ML20003C918

Annual Financial Rept 1980.Supporting Documentation Encl

ML20003C918
Person / Time
Site:	Marble Hill
Issue date:	01/30/1981
From:	PSI ENERGY, INC. A/K/A PUBLIC SERVICE CO. OF INDIANA
To:
Shared Package
ML20003C916	List: ML20003C915 ML20003C918
References
NUDOCS 8103180716
Download: ML20003C918 (57)

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PUBUC SERVICE INDIANA ligligTs

% increase 1980 1979 (Decrease)

Kilowatt-hours sold

• 18 898 18 223 3.7 Opercting revenues * $ 645.7 S 628.5 2.7 Not income' $ 122.7 $ 123.0 (.2)

Common stock-per shore Earnings $ 3.21 S 3.79 (15.3)

Dividends paid $ 2.44 S 2.28 7.0 Book value $ 24.87 S 24.72 .6 Rote of return on year-end not plant in service and inventories (original cost) 8.6% 9.1%

Customers at year-end 536 162 530 298 1.1 Electric hooling customers 92 220 86 889 6.1 Average kilowatt-hours used-domestic customers 10 812 10 349 4.5 System peak lood in megawatts Summer 3 896 3 598 8.3 Winter' 3 554 3 718 (4.4)

Construction * $ 487.1 S 364.2 Nuclear fuel' 5.6 22.5

$ 492.7 S 386.7 27.4 Utility plant * $3 077.9 S2 595.1 18.6

• millions

" A new winter peck load of 3.827 megawatts (mw) was established on Jor.uory 12, 1981. surpassing the previous winter peak load of 3.718 mw in 1979.

l Gibson Slotion. one of America's largest energy facilities, will have five cool-fired units in operation in 1962. e) l- 2.540.000 kilowatts (with 650.000 kilowatts under construction)

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~o ne slareloCers A yf y.Q{gn.:g e As we enter the second year of a new ,

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, decade, it is evident that virtually all facets  ; .

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structures are dominated by the single r, j , f ., 6 - ,'.

• phenomenon of inflation. it is the paramount ,, , , . p(' ;w  : .

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problem of our country today. And it must be i y<;

cured unless we, as a nation, are prepared

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And inflation offected Public Service Indiano in 1980 in many ways-a decline in earnings ".

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[9 operating expense levels, increased 7. :: ' y ..............4 construction costs and record breaking new Menscer Bark.

money costs.

Earnings per common shore declined from

$3.79 to S3.21 for the year ended December 31, 1980. This level of earnings is not Other highlights were:

adequate to attract the capital we need, at e Kilowatt-hour sales increased 3.7% to favorable rates, for essential construction. 18.9 billion; higher use by residential. l On December 8, a request for a retail rate commercial and wholesale customers increase of 23%, aggregating S120 million offset a decline in industrial sales. l on on annual basis, was filed with the Public Revenues increased S17.2 million to l Service Commission of Indiana. A request for S645.7 million. j increased rates to wholesale customers will e Common stock dividend payments l also be filed with the federal regulatory increased for the twentieth consecutive '

agency in mid-1981. year; a quarterly increase of 4c per i share was effective June i for a new i '

, Action on the retail rate increase is not annual rate of $2.48 per share.

l expected until mid-1981. Pending approval e Construction a:penditures in 1980 of this rate request, o further decline in totalled $487 million. Expenditures for earnings is expected. the fifth cool-fired unit at the Gibson Station, scheduled for 1982 i Resumption of safety-related construction at completion, were S93 million; Marble l the Marble Hill nuclear project was Hill expenditures were $326 million.

authorized by the Nuclear Regulatory .e New financing included the sole of i

Commission late in the year. Safety-related $225 million of first mortgage bonds I work had been holted in August 1979. and S136 million of new preferred and 1 i During the year, we restructured the entire common stock issues. I nuclear organization as o division of the Company and added a substantial number of personnel with extensive commercial nuclear experience.

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After soveral months of intensive study by the The successful development of the Company and on independent consulting Company in the two decades from 1960 to firm, revised time schedules and cost 1980 was due in large part to the leadership estimates for the Marble HiH project were of Carroll H. Blanchor who was Chairman of announced. The two nuclear units are now the Board at the time of his death on March scheduled for service in 1986 and 1987 and 16, 1980. Our tribute to him must include are estimated to cost $3.4 billion; the recognition of his outstanding leadership to Company's 83% ownership portion will be the Company, the electric industry and the S2.8 billion. These increases are due to the State, his management skills and his warmth increased complexities of nuclear os a friend and fellow employee.

construction and regulation and the lengthened time of construction. Despite this 1980 was a difficult year for the entire increase from the previous estimate of S1.9 country, os it was for us. The years chead billion, the economics of nuclear power promise continuing challenges. The remain very favorable due to significant fuel dedication and skills of our 4,900 cost savings os comparea with fossil fuels. employees, the Company's human resources, give assurance that these Re'lecting the new Marble Hill estimates, the challenges will be met successfully.

Company announced a revised construction program of S2.7 billion for the 1980-84 period and a Si.i billion program for the 1985-89 period. External financing requirements are estimated at S 1.9 billion for the 1980-84 period and $280 million for the subsequent five-year period. By order of the B ord of Directors A buildup in cool inventories continued throughout the year focusing on the g }M4/

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expiration of the cool miners' labor agreement on March 27,1981. At year-end, Hugh A. Barker cool stockpiles totalled 4.4 million tons or the Chairman and Chief Executive Officer equivalent of 140 days' supply. Total investment in cool stockpiles at year-end was $113.7 million.

The election of Darrell V. Menscer, formerly senior vice president, Carolina Power and Darrell V. Menscer Light Company, to the post of president and President and Chief Operating Officer chief operating officer on May 2,1980 added further top management capability for the years chead. At the some time, Hugh January 30,1981 A. Barker, formerly president, was named chairman and continues os the Company's chief executive officer, 5

, Where the electric utility industry Public Service Indiano is and we os a company have committed to a strategy aimed at v been is Lnportant. But still more avoiding crippling power sitol to those who have invested shortages and rnoderating the or plan to invest money in on impact of inflation on customer j electric utility is what lies chead, bills.

InVeS~ Ors Electric utilities will require over The key to this strategy is hold!ng gg gg/ I S20 billion of new money onnually over the next few years, capital needs to o minimum and maintaining a strong financial "O

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industry must be able to compete s'>i i- ,,c->>,

needed capital of the lowest in the capital market with other cost. The future of electric utilities industries. is tied to their ability to finance.

This, in turn, hinges on their obility The future promises jarring to maintain earnings at changes. The era of " cheap" odequate levels, to receive energy is over. So may be the prompt regulatory response to continuation of near-foultless well-documented requests for electric service and unlimited rate relief, and to find new ways supply, to offset the encroachment of inflation.

Indeed, some basic assumptions about the future of electric Service to customers, then, starts service in the U.S. con be mode, with the investor. Public Service Indiano is acutely aware of this e Competition for capitol will hit critical relationship. Capital con hard on capital-intensive only be attracted by paying the utilities and may offect both going price. In order to raise Si.5

, quality and cost of service, billion of new money in the 1981-84 period, we must remain

• The cost of electricity (and all competitive in the money forms of energy) will rise in the markets.

I wake of cuntinuing inflation.

.g The cost of facilities present;y But energy users must understand under construction, which this cost relationship and why it

. reflect the inflation of the '70s means higher prices chead.

and new environmental Nobody likes higher prices but requirements, mandate we have the obligation to l substantial increases in the broaden custorror understanding i price of electric power. of the economics of the electric l 4 industry.

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• Electric power shortages may occur in some parts of the Our strategy to finance the future nation by 1990 and will ,

includes; broaden by the year 2000 unless necessary generating e Minimizing capital needs via l

l facilities are completed on stringent cost control

! i time. meo;ures; optimum utilization Service area of cii faciiities. regareiess of age; and load management programs to minimize the need for costly new facilities.

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4 IMAGE EVALUATION

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O Taking the necessary steps to We are aware of the impact of and preferred stockholder but restore investor confidence in inflation and are working to hold increase the investment and utility equities by increased the line in many ways. Our record dividend potential of the

) earnings and to avoid citution on that coant is good. Through common stock. An adequate intemot efficiencies, operating rote of return is a function of the of shareholders' investment. regulatory process. We believe costs. other thcn fuel, rose only about two-thirds as fast as the that the record of Indiano O Working for leg.islative op- rote of inflation during the regulation has reconized that proval of the inclusion of Con- 1969-79 period. Fuel costs, both the investor and the struction Work in Progress in heavily influenced by consumer are best served when the rate base. Current intemational energy policies and a utility is permitted on adequate recovery of financing costs environmental requirements, rose return.

during the construction period 31/2 times os fast as the rate of of new facilities benefits both inflation and sent electricity costs We don't like rate increases any the consumer and sharply upward, more than our customers do. but shareholder over the long run. they will be vital in helping to As energy costs cilmb, the keep Public Service Indiano Public Service Indiano has a con, consumer takes many energy- financially viable. We believe saving steps he would not have that regulation con be helped b/

struction program to assure ode- taken before. This is equally true customer perception and quote capacity into the future. of electric utilities. A good understanding of the reasons for Current annual growth projec- example is the incentive to rate increases. We will continue tions of 4% recognize that load reduce the use of oil-burning efforts that broaden customer growth has slowed. But growth peaking units when oil costs three knowledge of our operations.

there wi!! be. And there is the to four times os much.

future need to replace older Public Service Indiano rates -

facilities when economics dictate Higher costs of electricity from today are below the midipoint their retirement. traditional fuels such as cool and notionally. We recognize that our oil and even nuclear provide the location close to midwest cool With the addition of a 650.000 incentives for research and fields gives a cost advantage but ~ ' -

development of new we also believe that regulation kilowatt cool-fired unit in late and management dedicotton to technologies. Painful as higher 1982 and the Company's 83%

pnces are, they con moxe once eiactric serWe at the lowest ownership of two 1.13 million uneconomic alternatives more possible cost have been kilowatt nuclear units to be com- attractive. important factors. Although we pleted in late 1986 and 1987, no know our ratesMill increase, we further capacity will be needed Another way to hold the line on expect that our relative position until the mid-1990s. costs is to maintain a strong will be mcMained.

credit standing. Public Service W3 believe that completion of Indiano securities historically The future of Public Service our nuclear plant o.1 o timely have he;d high credit ratings and Indiano will be based on the firm basis is essential ano will lock in have enabisJ us to raise capital foundation of the post. Our fight place substantial economies for at lower con Maintenance of against inflation must be the customer and improve the in- good roMos con save gelenhg. We are commmed to minimizing the need for consumers millions of dollars in vestment quality of the Company, *

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Despite the higher capitol costs to maximizing managerial and of nuclear capacity, the overall But favorable security rotings operating efficiencies, to a quest cost of nuclear energy, including begin with earn'ngs levels which for practical innovation and to fuel costs, will be substantially not only protect the bondholder the recognition that our obility to lown than equivalent cool- serve the customer well depends based energy. largely on our ability to serve our investors well.

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net income anc re ai ra e increase cividencs fiec Although net income for 1980 of $122.7 rtsliion in December 1980, the Company filed o petition was virtually the some os 1979, earnings per com- with the Public Service Commission of Indiano mon shore declined from S3.79 to $3.21. This requesting that retail rates be increased 23%. The decline reflects the continuing impact of inflation proposed increase would provide additional on operating expenses, double-digit interest annual revenues of $120 million. of which one-rates and thq common and preferred shores half would go for federal and state income taxes.

issued during the year. Earnings are expected to A decision is not expected before mid-1981.

Continue o downward trend in 1981 pending op-proval of the Company's rate increase reauest While rate ircreases are never popular. they are filed in early December. necessory to offset the harsh realities of inflation.

Present rates, based on adjusted 1977 costi, do Dividends paid per shose of common stock in- not reflect 1960 price levels. However, the creased 16e in 1980 to $2.44 compared with requesteo rote increase is less than the

$2.28 in the previous year. The June 1.1980 in- cumulative effect of inflation since the Company

. crease of 4C per common shore marked the filed its previous retail rote request in December twentieth consecutive year in which dividend 1977.

payments have increased.

A filing with the federal regulatory outhority for increased wholesale rates w!Il be made in rnid-1981; the amouri of sur n increase hos not been determined.

revenues onc

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ecenings and dividends per shore of common stock energy use eamingsm cueenes poo 8 ^

Operating revenues for 1980 rose to S645.7 million, on increase of 2.7% over 1979's S628) 1976 *

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over the previous year climbing to o new high of 3.28 18.9 billion. Domestic sales increased 6% while Er2N"milllK M 2.01 commercial sales increased almost 5%. These 2.92 increases reflected, in port, the hot weather

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3.79 7

E 41 FEE M EIE UR"E MiB 2.28 Industrict sales, however, were down 4%. Thr.

g 1980 depressed auto industry, the slowdown in housing 2.4 starts and the lock of growth in the steel industry 0 s i .00 $2.00 $3 00 $4.00 were major factors offecting the Company's industrial loads. Scies to Chrysler Corporation and F'enn-Dixie Steel Corporation, two of the Compoay's mo,or industrial customers, each declineo 16% from 1979 levels.

Coytrgo slotton in Vermaltion County is one of tria notion's .nost efficient power plants.

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Kwh sales to wholesale customers increased 13% Because of the effects of conservation and due a large part to the increosed load reduced loa d growth expectations. the requirements of Hoosier Energy REC. Inc., a rural Company lowered its 1980-1991 forecast of e!ectric generating cooperative. Hoosier Energy cnnual winter peck load growtn from 6% to 4 is constructing a new generating stchon with the 1/2%. At the some time. t^e forecast for onr uct first of two untts schecuted for service in Icte 1981. summer peck load growth .vas reduced frem 4%

Because of the new station, the Company's firm to 31/2%. Kilowatt-hour sales growth dunnp the power cor ;mitments to Hoosier Energy, which some period is Spected te De in the some soproximate 325 megewotts during the winter percentage range.

season, will terminate on September 30,1981.

The new forecast will not affet genvrcting units Net customer cdditions for the year tototied 5.900 presently undet construction. decause of oresent cs the customer base increased to 536.000. Over uncertainties surrounding tne construction of new 5.3G0 new heating customers were added during nuctect power picnts and the associated 12-15 the year. At yect-end, electric heating customers yect time frames for planning cnd construction, i totalled 92.000 or 17% of oil customers. the next generating capacity to be insto:!ed after Marcie Hill will be coal-fired.

Average annual res;dential kwh usage increased

' tom 1979's 10.349 to 10.812 for 1980 largely reflecting heavy cir conditioning usoge during OperaiOnS the 1980 heat wcVe.

Fuel expenses, reflecting once esco!ations and slightly higher kwh production levels increased peO< enerm 813 m,,,,on ,o, ,h. .=,. ,u.i costs co ,nu. ,<. me the f orgest component of the customers' monthly CemOne mi,,. with one-,hi,d c, .cch , venue do,,c, meine spent for fuel.

Energy demand established a new peck on July

[ 15.1980 of 3,896 megawatts, on increase of 8.3%

over the previous summer peak and a 4.8%

increase over the 1978-79 winter peck of 3.718 megawatts. On January 12.1981. a new winter l peak of 3.827 megawatt; was estabhshed exceeding the previous winter peck by 2.9%.

Future load projecticos continue to indicate that q.

l the Company will remain a winter peaking system w,nter summarm l_ olff ough summer Decks are expected to closely l porcilel winter pecks. The duct summer-winter l

pecking experience results in economies for the F I Customer through more intensNo use of instoffed 1972 M

generating capacity and avoids the necessity of y building capacity to meet sing'e season pecning Conditions. 1974 mammM w

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1.000 1.500 2.000 2.500 3.000 3.500 4.000

' reflects January 12.1981 peak lood of 3.827 mw Wobosti River station north of Terre Houte hos been in service since 1953.

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Operatirig and maintenance expenses were up Construction expenditures for 1981 are estimated 23% to S144 million, reflecting the impact of to be S591 million and will aggregate S2.2 billion inflation, higher wage levels and necessary for the 1981-84 period. In the subsequent 1985-89 monning requirements to maintain adequate period, expenditures are expected to decline service levels. Since increased operating costs sharply and are presently estimated at $1.1 mean higher consumer rates, the need for billion. The 1985-89 program includes $52 million operational efficiencies continued to be stressed for the next increment of generating capacity throughout the year, which, based on present load forecasts, will be required in 1994.

Construction work in progress, including nuclear fuel, totalled S1.1 billion at year-end compared Nuclear fuel expendituu , in 1980 were S5.6 to S664 million at December 31,1979. Due to the million. While 1980 expenditures had been increasing investments in Gibson Unit 5 and expected to be S25 million. production delays Marble Hill. the allowance for equity and debt were experienced at a new Wyoming uranium funds used during construction increased $27.3 mine which will supply eight million pounds of million during the *; eor to $69.3 million. uranium to the Company over o 16-year period.

Deliveries of uranium from this mine are expected Total tax expense during the year ceclined $24.6 to commence in early 1981. Nuclear fuel outlays to S95.1 miTon. Income tax expense decreased for 1981 are estimated at $58.5 million and S291 S18.5 millica because of lower levels of pre-tax million for the 1981-84 period.

income; other tax expense decreased S6.1 million and reflected adjustments of real estate and personal property tax expense for prior years.

financing Company financing in 1980 was accomplished interest expense rose almost S21 million to S86.4 ogainst a background of continuing inflation, million reflecting new debt borrowings and unprecedented interest rate levels and volatile double-digit interest rates experienced capital markets. Similar conditions are expected throughout the year. to continue throughout much of 1981.

New money requirements in 1980 totalled $373 CONS _.FUC.. ion mmion. A S50 mimon. 9.60%. preferred stock issue was sold in January followed by two bond issues

~ OrOgram and a soie of common stock. in ucren. o S100 million,14%, first mortgage bond issue (Series DD)

Corstruction spending during the year reached was marketed with a seven-year maturity; o record high of S487 milliorr, cornpored with the another first mortgage bond issud of $125 million- -

1979 level of $364 million. The major portion of (Series EE) was sold in August at a rate of 121/8%

1980 construction outlays were $93 million for the and a ten-year maturity.

new 650 megawatt unit at the Gibson Station and S326 millionL for the two 1,130 megawatt Marble in August, 2.7 million additional shores of Hill nuclear units. Additionoi expenditures in 1980 common stock were sold of a price to the public included S8 million for other production plant, S8 of $20 7/8 per shore.

million for substations, S17 million for transmission lines, S32 million for distribution facilities and S3 An additional 1.036,000 common shores, raising million for general property. S21 million, were issued under the Company's outcmotic dividend reinvestment p!an. New issues of common stock through employee investment tax credit and stock purchase plans aggregated 417,000 shores and proceeds of S9 million. At year-end, 12 % of all common shareholders, representing over 22 % of outstanding shores, we.e participating in the automatic dividend reinv sstment program.

Gasogner star.on on the ohio mver opposite Louisvule. Kentucky burns coal doNyered by borge, j 560.000 knowoets

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I Financing reauiremants for 1981 are estimated at Tb S430 million; 1981-84 financing requirements will i

aggregate Si.5 LJdion. Initial 1981 financing Sofety-related construction at Marcie Hill included the sols a late January of an additional resumed iate in 1980 otter the Nuclear Reguicicry 3.25 million shores of common stock and a first Commission (NRC) outhonzed two cf tnree major

mortgage bond issue of $125 million. The contractors to restart certain concruction work ,

l omounts. timing and types of secunties to be sold All work on the two reactor containment  !

for the balance of the 1981-84 program hav e not budd:ngs, the auxiliary budo:ng. fuel hanchng j been determined. focdities and other safety elateo creas was suscenced in August 1979. tr May 1c80, the NRC  ;

i Scie of common stock below book value by tne issued a pian for a step-b 3-step resu rption of l e:ectric utility industry has been increasing:/ safety-relatec work. The ComDony antic Cates i prevotent in recent years, and in 1980 virtually ait that it wdl be permitted to resume o!! safety-soles of common stock by the industry, including related wor < by tne end of tne first aucrter cf those of the Company, were made below book 1981. Non sofety relatea work continued value. The sole ci new stock below book value tnrougnout tne year.

ddutes the investment of present shareholders.

increases the number of snores outstanding and recuises additional revenue from the customer to Since work was suspenced in 1979. tne Company [

maintain cividend levels. has restructured its project management and

[

quohty control and auchty assurance statts onc >

The financiot well-being of the electric utility has added a substantial number of cersonnel l industry, and es coiiity to compete favorably in with extensive commercioi nuc! eor expenence to l fne capital markets, would be ennonced by the direct or assist in the enticci creas of the croject.

obility to sell common stock above book value. At the present time. over 500 project Adequate regulatory recognition of revenue management, engineenng and auchty control i recuirements to accomplish this objective will be and assurance cersonnel and 100 coeroting essential in the years cheod. personnet are on-site os well as 700 contractor craft personnel.

The interests of shareholders, and Customers, are served best when so!es of equity securities are in July 1980. otter on intensive eignt month rhode at levels which ocequately recognize the analysis of time schedules and costs, revised present investment of the sharehetders in the completion dates and project costs were Company. We intend to press for a better c:nnounced. New completion dates. ong:no;ly i understanding of these principles by reguictory 1982 and 1984, were set for December 1986 and ,

l agencios, by legislators and our customers. 1987. Revised project costs are now estirr uted at S3.4 bdlion. up from the previous estimate of S1.9 billion. The Company's 83% ownership interest.

onginctly estimated at S 1.5 bi!! ion, is now rate of retum on year-end not plant i in service and inventories (enginal cost) l The revised time schecules and cost estimates ,

are due to the increasing complexity onJ sccce 1970 of nuc!ect construction reau:rements, coded comclexity of tne nucteor regulatory process.  ;

1977 licensing delays, inflot:on and additional  ;

financing costs due to tne extenced construction 1978 schedule. Additional costs of financing will account for atmost hoit of the increased costs of i 3979 the project. At December 31,1980. the Comcony ,

i had excended $522 mdhon on Marble Hdi Unit i  !

and S246 mdtion on Marble Hiii Unit 2. i 1980 6% 7% 8% 9% 10 % While Morole Hiil construction costs have been suestant a:!y increased most of the 92 nuclear ,

units uncer construction in the UnitFd States have Morete Hin Nuclear StatioTs two uruts on expenenced Comocracle Cost increases and tho otwo River ore sched.ded for extenced SChecu!es.

. completion in tote 1986 and 1987.

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While nuclear plant Costs or:- high, new cool-fired program, required Environmental Protection plants also reflect significant increases in costs. Agency (EPA) opproval has not been Company estimates of new cool-fired capacity in received. Because of this uncertainty. work the early 1990s cre S2,000 per kilowatt compared on this project has been suspended by the with Morbb Hill's S1.518 per kilowatt. Of even Company.

greater significance is a comparison of Marble

• A petition filed by Jefferson County, Kentucky Hill fuel costs with fuel costs of a coal-fired plant olYging that the Company's Gallagher built in the some time period. Nuclear fuel costs Station contributes to air pollution problems in over the life of the plant are estimated at $8 the Louisville orec. During EPA hearings. data billion compared with $27 billion for cool. presented by the Company and the EPA indicated the statior' does not make on in February 1980, the Company was notified by adverse contribution to air quality in the State

! the American Society of Mechanical Engineers of Kentucky. Wh"e the EPA hos the matter (ASME) that the proposed quality assurance under advisemot, the Company does not l program opplicable to nuclear piping systems expect on adverse ruling. However, a suit has was in compliance with ASME standards; the been filed by Jefferson County reauesting l ASME N-Certificate of Authorization was received EPA to make o determination of the effects et January 19,1981. Lock of such certification was t: e emissions from the Gallagher Station on l

l related, in port, with the suspension of safety- the Louisville orco.

related work.

• The intention of the State of New York to bring l

j action against EPA and the Company with regard to sulfur dioxide emissions from the I

enVirOnmento .obo,h mi ., ,o,,on. C,h., m,dw.,,.,n utilities have ciso been notified c' similar i

l mO~ BrS action. The Company nos notified tne State of New York that information forming the basis Company efforts to meet and comply with for such action is inaccurate and that the l required air and water quality standards and Company should be excluded.

disposal of solid waste and certain types of e Notification from EPA that tne Gibson Station  :

hozordous materials used in day to-day is in violation of the cpocity standards of the operations continued throughout the year. The Indiano state environmental plan which Company is committed to compliance programs would subject the Comoony to which meet all state and federal regulations but noncompliance penalties under the Clean l will continue to oppose unreasonable Air Act Amendments of 1977. Company tests environmental regulations which impose show that the Gibson Station is not in substantial customer costs without commensurate violation.

benefits.

A brief summary of major environmental efforts and pending litigation at year-end follows: percent of total i e The stort of preliminary engineering for the construction of a toll stock ct the Wobosh 9 70 '

River Station, estimated to cost $28 million, to meet certain air stando'ds in Vigo County. p* ,

A;though the Indiano Air Pollution Control 1972 ,

Board hos approved the Company's 1974 , ,

smaller cool and diesel-fired generating >

g7 3

{'

l unsts, as well as a hydroelectric plant at '

Morkland Dom on the ohto River, augment the four baselood stations on our system. 1973 Noblesville station (upper left) has o ,

l capacity of 90.000 kilowatts: Edwardsport I station (upper right) is rated of 165,000 1980 kilowatto: oil-fired peaking stations of Ccnnersvi'le (shown left corner) and at 0% 5% 10 % 15 % 20%

Cobosh produce 98.000 and 104,000 i

kilowatts, respectively. Morkland Hydroelectric Station (bottom) has three jg l turbines with a total copability of 55,000 /

kalowatts.

l

Construction began in late 1980 on the sulfur dioxide removal system for Gibson Unit 5 reSearC1 scheduled for service in 1982. This system is Total energy research and ceveiopment estimated to cost S111 million and will produce a exoenditures in 1980 were S2.9 million compared dry waste product to be stored on-site. with S2.5 million in the previous year. The major portion of these expenditures-S2.5 million in 1980-was provided to the Electric Power Research Institute (EPRI) for a widc ronge of electric utility industry research activities including solar energy, wind power, energy storage and advanced heating / cooling technologies. The 1980 EPRI budget for all research was $280 million.

In late 1980, another major step was taken by Allis-Chalmers in the development of their KILnGAS coal gosificaten process with the stort 1980 Industrial power use of construction of a tuli scale unit at Illinois Power Company's Wood River Generating Station. This incustry nvH  % increase process converts cool to a clean, low Btu gas Chemico!s & Drugs Steel & ;ron ib7 4j swade fo< combustion in electric generation facilities. Commercial operation is expected in 641 517 (11.9)

Motor Vehicles & early 1983. The Company and eleven other Equipment 449 765 utilities have joined Allis-Chairruars and the State (8.3)

Cool 347 688 (3.0) f Illin is in supporting the S135 million prcject.

Engines & Machinery 327 294 The Company will contnbute $2.5 million to this (7.5)

Paper Products 309 652 project over a period of five years.

(3.1)

Aluminum 307 151 (3.8) gms'e_

2" a' os.')

energy conservalon Plc oducts Growing interest in the " add-on" electric heat Stena & Clay Products 184 698 (3.3) pumo led to the development of a publi;c Electric Equipment & wcreness irdormation program to begin early in

' Machinery 150 161 (6.1) 1981. Use of the " odd-on" heat pump by Bakery & Beverage customers utilizing natural gas or oil for basic Products 106 901 .8 he ting conserves such fuels without increasing Glass Products 96 842 winter peak loads of the Company. Annual (4.7) revenue of $1.8 million ,s i expected to result from Household Appliances 92 276 (5.5)

Radio & Television 78 073 this program by 1985.

5.5 Canned & Frozen Food 77 177 (7.4)

Gypsum, Stone, Sand A w.dei range of customer programs to conserve

& Grovel energy is an ongoing commitment of the 71 540 32) Company. A fouryear program to convert Natural Gas &

Fetroleum 67 715 ('6.9) present street lighting equipment throughout the Rubber Products 67 508 (',4.3) Company's sevice territory to high efficiency.

Furniture & Fixtures 59 607 high pressure sodium units was ann.ounced of (3.8) mic' ye r. Completion of inis program will save Printing & Publishing 34 490 (11.5)

Other Diversified more than 21 million kwh annually.

Industries 962 263 3.8 6 029 001 (4.2) 18

emolOyees At the some time. Seth W. Shields, formerly vice president-electric system, was named senior vice At year-end. the Company had 4,868 employees prendent to head the newly formed nuclear compared with 4.351 at year-end 1979. Monning divis,on ono Uoyd M. GriFn was nomeo senior increases during the year reflected the vice president-customer services.

odditionc! staffing of the Marble Hill Nuclear Division and necessary monning to meet At the annual meeting oa April 7 1980.

Company growth and increased regulatory shareholders approved on omendment requirements. increasing the membership of the Board of Directors cr.d elected Dr. Melvin Dereimen.

Solaries and wages increased S21.2 rrillion to o president of Eli Ully international Corporation. to total of $97.9 million for the year. Employee succeed Walter J. Matthews. A former president benefits. including retirement, life insurance. of the Company and a director since 1968. Mr.

disability and heoith protection plans, totalled Matthews had reached mandatory retirement S17.2 million, up S3.1 million from the prior year. age. At its meeting on the some day, the Board of The present two-year labor agreement with the Directors oppointed Mrs. Dogmar Riley Jones. o international Brotherhood of Electrical Workers, retired newspacer publisher, and Dr. W. George I

covering almost 2.200 employees, will expire Pinne!!, executive vice president of Indiano April 30,1981. University, as new directors.

In 1980, o ecmprehensic employee opinion survey was conducted by on independent consulting firm. While survey resu!ts indicated a Company Ownerslio high degree of job satisfaction, employee At year-end. 48.921 shareholders owned the concerns were condidly vol.:ed. Programs Corr. pony's 33.9 million shares of common stock, designed to meet these concerns and further on increase of 10.662 shareholders during the strengthen Company-employee relationships are yaor. Preferred stock was owned by 4.503 being instituted, shareholders. Of oil shareholders. 45% resiae in Indiano or on adjoining state and 93% are Sofety performance evoluotions, minority individuals and family groups. The largest single employment practices. and supervisory and shareholder held less than 5% of the fotot shore ,

management development programs received outstanding.

ongoing emphasis throughout the year.

The Company's safety record for 1980 was the best in its history with oli major reporting units COmoOny improving over the previous year. A new Target Zero program is in place to further eraphosize the infOrmahOn importance of safety in day-to-day operations. Additional information about the electric utility industry. nuc'oor power or the Company.

including the annuot 10-K report to the Securities Onagemen- and ,xchange c o m m,ss,on. ,s o ci,c b,e w,thou, charge to any shareholder upon request.

l Clanges Add..ss you,,.pues,,o Sho,.ho,o., P.4chons.

Public Service Indiano: 1000 East Main Street, l Focusing on present and future management Plainfield. Indiano 46168.

nee 9ds and continued growth of the Company, the Board of Directors on May 2.1980 elected Hugh A. Barker to the position of chain :n; he will l

continue to be the Company's chief executive officer. At the scme time, Dorrell V. Menscer was efected president, a director and chief operating officer. Mr. Menscer,46, was formerly senior vice president. Carolino Power and Ught Comporiy.

ond brings a brood range of utility experience to the Company.

19 e

PUBUC SERVCE INDIANA officers boord of directors .

Hugh A. Barker Chrrman ono Cheet ExecutNe Cffcer -

Darre't V. Mensce, -

Prescent and Chef Operating O**'cer '"

Charter W. Campbell '

Senor Vce Prescent and Gen &of Count 34 .

Uoyd M. Griffin t , ,

Senor Vce Prescent-Customer Servcee , 4 i

Remi C. Pattin 5 Senor Vce Presdnt ad Ass 4stort to tne Presacent Vernley R. Rehnstrom M, ,

]

Senor Vee Prescent-Finance k l 1

Seth W. Shields -

Senor Vce Prescent44ucear Dnnsran i William F. Brown Hugh A. Barker <

Vce Pres 4 cent-Personnel Re:ctens ^*

,c, m' ,, [g l 1 Uoyd A. Crews Company Vce PrescentConstnacton

W. E. George

. i vce Prescent-Power Barton G. Grabow .

Vee Presacent-Abuc Reio ons Gerold Hofmockel -

Vce Prescent-Engreenng l James H. Pennington i Vce Presonnt-Financr cerotons f * *+ Y -

Richard P. Stein L i

~

(ce Prescent-Puolc Affors  !

William M. Cook ~

l Vce Prescent+er hem Dvmon [, i Willard Twyman ~ ^

Vice Pres 4ent-Soue,em Divtsion Dogmar R; ley Jones ,

Charles E. Uhl RehreJ Pucksher. The i vee Presscent-wes+ern Divisen scomogton woc-W. J. Hebbie Te;echece and Becford Doty rees-Moa. scomgon Treasurer Joe E. Rogers Secretary l

,g j G. W. Roberts '

Assatont Treasurer arr2 Assistant Se:rstory Donald W. Schlehuser *

~ , _

Comptro4!er '

i M. S. Harkness -

8 i

James L Xoenig Assrstent Comonoeier - *

' t u.

• f Assistant Comptroller '

Greg K. Kimberlin f i RiChord B. Stoner  !

Assistant W. pot Counsei Vce ChorTon of the Board.

Cummins ting.ne Company.

Inc.. Desei Eng:ne Monu'oc*urmg. Co6umbus 20 l

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Pichard H. Blacklidge Charles W. Campbell Shelton M. Hannig petirec Pubusner. senior vice Pres cen' inc Pres. cent ona Chairman of N3 Kokomo Inbune. General Co nsei ct me . me Booro Morsn inc . Design Koeomo Company onc Construction Terre Houte

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Darrell V. Menscer MeMn Perelman, Ph.D. W George Pinnell, Pn.D.

> escent and Chief Pese Eli LA internanonal Executive vice P'esident

caroting officer of the Cc. ruronon Nrmace' t

ats. roona unuersty Company inoionopolis osoomington

• ~ wudit committee

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,.".~1 A='- Richard H. BlacklidO . Chairman Y

• Shelton M. Hannig, vice Chairman

~~

'%'. Dagmar Riley Jones W. George Pinnell

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Hugh A Barker. ex officio compensation and

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,6 j hN . .),j -. Richard B Stoner, chairman v1elvin Perelman

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'N. George Pinnell Burr S. Swezey. Jr.

Burr S Swezey, Jr. Hugh A. Barker. ex officio c.ormon of me socra. finance committee Lofovene Nottonal Bonk.

Lofovet+e. Chairman of me Hugh A. Barker. Ct. airman e, are union son = onc nust Charles W. Campbell Com.xany. Decn' Darrell V MensCer 21

y managers, division of responsibilities. delegation y of authonty and cornmunication programs for the entire organization '3 assure that policies and financial s.atemen..S .

standards cre undersiwd.

The financial statements of Public Service Indiono Management maintains, controls and utilizes on are representations of the monogement of the internal ouditing program to evoluote the Company; accoroingly, the integnty, occuracy odec;'accy and application of financial and and oojectivity of presentation is assumed by cperating controls, compliance with Company Company management. Financial statement policies and procedures and the accountability preparation is in conformity with generally and safeguarding of Company assets.

occepted accounting principles and fcilows Management believes that the Company's accounting policies and pnnciples procribed by occounting controis provide reasonable the Put!ic Service Commission of Indiano and the assurance that errors or irregularities that could Federal Energy Reguichwy Commission. be material to the financial statements are prevented or would be detected within a time!y in meeting its responsibir1es for the reliability of period oy employees in the normal course of the financial statements,11onagement depends performing their assigned functions.

On the Company's system d internal accounting control. This system is cesigned to provide The Board of Directors, through its Audit reasonable assronce that assets are Ccmmittee composed of Directors other than sofeguarded and fror.soctic7s are executea in Cor, pony employees pursues its responsibilities accordance with managertant's authorization for these financial statements by meeting and recorded property te perr7it the preparation periodico!!y with management, internal ouditing of financial statements in occTdonce with the and the independent auditors to assure that policies and prhciples descriDed above. The each are carrying o t. ' their respective Compory also seeks to assure the objectivity onc responsibilities. The Audit Committee has full integnty of its accounts by careft/ selection of its access to the internal and independent auditors and meets with them, with and without management being present, to dis ('iss ouditing and financial reporting matters.

22 .

PUBUC SERVICE INDIANA svemen s of income 1980 1979 1975 (t.rusana.;}

Electric Operating Revenues . . $645 688 S628 538 S538 423 Operating Expenses Fuel . 276 012 263 000 205 919 Purchased power . . . (75 252) (80 381) (17 070)

TOO760 182 619 188 849 Taxes (page 28) . . . 95 107 119 657 90 606 Otheroperation . 85 744 71 910 58 280 Mainten,Ne ... . . . 58 372 45 500 41 028 Deprecic .ma 67 960 64 765 53 028 507 943 484 451 431 79i Operating Income . . . 137 745 144 087 106 632 Other income-Net Allowance for equity funds used during construction . . . . . 43 963 25 913 21 637 Other . . .. 1 951 2 489 2 021 45 914 28 402 23 658 Income Before Interest Charges . .. 183 659 172 489 130 290 Interest Charges .. . . 86 352 65 585 56 013 Less allowance for debt funds used during construction . .. . . . 25 380 16 086 13 431 60 972 49 499 42 582 Notincome .. . . . 122 687 122 990 87 708 Dividends on Preferred Stock . . .. . . 22 080 16 896 14 075 Common Stock income Available . . . . . . . . $100 607 S106 094 S 73 633 Average Shores Outstanding . . 3t383 27 962 25 211 Earnings Per Shore . . . . 63.21 S3.79 S2.92 sue'T,en s of eornings inVes ec in ,e ousiness 1980 1979 1978 (incusands]

l SclU ce Jonuary i . . .,... . . $201565 $ 161.300 S143 683 Not income . . . . . . . .. .. . . .. 122 687 122 990 87 708 324 252 284 290 ~75GT Deduct Cash dividends Prefened stock . .. . . . .... . 21 680 16 634 13 761 Common stock (1980-S2.44; $979-S2.28; 1978-$2.43 cer share) . .. .. .. 75 813 63 363 53 715 Capital stock isswnce expen;es . .. . . 3 679 2 77f 2 615 101 172 82 725 70 091 Bolonce December 31 . . . . $223 080 $201565 S161 300 The accompanying notes are on integral part of these financial statements.

r

PUBUC SERVICE INDIANA ba ance sleets aSSe s December 31 1980 1979 Dmcusanas)

Electric Uillity Plant-original cost in Service Production $1089143 Si 082 456 Transmission 356 661 337 306 Distribution . 480 408 452 665 Genero! 55 970 59 169 1 982 182 1 931 096' Accumulated dep.eciation . 521 485 462 010 1 460 697 1 469 586 Construction work in progress Gibson Unit 5 177 468 84 813 Morble Hill Unit i . . 521776 ~ 302 633 Marble Hill Unit 2. . . 245 747 139 14i C her. ,

73 968 65 804 1 018 959 592 391 Nuclear fuel . .

76 765 71 122 2 556 421 2 133 099 Current Assets

. Cash . . . . 3 406 6 473 Accounts recetvocie . . 56 139 54 396 Federalincometaxrefunds . 18 650 4 400 -

Reimbursable nuclear project excenditures .. 7 771 11 055 C0 =t fuel-at avecoge cost 113 665 91 274 Materials and suppnes-at overage cost . . . . 26 153 2C 889 Other . ... 6 980 7 388 232 764 195 875 Other . . . . . . 19 692 13 114

$2 808 877 S2 342 088 The accompanying notes are on integral port of these financial statements.

2L

l l

caoi~aiza-ian and laoilities l l

December 31 1980 1979

[inousancs)

Common Stock Equity Common stock-rthout par value-authorized 60 C00.000 shares-outstanding 33.947.808 shares in 1980 ano 29,794.493 shares in 1979 .

$ 621 321 3 535 075 Earnings investedinine business 223 080 201 565 Totalcommon stock equity . 844 401 736 640 l Cumulative Preferred Stock (page 27) i Not subject to mandatory recemption . 235 000 235 000 Subject to mandatory redemption . 50 000 .

Long-Term Debt (page 27) . 980 854 930 816 Total capitalization . 2 110 255 i 02 0 456 Current Liabilities i Long-term debt due within one year 75 000 Trust demand notes . 24 708 23 919 Commercial paper . . 25 500 6 000 Accounts payable . . . 103 866 126 280 Accrued taxes . . . 28 632 32 234 Accrued interest 33 948 '3 963 Customers' deposits . 1 483 1 496 293 137 213 892 Other Deferred income taxes . 234 879 194 251 Unamortized investment tax credits 159 432 123 779 Miscellaneous . . 11 174 7 710

~~'

405 485 325 740

$2 808 877 S2 342 088 25

l l

PU8UC SERVICE INDIANA sta ements of sources of funds usec for u-jity oant additions 1980 1979 1978 pncusanas)

Funds Generatec Internally Reinvested earn ngs Net income . $122 687 S122 .7 S 87 703 Less cash dividends . 97 493 79 991 67 476 25 194 42 993 20 232 Depreciation . 67 960 64 765 53 028 Deferred income taxes-ner . 40 909 29 053 33 328 investment tax credit-net 37 967 42 297 34 140 Allowance for equity funds used during construction . (43 963) (25 913) (21 637) 128 067 153 195 119 091 Funds m Financing and Other Sources Coinmon stock Public affering . 54 500 49 140 51 460 Automatic a;vidend reinvestment c ad stock purchase plan 19 917 13 637 6 086 Employee stock purcnose plan . 3 375 2 130 1 124 Preferred stock 50 000 35 000 45 000 First mortgage bonds . . . . 225 000 55 000 *00 000 Retirementof firstmcrtgagebonds . .

(12 000)

Net change in working capitat and other items Temporary cash investments . 55 500 (31 700)

Accounts receivable . (1 743) 4 084 (23 247)

Federalincome tax refunds . (14 250) 6 823 (11 223)

Reimbursable nuclear project expenditures 3 284 (7 066) 16 795 Fueland materials and supplies . .

(27 655) (31 499) (15 534)

Notes payable. less repayments . 20 289 5 177 (108)

Accounts paycole . .. .

(17 157) 29 490 28 262 Other items-net. . 5 152 2 146 2 990 320 712 207 562 169 905 Allowance for equity funds used during construction . . .. . . . 43 963 25 913 21 637

$492 742 S386 670 S310 633 Utility Plant Additions Construction . . . .. . $487 099 $364196 S297 880 Nuclear fuel . .. . 5 643 22 474 12 753

$492 742 ' S386 670 3310 633 The accompanying notes are on integral port of these financial statements.

26

cumulative oreferred s~oc< December 31 1980 1979 (inousanos)

Not subject to mandatory redemption Por votue S25 per shore-outhonzed 5.000.000 shores-outstanding 800.000 shores,4.32% Series $ 20 000 S 20 000 600.000 shores.4.16% Series . 15 000 15 000 Por value $100 per snore-outhorized 5.000.000 shores-cutstanding 150,000 snores,31/2% Senes. .. 15 000 15 000 300.000 snares. 7.15% Series . . 30 000 30 000 350.000 snores,9.44% Senes. 35 000 35 000 400,000 shares. 8.52% Senes. . 40 000 40 000 450.000 shores. 8.38% Series. 45 000- 45 000 350,000 shores, 8.96% Sedes . . 35 000 35 000

$235 000 S235 000 Subject to mandatory redemption 500,000 shores, 9.60% Series . $ 50 000 ong=erm ceo-December 31 1980 1979

[tnousands)

First Mortgage Bonds (Excluding S75 raillion due within one year)

Series J, 3 3/8%, due July 1,1982 $ 25 000 S 25 000 Series K. 3 3/8%. due January 1,1984 . 25 000 25 000 Series L 4 7/8%, dueOctober 1,1987. . 35 000 35 000 Series M. 4 3/8%. due February 1.1989 . 25 000 25 000 2 Series N, 4 3/4%. due August 1,1990 . . 30 000 30 000 Series P,. 71/8%. due January 1,1999 . . . .. 40 000 40 000 Senes R, 7 5/8%. due January 1,2001 .. . 50 000 50 000 Series S. 7%, due January 1. 2002 , 50 000 50 000 Series T, 8%. due February 1,2re;4 50 000 50 000 Series U, 9 5/8%.-due August 1.198i . . _. 75 000 -

Series W, 9.60%. due August i,2005 . . 80 000 80 000 Series Y, 7 5/8%, due Janucry 1,2007 . . 85 000 85 000 Series Z, 81/8%. due Octccer 1,2007. . 85 000 85 000 Series AA, 8 7/8%, due October 1,2008. . 100 000 100 000 Series BB. 6 5/8% due March 1,2004(Pottution Control) 5000 5 000 Series CC. 91/2%, cue May 1,.1985 . . 50 000 50 000 Series DD, 14%, due March 1,1987 . 100 000 Senes EE. 121/8%, due September 1,1990 125 000 Total first mortgage bonds . . . . 960 000 810 000 Pollution Control Note. 5 3/4%, due December 15.1989 to 2003 22 000 22 000 Unamortized premium and ciscount-net . . (1 146) (1 184)

Total ... . . . . . $980 854 $830 816 27

PUBLIC SERVICE INDIANA axes clargec to opera-ing exoenses 1980 1979 1978

(*r cus0nas!

Federal and State income Currently payable .. $ 7 795 S 19 552 S 6 463 Refunds-investment tax credit carryback (Note 1(c)) . (18 650) (4 400) (11 223)

Deferred-net 40 909 29 053 33 328 Investment tax credit-net 37 967 42 297 34 140 68 021 86 502 62 708 State, Local and Other Realestate and personal property. 10 999 18 197 15 405 indiano gross income . . . 10 137 10 296 8 418 Socio! security . . . 5320 4 241 3 288 Other . . . . . 630 421 787 27 086 33 155 27 898 Total taxes charged to operating expenses , $95107 Si19 657 $90 606 Taxes per dollar of operating revenue . 14.7c 19.0c 16 8C 28

notes to financial statements-onnual report 1980

1. Summary of Significant Accounting Policies:

(c) Depreciation and Maintenance The Company's provision for decreciation is cete rmined by using tne sticight-line method cpplied to the cost of deprecicbte picnt in service. The composite depreciction rate was increased from coproximately 3.2% to 3.5% Octocer 1978.

Maintencnce and repcirs of property units and renewcts of minor items of property are charged to maintencnce expense accounts except recc:rs of an insignificant amount charged to ciecting accounts. The costs of renewc!s and betterments of units of property are charged to utility pdnt accounts cnd the ceiginct cost cf depreciable units retired anc cost of removo!. less sclvage recoverec. cre charged to occurr .:foted depreciation.

(b) Allowance for Funds Used During Construction (AFUDO)

The Company's A}UDC rate for 1980.1979 and 1978 was 9%%: the related income tax effects coplicable to the capitalized interest component is recorded as deferred income tax expense.

(c) Federal and State income Taxes income tax timing differcnces. due primarily to accelerated tax depreciation and deduction of certain utiltty plant costs capoc!ized per bocks. receive

^

ccioprehensivo income tax citocation trectmmt in determining the provision for taxes.

. The Company is deferring investment tax credits and cmortizing the occumulated balance over the useful lives of the property which gave nse to such crecits. Investment tax ':redits genero*ed in excess of the investment tax credit limitations e$tco';shed by lcw have been recorded as a refund of prior yects' foxes. Unused portions will be corried forwcrd to offset future yects' tax liabilities os permitted by low.

~

The Company c!cimed on additional 1%% investment tax cred:t for the

~ ~

investment Tax Credit Employee Stock Ownership Plan for the yects 1979 cnd 1978. For the year 1980, coproximatefy S.5 million will be cic:med and S5.5 million will be corried forward to future yects.

-(d) Unomortized Debt Discount, Premium and Expense Debt discount, premium cnd expense on outstancing long-term dect is being amortized over the lives of the respective issues.

99 4 -.-

k

PUBUC SERVICE INDIANA notes to financial statements-continued (e) Operating Revenues and Fuel Costs The Company records revenues os billed to its customers on a cycle billing basis. Revenue is not recorded for energy delivered and unbilled at tne end of each fiscal period.

Fuel cost charge factors are applicable to oil of the Company's metered kwn so:es. Fuel cost charge factors are based on estimated costs of fuel; os r'uoi costs of fuel are determined. any differences are oeferred and billed h subsequent montns.

2. Rates, in September 1975, the Company filed with the Federal Energy Regulatory Commission (FERC) for increased rates ocpticable to its sole for resaf e customers. Interim rc+es, subject to re'und, unoer tnis filing were in effect for the period March 31.1976 through January 27,1979. On June 25,1980. the FERC issued on order authorizing a 55.1 million increase on on annual basis effective for tne period February 24. 1976 througn January 27.1979 and ordering applicable refunds of $4.5 million.

In July 1978, the Company made a further filing for additional increased rates applicable to its sole for resale customers. Interim rates, subject to refund.

under this filing were effective for the pened January 28,1979 * ' rough April 1980. On May 15.1980, the FERC issued on order outnondng a S7.5 million increase on on annuci basis and ordering coplicable refunds of $5.6 million.

Under the above rate filings, refund amounts had been deferred and excluced from operating revenues and the income tax effects applicable thereto had been reflected in the respective periods.

In December 1980, the Company filed with the Public Service Commission of Indiano for increased to*es applicable to its retf customers which, if approved, would produce approximately S 119.e ' nil! ion annua!!y in increased operating revenues.

3. Capital Stock. As of December 31,1980,3.301.596 shores of common stock were reserved for issuance under the Automatic Dividend Reinvestment and Stock Purchase Plan (ADR). Employee Stock Purchase Plan (ESPP) and investment Tox Credit Employee Stock OwnersNp Plan [ESOP).

The changes in common stock for 1980.1979 and 1978 were os follows:

Shores issued Amount 1980 1979 1978 1980 1979 1978 (mdi: ors)

Public Offenng . 2.7 2.0 2.0 $ 56.4 S50.5 553.0 ADR.. . . 1.1 .6 .3 20.8 14.3 6.4 ESPP and ESCP . .4 .2 .1 9.0 6.9 3.8 If T6 T4 $86.2 $ 71.7 S63 2 On January 30,1981. the Company sold 3.25 million additional shores of

- common stock through underwriters at a price to ine public of $19.625 per shore. Net proceeds of S61.3 million will be applied to the Company's construction program.

30

Charter provisions limit dividends on common stock to 75% of net income available therefor if the ratio of common stock equity to total capitalization of the Company is less than 25% and to 50% of such net incomo if such ratio is less than 20%. As of December 31 1980, the ratio of common stock equd/ fo total capito!ization was 40.0%.

4. Long-Term Debt. On January 30.1981. the Company sold S 125 million principal amount of First Mortgage Bonds. Series FF.14 3/4%. due February 1. 2011. Net proceeds of $122.0 million will be applied to the Company's construction program.

The sinking fund requirements with respect to first mortgage bonds of the Company outstanding at December 31, 1980 oggregated (exclusive of redemption premium) S6.8 million payable on or prior to May 1 annually through 1982. S6.6 mdlion in 1983 and S6.3 million in 1984 and 1985. The Company has met and expects to continue to meet future sinking fund requirements by certifying bondable property additions.

. First mortgage bond matunties are S75 million in 1981. S25 million in 1982. S25 million in 1984 and $50 million in 1985.

5. Pension Pion. The Company's non-contributory pension plan covers all employees meeting certain minimum age and service requirements. The unfunded actuarial liability of the pension plan amounted to $8.7 million at January 1.1980 and is being funded over a period of twenty-five years. The Company's policy is to fund pension costs accrued, which amounted to 55.7 million in 1980. S4.6 million in 1979 and S3.9 million in 1978. In makir g the

. octuarial calculations. interest assumptions of 6% for 1980 and 51/2% fc4r 1979 were used.

January 1 1980 1979 (mconsj Actuarial present value of occumulated plan benefits Vested . . . . $51.5 S45.4 Non-vested . . . .. . . . .5 .5

$ 52.0 845 9 Plan assets availcole for benefits . . . $ 63.4 $57.1

6. Short Term Borrowing = cnd Compenacting Salonces. At December 31,1980, the Company had lines af credit with fourteen commercial banks.toialling S 160 rrJilion; interest on bank loans is at the prime commercial rate of sucn banks in effect from time to time. Arrangements have also been made for the so!e of commercial paper which is supported by a portion of these lines of credit. Such lines of credit are subject to cancel;otion by either party upon notice. Av December 31.1980, $85 million of such lines of credit were on a fee basis and S75 million of these credit lines have informal arrangements with respect to maintaining overage compensating bank balances which range from 10% of the line of credit, to 10% of the li.,e of credit plus 10% of the amount borrowed.

Compensating bank balances of $7.5 million were met with funds on deposit in y such banks.

The Company also hos lines of credit with various banks within its service creo oggregating approximately $11 million. Interest on such bank loans is of the prime commercial rate in effect from time to time. Compensating balances are not required in connection witn these lines of credit.

31

PUBUC SERVICE INCW4A notes to financial stotr .nents-continued At Cecember 31 1980, the Company nod trust cemcnd ncte crro*'gements j with two comtry/cio! ocnk". in tne amo,.nt of $25 m<ition. Amounts borrowed cre i ec!!cbte on cemand onc interest cn betrowings is the current rcte for ce tcin I c:rectly piccec, hign quality commercict pccer. There is no ccmpensc+mg '

bcicnce requirement ossoc:c+ed witn these cred:t artcrvgements. Tne  ;

Comcony holds a portion of its creviously mentioned back Imes of crecit l cvcifcote to ccver any cc:I for payment. i Fcf fne years 1980 and 1979, me Comcony nec trust cemand notes, commerctcl paper and bcnk tecns outstanding ci vcrious times es toilows:

Wepvec 1.egmec Mcac%m Ave <oge A eoge ,

AverOge ATO.7J ATO#t oterest r.*erest Ovstonceg Ots c ceg be Sc;crce c: Qc*e et c' ony cerg me c/ro 7*e Dec 31- Cec.3t Mcem Enc- yea - y ec-1980 Sonk Locns . . . $ 16.6 $ 2.2 13.7%

Commerciol

. Paper . . . . . .,. . $ 25.5 18.2 % 72.0 16.8 10.5 Trust Demond ~

Notes . . . . . . . . 24.7 17.2 24.8 24.0 12.6 1979 Commercic!

Paper . . .. S 6.0 13.8 % S 60 $ .1 13 8 %

Trust Demenc Notes . . . . . 23.9 12.6 24.9 24 8 10.8

• millions

7. Income Tax Expense. Deferred income taxes (net) are cue to hming c;fterene? s between cook cod income tax cecuchont Fct the yect: 1980.1079 cnc 1978.

deferred income tax excense crr ing from accelerciec tax decrecicton was S18.1 milhon, S 17.5 rr.i!! ion and S s 5.5 million, respectively; the ocience resurts primcrity from the hming of the ceraxtice; for tax purposes of certcin utsty picnt costs capitalized for bcck purpcce',.

fotolincome tax expense wnich inc!uces ccpicable amounts in otner incorre-net. cggregated S69.7 million. S88.6 rni!! ion and S64.7 mi!! ion 'cr tne years 1980,1979 anc 1978. The reconciliation between the effectrve rc+es and corrbinec stctutcry fecerci cnd sic'e income tax rctes n os fol lows:

1980 1979 1978 Effectiveincome tax rates. ... . . . 36.22 % 41 88 % 42.46%

Equrty ccmconent of AFUDC.

which cces not enter into the ceterrrunction of taxccle income . . ......... . . .. . . 10.88 5.83 7.C4 Cther items-rat .... .. ... .. . . .52 (.09) .06 S!ctutory fecerci and state mcome tox rctes . . .. . . . 47.62 % 47.62 % 49.56 %

. 32

notes to financial statements - concluded

8. Construction and Nuclear Fuel Commitments. The Company estimates that S2.2 billion will be expended for construction purposes and $291.0 million for nuclear fuel for the period 1981-1984.

The Company owns and will be entitled to 83% of the output of the two Marble Hill Nuclear Station units; the remaining 17% is owned by Wobosh Valley Power Association, Inc. The ownership agreement between the. Company and Wobosh Valley Power Association. Inc. provides that each party shall be responsible for the financing of its ownership share of project costs. The Company's share of project ccsts to date including nuclear fuel, is S844 million.

Northern Indiano Public Service Company will purchase 10% of the copocity of Unit i from the Company from the date of commercio; operation through September 30.1987.

A July 1980 study of the Marble Hill project revised the in-service dates from 1982 and 1984 to late 1986 and 1987. respectively. This some study estimated the Company's 83% ownership interest will cost $2.8 billion, compared witn the previous estimate of S t.5 billion.

Substantial progress has been made dur.ng 1980 toward the resumption of safety-related construction work. Most phases of the Nuclear Regulatory Commission's five-stage restart program issued on May 15,1980 have been implemented. Authority to proceed with electncol and piping work has been received and final approvals for the resumption of other safety-related construction are expected early in ir a1,

9. Supplementory information. Lease rentals are less than one percent of electric operating revenues. The effect on the financial statements, if all financing leases had been capitalized. is not material.

10. 1980 and 1979 Quarter'y Financial Data (Unaudited).

Operating Operating Net Earnings .

Quarter Ended

~

Revenues

• Income

• Income

• Per Shore 1980 March 31 . . . . . . $168.1 $ 39.0 $ 35.1 $ 1.00 June 30 . . . . . . . . 146.0 30.4 26.8 .70 September 30 . . 171.3 35.7 31.9 .83 December 31. . . ,160.3 32.6 28.9 .68 Total $645.7 $137.7 $1 2.7 $ 3.21 1979 March 31 S174.4 S 38.0 S 33.1 S i.09 June 30 . 150.4 34.3 28.4 .89 September 30. 152.7 36.2 30.1 .91 December 31 151.0 35.6 31.4 .90 Total S628.6 S144.1 $ 123.0 GT779

• millions 33

PUBUC SERVICE INDIANA auditors' report To the Board cf Directors of Public Service Company of Indiano, Inc.:

We have examined the balcnce sheets of Public Service Company of Indiano, Inc. (on Indiano corporation) as of December 31,1980 and 1979, and the related statements of income, earnings invested in the business, and sources of funds used for utility plant additions for each of the three years in the period ended December 31,1980. 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 os we considered necessary in the circumstances.

In our opinion, the financial statements referred to above present fairly the financial position of Public Service Company of Indiano. Inc. as cf

- December 31,1980 and 1979, and the results of its operations and the sources of its funds used for utility plant additions for each of the three years in the period ended December 31, 1980, in conformity with genero!!y accepted accounting principles applied on a consistent basis.

Arthur Andersen & Co.

Indianapolis, Indiano, January 26,1981.

32 .

management's discussion and analysis of financial condition and results of operation kwh sales and revenues Totc6 kwh sales increosnd 3.7% in 1980 compared with 4.9% in 1979 and 1.3% in 1978 and reflects continueo growth ? the number of customers, additional demand by wholesale customers in 1980 and a return to more normal usage in 1979 following the 1977-78 cool miners' strike. Sales growth hos also been influenced by continuing energy conservation and a slowdown in industrial activity in 1979-80. Sales data for the periods were as follows:

increase (decrease) over prior year 1960 1979 1978 Kwh Sales Domestic 6.0% .7% 3G%

Commercial 4.7 7.0 (5.2)

Industrial (4.2) 8.2 1.8 Total Retail 1.2 33 -T Sotes for Resole 13.1 3.3 3.8 Total Sales TT% U% TJ%

Operating Revenues 2.7% M7% 14.3 %

Revenue growth reflects increased kwh soles, current recovery of increased fuel costs and rate increases which were effective in 1978 and 1979.

fuel costs Fuel casts per million BTU increased from 106.ic in 1978 to 107.2c in 1979 and to 116.7c in 1980. The cost per million BTU increased pgnificantly in 1978 because of spot purchases of higher priced cool and increased use of oil-fired generation during the cool miners' strike in 1977-78. Increased costs in 1979 and 1*80 reflect escolating fossil fuel prices or'd increased generation.

other power sales With completion of the third and fourth units at the Gibson Station in 1978 and 1979, the Company become a seller of capacity to the Kentucky-indiano Pool beginning in 1978; sales of capacity in reducing amounts will continue through March 31.1982.

Short-term power sales, due in large part to temporary capacity shortages of other electric utilities, have had a favorable impact on operating results.

taxes income tax expense and its components varied due to fluctuations in taxable income and investment tax credit provisions. While construction levels have produced increased investment tax credits for each of the years.1980 reflects a decrease from 1979 due to the Company's incbility to fully utilize applicable investment tax credits for the year. Unused investment tax credits will be corried forward to offset future years' tax liabilPies. The decrease in state, local and other tax expense in 1980 reflects adjustments of real estate and personal property tax expense for prior years.

35

a PUBUC SERVICE INDIANA operation and maintenance Other operation exr.enses have increased due to the eS';ct of doutie-digit in! lotion on operating costs, customer growth, the addition of new generating units at the Gibson Station in 1978 and 1979 and additions to the Company's transmission and distribution systems. Increased maintenance expenses reflect the some factors.

earnings The increase in the combined debt and equity portions of the Allowance for Funds Used During Construction (AFUDC) reflects the rising levels of construct;on work in progress at the Gibson and Marble Hill Stations.

Increases in interest charges and preferred divid<3nds reflect the sole of additional securities to finance the Comr>cny's construction program. The increase in earnings per common shore in 1979 was due primarily to additionc! revenues from rate increases which were effecfNe in 1978 and 1979. Continuing inflation. increased interest expense and the increased number of common ona preferred shores outstanding have reduced earnings per shore in 1';B0.

rate increase On December 8,1980, a request for a retail rate increase of 23%, aggregating $ 120 million annually, was filed with the Public Service Commission of Indiano.- oction ey the Indiano Commission is not expected until mid-1981. In addition, a request for increased sales for resale rates is expected to be filed with the Federal Energy Regulatory Commission by mid-1981; the amount of such increase has not been determined.

1981-1984 construction program and financing The Company has a continuing program of major construction to provide facilities to meet expected food growth and to replace properties os they become obsolete Plant additions and nuclear fuel in 1980 totalled S493 million compared with 1979's

$387 million and $311 million in 1978. Construction and nuc! ear fuel expeaditures for the period 1981-1984 ore presently estimo%d as follows:

nuclear construct!on fuel total (milhons) 1981 S 591 S 58 S 649 1982 605 39 644 1983 507 90 597 1984 474 104 578 S2 177 $291 S2 468 Of the funds required for construction and nuclear fuel during the 1981-1984 period.

it is presently estimated that opproximately $1.0 billion will be generated internally and opproimotely S 1.5 billion will be provided through the sole of securities. During such period the Company will be required to refinance S 125 million of first mortgage i bonds which will mature prior to January 1.1985, incluaing S75 million matunng

i. August i,1981.

36

getietal problems of the industry The electric utility industry is experiencing problems such as obtaining adequate rate increases, f.noncing large constructico programs during inflationary periods, obtaining sufficlunt capital on reasonable terms, compliance with environmental regulations, high costs of fossil fuel, delays in licensing and constructing new facilities and effects cf energy conservation. The severity of each of these problems varies among different companies and creos. While the Company considers its own experience to dcts in relation to these problems has been relatively favorable, there is no assurance that such problems will not adversely offect the Company in the future, capite resources and liquidity The principal sources of internal funds are provided by reFoined earnings (less the Allowance for Funds Used During Construction which is a non-cosh item except for such amounts collected through rates), depreciation, deferred income taxes anc'.

Investment to>. credits.

Due to the size of the Company's construction program and the 1:me frames for completion of Gibson Unit 5 and the two Marble Hill units (estimated in-service dates of 1982,1986 and 1987, respectively), the percentage of net income represented by the non-cosh portion of AFUDC will become increasingly forger. If ocequate rate increases are not rec 9ived on a timely basis, internal cash generation will decline and a larger proportion ci capital from extumal sources will be recuired to finance the Company's construction program. Further, the ratings of the Company s serdor securities, ossigned by independant cgencies, could be adversely offected and result in higher costs of capital.

The Company's 1981-1984 program will require substantial amounts of additional common stock financing. Virtually all issues of new common shores sold by the electric industry in 1980, incluulng those of the Company, were made below book value. The continued sales cf common stock below book value diiutes the present shareholders' investment c.id requires the sole of more shores of stock it.on would otherwise be required.

The Company's long-term capitalization ratio objectives are to maintain on even balance of debt and equity capitol. The issuance and sole by the Company of preferred stock and first mortgage bonds are subject to compliance witn earnings coverage requirements of its charter and the mortgage indenture. Depending on the level of the Company's earnings, the Company may be unable, in certain time periods, to meet these requirements and would be required in such circumstances to issue preference stock, debentures or other types of securities. The sole of such types of securities could require higher preferred dividen 3 and interest rates.

Under short-term financing arrangements, the Company has authority from the Public Service Commission of Indiano to is:ue promissory notes payable in not less than 12 nor more than 24 months, from *he date of issuance in amounts nct exceeding S175 million outstanding at any one time prior to December 31,1981.

(See note 6 of " Notes to Financial Statements" for details of credit arrangements).

37

PUBUC SErMCE INDIANA ,

dividends Dividends have been paid each year sitice tqe Company was formed in 1941 and

- have increased each yect for twenty consecutive years.

It is the Company's belief that the r6guict payment to shareholders of a liberot portion of earnings avoilotb for common stock as cividends, as well as ctderly increases in the d'vidend rate, is in the best interest on the Company. its shor9noldes and the Dublic served.

While the Company cannot pre'} Cf future dividond actions. It beileves that trie continuation of post dividend practictis will be cestrable in fight of the Company's financing needs in the next several years, inflation The estimated effects of inf:ction on the Company's operations are presented on pages 39-41. " Supplementary Data on Changing Prices". The continued impact of inflation on operations, as well as on construction costs, will require periodic rate adjustments to maintain adecuote earnings levels.

selected financial dotc 1980 1979 1978 1977 1976

. Ocerating revenues * $ M 5.7 5 628.5 S 538.4 S 470.9 S 397.7 Net income

• 122.7 123.0 87.7 88.5 75.0 Commcn stock

. Earnings per shore 3.21 3.79 2.92 .3.28 3.01 Drvidenas paid per share 2.M 2.28 2.13 2.01 1.89 %

Totot assets *. . 2 808.9 2 342.t '2 044.4 1 724.5 1 457.7 Cumulatrve peferred stock subsect to mandatory redemption

• 50.0 Long-ferm debt

• 1 057.0 832.0 789.0 489.0 534 0

• m eons 38 L

Supplementary Data on Changing Prices (Uncudited). The following supplementory dato are provided in accordonce with the requirements of the Financial Accounting Standards Board (F/3B) Statement No. 33, Financial Reporting and Changing Prices, for the purpose of reporting ce: fain information as to the effects of changing prices on the Company's operations. The Company's financial statements are prepared based on historical prices in effect when the transactions occurred; the FASB statement requires the statement of income and certain other information to be prepared on two additional bases: the constant dollar oosis and the current cost basis. The dato presented in the following statements should be viewed as on estimate of the effect of changing prices, rather than o . o precise measure ,

The constant dollor basis represents the restatement of historical costs to current-coy price levels. utilizing the Cor.mmer Price Index for All Urban Consumers (CPI). ,

i The current cost basis represents the restatement of historical costs of net utility plant te current reproduction cost utilizing the Hondy Whitmen index of Public Utility Construction Costs.

Changing prices imooct common stock equity in two ways. First, under ratemoking procedures prescribed by the regulatory commissions to which the Company is subject, only the original cost of utility plant is recoverable in revenues os depreciation. The cost of utility plant, determined on the constant dollar and/or current cost basis in excess of original cost, is not presently recoverable in rotes os derJeciation, nor os a deduction for income tax purposes, and is defined as a reduction to ne? recoverable cost.

Second. " monetary assets", such as cash and claims to cash, lose purcnosing power during inflationary periods because monetary assets buy fewer goods and services c5 the general price level increases. Conversely, " monetary liabilities", such as long-term debt, gain because the liabilities will be repaid by dollars having less purchasing power. The net change in monetary assets and liabilities (which excludes utility plant, unomortized investment tax credits and common stock equity)is reflected as c gain (or loss)in purchasing power.

Operating revenues and other operating expenses (exclusive of depreciation) in the statement of income have not been restated since such amounts would not be materially different if determined on a constant dollar or current cost basis. The cost of fuel used irs generation :s not restated due to the current recovery of actual fuel costs through fuel cost charge factors or adjustments in basic rate schedules. Depreciation expsnse has been restated by applying curr6nt Company depreciation rates to the indexed utility plant amounts.

As shan on the accompanying five-year summary, earnings per shore in j980 and 1979 have l been restated to reflect both the reduction due solely to the higner depreciation expense and to reflect the total impact of changing prices ori common stock equity under the two cases.

i l

39

PUBUC SERVICE INDIANA supplementary dato on chanciing prices - continued stctaments of inccme For the year Enced Decemter 31,1950 Current Ce,t Boss H2storect Constant Douar Sosis (Based on Cur ent Bos:s (Based on CR i'0en) Recrocxicn Ccst) c3. m e x in Operating Revenues S645.7 S 645.7 S 645.7 Operating Expenses Fuel 276.0 276.0 276.0 Pvcnosed power (75.3) r75.3) (73.3)

Toxes 95.1 95.1 95.1 Other cperation and maintenance 144.1 144.1 144.1 Depreciation 68 0 137.5 147.5 M 577.4 587.4 Operating income 137.8 68.3 38.3 Interest Chorges (net of allowance for funds used during construction and other incorre -

net) 15.1 15.1 15.1 Not income 122 7 53.1 4T7 Dividends on Preferred Stock 22.1 22.1 22.1 Income Available for Common Stock SiOO.6 S 31.1 S 21.1 Earnings per Common Shore S 3.21 $ .99 S .67 Other impacts of Changing Prices increase in current reproduction cost of net attlity plant S 228.6

! Less increase in net utility plant based on CPI index 420.3 increase in CPI over current reproocction cost (191.7)

Amount of restated utility plant costs over t

original cost not recoverable tnrougn l rates (reduction to net recoverable cost) S(212.9) (11.2)

Goin due to repayment of debt with dollars of less purchasing power 168.9 168.9 income Available for Common Stock (As Adjusted) S (12.9) S (12.9)

Earnings per Common Shue (As Adjusted) S (.41) $ (.41) l L

i 20 z

supplementary dato on changing prices - concluded The following summary is a five-year comparison of selected supplementary financial dato (historical) which I' ave been restated in overage 1980 dollars (except actual data where indicated):

Years Enceo Decemt>er 31 1980 1979 1978 1977 1976

m cm)

Operating reveques Actual S645.7 S628.5 $538.4 S470.9 S397.7 As adjusted by CPI Index S645.7 S713.8 $680.3 $640.6 S576.0 Constant dollar information (Based on CP! Inde::)

Net income S 53.2 S 82.3 Earnings per common share As adjusted for additional depreciation .99 2.26 As adjusted for total impact on common stock equity (.4 ') .38 Net assets (common stock equity) at year-end at net recoverable cost 803.7 L 791.1 Current cost information (Based on current reproduction cost)

Net income S 43.2 S 65.0 Earnings per common shore As adjusted for additional depreciation .67 1.64 As adjusted for total impact on common stock equity (.41) .38 increase in CPI Index over current reproduction cost-net utility plant 191.7 126.6 Net assets (common stock equity) of year-end at net recoverable cost 803.7 L 791.1 General information Goin due to repayment of debt with dollars of less purchasing power S168.9 S165.0 Cash dividends declared por common shore Actual S 2.44 S 2.28 S 2.13 S 2.01 S 1.89 %

As adjusted by CPIindex S 2.44 S 2.59 S 2.69 S 2.73 $ 2.74 Market price per common share at year end Actuoi $20.63 S23.38 S24 63 S28.25 $31.63 As adjusted by CPI Index S20.63 S26.55 S31.12 S38.43 S45.80 Average CPI Index 246.9 217.4 195.4 181.5 170.5

.i.) At Decernber 31.1980, the constoGt dollar and current cost vases of utility plant, net of occumulated derycc;ation, were S3.856.8 million und S3.788.7 million, respec'ively, compared with net original cost of utility plant of S2.556.4 million.

4

\

t l

I

PUBUC OVICE INDIANA

' O years of orogress 1980 1979 KILOWATT HOURS pot.O (mdions)

Domestic . 5.049 4.763 Commerec . 3.450 3.295 Industnot . 6.029 6.291 REMCs . 2.769 2.238 Muncipors 1.517 1.502 All Other 84 84 Total- 14.498 18 223 OPERATING 9EVENUES (thousands)

Domeste . $ 218.199 S209.152 Commered . 136.752 131.799 Industrd . 169.641 176.334 REMCs . 74.096 64.078 Muncoats 34.317 35.620 AllOther 13643 11.555 SALES AND Tota . 8 645.644 $628 538 CUSTOMERS Averoge Prce per Clowatt-hour 3.39c 3 dic CUSTOMERS [onnual overages)

Domestc . 466.974 460.2".4 Commercsol . 62.641 61.865 Industro . 2.518 2.522 REMCs(deuvery poets served) 121 11o

' Auncoats 43 43 All Ofner 447 834 Total . 533.144 525.638 HeatcQ Customers (included Obove) . 49,711 82.552 DOMESTIC SERVICE (overoge per customer)

Annual use (Ulowatt+ curs) 10.812 10.349 AnnualReverue. 4 447.26 $ 454 42 Pnce por miowatt-hour . 4.32c 4.39c 10LOWATT. HOUR OUTPUT (mdlions)

Generotedinet) . . . . 23.934 23.690 Purchased (3.3901 (4.011)

Totd . .

20.544 19.679 LossesandCompanyUse . .

1.660 1.4M Totd Sa6es . 18.496 18.225 ELACielC SYSTEM GeERATBIG CAPA31UTY (megawatts)

OPEPAflONS Owned. . 5.261 5.678 Power Pool .

(3101 (423)

Total. 4.951 5.255 MAXB4WM SYSTEM DFMApe (megawatts)

Summer .

3.896 3.598 Winter . 3.564 3.718 FUEL COST-oor million 8Tus consumed 116.7c 107.2c UTIUTIPLANT CONSTRUCTED A00 MONS (thousands) . 8 447.099 $364.196 COMMCN STOCK EeulTY(thousanos)* .

8 844.401 3736.640 Dnndends per Shore . . 2.44 2 28 Average Shares Outstanding . 31.383 27.962 CAPITAUZATION Eammos por Shore . .

8 3.21 5 3.79 (Decomeer 3% Cit'4WLATIVE PREFERRED STOCK (thousands)(1980 includes $50 maisson r.Atoct to reandatory recompnon) . 8 286,000 $235.000 Dhndendr . . . . 21.600 M634 AverogeDrvsdendRote . 7.92 % 7 56 %

LONG. TERM DEti(thousanos) . S t.067,000 $832.000 interest on Debt. .

79.564 61.6M Average Interest Rote . , , 8.77% 7.64 %

EMPLOYEE NUMBER OF EMPLOYEES (at Decemcor 31) 4.868 4.351 DATA SALARIES. WAGES ANO BEBEFftS (thousands) . 8 115.136 5 90.76J

• Refects 3 for-2 stock sofit in Apnl 1976.

L2

1978 1977 1976 1975 1974 1973 +972 9971 1970 4.731 4.568 4.136 4 068 3.657 3.632 3 323 3.090 2.885 3.080 3.248 3.025 2.924 2.697 2.653 2.439 2.237 2.060 5.813 5.711 5.279 4.602 4.986 5.136 4.603 4 282 4 084 8210 2.147 1.805 1.582 tI'5 1.189 1.353 1.546 1.621 1,454 1.389 1.204 1.146 089 892 790 707 632 76 83 $3 82 81 78 84 78 79 F.370 17.146 15.553 14.404 13.885 13.580 12 682 11.940 11.358 d.771 S to2.703 $141.897 5 t 11.084 $ 93.062 $ 90.295 5 89.194 5 72.423 5 68.660

,. J i.344 103.700 90.031 72.628 60.687 59.C83 52.239 M.53' 41.334

= 4.796 126.469 105.077 77.115 70.170 67.190 38.880 49.3.5 46.451 2268 44.905 33.656 23.204 19.503 12.994 15.235 13.295 13.702

. 1221 25.329 19.416 15.186 11.335 8.673 8.911 7.110 6.357 0.023 7.805 7.665 e 681 5.205 5.130 4 786 3.878 3.651 4423 $470.911 $397.742 5305.f98 $260,862 C43.365 $221.245 5190.579 5180 t$4 3.0?c 2.73c 2.54c 2.10c t Soc t 78c 173c t.58c 157c 4 401 4J2.674 435.512 429.186 423.663 415.772 406.599 397.497 39n.170 1.039 60.131 59.359 58.600 57.204 55.953 51072 53.902 $3.004 2.514 2.435 2.461 2.451 2.438 2.437 2.440 2.424 2.413 1CS 112 108 102 98 96 96 151 167 43 44 44 44 44 44 44 45 45 837 836 836 839 820 805 828 822 807 6.029 506.282 498.320 491.222 484.267 475.107 465.071 454.841 446.e06 1 315 61.812 53.164 46.460 39,708 32.837 27.813 23.726 20.535 O.478 10.319 9.447 9.479 8.631 8.736 8.173 7.774 7.395 09.25 8 367 55 5 325 82 5 258 83 $ 221.79 5 217.17 3 199 69 5 182 20 $ 176 00 .

3 910 3.56c 3 43c 2.73c 2 57c 2 49c ' 44c 2.34c 2 38c 9.276 20.012 18.698 16.002 14.579 14.977 14.051 12.425 11.564 (662) (1.504) (1.840) (350) 492 (347) (229) 526 825

' 8.624 18.508 16.858 15.652 15.071 14.630 13.822 12.951 12.380 1.254 1.362 - 1.326 1.248 1.186 t.050 1.140 1.011 1.031-7.370 17.146 15.532 14.404 13.845 13.580 12.682 1 t.940 11.358 5.028 4.378 4.378 3.730 3.239 3.254 3.254 2.655 2.699 (229) 183 (156) 93 361 30 (180) 156 (125) 4.799 4.561 4.222 _3g 3.600 3.284 3.074

_23 2.574 3.38 t 3.320 2.922 2.924 2.706 2.751 2.514 2.372 2.io7

! 3&O 3.388 3.138 2.845 2.567 2 430 2.326 2.167 2.173 06.1c 80.24 65.6c - 52.ic 38 84 310c 28 8c 25 5c 23 6c F.880 ' $267.288 $200,392 3148 974 5160.661 $134.710 $ 91.681 $ 79.003 $ 78.402 4.707 5543.938  !.a62.427 5305.228 5343.157 $326.559 $274.054 5234 879 5230.399 2.13 2.01 1 89 % 1.73% 1 66 1.55 % 1.464 '1 44 1 41%

5.211 23.690 22.054 20.921 19.084 17.834 16.784 16.384 16.384 2.92 $ 3.28 3 3.01 $ 2.33 $ 2.53 5 2.43 $ 2.07 $ 1 71 S 1.98 0.000 $ t 55.000 .- $ t55.000 $115.000 $ 80.000 $ 80.000 3 50.000 $ 50.000 $ 50.000 3RBt 10.870 8.370 5.397 4.158 - 3.878 2.013 2.013 2.013

~ '.32% 7.01% 7 01% 649% 5.20 % 5.20% 4 03 % 4.03 % 403%

9.000 ' $689.000 $534.000 $534.000 5502.000 $395.000 $395.000 5345.000 $295.000 2.131 44.491 37.068 33.161 26.226 21.704 21.519 17.992 13.566

'.46% 7 25 % 6.94 % 6.94% 6 15 % 5 49 % 5 49 % 5 28 % 4 58 %

4.025 3.855 3.701 3.533 3.449 3.290 3.284 3.272 -3.190 8.801 3 69.330 $ 60.177 $ 52.684 8 46.991 3 42.618 $ 39.407 $ 36.295 5 32.821 a

L3 .

PUBUC SERVICE INDIANA security markets and prices The principal organized markets in wh> re Company's common stock is traded cre:

The New York Stock Exchange The Midwest Stock Exchange The Pacif'c Stock Exchange in addition the Company's common stock has unlisted trading pnvileges on the Cin-cinnati. Detroit and Philodelphic exchanges. All cumulative prefe~ed stock is listed on the New York Stock Exchange and the 31/2%. 4.16% and 4.32% Series are o!so listed on the Midwest Stock Exchange.

Company bonds issued since 1969 have been listed for trading on the New York Stock Exchange.

The following table shows the quarterly high and low so!e prices of the Company's common stock on the composite tape and dividends paid for the post two years.

1980 1979 high low dividend high low dividend first S23 3/4 S17 5/8 S.58 S2$ 5/8 S24 1/2 S.54 second 24 5/8 19 .62 27 24 1/8 .58 third 24 1/2 20 .62 26 3/8 24 .58 fourth 22 19 .62 25 1/4 22 .58 outomatic dividend reinvestment and stock purchase plan Under the Company's corstinuing Automatic Dtvidend Reinvestment And Stock Pur-Chase Plon, common and preferred shareholders of record may reinvest quarterly dividends to purchase additional shores of common stock of a 5% discount from the applicab!e market price. The Plan o!so allows for optional cash payments of up to S26.000 per quarter to purchase additional shores of common stock at 100% of market value; amounts over S25.000 are subject to Company approval. No commis-sions are chargeo on stock purchases under the Plan. The Prospectus describing the Plan and on enrollment form are available to interested shareholders uoon request to Shoreholder Relations.

Stock Transfer Agents and Registrors

' Continental Illinois National Bo< . and Trust Company of Chicago 30 North LoSolle Street, Chicago 60693

• Bradford Trust Company 2 Broadway. New York 10004

• Effective March 1 1981, these ogents are authonzed to serve in the duct capacity of stock transfer agent and registrar.

Dividend Dif,bursing Office Shoreholder Relations Toll Free Telephone Numbers:

Public Service Indiano Indiano 800-382-1174 1000 East Main Street Other States 800-428-4337 Plainfie!d,Indiano 46168 The annual meeting of shareholdess will be held in Plainfield, Indiano, on April 6,1981. Shoreholders of record at the close of business on Fetiruary 17.1981 will be entitled to vote of the meeting. Formal notice, proxy state-ment and proxy form will be mailed about March 6.

This annual report and the financial statements contained herein are submitted for the generalinformation of the shareholders of Public Service Company of Indiano, Inc.. and are not intended for use in connection with any sole or purchase of, or any offer or solicitation of offers to buy or sell, any securities of the Company.

i

PUB JC SERVCE INDIANA 10N East Main Street Ploinfie:11ndiano 46168

ARTHUR ANDERSEN & CO.

INDIANAPOU S, INDIANA To the Board of Directors of Wabash Valley Power Ascociation, Inc.:

We have examined the balance sheets of WABASH VALLEY POWER ASSOCIATION, INC. (an Indiana not-for-profit corporation) as of December 31, 1980, and 1979, and the related statements of revenues and expenses, patronage capital and sources of funds used for utility plant additions for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the l 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 Wabash Valley Power Association, Inc. as of December 31, 1980, and 1979, and the results of its operations and the sources of its funds used for utility plant additions for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.

h l

l l January 30, 1981.

l l-l l

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1 i

ASSET.g 1980 1979 UTILITY PLs af (Notes 2 and 3):

In service, at. original cost $ 120 $ 120 Less- Accumulated depreciatior 1,958,409 1,274,477 ge capital 1,958,529 1,274,597 Construction work in progress-Msrble Hill Nuclear Station Nuclear fuel Headquarters building Load Management system .

Transmission system 167,067,000 100,123,000

4) 2,750,000 _

171,775,529 101,397,597 CURRENT' ASSETS: ------------ ------------

Cesh Teepotary cash investments Headquarters building bc-d construction fund 100,000 _

Accounts receivable-Power 6,863,831 6,952,472 Other 111,647 132,242 Unbilled fuel cost refund -

209,487 Prepayments 4,849,511 8,003,081 Total current assets 176,447 -

311,536 230,101 OTHER: 12,412,972 15,527,383 Deferred charges ------------ ----_-______

Other investments

$184,188,501 $115.924,980

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WABA,3_H VALLEY POWER ASSOCIATION, INC.

STATEMENTS OF REVENUES AND EXPENSES

, FOR THE YEARS ENDED DECEMBER 31, 1980 AND 1979 1

1980 1979 OPERATING REVENUES (Notes 1, 2 and 5) $78,661,739 $76,286,222 OPERATING EXPENSES:

Purchased power (Notes 2 and 5) 77,083,262 74,439,930 Administrative and general 965,545 908,666 Depreciation (Note 2) 15,139 8,234 Total operating expenses 78,063,946 75,356,830 ELECTRIC OPERATING MARGIN 597,763 929,392 INTEREST EXPENSE:

Interest on long-term debt 12,939,229 6,715,272 Interest charged to construction -

credit (12,939,229) (6,715,272)

Total interest expense - -

NET OPERATING MARGIN 597,763 929,392 NONOPERATING MARGIN - Interest income, net 85,729 104,526 PATRONI.GE CAPITAL ALLOCATIONS 440 950 NET MARGIN $ 683,932 $ 1,034,868

==s== =====

The accompanying notes are an integral part of these statements.

e

- - - - - - - , y y

. l a

WABASH VALLEY POWER ASSOCIATION, INC.

STATEMENTS OF PATRONA0E CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1980 AND 1979 1990 1979 BALANCE, beginning of year $1,274,477 $ 239,609 aet margin 683,932 1,034,868 8ALANCE, end of year (Note 4) $1,958,409 $1,274,477

==== ====

The accompanying notes are an integral part of these statements.

WABASH VALLEY POWER ASSOCIATION, INC.

STATEMENTS OF SOURCES OF FUNDS USED FOR UTILITY PLANT ADDITIONS FOR THE YEARS ENDED DECEMBER 31, 1980 AND 1979 1980 1979 FUNDS GENERATED INTERNALLY:

Net margin $ 683,932 $ 1,034,868 Depreciation 15,139 8,234 Amcetization 204,734 25,868

--__------- - - _ - _ - - . =

9033 805 1,068,5 0 FUNDS FROM DEBT FINANCING AND OTHER SOURCES:

Long-term debt 69,694,010 42,167,000 Net change in working capital and other items-Deferred charges and other investments (732,327) (592,058)

Cash (1,224) 29,551 Temporary cash investments 522,000 '398,000)

Headquarters building bond construction fund (1,284,503) -

Accounts receivable (76,707) (1,368,162)

Unbilled fuel cost 11,139 (33,538)

Prepayments (1,508) (1,386)

Notes payable 100,000 -

s Accounts payable (318,723) 1,425,976 Unbilled construction costs payable (3,153,570) 6,994,348 j Headquarters building annstruction retainages payable 176,447 -

Accrued liabilities 81,435 201,940 l $65,920,264 $49,494,641

===== =====

l ADDITIONS TO UTILITY PLANT AND CONSTRUCTION WORK IN PROGRESS $65,920,264 $49,494,641

===== =====

I l

l l The accompanying notes are an integral part

! of these statements.

l I.

WABASH VALLEY POWER ASSOCIATION, INC.

NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1980 AND 1979

1. NATURE OF OPERATIONS Wabash Valley Power Association, Inc. is an association of 24 member Rural Electric Membership Cooperatives. In January 1978, the Association received a certificate of convenience and necessity from the Public Service Commissio; of Indiana authoriz-ing it, among other things, to be the power supplier and to conduct related activities for its members. All of the Associa-tion's operating revenues are derived from sales to members.

2.

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES

a. Basis of Accounting The Association maintains its accounting records sub-stantially in accordance with the Uniform System of Accounts of the Rural Electrification Administration.

b. Utility Plant Construction costs include allocations for payroll related costs and administrative and general expenses as well as interest on borrowed funds used during construction (based on actual construction interest incurred).

c. Depreciation The Association provides depreciation on utility r

property on a straight-line basis over the estimated service lives of the deprecinble property. Depreciation rates are 10%

l for office furniture and equipment and 20% for automobiles.

! d. Federal Income Taxes The Association is exempt from Federal and state income taxes pursuant to the provisions of Section 501(c)(12) of the l Internal Revenue Code.

e. Pension Plan Certain employees of the Association are members of and contribute to a pension plan administered by Indiana Statewide l Rural Electric Cooperative, Inc. The Association's pension expense was $10,223 for the year ended December 31, 1980 and l $6,293 for the year ended December 31, 1979.

l l

l

f. Operating Revenue and Purchased Power The Asr.aciation records sales and purchases of power fron suppliers based on billing dates prior to the end of each mon 1h. Revenue and purchased power expense are not recorded for energy unbilled at tne end of each month.

3 CONSTRUCTION COMMITMENT The Association has a 17% ownership interest in the Marble Hill Nuclear Station, which in being conscructed by Public Service Company of Indiana, Inc. (PSI). The ownership agreement betweer the Association and PSI provides that each party shall be responsible for the financing of its ownership share of project costs.

A July 1980 study by a nuclear consulting firm, revised the in-service dates for Units 1 and 2 of the Marble Hill Project from 1982 and 1984 to late 1986 and 1987, respectively. The Association esticates its total costs of the Marble Hill Project to be approximately $801 million. The amount of the original Marble Hill loan request and the previous estimate c.f Marble Hill costs was approximately $361 million.

Substantial progress has been made during 1980 toward the resumption of safety-related construction work. Most phases of the Nuclear Regulatory Commission's five-stage restart program issued on May 15, 1980 have been implemented. Authority to proceed with electrical and piping work has been received by PSI, and final aprovals for the resumption of other safety-related construction is expected early in 1981.

4. LONG-TERM DEBT Mortgage notes are payable to the Federal Financing Bank with interest rates ranging from 8.418% to 15.09%. The notes have maturities through December 2014, interest payable quarterly, with quarterly principal payments commencing in 1985. Under the terms of the loan agreement, unadvanced loan funds of $193,6.' 7,000 are currently available to the Association to cover future expenditures on the Marble Hill Nuclear Station Project. The Rural Electrification Administration (REA) of the U.S. Department of Agriculture has guaranteed payment of this loan. The Association has applied for, and is currently awaiting approval from the REA for the additional loan funds needed to finance the estimated increased cost of this project as discused'in Note 3 Under terms of the mortgage agreement, the Association is restricted from making distributions of patronage capital so long as the Association's equity is less than 40% of total assets.

As of December 31, 1980, equity was approximately 1% of total assets.

Financing for construction of a headquarters building was obtained *,hrough the issuance of City of Indianapolis Economic Development '<evenue Bonds at a rate of 8.875%, interest payable semi-annually, 1981 through May,withJ010.

semi-annual principal payments irom November, Payment is guaranteed by tho National Rural Utilities Cooperative Finance Corporation.

The notes and the bonds are secured by all property of the Association including its 175 interest in t'.te Marble Hill Nuclear Station.

5. RATES The Association is presently being charged rates by one of its power suppliers which are subject to retroactive decrease based on final disposition of a pending rate increase request by the Federal Energy Regulatory Commission (FERC). Refunds, if any, will be passed on to the member REMC's and will be reflected in the financial statements as reductions in revenues and purchased power. These refunds will not impact the Association's operating margin.

6. LINE OF CREDIT The Association has a short-term line of credit available in the amount of $12,000,000, which may be used for general corpo-rate purposes as determined by the Board of Directors. Borrowings bear interest at the prevailing bank prime commercial rate. Borrow-ings of $100,000 were outstanding at December 31, 1980 under this line.

7. LEASE COMMITMENTS Future rental commitments under existing leases are not significant. Total rental expense was $35,798 and $21.372 for the years 1980 and 1979, respectively.

._