ML20041G390
| ML20041G390 | |
| Person / Time | |
|---|---|
| Site: | Marble Hill |
| Issue date: | 01/29/1982 |
| From: | PSI ENERGY, INC. A/K/A PUBLIC SERVICE CO. OF INDIANA |
| To: | |
| Shared Package | |
| ML20041G385 | List: |
| References | |
| NUDOCS 8203220190 | |
| Download: ML20041G390 (48) | |
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Diversity in business is measured in many ways-but none so dramatically as by the breadth and variety of the market. The market for electric power produced and delivered by Public Service Indiana throughout two-thirds of the Hoosier state is broad indeed. The pictorial theme of this report documents a few of the countless ways electricity is put to work in the Indiana economy. Ir addition to more than 2,500 industrial users, we serve over 537,000 residential and commercial customers. Energy is also sold to 43 municipal power systems and 16 rural electric cooperatives who in turn sell to their retail consumers. L:. w _. -
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pany, Jeffersonville. The firm also sup-plies 10% of the U.S. golf club market. y ..
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% increase 1981 1980 (Decrease)
Kilowatt-hours sold
- 18 793 18 898 (.6)
Operating revenues * $ 720.1 $ 645.7 11.5 Net income ' $ 151.6 $ 122.7 23.6 Common stock-per share General Foods Corporation produces Earnings S 3.42 $ 3.21 6.5 convenience food items at its highly Dividends paid $ 2.57 $ 2.44 5.3 automated gelatin products plant at Book value $ 24.48 $ 24.87 (1.6) Lafayette. Instant pudding is measured and packaged on this line. Market price at year-end $ 20.25 $ 20.63 (1.8) Rate of return on year-end net plant w "" In service and M. .* Inventories (original cost) 9.9% 8.6% A Customers at year-end 540 801 536 162 .9 Electric heating customers 96052 92 220 4.2 Averago kilowatt-hours used-domestic customers 10 329 10 812 (4.5) Fuel cost per million btu consumed 129.47 C 116.71 C 10.9 System peak load in ' megawatts .. Summer 3 942 3 896 1.2 Winter *
- 3 895 3 554 9.6 ,
.j Construction * $ 464.7 $ 487.1 ..w..
Nuclear fuel owned
- 43.4 5.6 --
$ 508.1 $ 492.7 3.1 / 74 Utility plant * $3 601.4 $3 077.9 17.O - '"
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- A new winter peak load of 3,923 megawatts was estatWished on January 11,1982.
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[ dustry roll off the production line at GTE Sylvania's Seymour plant Daily output far exceeds any other U.S or foreign assembly line. \ .W .,
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! ** soit each week of the year at John j , Ford's hydroponic greenhouse in 4,._ h Vancennes.
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3 PUBLIC SERVICE INDIANA -- l to the shareholders M, mL . ( Utilities, including Public Construction (AFUDC)-the $' Service Indiana, found basic non-cash item representing the economics a tcugh course in cost of capital used during t- @ ~ 1981. The hard lesson was construction. At year-end, the i clear: Inadequate cash earnings value of construction work in penalize the shareowner and progress, together with nuclear depress stock prices below fuel, on which we do not earn book value. Int.dequate a cash return, totalled $ 1.53 , earnings also penalize the billion. That exceeds the !, consumer by increas:ng the $ 1.47 billion of net value in F cost of capital and pushing utility plant in service on which energy rates upward. we d_o earn a return. Last year, our earnings per Our Marble Hill nuclear project, common share did a major element of our improve-from $ 3.21 in 1980 construction work in progress, to $ 3.42 in 1981. A $ 112.7 passed many milestones during million retail rate increase in the year and is poised for a June was a major step in the high level of construction in right direction. We asked for 1982. The strength of a new and received approval of an organizational framework and p increase in the allowable rate an experienced team of nuclear ,,31 of return on common equity to professionals was confirmed Barker Menscer 16.75%. Agreement on a $ 22 by rigid inspections by the million wholesale rate increase Nuclear Regulatory that took ef fect January 1, Commission. Cost estimates 1982, was another. for the twin nuclear units, Total construction spending for scheduled for service in 1986 1981 was $465 million; Common stock dividends were and 1987, were revised from nuclear fuel expenditures increased for the 21st $ 3.4 billion to $4.3 billion to totalled $43 million. New consecutive year, reflecting a reflect high interest rates and money requirements of $326 quarterly increase of 3C per the resulting sharp increases in million for the 1981 share effective June 1 and a the cost of capital. Despite this construction program were new annual rate of $ 2.60 per increase, the project remains met through the sale of share. the most economical source of additional common and , electric energy that could be preferred stock and first But all this did not keep us built in its time frame, mortgage bonds. from joining the growing ranks of utilities whose securities Nuclear power clearly is an have been downrated. Three essential part of the nation's investment rating services energy mix, and we at Public lowered their ratings, by one Service Indiana are firmly step, on the Company's committed to assuring the safe outstanding first mortgage construction and operation of bonds and preferred stocks. Marble Hill. The primary reason for the downrating was the growing Other construction activity also size of our Allowance for remained on schedule during Funds Used During 1981. A fifth 650-megawatt coal-fired generating unit at Gibson Station will begin operation in October 1982. 4
e . - No other concern has higher investment costs to those who foremost, obligation to priority for us than restoring benefit most directly and shareholders and custome s is ths financial strength of the lighten our financing burden. to provide reliable electric Comp;ny. We are acutely service at a fair price while Construction spending in cwrra that most electric utility taking all steps possible to common stocks sell below 1982 is estimated et $469 restore our credit ratings. book value, and we all too million; new money requirements will total $ 221 cl rly recognize that any sale Our progress in 1981 was due
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i These amounts exclude of common stock below book to the thoughtful efforts of the
$ 210 million of proceeds v lus dilutes the investment of more than 5,000 men and prennt shareholders. We have expected in late 1982 women of Public Service no higher goal than to regain applicable to the Gibson unit Indiana. Wa salute their our cbility to market common sale. uncommon contribution.
stock cbove book value and To reflect the addition late in comp;te effectively for capital. the year of Gibson Unit 5 to By rder of rate base, we expect to file for the Board of Directors Th3 cl ar key to maintaining a retail rate increase in the first ' fin:ncial strength is being quarter of 1982. The size of I allowed to put construction the request has not been l work in progress in the rate determined; however, we HUGH A. BARKER base end achieve a current would not expect approval and Chairman ruturn on this investment. implementation of the rate Und:r present Indiana law, utilitics have historically not increase before the fourth quarter. A filing for increased MN hd#~ carn d a cash return on wholesale rates will also be DARRELL V. MENSCER facilitics until they were placed made in the latter half of President in s rvice. Having construction 1982. work in progress in the rate b:co serves the long-term Diversity, the theme of this January 29,1982 int::rcst of the shareholder and report, is getting a good deal ths consumer, and the of attention within the industry Company has made a as some utilities turn to commitment to work for the economic, diversification to passage of enabling legislation help solve the financial by tha Indiana General squeeze. Extensive study and Assembly. While we were not formal examination of the successfulin the 1982 possible benefits of s ssion of the General diversification to Public Service Assembly, we intend to press Indians have been made by the for tha necessary changes in Company's executive 1983. management. After careful consideration, the Company Also aiding in the effort to has concluded that at this time regrin financial robustness is diversification is not a viable th3 p:nding sale of 50% of the solution to financial problems naw Gibson Station Unit 5 to requiring more fundamental Wabash Valley Power correction. Our first, and i A sociation, Inc. and the Indiana Municipal Power Ag:ncy. Thes] organizations represent utility systems presently purchtsing power from us at wholesale rates. By assuming 5 cn ownership interest in a f cility dedicated to serving th ir needs, they help us shift
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. e Utilities, like fingerprints, may appear similar. But no two are identical. The difference is diversity-the wisdom and the reality of not having all your eggs in one basket.
At Public Service Indiana, we measure diversity in many ways: E Diversity of energy use (as the pictorial theme of this report illustrates). E Economic diversity within our 22,000-square-mile service diversity. . e,ea. 5 Fuel diversity, when in a few years basic coel will be the compiemented by nuclear power on our system. E Diversity of energy demand-the daily and seasonal mix of f.lMQ@fpflMT ever-changing use of electricity. E Diversity of capital from internal and external sources and a factor that proper beience between eavitv ena aeet-ygkgg gyg{\f7 The diversity factor is a key point in investment decisions. This look at Public Service Ind,ana's i diverse strengtns-and an examinat, ion of some of our concerns-is intended to be of help to both present l 7 and potential shareholders. different oiversity Or energy use
- Energy is available in no more flexible or convenient form than l electric energy. Its unlimited applications and ability to replace energy fuels in short supply make electricity literally the energy of the future.
More than 2,500 industrial energy users consume about one-third of all the electricity we produce. Residential customers account for about one-fourth of all energy use and commercial users buy about 20%. The balance goes to rural electric cooperatives and municipal power systems. t l Among residential customers, diversity is represented by the one in five customers who heat their homes electrically and by the variety of appliances used in today's home. But the big diversity story is I industrial. Our industrial customers include those in 22 major standard classifications ranging from chemical and drugs (our largest energy user) to printing and publishing. During a year of economic doldrums such as 1981, the strength of industrial diversity becomes sharply apparent. While 9 industrial categories used less energy than in the previous year,13 showed energy use gains._ Our industrial inix is indeed a keystone of diversity. Yet no single .- customer accounts for more than 2.5% of kwh sales. economic diversity A service area extending across some 22,000 square miles, with a population of 2.1 million, offers a varied pattern of economic strength and weakness. Economic slowdown in one area or one community is bolstered by economic strengthin another. And no large metropolitan areas are served by Public Service Indiana. Terre Haute, with a population of about 64,000, is the largest city on 6 our system. Population shifts away from major metropolitan
cantors into suburban areas served by the Company have been a significant f actor in our residential growth. The Company's carvico area includes seven of the ten fastest growing counties in Indiana in terms of population. fuel diversity Last year, coal was burned to produce more than 98% of all the electricity generated by the Company. A small hydroelectric plant on ths Ohio River and oil-fired peaking units contributed the remainder. Today we do have most of our fuel eggs in one basket-a weakness brought painfully home to us and our customers in 1978 when a record 110-day strike by coal miners resulted in electric energy curtailments. Such risks will be greatly reduced when nuclear power comes into our fuel mix. The completion of the first nuclear-powered generating unit at Marble Hillis targeted for late 1986, with a second unit coming on line one year later. These two nuclear units will account for about 25% of our total generating capacity. Despite higher construction and capital costs, the nuclear units will not only add fuel diversity but will represent a more economical energy source than any other option available. diversity of energy demand An electric utility must be able to generate enough power to meet maximum customer energy use. These peaks occur daily, monthly and seasonally and in large part reflect weather-sensitive heating and cooling loads. Tne load management challenge thus becomes one of levelling out the peaks tend valleys of energy demands in order to make the best use of a system built to handle those peak periods. kilowatt-hour sales Diversity again plays an important part in meeting this challenge by class of service , effectively. Wide customer mix and a geographic reach that l 2o bii: ion extends over 200 miles on a noith-south axis produce energy use variations that help flatten the peaks. Located where they , -7 are, Public Service Indiana customers tend to balance peak ' 'i winter and summer use because of parallel heating and air " ; conditioning loads. The result is better utilization of plant-a plus < in achieving overall system economies. 16 # ' ' -
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10 5 j e I dero **** , ]s ow'L- u-A - 72 73 74 75 76 77 78 79 80 81 7
i diversity of capital resources One of our primary financial objectives is to maintain a balance between equity and debt-a goal not uncommon among utilities. One of our fundamental goals is to maintain a credit quality that will enable us to obtain capital at the lowest practical cost. At year-end, long-term debt was 47% of our total capital while common stock equity represented 41% of total capital. Preferred stock equity accounted for 12%. Internal generation of cash is a significant source of funds needed for construction. Long-term, our objective is to raise about half of such funds internally. This goal has been an elusive one in an era where double-digit inflation coincides with heavy co_nstruction spending. This goal cannot be attained in periods of
'. heavy construction unless the capital costs applicable to such
. construction are recovered currently through rates.
in many s_tates, the allowance of construction work in progress (CWIP)in the rete base offers a responsible helping hand as regulators have recognized that the consumer interest is well-serve:f by putting financing costs for new construction on a pay-s as-you-go basis, in Indiana, a top priority of the electric utilities and others is to win leo islative approval for CWIP to be allowed
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in the tote base. The importance of taking action to recover financing costs on a current basis is evident when 46% of the i estimated cost of our two Marble Hill nuclear units is the cost of 1 financind.'With CWIP in rate base, we estimate that the cost of the Marble Hill units would be reduced 01.2 billion. earnings and dividends per share of common stoclw < the road ahead earningeri divideno.p id ung Div<drsity gives Public Service Indiana a special strength. But we
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.> toda) end have urall riding uneasily in the same boat.
[M r h H y R The financial' strength of electric utilities has declined. An industry task force declares that the deteriorating financial status 3.oo [ ] El rq [j [a Q [hrij - "is no .onger the subject of serious debate (but) is manifested in the wideapread downrating of senior debt securities", in the l l N id d!!ia]!? !.d%-
"! 1974-1981 per;od, Moody's lowered 83 electric utility ratings
{u while increasing only 15. In November 1981, both Moody's and hI lj k '" Standard and Poor's downrated Public Service Indiana's bonds j 2.oo ! 4
% and preferred stocks from AA to A.
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What is the problem and what can be done to correct it? In our case, the size of the conetruction program and the need to raise significant amounts of additional capitalin the next five years are critical factors. But these factors alone are not the villains. Inadequate returns on equit y, reflected in market prices that are below book value for most utilities, cast grave clouds over the industry's ability to raise the funds needed to keep pace with growing electric energy needs of the nation. Despite the recent I slowdown in the rate of energy growth, the investor-owned i olectric utility industry must spend $ 365 billion on new plant and equipment during the 1981-1990 period-or about 170% of plant in service at the start of 1981. An estimated 60% must come from external sources-including about $ 60 billion in new common stock. j Financial experts express serious doubt that the industry will be able to raise such amounts in the face of declining levels of internally-generated funds, inadequate earnings levels, and net income figures which reflect sharp increases in allowance for funds used during construction. This non-cash item accounted for over 44% of the industry's net income in 1980, more than 21/2 times the 1970 average. These realities have not escaped the attention of the investor who perceives all too clearly the investment risk in electric utilities, i But the matter is not hopeless. Solutions do exist. And indeed where utility regulation has been responsive to the mutual interests of the shareholder and the consumer (as has been the case in Indiana), there is reason for optimism. Electric utilities recognize that the solutions to below-book value sales of common stock and the resulting dilution of present shareholder equity must come from increased earnings. Inclusion of CWIP in the rate base and adequate rates of return stand as the best means to achieve the increases in cash earnings which will attract new capital at reasonable rates. Restoration of the industry's financial health is not solved easily or overnight. But it must occur if the nation is to have the energy muscle to sustain a growing and viable economy. The bottom line here is the ability to create new jobs, new paychecks and to preserve those already in existence. Without adequate electric power, economic growth will be beyond our reach. For all these reasons, Public Service Indiana has no higher priority than to regain its full financial strength-symbolized by a double-A credit rating. Our investors, our customers, our service area, our ! company-all will benetit. 9
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!t Vernsey R. Rehnstrom, Senior Vice President-Finance ,
i k! (.;- ' Utility finance in today's , j
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B,s, , ' - timing, the ability to move quickly and the utilization of ; new financing arrangements. It also means keeping in mind j that the best way to serve the l s customer well is to serve the , l investor well. ! l i l
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year in review 1980. Major expenditures An additional $ 30.7 million N ot24%income for 1981included to $ 152 million, rose $ 123 million for the was raised by the issuance of while earnings per share of fifth Gibson Station 650 1.5 million shares of common common stock increcsed from megawatt unit and $ 278 stock through automatic
$ 3.21 to $ 3.42 per share. million for the two Marble Hill dividend reinvestment and The gain in earnings per share nuclear units. Other employee stock purchase reflected the retail rate increase expenditures in 1981 included lans. At December 31,15%
which war effective in June $ 11 million for other of all common shareholders, and an increase in the production plant, $ 14 million Allowance for Funds Used for substations, $ 3 million for representing 21% of During Construction (AFUDC). transmission lines, $ 27 million outstanding shares, were Average common shares for distribution facilities and $9 participating in the automatic outstanding increased during million for general plant and dividend reinvestment the year from 31.4 million to equipment. Expenditures for program. 37.8 million. Company-owned nuclear fuel in 1981 aggregated $43 Dividends paid per share of million compared with almost common stock increased 13C $6 million in 1980. in 1981 to $ 2.57 compared with $ 2.44 in the previous Unprecedented levels of year and reflected a 3C interest rates and market quarterly increase per common volatility added to the share on June 1,1981. complexities of raising $326 Dividend payments have risen million of new money in 1981. in each,of the last 21 years. During the year, the Company successfully sold the following Operating and maintenance security issues and refunded costs rose only 4.4% to $75 million of first mortgage
$ 150.4 million in 1981 and bonds, Series U, 9 5/8%,
reflected a continuing effort to which matured August 1: control operating expenses at all levels throughout the amount Company. (millions) While the level of kwh output Co mon stock - 3.25 million was 5% less for the year due shares ($ 19.625 per share) to lower sales and reduced $ 61.3 power pool commitments, fuel F rst mortgage bonds, costs rose 7% to $ 295 14 3/4%, due 2011 million. The increase in fuel 125.0 expenses reflected higher august costs of coal production and First mortgage bonds, included the initial effects of a 15 3/8%, due 1986-1989 new three-year coal miners,
. 50.0 wage agreement negotiated in ,
mid- 19 81. First mortgage bonds, 5 3/4%, due 2011 Total tax expense during the year increased $ 16 milhon t
$ 111 million and was largely december I
due to increased income Common stock - 3.5 million shares ($ 20.125 per share) resulting from the June 1981 retail rate increase. 67.9 Preferred stock,13.25% Construction spending in ($ 21 million received 1981 totalled $465 million December 1981: $ 24 million compared with $487 million in to be received March 1982) 45.0 11
A riuclear f uel trust with a Construction expenditures for To reflect shar,.) increasesin t>< n rowing capability of $ 150 198 2 are estimated at $469 the cost of debt and equity t r ullu n t was established late in rnillion and exclude $ 210 capital !n the last two years, 1981 and as of year-end nullion of proceeds ex pected in the Company increased its owned $ 2 4 million of nuclear late 198 2 applicable to the AFUDC rate to 10 3/4%, with fuel Gibson Unit 5 sale Nuclear f uel semi-annual compounding, on expenditures are estimated at October 1,1981. The AFUDC , Shareholders were inf ormed in $ 5 2 1 milhon of which $ 3 7.5 rate was increased to 121/2% Decembe- that the Company's
, milhon well be financed by the on January 1,198 2; the new l
dividend reinvestment plan nuclear f uel trust. Tentative rate reflects the 16.7 5% ] quahties for the def erral of financing plans f or 198 2 return on cornmon equity income taxes under the include the sale of up to S 160 granted in the June rate order. l provisions of the Economic million of debt securities and As a result of these changes, ! Recovery Tax Act of 1981. up to $ 60 million in additional the 1981-1985 construction The Act permits $ 1,500 goint pref erred stock; timing of program was increased $453 return) or S 7 50 (single return) security sales has not been million and the 1986-1990 of reinvested dividends to be determined construction program was excluded f rom current taxable increased $ 382 milhon; these ! income duririg each of the , increases are primarily I years 198 2 through 1985 apphcable to the Marble Hill Shareholders wishing project. additional ir formation should j j contact the Shareholder Reiations section Construction expenditures f or the 198 2- 198 5 penod are estimated at $ 2.3 billion in the subseouent 1986-1990 j l period construction g , expenditures are expected to 1/48pe ge
^
dechne to S 1 6 bilhon r -4 Financing requoi ments f or the f L ~, 1982 1985 penod are ~* ~ ,# y e xpected to total $ 1.5 bilhon r , Dunny the 1986-1990 7 penod. new monay requiremerits are expected to T , ' , he substantially less than for the 1982 1985 penod due in .~ e large I> art ta sut>stantial increases in depreciatiori g) at-(:r uals. def er red income
~-
ta xes and carryforward of -
%g f 3
irivestment tax credits apphcable to the Marble Hill . riuclear units Nuclear f uel % , ex penditures. excluding f uel l { (>wned by the nuclear f uel l { t r ust , ar e (:stirnated at $254 - - milhon f(n the 1982-1985 o y~ l per n >d - - i f Q9 4 i' ~ bc
]* 1
%,-w ' ,A % 1
~
~
i:
. ut
,' t Lloyd M. Griffin, lowatt-hour sales for the Senior Vice President- year totalled 18.8 billion Consumer Servicer. -
compared with 1980's 18.9 " Working smarter ar-J more billion. Operating revenues for ef ficiently to control costs is .. 1.: 1981, reflecting higher rates, one of the best things we can increased 12% to $720 do to help the consumer and million, enhance earnings for the i shareholder. We're making real Total domestic sales were progress but we can't let up , down 3.5% as average annual kwh usage per customer decreased from 1980's 10,812 to 10,329 for 1981. The reduction in domestic sales was due in large part to mild summer and winter temperatures during the year. While commercial sales increased 1.7%, industrial sales declined slightly from 1980 levels. Motor vehicles and equipment, engines and machinery and paper products showed gains; coal mining and cement manufacturing declined due to the 7 2-day coal miners' strike and reduced housing electric heating customers starts, respectively. Chemical percent of total and drug manufacturing also 20% decreased in 1981. g Net customer additions for the 1 year were 4,639 as the customer base increased to
'S 540,801; new heating customers added during the year totalled 3,832. At year-El end, electric heating customers
. =4 totalled over 96,000 or 18%
of all customers. The increased availability of natural gas has been a factor in the Company's service area in the last two years and has reduced the 5 market share for electric
, fl heating.
d A reorganization of various d consumer s< vice functions 1971 73 75 77 79 81 into a coordinated Consumer Music capital of the Midwest is CBS Records' plant at Terre Haute, where Services group was a major up to 180.000 cassettes a day duplicated. CBS Records is a division responsiveness to customer of CBS, Inc. needs and to achieve added 13 efficiencies. This group will
also focus on industrial Last year's report mentioned analysis of transportation fleet development and coordinate a the new four-year program to efficiencies and utilization. The broad program of activities to convert present street lighting new work management assist individual communities in equipment to high efficiency, system focuses on work this area. The Company high pressure sodium vapor planner / analyst scheduling of strongly endorses the lamps. By year-end,18 5 line crews to match personnel, economic development communities had authorized equipment and materials to the program of the Indiana the conversion of 21,500 job and reduce non-productive Department of Commerce and lamps. This four-year program time. This program will be is working closely with state will save communities in expanded to all Company officials to stimulate industrial excess of 21 million kwh locations in early 1982. In growth in Indiana. annually. addition, Company line and service # 1anning and outside Recognizing the growing in an era of extended inflation, contractor requirements have concern over the rising cost of achievement of operating been temporarily reduced all goods and services, helping efficiencies is a continuing because of fewer housing consumers use energy wisely goal. Major areas of savings starts. and hold their bills down by centered on a new work reducing energy waste management system and continues as a high priority. A new program of low-cost 1981 industrial power use home energy audits was initiated in 1981 for all Indiana Industry KWH % increase utilities. Using portable (thousands) (Decrease) e cals & Ngs 8578M (6 A terminals linked via the ** " O I customer's telephone to a Motor Vehicles & master computer, Company Equipment 471 078 4.7 energy auditors conducted Engines & Machinery 354 393 8.3 nearly 2,000 home energy Paper Products 32562O 5.2 audits during the year. 5m M Also in 1981, the Company Coal 306909 (11.7) initiated a program to provide Cement 253 042 (8.8)
. Fabncated Metal information concerning the Products 222 100 6.6 advantages of the a d d-o n,,
Plastic Products 200 523 3.3 heat pump. This energy- Stone & Clay Products .5 185 595 efficient concept reduces Electric Equipment & overalI energy consumption by comb,ning the efficiencies of _ Machinery 155 828 3.8 i a%ry & Bewage the electric heat pump in the ances 9 . e isting natu al go an ci-fired systems during periods of Radio & Television 82 197 5.3 extremely cold weather for Glass Products 75 231 (22.3) Gypsum, Stone, Sand supplemental heating.
& Gravel 70 055 (2.1)
Rubber Products 67 626 .2 Natural Gas & Petroleum 64 992 (4.0) Canned & Frozen Food 64O28 (17.O) Furniture & Fixtures 55 075 (7.6) Printing & Publishing 29 467 (14.6) Other Diversified 14 Industries 975 261 1.4 6 000 137 (.5)
>; W ;jj; l
is W. E. George, Senior Vice Proaldent-Fossil Power ~ ime schedule and cost
'We're managing for results. y"~ ,#s esmate tamets o e 'o M in hne as And since f uel costs are the
- biggest part of our customers construction continued on the j g. ' b electru, bills. we're buying coal fif th 650 megawatt (MW) ti o ;I at f avorable costs and then v coal-fired unit at our Gibson Station. This unit, planned for squeezing out every Btu we
'"" serace in October 198 2, will be it e last fossil-fuel unit
- requo 7d until the mid- 1990's.
l The coo of the unit, including a scrubbing system for the removal of sulfur dioxide, will be approximately S 450 million or $ 700 per kilowatt. l The rapidly increasing cost of generating capacity over the I last decade dictates the AMOCo Container Company's f acihty necessity of increasing the at seymour. where a half million two efficiency and improving hter sof t dnnk bottles a day ar" availability of all of the forrmut is "Irter-ally" a big prcx1ucer of plastic containers for the beverage, emW dairy and pharmaceutical industries. Units regardless of age. Extra m g .g 5- Ut '* *' dollars spent for maintenance
.,,',r, t' ' #
4 ue.yy 'jS tig { k.- will be substantially less than f4 g,,g. __ _ _ _ _ . _ . the capital costs of a q replacement unit.
. A new winter peak load of
.- y 3,895 MW, up 9.6% from the
,
- hM .
= N previous year's peak, was set on February 11.1981.On a m July 13,1981, a new summer, and all-time, peak of
(' s 3,942 MW was recorded by
~ the system This new peak h ' was 1.2% ahead of the
,, previous summer peak. An O I even higher winter peak of 3,9 2 3 MW was established on January 11,1982.
Current forecasts for the 1981-1992 period project an y average annual increase in
' winter peak loads of 4.1 %
f , compared with f ast year's g forecast of 4.4%. Summer
*< m peak growth is estimated at
^
3.5% annually compared with
. the previous forecast of 3.6%
j{f Kilowatt-hour sales growth
,_~g" during this period is expected j,;*g,Q.*
g to average 3% annually "
;%g:s u wm - ,
L_ .
. 3 These load projections reflect of 113 MW of generating ..
's the loss of power sales of 250 capacity at the Cayuga and
~
MW to Hoosier Energy REC, Wabash River Stations, which !: Inc. which is expected to had been derated in 1980 as a terminate January 31,1982 result of environmental when the first of two 500 restrictions. Replacement of 7 MW units at their new plant is this capacity at today's cost ' placed in commercial would be in excess of $80 '.x operation. In addition, unit million. At year-end, total . I peak a power sales of 152 MW under system capacity, including the #
,,,, ~,
Kentucky-Indiana Power Pool 113 MW mentioned above, +
"" M *""'"E arrangements will terminate was 5,374 MW. 4
- March 31,1982. . .
6 Cost control programs t Tentative arrangements have continued througnout the year. 3 been made to furnish New programs, which help to - 3x0o 1 400 MW for a six-month hold down operating and f period beginning April 1982 maintenance costs, include the - to an out-of-state power pool. use of vibration analysis
- This sale, which would technology to permit early .
./
increase to 500 MW during detection of impending (~, 2,ooo l' 4 the summer months, would be equipment problems, an in-subject to further extensions. house welder training and 'r certification program, adoption ., m Engineering work on a of an avai! ability assurance , SOO-foot stack at the Wabash program and further , River Station was completed computerization of preventive % . ., 1.ooo during the year. This $ 30 maintenance procedures. , million stack is necessary to meet Ens..onmental Protection Fuel costs represent over 40% , ,
; Agency (EPA) criteria for sulfur of the monthly electric bill of y dioxide and particulate
~
our consumers. Thus, any o 1971 73 75 77 79 81 82* emissions. Without this stack, steps to reduce or hold the
' reflects January 11,1982 peakload the operation of the six price of coal purchased and to ,
of 392 3 megawatts. generating units at this station squeeze more energy from - ; aggregating 753 MW could be each pound of coal help to l~ severely curtailed. While delays hold down electric bills. Long- : -- , in receiving EPA approvals will term coal contracts have make it impossible to meet the helped to reduce fuel costs. ^ December 1982 completion Our coal-fired generating ',,c i - deadline, alternatives to permit station efficiency for the last normal plant operation pending several years has been among ' J completion of the stack are the best in the nation. .y .4 being evaluated. During the year, the industry i t , Innovative Company- experienced a 72-day strike by engineered design the United Mine Workers. Prior ? modifications on precipitators to the strike, the Company had
~'
have resulted in the recovery built up a 140-day supply of coal and no curtailment of service was necessary. , 16 e4
I ~. 3
- p. s y
+- :
f 3 Sath W. Shiolds, rogress at Marble Hill was Ssnior Vice President-Nucisar Division , cfll{ekQ j '" ; hl,h$ I dramatic as non-safety-related work continued and
' Building a nuclear team and '
- j 'j work in nuclear safety-related irnplementing programs to ! areas was fully resumed.
assure high quality i Significant construction construction at Marble Hill was milestones achieved by year-1 our major ef fort last year. end included placement of the Safety is the bottom line. dome on the Unit 1
! , containment building and the erection of its 2 30-ton crane. !
I Cooling towers for both units
, are substantially complete and the 345 KV switchyard was energized in Januery 1982. i
! Since the restart of safety-l related work, over 28,000 t cubic yards of concrete have f been placed in safety and non- ) safety construction areas. i Major milestones e>.pected in j 1982 include completion of l Unit 1 containment building concrete work, setting of the Unit 1 reactor vessel, erection l
; of the Unit 2 crane and the l placement of the Unit 2 dome.
,, At year-end, site personnel totalled 2,869, including 744 7 full-time engineering,
. =. ,
g construction management, y g.f} 7,3 quality assurance and f'W$ $ ' + - _p%-34', , ~ operations personnel as well as 2,125 craft workers and contractor support personnel. At peak construction, total Q ~ employment will be approximately 3,500. 144 r. fyu ..
~
y _
-' +
At Harman-Motive's Martinsville plant.
- Q%fMe& . ~ nearty 20.000 speakers for use in
. T N *h F ;4DT auto radeos, hi-fi stereo systems and in telephones are produced each day 17
- Q yT'L f. ~
, .e L,s y;j '~
iCG _ _ . _ _
l In depth reviews of the project Despite this increase, the The Company believes the by the Nuclear Regulatory revised estimate compar s current time schedules for late Comnussion confirmed f avorably with the costs of 1986 and 198 7 in-service progress maA in quality other nuclear plants presently dates are achievable and that assurance and project under construction Even more present cost estimates are rnanagement areas in a importantly, electricity f rom reasonable. A review of project detailed inspection report these uruts will cost schedules and cost estimates issued by NRC Region 111 in significantly less than f rom is scheduled to be completed October 1981, the federal ' coal-fired units built in the in April 198 2. agency stated that the same time frame Company had reorganized its Marble Hill project considerably and ef f ectively' and the? the success of ( orograms f or assuring proper construction 's exemplified by i the quahty of Work being , accomplished in the l construction areas. The report l concluded by saying .the site l managers have a thoroughly j ( comprehensive commitment to ' - quahty construction and .- engineering and it is their clear ; , under standing that senior % ; management f ully supports this ! consideration h . ,C Revised cost estimates for the l y
~
Marble Hill project were ! j announced in October to reflect increased costs of ! finaricing during the construction penod The total project cost is now estimated j at $ 4 3 bilhon, up $ 900 l nullion f rom previous estimates The Company's , 8 3% share of these units will f , be $ 3.5 5 billion, up f rom I
$ 2.8 5 bilhon At December 31,1981,$695 milhon had j a heen expended for the first j ",^ s [g; urut and $ 351 milhon for the I w Dh
+-U . Ash ]! ,
second unit. I4*ha i y' $
~
, l3 e
- V, Electnc grain drying like this operation on the Metz brothers' farm in north- ;
eastern Decatur County helps Hoosier farmers mprove corn qualrty as weia lb as profits
Jon D. Noland, ate actions and necessary Plans to sell 50% of Gibson Sanlor Vice President legal and financial and Gsneral Counsel Station Unit 5 to the Wabash documentation have become a Valley Power Association, Inc.
"Our first priority is to help major part of the Legal maintain acceptable levels of (WVPA) and the Indiana Department's work load. With Municipal Power Agency revenue and earnings through continuing high capital costs the prosecution of rate cases (IMPA) were announced in and inflation's eff<- n 1981. These plans reflect and to facilitate financing operating expenses, more ownership objectives of major arrangements. In both cases, frequent rate requests will be wholesale customers and the timely legal action is critical to necessary in the future. Company's policy of financial health."
encouraging such customers to e=. <g A retail rate increase request is participate in the financing of
- 1. '.yg$M. y-e[m j' p[ r ..w '
e, . ,;. rh 'y[p . k $ expected to be filed in the first facilities used to serve their 1,-g,
. .- h[n .
quarter of 1982 and a wholesale rate filing is loads. WVPA is a group of 24 rural electric cooperatives
- ~ " -
tentatively scheduled for the while IMPA represents a group
- ;.? latter part of 1982. The of 16 municipal Indiana f ,;. . ; i
-~ amounts of such requests, as utilities.
{ N, 3 m*1HDM-- C
. 4 f.
j (g o yet undeterminad, will include the addition of the fifth Gibson Each Group would purchase an y unit to the Company's rate approximate 25% ownership [- \ J.- ] base. Y interest in the Gibson unit. L M N Negotiations on ownership and [
' g-Rate approvals in 1981 were operating agreements are in 1
. ' p [. '. significant and timely. On process and are expected to
.. . ; .- June 10, the Public Service be consummated by
..y{. ,
-{y..<s: .
Commission of Indiana granted mid-1982. These agreements J ; .'- , e ' .k+ - . a 21% increase in our retail will include " buy-back" g..
\
..y
(.y .
..t rates totalling $ 112.7 million provisions under which the
- annually in response to the Company will purchase
. .. . .. . '~
Company's December 1980 declining portions of the output request for a 23% increase of of the plant owned by WVPA
$ 119.6 million. and IMPA from October 1, 1982 through the in-service in October, the Company and date of Marble Hill Unit 2 in rate of return on year-end net its wholesale customers 1987. Estimated proceeds plant in service and inventon,es reached an agreement which from the sale will approximate
"# increased wholesale rates $22 $230 million of which $ 210 million on an annual basis, or million is expected to be 22%, effective January 1, received in late 1982.
;.10% 1982; this agreement is v 'r i subject to Federal Energy in January 19 8 2, tne Regulatory Commission Company sold $ 31.5 million of
'g" 8 approval. transmission and distribution facilities to WVPA under agreements providing for 6
proportionate ownership of such facilities by the Company and WVPA. y 4
~
,g j 2 d
j 19 M O 1977 78 79 80 81
t I I j energy research i' esearch by the electric utility industry is channeled, in large part, through the Electric Power Research Institute (EPRI) at Palo Alto, California. Last year EPRl's research and development budget was
$ 219.6 million, of which Public Service Indiana's share was $ 2.5 million. EPRI currently manages some 1,200 projects carrying a five-year f unding authorization of 7
- . . ' . . ' - 1 l ;;
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,9
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$ 1.3 billion. Projects range f rom generation research for I
,. , systems to f uel cell
%,w e g og :
5: development and work in solar,
...a....
i.
.a ' . , - (:.
. p t. wind and geothermal areas.
.($.
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Research on environmental and
- y. 'Q .7 ' .
y :b [ Y. ? E p: g W..g_. health effects of electric power !
'j ^ L 0- . - ] ' . - .'* fj" .W-generation and transmission is
(-[ - N ),.. J .' -
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.. ._. also ongoing.
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.I.: 4 Commercial operation of a full
't... ( ,
..~9 h,n ' 2,7 l scale Allis-Chalmers Kilngas J
U i -- . ,9 coal gasification model is
"(!
g - '. t p .7 y (; - ](.} 1 . a .. ' ' ."- expected in 198 3. The g .
%p P'4 ] ' ; } .j . : - ;_ . s ' ' '
L: Company and eleven other , a. utilities are supporting this 4 h y .y <.. l g , g -. Q f.y f */ J ';+di 1* h , g . .} r , project located in Illinois. The i ild[ ,-,_' b 4
, n.Tif .,y . 7 Kilngas process converts coal l
', ,. -e y ' ' h - [ , P h .';...; 5 c ' - ). \. .
.p"ir 'd . -l -p
^
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to a low Btu gas and allows the utilization of coal that
,4g,4 1-af. ,l would not otherwise meet 54 environmental emission
-g.
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; n f ' 4./ , :. .
.; . standards.
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[3. . . colorful contemporary design is a hallmark of the sophisticated floor and we,I coverings created by Form lli, a
" .. ' drvision of Regal Rugs, at rts North
,O ' Vernon he.edquarters.
p
/ -
ts 4
i I, management changes company ownership I he Company's 4 2.2 O n Apol Board of Directors 6,1981, the Mr. Campbell, who is also a director, will continue in that a million shares of elected V/ E. George, former capacity and will also be common stock at year.end vice president power, as available to the Company on a were held by 54,9 36 senior vice president - fossil consulting basis. Mr , shareholders, an increase of power. On October 1, Jon D. Campbell's e xpertise in utilit y 4 6.015 f rom the previous year. Noland, formerly a partner in law, his knowledge of the investors owning the an Indianapolis law firm, joined Company and his insight in l Company's preferred stock the Company as senior vice general rranagement matters totalled 4,3 7 3. Approximately president and general counsel, have been invaluable. 44'4 of all shareholders are succeeding Charles W. residents of Indiana or Campbell, who comol6te<1 i RemiC Pattyn senior vice adjoining states and 9 3 N are 40 year career with the president and assistant to the either individuals or f amily Company president. retired Apnl 1 and is groups No single shareholder continuing to serve the owned more than 4% of Company in various matters , outstanding common shares At Kitchens of Sara Lee's egg cracking plant in southern indiana. 750.000 eggs a day are broken, pasteurized and shipped by tank trucks to bakerses in lilinois and lowa
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company employees information ore information about Employment rose to 5 120 f rom at year-end the electnc utihty 4.868 one year earher The industry and the Company is principal increase is due to the available to shareholders. All marining necessary f or the requests for information, . scheduled operation of Gibson including copies of the annual Unit 5 in late 1982, other 10-K report to the Secunties manning increases reflected and Exchange Commission, , Marble Hill engineenng and should be directed operations personnel to: Shareholder Relations, Pubhc Service Indiana,1000 Salanes and vvages increased East Main Street, Plainfield, IN l
$ 16.5 million to S 114 5 46168. f milhon f or the year Employee l
benefits, including retirement, l I hf e insurance, disabihty and l health protection plans, totalled ' ' '
,f-',,- , -. ; ' W , ;. qq ~ . * . 'q ~p
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$ 20 5 milhon compared with 4 - * ,e ;
g .
*," ~
, 'f ' ' ...~l.'$ l
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$ 17 2 milhon in 1980. 1 :
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e t , a -
', j$ Q A new three-year labor n ' .. ; '
/ ; . A-
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agreement with the { .1 g *' ' International Brotherhood of (p } j< , : -
- c, - -
~
Electncal Workers, /J'
~.
+--: :
.- s . r, ' .- ;
i . . . . . ,* . . . _, - n.. - "
- representing approximately -
y- ." 9 ' g. - g 7 - l 2,100 workers, became e -
- 9 ' : x, - a r
r
~ ., s . 1, .
[~,.'-,"
'A'.M' ef fective May 1,1981. The .. % ; ,
(5j
' ^ -
new agreement provides f or : 4 ._ . .. . wage increases of 9.0% in 5 - 7'., f . i . 7 1981 and 9 5% in 1982 and ' - v if" > " ' - l 198 3 as well as benefit O~ 7,,[ d -. .' _- .k - 4. i *'. c- + .. . pp improvements ; / -
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1 At the Bureau of Census data prepara ' tion division eri Jef fersonville. microfilm cameras capture 1980 census data g, The facility processed at>out one-third
. . of the nation's questionnaires bu t
. - - - - . csum
PUBLIC SERVICE INDIANA ! officers board of directors Hugh A. Barker Hugh A. Barker audit committee Chairman and Chef Executwe Offcer Chairman and Chef Executive Offcer W. George Pinnell, chairman Darrel: V. Menscer of the Company Shelton M. Hannig, vice :hairman President and Chief Operating Officer Richard H. Blacklidge W. E. George Richard H. Blacklidge Dagmar Riley Jones Senor Vce President-Fossil Power Retired Publisher, Hugh A. Barker, ex officio Uoyd M. Griffin The Kokomo Tnbune, Kokomo Senor Vice President- Charles W. Campbell Consumer Services Retired Senior Vice President Compensation and i Jon D. Noland and General Counsel nominating committee Senior Vice President of the Company Richard B. Stoner, chairman and General Counsel Melvin Perelman Vernley R. Rehnstrom Shelton M. Hannig Burr S. Swezey, Jr. Senior Vice President-Finance President and Chairman of the Board, Hugh A. Barker, ex officio Seth W. Shields Marsh, Inc., Design and Senor Vce President-Nuclear Divison Construction, Terre Haute William F. Brown Dagmar Riley Jones Unance commMee Voe President-Labor Relatons ader, dahan Uoyd A. Crews Retired Publisher Charles W. Campbell The Bloomington Herald-Telephone Vce President-Constructon enscer aneH and Bedford Daily Times-Mail, Barton G. Grabow Bioomington Vce President-Public Relatons Gerald Hofmockel Darrell V. Menscer Vce President-Fossil Engineenng President and Chief Operating Offcer James H. Pennington of the Company Vce President-Financial Operetons i Richard P. Stein M elv.in Perelman, Ph.D. I Vice President-Public Affairs President, Eli Lilly internatonal William M. Cook Corporation, Pharmaceuticals, Vce President-Northern Divison Indianapolis Willard Twyman W. George Pinnel!, D.B.A. Vice President-Southern Division Executive Vice President, Charles E. Uhl Indiana University, Bloomington Vice President Western Division W. J. Hebble Richard B. Stoner Treasurer Vice Chairman of the Board, Joe E. Rogers Cummins Engine Company, Inc., Secretary Diesel Engine Manufacturing, Columbus l G. W. Roberts Assistant Treasurer and Y' a an e ad, Assistant Secretary L fayette Natonal Bank, Lafayette; Donald W. Schlehuser Chairman of the Board, Comoller Uni n Bank and Trust Company, Delphi James L. Koenig Assistant Comptroller Greg K. Kimberlin Assistant General Counsel 23 l
PUBLIC SERVICE INDIANA 1 responsibility for financial statements The financial statements of Public Service Indiana and other financialinformation included herein are representations of the management of the Company; accordingly, the integrity, accuracy, objectivity and consistency of presentation is assumed by. Company management. Financial statement preparation is in conformity with generally accepted accounting principles and follows accounting policies and principles prescribed by the Public Service Commission of Indiana and the Federal Energy Regulatory Commissicn. In meeting its responsibilities for the reliability of the financial statements, management depends on the Company's system of internal accounting control. This system is designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with the policies and principles described above. The Company also seeks to assure the objectivity and integrity of its accounts by careful selection of its managers, division of responsibilities, delegation of authority and comniunication programs for the entire organization to assure that policies and standards are understood. Management utilizes an internal auditing program to evaluate the adequacy and application of financial and operating controls, compliance with Company policies and procedures and the accountability and safeguarding of Company assets. Management believes that the Company's accounting controls provide reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected within a timely period by employees in the normal course of performing their assigned functions. The Board of Directors, through its Audit Committee composed of Directors other than Company employees, pursues its responsibilities for these financial statements by meeting periodically with management, tne internal auditors and the independent auditors to assure that each are carrying out their respective responsibilities. The Audit Committee has full access to the internal and independent auditors and meets with them, with and without rr.anagement being present, to discuss auditing and financial reporting matters. Vernley R. Rehnstrom Senior Vice President-Finance and Chief Financial Officer auditors' report To the Board of Directors of Public Service Company of Indiana, Inc.: We have examined the balance sheets of Public Service Company of Indiana, Inc. (an indiana corporation) as of December 31,1981 and 1980, and the related statements of income, earning:: invested in the business, and sources of funds used for utility plant additions for each of the three years in the period ended December 31,1981. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the financial statements referred to above present f airly the financial position of Public Service Company of Indiana, Inc. as of December 31,1981 and 1980, 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 31,1981, in conformity with generally accepted accounting principles applied on a consistent basis. Arthur Andersen & Co. Indianapolis, Indiana, January 27,1982. 24
PU8LIC SERVICE INDIANA statements of income 1981 1980 1979 (thousands) Electric Operating Revenues $720126 $645 688 $628 538 Operating Expenses Fuel . 295 160 276 012 263 000 Purchased power (63 234) (75 252) (80 381) 231 926 200 760 182 619 Taxes (page 30) . 110 980 95 107 119 657 Other operation 93 523 85 744 71 910 Maintenance 56 924 58 372 45 500 Depreciation 70 402 67 960 64 765 563 755 507 943 484 451 Operating income . 156 371 137 745 144 087 Other income-Net Allowance for equity funds used during construction . 63 768 43 963 25 913 Other 3 762 1 951 2 489 67 530 45 914 28 402 Income Beforeinterest Charges . 223 901 183 659 172 489 l Interest Charges 118 472 86 352 65 585 Less allowance for debt funds used @Jring construction . 46 199 25 380 16 086 72 273 60 972 49 499 l Neilncome 151 628 122 687 122 990 l Dividends on Preferred Stock 22 600 22 080 16 896 Common Stock income Available $129 028 $100 607 $106 094 Average Shares Outstanding 37 777 31 383 27 962 Earnings Per Share .. $3.42 $ 3.21 $3.79 statements of earnings invested in the business 1981 1980 1979 (thousands) Balanco January 1 . $223 080 $ 201 565 $161 300 Not income 151 628 122 687 122 990 374 708 324 252 284 290 Deduct Cash dividends Preferred stock 22 577 21 680 16 634 Common stock (1981 -$2.57; 1980-$ 2.44; 1979- $ 2.28 per share) . 97 267 75 813 63 363 Stock issuance expenses . . 6 793 3 679 2 728 126 637 101 172 P2 725 Balance December 31 $248 071 $223 080 $201 565 The accompanying notes are an integral part of these financial statements. 25
PUBLIC SERVICE INDIANA balance sheets assets December 31 1981 1980 (thousands) Electric Utility Plant-original cost in Service Production . . . . $1097 519 $ 1089143 Transmission . .. . 377 231 356 661 Distribution . . . . 503 396 480 408 General . . 67 408 _ 55 970 2 045 554 1 982 182 Accumulated depreciation . 580 528 521 485 1 465 026 1 460 697 Construction work in progress l Gibson Unit 5 . 300 570 177 468 Marble Hill Unit 1 . . . . . 695 332 521 776 Marble Hill Unit 2 350 587 245 747 Other . . 65 173 73 968 1 411 662 1 018 959 Nuclear fuel l Owned . 120 124 76 765 l PIN n;; clear fuel trust 24 100 l 144 224 76 765 3 020 912 2 556 421 Current A.ssets Cash. . . 5 295 3 406 l Temporary cashinvestments . 10 561 i Accounts receivable Utility . ... . 49 423 50 862 Sale of facilities (Note 8) .. . . 43 078 7 771 Deferred fuel . .... 9 062 5 277 Federat income tax refunds . .. . . 18 650 Fossil fuel-at average cost . 82 306 113 665 Materials and supplies-at average cost 29 206 26 153 Other . . . 6 302 6 980 235 233 232 764 Other . . . . . 29 345 19 692
$3 285 490 $2 808 877 The accompanying notes are an integral part of these financial statements.
26
CapitrJization and liabilities December 31 1981 1980 (thousands) Common Stock Equity Common stock-without par value-authorized 60,000,000 shares-outstanding 42,243,515 shares in 1981 and 33,947,808 shares in 1980 .. . . $ 786 213 $ 621 321 Earnings invested in the business . . ..... 248 071 223 080 Total common stock equity . .. 1 034 284 844 401 - Cumulative Preferred Stock (page 29) Not subject to mandatory redemption . . . 235 000 235 000 Subject to mandatory redemption . . ... . 71 000 50 000 Long-Term Debt (page 29) . .. . . .. 1 203 364 980 854 Totalcapitalization . .. . . ... . . . 2 543 648 2 110 255 PIN Nuclear Fuel Trust Obligations (Note 9) . . 24 100 Current Liabilities Long-term debt due within one year . 25 000 75 000 Trust demand notes . . . .. . .. . . 9 957 24 708 Commercial paper . .. .. . . 25 500 Accounts payable . . 129 344 103 866 Accrued taxes . . ... . 36 992 28 632 Accrued interest . . . . . 42 635 33 948 Customers' deposits . . . . 1 593 1 483 245 521 293 137 Other Deferred income taxes . . . . .. 278 856 234 879 Unamortized investment tax credits .. 180 426 159 432. Miscellaneous . .. . . . 12 939 11 174 472 221 405 485
$3 285 490 $2 808 877 l
l l l 27
PUBLIC SERVICE INDIANA statements of sources of funds used for utility plant additions 1981 1980 1979 (thousands) Funds Generated Internally Reinvested earnings Net income . . .. . .. . .. . . .... $151628 $122 687 $122 990 Less cash dividends . . . . ......... .. . 119 844 97 493 79 997 31 784 25 194 42 993 Depreciation . . . . . .. ... ... ........ 70 402 67 960 64 765 Deferred income taxes-net . . .. . . .. 42 853 40 909 29 053 investment tax credit-net . . . .... ..... 26 772 37 967 42 297 Allowance for equity funds used during construction (63 768) (43 963) (25 913) 108 043 128 067 153 195 Funds from Financing and Other Sources Common stock Public of ferings . . . . . ...... . 129 1S6 54 500 49 140 Automatic dividend reinvestment and stock purchase plan . . .. . .. .. .. 24 124 19 917 13 637 Employee stock purchase plans 3 756 3 375 2 130 Preferred stock . .. ... . . .. . . 21 000 50 000 35 000 First mortgage bonds .. . .. . ..... .. 250 000 225 000 55 000 Retirement of first mortgage bonds . .. . . (75 000) (12 000) Net change in working capital and other items Temporary cash investments . .. ........ (10 561) 55 500 Accounts receivable . . . .. . .. . . (37 653) 1 541 (2 982) Federalincome tax refunds . . . . . .. 18 650 (14 250) 6 823 Fueland materials and supplies . . . . . 28 306 (27 655) (31 499) Notes payable . . . . ... . . (40 251) 20 289 5 177 Accounts payable . .... . ... 20 555 (17 157) 29 490 Other items-net . . . . . . . .. 4 136 5 152 2 146 336 258 320 712 207 562 Allowance for equity funds used during construction 63 768 43 963 25 913
$508 069 $492 742 $386 670 t
Utility Plant Additions Construction . . ... . . . . $464 710 $487 099 $364196 Nuclear fuel owned . ... . 43 359 5 643 22 474
$508 069 $492 742 $386 670 The accompanying notes are an integral part of these financial statements.
28
cumulative preferred stock December 31 1981 1980 (thousands) Not subject to mandatory redemption Par value $25 per share-authorized 5,000,000 shares-outstanding 800,000 shares, 4.32% Series . . . .. . . $ 20 000 $ 20 000 600,000 shares, 4.16% Series . .... . . . . 15 000 15 000 Par value $100 per share-authorized 5,000,000 shares-outstanding 150,000 shares, 31/2% Series . .. . .. . . 15 000 15 000 300,000 shares, 7.15% Series . . . . . . 30 000 30 000 350,000 shares, 9.44% Series . . . . . . . . 35 000 35 000 400,000 shares, 8.52% Series . . . ..... . . . 40 000 40 000 450,000 shares, 8.38% Series . ... .. . . 45 000 45 000 350,000 shares, 8.96% Series . . ... . . 35 000 35 000
$ 235 000 $235 000 Subject to mandatory redemption 500,000 shares, 9.60% Series . . . . . $ 50 000 $ 50 000 210,000 shares,13.25% Series (Note 3) .. . 21 000
$ 71 000 $ 50 000 long-term debt December 31 1981 1980 (thousands)
First Mortgage Bonds (Excluding amounts due within one year) Series J, 3 3/8%, due July 1,1982 . . .. .. $ $ 25 000 Series K, 3 3/8%, due January 1,1984 ..... .. 25 000 25 000 Series L, 4 7/8%, due October 1,1987 . .... . 35 000 35 000 Series M, 4 3/8%, due February 1,1989. . .. 25 000 25 000 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 Series 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 1,2004. . . 50 000 50 000 Series W, 9.60%, due August 1,2005. .. ... 80 000 80 000 Series Y, 7 5/8%, due January 1,2007 . . . 85 000 85 000 Series Z, 81/8%, due October 1,2007 . . 85 000 85 000 Series AA, 8 7/8%, due October 1,2008 , 100 000 100 000 Series B8, 6 5/8%, due March 1,2004(Pollution Control) . 5 000 5 000 Series CC, 91/2%, due May 1,1985. . 50 000 50 000 Series DD, 14%, due March 1,1987 . . . . 100 000 100 000 l Series EE, 121/8%, due September 1,1990 . . . 125 000 125 000 Series FF, 14 3/4%, due February 1,2011 . 125 000 Series GG,15 3/8%, due serially August 1,1986 1989 50 000 Series HH, 15 3/4%, due December 1,2011 . 75 000 Total first mortgage bonds . 1 185 000 960 000 Pollution Control Note, 5 3/4%, due December 15,1989 to 2003 . . 22 000 22 000 Unamortized premium and discount-net . . (3 636) (1 146) 29 Total . . .. . . .. .. $1203 364 $980 854
PUBLIC SERVICE INDIANA taxes charged to operating expenses 1981 1980 1979 j (thousands) 1 Federal and State income i Currently payable .. .. . . . .. . $ 7 100 $ 7 795 $ 19 552 Refundc-investment tax credit carryback (Note 1(c)) ... .. (18 650) (4 400) Deferred-net . .. . . .. . .. 42 853 40 909 29 053 Investment tax credit-net . .. ..... 26 772 37 967 42 297 76 725 68 021 86 502 State, Local and Other Real estate and personal property .. . 16 239 10 999 18 197 Indiana grossincome . .. . .. 10 600 10 137 10 296 Social security . . . .. .. 6 773 5 320 4 241 Other . . .. .. .. .. ..... .. . 643 630 421 34 255 27 086 33 155 Total taxes charged to operating expenses $110 980 $95107 $119 657 Taxes per dollar of operating revenue . ... ... 15.40 14.70 19.00 notes to financial statements-annual report 1981
- 1. Summary of Significant Accounting Policies:
la) Depreciation and Maintenance The Company's provision for depreciation is determined by using the straight-line method ap-plied to the cost of depreciable plant in service. The composite depreciation rate was 3.5% for 1981,1980 and 1979. Maintenance and repairs of property units and renewals of minor items of property are charg-ed to maintenance expense accounts except repairs of an insignificant amount charged to clearing accounts. The costs of renewals and betterments of units of property are charged to utility plant accounts and the original cost of depreciable units retired and cost of removal, less salvage recovered, are charged to accumulated depreciation. (b) Allowance for Funds Used During Construction (AFUDC) Effective October 1,1981, the Company adopted an AFUDC pretax rate of 10%% with semi-annual compound:ng; the rate was increased to 12 % % January 1,1982. The previous 9% % AFUDC pretax rate, without compounding, had been in effect since January 1976. This change had no material effect upon net income in 1981. The related income tax effects applicable to the capitalized interest component are recorded as deferred income tax ex-pense. (c) Federal and State income Taxes income tax timing dif ferences, due primarily to accelerated tax depreciation and deduction of certain utility plant costs capitalized rer books, receive comprehensive income tax allocation treatment in determining tne provision for taxes. 30
n:t:::s to financial statements-continued The Company is deferring investment tax credits and amortizing the accumulated balance over the usefullives of th3 property which gave rise to such credits. Investment tax credits generated in excess of the investment tax credit limitations established by law have been recorded as a refund of prior years' taxes. For the year 1981,
$ 12.9 million of unused investment tax credits will be carried forward to offset future years' tax liabilities as per-mitted by law.
The Company claimed an additional 1 % % investment tax credit for the Investment Tax Credit Employee Stock Ownership Plan for the year 1979; for the year 1980, $ 1.5 million was claimed and $4.3 million was carried for-werd to future years; for the year 1981, approximately $4.3 million will be claimed and $ 5.8 million will be car-risd forward. (d) Unamortized Debt Discount, Premium and Expense Debt discount, premium and expense on outstanding long-term debt is being amortized over the lives of the respective issues. (s) Operating Revenues and Fuel Costs The Company records revenues as billed to its customers on a cycle billing basis. Revenue is not recorded for energy delivered and unbilled at the end of each fiscal period. Fuel cost charge factors, applicable to all of the Company's metered kwh sales, are based on estimated costs of fuel; as actual costs of fuel are determined, any differences are deferred and billed in subsequent months.
- 2. Rites. On June 10,1981, the Public Service Commission of Indiana (Indiana Commission) granted the Company a 21% increase in retail rates. The approved rates were designed to produce additional annual revenues of
$112.7 million; the Company had originally petitioned the Indiana Commission for a 23% increase totalling
$ 119.6 million. The state appointed Utility Consumer Counselor has appealed the Indiana Commission's order in this case. The Company believes the order will be upheld.
On August 28,1981, a filing for increased rates to wholesale customers was made with the Federal Energy Regulatory Commission (FERC). The proposed rates reflected a 29% increase and aggregated $29 million in ad-ditional annual revenues; on October 20,1981, the Company and its wholesale customers negotiated a settle-ment, subject to FERC approval, which would produce additional annual revenues of approximately $22 million effective January 1,1982.
- 3. Cipital Stock. As of December 31,1981,3,805,889 shares of common stock were reserved for issuance under the Automatic Dividend Reinvestment And Stock Purchase Plan (ADR), Employee Stock Purchase Plan (ESPP) and Investment Tax Credit Employee Stock Ownership Plan (ESOP).
The changes in common stock for 1981,1980 and 1979 were as follows: Shares issued Amount 1981 1980 1979 1981 1980 1979 (millions) Public Offerings . . . 6.7 2.7 2.0 $ 134.2 $ 56.4 $ 50.5 ADR . . 1.3 1.1 .6 25.3 20.8 14.3 ESPP and ESOP . . . . .3 .4 .2 5.4 9.0 6.9 8.3 4.2 2.8 $ 164.9 $ 86.2 $ 71.7 i Charter provisions limit dividends on common stock to 75% of net income available therefor if the ratio of com-mon stock equity to total capitalization of the Company is less than 25% and to 50% of such net income if such ratio is less than 20%. As of December 31,1981, the ratio of common stock equity to total capitalization was 41%. ) On December 29,1981, the Company sold 450,000 shares of 13.25% Cumulative Preferred Stock (par value
$100 per share) of which 210,000 shares were issued on that date and the remaining 240,000 shares will be 31 issued on March 1,1982. Proceeds will be applied to the Company's construction program, e
PUBLIC SERVICE INDIANA notes to financial statements-continued
- 4. Long-Term Debt. The sinking fund requirements with respect to first mortgage bonds of the Cumpany outstand-ing at December 31,1981, aggregated (exclusive of redemption premium) $8.1 million payable on or prior to May 1,1982, $ 8.6 million in 1983 and $8.3 million in 1984,1985 and 1986. The Company has met and ex-pects to continue to meet future sinking fund requirements by certifying bondable property additions.
First mortgage bond maturities are $25 million in 1982, $25 million in 1984, $50 million in 1985 and $12.5 million in 1986.
- 5. Pension Plan. 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 $5.5 million at January 1,1981, and is being funded over a period of twenty-five years. The Company's policy is to fund pen-sion costs accrued, which amounted to $ 6.0 million in 1981, $ 5.7 million in 1980 and $4.6 million in 1979. In making the actuarial calculations, interest assumptions of 6% for 1981 and 1980 and 51/2% for 1979 were used.
January 1 1981 1980 1979 (millions) Actuarial present value of accumulated plan benefits Vested . . ... $ 54.2 $ 51.5 $ 45.4 Non-vested . . . . .6 .5 .5
$ 54.8 $ F2.0 $ 45.9 Plan assets available for benefits . . .. . . $ 71.1 $ 63.4 $ 57.1
- 6. Short-Term Borrowings and Compensating Balances. At December 31,1981, the Company had bank linee of credit aggregating $ 172.1 million, of which $ 59 million required compenseting balances during 1981 averaging
$4.1 million; $ 53 million had commitment fees for the lines and compensating balances for any borrowings; $48 million had commitment fees only and $12.1 million was available without compensating balances or commit-ment fees. Bank loans under these lines are at the bank's prime lending rate. The sale of the Company's commer-cial paper is supported by a portion of these lines of credit.
In 1981, the Company entered into a nuclear fuelleasing and credit arrangement (see Note 9). This arrangement also permits the Company to issue promissory notes for general corporate borrowing; $90 million was available at December 31,1981. At December 31,1981, the Company had a trust demand note arrangement with a commercial bank for $10 million. Amounts borrowed are callable on demand and interest on borrowings is the current rate for certain high quality, directly placed commercial paper. There is no compensating balance or fee requirement associated with this credit arrangement. The Company holds a portion of its previously mentioned bank lines of credit available to cover any call for payment. For the years 1981 and 1980, the Company had trust demand notes, commercial paper and bank loans outstanding at various times as follows: Weighted Weighted Maximum Average Average Average Amount Amount interest Interest Outstanding Outstanding Rate , Balance at Rate at at any during the during the Dec. 31
- Dec.31 Month End' Year
- Year 1981 ,
Bank Loans .. .. . .. ... $ 32.6 $ 2.1 13.8% Commercial Paper . . . . . ... . 87.4 18.4 15.1 Trust Der: and Notes . . . .. .. . $ 10.0 13.1% 24.8 24.6 15.5 1980 Bank Loans . . . $ 16.6 $ 2.2 13.7% Commercial Paper $ 2 5.5 18.2% 72.0 16.8 10.5 32 Trust Demand Notes . 24.7 17.2 24.8 24.0 12.6
- millions
i l t l
- 7. Inceme Tax Expense. Deferred income taxes (net) are due to timing differences between book and income tax deductions. Deferred income taxes arising from the debt component of AFUDC were $21.5 million for 1981,
$11.7 million for 1980 and $7.4 million for 1979; deferred taxes due to accelerated tax depreciation were
$15.3 million for 1981, $ 18.1 million for 1980 and $17.5 million for 1979; and deferred taxes due to the capitalization of certain administrative costs were $ 5.8 million for 1981, $4.3 million for 1980 and $3.6 million for 1979.
The computation of combined federal and state income taxes, including amounts in other income-net, is as follows: 1981 1980 1979 (millions) Book net income . .. . . $ 151.6 $ 122.7 $123.0 Income tax expense . .. .. . 80.0 69.7 88.6 Pretax income . . . .. . .. 231.6 192.4 211.6 Less: AFUDC-nontaxable equity component . 63.8 44.0 25.9 Other . ... ... . .. . (.1 ) 2.1 (.4) Taxable income . . 167.9 146.3 186.1 Federal and state income taxes at 47.62% statutory rates . . . $ 80.0 $ 69.7 $ 88.6
- 8. Construction and Nuclear Fuel Commitments. The Company estimates that $ 2.3 billion will be expended for con-struction purposes and $ 254 million for nuclear fuel (excluding nuclear fuel owned by PIN Energy Trust) for the period 1982-1985.
The Company owns and will be entitled to 83% of the output of the two Marble Hill Nuclear Station units; the re-maining 17% is owned by Wabash Valley Power Association, Inc. (WVPA). The ownership agreement between the Company and WVPA provides that each party shall be responsible for the financing of its ownership share of project costs. Northern Indiana Public Service Company will purchase 10% of the capacity of Unit 1 from the Company from the date of commercial operation through September 30,1957. The in-service dates for the two Marble Hill units are scheduled for late 1986 and 1987. The total project is cur-rently estimated to cost $4.3 billion, compared with the previous estimate of $3.4 billion; the Company's 83% ownership interest increased from $2.85 billion to $3.55 billion.
; Due to certain construction problems at the Marble Hill project, the Company suspended all safety-related work in August 1979. In response to a Nuclear Regulatory Commission (NRC) confirming order, outlining necessary steps to resume safety-related work, the Company has restructured its project management and quality assurance staffs and added a substantial number of personnel with extensive commercial nuclear experience.
The Company resumed safety-related work on March 27,1981, and expects that the confirming order will be rescinded by the NRC in the near future. In December the Company billed WVPA for $31.5 million of transmission and distribution facilities under provi- , sions of agreements pertaining to proportionate ownership of such facilities; payment was received in January 1982.
- 9. Leases. On December 4,1981, the Company entered into a nuclear fuellease arrangement with the PIN Energy Trust which has a borrowing capability of up to $ 150 million for the acquisition of nuclear fuel. Payments to the Trust will begin when fuel is consumed, which is currently estimated to be late 1986.
Rentals incurred under financing leases not capitalizeo and operating leases are less than one percent of electric l operating revenues. The effect on the financial statements, if all financing leases had been capitalized, is not material, 33
1 PUBLIC SERVICE INDIANA notes to financial statements-concluded
- 10. 1981 and 1980 Quarterly Financial Data (Unaudited).
Operating Operating Net Earnings Quarter Ended Revenees' income' income
- Per Share j 1981 March 31. . . . . . . . . $ 18 E .'J $ 38.0 $ 34.0 $ .79 June 3 0 . . . . . . . . . . 154.5 31.4 27.8 .58 September 30. . . . . . 195.3 45.2 42.5 .97 December 31 . . . . . . 184.7 41.8 47.3 1.08 Total $ 720.1 $ 156.4 $ 151.6 $3.42 1980 March 31. .... .. $ 168.1 $ 39.0 $ 3 5.1 $ 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 $ 122.7 $ 3.21
- millions i
l l 34
l m:n gement's discussion and analysis of financial condition l cnd rcsults of operation l kwh sales and revenues Total kwh sales decreased .6% in 1981 compared with increases of 3.7% and 4.9% for 1980 and 1979, respective-ly. Mild:r weather conditions through most of 1981 and the continued slack in economic activity, including fewer housing starts, were the primary factors affecting kwh sales. Sales data for the periods were as follows: increata (decrease) over prior year 1981 1980 1979 Kwh Sales Domestic , (3.5)% 6.0% .7 % Commercial - 1.7 4.7 7.0 Industrial (.5) ( 4.2) 8.2 Total Retail (1.0) 1.2 5.3 Sales for Resale 1.0 13.1 3.3 Total Sales (.6)% 3.7% 4.9 %
~
Operating Revenues 11.5 % 2.7% 16.7% R v:nue growth reflects incicased kwh sales in 1979 and 1980, current recovery of increased fuel costs and rate in-crris:s which were oifectiva in 1979 and 1981. full c:sts - / .
,1 Fu:1 costs per million bru were 107.29 W 1979,116.70 in 1980 and 129.5C in 1981. Increased costs in 1979 and 1980 reflect escalating foss(fuel prices and increased generation, while 1981 cost increases were due primarily to escal: ting fo'ssil fuel prices. ,
ether p:wer sales Tha Company is a seller of chpscity io the Kentucky-Indiana Pool; this sale of capacity will terminate March 31,1982. Short-t:rm power sales /due in large part to temporary capacity shortages of other electric utilities, have had a favorabla impact on o,3 crating results. tax 0a incoma tax expense and its components varied due to fluctuations in taxable income and investment tax credit provi-sions. While construction levels have produced increased investment tax credits for each of the years, the decreases for 1980 and 1981 reflect the Company's inability to fully utilize applicable investment tax credits for the year. Un-us:d investment tax credits are carried forward to offset future years' tax liabilities. The decrease in state, local and othsr tax expense in 1.980 reflects adjustmerits of real estate and personal property tax expense for prior years. cperati:n and maintenance- - Oth:r operation and maintenance expenses have increased due to the effect of inflation on operating costs, customer growth, the addition of a new generating unit at the Gibson Station in 1979 and additions to the Company's transmis-sion and distribution systems. ~ cirninga Tha increase in the combined debt and equity portions of Allowance for Funds Used During Construction (AFUDC) rsflects the rising levels of construction work in progress at the Gibson and Marble Hill Stations, the increase in the rate from 9% % to 10%%, effective October 1,1981, and the adoption of semi-annual compounding. Increases in interest charges and preferred dividends reflect the sale of additional securities to finance the Company's construction program, increases in operating expenses, higher financing costs and the increase in the number of pr:ferred and common shares outstanding, offset in part by modest sales increases, resulted in a decline in earnings through 1980 and the first half of 1981. With the implementation of the June 1981 retail rate increase and the change in AFUDC effective October 1,1981, earnings increased to $ 3.42 per share for the year ended December 31,1981. rita increases } On Juns 10,1981, the Public Service Commission of Indiana (Indiana Commission) granted the Company a 21% in-crease in retail rates. The approved rates were designed to produce additional annual revenues of $ 112.7 million; the Comp:ny had originally petitioned the Indiana Commission for a 23% increase totalling $ 119.6 million. On an original 35 7 cost basis, the rate of return allowed was 12.19%; the return, requested and allowed, on common equity was 16.75%. The state appointed Utility Consumer Counselor has appealed the Indiana Commission's order in this case. Thi Company be:ieves the order will be upheld.
PUBLIC SERVICE INDIANA a l' managerstit'a[ discussion and analysis of financial condition 4 x cnd results cf operation-continued
' A filing ior increased rates to wholesale customers was made with the Federal Energy Regulatory Commission (FERC) on August 28,1981. The proposed rates reflected a 29% increase and aggregated $29 million in additional annual l,( ,
revenues; on October 20,1981, the Company and its wholesale customers negotiated a settlement, subject to FERC rppravai, which would produce additional annual revenues of approximately $22 million commencing January 1, 1 b82.
, ,The Chmpany expects to file for a retail rate inciease in the first part of 1982 reflecting, in large part, the scheduled ad-V ' dition of Gibson Unit 5 in October 1982. The amount of the requested rate increase has not been determined. A J whcissale rate filing is tentatively planned in the latter part of 1982. It is the Company's intention to file more frequent-ty for,'*make whole" rate increases,
,s s s
,,19824989 construction program and financing The Compin/ hoc a continuing program of major construction to provide f acilities to meet expected load growth and to replace properties as they becomo obsolete ' Expenditures for plant additions and nuclear fuel owned in 1981 totalled
$500 meio9 comoared with $493 million in 1980 and $387 million in 1979. Estimates for construction and nuclear 1
fuel axpenditures. idcluding AFUDC, for the period 1982-1985 are presented in the table below. ( . i ,, i nuclear construction fuel (a) total (millions) l 1982 (b) $ 469 6 14 0 483
, 1983 .628 34 662 1' 1984 650 81 731 1985 556 125 681
$2 303 $254 $2 557 las Excluivo of a $150 m;llion nuclear fuel trust Isasing arrangement.
.. x (b) ConstrucNon expemitures reflect a reduction of $210 million for 1982 proceeds applicable to the Gibson Unit 5 sa 4 dscussed belod. ,
Since 1976 the Company has used ar AFUDC rate of 9 % % (pretax rate without compounding). To more adequately i reflect the cost of debt and equity capital used in construction activities, effective October 1,1981, the Company (; ador9ed a 10% % AFUDC pretax rate, with semi annual compounding; the AFUDC rate was increased to 12% % as of ) ', Jandry 1, I')32, which reflects the 16.75% retum on common equity granted in the June 1981 retail rate order. As a )' , resuir of these changes, including the effect of semi annual compounding, the Company's 83% ownership interest in ). the Martie H il nuclear project is now estimated to cost $3.55 billion, compared with the previous estimate of $2.85 billion The total project cost is currently estimated at $4.3 billion. In February 1981, the Company announced that it had begun preliminary discussions with Wabash Valley Power Association, Inc. (WVPA) and Indiana Municipal Power Agency (IMPA) for the proposed sale of up to 50% of the Gib-son Unit 5 generating capacity. Letters of intent to purchase an undivided 25% interest in the Gibson Unit 5 generating capacity uve been signed by both WVPA and IMPA and negotiations are continuing. In Decerther 1981, the Cornpany entered into a nuclear fuellease arrangement with PIN Energy Trust. Proceeds of up to $150'mation will be made availabic to the Trust for the acquisition of nuclear fuel. Of the funds required for construction and nuclear fuel during the 1982-1985 period, exclusive of the WVPA and IMPA payments expoeted in late 1982 for their mterests in Gibson Unit 5 and the nuclear fuel trust lease arrangement, it is aresently estimated that $1;1.balion (41%I Vd'l be internally genermd and $1.5 billion (59%) will be provided through the sale of securities. The Company also intends to re.mance 5100 million of first mortgage bonds which
, mature prior to J muary 1,1986.
generst problems of the industry 1 The ekstric utility inc'ustry is experiencing prob 8emt, si,ch as obtaining adequate rate increases, financing large con- ( struction programs ciuring inflationary puiads, obtaining sufficient capital on reasonable terms, compliance with en-vironmental regulations, increasing costs of fossif f ud, delais in licensing and constructing new f acilities and ef fects of enerCY conservation. Tha severity of each of these problems varies among different companies and areas. While the 3G Company considers its own experience to date in relation to these problems has been relatively favorable, there is no assurance that such problems will not adversely affect the Company in the future.
capital r: sources and liquidity Tha principal sources of internal funds are provided by retained earnings (less AFUDC which is a non-cash item except for such amounts collected through rates), depreciation, deferred income taxes and investment tax credits. Dus to the size of the Company's construction program, the lengthy time frames for completion of Gibson Unit 5 and th2 two Marble Hill units (estimated in service dates of 1982,1986 snd 1987, respectively) and the rising cost of crpit:1, the percentage of net income represented by the non-cash portion of AFUDC will become increasingly larger. If Ed: quits rate increases are not received on a timely basis, internal cash generation will decline and a larger proportion of c;pitil from external sources will be required to finance the Company's construction program, in November 1981, thrza investment rating services informed the Company that they had lowered their ratings by one rating category on th3 Company's ou standing first mortgage bonds and preferred stock due to the Company's requirements for signifi-cint outside finar'cing in connection with its construction program and lower interest and preferred dividend cov:rrgIs. Th3 inclusion of construction work in progress (CWIP)in determining utility rates would significantly reduce construc-tion costs by providing a higher percentage of available internal funds thereby reducing the amount of capital needed
, from ext:rnal sources. Adoption of this concept would substantially reduce the Company's 1982-1985 construction estimitzs and improve the Company's interest and preferred dividend coverages.
Tha Company's 1982-1985 construction program will require substantial amounts of additional common stock fi-nancing. Virtually all new common shares issued by the electric industry in 1981, including those of the Company, w:ro sold below book value. The continued sales of common stock below book value dilutes the present shareholders' invzstment and requires the sale of more shares of stock than would otherwise be required. The Company's long-term capitalization ratio objectives are to maintain an even balance of debt and equity capital. The issuance and sale by the Company of preferred stock and first mortgage bonds are subject to compliance with 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 cir-cumstancet to issue preference stock, debentures or other types of securities. The sale of such types of securities could require higher preferred dividend and interest rates. Und:r short term financing arrangements, the Company has authority from the Public Service Commission of Indiana to issue promissory notes payable in not less than 12, nor more than 24 months, from the date of issuance in amounts not exceeding $275 million outstanding at any one time prior to December 31,1983. (See Note 6 of " Notes to Finan-ciel Statements" for details of credit arrangements.) dividends Dividends have been paid each year since the Company was formed in 1941 and have increased each year for twenty-ons consecutive years. It is ths Company's belief that the regular payment to shareholders of a liberal portion of earnings available for common stock as dividends, as well as orderly increases in the dividend rate, is in the best interest of the Company, its shrreholders and the public served. While the Company cannot predict future dividend actions,it believes that the continuation of past dividend practices l will b3 desirable in light of the Company's financing needs in the next several years, i l inflati:n i Th3 estimated effects of inflation on the Company's operations are presented on pages 39-41 " Supplementary Data on Changing Prices". The continued impact of infiation on operations, as well as on construction costs, will require p:riodic rate adjustments to maintain adequate earnings levels. 37
PU8LIC SERVICE INDIANA management's discussion and analysis of financial condition cnd results of operation-concluded selected financial date 1981 1980 1979 1978 1977 Operating revenues * $ 720.1 $ 645.7 $ 628.5 $ 538.4 6 470.9 Net income' 151.6 122.7 123.0 87.7 88.5 ~ Commore stock Earnings per share 3.42 3.21 3.79 2.92 3.28 Dividends paid per share 2.57 2.44 2.28 2.13 2.01 Total assets' 3 285.5 2 808.9 2 342.1 2 044.4 1 724.5 Cumulative preferred stock subject to mandatory redemption
- 71.0 50.0 Long-term debt
- 1 232.0 1 057.0 832.0 789.0 689.0
'milisons 38
suppl:mentary data on changing prices Supplem:ntary Data on Changing Prices (Unaudited). The following supplementary data are provided in accordance with the requirements of the Financial Accounting Standards Board (FASB) Statement No. 33, Financial Reporting and Changing Prices, for the purpose of reporting certain 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 ef fect when the transactions occurred; the FASB statement requires 11e statement of income and certain other information to be prepared on two cdditional bases: the constant dollar basis and the current cost basis. The data presented in the following statements should be viewed as on estimate of the effect of changing prices, rather than as a precise measure. The constant dollar basis represents the restatement of historical costs to current-day price levels, utilizing the Consumer Price Index for All Urban Consumers (CPI). The current cost basis represents the restatement of historical costs of net utility plant to current reproduction cost utilizing the Handy-Whitman index of Public Utility Construction Costs. Changing prices impact common sttek (quity in two whys. First, under ratemaking procedures prescribed by the regulatory commissions to which the Company is subject, only the original cost of utility plant is recoverable in revenues as depreciation. The cost of utility p' ant, determined on the constant dollar and/or current cost basis in excess of original cost, is not presently recoverable in rates as depreciation, nor as a deduction for income tax purposes, and is defined as a reduction to net recoverable cost. Second, " monetary assets", such as cash and claims to cash, lose purchasing power during inflationary periods because monetary assets buy fewer goods and services as the general price levelincreases. Conversely, " monetary liabilities", such as long-term debt, gain because the liabilities will be repaid by dollars having less purchasing power. The not change in monetary assets and liabilities (which excludes utility plant, unamortized investment tax credits and common stock equity) is reflected as a 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 in generation is not restated due to the current recovery of actual fuel costs through fuel cost charge factors or adjustments in basic rate schedules. Depreciation expense has been restated by applying current Company depreciation rates to the indexed utility plant amounts. As shown on the accompanying five-year summary, earnings per share in 1981,1980 and 1979 have been restated to reflect both the reduction due solely to the higher depreciation expense and to reflect the totalimpact of changing prices on common stock equity under the two bases. I 39 \ . _ _ ___________ __ _ a
PUBLIC SERVICE INDIANA supplementary data on changing prices - continued ctatements of income For the Year Ended December 31,1981 Current Cost Basis Historical Constar't Dollar Basis (Based on Current Basis (Based on CPt index) Reproduction Cost) (average 1981 dollars) (millions) Cperating Revenues $ 720.1 $ 720.1 $ 720.1 Operating Espenses Fuel 295.1 295.1 295.1 Purchased power (63.2) (63.2) (63.2) Taxes 111.0 111.0 111.0 Other operation and maintenance 150.4 150.4 150.4 Depreciation 70.4 153.2 168,4 563.7 646.5 661.7 Operating income 156.4 73.6 58.4 Interest Charges (net of allowance for funds used during construction and other income - net) 4.8 4.8 4.8 Net income 151.6 68.8 53.6 Dividends on Preferred Stock 22.6 22.6 22.6 income Available for Common Stock $ 129.0 $ 46.2 $ 31.0 Earnings per Common Share $ 3.42 $ 1.22 *
.82 Other impacts of Changing Prices increase in current reproduction cost of net utility plant $ 448.6 Less increase in net utility plant based on CPI Index 353.4 increase in current reproduction cost over CPI 95.2 Amount of restated utility plant costs over original cost not recoverable through rates (reduction to net recoverable cost) $(150.6) (230.6)
Gain due to repayment of debt with dollars of less purchasing power 142.5 142.5 income Available for Common Stock (As Adjusted) $ 38.1 $ 38.1 Eamings per Common Share (As Adjusted) $ 1.01 $ 1.01 40
supplementary data on changing prices - concluded Tha following summary is a five-year comparison of selected supplementary financial data (historical) which have been rgatttId in average 1981 dollars (except actual data where indicated): Years Ended December 31 1981 1980 1979 1978 1977 (millions) Cper: ting revenues Actu11 $ 720.1 $645.7 $628.5 $538.4 $470.9 As adjusted by CPI Index $ 720.1 $712.7 $787.6 $750.6 $706.8 Con; tant dollar information (Based on CPI Index) N:t income $ 68.8 $ 58.7 $ 90.8 Ezrninga per common share As cdjusted for additional depreciation 1.22 1.09 2.49 As cdjusted for totalimpact on common stock equity 1.01 (.45) .42 Nzt asssts (common stock equity) at year end at n:t recoverable cost 1000.8 L 887.1 872.8 Current cost information (81sid on current reproductiori cosu Nst income $ 53.6 $ 47.7 6 71.7 Esmings per common share As edjusted for additional depreciation .82 .74 1.81 As edjusted for totalimpact on common stock equity 1.01 (.4 5) .42 Incresss in CPI Index over current reproduction cost-net utility plant (95.2) 211.6 139.7 Nst ess:ts (common stock equity) at year-end at nst recoverable cost 1000.8 L 887.1 872.8 Gener:1 information Glin dus to repayment of debt with dollars of less purchtsing power $ 142.5 $186.4 $ 182.1 Cash dividends declared per common share Actust $ 2.57 $ 2.44 $ 2.28 $ 2.13 $ 2.01 As edjusted by CPI Index $ 2.57 $ 2.69 $ 2.86 $ 2.97 6 3.02 Mrrkst price per common share at year-end l Actual $ 20.25
$20.63 $23.38 $24.63 $28.25 As adjusted by CPI Index $ 20.25 $22.77 $29.29 $34.34 $42.40 Avsraga CPI Index 272.4 246.8 217.4 195.4 181.5 1_/ At December 31,1981, the constant dollar and current cost bases of utility plant, net of accumulated depreciation, wara $4,622.5 million and $4,594.2 million, respectively, compared with net original cost of utility plant of
$3,020.9 million.
41
PUBLIC SERVICE INDIANA 10 years of progress 1981 1980 KILOWATT HOURS SOLD (millions) Domestic . . . . . . 4,874 5,049 Commercial . .... .. . . . . . 3,508 3,450 Industrial . . . . .. 6,000 6,029 REMCs . . .. . . . . 2,794 2,769 Municipais . . . 1.535 1,517 AllOther . . 79 84 Totat . . . ... . 18,790 18,898 OPERATING REVENUES (thousands) Domestic . . . . .. .. . $ 243,485 $ 218,199 Commercial . . 154,074 136,752 Industrial . . 194,533 169,681 RLMCs . . 76,706 74,096 Municipals . . . 40,067 36,317 All other . . . 11,261 10.643 SALES AND Total . , , . . . . . t 720,126 s" 645,688 CUSTOMERS Average Price per Kilowatt-hour 3.800 3.39C CUSTOMERS (annual averages) Domestic . . , , 471,825 466,974 Commercial . .. . . . ... . . . 63,436 62,641 Industrial . . 2,524 2,518 REMCs(delivery points served) . . . 124 121 Municipals . . . . 43 43 AllOther . 976 847 Total .. .... . . . . . 538,928 533.144 Heating Customers (included above) 94,277 C3,711 DOMESTIC SERVICE (average per customer) Annual Use (kilow att-hours) . 10,329 10,812 AnnualRevenue . . . . $ 516.05 8 467,26 Price per Kilowatt hour . 5.00 C 4.32 C KILOWATT-HOUR OUTPUT (millions) Generated (net) . . . .. .. 22,809 23,938 Purchased . . . (2,517) (3,390) Total ... . . . 20,292 20,548 Losses and Company Use . . . 1,502 1,650 Total Sales . . . . . 18,790 18,898 ELECTRIC SYSTEM GENERATING CAPA84LITY (megawatts) OPERATIONS Owned . 5,374 5,261 Power Pool . (152) (310) Total . . 5,222 4,951 MAXIMUM SYSTEM DEMAND (megawatts) Summer . . . 3.942 3,896 Winter . . . .... 3,895 3,554 FUEL COST-per million 8TUs consumed . 129.5C 116.7 C UTILITY PLANT CONSTRUCTED ADDITIONS (thousands) . . $ 464,710 $ 487,099 COMMON STOCK EQUITY (thousands)* . . $ 1,034,284
- 844,401 Dividends per Share . . 2.57 2.44 Average Shares Outstand ng . 37,777 31.383 (
CAPITAllZATION Eamings per Share ...... .. . $ 3.42 8 3.21 (December 31) CUMULATIVE PREFERRED STOCK lthousands) $ 306,000 $ 285,000 Dividends . 22,577 21,680 Average Drvidend Rate . 8.29% 7.92% LONG-TERM DEBT (thousands) $ 1,232,000 $ 1,057,000 Interest on Debt 110,316 79,556 Average Interest Rate 10.02% 8.77% EMPLOYEE NUM8ER OF EMPLOYEES (at December 31) . 5,120 4,868 DATA SALARIES, WAGES AND 8ENEFITS (thousands) . 4 134,964 8 115,136
'Retiects 3-for 2 stock spht in April 1976.
42 6 .
1979 1978 1977 1976 1975 1974 1973 1972 1971 4,763 4.731 4,568 4,136 4.068 3,657 3,632 3,323 3,090 3,295 3.080 3,248 3,025 2,924 2,617 2,653 2,439 2,237 6,291 5,813 5,711 5,279 4,602 4,986 5,136 4,693 4,282 2,288 2,216 2,147 1,805 1.582 1,555 1,189 1,353 1,546 1,502 1,454 1,389 1,204 1,146 989 892 790 707 84 76 83 83 82 81 78 84 78 18,223 17,370 17,146 15.532 14.404 13,885 13,580 12,682 11,940
$ 209,153 $ 184,771 $ 162.703 $ 141,897 $ 111,084 4 93,962 4 90,295 6 81,194 4 72,423 131,799 111,344 103,700 90,031 72,628 60,687 59,083 52,239 44,537 170,334 148,796 126,469 105,077 77,115 70,170 67,190 58,880 49,336 64,078 52,268 44,905 33,656 23,204 19,503 12,994 15,235 13,295 35,620 31,221 25.329 19,416 15,186 11,335 8,673 8,911 7.110 11,555 10,023 7,805 7,665 6,681 5,205 5,130 4,786 3,878 $ 628,538 $ 538,423 $ 470,911 $ 397,742 $ 305,898 $ 260,862 $ 243,365 4221,245 $ 190,579 3.41 C 3.07 C 2.73C 2.54C 2.100 1.86 C 1,78 C 1.730 1.58 C 460,258 451,491 442,674 435,512 429,186 423,663 415,772 406,591 397.497 61,865 61,039 60,131 59,359 58,600 57,204 55,953 55,072 53,902 2,523 2,514 2,485 2,461 2,451 2,438 2,437 2,440 2,424 116 115 112 108 102 98 96 96 151 43 43 44 44 44 44 44 44 45 834 827 836 836 839 820 805 828 822 525,638 516,029 506,282 498,320 491,222 484,267 475,107 465,071 454,841 82,552 72,315 61,812 53,164 46,460 39,708 32,837 27,813 23,726 10,349 10.478 10,319 9.497 9,479 8,631 8,736 8,173 7.774 4 454.42 $ 409.25 $ 367.55 4 325.82 $ 258.83 $ 221,79 $ 217,17 $ 199.69 $ 182.20 4.39C 3.91 C 3.56C 3.43 C 2.73 C 2.57C 2.49 C 2.44 C 2.34 C 23,690 19,276 20.012 18,698 16,002 14,579 14,977 14,051 12,425 (4,011) (652) (1,504) (1,840) (350) 492 (347) (229) 526 19,679 18,624 18,508 16,858 15,652 15,071 14,630 13,822 12,951 1,456 1,254 1,362 1,326 1.248 1,186 1,050 1,140 1,011 18,223 17,370 17,146 15,532 14,404 13,885 13,580 12,682 11,940 5,678 5,028 4,378 4,378 3,730 3,239 3,254 3,254 2,655 (423) (229) "
183 (156) 93 361 30 (180) 156 5,255 4,799 4,561 4,222 3,823 3,600 3,284 3.074 2,811 3,598 3,381 3,320 2,922 2,924 2,706 2,751 2,514 2,372 3,718 3,676 3.388 3,138 2,845 2,567 2,430 2,326 2,167 107.2C 106.1 C 80.2 C 65.6C 52.1 C 38.8C 30.00 28.80 25.5C
$364,196 $ 297.880 $ 267,288 $ 209,392 $ 148,974 $ 160,661 $ 134,710 $ 91,681 8 79,003 j
- $ 736,640 $ 624,707 $ 543,938 $ 462,427 $ 395,228 $ 343,157 6326,559 $ 274,054 $ 234,879 2.28 2.13 2.01 1.89 % 1,73 % 1.66 1.55% 1,46% 1.44 27,963 25,211 23,690 22,054 20,921 19,084 17,834 16,784 16,384 ) $ 3.79 $ 2.92 4 3.28 $ 3.01 4 2.33 $ 2.53 $ 2.43 $ 2.07 $ 1.71
$235,000 $ 200,000 $ 155,000 $ 155,000 $ 115,000 $ 80,000 $ 80,000 $ 50,000 $ 50,000 16,634 13,761 10.870 8,370 5.397 4.158 3,878 2,013 2.013 7.56% ~ 7.32% 7.01 % 7.01 % 6.49% 5.20% 5.20 % 4.03% 4.03% $ 832,000 $ 789,000 $ 689,000 4534,000 $ 534,000 4502.000 $ 395,000 $ 395,000 $ 345,000 61,622 52,131 44,491 37,068 33,161 26,226 21,704 21,519 17,992 7.64 % 7.46% 7.25% 6.94% 6.94 % 6.15% 5.49% 5.49% 5.28%
4,351 4.025 3,855 3,701 3,533 3,449 3,290 3,284 3,272
$ 90,764 $ 78,801 8 69,330 $ 60,177 $ 52.684 6 46,991 $ 42,618 $ 39,407 8 36.295 43
PUBLIC SERVICE INDIANA security markets, prices and dividends The principal organized markets in which the Company's common stock is traded are: The New York Stock Exchange The Midwest Stock Exchange The Pacific Stock Exchange in addition the Company's common stock has unlisted trading J.?vileges on the Cincinnati, Detroit and Philadelphia ex-changes. All cumulative preferred stock sold publicly is listed on the New York Stock Exchar.ge and the 31/2%, 4.16% and 4.32% Series are also listed on the Midwest Stock Exchange. Company bonds sold publicly since 1969 have been listed for trading on the New York Stock Exchange. The following table shows the quarterly high and low sale prices of the Company's common stock on the composite l tape and dividends paid for the past two years. l 1981 1980 1 high low dividend high lo w dividend first $ 21 7/8 $18 3/8 $.62 $23 3/4 $17 5/8 $.58 second 22 1/2 18 1/4 .65 24 5/8 19 .62 third 22 1/4 19 1/2 .65 24 1/2 20 .62 fourth 22 3/8 19 5/8 .65 22 19 .62 cutomatic dividend reinvestment and stock purchase plan Under the Company's continuing Automatic Dividet.' Reinvestment And Stock Purchase Plan, common and preferred shareholders of record may reinvest quarterly dividerMs to purchase additional shares of common stock at a 5% dis-count from the applicable market price. The Plan also allows for optional cash payments of up to $ 25,000 per quarter to purchase additional shares of common stock at 100% of market value; amounts over $ 25,000 are subject to Com-pany approval. No commissions are charged on stock purchases under the Plan. The Company has concluded that dividends reinvested through this Plan are eligible for income tax deferral under provisions of the Economic Recovery Tax Act of 1981. A Prospectus describing the Plan and an enrollment form are available to interested shareho!ders upon request to Shareholder Relations. I s 1
~
44
'tock tr:nsfer agents and registrars
' Continental lilinois National Bank and Trust Company of Chicago 30 North LaSalle Street, Chicago 60693
*Bredford Trust Company 2 Broadway, New York 10004
*These agents are authorized to serve in the dual capacity of stock transfer agent and registrar.
Ividend disbursing office Shareholder Relations Toll Free Telephone Numbers: Public Service Indiana Indiana 800 382-1174 1000 East Main Street Other States 800 428-4337 Plainfield, Indiana 46168 he annual meeting of shareholders will be held in Plainfield, Indiana, on April 5,1982. Shareholders of record at the close (i business on February 16,1982 will be entitled to vote at the meeting. Formal notice, proxy statement and proxy form ill be mailed about March 1. his annual report and the financial statements contained herein are submitted for the general information of the Ireholdsrs of Public Service Company of Indiana, Inc., and are not intended for use in connection with any sale or pur-ass of, or any offer or solicitation of offers to buy or sell, any securities of the Company.
/
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