Used During Construction and Items Capitalized on the Books but Deducted for Tax Purposes Mine Development and Exploration Expense Provision for Revenue Refunds Amortization of Pollution Control Facilities.
Miscellaneous Items Federal Income Tax on Current-Year Taxable Income (Separate-Return Basis)
Reduction Due to System Consolidation Minimum Tax on Preference Items Currently Payable Adjustments of Prior-Year Accruals (Net)
Adjustments for Tax Losses (a):
Federal Income Taxes Investment Tax Credit Current Federal Income Taxes (Net)
Deferred Federal Income Taxes (Net of Amortization) Resulting from the Following Timing Differences:
Depreciation (Liberalized and Asset Depreciation Range).. ~.
Unbilied Revenue Accelerated Amortization of Emergency Facilities (Amortization of Prior-Year Provisions)........
Provision for Revenue Refunds Other Investmcnt Tax Credit Applicable to Deferred Federal Income Taxes on Certain Timing Differences Deferred Federal Income Taxes (Net)
Deferred Investment Tax Credits (Net)
Total Federal Income Taxes (19,691)
(25,853)
(4,680)
(888)
(4,080) 109 11,733 (11,733) 650 650 (276)
(16,080)
(24,005)
(1,962)
(2,912)
(1,609)
(5,633) 3,048 (3,048) 18 18 (774) 7,503 (5,705) 2,172 68 97 (591) 17,439 (1,221)
(1,848) 2,188 2,221 18.779 3,423(c)
$ 24,374 13,931 3,315 (1,882) 2,213 1,154 (5,196) 13,535 5,038
'17,982 Year Ended December 31, 1978 1977 (InThousands)
$ 114,827
$ 97,120 24,374 17,982 8139,201 8113,102 8 66,816 8 33,249 (a) The AEP System allocates Federal income taxes currently payable in accordance with SEC regulations, which require that the benefit of tax losses be allocated to the AEP System companies with taxable income.
The benefits of these tax losses, without affecting taxes payable, are reallocated to the AEP System companies giving rise to such losses, as it is expected that these losses would be usable in subsequent years to reduce taxes payable of the loss companies.
16
INDIANA 4 Ml AN ELECTRIC COMPANY AND GENERATING SUBSIDIARY (b) In accordance with an order of the SEC under the Public UtilityHolding Company Act of 1935, a tax loss of the Generating Subsidiary is to be first applied to reduce the taxable income of the Company and any unused amount is to be allocated among the other System companies included in the consolidated Federal income tax return, but with the provision that any losses so allocated to other System companies shall be reallocated to the Company if usable by it in subsequent years. The effect of tax losses allocated to other companies would be included in the reallocation referred to in (a) above.
(c) The System consolidated Federal income tax return for 1977, filed in 1978, showed a taxable income which was less than that estimated for the year-end accrual. The decrease was principally attributable to additional percentage repair allowance deductions of the Company and affiliated companies and mine development expense deductions of the Company claimed over the estimated amounts utilized in pre-paring the 1977 year-end accrual. These differences had no significant effect on the amount of income taxes payable for 1977 because of the effect of investment tax credits; however,.total System Federal income taxes for 1977 would have been reduced due to the related reversal of deferred investment tax credits, The increase in income ($3,194,000) resulting from these differences in estimates was recorded by the Company in the third quarter of 1978.
The Company joins in the filing.of a consolidated Federal income tax return with its affiliated companies in the AEP System.
Unused System investmcnt tax credits at December 31, 1978 aggregated approximately
$201,000,000, of which approximately
$21,300,000 may be carried forward =through
- 1981,
$52,800,000 through 1982, $20,500,000 through 1983, $27,400,000 through
- 1984, and
$79,000,000 through 1985.
Of these
- amounts, approximately
$26,000,000 had been applied as a reduction of deferred income taxes prior to December 31, 1978 and will not be reflected in net income when realized in futureyears except as af-fected by changes in deferred income taxes.
The System consolidated Federal income tax re-turns for the years prior to 1965 have been settled.
The returns for the years 1965 through 1969 together with certain unrecorded refund claims relating to the years 1965, 1966 and 1967 are currently being settled on the basis of a net refund for the period, the amount of which the System companies deem immaterial. The returns for the years 1970 through 1973 have been reviewed by the Internal Revenue Service and addi-tional taxes for those years have been proposed, some of which the System companies have protested. In the opinion of the System companies, adequate provision has been made for such additional taxes.
4.
Other Property and Investments:
The following is an analysis of other property and investments:
December 31, 1978 1977 (In Thousands)
Nonutility Property and Other Property Investments:
western Coal Lands Acquired as Source of Low4ulfur Fuel...
Other Coal Properties and Fuel-Handling Facilities..........
Miscellaneous (Net)...........
Subtotal................
Ohio Valley Electric Corporation Sub-ordinated Notes..................
Other Investments..................
Total Other Property and Investments...............
$ 149,713
$ 120,799 4,946 3,692 15 495 12 674 170,154 137,165 56 200 145
$ 170,299
$ 137,421 5.
Common Stock, Premium on Capital Stock, and Other Paid-in Capitals There were no common stock transactions and no transactions affecting premium on capital stock during the years 1978 and 1977. The Company received from its parent cash capital contributions of $60,000,000 in 1978 and
$58,000,000 in 1977; such contributions were credited to other paid-in capital.
6.
Retained Earnings:
Various restrictions on the use of retained earnings for cash dividends on common stock and other pur-
- poses are contained in or result from covenants in mortgage indentures, debenture and bank loan agree-
- ments, charter provisions, and orders of regulatory authorities.
Approximately $48,500,000 at December 31, 1978 was so restricted.
17
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued) 7.
Cumulative Preferred Stodc The following is an analysis of cumulative preferred stock:
Redemption Current Restricted Call Price(a)
Prior to Amount December 31.
Par Value Shares Outstanding Series 1978 1977 (InThousands)
$ 12,000
$ 12,000 6,000 6,000 4,000 4,000 30,000 30,000 35,000 35,000 30,000 30,000 30,000 30,000 40,000 40,000 40,000
$227,000
$ 187,000 dividends. Thc involuntary liquidation preference 120,000 60,000 40,000 300,000 350,000 300,000 300,000 1,600,000 1,600,000 or before October 1 of each year, beginning in of such series. The Company has the right, on all sinking fund provisions have been met, no 4 Vs%
'106.125
$ 100 4.56%
102.000 100 4.12%
102.728 100 7.08%
106.450 100 7.76%
107.320 100 8.68%
107.440 100 12 112.000(b) 9/1/80 100
$2.15 27.150 5/1/82 25
$2.25 27.250 3/1/83 25 Total Cumulative Preferred Stock (a) Callable at the option of the Company, at the price indicated plus accrued is par value.
(b) A sinking fund for the 12% series requires the Company to provide, on 1980, for thc purchase, or redemption at $ 100 a share, of 15,000 shares each sinking fund date, to redeem an additional 15,000 shares.
Unless distribution may be made on the common stock.
In 1976 shareowners authorized the issuance of up to 4,000,000 shares of $25 par value cumulative preferred stock (which ranks equally with the $ 100 par value cumulative preferred stock) and in 1978 increased the authori-zation to 7,200,000 shares. In 1977 the Company issued and sold 1,600,000 shares of the $2.15 series and in 1978 the Company issued and sold 1,600,000 shares of the $2.25 series.
At December 31, 1978, authorized shares of cumulative preferred stock were as follows:
Shares Par Value
,Authorized
$100...
2.250,000 25 7,200,000 First Mortgage Bonds..............
Sinking Fund Debentures...........
Notes Payable to Banks, duc 1980..
Installment Purchase Contracts......
Other Long-term Debt.............
Total (less portion due within one year)
$ 1,043,090
$977,062 First mortgage bonds outstanding were as follows:
December 31, Due 1978 1977 (InThousands) 1978(a)....................
$ 30,000 1978(b)....................
24,173 1980....
18,015 18,015 1982 16,046 16,046 1982 70,000 70,000 1983 13,762 13,762 1983 60,000 60,000 1984.....
15,082 15,082 1984(c)(d)(e)...'............
66,000 70,500 1985(e)....................
13,500 14,250 1988 22,974 22,974 1988 '.....
17 557 17 557 1993 42,902 42,902 Series "6'o 3
2%%
3 Vs%
10Vs %
3Ys%
11 3Ys%
10zs%
10.%
3ss%
4%duo 4%%
S.
Long-term Debt, Short-term Debt, Lines of Credit, and Compensating Balances:
Long-term debt by major category was outstanding as follows (less portion due within one 'year):
December 31.
1978 1977 (In Thousands) 832,286
$482,826 24,083 25,260 82,000 360,000 99,841 99,750 4,880 9,226 Series Due Dcccmber 31.
1978 1977 (In Thousands)
$ 35,000
$ 35,000 50,000 50,000 40,000 40,000 255,000 100,000 7
1998 8Fs%
2000 8Ys% 2003 9'%003(c) 9'A%%uo 2008 Unamortized Debt Discount Net (552)
(262) 835,286 539,999 3,000 57,173
$832,286
$482.826 In January 1979, the Company issued
$80,000,000 of 10N%
first mortgage bonds due in 1987.
The Less Portion due ivithin One. Year..
Total (a) Retired February 1, 1978.
(b) Retired September 1, 1978.
(c) Guaranteed by American Electric Power Company, Inc.
(d) These bonds are obligations of the Generating Subsidiary.
The unamortized discount amounted to
$ 189,000 and
$221.000 at December 31, 1978 and 1977, respectively.
(e) Sinking fund payments are required as follows:
10% series due 1985
$750,000 annually on March 1.
107/s%
series due 1984
$2,250,000 annually on Decem-ber 1, through 1983, with the noncumulative election to redeem an additional $2,250,000 in each year.
9'%eries due 2003
$ 11,500,000 annually on June 1,
1980 through 1991 and $ 13.500,000 annually on Junc 1,
1992 through 2002 with the noncumulative option to redeem an additional amount in each of the specified years from a minimum of $ 100,000 to a maximum equal to the scheduled requirement for each year, but with a maximum ootional redemption, as to all years in the aggregate, of $75,000,000.
18
INDIANA ck Ml AN ELECTRIC CohfPANY AND GENERATING SUBSIDIARY Installment purchase contracts of the Company were as follows:
December 31, City of Lawrenceburg, Indiana:
8ViÃo Series due 2006......
7% Series due 2006........
67ie%
Series due 2006......
City of Sullivan, Indiana:
6ss%
Series due 2006......
Unamortized Debt Discount...
Total 1978 1977 (In Thousands)
$25,000 40,000 12,000
$25,000 40,000 12,000 25,000 (2,159)
$99,841 25,000 (2,250)
$99,750 Under the terms of certain installment purchase con-tracts, the Company is required to pay purchase price installments in amounts sufficient to enable the cities to pay interest on and the principal (at stated maturi-ties and upon mandatory redemption) of related pol-lution control revenue bonds issued to finance the con-struction of pollution control facilities at the Company's Tanners Creek and Breed Plants.
Other long-term debt of the Company outstanding consisted of:
December 31, 1978 1977 (In Thousands)
Coal rcscrve obligations payable in equal annual installments through 1980 with interest at 8%..........
Notes payable due 1978 through
- 1985, 6%-7%
Other Less portion due within one year..
Total
'I
$ 8,252
$ 12,377 902 262 9,416 4,536
$ 4,880 934 162 13,473 4,247
$ 9,226 Generating Subsidiary has a delayed-delivery contract to sell an additional $45,000,000 of its first mortgage bonds, 9th% Series due 2003, on March 1, 1979.
The indentures relating to the first mortgage bonds
'> 'contain improvement, maintenance and replacement provisions requiring the deposit of cash or bonds with the trustee, or in lieu thereof, certification of unfunded property additions. The Company has elected to'use unfunded property additions to meet these provisions in the past.
Sinking fund debentures of the Company outstanding were as follows:
December 31, 1978 1977 (In Thousands) 5Vs% Due 1986
$ 12,076
$ 12,491 714% Due 1998......
11,941 12,694 Unamortized Debt Premium...........
66 75 Total
$24,083
$25,260 1979 1980 1981 1982 1983 Later Years Total (InThousands) 71536 118,859 15,032 101,304 89,035 721.505
$ 1,053,271 At December 31, 1978 and
- 1977, the principal amounts of debentures reacquired in anticipation of sinking fund requirements were
$2,183,000 and
$ 1,815,000, respectively.
The companies may make additional debenture or first mortgage bond sinking fund payments of up to $3,050,000 annually ($2,250,000 relating to Generating Subsidiary).
The interest rate on the long-term notes payable to
.banks (an average of 12.2%
at December 31, 1978 and 8.4%
at December 31, 1977) depends on the prime commercial rate plus a fractional percentage.
The Generating Subsidiary has informal arrangements with the banks to maintain average compensating bank balances equal to approximately 15% of certain of the notes outstanding'on. an average basis or such smaller amount as the banks consider appropriate in view of other banking relationships or, in lieu thereof, to pay a fee on any draw-down of the compensating balances based on the approximate effective interest cost of the related notes, assuming the full compensating balances had been maintained; AtDecember 31, 1978 and 1977, the compensating balances under the arrangements were approximately $9,800,000 and $34,100,000, re-spectively. The effective interest rate, representing the actual interest rates on the notes outstanding adjusted for the effect of the compensating balance require-
- ments, averaged 13.9%
at December 31, 1978 and was approximately 9.6% at December 31, 1977.
Short-term debt and interest rates thereon were as follows:
1978 1977 (Dollars in Thousands)
Weighted average interest rates for debt outstanding at end of year:
Notes Payable to Banks............
Commercial Paper..................
Maximum amount of debt outstanding at any monthwnd during the year:
Notes Payable to Banks............
Commercial Paper..................
10.9%
7.8%
11.2%
7.4%
$69,490
$87,400
$55,450
$76,042 Consolidated long-term debt outstanding at Decem-ber 31, 1978 is due as follows:
Principal Amount 19
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)
The Company had unused short-term bank lines of credit of approximately $ 144,000,000 and $208,000,-
000 at December 31, 1978 and
- 1977, respectively, under which notes could be issued with no maturity more than 270 days after date of issue. The available lines of credit are subject to withdrawal at the banks'ption, and $ 135,000,000 and $200,000,000, respec-tively, of such lines are shared with other AEP System companies.
In accordance with informal agreements with the banks, compensating balances of up to 10%
or, in certain instances, equivalent fees are required to ntaintain the lines of credit, and, on any amounts actually borrowed, generally either additional compen-sating balances of up to 10% are maintained or adjust-mcnts in interest rates are made. Substantially all bank balances are maintained by the Company to compensate the banks for services and for both used and available lines of credit.
9.
Supplemental Income Statement Information and Related-Party Transactions:
Electric operating revenues shown in the Consoli-dated Statement of Income include sales of energy to AEP System companies of approximately $ 17,500,000 and
$ 14,500,000 for the years ended December 31, 1978 and 1977, respectively.
Operating expenses shown in the Consolidated State-ment of Income include certain items not shown sepa-rately, as follows:
Year Ended December 31, 1978 1977 (In Thousands) 6,241 2,965 Purchased Power (a)...........
Interchange Power (Net):
AEP System Electric Utilities.
Other Companies (b).........
140,957 911
$ 144,833 80,043 30,024
$ 116,308 1978 1977 (Dollars in Thousands)
Weighted average intcrcst rate of debt outstanding during the year (a):
Notes Payable to Banks............
94%
6.6%
Commercial Paper..................
9.1%
6.6%
Average.amount of debt outstanding during thc year:
Notes Payablc to Banks............
$31,862 '39,457 Commercial Paper..................
$36,211
$58,716 (a) Average interest rates are determined by dividing inter-est expensed for the year by average month-end debt.
Taxes, Other Than Income Taxes:
Real and Personal Property Taxes..
State Gross
- Sales, Excise and Fran-chise
- Taxes, and Miscellaneous State and Local Taxes..........
Social Security Taxes Federal and State Year Ended December 31, 1978 1977 (InThousands)
$ 14,617
$ 13,609 9,842 1,973
$ 26,432 8,078 1,721
$ 23.408 10.
Commitments and Contingencies:
The construction budget of the Company and the Generating Subsidiary for the year 1979 is estimated at $241,000,000 and, in connection therewith, com-mitments have been made.
The Company participates with its parent, two asso-ciated utility companies, several unaffiliated utility companies, and Ohio Valley Electric Corporation (OVEC) in supplying the U.S. Department of Energy (POE) with the power requirements of its plant near Portsmouth, Ohio. The proceeds from the sales of power by OVEC are designed to be sufficient for OVEC to meet its opeiating expenses and fixed costs, including amortization of long-term debt capital (bal-ance approximately
$43,300,000 as of December 31, 1978), over a period ending in 1982, and to provide for an annual return on its equity capital. The Com-
- pany, as a participant, is entitled to receive from OVEC, and is obligated to pay for, 7.6% of the power not required by DOE. The power agreement terminates (a) Includes power purchased from OVEC of approximately
$ 1,558,000 in 1978 and $476,000 in 1977.
(b) Includes interchange power sold to OVEC of approxi-mately $908,000 in 1978 and $956,000 in 1977.
Charges to income for royalties and advertising are less than 1% of gross revenues in each case.
Sales and purchases of energy and interchange power transactions are regulated by the various commissions having jurisdiction.
American Electric Power Service Corporation pro-vides certain services to the Company and the affiliated companies in the AEP System. The costs of the ser-vices are determined by the service company on a
directwhargc basis to the extent practicable and on reasonable bases of proration for indirect costs.
The charges for services are made on a cost basis but in-clude no compensation for the use of equity capital, all of which is furnished to the service company by AEP. The service company is subject to the regulation of the Securities and Exchange Commission under the Public UtilityHolding Company Act'of 1935.
20
INDIANA &, Ml GAiV ELECTRIC COAfPANY AND GENERATING SUBSIDIARY in 1979 but DOE has notified OVEC of its desire to negotiate an extension to 1992.
In 1978, three court proceedings brought, in recent years by certain municipalities in Indiana and Michigan,,
all wholesale customers of the Company, were com-bined into a single consolidated case in a U.S. District Court and a fourth action was commenced in the same court. A trial of the consolidated case was held and.in January 1979 the court ruled for the plaintiffs that the
- Company, its parent, and American Electric Power Service Corporation have violated the antitrust laws, awarded the municipalities damages of approximately
$ 12,100,000 when trebled, placed limitations on the Company's putting into effect or charging wholesale rates to the plaintiffs and enjoined the Company from certain practices. The financial statements at December 31, 1978 do not include any provision for such dam-ages.
The companies are appealing the decision and provisions of the judgment awarding monetary dam-ages have been stayed.
In another proceeding, the Company is awaiting de-cision on its appeal to FERC, filed in 1977, with re-spect to a ruling by an administrative law judge on a complaint made to the commission by the same group of municipalities. That complaint, alleging that the municipal electric systems had been threatened with termination of wholesale electric service, had earlier been upheld by the FERC judge.
In March
- 1979, two other municipal customers brought a separate action against the Company, its parent and the Service Corporation alleging violations of the antitrust laws and seeking damages of at least
$7,000,000 before trebling and other remedies. Certain issues in the complaint are similar to those tried in the consolidated case discussed in the second preceding paragraph.
As previously reported, the Securities and Exchange Commission (SEC) had commenced an investigation, through its staff, into certain aspects of the AEP Sys-tem's operations, including its promotion of all-electric housing during the 1960's and the acquisition and operation of certain coal and transportation properties.
The SEC staff had maintained that commission au-thorization should have been obtained for some of the transactions.
The AEP System companies disagreed but did agree to a negotiated settlement in order to avoid long litigation with the SEC. As a result, the AEP System companies agreed to a consent order in a U. S. District Court in which they neither admitted nor denied the allegations. As part of the agreement, a
special auditor was appointed to review intercompany charges and costs associated with the programs and transactions involved in the investigation; the auditor's report was filed in December 1978. The AEP System companies are engaged in a continuing program 'for the orderly and economic divestment of a limited amount of real estate, acquired in connection with the housing and industrial development programs, that was subject to question.
ln 1975, an investigation was commenced under the Federal Power Act concerning the reasonableness and prudence of the coal-purchasing policies and practices of members of the AEP System, the manner in which wholesale fuel-adjustment clauses are implemented by System
- members, and related matters.
In 1978 the FERC staff issued a preliminary report which alleged overcharges of approximately $ 10,000,000 on the part of the entire AEP System, of which only a relatively small portion relates to the Company's operations. The report also questioned certain aspects of the AEP System's fuel positions and policies. The AEP System companies are preparing a response to these allegations.
In 1976 a cable-television organization filed an anti-trust suit in a U.S. District Court alleging that the
- Company, with five telephone companies named as co-conspirators, had attempted to monopolize com-munications by terminating contracts and increasing charges for the rental of utilitypoles, and sought dam-ages which when trebled would aggregate more than
$ 150,000,000.
In early
- 1979, the court entered a
judgment denying damages and injunctive relief.
The companies are subject to certain developing laws and regulations with respect to air and water quality, land
- use, and other environmental matters.
IVhile the companies are unable to predict the ultimate effect of such laws and regulations, it is possible that they may be required to pay penalties for failure to comply during certain periods or that compliance there-with may require the companies to incur substantial additional costs to modify or replace existing and pro-posed equipment and facilities.
Other highly complex litigation relates to the Donald C. Cook Nuclear Plant's fuel-supply contracts.
Two contractors, United Nuclear Corporation and General Atomic Company (GAC), are variously obligated to supply uranium concentrates and six fabricated nuclear-fuel reloads to the Company. Each contractor claims, among other things, that it is not or may not be obli-gated to make deliveries of uranium concentrates or fab-ricated nuclear-fuel reloads and that it is entitled to a price higher than contracted.
The Company received the first two reloads and assured delivery of the remain-ing four reloads through rights-reserved agreements with GAC, which were incorporated into injunctive 21
NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Concluded) orders of the court. Under the agreements, pending the court's judgment and without prejudice to the ultimate rights of the parties, the reloads, were to be supplied at a
higher provisional cost to the Company.
In 1978, a U.S. District Court entered judgment ordering GAC to pay the Company damages of approximately
$ 16,000,000 and to deliver the remaining reloads at the price specified in the contract. GAC has appealed the judgment. A stay of the monetary portion of the judgment has been
- granted, but motions to stay the specific-performance portion of the judgment have been denied.
The companies intend to apply to regulatory com-missions to provide, through future increased rates, for the costs that will be incurred to store spent nuclear fuel and to decommission the Nuclear Plant at the end of its service life. The companies plan to effect modifi-cations to increase the present spent-fuel storage ca-pacity of the Nuclear Plant to permit normal operations through the early 1990's, at a cost which is not ex-pected to cause a material increase in the construction budget.
The companies are also studying alternative methods of decommissioning the Nuclear Plant but cannot reasonably
- estimate, at this time, the future costs that will be incurred.
The Price-Anderson Act limited the public liability of a licensee of a nuclear plant to $560,000,000 for a single nuclear incident, to be covered in part by pri-vate insurance with the balance to be covered by agree-ments of indemnity with the Nuclear Regulatory Com-mission.
The Generating Subsidiary has purchased private insurance in the maximum available amount of
$ 140,000,000.
In the event of a nuclear incident in-volving any commercial nuclear facility in.the country, the Generating Subsidiary, together with other licensees, could be individually assessed
$5,000,000 per incident for each reactor owned (subject to a maximum of
$ 10,000,000 in any year for each reactor owned in the event of more than one incident). The Price-Anderson indemnities have been decreased by the aggregate amount which is assessable against existing licensees and will continue to decrease as new operating units are licensed.
The Generating Subsidiary has procured property insurance in the maximum available amount of $220,-
000,000 for damage to the nuclear plant facilities and is a self-insurer for any property loss in excess of that amount.
11.
Leases:
The companies, as part of their operations, lease property, plant, and equipment under leases ranging in length from 2 to 35 years. Most of the leases require the companies to pay related property taxes, mainte-nance
- costs, and other costs of operation.
The com-panies expect that in the normal course of business, leases will generally be renewed or replaced by other leases.
The greatest part of the rentals is under leases having purchase options or having renewal options for substantially all of the economic lives of the properties.
Rentals are analyzed as follows:
Year Ended December 31, 1978 1977 (InThousands)
$60,000
$32,000 Gross Rentals Less Rental Recoveries (including Sublcasc Rentals) (a)............
Nct Rentals (b)
(a) Includes amounts paid for or companies.
(b) Classified as:
Operating Expcnscs............
Clearing and Miscellaneous Accounts (portions of which a charged to income) 1,000
$59,000 1,000
$31,000 reimbursed by associated
$51,000
$26,000 8,000 5,000
$59,000
$31,000 Future minimum lease payments, by year and in the aggregate, under the companies'apital leases and noncancelable operating leases consisted of the follow-ing at December 31, 1978:
Capital Operating Lcascs(a)
Leases (In Thousands) 6 000 7 000 6,000 7,000 6,000 7,000 6,000 7,000 5,000 7,000 74,000 74,000
$ 42,000 1979 1980 1981 1982 1983 Later Years Total Future Minimum Lease Payments 103,000
$ 109,000 Less Estimated Interest Element Included Thcrcin (b)..............
61,000 Estimated Present Value of Future Minimum Lease Payments.........
(a) Excludes leases of nuclear fuel, all of which arc capital leases.
Nuclear fuel rentals comprise thc unamortized balance of thc lessor's cost (approximately $99,000,000 at Dcccmbcr 31, 1978 and
$93,000,000 at Dcccmbcr 31, 1977),
less
- salvage, value, if any, to be paid over thc period of usage in proportion to heat produced, and carrying charges on the lessor's unrccov-crcd cost. It is contemplated that portions of the presently leased material willbe replenished by additional leased material.
(b) Interest rates used range from 4.9% to 12.1%.
~
22
IIVDIA¹t dtl hfl GAiVELECTRIC COhfPAIVY AIVD GEIVERATIIVG SUBSIDIARY Nuclear Fuel t978 l977 (In Thnnnnndn)
$ 143,000
$ 132,000 Coal-Mining and Coal-Transportation Equipment Real Estate Electric Distribution System Property Other Gross Properties under Capital Leases Less Accumulated Provision for Amortization Net Properties under Capital Leases..
Obligations under Capital Leases (a)..
15,000 13,000 12,000 11,000 194,000 58,000
$ 136,000
$ 141,000 17,000 13,000 12,000 10,000 184,000 53,000
$ 131,000
$ 136,000 (a) Including an estimated
$37,000,000 and
$31,000,000, re-spectively, due within one year.
The following is a pro forma analysis of leased prop-erties under capital leases and related obligations, assuming that such leases were capitalized:,
d
'. d',
gP December 31, Operating Operating Net Revenues Income Income (In Thousands)
Quarterly Periods Ended 1978 Mar. 31.................
$ 145,106
$41,553
$32,196 June 30.................
157,958 40,183 34,491(a)
Sept. 30.................
152,218 40,749 22,739(b)
Dec. 31.................
148,198 37,349 25,401(a) 1977 Mar. 31.................
128,258 31,821 23,191 June 30.................
118,070 30,698 22,871 Sept. 30.................
133,016 33,812 25,817 Dec. 31.................
133,480 34,069 25,241 (a) Includes increases in AFUDC of approximately $ 1,567,000 recorded in thc second quarter and $3,372,000 recorded in the fourth quarter relating to changes in AFUDC rates, applied in each case eifecuve as of January 1, 1978.
(b) Includes the effect of a revenue refund (see Note 2), and a change in tax estimate (sec Note 3).
12.
Unaudited Quarterly Financial Informationt The following consolidated quarterly financial in-formation is unaudited but, in the opinion of the Company, includes all adjustments (consisting of only normal recurring accruals) necessary for a fair pres-entation of the amounts shown:
Had capital leases been capitalized, any additional net expense would have been insignificant. The pro forma data do not give recognition to offsetting ad-justments in allowable revenues that the companies believe would normally be expected to occur through the regulatory rate-making process, if the related leases had been capitalized.
Included in the above analyses of future minimum lease payments and of properties under capital leases and related obligations are certain leases as to which portions of the related rentals are paid for or reim-bursed by associated companies in the AEP System based on their usage of the leased property. The Com-pany cannot predict the extent to which or proportion in which tile associated companies will utilize the properties under such leases in the future.
13.
Unaudited Replacement-Cost Information:
Estimated replacement-cost and related amounts pertaining to depreciation, as of and for the years ended December 31, 1978 and 1977, of productive capacity (as represented by property in service, ex-cluding nondepreciable items such as land and exclud-ing other amounts for which replacement-cost data are not required to be computed) are considerably greater than the related original~ost amounts reported in the consolidated financial statements. A quantitative analy-sis of such unaudited replacement-cost information is included in the Company's 1978 Annual Report (Form 10-K) to the Securities and Exchange Commis-sion. Reference is made elsewhere herein for informa-tion with regard to obtaining a copy of the Company's Form 10-K for the year 1978.
23
Operating Statistics and Balance Sheet Data 1978 1977 1976 1975 1974 OPERATING STATISTICS ELEGTRIc OPERATING REYENUEs (Thousands):
From Kilowatt-hour Sales:
Residential:
Without Electric Heating............
With Electric Heating............'...
Total Residential...............
Commercial Industrial Sales for Resale:
Municipalities Cooperatives Other Electric Utilities..............
Total Sales for Resale...........
Miscellaneous Total from Kilowatt-hour Sales....
Other Operating Revenues...............
Total Electric Operating Revenues..
150,691 96,370 121,346 137,781 92,312 109,357 44,091 15,619 103,517 39,121 17/732 166,441 163,227 223,294 6,062 7,729 508,739 4,085 599,430 4,050
$603,480
$512,824
$ 96,624
$ 90,833 54 067 46,948
$ 71,888 37,447 109,335 72,527 80,233 26,841 10,491 110,382 147,714 2,573 412,382 3,811
$416,193
$ 69,438 33,493 102,931 69,176 75,167 22,551 9,178 75,887 107,616 4.650 359,540 3,815
$363,355
$ 53,265 27,080 80,345 50,554 63,314 23,493 7,548 55,994 87,035 3,389 284,637 2,969
$287,606 SoURGEs AND SALEs oF ENERGY (Millionsof Kilowatt-hours):
Sources:
Net Generated Steam:
Fossil Fuel Nuclear Fuel Net Generated Hydroelectric..........
Net Generated Other................
Subtotal Purchased Net Interchange Total Sources Less: Losses, Company Use, Etc........
Net Sources 7,231 10,101(a) 75 17>407 301 4 475 22,183 1,340 20 843 7,317 4,786 68 12,171 182 7,922 20,275 1,270 19,005 7,701 6,809 72 14,582 232 6,523 21,337 1,290 20,047 11,802 368 6,778 18,948 1,305 17,643 8,902 694 8,451 18,047 1,335 16,712 7,255 8,815 4,458(a) 89 73 14 Sales:
Residential:
Without Electric Heating...
.With Electric Heating ~....
Total Residential.....
Commercial Industrial Sales for Resale:
Municipalities Cooperatives Other Electric Utilities....
Total Sales for Resale Miscellaneous Total Sales 2,352 1 622 3,974 2 498 4 319 1,585 814 7 468 9,867 185 20 843 2,456 1,605 4,061 2,671 4,473 1,642 786 5,195 7,623 177 19,005 2,384 1,577 3,961 2,579 4,209 1,527 754 6,849 9,130 168 20,047 2,374 1,451 3,825 2,464 3,835 1,522 690 5,152 7,364 155 17,643 2,181 1,413 3,594 2,192 4,134 1,847 651" 4,166 6,664 128 16,712 (a) Includes 691 million kilowatt-hours in 1978 and 2,309 million kilowatt-hours in 1975 as test generation. The fuel cost associated with such generation is charged to other operation expense.
24
IlVDIAJVA 4 MICHIGAIVELECTRIC COMPAIVY AIVD GElVERATIlVG SUBSIDIARY
~
'ESIDENTIAL SERVICE AVERAGES:
Annual Kwh Use per Customer Total With Electric Heating....
Annual Electric Bill Total With Electric Heating....
Price per Kwh (Cents)
Total With Electric Heating....
AvERAGE CosT oF FUEL CGNsUMED (a):
Cents per MillionBtu:
Coal Fuel Oil........
Nuclear Overall Cents per Kilowatt-hour Generated:
Coal Fuel Oil Nuclear Overall 1978 109.68 229.68 34.65 71.16 1.11 2.40
.38
.75 10,260 22)067 389 736 3.79 3.34 1977 74.96 168.80 29.72 59.12
.73 1.88
.33
.61 10,641 22,830 361 668 3.39 2.93 1976 65.89 76.72(b) 26.34 46.47(b)
.63
.84(b)
.28
.47(b) 10,439 23,200 288 551 2.76 2.37 1975 56.09 190.44 27.83 65.56
.54 2.11
.30
.53 10,305 22,153 277 511 2.69 2.31 1974 51.68
. 187.38 69.51
.49 1.85
.67 10,525 23,239 234 439 2.22 1.89 NUMBER oF ELEGTRIG CUsToMERs Year-End:
Residential:
Without Electric Heating.............
With Electric Heating...............
Total Residential...............
Commercial Industrial Sales for Resale:
Municipalities Cooperatives Other Electric Utilities...............
Total Sales for Resale...........
Miscellaneous, Total Electric Customers.........
315,472 74 900 390,372 42,106 2,689 23 64 20 107 1,331 436 605 313,085 72,059 385,144 41,907 2,500 23 61 16 100 1,304 430,955 23 22 59 58 15 18 97 98 1,259 1,280 426,980 422,996 312,211 310,953 69,237 66,812 381,448 377,765 41,703 41,456 2,452 2,418 281,904 64,233 346,137 37,593 2,416 23 58 6
87 1,167 387,40,0 BALANCE.SHEET DATA Year-End (Millions)
Utility Plant Accumulated Provision for Depreciation.......
Net Utility Plant Total Assets and Other Debits...............
Common Stock, Premium on Capital Stock, and Other Paid-in Capital Retained Earnings Cumulative Preferred Stock Long-term Debt (c) 2,397 410 1,987 2,350 527 137 227 1,051 2,107 359 1,748 2,123 467 105 187 1,038 1,933 317 1,616 1,914 409 76 147 914 1,771 275 1,496-1,764 367 80 147 895 1,630 249 1,381 1,545 318 71 117 739 (a) Excludes effect of deferred collection of fuel costs.
(b) Includes effect of refund received from supplier of-fuel oil resulting from settlement of litigation concerning pricing. Without such refund, the average cost of fuel oil for 1976 would have been 173.27 cents per million Btu and 1.91 cents per kilowatt-hour generated, and the overall cost of fuel would have been 49.33 cents per million Btu and 0.50 cents per kilowatt-hour generated.
(c) Including Portion Due Within On>> Year.
25
INDIANA4 MICHIGAN ELECT OMPANY Directors FRANK N. BIEN W. A. BLACK(f)
LAWRENCE R. BRUNKE RICHARD E. DISBROW J. LEE FLANAGAN E. W. HBRMANSBN G. E. LEMASTERS GERALD P. MALONEY(a)
RICHARD C. MENGE J. F. STARK JOHN TILLINGHAST(m)
..W. S. WHITE, JR.
RORERT 0. WHITMAN(b)
Officers W. S. WHITE, JR.
President J. F. STARK (g)
Executive Vice President W. A. BLACK(f)
Ezectttive Vice President J. F. STARK (h)
Senior Vice President
., FRANK N. BIEN Vice President RICHARD E. DISBROW Vice President JOHN E. DOLAN (I)
Vice President A. JOSEFH DOWD Vice President GERALD P. MALONEY
'Vice President RICHARD C. MENGE Vice President JoHN TILLINGHAsT(m)
Vice President JOHN R. BURTON Secretary RGBERT O. WHITMAN(c)
- Treasurer PETER J. DEMARIA(d)
Treasurer H. D. ANDERSON, JR.
Assistant Secretary and Assistant Treasurer ALLEN H. STUHLMANN Assistant Secretary and Assistant Treasurer JOHN F. DILORENZO, JR.
Assistant Secretary CEDRIC L. MAST (j)
Assistant Secretary WARREN O. KBLTNER (k)
Assistant Secretary WILLIAME. OLSON Assistant Secretary PETER J. DEMARIA(c)
Assistant Treasurer WILLIAMN. D'ONOFRIO (I)
Assistant Treasurer GERALD R. KNORR (i)
Assistant Treasurer Tite principal occupation of each of the above directors and officers of Indiana
- Michigan Electric
- Company, with tcn exceptions, is as an officer of American Electric Power Service Corporation of Ncw York, N. Y. The excep-tions are the Messrs. IIr. A. Black, Lawrence R. Brunke, J. Lce Flanagan, E. IV.
Hcrmanscn, IVarrcn O. Kcltncr, G. E LeMasters, I. F. Stark, Richard C.
Menge, Allen H. Stuhlmann, and Cedric L Mast whose principal occupations are as officers of Indiana & Michigan Electric Company, as indicated.
(a) Elected April25, 1978 (b) Resigned April 25, 1978 (c) Resigned April27, 1978 (d) Elected April 27, 1978 (c) Resigned April27, 1978 (I) Elected July I, 1978 (g) Resigned July I, 1978 (h) Elected July 1, 1978 (i)
Elected July I, 1978 (j)
Resigned January 1, 1979 (k) Elected January I, 1979 (1)
Elected March I, 1979 (m) Resigned March 29, 1979 26
INDIANA & MICHIGAN ELECTRIC COMPANY Price Range of Cumulative Preferred Stock By Quarters (I978 and I977) 1978 Quarters 1977 Quarters Cumulative Preferred Stock 1st 2nd 3rd 4th 1st 2nd 31'd 4th
($ 100 Par Value) 4Vs% Series Dividends Paid Per Share Market Price
$ Per Share (OTC)
Ask (high/low)
Bid (high/low) 4,56% Series Dividends Paid Per Share Market Price S Per Share (OTC)
Ask (high/low)
Bid (high/low) 4.12% Series Dividends Paid Per Share Market Price S Per Share (OTC)
Ask (high/low)
Bid (high/low) 7.08% Series Dividends Paid Per Share Market Price
$ Per Share (NYSE)High
Low 7.76% Series Dividends Paid Per Share Market Price
$ Per Share (NYSE)High Low 8.68% Series Dividends Paid Per Sharc Market Price S Per Share (NYSE)High
Low 12% Series Dividends Paid Per Share Market Price
$ Per Share (NYSE)High Low
($25 Par Value)
$2.15 Series'ividends Paid Per Share Market Price
$ Per Share (NYSE)High Low
$2.25 Series" Dividends Paid Per Share Market Price S Per Share (NYSE)
High
Low 40/40 43'h/43Vt
$ 1.14
$ 1.14
$ 1.14
$ 1.14
$ 1.14
$ 1.14
$ 1 ~ 14
$ 1.14 46/45
$ 1.03
$ 1.03
. $ 1.03
$ 1.03
$ 1.03
$ 1.03
$ 1.03
$ 1.03 46/46 45/45 43/43
$ 1.77
$ 1.77
$ 1.77
$ 1.77
$ 1.77 45/45 45/44
$ 1.77
$ 1.'77
$ 1.77 79th 74 76 697/s 77th 69th 77Vi 64V4 81 76th 81s/s 77Vs 83'h 77 80th 75
$ 1.94
$ 1.94
$ 1.94
$ 1.94
$ 1.94
$ 1.94
$ 1.94
$ 1.94 85 80~/s 84N 75 867/s 76 82 74 89 82ih 89th 84th 91 86%
89 84
$2.17
$2.17
$2.17
$2.17
$2.17
$2.17
$2.17
$2.17 98 91ih 93 82 987/s 83th 94th 82 9994'9s/4 91 101'h 96 997/s 94
$3.00
$3.00
$3.00
$3.00
$3.00
$3.00
$3.00
$3.00 116 1 1 1 ih 113 109 113%
108V4 112%
103 123 117 120Fs 117 123V~
118'21 113V4 S.5375
$.5375
$.5375 23%
22%
227/s 20V4 23th 21V4 S.5375 1
227/s 19'
.215 S.5375
$.5375 25s/4 25 24Vs 23 V~
S.7125~~~ $.5625
$.5625 2421'4'/s 21%
24i/s 20Vs
$ 1.03125
$ 1.03125
$ 1.03125
$ 1.03125
$ 1.03125
$ 1.03125
$ 1.03125
$ 1.03125 OTC Over-the-Counter NYSENew York Stock Exchange
'ssued in May 1977
~~ Issued in ~ifarch 1978
"~ Includes partial dividend for first quarter.
Note The above quotations bid and asked represent prices between dealers and do not represent actual transactions.
Market quotations provided by National Quotation Bureau, Inc. Dash indicates quotation not available.
27
South Haven secs or CCNLIIILIL "I
I 0 Battle Creek Jackson 0 I,ai.e Jllicltigan Benton Harbatr St. Joseph as 4
~ I N I
C I
G A N
Chicago DONALDC. COOK BUC AN BERRISN SPRI~NS TWIN BRANCH A
'P Sa I
I Nosealot eeaANL rvWC lllTICE CONIANT
~l
. 0 I
II
~II~
~~
I~
~
0 0
~
~
T r
-. -q ~jttr r-rrr+r grrrr rr eI reer
~-i)rrrrjJ'jyjr/
A Ligo ler Kencfalfvitt 0
bio Butler ~
I Hicksvilie Plymouth sv e4 Ri<<t i,s>~
Ltol Or CCNAONwcneI CSISCN 5CL Lt4 Ot Nceso os eaceANA Nhaac sere CCNINN I
V'L.
Leo ce cwo rrwns ccvr~ I I
W rr It Iy rrrrrrrrJ i
4A ~
Fort W ne iy
+0 rrrrrr
~ frsonroeviltet ~~~
% r rr-rrerr~
N-.. ~
I In I
ol
~l I-l latloo IOWcs CCNIANT LT4 ce Iutar sctraa eaeIANA I
N D
I A N A Lcasc e
Berne re renvoi Jjrgg~@Pr 00 A~i i o Morton Ol+
Leos ct nhvc scarce TOINIA Ki KOkomo 0rrrrrrrrJA Montpe er it' I
H I 0 A
Lofayette VI, A
IA Winchest~er A> Ltnion City ono roost covtANT A
aaA JJIJJJJJJJ tjtictv'gan Gty 0 ~i t i
~ LA4 Ot lttj
~eesN WNINA treac LLIWCE CONIANT tl 0
Gary La Porte 4s s
.. 'L Lynn Leh Ot CCI VIAL LLNOh
~IINr snerl ccwrNN vv Lth Ot Caco roost coerANI Territory Served By INDIANA 8 MICHIGAN ELECTRIC COMPANY BREED Lrh Or
~004 rowlt l I Coerenr sreoaw Itectrtcrteets Q
trvcteor Ivol Itectatcrtoaats 0
Q Hydro. Itectrtc rlentl
~
rruasisaol Ceovewoitles served I~IBBS lbs.000.Volt Tronlrotsston S44l V1000 VA I 000,000 I>> I OILNI Voltoee TroolrorlslNI Slrael Troosaollsaen l4TN Voder Coostt. ot Avth JeararrrrWJarrrrrre Oriel Ceaotvteles'roouoasslon l4>>s lo 0
10 50 So ea teats TANNERS CREEK Ccceeeoh (Le.lc) 0 Ie Jrrrr claw LIL vvl cr KY.
oo CNCteaett ots l ELECTlr CovtANT I
I Cincinnati gf'~
ct 0
jtittr
~IIIAIL~ er A socee lslcler tees ~ Llelecl Ceereeeraev tseeeeeet N T C I-2 INDIANA & MICHIGAN ELECTRIC COMPANY AND GENERATING SUBSIDIARY