ML19322E937

Annual Financial Rept 1979

ML19322E937
Person / Time
Site:	Zimmer
Issue date:	02/06/1980
From:	COLUMBUS & SOUTHERN OHIO ELECTRIC CO.
To:
Shared Package
ML19322E930	List: ML19322E929 ML19322E933 ML19322E937 ML19354C300
References
NUDOCS 8004040355
Download: ML19322E937 (36)

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y 1979 Highlights COLUMBUS AND SOUTHERN OHIO ELECTRIC COMPAN

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6 O EARNINGS RECOVER FROM 1978 O INTERIM AND PERMANENT RATE INCREASES OBTAINED O ENERGY SALES TO NEIGHBORING UTILITIES HELP EARNINGS IMPROVE O AEP ACQUISITION MOVES FORWARD O DIVIDEND RATE UNCHANGED, BUT PAYMENT DATES REVISED O $60 MILLION OF FIRST MORTGAGE BONDS SOLD 1979 1978 Change EARNINGS ON COMMON SHARES (000)

$46,087

$27,806 65.7 %

EARNINGS PER COMMON SHARE (ON AVERAGE SHARES)

$2.84

$1.73 64.2 ANNUAL COMMON DIVIDEND RATE

$2.32

$2.32 COMMON SHARES OUTSTANDING (YEAR-END) 16,345.951 16,147,976 1.2 COMMON EQUITY PER SHARE

$26.36

$25.69 2.6 KILOWATT HOUR SALES (000) 9,033,667 8,626,123 4.7 f}

TOTAL REVENUES (000)

$416,770

$366.171 13.8 CONSTRUCTION EXPENDITURES (000)

$114,921

$125,809

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GROSS UTILITY PLANT (000)

$1,582,543

$1,476,436 7.2 INSTALLED GENERATING CAPACITY (MW AT YEAR END) 2,732 2,732 PEAK LOAD (MW) 1,852 1,907

- 2.9 CUSTOMERS 457,288 447,911 2.1 COMMON SHAREHOLDERS 53,807 55,272

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6 EMPLOYEES 2,981 2,925 1.9 l

Transfer Agents Common Shares and Cumulative Preferred Shares, 4.65% Series, 7.52% Series, 8.52% Series 9.50%

Series,10% Series,10.52% Series and $2.42 Series.

The Hunt'ngton National Bank i

Columbus, Ohio i

Citibank, N. A.

New York, N.Y.

Cumulative Preferred Shares,4%% Series The Huntington National Bank Columbus, Ohio Auditors Arthur Andersen & Co.

l Columbus, Ohio i

Registrors i

Common Shares and Cumulative Preferred Shares, i

4.65% Series, 7.52% Series, 8.52% Series, 9.50%

i Series,10% Series,10.52% Series and $2.42 Series BancOhio National Bank Columbus, Ohio Manufacturers Hanover Trust Company New York, N.Y.

Cumulative Preferred Shares,4%% Series l

BancOhio National Bank l

Columbus, Ohio i

Trustees j

First Mortgage Bonds, All Series Citibank, N. A.

New York, N.Y.

Debentures Irving Trust Company l

New York, N.Y.

l t

General Counsel Porter, Wright, Morris & Arthur Columbus, Ohio Statistical Report and Form 10-K Copies of the Company's Statistical Report for Financial Analysts and the SEC Form 10-K are avail-able upon request to John M. Emery, Vice President l

and Treasurer.

l This report and the financial statements contained herein are submitted for the generalinformation of the Shareholders of the Company and are not intended to induce, or to be used in connection with any sale or purchase of securities.

l l

i Contents 1979 Highlights Inside Front Cover G

Letter to Our Shareholders ij 1

$,j Our Service Area.. A Great Place to Live 2

Acquisition Status

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8 E

1979 Operations 9

1979 Finance and Five Year Summary of Operations

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15 Financial Statements and Notes i

18 Auditors' Report

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27 Inflation and Changing Prices i

28 Five Year Summary of Statistical Information 30 Directors and Officers Inside Back Cover Fourth Quarter Financial Statements Insert i

t Annual Meeting i.

lt L

I The Annual Meeting of owners of Common Shares will be held in Columbus, Ohio on April 29, I

1980. A notice of the meeting, proxy statement and l

proxy will be mailed in March.

i i

i The Cover iji The cover depicts the entryway to a house in the German Village section of south Columbus. This re-stored area of 150 year old homes has gained a national i

reputation and is a source of pride for all of us. In addition to German Village, central and southern Ohio has much to offer its residents and visitors. Throughout this report we have highlighted a few of the many interests to show why our customers and employees find our service area A GREAT PLACE TO LIVE. We are glad to be a part of it.

l of bus uthern Ohio Electric Company 215 North Front St.

Columbus, Ohio 43215 (614) 464-7700

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eBe COLUMBUS AND SOUTHERN OHIO ELECTRIC COMPANY 215 NORTH FRONT STREET COLUMBUS. OHIO 43215 e

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lovthern

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DIRECTORS R. J. Grucser (E)

A. G. Green (A) (E)

B. T. Ray (C) (E)

Chairrran of the Board of Directors -

Retired Chairman of the Board and President and Chief Executive Officer J. E. A.thur. M.D. (C)

Chief Executive Officer of the of the Company j

Oto'aryngologist. Columbus, Ohio Company R. E. Waldo (A)

W. A. Carille. Jr. (A) (C)

J. F. Kurtz (A) (C) (E)

President of Columtius Mutual Life

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D rector of Huntington Bancshares.

Faculty of Accounting. Ohio State Insurance Company, Director of j

bc.. The Huntington National Bank University and Director of Midland BancOhio National Bank and and Midland Mutual Life Insurance Mutual Life Insurance Company SCOA Industries Inc.

Company (A) blember of the Audt Commaree I

(C) blember of the Compensat2on Communee (E) blember of the Executive Committee l

OFFICERS R. J. Grueser J. M. Emery E. D. Meyers Chairman of the Board of Directors Vice President and Treasurer Vice President - Administrative B. T. Ray R. A. Heimann Services President and Chief Executive Vice President and Controller R. E. Sisinger Officer J. H. Inskeep Vice President - Rates and J. P. Fenstermaker Vice President - Purchasing Corporate Affairs Senior Vice President - Operations W. R. Kelley S. P. Tomesek F. V. Stine Vice President - Electric Operations Vice President - Corporate Senior Vice President - Customer M. E. McCain Pbnning Service Corporate Secretary and Assistant W. C. Welch E. E. Williams Treasurer Vice 1 resident - land Senior Vice President -

R. M. McMorrow Management Admimstration Vice President - Law and Q. E. Bowers J. P. Apel Risk Management Assistant Controller and Assistant Vice President - Environmental P. R. McNaughton Secretary R. A. Burgert Vice President - Employee W. L Pidock Vice President - Distribution and Relations Assistant Treasurer Service We are committed to provide electric service in response to our customers' needs consistent with sound technology and economic conditions.

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CONSOLIDATED STATEMENT OF SOURCES OF FUNDS FOR PROPERTY ADDITIONS i.

For the Three For the Twelve j l Morths ended Months Ended December 31, December 31, 1979 1978 1979 1979 i

(000 omitted)

(000 omitted) funds Provided from Internal Sources Earnings net of dividends..__ _ _ ____ ______..

$ 3,804

$ (3,209)

$ 11,481

$ (9,528) i Nontash items I

Deprecia tion.. _ _ _ _ _...... _ _ _ _ _ _ _ _ _ _ _ _ _ __ _...

9.794 9,889 39,843 35,754 Investment Tax Credits..____ __ _..._ _ ____ _ _

(592) 58 5.768 (6,253)

Allowance for funds used during construction __

(5,009)

(3,941)

(18,901)

(20,326) i Othe r. _ _ _ _ _.... _ _ _ _... _____.___________.

2,044 2,139 7,164 6,787

'j Other internal-net __ _.___..__ __,.___..___

(5.902)

(7,687)

(6.729)

(6,255) l Total internal _ _ _ _ _ _ _...... _ _ _ _ _ _ _ _ _ _ _..

4,139 (2,751) 38,626

_ 179 Funds Provided from External Sources First mortgage bonds

• _.._ _. __ _ _ _ _ _. ___._.___

59,775 44,831 Pre fe rred shares

• _.. _._ _ _ _ _ _...__ _ _.....

39.520 Common sha re s *.. _ _ _ _ _ _ _ _... _ _ _ _ _.. _ _ _ _ _ _ _

1,608 958 4,528 3,522 i

Notes payable-net _ _ __ ___.__...___ ____...

13,739 24,352 (2,769) 20,588 Te rm note and other _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ___ _ _ _ _ _ _

20,000 8,105 i

Retirement of long-term debt (714)

(557)

(22,532)

(9.685)

Total external.... _ _

14,633 24,753 59,002 106,881 l

Total Funds Used for Electric Plant and Other Property Additions

$ 18,772

$22,002

$ 97.628

$107,060

• Net proceeds to Company, certain reciassifications have ten made to previously reported amounts to conform to 1979 presentations.

ELECTRIC SALES STATISTICS Sales - KWH (000 omitted)

Residential _ _...

766,735 739,545 3,222,252 3,154,723 t

Commercial._ _......__ _....___ ______

658,181 640,269 2,741,795 2,583,709 l

Y" Indus trial _ _. _ _ _ _ _ _.... _ _ _ _ _ _ _ _..._... _ _ _ _ _

524,538 538,722 2,130,367 2,041,832 T

l Other __.......____..______._ -._________ __

228,191 228,102 939,253 845,859 Total ____._________..______..__..____.___

fT77,645 2,146,638 9,033,667 8,626.123 j

i Revenue (000 omitted)

Residential _ _ _ _..._ _

$ 41,758

$ 35,535

$171,952

$155,342 31.605 26,976 131,773 111,717 Commercial.._ __.... __...._......_..

19.120 17.238 80,057 69,802 Industrial __ __ ____....______________________

8,615 7.670 32,988 29,310 Other Total..__.___..._.._.______.......__

$101,098

$ 87.419

$416,770

$366,171 Residential Customers (end of period).........._..__.

412,016 403,523

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To Our Shoreholders:

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1979 results were encouraging even though Another action which resulted in much i

not entirely satisfactory. Problems such as the communication with shareholders was the l

coal miners' strike and the blizzard which plagued change in the dividend payment dates. Many ap-i the Company in the past two years were not parently believed that the dividend payment in j

encountered and we were able to accomplish our December constituted a dividend increase. Actu-goal of improving on grossly inadequate 1978 ally the annual dividend rate was not changed, earnings. The 1979 earnings were $2.84 per only the payment dates. Payment dates in the common share which more than covered the div-future will be quarterly beginning with a March idend. However, the 10.9% rate of retum on 10,1980 payment. This is discussed in more common shareholders' investment is not detail beginning on Page 15.

adequate. We will continue our efforts to provide The activities and results of operation cap-j an improved and a fair retum on common equity.

tured in this report are the culmination of efforts The annual dividend rate of $2.32 is about by our entire organization. We have also attempt-l 82% of eamings per common share. Our objec-ed to show a little about the area where our tive is to achieve camings sufficient to permit employees and customers live. We believe as you l

dividend growth with a dividend ratio of about read this report you will agree with us that 1979 1

70% to 75% of eamings.

was a busy and successful year and that central The factors which helped to bring about the and southem Ohio is a great place to live and do improvement in 1979 are discussed more fully business.

elsewhere in this report but we can generally attri-February 7,1980 i

bute the improvement to higher rates to custom-ers, large sales to other electric ut;lities and a l

resumption of growth in sales to regular custom-ers. We expect sales growth in the foreseeable g*

i future to be well below the historical levels. Much of the future growth will come from adding cus-E

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omers rather than from increased customer us-O 7

age.

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l Many steps taken during the year have brought the proposed acquisition by American Electric Power Company, Inc. closer to reality.

l Management has supported the acquisition dur-1 l

ing the 12 years since it was initially proposed. A summary of the 12 years and the current status is shown on Page 8 which we suggest you carefully 4

An encouraging prospect for the next few Ben T. Ray President and years is the relatively low level of construction Chief Executive Officer expenditures. The program for 1980 through 1982 is well below the peak years of the mid 1970's but is up somewhat from last year's esti-e's f

mates because of additional requirements at the Zimmer Nuclear Station. Continuation of the brutally high inflation rate of 1979 however, could dampen our expectation of fewer dollars f_'=,?

dedicated to construction.

I

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9 We have received many questions from shareholders and others concerning the status of the Zimmer Station. Delays in the regulatory hear-I ings for an operating license and additional con-struction required by the Nuclear Regulatory l

Commission have increased the cost and moved the planned start-up date beyond 1980. Our in-vestment in nuclear including the camjing cost is substantial. However, Zimmer will account for no R J. Grueser more than 8% of capacity as we are committed Chairman of the primarily to generation from Ohio coal.

Board of Directors 7

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Our Service Areo... l I

Columbus and Southern's service distribution systems, serve over 457,000 terville, Jackson and Glouster.

area map does not reveal the many in-customers in a 6200 square mile area.

Our service area is more than wires teresting places and exciting activities Including the metropolitan Columbus or customers or a shaded area on a map.

l available to our customers and region from which approximately 80%

The following pages will provide more l employees. It does, however, show the of our electric operating revenues are insight by showing that our service arca is !

location of our generating stations and derived, service is provided to all or por-people, places and activities interacting l 345 KV transmission network. This gen-tions of 25 Ohio counties. Wholesale to create A GREAT PLACE TO LIVE.

l eration and transmission network, along service is provided to municipally owTied f

with the lower voltage transmission and distribution systems in Columbus, Wes-l l

Power Generating Facilities 1 Beckjord Station MICHIGAN S4 Megawatts

• LAKE ERIE 2 w. H. Zimmer Station i

(Nuclear) 226 Megawatts

• TOLEDO Under Construction e CLEVELAND 3 J. M. Stuart Station (Includes Peaking Unit) l 607 Megawatts

• I eAKRON E

4 Picway Station I

e CANTON h

(includes Peaking Unit) g 132 Megawatts 5 Walnut Station Peaking Units !

y 202 Megawatts Z

Z 6 Pedro Peaking Unit g

11 Megawatts C

--'----- 9 7 Addison Peaking Unit E

COLUMB 14 Megawatts 8 Poston Station DAYTON (includes Peaking Unit)

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212 Megawatts 9 Conesville Station

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(includes Peaking Unit)

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1,500 Megawatts

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CINCIfNA'T!

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','s, WEST VIRGINIA i

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KENTUCKY 2

Service Area 345 KV Transmiselon Network ------

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... A Great Place To Live l

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Where can you hnd wild Indians.

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a jewel in racing and the number one

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big name rock group. or perhaps enjoy 1

g D4 the excitement of one of our many well-Pumpons abound at the annuai Pumpktn Show in Circievme Thousands of visitors come fron-moes amuna to emov this unique extravaganza known community fesuvals' i

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..... i cheer the B icks Here comes the winner at the 34th running of the Little Brown Jug held

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annuany at the Delaware Fairgrounds in Delaware. Ohio The Jug is the f f. ' _ '

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Indians on the warpath in Chilkcothe' The story of the

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Whether one's interest is fun or

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educational, casual or avid. or just plain loafing we can satisfy it with a variety of offerings For example. the sports en-t thusiast can enjoy Ohio State women's

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University Hall originally constructed Saved f rom demolition by the efforts of dedicated in 1873 and subsequently rebuelt to the citizens. the beautiful Ohio Theatre was restored in original design symbolizes Ohio State time for it to celebrate its Golden Jubilee in 1978 University to its 53 000 main campus The theatre has since hosted a vanety of outstand-students and several hundred ing artists performers lecturers and authors thousand alumni

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The Center of Science and industry in Columbus offers an extensive ment, prOfesslOnal golf at its best played on the Jack Nicklaus course in assortment of historic and futuristic displays to fascinate all ages and Dublin interests Depicted here is the giant Foucault Pendulum which swings with the rotation of the earth ma J

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OSU s athletic program includes 11 intercollegiate women s sports in addition to field hockey and is widely recognized for Championship teams and individual aCComphshments in addition to mamma bear and Sub-Zero (baby bean the Columbus Zoo offers an ex.

tensive variety of animals for area residents to enioy including four generations of gorillas born in Captivity 5

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Adena mainta,ned D, the Ohto Historical Society in ChilhCothe was the estate of Thomas Wor tN ngt on who helped lead the movement to make Oh 0 a state and later beCame gobernor The view f rom the 1807 mansion inspired the design f or the Ohio state seal y -,

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$200 In September 1979 the Company

'"[n$n"llng sold $60 million of first mortgage bonds, 7

10%% Series due 1999. The bonds l

were sold through a private placement 150 and net proceeds used to reduce short term debt outstanding. Beginning in 1984 the bonds are subject to a manda-ioo tory sinking fund of $3 million annually and the Company, at its option, may 50 retire up to an additional $3 million an-nually.

A $20 million term loan, with an interest rate of 103% of the floating g

prime rate and maturing in seven years.

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(ESTIMATED) was negotiated to refund a like amount of first mortgage bonds,7% Series due 10 s,~

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June 1.1979 The pnncipal amount of Lines of credit for snort term bcm Rates the loan is payable in semiannual in rowmgs were reduced in the fourth quar-An emergency rate increase de-stallments beginnmg in 1981 and a $5 ter from $148 milhon to approximately signed to provide additional revenues of milhon remainmg balance is due on

$133 milhon at year-end in addition to approximatelv $39 milhon annually was l

matunty bank loans. consisting of 90-day notes placed nto effect in March 1979 This The pnme rate for short term bank and vanable investment notes. the knes increase was necessary to improve the i

loans was 1144% at the beginning of the of credit and short term borrowing in-Company's hnancial position to permit year and after reaching a high of 154%

clude a $20 milhon credit agreement the is3uance of long term debt secunties dechned to 15% by December 31 The with a major ; easing company This and improve earnings from the de-record high levels for the pnme rate sig agreement. secured by the Company's pressed level of 1978 The emergency mficantly affected our overallinterest ex-coal and oilinventories. was renewed for increase was granted subiect to refund it pense interest on both the term loans a second year in September is believed that any refund will not be and short term notes payable vary with Early in the fourth quarter the Cen-significant the pnme Ako the level of short term tral Operations Center facihty for hous.

A permanent rate increase of $72 borrowmg dunng the year reached a ing our computers and Energy Manage-million annually to replace the high of $116 milhon in July and was $51 ment System was sold and a 30 year emergency surcharge was granted by the milhon at year end lease with renewal and purchase options Public Utihties Commission of Ohio negotiated The facihty was sold at cost (PUCO) to be effective in December which was approximately $7 milhon 1979 However, implementation of the INTEREST CHARGES in August 19 /9 arrangernents were rates to customers within the City of Co-

% e Ns' made for the lease of approximately $4 5 lumbus was delayed until mid January sg,

milhon of computer equipment for a four by legal action relating to a City ordi-year penod nance The City contends that the rates The followmg table shows the should not become effective until April Company's capital structure for the last 1980. Although this issue still may not be four years completely resolved. the Company began bilhng Columbus customers in 197n 147-197-1979 s29 2 mid Januarv N

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d in dete'rmining the amount of per-E I Loy n

manent increase. the PUCO allowed a Tm 14 77% return on common equity. in-Da so -

4-4 48 so 4 ciudmg a 0 5% attrition allowance. and a 39 g Q

10 79% overall return on rate base One-half of the cost of the Zimmer nu-De 17 29 44 3q clear unit presently under construction t oo o '- loo om ion om 100 o.

was allowed in the rate base.

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$8,889,000 for construction of en-and sulfur to dispose of and somewhat The Company generated approxi-vironmental protection facilities bringing lower operating and maintenance costs.

mately 99% of its electricity with coal in the total since 1972 up to $143,922,000.

Until final regulations have been 1979. The remaining 1% was generated Annual costs to operate and niaintain the prepared by the USEPA. we cannot de-from natural gas and oil-buming peaker equipment in 1979 were $13,130,000, termine the effect on operations of the units. When the Zimmer nuclear unit an increase of 38% over the previous Resource Recovery Act of l977. This Act i

covers solid waste disposal, specifically j

goes into commercial operation it is ex-year.

j pected to provide approximately 8% of The Company and the United scrubber sludge and fly ash.

States Environmental Protection Agency the annual generation.

(USEPA) have reached tentative agree-Legislation I

Coal consumed by Company-ments which will allow us to use Ohio in November 1978 President Carter I

operated generating stations is generally c al at Conesville and Poston Generat.

signed into law the Public Utility Reg-obtained through long term contracts ing Stations for older units not equipped ulatory Policies Act (PURPA) as one of with operators of Ohio mines and from with the costly flue gas scrubbers. Under five pieces oflegislation which comprised the Company's mining interests. How, ever, in 1979 almost 5% was acquired an agreement in principle, the Company the National Energy Act. PURPA re-w uld utilize coal washing to meet sulfur quires that each state utility regulatory from spot markets, such purchases being dioxide emission standards for Cones-agency review and consider certain gas l

made when lower prices were available ville Units Nos. I through 4. The Com-and electric rate and regulation stan-i in the spot markets.

pany is awaiting final approval of its ap-dards which are intended to encourage Simco inc. is a subsidiary company plication for revision of the sulfur dioxide conservation of energy, efficient use of which owns coal minir.g equipment and emission standards at the Poston Sta-utility resources and equitable rates to p,'[C P tion. If approved, the existing Poston customers.

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m units will not require the use of washed Several of these standards have al-Company-owned coal fields near the c al r the installation of scrubbers. Flue ready been acted upon or are under Conesville Station. During 1979 the joint gas scrubbers will be installed for the tw study. The PUCO has approved stan-venture sold 866,000 tons to the Com-new units being constructed at Poston.

dards for termination of service and has I

pany. Simco's net income for the year With the planned removal of the small, reviewed the Company's rate standards was $1,368,000.

older units in the near future, the Picway as they relate to pricing policy and rate Environmental Concerns Station is in compliance.

structure. However, this is just the tip of i

Considerable progress was made in Coal washing facilities will increase the iceber9' j

1979 toward resolving issues on en-the price of coal by an estimated 25% to vironmental protection regulation.

35%. Aportionof thisrepresentsthecost The PUCO has already sent However, the cost to comply will con-of the washing process and the remain-thousands of pages of data to the agency tinue to be a matter of growing signifi-der is for volume lost in the process.

administering PURPA as the first of cance in the economics of electric Some of this higher cost, however, will many filings to be required over the next utilities. During the year we expended be offset by reduced quantities of ash three years. The Company must provide

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Bicentennial Park in downtown Columbus offers workers a scenic lunch Downtown Columbusincludes the new Centrum, a product of the City's time retreat on the banks of the Scioto River.

continuing development efforts. Here residents can ice skate, have a i

bite of lunch or just enjoy viewing the sculptures and water cascades.

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Richard M McMorrow Margaret E McCain bemy hilled until af ter semiannual re views Another bill under considera ion Doord Of Directors And Monogement non of Corporate Secretarv since ioining w< >uhi imp < >se a tax on coal burned by Chonges the Company in 1976 Miss Margaret E utilities in Ohio The tax rate being c,n Mr W G Porter. Jr a director McCain was elected to succeed Mr sidered is Nic per ton The monev (ol smte 1969 resigned from the Com McMorrow as Corporate Secretary Miss lected from the tax would be used for pany's Board of Directors ef f ec tive McCain has been Assistant Secretary rescan h and develi>pment in areas re Januarv 1.19m M hmam hmm mm IC %ss McCain will connnue as Assistant Treas lated to the clean and efhcient generation Mr Richard M McMorrow was urer Both appointments were effechve of energv FLud on our 1979 coal con elected to the new posinon of Vice Pres sumption. this tax would have cost well ident.1.aw and Risk Management Mr November 1.1979 I

over $2 milhon in 1979 McMorrow had previously held the posi l

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n 14

1979 Finance COLUMBUS AND SOUTHERN OHlo ELECTRIC COMPANY Five Year Summary of Operations Year Ended December 31, 1979 1978 1977 1976 1975 (Thousands of Dollars)

Operating Revenues

$416,770

$366,171

$320,551

$280,285

$259,078 Operating Expenses Operation and maintenance 226,342 230,110 177,159 157,537 143,502 Depreciation and amortization 39,843 35,754 30,720 24,280 22,735 Taxes other than income taxes 38,193 32,764 29,451 24,301 21,041 Federal income taxes 22,320 1,161 7,195 7,194 10.994 Total operating expenses 326,698 299,789 244,525 213.312 198,272 Operating income 90,072 66,382 76,026 66,973 60,806 Other income and Deductions

• 20,963 15,338 11,154 27,697 16,950 Income Before Interest Charges 111,035 81,720 87,180 94,670 77,756 Interest Charc.s

• 51,058 41,893 32,846 40,368 35,334 Net income 59,977 39,827 54,334 54,302 42,422 Dividends on prefened shares 13,890 12,021 10.090 7,925 6,419 Eamings on Common Shares

$ 46,087

$ 27,806

$ 44,244

$ 46,377

$ 36,003 Earnings per Common Share

$2.84

$1.73

$3.05

$3.71

$3.60 (based on average shares outstanding)

Average Number of Shares 16,251 16,089 14,502 12,500 10,000 (in thousands)

Dividends per Common Share -

declared

$2.13

$2.32

$2.26

$2.12

$2.00

• 1979,1978 and 1977 Interest Charges have been reduced by the borrowed funds component of allowance for funds used during construction. In prior years the total allowance for funds was included in Other Income and Deductions.

The following is an analysis of the DMdends on Common amounted to $2.71 per share, the annual principal factors affecting the Company's and Preferred Shores dividend rate remains at $2.32. The financial results.

Quarterly dividends of 58C per higher paymentin 1979 came about as a The sections on dividends and earn-share were paid to holders of common result of changing dividend payment ings concentrate on the year 1979, while shares in January, April, July and Oc-dates. These new payment dates, now the discussions of revenues and other tober and a 39C dividend, representing March, June, September and De-major categories ofincome and expense two months' payments of the quarterly ccmber, coincide with those of the provide a comparison of 1979 with 1978 amount, was paid in December. Al-American Electric Power Company. Inc.

as well as 1978 with 1977.

though the total actually paid in 1979 (AEP) and will protect common share-l 15

holders from dividend inequities in the Rate increases were a primary rea-In 1979, sales of power to other event the Company is acquired by AEP.

son for the 13.8% increase in revenues in utilities were substantia!!y higher than in The new dates will also eliminate the 1979. Revenues include not only a full 1978, while purchases in 1979 were in-confusion which has occurred occasion-year of the May 1978 rate increase but significant. A factor in the higher sales ally in past years when dividends de-also include approximately $30.4 million was the additional capacity provided by clared differed from the amount paid.

collected, subject to refend, since March Conesville Unit No. 6 placed in service in The Company estimates that 1979 through the application of the mid 1978. In 1978 the need to conserve 39.8% of the 1979 common dividends emergency surcharge. A 5% increase in limited coal supplies during the coal paid constitute a retum of capital for overall energy sales also contributed to strike forced the Company to purchase Federal income tax purposes and are the revenue growth in 1979.

approximately $21 million of emergency therefore currently nontaxable, subject The increase in revenues in 1978 energy.

to final determination by the Intemal over 1977 was also the result of the 1978 Other operation and maintenance Revenue Service. Dividends paid in rate increase as well as the recovery of expenses were up 7.6% in 1979 com-1979 on preferred shares are fully in-higher fuel costs charged to customers pared with a 1978 increase of 26.8%

ciudable for Federal income tax pur-through fuel adjustment clauses. Over over 1977. The significantly higher per-

$14 million of the revenues collected for centage increase in 1978 reflects the ex-poses.

Annual dividend requirements on higher fuel costs were attributable to traordinary strike-related expenses in-the 16,345,951 common shares out-power purchased from other utilities dur-curred during that year as well as the standing at December 31,1979 at the ing the first quarter as a result of the coal unusual repairs made to stomi damaged current rate of $2.32 are $37.9 million.

strike and severe winter weather.

equipment.1979 expenses were af-fected by savings from various cost re-Earnings on Common Shores duction programs, including cutbacks in Eamings on common shares were Operating Expenses tree trimming activities initiated in 1978.

$46,087,000 in 1979, compared to Change from Also, operating conditions were more

$27,806,000 in 1978. Earnings per Prior Year favorable in 1979.

share increased to $2.84 from $1.73 in 1979 1978 Despite the lower growth in 1979 expenses, the total dollar amount con-1978. This marked improvement in fi-m n. a Dohro nancial performance resulted primarily tinues to increase each year due to Fuel

$14.5

$20 4 from the additional revenues collected greater investment in electric plant as since March 1979 through the applica.

Purchased and well as spiraling price levels.

tion of a 15.09% emergency surcharge interchanged Operation and maintenance costs Power (25.8) 11.5 as well as a permanent rate increase for environmental equipment also in-which became effective in May 1978.

Other operation creased significantly in 1979 and 1978.

and maintenance 7.6 21.1 These increases are due to higher prices Growth in sales volume and substantial sales of power to other utilities also con-Depreciation and and a greater amount of such equip-tributed to the higher 1979 eamings.

amortization 4.1 5.0 ment.

The increase in camings also re-Taxes other than Depreciation expense climbed in income taxes 5.4 3.3 both 1978 and 1979 due to the Com-flects the significant difference in operat-ing conditions compared to 1978 when Federalincor e pany's expanded utility plant invest-various extraordinary events, including taxes 21.1 (6.0) ment. Taxes, other than income taxes, the prolonged United Mine Workers'

$26.9

$55.3 also escalated in both years as a result of strike, adversely affected the Company's growth in utility plant and increased rev-financial results.

enues, which are subject to a gross re-Fuelco es continued to climb during ceipts tax.

Operating Revenues 1978 and ? 379, with 1979 increasing Fluctuations in Federal income Change from approximably 11.8% over the previous taxes are generally related to changes in Prior Year year. This bcrease is primarily the result revenues and deductible expenses.

1979 1978 of greater consumption due to higher However, Federal income taxes have g,y sales to both customers and other also been affected since mid 1978 by the utilities. The price of coal in 1979 in-practice of providing for deferred Federal Fuel adjustment

$(4.2) $25.7 creased approximately 6.4%. Although income taxes resulting from the use of Rate increases 38.2 22.9 generation dropped approximately libera!' zed tax depreciation for property Kdowatt hour sales 16.5 (3.7) 2.5% in 1978, the use of costly oil-fired placed in service after January 1,1977.

peaking units during the coal strike and a A change in the recording of certain tax Change in other electric revenues

.1

.7 19% jump in the average price of coal benefits has also had an impact on taxes c nsumed caused fuel costs to increase and is described in the discussion of

$50.6-

$45.6 over 1977.

other income.

16 l

OPERATING REVENUES AND EARNINGS AND DIVIDENDS RETURN ON AVERAGE OPERATING EXPENSES PER SHARE COMMON EQUITY

$450 54.50 18 %

(IN MILuoNS)

REVENUE AND E 4PN NGs SA.ES To 94 UTillT'E S EXPENSES

/

10 DIVIDENOS (ANNUAL RATE) 6 0

0 0

7s 76 77 M

M 75 M

77 78 79 7s M

M 78 79 Other income and Deductions net of tax rate and a generally lower level Dividends on preferred shares in-Change from of construction expenditures.

creased due to the issuance in June 1978 f $40 million of additional preferred Pnor Year in mid 1978, the Company began stock 1979 1978 recording tax benefits associated with (Maons of Douan) borrowed funds used for construction in The Company's annualinterest and ther income rather than as a reduction preferred dividend requirements on its Coat operations in Federal income taxes. This practice long term debt and preferred shares out-before interest has substantially increased other income standing at December 31,1979 are ap-charges

$ 1.7

$.4 during both 1978 and 1979.

proximately $55.9 and $13.9 million. re-Allowance for equity spectively.

funds used Interest Charges and The total interest and dividends re-dunng Dividends on Preferred Shores quirements for securities outstanding at construccon (1.5)

.4 Change from December 31,1979, including the pres-income tax credit 4.8 2.8 Prior Year ent common dividend rate,is $107.7 mil-1979 1978 Other

.6

.6 lion. This amount is wellin excess of the

$5.6

$4 2 (MA= a oonan)

$90 million of 1979 operating income.

Interest Charges income from coal operations in-Long-term debt

$ 3.6

$ 5.8 COMMON SHARES creased substantially in 1979 and to a Notes payable lesser degree in 1978. The increases are and other 5.6

.8 a result of higher coal prices and changes M wance f r 1978 in the mining operations, such as the borrowed funds 1st Q 2nd 0 3rd 0 4th 0 discontinuance of costly underground used during High 27 26 %

27 %

26 4 mining in the latter half of 1978. Some e nstrucnon (2.5)

Low 24 %

23 23 %

20u gains were also realized in 1979 from selling the underground mining equip-Dwidends on Close 25 23 % 25%

21 ment.

preferred shares 1.9 1.9 1979 The total Allowance for Funds Used Interest charges were up substan-1st 0 2nd 0 3rd o 4th a During Construction ( AFUDC) including tially each year.1979 interest expense High 24 %

25 26 %

24 the portion applicable to borrowed funds was particularly high as a result of the Low 20 %

21 22 %

20 %

which is recorded as a reduction to inter-sale of additional first mortgage bonds close 22 4 24 4 22 %

21 %

est charges, declined slightly in both and the issuance of term loans and high years. Reasons for the decline include levels of short term notes at record high

'(( u w 7og $c*k E c e?t cm n S

ge u the completion of Conesville Unit No. 6, interest rates. Proceeds from the term symt>os. coc.

a 1978 change in the rate used to accrue loans were used to redeem bonds which AFUDC from an 8h% gross to a 7%%

matured in June 1978 and 1979.

17

COLUMBUS AF,D *suCTHERN OHIO ELECTRIC COMPANY Consolidated Results of Operations Year Ended December 31, 1979 1978 (Thousands of Dollars)

Operating Revenues (Note 1)

$416,770

$366.171 Operating Expenses Fuel (Note 1) 137,078 122,584 Purchased and interchanged power (net)

(17,856) 8.004 Other operation (Notes 4 and 11) 69,345 65.854 Maintenanc > (Note 1) 37,775 33,668 Depreciation and amortization (Notes 1 and 11) 39,843 35.754 Taxes other than income taxes (Note 11) 38,193 32,764 Federal income taxes (Note 1) 22.320 1,161 Total operating expenses 326,698 299,789 Operating income 90,072 66.382 Other income and Deductions Coat operations before interest charges 2,700 985 Other subsidiary operations.

428 38 Allowance for equity funds used during construction (Note 1) 9.825 11,270 Income tax credit (Note 1) 7,627 2,842 Other 383 203 Total other income and deductions 20,963 15.338 Income Before Interest Charges 111.035 81,720 Interest Charges Long-term debt 51,068 47,092 Notes payable and other 9.066 3,857 Allowance for borrowed funds used during construction (Note 1)

(9.076)

(9,056)

Interest charges (net) 51,058 41,893 Net income 59,977 39,827 Dividends on preferred shares 13,890 12,021 Earnings on Common Shares

$ 46,087

$ 27,806 Earnings per Common Share (based on average shares outstanding)

$2.84

$1.73 Average Number of Shares (in thousands) (Note 6) 16.251 16,089 Dividends per Common Share - declared

$2.13 *

$2.32 Dividends per Common Share - paid

$2.71*

$2.32

• Dividends declared and paid in 1979 were based on the same $2.32 dividend rate as in 1978 but reflect a change in declaration and payment dates.

The accompanying notes are an integral part of the above statement.

18 t

1

COLUMBUS AND SOUTHERN oHlo ELECTRIC COMPANY Consolidoted Statement of Sources of Funds for Property Additions Year Ended December 31, 1979 1978 (Thousands of Dollars)

Funds Provided from Intemal Sources Eamings on common shares

$ 46,087

$ 27,806 Dividends on common shares (34.606)

(37,334)

Eamings retained in the business 11.481 (9,528)

Amounts charged to income not requinng cash Electric Depreciation and amortization 39,843 35,754 Investment tax credits 5,768 (6,253)

Allowance for funds used during construction (18.901)

(20,326)

Miscellaneous - net 5,340 4,559 Other operations 1.824 2,228 Other intemal - net *

(6.729)

(6,255) 38,626 179 Funds Provided from Extemal Sources First mongage bonds +

59,775 44,831 39,520 Prefened shares +

Common shares +

4,528 3,522 Notes payable - net (2,769) 20,588 Term note and other 20,000 8,105 Retirement of long-term debt (22.532)

(9,685) 59.002 106,881 Total Funds Used for Dectric Plant and Other Property Additions S 97.628

$107,06_0

• The changes in "Other intemal-net" include amounts classified as current assets and cunent liabilities and other accounts which are not material in relation to changes in financial position.

+ Net proceeds to Company.

Certain reclassiBcations have been made to previously reported amounts to conform to 1979 presentations.

he accompanying notes are an integral part of the above statement.

19

COLUMBUS AND SOUTHERN oHlo EIICTRIC COMPANY Consolidated Dolonce Sheet December 31, 1979 1978 A55ET5 (Thousands of Dollars)

Electric Utility Plant (Notes 1,2,3,4 and 9)

Plant in service, at original cost

$1,287,168

$1,232,856 Less - Accumulated provision for depreciation 294,349 263,936 992.819 968,920 Net original cost Construction work in progress 220,704 179,155

- nuclear

- other 74.671 64.425 1,288,194 1.,212,500 Other Property and Investments, at cost 24,268 25,724 Coal property and related assets (net) (Note 9) 5,692 5,066 Real estate property (net) 698 744 Investments including OVEC 30,658 31,534 Current Assets 5.636 4,584 Cash in banks (Note 5)

Special deposits and funds 5.611 5,261 Accounts receivable, less $635,000 and $685,000, 34,299 33,830 respectively, for doubtful accounts 15,820 13,128 Materials and supplies, at average cost 31,145 27,631 Coal and oilin storage, at average cost (Note 5) 6,550 4,722 Prepayments and other 99,061 89,156 Deferred Charges 21,980 21,648 Property taxes, applicable to future period 8,773 5,988 Other 30,753 27,636

$1,448,666

$1,360,826 The accompanying notes are an integral part of the above statement.

20

COLUMBUS AND SOUTHERN oHlo ELECTRIC COMPANY December 31, CAPITAUZATION AND UABluTIES 1979 1978 (Thousands of Dollars)

Capitalization Common shareholders' equity (Common Shares -

without par value; authorized 24,000,000 shares; outstanding 16,345,951 and 16,147,976 shares,

$ 430,865

$ 414,866 respectively) (Note 6)

Cumulative preferred shares ($100 par value; authorized 1,500,000 shares; outstanding 1,333,541 shares; $25 par value; authorized 5,000,000 shares; outstanding 1,000,000 shares)

No mandatory redemption (Note 7) 98,354 98,354 Mandatory redemption (Note 8) 60,000 60,000 Cumulative preference shares (without par value; authorized 2,000,000 shares)

Long-term debt (Note 9) 589.774 570,079 1,178,993 1,143,299 Current Liabilities Debt maturing in less than one year Notes payable (Note 5)

To banks 9,000 17,500 To banks as agents (payable on demand) 21,663 20,932 Other 20,000 15,000 Current maturities of long-term debt (Note 9) 60,054 22,242 110,717 75,674 Accounts payable 28.025 25,401 Accrued taxes 50,477 39,993 Accrued interest 14,064 11,858 Common dividends payable 9,366 Other 11,168 9,907 214,451 172,199 Deferred Credits and Reserves investment tax credits (Note 1) 26,466 20,698 Accumulated deferred income taxes (Note 1) 2,950 3,181 l

Emergency facilities 12,322 7,570 l

Accelerated depreciation Other 10,518 10,810 Operating reserves and other 2,966 3,069 55,222 45,328 Commitments (Notes 2,4 and 10)

$1,448,666

$1,360,826 The accompanying notes are an integral part of the above statement.

21

COLUMBU$ AND SOUTHERN OHIO ELECTRIC COMPANY Consolidated Statement of Retoined Earnings Year Ended December 31, 1979 1978 (Thousands of Dollars)

Balance at beginning of year

$129,370

$138,898 Add - Net income 59,977 39,827 189,347 178,725 Deduct - Cash dividends accrued or declared Common Shares - $2.13 per share and

$2.32 per share, respectively 34,606 37,334 Cumulative Preferred Shares (Notes 7 and 8)

$100 par value (at specified annual rates) 11,470 9,601

$25 par value

$2.42 Series 2,420 2,420 48,496 49,355 Balance at end of year (Note 6)

$140,851

$129,370 The accompanying notes are an integral part of the above statement.

Notes to Consolidated FinonClo! Statements (1)

SUMMARY

OF SIGNIFICANT ACCOUNTING POUCIES financial emergency would be required to be refunded. The PUCO, in its December rate order, indicated that the Com-System of Accounts -The accounting records of the pany may be ordered to refund a portion of the $30,402,000 Company are maintained in accordance with the Uniform emergency revenues after additional financial information is System of Accounts prescribed by the Federal Energy Reg-reviewed. The Company believes that any refunds which ulatory Commission (FERC).

may be required will not have a significant impact on the Principles of Consolidation - The Company and Company's results of operations.

its subsidiaries, Simco Inc. and Colomet, Inc., are included in The Company charges to expense the cost of fuel as it is the consolidated financial statements. Appropriate intercom-consumed. Substantially all of the Company's tariffs include l

pany items have been eliminated.

fuel adjustment clauses under which changes in fuel expense Revenues and Fuel - Revenues are recorded as are reflected in customer bills in the second month following billed to customers on a monthly cycle basis. In December such changes. Ohio law and regulations require refunds of 1979, the Public Utilities Commission of Ohio (PUCO) au-amounts collected through the fuel clause mechanism found thorized a permanent rate increase designed to produce addi-by the PUCO, after audit and hearing, not to be Justified.

tional annual revenues of approximately $72,000,000. In Hearings to date have not required any significant refunds.

determining the rate increase, the PUCO allowed in rate base cpproximately 50% of the expenditures associated with Utility Plant - The cost of property additions, includ-Zimmer Nuclear Unit No.1, which is currently under con-ing replacements of units of property, are capitalized. Such struction. The rate increase includes amounts collected since costs include material, labor and applicable indirect costs March 1979 through the application of an emergency sur-such as payroll taxes, pensions, administrative and general charge. In authorizing the emergency rate increase, the expenses and the allowance for funds used during the con-PUCO provided that any excess over the amount of operat-struction period. When property is retired, the original cost, ing income deemed necessary to a!!eviate the Company's together with the net costs of removalless salvage,is charged 22

COLUMBUS AND SOUTHERN oH10 ELECTRIC COMPANY to the accumulated provision for depreciation. Expenditures Federal income tax expense consis+s of the following:

for additions and replacements of items which are not consid-Year Ended December 31.

ered units of property as well as routine repairs and mainte-T979 1978 nance are charged to operating expenses as incurred-(Thousands of Dollars)

FederalIncome Taxes Depreciation - For financial reporting purposes, de.

preciation is calculated on a straight-line basis using the esti-fn*cy,ye (decrease) from:

mated useful lives of depreciable property. Provisions for Deferred investment tax depreciation, stated as a percentage of the average balance of credits net 5,768 (6.253) related electric properties, approximated 3.28% and 3.30%

Deferred taxes -

dunng 1979 and 1978, respectively.

Acgro';deon 4,752 2.438 Allowance for Funds Used During Construction g,f'- sub'idianes s

(

)

(AFUDC) - The Company capitalizes, as a construction cost, an allowance which is defined in the applicable regula-n r t tory systems of accounts as the net cost of borrowed funds expense 15.066 (2.141) used for construction purposes and a reasonable rate on Cred:ted to other income other funds when so used. The components of AFUDC and deduct ons 7.254 3.302 shown on the Consolidated Results of Operations under Charged to operatng Other Income and Deductions and Interest Charges are expemes s22.320

$ 1.161 non-cash items equal to the cost of funds capitalized during the period. Effective May 12,1978 the rate used to accrue Federal income tax was AFUDC was changed from an 8%% gross rate to a 7%%

computed as follows:

net-of-tax rate to reflect the tax allocation method authorized Tax computed at statutory rate s34.519 518.089 by the PUCO in its 1978 retail rate order. Since January 1, 1977 AFUDC has been compounded on a semi-annual I"'[,*Ip,','c[*3oj

• d basis.

in excess of book (9.524)

(10.374)

Income Taxes - For Federat income tax purposes, the

$* nYc nst

>n (s.694)

(9.756)

Company claims deductions for accelerated depreciation F.emoval costs (1,042)

(701) under various provisions of the tax laws, including the Asset Pension costs Depreciation Range System while using the straight-line capita!ued (1,279)

(1.132) method for financial reporting purposes. In addition, AFUDC

^*ja*",,'*.

v

d ts (730)

(580) and certain other items are excluded from taxable income for subsidianes (40s)

(102)

Federalincome tax purposes. The PUCO rate order, effective Other items - net 2,224 2.415 May 12,1978, authorized the Company to begm providing Total Federal deferred taxes on the additional depreciation resulting from income tax the difference between straight-line and accelerated tax de.

expense

$15.066 5(2.141) preciation for property placed in service after January 1, 1977. This resulted in a provision for deferred Federal in-Pension Plan -The Company has a non-contributory come taxes of $4.960,000 in 1979 and $2,607,000 in 1978.

retirement income plan which covers substantially all of its Coincident with the PUCO rate order and the adoption of a employees. Total Company contributions to the plan for the net-of-tax AFUDC rate, the Company also began recording years 1979 and 1978 were $10,879,000 and $9,285,000, the tax benefits associated with borrowed funds used t respectively, including amortization of unfunded priar service finance construction in Other income rather than as a reduc ~

costs. Increases in pension costs for 1979 resulted from nor-tion in Federalincome taxes.

mal growth and experience as well as changes in actuarial For operations regulated by the FERC, deferred income assumptions, primarily with respect to salary increases. At taxes have been provided since 1975 to the extent permitted January 1,1979, the date of the most recent actuarial report, for wholesale rate-making purposes.

the amount of the assets of the funds was approximately Investment tax credits are deferred and amortized over

$57,066,000, using market value for marketable securities.

the lives of the related property. For Federal income tax The actuarially computed value for vested benefits at January purposes, the Company reported a net operating loss for 1,1979, was $57,853,000 and the liability for unfunded prior 1978 which was used to reduce the tax liability for the year service costs, which is being amonized over various periods 1975. The carryback of this loss reduced the investment tax not to exceed 40 years, was $47,141,000.

credits realized in 1975 and previously deferred investment in September 1979, the pension plan was amended to tan credits were reversed in 1978. The total unrealized in-include the effects of a supplementary early retirement pro-vestment tax credits as of December 31,1979 aggregated gram which was offered to eligible employees in 1978 and

$43,000,000 and will be recorded when realized.

1979 and which will continue to be offered during the next l

23 l

COLUMBUS AND SOUTHERN Ohio ELECTRIC COMPANY five years. The adoption of the amendment will cause Com-The preceding table summarizes the Company's owner-pany contributions to the plan to increase beginning in ship in jointly-owned facilities. The Company, The Cincinnati January 1980.

Gas & Electric Company and The Dayton Power and Light Company have constructed or have made commitments for (2) CONSTRUCTION PROGRAM, COMMITMENTS AND the construction of electric generatmg umts and related FINANCING transmission lines under joint ownership agreements. Under The Company estimates that its construction program these agreements, each participating company has an undi-will require expenditures of approximately $125,061,000 in vided interest in the facilities and each participant is responsi-1980 and an additional $251,627,000 through 1982. The ble for financing its share of the costs during the construction construction program is under periodic review and actual period. The Company's proportionate share of the operating construction expenditures may vary from these estimates due costs associated with such facilities are included in the Con-to many factors such as business and financial conditions, solidated Results of Operations.

legislation and regulation. Substantial commitments have been made in connection with these programs including commitments for commonly owned nuclear generation and (4) LEASES transmission facilities The Company has entered into certain lease agreements The Companybacilities are subject to federal, state and which meet the criteria for capitalization of leased property local air, water and other environmental control regulations.

Rigid application of proposed and existing environmental according to accounting standards issued by the Financial Accounting Standards Board. The Company has not cap-regulations and compliance timetables may adversely impact italized such leases since the PUCO has treated these lease the Company's fuel procurement policies, and place limita.

agreements as operating leases rather than recognizing tions on using coal mined from Company-owned coal prop.

leased properties as assets for rate-making purposes. If the erty. Regulations could also require extensive modification Company had capitalized the leased properties at the incep-(or even curtail the use) of existing coal-fired generating tion of each of the leases, the additional amount of assets and facilities, as well as affect expansion plans for coal-fired related liabilities which would have been disclosed on the generating facilities. The capital and operating costs of com-Company's balance sheet are as follows:

pliance with environmental regulations have become, and December 31.

are expected to continue to be, substantial 1979 1978 The Company presently anticipates a financing program through 1982 which willinclude the sale or issuance of addi-(Thousands of Douars) tional debt and equity securities, subject to the interest and Amte dividend coverage requirements in the long-term debt inde-l",ased pr perry under capital ntures and Artic!cs of Incorporation.

t.ess - Accumulated provision for depreciation 8,227 6.368 s21,739

$22.004 (3) JOINTLY-OWNED FACILITIES Company's Share at December 31,1979 gg Percent Utihty Construccon Noncurrent obligations under of Plant W ork capital leases

$21.065

$21,782 Ownership in Service in Progress-Current obhganons under (Thousands of Dollars) capital leases S 2,239

$ 1.848 Produccon The charges to the results of operations for amortization W C. Becksord and interest expense related to such capitalizable leases "S[N U

6 12.5

$ 9 486 4

would not have been significantly different from rental ex-Conesvine Generanng pense actually recorded.

Stanon (Unit No 4) 43.5 58,006 72 Rental payments principally charged to operations amounted to $6,342,000 for 1979 and $4,977,000 for 1978, Stenon 26.0 119,968 2,602 including rental payments on capitalizable leases of Wm H Zimmer Nuclear

$4,309,000 and $3,763,000, respectively.

Power Stanon (Unit No.11 28.5 220,705' The minimum rental commitments under noncancella-

$187,460

$223.383 ble leases are $3,523,000 for 1980, $3,819,000, Transmission vanous

$ 52.893

$ 1,507

$3,886,000, $4,234,000, and $4,234,000. respectively, for the years 1981 through 1984, $19,381,000 for the five year

.Indudes $16,060,000 br Zimmer Unit No. I nuclear fuel period 1985-1989, $17,507,000 for the five year period At December 31,1979, the accumulated provision for deprecianon with re-1990-1994, $8358,000 for the five year period 1995-1999 spect to the Company's share of jointly-owned facihties amounted to and $7,232,00( for the remaining years.

$43,631,000.

24

COLUMBUS AND SOUTHERN OHlo ELECTRIC COMPANY (5) COMPENSATING DALANCES AND SHORT TERM Year Ended December 31.

DORROWING 1979 1978 The Company borrows from banks (under lines of Notes Payable - other cr:dit) and banks acting as agents by issuing short term notes Maximum amount payable. Substantially all bank balances are maintained by

["g',d'"v nd s20.000.000

$15.000.000 the Company to compensate the banks for banking services Average daily baiance end for lines of credit. As of December 31,1979, the Com-borrowed

$ 17.986.000

$12.540.984 pany had bank lines of credit of $113,066,000 of which Average interest rate

$104,066,000 was unused. The Company also has a based on daily

$20,000,000 line of credit agreement with a major leasing g,egr ge nterest rate on b n company. The agreement expires in September 1980, unless balance at end of both parties agree to renew. There are no compensating period 15.35%

11.73 %

balance requirements but the short-term notes payable under this line are secured by the Company's coal and oilinven-(6) COMMON SHAREHOLDERS' EQUITY tories. As of December 31,1979, the entire $20,000,000line December 31.

was in use.

in9 tw8 Of the total banklines of credit $20,000,000 is subject to m usands f Douars) average compensating balances of 10"o of the line of credit on N*"rfs $hout C *"

plus 10% of the average amount borrowed and $20,000,000 Com r

is subject to fees in lieu of maintaining compensating bal-value s 40,865

$ 40.370 ances. Under the remaining lines the Company has agreed to Premium, net of expense, on c

harn 2

2 maintain average balances in relationship to the line and ggj'E, 9,

usage of the line: however, no specific amounts of balances 0.u5 866 have ever been designated and no restrictions exist concem-ing withdrawalof the funds by the Company under any of the lines. Borrowings from banks as agents are payable on de.

The Company issued 197,975 shares of common stock mand, are limited by the Company and no balances are in 1979 and 139,388 shares in 1978 through its dividend maintained to compensate the banks for such credit.

reinvestment plan and employee stock purchase plan for net proceeds of $4,528,000 in 1979 and $3,522,000 in 1978.

Details of loan balances and interest rates are sum, The Premium, net of expense, on capital shares from such marized below.~

sales amounted to $4,033,400 and $3,173,500, respec-tively, in 1979 and 1978.

Year Ended December 31-At December 31,1979,269,299 shares of authorized 1979 1978 but unissued common stock were reserved for issuance Notes Payable Under under the dividend reinvestment plan and 401,217 shares Lines of credit.

were reserved for issuance under the Company's employee Maximum amount stock purchase plan.

borrowed at any month-end

$70.196.000

$33.635.000 The Indentures under which the Company's Deben-Average dady balance tures and First Mortgage Bonds were issued contain provi-bonowed

$34,154.000

$17.092.603 sions which, under certain conditions, restrict the payment of

^" 2Eo"n Eay

cash dividends to common shareholders. As of December 31, b

balances 11.85%

8.87 %

1979, under the most restrictive of these provisions, approx-Average interest rate on imately $58,500,000 of retained eamings is not available for balance at end of dividends on Common Shares.

penod 15.42 %

11.43 %

Notes Payable to Banks as Agents.

(7) CUMULATIVE PREFERRED SHARES -

Maximum amount NO MANDATORY REDEMPTION borrowed at any month d s22.443,000

$22,423.000 The Company at its option may redeem all or any part of borrowed

$21,810,000

$21.635,282 the following series of Cumulative Preferred Shares outstand-Average interest rate ing at December 31,1979 at the prices per share shown based on daay below, plus accrued dividends, except the shares of the $2.42 Series are not redeemable prior to November 2,1981 unless Av ag terest rate on all outstanding Cumulative Preferred Shares are redeemed balance, t end og l

penud 12.48 %

10.25 %

concurrently.

25

COLUMBUS AND SOUTHERN OHlo ELECTRIC COMPANY December 31.

The shares of the 10.52% Series are redeemable at any 1979 1978 time, however, prior to August 2,1985 no such redemption (Thousands of Dollars) may be made (other than by operation of the applicable Cumulatwe Preferred Shares sinking fund) through refunding operations at an effective

$1(Par cost to the Company of less than 10.52% per annum unless a1ue 9_

all shares of all series are redeemed concurrently.

4 25% Senes 103.591 shares (caHable at $110)

$10.359

$10,359 Beginning in 1981,10,000 shares of the 10.52% Series 4 65% Sena 89,950 must be redeemed annually through the operation of a sink-ing fund and an additional 10,000 shares may be redeemed f10$

s 995 8.995 annually at the option of the Company. The shares of the 10% Senes 180.000 shares (callable through 9.50% Series are also subject to a sinking fund, beginning in May 1,1980 at $109 50.

1934, under which 16,000 shares must be redeemed annu-

• Ykl$'75 ally and an additional 16,000 shares may be redeemed an-

"gh 19,

nually at the Company s option. Annual requirements for and at reduced amounts 7.52% Senes 160.000........

18,000 18.000 such redemptions will be $1,000,000 for the years 1981 thereafter) through 1983 and $2,600,000 for 1984.

shares (callable through Differences between redemption prices (including February 1,1982 at commissions and reacquisition expenses) and the stated

$108 and at reduced amounts thereafter) 16.000 16.000 value plus any premium and less any discount or expenses 8.52% Senes 200,000 applicable to the shares as they are retired will be accounted

$b for in the following manner as prescribed by the FERC. Gains

'^ ""

a 984 a on reacquisition will be recorded as an increase in proprietary

$108 and at reduced amounts thereafter) 20.000 20.000 capital and losses will be a reduction of previous reacquisition gains with any excess being charged to retained eamings.

tstand ng - $2 42 Senes 1,000,000 shares (callable (9) LONG TERM DEDT through November,1981 Long-term debt outstanding (excluding current at $31.07 and at reduced amounts thereafter) 25,000 25,000 maturities) consisted of the following:

$98,354

$98,354 December 31, 1979 1978 (Thousands of Douars)

(8) CUMULATIVE PREFERRED SHARES -

MANDATORY REDEMPTION R'$g91 g

g g Cumulative Preferred Shares subject to mandatory re-7%% Senes due 1980 50.000 3%% Series due 1981 9.000 9.110 demption provisions consist of the following:

9%% Senes due 1982 50,000 50.000 December 31.

11% Senes due 1983 30.000 30.000 1979 1978 3%% Series due 1983 7,665 7,775 3%% Series due 1984 7,698 7,763 Cumulative Preferred Shares (Thousands of Dollars) 9%% Series due 1984 60.000 60,000

$100 Par Value 7%% Senes due 1985 45.000 45,000 Outstandmg -

3%% Senes due 1986 9,480 9.480 10 52% Senes 200.000 4%% Senes due 1987 15,789 15,789 shares (ca!!able through 4%% Senes due 1988 13,860 13.860 August 1,1980 at $115 4%% Senes due 1992 15,827 15,827 from August 2,1980 through 9.45% Senes due 1996 40.000 40,000 August 1,1985 at $107.25 6%% Series due 1997 14.640 14,640 and at reduced amounts 7% Series due 1998.

24,750 24.750 thereafter).......

$20,000

$20,000 9.20% Series due 1998 45,000 45.000 9 50% Senes 400,000 9% Series due 1999.

20,000 20.000 shares (callable through 10%% Senes due 1999 60.000 May 1,1983 at $120 9.90% Series due 20M 35,000 35.000 and at reduced amounts 8%% Senes due 2006...

35,000 35.000 thereafter) 40.000 40,000 Unamortized premium and

$60,000

$60,000 dscount - net 228 189 538,937 536.683 in 1978, the Company sold 400,000 shares of 9.50%

Debentures:

Series $100 par value Cumulative Preferred Shares, and 7%% Senes due 1999 20.866 20.871 Other Long-Term Debt-received net proceeds of $39,350,000. $40,000,000 was credited to Cumulative Preferred Shares and $650,000 was

["h r a ng Simco.ine. note recorded as capital stock expense.

$589.774

$570.079 26

COLUMBU$ AND SOUTHERN oHlo ELICTRIC COMPANY The aggregate amount of scheduled maturities an J sink-(11) SUPPLEMENTARY EXPENSE INFORMATION ing fund requirements for alllong-term debt outstanding at Taxes other than income taxes charged to operations:

December 31,1979 is $61,564,000 for 1980, $16,790,000 War Ended December 31 for 1981, $59,088,000 for 1982, $46,207,000 for 1983 and 1979 1978

$81,314.000 for 1984. The portions of the sinking fund (Thousands of Do!!arsi requirements which may be satisfied by bonding property additions are $1,510,000 for 1980 and $1,860,000 for each h,t$cis, on gros,,,c,, pts

$,323 of the years 1981 through 1984. Redemption premiums on payroit 2.764 2.377 sinking fund requirements aggregate $90,197 from De-Other 452 379 cember 31,1979 through 1984, including $72,465 that can s38,193

$32,764 be satisfied by bonding property additions.

Substantially all property owned by the Company is Research and development costs charged principally to subject to the lien of the mortgage under which the First income were approximately $1,633,000 for 1979 and Mortgage Bonds were issued.

$2,064,000 for 1978.

In 1976, Simco inc. (Simco) borrowed $10,000,000 In addition to the depreciation expense set forth in the fzom a bank. The Company has guaranteed this note which is Consolidated Results of Operations, the accounts under payable by Simco in twenty-four consecutive quarterly in.

Other Income and Deductions include depreciation and de-stallments. At December 31,1979, the balance of the note pletion applicable to coal and other properties of $2,081,000 outstanding was $3,750,000. Interest on this note, which is for 1979 and $2,733,000 for 1978.

bcsed on the bank's prime rate plus 1%%, is included under (12) QUARTERLY FINANCIAL

SUMMARY

(Unaudited)

Interest Charges m the Consolidated Results of Operations.

Three Months Ended Mar. 31 June 30 Sept 30 Dec. 31 (Thousands of Dollars except per share data) 1979 Operating Revenues

$102.116 $99,802 $113.754 $101,098 (10) COAL MINING OPERATIONS Operatng Income 19,895 19,644 29,073 21,459 Net income 12.371 12.242 21,724 13,640 Simco Inc. owns two thirds interest in a joint venture Eamings on which mines coal from Company-owned coallands. Thejoint Common Shares 8,899 8,770 18.251 10,167 venture has experienced various regulatory and operational Eamings per Common Share *

$0.55

$0.54

$1.12

$0.62 problems in the reclamation of such coal lands which has resulted in a reclama' ion reserve dehciency for Simco inc. at ating Revenues 5 84,083 $86.993 $107,676 $ 87,419 December 31, 1979 in the range of $1.500,000 to operanns Income 12.021 13.532 23,890 16,940

$2,500,000. The Company implemented a plan in 1979 Net Income 5,756 7,454 16,988 9,630 designed to prospectively increase the reserve to an adequate Ea1"mm' C

Shares 3,234 4,900 13,515 6.157 lev 21 through the price charged for coal mined in the future. It Eamings per is the Company's opinion that such amounts will be ulti-Common Share *

$0.20

$0.30

$0.84

$0.38 raately recoverable through the fuel adjustment clause.

• Based on average shares outstanding To the Shareholders and Board of Directors of Columbus and Southern Ohio Electric Company:

We have examined the consolidated balance sheet of COLUMBUS AND SOUTHERN OHIO ELECTRIC COMPANY (an Ohio corporation) and subsidiary companies as of December 31,1979, and 1978, and the related consolidated statements of results of operations, retained earnings and sources of funds for property additions for the 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.

In our opinion, the financial statements referred to above present fairly the financial position of Columbus and Southern Ohio Electric Company and subsidiary companies as of December 31,1979 and 1978, and the results of their operations and their sources of funds for property additions for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.

ARTHUR ANDERSEN & CO.

Columbus, Ohio, 27 January 31,1980.

Supplementory Information On inflation And Chonging Prices The supplementary information in sumers Price Index for All Urban Con-utility operations. Current cost amounts the statements below is presented in sumers (CPI-U).

were determined primarily by applying compliance with the requirements of Current cost amounts reflect the appropriate indexes from the Handy-Statement No. 331ssued by the Financial changes in specific prices of property, Whitman Index of Public Utility Con-Accounting Standards Board (FASB).

plant and equipment from the date such struction Costs.

The information is intended to disclose assets were acquired to the present, and The Company is subject to regula-the effects of both general inflation and differ from constant dollar amounts to tions under which only the actual cost of changing prices, however, the amounts the extent that specific prices have risen fuel used for generation is recoverable in should be considered approximations of at a different rate than the generalinfla-future revenues. Because of such recov-such effects rather than precise measures tion rate as measured by the CPI-U. The ery limitations, fuel inventories are effec-since a number of subjective judgments current cost of property, plant and tively monetary assets and accordingly and estimating techniques were em-equipment represents the approximate neither fuelinventories nor fuel expense ployed in developing the information.

cost of replacing such resources and in-have been restated from their historical Constant dollar amounts represent cludes utility plant in service, construc-costs.

historical costs stated in terms of dollars tion work in progress, land, land rights.

Depreciation expense applicable to of equal purchasing power, as measured property held for future use as well as constant dollar and current cost amounts by the average level of the 1979 Con-property and equipment not related to was determined by applying the same Staternent Of incorne From Continuing Operations Adjusted For Chonging Prices For the Year Ended December 31,1979 (Thousands of Dollars)

Conventional Constant Dollar Current Cost Historical Average Average Cost 1979 Dollars 1979 Dollars S 416,770

$ 416,770

$ 416,770 Operating revenues 137,078 137,078 137,078 Fuel Purchased and interchanged power (net)

(17,856)

(17,856)

(17,856) 107,120 107,120 107.120 Other operation and maintenance 39,843 71.111 80,285 Depreciation 38,193 38,193 38,193 Taxes other than income taxes 22,320 22,320 22.320 Federal income taxes Other income and deductions (20,963)

(19,925)

(19,892) 51,058 51,058 51,058 Interest charges

$ 356,793

$ 389,099

$ 398,306 income from continuing operations (excluding reduction to net recoverable cost)

$ 59,977

$ 27,671*

$ 18,464 Increase in specific prices (current cost) of property, plant,

$ 237,658 and equipment held during the year +

$(127,541)

(68,526)

Reduction to net recoverable cost (295,124)

Effect of increase in general price level Excess of increase in general price level over increase in (125,992) specific prices after reduction a net recoverable cost 106,350 106,350 Gain from dedine in purchasing power of net amounts owed

$ (21,191)

$ (19,642)

Net l

• Including the reduction to net recoverable cost, the income (loss) from continuing operations on a constant dollar b been $(99,870) for 1979.

+ At December 31,1979, current cost of property, plant and equipment, net of accumulated depreciation, was $2.466.105 historical cost or net cost recoverable through depreciation was $1,312,109.

28

straight-line rates used for historical pur-ditional cost of plant, as determined perience a gain since payment in the fu-poses to the indexed plant amounts. De-under the constant dollar and current ture will be made with dollars having less preciation expense shown in the sup-cost methods, in excess of historical cost purchasing power. The gain from the de-plementary income statement relates to is not recoverable and is reflected as a cline in purchasing power of net amounts utihty-related assets whereas adjust-reduction to net recoverable cost.

owed is primarily attributable to the sub-ments to other income and deductions To properly reflect the economics of stantial amount of debt which the Com-reflect the additional depreciation and rate regulation, the reduction of net pany has used to finance property, plant depletion associated with property and property, plant and equipment should and equipment. However, because regu-equipment not related to the Company's be offset by the gain from the decline in lation limits the recovery of plant to orig-utihty operations.

purchasing power of net amounts owed.

inal cost, the Company does not have As prescribed by the FASB, taxes Gains or losses associated with holding the opportunity to realize a holding gain have not been restated from historical monetary items are based on the theory on debt and is limited to recovery only of amounts.

that, during periods of inflation, holders the embedded cost of debt capital.

Because the Company is subject to of monetary assets suffer a loss of general rate regulation which permits only the purchasing power because these items historical cost of utihty plant to be recov-purchase less at a future date whereas cred in reven ues as depreciation, the ad-those who incur monetary liabilities ex-Five-Year Cornparison Of Selected Supplementory Financial Data Adjusted For Effects Of Chonging Prices (In Thousands of Average 1979 Dollars) l Years Ended December 31.

I 1979 1978 1977 1976 1975 Operating revenues

$416,770 $407,585 $334,131 $357,548 $349,562 Hi:torical cost information adjusted for g:neral inflation income from continuing operations (excluding reduction to net recoverable cost)

$ 27,671 Income per common share (after dividend requirements on preferred stock and excluding reduction to net recoverable cost)

.85 Net assets at year-end at net recoverable cost

$406.918 Current cost information income from continuing operatioris (excluding reduction to net recoverable cost)

$ 18,464 Income per common share (after dividend requirements on preferred stock)

.28 Excess of increase in general price level over increase in specific prices after reduction to net recoverable cost

$125,992 Net assets at year-end at net recoverable cost

$406.918 G;neral information Gain from decline in purchasing power of net amounts owed

$106,350 Cash dividends declared per common share 2.13 $

2.58 $

2.71 $

2.70 $

2.70 Market price per common share at year-end

$ 21.13 $ 23.38 $ 32.06 $ 34.44 $ 31.03 Average consumer price index 217.5 195.4 181.5 170.5 161.2 29

Five Year Summary of Statistical Information COLUMBUS AND SOUTHERN OHIO E11CTRIC COMPANY 1979 1978 1977 1976 1975 Energy Supplied - KWH (000 omitted)

Generated (net) 10,495,400 9,427,146 9,669,799 8,646,860 7,978,044 Purchased and interchanged (net)

(761,855)

(60,913)

(255,783) 221,703 505,447 Net energy supplied.

9.733,545 9,366,233 9,414,016 8,868,563 8,483,491 Losses and Company use 699,878 740,110 686,632 735,195 632,162 Energy sold 9,033,607 8,626.123 8,727,384 8,133,368 7,851,329 Sales - KWH (000 omitted)

Residential 3,222.252 3,154,723 3,109,167 2,859,023 2,818,852 Commercial 2,741,795 2,583,709 2,684,415 2,527,377 2,436,973 Industrial 2,130,367 2,041,832 2,045,037 1,965,071 1,896,435 Govemmental authorities 352,441 307,162 312,819 308,688 274,183 Sales for resale 586.812 538,697 575,946 473.209 424,886 Tota!

9,033,667 S 626,123 8,727,384 8,13?

7,851.329 Operating Revenues (000 omitted)

Residential

$171,952

$155,342

$136,271

$11c

$112,124 Commercial 131,773 111,717 100,226 87.

80,378 Industrial 80,057 69,802 60,018 53, 48,753 Governmental authorities 12.088 10,016 9,130 8,54 7,749 Sales for resale 16,514 15,596 11,912 9,58')

7,741 Other 3,786 3.698 2,994 2,123 2,333 Total

$416.770

$366,171

$320.551

$280,285 4259,078 Customers at End of Period Residential 412.016 403,523 398,000 392,472 384,626 Other 45,272 44,388 43,717 43,018 42,326 Total 457,288 447,911 441,717 435,490 426,952 Fuel Costs Per net kwh generated (c) 1.31 1.30 1.%

0.98 0.99 Per million BTU (c) 121.7 120.6 98.0 95.2 92.3 Average cost of coal per ton consumed

$25.45

$24.59

$20.44

$19.85

$18.96 Generating Capability, including OVEC Net kilowatts at time of peak 2,732,000 2,735,000 2,480,000 2,111,000 2,141,000 One-hour System Peak Demand 1,852,000 1,907,000 1,932,000 1,776,000 1,749,000 Net kilowatts - summer

- winter 1,775.000 1,736,000 1,683,000 1,514,000 1,501,000 Average Annual KWH Use Per residential customer 7,896 7,876 7,883 7,362 7,390 Average Residential Revenue Per kwh (g) 5.34 4.92 4.38 4.17 3.98 30 L