ML20076L355

Annual Financial Rept 1982

ML20076L355
Person / Time
Site:	Marble Hill
Issue date:	01/28/1983
From:	Barker H, Menscer D PSI ENERGY, INC. A/K/A PUBLIC SERVICE CO. OF INDIANA
To:
Shared Package
ML20076L352	List: ML20076L345 ML20076L355 ML20077K925
References
NUDOCS 8307190142
Download: ML20076L355 (43)

Text

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l ANNUAL REPORT 1982 PUBLIC SERVICE INDIANA I

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'Doing it best for least' l l is cost-conscious

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l HIGHLIGHTS

% inarne 1982 1981 (Ihwu) >

I Kilowatt-hours sold

• 17 635 18 790 (6.1)

Openting revenues * $ 809.4 5 720.1 12.4 Net income' S 233.2 S 151.6 53.8 i

Comnwn stock-per share ,

Eamings S 4.55 $ 3.42 33.0 ,

i Dividends paid S 2.72 S 2.57 5.8 Book value $ 26.05 $ 24.48 6.4 Market price at year-end S 24.88 5 20.25 22.9 1

Rate of n:tum (year-end) on-Net plant in service and inventories 9.2% 9.9%

Total net plant i and inventories 10.4 % 8.6%

I i Customers at year-end 541 797 540 801 .2 Electric heating customers 98 832  % 052 2.9 Average kilowatt-houn used-domestic customers 10 411 10 329 .8 Fuel cost per million 1.45 1.29 12.4 INDIANA bru consumed S S System peak load in megawatts" Summer 3 517 3 707 (5.1)

Winter 3 683 3 575 3.0 "Exdudes II<xsier Energy RFC, Inc. 'I Constmetion* S 547.6 5 464.7 Nuclear fuel owned

• 15.7 43.4

$ 563.3 $ 508.1 10.9 Utility plant * $4179.6 $3 601.4 16.1

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l SERVICE AREA l

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L ANNUAL REPORT 1982

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With dejoblen mee in some.

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e Service Indiana among the g. PUBLIC SERVICE INDIANA l

{(f  ? highest in the nation . . ..with tens of thoumnds _of customers, -

a u employirs and Annholders '

Jfeeling the wwwpinch of Jncenion, this is a timefor ; '

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frugal nstneint.lBeuinen as '

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Ibis yaer our. Annual Report,is dinct, simple, utilin

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cimost 10%. We hope that '

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with Indinna's largest electric l utility.

' Public ServiceIndinna serws two-thirds of the Hoosier state.

Among its mon than 541,000 -

customers an 2,472 industrin!

companies including many who .

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'1 To the Shareholders 4 1

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After a year of deepening recession, rising unemployment and lack of growth in electric 9 yj %n - ,hy- ,a j[

energy usage, it is sometimes diflicult to be -

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y positive. But 1982 was also a year of significant

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accomplishment for Public Senice Indiana-the ,

., 5 4 $ %ji Q completion of a 625 megawatt generating unit, M. 2.;Q.;.y;$.hy on schedule and below original cost estimates, h j "3:::j:g}qy:%p i[?.> . My .3

,g and dramatic progress at the Marble Hill .

Nuclear Station. Negotiations with two U., gg a e .v. 4 . ~ . i.

. a wholesale customer groups for shared ownership y'e i C;  ? ' M .; 5, 5 ? .: A fy of approximately 50% of Gibson Unit 5 were g .Mif G.j@j., gg completed and proceeds totalling S194 million yte M % '.(. y f f.cJ g were received in December 1982 and January ,; gg,LW, *M e ^Q~ g(

1983. And the first sale of common stock above ie ~7% .-

book value since 1979 was made late in the 2"@- 3 -d -

vear.

. BARKER MENSCER Earnings per common share increased from

$3.42 in 1981 to S4.55 in 1982. This increcse But more importantly, we believe that quality reflected rate increases placed into effect in 1981 assurance and construction problems which and 1982 and continuing tight control of occurred in 1979 have been resolved. We are operating expenses; the major factor, however, getting favorable assessments of the quality of was the significant increase in income credits construction from the Nuclear Regulatory reflecting the cost of capital applicable to Commission and other independent audits.

construction. Because ofincreased complexities of Common stock dividends were increased for c nstruction, the need for adequate quality the 22nd consecutive year, reflecting a quarterly assurance7 higher financmg costs, and the increase of 4c per share effective June 1 and a rescheduhng of Umt 2's m-service date from December 1987 to June 1988, cost estimates for new annual rate of S2.76 per share.

the project were revised at mid-year. The total On January 20,1983, the Indiana Public cost of the project is now expected to be $5.1 Service Commission approved a 12% increase in billion compared with the previous estimate of retail rates aggregating $81.2 million on an $4.3 billion; the Company's 83% share annual basis. The Company had requested a increased from S3.55 billion to S4.2 billion.

16% increase of $106.6 million (which includes The projected in-senice date of Unit I remains I an S18.1 million downward adjustment from December 1986.

the original request to reflect the new Gibson Unit 5 ownership arrangements) in early 1982. Despite this increase in cost, our study of A 13.3% increase of $15.4 million on an altern rives indicates completion of the project annual basis was n otiated with wholesale n the current schedule remains the most economical course of action. Our decision was customers and will e effective February 1, confirmed by National Economic Research 1983, subj.ect to approval by the Federal Energy Associates (NERA), a consulting firm retained Regulatory Commission. by the Indiana Commission to evaluate the Major construction milestones at Marble Hill, economics of completing the Marble Hill I including the setting of the Unit I reactor vessel project. Their study concluded that completion and related components, were accomplished on of the two units in 1986 and 1988, as now schedule. Construction activity by over 4,100 planned, is more economical than deferral or contractor and Company personnel is cancellation of one or both units.

proceeding with good momentum.

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NERA also recommended that an independent Company be allowed to recover the costs of audit of the Alarble Hill project cost estunate be financing construction currently through rates.

made. In its January 1983 retail order, the Recovery of construction financing costs on a Indiana Commission directed that an audit be current basis will also help to ensure that made to determine whether the current estimate adequate power is available for economic growth is a realistic forecast of the ultimate cost of the in the future.

project. The Commission, in the same order, Legislation has been introduced in the Indiana directed that studies be undertaken as to various State General Assembly which would grant methods which would mitigate the impact of higher rates when the Alarble Hill umts are regulatory authority to include a portion of these financing costs in current rates. A group placed m service.

ofleading Indiana citizens, concerned with the The Company is committed to the completion long-term economic future ofIndiana and the of Alarble Hill on schedule and within the need for adequate power supplies, is expected to cost estimate of S5.1 billion. To do so will take endorse the need for such !cgislation. Indiana a superior effort by us and our contractors but shareholders have recently received we believe that we have the qualified people and communications on this matter and we urge programs in place to do so. your full support and encouragement.

Timely completion of Alarble Hill is the most The people of Public Service Indiana have significant action we can take to control costs. demonstrated unusual cooperation and However, with slow growth in kilowatt-hour understanding during the year. Their continuing sales and rising costs of operation, further performance will enable us to meet the commitments to cost contamment are necessary challenges which lie ahead.

in today's economic environment. Actions which ive have taken are to freeze total salary By order of the Board of Directors and wage costs at December 1982 levels and the layoff of 173 employees; further actions will be ,

required to meet objectives. -

Total construction spending for 1982 was S548 million. New money requirements of $308 HUGH A. BARKER million for the 1982 construction program were Chairman met through the sale of additional common and preferred stock and first mortgage bonds. In Q UMN N' addition, $25 million of maturing first mortgage bonds were refinanced.

. . . DARRELL V. AIENSCER Construction spendm.g m 1983 is estimated at President

$515 million; new money requirements will total $303 million. Construction expenditures in January 28,1983 1982 and 1983 are net of the amounts received for the transfer of ownership in Gibson Unit 5 to Wabash Vallev Power Association and the Indiana Alunicip'al Power Agency.

Marble Hill and the remainder of the Company's construction program will require the raising of Sl.5 billion in the capital markets during the next four years. These financing needs make it even more essential that the

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Izan Approach Meets The !'st ofFr'" s cs o" 1" chc ' sos, "c cuc Short-Term Challenae... o the cost of transmission line construction by IFhat Ahout using wood structures for 230,000-volt lines-an industry first. In the '70s, we were one of the the Long-Torm? first utiiities in the nation to ofrer an automatic dividend reinvestment plan with a discount; this plan has raised over $110 million in new common stock.

Theycar 1982 could be called "the leaning of America"-a broad retrenchment triggered by Against such a history of cost awareness, our the deepest economic decline since the 1930s. most recent cost-cuttmg measures are not "last Excesses of business and government were cut ditch" efforts. Rather, they are a realization that back. Far was trimmed. Belts were tightened. current economic conditions call for extraordinary measures to maintain earnings And as the cconomic slowdown flattened the levels for our shareholders and further use of electric energy, our revenues lagged demonstrate to our customers that we are, bchind rising costs. Despite stringent cost indeed, cost-conscious. Freezing of total 1983 control efforts, the need for deeper cuts became wage and salary costs at December 1982 levels apparent and further action is being taken. and einployee layoffs are painful, short-term Orcr thc years, Public Senice Indians has responses to our immediate cash flow problems.

followed a tradition of"doing it best for They are directly related to our continuing least"-operating leanly-without frills and fat. efforts to increase efficiency and reduce Our ratio of annual operating costs per customer expenses. But admittedly they are short-term.

has always been lower than many others in the They do not adequately address the long-term industry. We've built functional, not fancy, challenge facing Public Service Indiana and the buildings. We have operated our power plants entire electric utility industry. That challenge is efliciently and have achieved one of the very to face up to the extreme social and political best heat rates m the mdustry-meanmg we pressures to keep energy prices unrcalistically squeeze more electncity from a pound of coal. low. Electric rates held artificially low, however, We're bcen guick to innovate, eager to do a are not in anyone's long-term interest. They job ourselves when we thought it could be done virtually assure future shortfalls of electric better, for less. More than 30 years ago, we energy. Without adequate electric energy to fuel established an in-house legal department that economic recovery, that recovery cannot go far.

has saved immeasurable time and money and As a supplier of electric energy throughout still sets us apart from many utihties. In 1969 much ofIndiana, we must be just as concerned we were one of the first large employers in the with the future energy picture as we are with nation to self-msure and administer our today's. We know that new capacity will be employee health benefit plans. Shareholder needed...not only to keep pace with the vital rctordkeeping was brought in-house several resurgence of business and industry, which must 4 years ago with a resulting improvement in occur if we are to solve our uncmployment semce...and savings in cost. problems, but also to replace older generating .

By scrying as our own construction manager units as they become inefficient and more costly in the construction of coal-fired generating to operate. Today, about 10% of our generating units, we have completed them on schedule and capacity is represented by units 30 years old or within cost estimates. Our fifth generating unit older.

at Gibson Station ranks favorably with the cost Afany critics of the electric utility industry' of other coal-fired units placed in service in this citing generating reserve magins in the 40%

decade.

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range and higher, argue that overbuilding of interest is best served when capital costs generating capacity has, or is, taking place. associated with large construction projects are What those taking this position fail to paid by consumers on a current basis and realize-well meaning as they may be-is that therefore minimized for the future.

these reserves could evaporate quickly with a Ncarly half the cost of Alarble Hill is the cost strong economic recovery or if extremely ,

of borrowing money. Whatever can sharply restrictive " acid ram , legislation is passed by reduce this cost will help the shareholder-and Congress. Furthermore, aging units 30 years old the consumer who ultimately pays all the bills.

or older will represent upward of 70% of total industry reserve margins by 1990. We feel very Whilc the outcomc of efforts to pass tmcomfortable about this statistic-because the legislation which will allow Indiana utilities to industry will need more than " aging teakettles" recover these costs of financing during periods to meet future electric demands. of construction is not known at the writing of Ourfuturc as a viable and etlicient supph.er of this report, the importance of the action cannot be overstated.

electncity depends m large measure on the successful completion of the Alarble Hill nuclear Significant ratc incrcascs seem certain when project. Indeed, the most significant cost hiarble Hill Units 1 and 2 are placed in control action we can take is to assure the operation. With some form of rate change in timely completion of hiarble Hill. We have advance ofin-service dates, we would expect far come a long way in demonstrating that we can less jarring increases. But higher energy costs lie meet the rigorous demands of nuclear ahead no matter which path is taken.

construction. Now our biggest hurdle is financing our $4.2 bilhon share of the cost of Critics who suMcst that this demonstrates these two nuclear units, of which $1.5 billion ur lack of concern for the human impact miss has already been expended. the point. The best and most lasting solution to economic problems is to restore economic In the next four years, we must attract $1.5 vitality and create job opportunities. Artificially billion in the capital markets. And to raise that low energy costs do no one a favor when they kind of money, we must be able to provide guarantee future energy shortages and a investors with a reasonable degree of assurance sputtering economy that can't get ofTthe that it makes good sense to entrust their money ground.

Human hardships caused by a weak How do wc do this? Not by assuming a passive economy and inflation cannot be solved by role and merely observing the existing regulatory energy suppliers no matter how sympathetic or process as it reacts to the inexorable pressures to caring they may be. Social and welfare problems rein in utility rates-regardless of the justification must be addressed by government and the for higher prices. burdens shared by all.

We are convinced that there is a more We at Public Scruice Indiana see our job as equitable way for electric rates to reflect current providing reliable service at the lowest practical costs of operation and the costs of financing cost to all. We do this by operating as efficiently new construction. Indeed there must be if as possible, by being innovative and receptive to utilities are to remain financially viable and to better ways of doing things, and by working build needed power plants. toward sound long-term solutions to the That more cguitable way, we believe, is the f nancial challenges facing utilities. That's our recovery of capital costs on a timely basis durino w y f being a responsible corporate citizen and the period of construction. This is recognition fulfilling ur bhgation to our shareholders, our cust mers and our state.

of the fact that the consumers' long-term 5

Year in Review Net Income, Retail Rate Dividends Increase Approved l Increase In '82 On January 20,1983, the  !

Net income rose sharply in Indiana Commission granted a j 12% increase in 1982 to $233 million; earnings per share of common stock retail rates totalling $81.2 increased from $3.42 to S4.55. million annually.

The rise in 1982 earnings The original request, filed in reflects, in part, rate actions in early 1982, totalled $124.7 i 1981 and 1982 and tight million, or 19%, and reflected l control of operating expenses the 100% ownership of Gibson l throughout the year; however, Unit 5 by the Company.  ;

the substantial portion of the Because of the transfer of increase in earnings is due to ownership of almost 50% of this the larger income credits unit to the Wabash Valley reflecting the cost of capital Power Association and the applicable to construction Indiana Municipal Power (Allowance For Funds Used. Agency, the adjusted request i During Construction-AFUDC). would have been $106.6

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Dividends paid per share of l common stock increased 15c in EARNINGS AND DIVIDENDS Wholesale rates were increased l 1982 to S2.72 compared with PER SHARE OF $22 million on an annual basis  !

$2.57 in the previous year and COMMON STOCK in January 1982. Negotiations reflected a 4c quarterly increase carnings dividends paidE were completed late in the year per common share on June 1, with wholesale customers for a 1982. Dividend payrnents have 55.00 further increase in rates of $15.4 increased in each of the last 22 million, or 13.3%, effective l years. February 1,1983. This 4.00 agreement is subject to Federal Energy Regulatory Commission approval.

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KILOWA'IT-HOUR SALES mcreased slightly during the BY CLASS OF SERVICE Decline, year from 10,329 to 10,411 20 ,illion kilowatt-hours.

Revenues Increase While operating revenues rose

$89 million, or 12%, to $809 l wholesale ,

million reflecting retail and '" "*

15  !

wholesale rate increases,  !

kilowatt-hour sales declined 6%

for the year 1982. Over 90% of this decline was due to the loss of the Hoosier Energy REC, industrial 10 Inc. load when it placed a new generating unit in senice in January 1982.

Domestic sales edged ahead 1%

for the year while commercial 5 sales increased 4%; mild weather during most of 1982, lower housing starts and the impact of domestic the recession adversely affected domestic and commercial 0 -

customer usage. 73 74 75 76 77 78 79 80 81 82 Industrial usage dropped 6%, INDUSTRIAL reflecting the substantial decline POWER USE Kwh d rease in economic activity and the (thousands) from 1981 highest level of unemployment Chemicals & Drugs 881 238 2.7 since the '30s. Industrial Steel & Iron 488 371 (24.9)

Motor Vehicles & Equipment 466 831 (.9) classifications which were most Coal 351 873 14.7 severely affected included Engines & Machinery 308 095 (13.1) primary metal industries, Paper Products 293 288 (9.9)

Aluminum 258 780 (17.9) machine manufacturinE and Feed & Flour 257 444 3.2 cement, stone and clay Cement 216 950 (14.3) production. Fabricated Metal Products 204 251 (8.0)

Plastic Products 175 397 (12.5)

Net customer additions of 996 Stone & Clay Products 157 863 (14.9) for the year were at the lowest Electric Equipment & Machinery 148 634 (4.6)

Bakery & Bemage Pmducts 1325W 9.4 level since 1943 and reflected Household Appliances 85 741 (11.3)

- depressed housing starts. Glass Products 82 633 9.8 Radio & Television 72 193 (12.2)

However, space heating Natural Gas & Petmleum 71 516 10.0 customers increased almost Gypsum, Stone, Sand & Gravel 70 982 1.3 2,800 for the ) ear to 99,000 or Rubber Products 64 152 (5.1)

Canned & Frozen Food 48 387 '24.4) 18% of all customers. Furniture & Fixtures 46 048 (16.4)

Lumber & W od Products 39 827 (6.3)

- Average residential usage Other Diversified Industries 711 626 (.2) 5 634 719 (6.1) 7

Energy Legislation Operating As of January 28,1983,173 top Priority Costs Rise personnel had been given layoff notices; these layoffs and further On January 19,1983, a bill was Fuel expenses rose 11% .m 1982 reductions in manning are introduced m, the Indiana due to miners' wage mcreases, expected to exceed 300 full-time legislature which will help to continuing increases in personnel. Savings in wage and ensure adequate supphes of environmental and reclamation salary costs will approximate energy to support economic costs, increased black lung $10 million annually.

recovery and growth, to resolve benefits and the higher cost of problems of utility financing deep-mine cml. Total tonnage In establishing these Company-and to avoid unnecessary energy in coal stockpiles at year-end wide policies, it was concluded investments. was 3.5 million tons compared that manning reductions could with 2.6 million tons at not be placed in effect at This bill, if enacted, would December 31,1981. Because of Alarble Hill without adverse require Indiana Commission reduced kilowatt-hour sales, effects on construction approval of new generating schedules and costs. Due to inventory levels increased above capacity pnor to the begmm.ng rigid nuclear training projected levels; however, of construction. Other negotiations with the requirements and operating

- provisions would permit the requirements for equipment Company's long-term coal Commission to include up t suppliers substantially reduced being installed, manning at 50% of the cost ofgenerating Alarble Hill will increase contractual deliveries beginning capacity under construction in in mid-year. gradually in 1983.

rate base prior to being placed in service; the balance of the Operation and maintenance Construction work in progress, cost of new units would be expenses increased 13% to S169 including nuclear fuel, totalled phased into rate base over a million, representing the impact $1.74 billion at year-end period of up to three years after ofinflation, higher wage levels compared with Sl.56 billion at the in-service date. and the initial operation of December 31,1981. Due to the Gibson Unit 5 on October 1. increasing investment in Alarble The Company believes that th.is Hill and Gibson 5 (prior to its legislation would assure the With the worsening of the October 1 in-service date), the public that an independent economy and increasing allowance for equity and debt review of future energy needs funds used during construction unemployment, further steps and requirements has been have been initiated by the increased $88 million during the made before costly year to S198 million.

Company to control operating commitments are made for new costs for 1983. These steps genemting capacity. Afore include freezing total 1983 wage importantly, this legislation and salary costs at the level in would enable electnc utthries t effect at December 31,1982, finance their construction layoffs of personnel beginning in programs at lower costs and January, adoption of early thus benefit the cot sumer and l retirement and severance pay the shareholder.

plans, reduction of travel and l periodic review of continued operation of older power plants.

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i mev=tts Demand Eases i l winter summerE Because of milder weather The Company historically has ,

4,000 conditions during the year and been Ican in its laborforce - )

i reduced industrial activity, preferring where possible to use

energy demands declined from contract crcwsfor such work as

, previous periods. Excluding the trce trimming and undergivund peak load demand of Hoosier service cable installations and to Energy of approximately 240 meet temporarypeakgrowth 3'000 l megawatts (MW), Company situations. Because offlattening peak demand edged downward kilowatt-hour salesgrowth and

[ from 1981's 3,707 MW (July reduced new scrrice 1981) to 3,683 MW (January reguircments, use of contract 1982). crews was virtually eliminated 4

In mid-1982, the Company adjusted its long-term load An in-house welding operation projections for the 1982-1993 permitsfastcr rcpairs at

( penod. The forecast reilects an generating stations and at lower

( 1,000 average annualincrease of 3.7% ,,,,,

for winter peak loads compared with the previous forecast of ""{

4.1%. During the same period, ..

summer peak loads are expected 0 to increase 2.7% compared with J4 " <

1972 74 76 78 80 82 the previous forecast of 3.5%.

The Company expects its winter peak loads to continue to exceed summer peak loads.

, Kilowatt-hour sales growth during the twelve-year period is i expected to average 3% a.

annually. "

These load projections indicate -l that additional generating capacity other than that already

. under construction will not be required until late in the 1990s.

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Off-System Power demand because of conservation reserve margin will be and reduced industrial growth. approximately 54% of projected Sales Add Revenues peak demand and will be higher Putting reserve generating Are reserve margins excessive? when Marble Hill is placed in capacity to work is one of the Will the customer pay more senice.

major Company challenges for over the long run? Clarification the next several years. Because of some basic misconceptions In its January 1983 order, the {

of deferrals or cancellation of put a more realistic perspective Indiana Commission found that generating units by other on reserve margins. the decision to construct  ;

utilities in the past several years, . Gibson Unit 5 was not A recent study by the Electnc imprudent and that the we believe that markets for off_

Power Research Institute " availability of this unit serves system sales will develop and will benefit both consumers and mdicates that the average reserve to provide stability in the marg n m 1981 to meet peak Company's future power supply shareholders.

demands for the East Central which is more than offset by 1 A major off-system sale of 500 , Area Reliability group (including the temporary large increase in MW was made to the Michigan Indiana, Ohio, West Virgtma Petitioner's reserve levels".

power pool from April through and parts of five other states)

October; negotiations for a was 39%. Of this amount,31% While the Company's reserve further sale to the same pool for was not available to serve peak margin is presently higher than another four to six month . load due to planned the East Central group, about period are in process. Another - maintenance, forced equipment 80% of our reserve margin is sale of 400 MW began in early outages and deratings of units represented by capacity from 1983 on a month-to-month for emironmental units not available for senice on basis. Total revenues from off- reasons-leaving only 8% a day-to-day basis because of system sales aggregated $77 available to meet increases in maintenance requirements, million in 1982 compared with peak demand, and allow utilities units which are 30 years old or

$63 million for the previous flexibility to utilize their most older and expensive-to-operate year. efficient plants and reduce fuel oil-fired units.

I and operating costs. And in We beh. eve the customer is Reserve Generating most cases, the 8% includes cost, rs old Capacity-How generatin

, acg0 gtter sene , and at ow ,

Much Is Too Much? capacity with extremely high resene maigms which assure Recent reductions in growth of fuel costs.

adequate electnc power for homes and businesses.

electric peak demand and usage have resulted in increasing The issue of excess generating

,  ;, g criticism by consumer interest resene margins was reviewed m, groups and others that depth in the Company,s .

recently completed retail rat generating reserve margins are 50 years. Economic growth is hearmgs; several intervenors g /

excessive and unnecessary.

c ntended that the additions of g. P Co" " " " " ' **de th* And yet statistics show, for many utility construction Gibson Unit 5 and Marble Hill almost all of the free world were not necessary or could programs are unnecessary t nati ns, that economic growth have been substantially delayed.

. meet growth m e ectncity and electricity use go hand-m -

Based on current capacity and ,

hand. Limitations placed on projected. 1982-83 loads,the Company's current -

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ciectricity growth will, Construction therefore, correspondingly program restrict economic gro vth.

hs s i dQ i The Company recognizes that it the year reached a record Icvel Onu it sisade moink smsc to will have significant reserve . of $548 milhon compared with scrap dcfun.re dhniliunon margins for several years in the . 1981's $465 million. The major future. However, the return of ##""#[#"""* ##"J'Y'#"P portion of 1982 construction s

robust economic growth, the ability to utihze portions of

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of outlays was $434 million for the Company s portion of two such capacity for off-system ##'# "# "[l"'7I"8 "#"'

1130 MW Marble Hill units sales, the ultimate need to """#[#"""- and $23 million for Gibson l replace aging generating capacity Unit 5. All other construction and the provision for expenditures for production contingencies such as adverse plant, substations, transmission acid rain legislation indicate lines, distribution facilities and strongly that our reserve general property totalled $91 margins will best serve the. Rcwinding t/>c coils of million.

interests of the consumer and distritnetion transfonners will . ..

the shareholder in the short run sarc in cxccss of $300,000 orce a Gnstmction expenditures for 1983 are estimated at $515 l and for the long term. firc-ycar period.

7 milhon and will aggregate $2.6 i

billion for the 1983-86 period.

Approxi_mately 90% of these expenditures are for the Marble i Hill project.

g Because oflower load and

- kilowatt-hour sales growth, the Company is ' continuing to

.( - evaluate future construction 5.N VA.

Programs. Consistent with this

.cffort, construction programs m ' for the 1982-86 period were l

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1982 Financing WVPA for its 25% ownership Because of the amount of share of Gibson Unit 5; an external financing required fbr Totals $308 Million

. . additional S97 million was construction, the inability to While capital markets m 1982 received .m January 1983 from recover financing costs continued to be volatile, IMPA tbr its 24.95% ownership applicable to such construction interest rates dechned from .

"'" ""8 "I'*

record levels reached in 1981 and deterioration in coverage and equity markets continued Participation in the Company's ratios, three rating agencies to improve dunng the year. In automatic dividend lowered their ratings of the 19M, the following securities reinvestment plan increased Company's senior securities in dramatically in 1982 due in the latter half of 1982.

(mSon"s) I3fE". pan to new federal tax March provisions, permittmg the Preferred stock,13.25% deferral ofincome taxes on up (521 million to $1,500 of dividends. Total received December 1981) S 24.0 common shareholder panicipants in the plan increased from 7,100 to 17,600 mon stock-2.5 million shares during the year. At year-end, (S24.125 per share) 58.6 30% of all common shareholders, representing 27%

Pollution control note, of outstanding shares, were

' 12 3/8% due 1990 10.0 panicipating in the dividend '

Pollution control note, reinvestment program.

12 3/4% due 1992 35.0 New money requirements for RATE OF RETURN ON YEAR 1983 are estimated at S303 END NET PLANT IN SERVICE

• • " ' AND INVENTORIES Common stock-1.5 million million and for the 1983-1986 riginal cost shares ($27.00 per share) 39.4 period at $1.5 billion. The 10%

amounts, timing and types of December securities to be sold during First mortgage bonds, these periods have not been 12 7/8% due 2012 115.0 8 determined. In addition, $88 An additional S51 million was million of bonds will be raised by the issuance of 2.2 refinanced.

6 million shares of common stock through automatic dividend reinvestment and employee 4

stock purchase plans and $25

- million of 30-year,3 3/8%, first

- mortgage bonds were refunded July 1,1982. 2 In addition to these external' financings, $96 million was o received in December from 78 79 80 81 82 12 :

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Company-engincered dessgn mods]ications on precipitators at Cayuga and Wabash River l stations resulted in recovery of l 113 MW ofgen: rating capacity previously excludedfrom I generation capability because of l

l Electwnic dust collectors installed environmental restrictions.

at Wabash River Station to Reclaiming of this capacity meetfederal air regulations were avoids thefuture replacement at mods]ied by Campany engineers. tomorrow's cost-and at $2,000 Added eficiencies increased the per kilowatt of capacity, this allowed output ofpower and mods]ication will save over $200 resulted in major savings. million in capital costs.

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Marble Hill Other audits of the quality proiect are expected to aggregate Progress Significant; assurance program by $2.3 billion upon completion or independent consulting firms 45% of total project cost.

Quality High have further confirmed that the As of December 31,1982, the Construction activity at Marble program is adequate and is Company has_ expended $987 Hill accelerated in 1982 as identifying corrective actions million for Unit 1 and $497 several key milestones were when required. These million for Unit 2.

achieved. At year-end, Unit I mdependent audits are be.mg was 47% complete and Unit 2 conducted periodically to assure The Company believes that was 27% complete. Total management and the board of completion dates within the Company and contractor directors of the continuing present cost estimates are personnel on site increased from effectiveness of the quality achievable. This conclusion is 2,900 a year ago to over 4,100 assurance program. based on several factors at December 31,1982. including the benefits of Marble In July, the estimated cost of Reviews by the Nuclear Hill being a replica of the Marble Hill project was Commonwealth Edison,s two-Regulatory Commission (NRC) increased from $4.3 billion to ,

of the Company's progress in "** Byron plant scheduled for

$5.1 billion and the in-service . ,

service m 1984 and 1985, our meeting high standards of ' date of the second unit was quality assurance and other wn experience in meeting key rescheduled from December construction activity have been schedule milestones over the last 1987 to June 1988. The first highly satisfactory. As a unit is scheduled for commercial tw years and the quahty of our supplement to normal nuclear construction and quah,ty operation in December 1986.

assmance staffs. In addition, an regulatory processes used to The Company's 83% ownership ensure compliance with enhanced system for measunng portion increased from $3.55 actual c sts and schedule prescribed rules and regulations, billion to $4.2 billion.

the NRC has developed a Perfonnance against ,

program for the Systematic APProximately 60% of the construction plans will be Assessment of Licensee increase in cost is due to implemented in early 1983 and Perfbrmance (SALP). The SALP additional work, higher unit will enable timely measurement program is an integrated NRC labor costs and additional of key activities and effort to collect available manpower to meet the identification of problem areas observations and data in ten increased complexity and scope for corrective action.

, major areas and evaluate licensee f nuclear plant construction performance based upon those and quality control observations. requirements. Total

. construction manning at peak In the NRC's review for the periods late in 1983 and 1984, period October 1,1981 including approximately 1,000 through September 30,1982, Company personnel, is the Company received "high estimated at 5,000 compared level" evaluations in four areas with the 1980 estimate of and " satisfactory" evaluations 3,500. The balance of the Placing the reactor pcssel within in five areas. One area covered increase reflects increased the containment ofMarble Hill by their program was not financing costs and the later in- Unit 1 was onc of many 1982 evaluated because oflimited service date of Marble Hill Unit milestones at this nuclear activity. 2. Financing costs of the total facility.

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L Nuclear Fuel Acid Rain Needs l Deliveries Delayed Further Study Expenditures for nuc! car fuel in Du-it-yoursctf delircrics of mail An issue which has the 1982 were S16 million betrcen Gunpany locatlims and potential for significant impact compared to S43 million in utilizing the U.S. Postal on our customers is " Acid 1981. Total nuclear fuel owned Service's " pre-sort discount" Rain"-the higher than normal directly by the Company and harc arsulted in substantial acidity levels in precipitation

fmanced through a nuclear finel surings. occurring in some parts of the trust at December 31,1982 . country. Proposed legislation I

aggregated 5191 million. Ot/>e serius moved in-/>ouscfor would have required significant giratcr efficiency and cost reductions in sulfur dioxide Because of present supplies and reduction includc thc scrticc and emissions within a 31 state area, scheduled dehvenes m the maintenance of all heatmg, including Indiana, during the 1983-86 period, which were rentilating and air conditioning next 10 years.

committed prior to changes in cquipment;generatuta statwn the in-service dates of the two welding scrriccs; typesetting of If the Company were required

( Marble Hill units, fuel the annual report and securitics to meet emission limits of this commitments exceed actual registration starcments. proposed legislation, annualized needs for several years. In late costs to our customers of 1982, the Company negotiated compliance by 1995 could be as the deferral of certain scheduled high as $227 million, in 1982 deliveries from 1983-86 tc ac dollars, resulting in cumulative late 1980s. The Company is Opcrating our mi courice rate increases of 28% or more.

i also reviewing possible scrrice to morc mail and mctcr We do not believe that the l deferment of nuclear fuel books betwecn officcs trimmcd ,

c rrelation of acidity oflakes deliveries from another supplier. costs by some $150,000 a vcar. -

and nvers m the Northeast and l ' Canada to emissions from

, midwestern coal-fired power M;- plants has been scientifically 2 demonstrated.

9 a The Company is participating in l

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befbre massive financial resources are needlessly

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bj.$ p representatives have testified Wg  ;@

fn5 m befbre the United States

{ Senate's Environmental and f pre. ,

p Public Works Committee Staff 9 explaining the substantial Jg s additional costs which would as/ a burden customers.

i 16

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Area Job Creation Is State / Company Goal vibration anaissis-a system to Economic growth and i u" listen inteilujently to spinning creation were the goals of the powerplant machines, whether 1981 Indiana legislature in wrhirie ators or feed creating the Corporation for pumps-has produced major Innovation Development to savingsfor the Company since its jg, j y pgy, provide venture capital to high technology and other innovative This new electronic techniijue enterprises. The Company has spots trouble ahead of serious joined with other maior problems orforced outages. And corporations by committing it reduces the needfor costly

$350,000 to the initial funding unscheduled maintenance.

which totalled nearly $10 million at year-end. A Broup of Company engineers developed the program and put the Company in theforefront of Vibration monitoring determines industry research in this area.

the condition of turbines, Both Purdue l'niversity and the generators and many maing Electric Power Research Institute parts to cut maintenance costs are taking an active interest in and downtime. this new technitpte.

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, Wise Energy Use, seeking assistance in paying fuci bills under the Project SAFE r

Pa}rment Help program. This federaiiv funded Promoted Program assisted appmximately Helping customers get the most 30,000 Company customers and for their electricity dollar and provided S1.7 million toward assisting those customers least payment of their electric bills able to cope with rising energy during the 1981-82 heating i costs are key aspects of our season. The program was i

customer senice program. offered again for the 1982-83 heating season although at

- Nearly 2,700 home energy lower levels than in the previous

. audits have been completed by year due to federal budget the Company under a federally limitations.

mandated program launched m the fall of 1981. Under the As economic conditions

! Company's own Winter- increas'ed bill-payment Warmup program aimed at problems, customer senice L helping low-income customers personnel have continued to

" button-up" their homes, work to find ways to assist i some 3,000 conservation kits customers. " Helping Hand",

-have been distributed through a matching fund assistance local civic clubs and community program to help low-income ELECTRIC HEATING service groups. . Educational elderly and disabled persons pay - CUSTOMERS programs encouraging do-it- winter electric bills, will be ' percent of total yourself home energy audits. . announced in early 1983. The 20%

were presented to 12,000 pupils Company will contribute up to in 400 fifth grade classrooms. $250,000 to this program, p  ; throughout the senice area.

The use of" service limiters" for -

15' non-space heating' customers-was successfully ' tested on a

pilot basis in 1982 and is being

, applied Company-wide in 1983.

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- receiving limited amounts of 7'

-electricity.while allowing time-to make bill payment arrangements.

Along with other electric and

_ gas utilities iii Indiana', 'the :

-Company processed applications

" froni Iow-income customers ' o_

- 1972 ' 74 76 '78 ~ 80 '82' 18L .

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Communications Company Supports l Efforts Expand R&D Program A stepped-up effort to A significant portion of communicate more effectively Company research dollars (S2.6 Orisparry liisc crms-thc nicn ,

with customers, employees, milhon in 1982) supports and women who install and l shareholders, legislators, industry research and replace power lincs and regulators, community leaders development coordinated by the ,quff,y,,,, ,,,.viisg the and the fmancial community is Electric Power Research customcr-aregctting neorc donc required to achieve our goal of Institute (EPRI) at Palo Alto, iis less tiinc. Thris smt a ism increasing understanding and California. EPRI manages some work managcment program support for positions and 1,400 projects for the electric initiated in 1981.

policies important to the success utility industry covering a broad of the Company and the range of generation research, Thc kcy is matching pcrsonnel, industry. new energy sources and cguipment and materials to the

. environmental technology. jobf i por m roved scheduling, Late nn 1982, a series of.nssue-coordination andproductivity.

oriented messages ran in The Company and eleven other newspapers throughout the utilities have continued to fund  ;

Company's senice area. The construction of a full-scale Allis-focus of these messages was to Chalmers KILnGAS coal show the link between a strong gasification demonstration unit (

economy "with adequate by a neighboring Illinois utility. i b

energy and jobs" and financially The unit, which will begin healthy electric utilities. commercial operation in 1983, will convert coal into a low

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Use of customer bill m.serts, media briefings, videotapes and BTU gas and allows the utilization of coal that would

\ 1 a variety ofinternal . not othenvise meet '

communications media are part

,, emironmental emission of an mtensmed effort t standards.

broaden understanding of utih.ty ,

industry problems and enlist broad-based support for their solution.

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Employment Senior Management 10-K Report, Other Employment at year-end 1982 Changes Data Available totalled 5,351 compared with On June 11,1982, the Board of More information about the o,120 one year earher. Pnncipal Directors elected Willard electric utility industry and the mcreases in employees were at Twyman, vice president- Company is available to Marble Hill for required Southern Division as senior vice shareholders. All requests for engineering and operations president--customer operations. information, including copics of

. activities and at Gibson for .

Mr. Twyman, whose 26-vear the annual 10-K report to the operation of the new generating background with the Cdpany Securities and Exchange unit placed in service includes both customer senice Commission, should be directed October 1. and financial experience, to: Shareholder Relations, succeeded Lloyd M. Griflin, P iblic Senice Indiana,1000 Marble Hill personnel who retired December 1. East Main Street, Plainfield, In requirements will continue to increase due to nuclear During his 21 years of senice, 46168.

operations training requirements Mr. GrifTin made significant  ; gg g ,,,

and on-broinB1 operation and contnbutions to all customer .

mamtenance activities for senice functions. Presentation on December 15',

937 various sub-systems which are of Secun.ty Analysts are also beinBi nstalledPrior to initial Shareholder Level available upon request.

start-up in 1986. Ch.mbS As indicated previously in this The Company's 48.5 million  ;

report, total employment in shares of common stock  ;

other areas is expected to outstanding at year-end were decline in 1983 reflecting lav_ held by 64,588 shareholders, an ofTs and other manning increase of 9,652 from the reductions to meet cost previous year. Preferred stock reduction objectives. was held by 4,614 investors.

More than 90% of all Salaries and wages increased shareholders are either

$22.1 million to S136.6 million individuals or family groups and for the year. Employee benefits, approximately 42% reside in I including retirement, life Indiana or adjacent states. No insurance, disability and health shareholder owned more than protection plans, totalled $25.0 4% of outstanding common million compared with S20.5 shares.

million in 1981.

l l

l 20

' STATEMENTS OF INCOME PUBLIC SERVICE INDIANA 1982 1981 1980 (thousands)

Electric Operating Revenues . .. . . . $809 394 $720126 $645 688 Operating bpases Fuel.......... ......... ... ... .. .. .. . 327 366 295 160 276 012 Purchased power . . ...... .......... . . .. (76 660) (63 234) (75 252) 250 706 231 926 200 760 Taxes (page 26) . . . . . ... . . ... . . . . . 143 562 110 980 95 107 y Other operation . . . . . . ... . 107 438 93 523 85 744 Maintenance . . ... . ...... . . . . .. 62 040 56 924 58 372 Depreciation . . . . . . . . . .. . ... .... 75 993 70 402 67 960 639 739 563 755 507 943 OperatingIncome . . .. . ... . .... ... 169 655 156 371 137 745 Other Income-Net Allowance for equity funds used during construction . . . . . . . . . . . . . . .. . . 117 629 63 768 43 % 3 Other. . . . . . ..... .... ...... .... . . . 1485 3 762 1 951 119 114 67 530 45 914 Income Before Interest Charges . . .. .. 288 769 223 901 183 659 Int 3 rest Charges long-term debt. .. ...... .. . .. .. 128 843 111 069 80 157 Other interest . . . . . .... . .. . . . 7 106 7 403 6 195 Allowance for debt funds used during construction . . ........ . . . . . ..

J80 412) (46 199) (25 380) 55 537 72 273 60 972 Net Income . . . . . . . . . .. .. . . ... . . 233 232 151 628 122 687 Dividends on Preferred Stock . . . . . . .......... . 28 010 22 600 22 080 Common Stock Income Available. . .. . ..... . .. . $205 222 $129 028 $100 607 i Average Shares Outstanding . . . . . . ...... 45 142 37 777 31 383 )

Earnings PerShare ... .. . . .. . . $4.55 $3.42 $3.21 l l

l STATEMENTS OF EARNINGS INVESTED IN THE BUSINESS l l

1982 1981 1980 (thousands)

Balance January 1. . .... . ... ... . . . $248 071 $223 080 $201565 Net Income . . . . . . . . . . . . . . . . ... .. . . 233 232 151 628 122 687 3- 481 303 374 708 324 252 f

Deduct Cash dividends P:rfentd stock . . . . . . . . . ...... ..... . 27 529 22 577 21 680 Common stock (1982-$2.72; 1981-$2.57; 1980-$2.44 per share) ... . .. .... .. . . . 123 567 97 267 75 813 ,

= Capitalstockissuance expenses . . . ... . ...... 5385 6 793 3 679 l 156 481 126 637 101 172 Balance December 31. . . . . . . . . . . . . . . . ...... . $324 822 $248 071 ' $223 080 The accompanying notes are an integral part of these financial statements.

21 i.

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BALANCE SHEETS ASSETS December 31 1982 1981 (thousands)

' Electric Utility Plant-original cost In Senice Production (Note 10) . . .. . . . $1428 943 $1097 519 (

Transmission . . . .. . . . . . . 409 080 377 231 1 Distribution . . . . . . . . . . 526 592 503 3 % I General . . . . . . . . . . .. . . 76 286 67 408

{

2 440 901 2 045 554 Accumulated depreciation . . . .. . . . 639 594 580 528 l 1 801 307 1 465 026  ;

1 Constmction work in progress Gibson Unit 5 . . . . . . . . 300 570 Alarble Hill Unit 1. . . . . . . 987 105 695 332 Alarble Hill Unit 2. .... . . . 4 % 843 350 587 Other . . .. . . . . . . . 63 273 65 173  !

1 547 221 1 411 662 Nuclear fuel Owned . .. ... . 135 831 120 124 PIN nuclear fuel trust . .. . . .. . . 55 635 24 100 191 466 144 224 3 539 994 3 020 912 Current Assets Cash .. .... . .. . ... . . 2 819 5 295 Temporary cash investments. . . . . .. . . . 10 800 10 561 Pollution control construction fund . . . 4 738 Accounts receivable

. Utility . . . . . .. ... . . 47 353 49 423 Joint ownership reimbursements . . . . . . 23 008 43 078 Deferred fuel . . . .. . . . . .. 4 607 9 062 Fossil fuel-at average cost. . . . . . ... . . . 108 145 82 306 Aiaterials and supplies-at average cost . . 33 150 '9 206 Other .. .. .. . . . . . 6 103 6 302 240 723 235 233 Other .. . .. . . 32 481 29 345

$3 813198 $3 285 490 The accompanying notes are an integral part of these financial statements. (

i 22 m .

CAPITALIZATION AND LIABILITIES PUBLIC SERVICE INDIANA December 31 1982 1981 (thousands)

Common Stock Equity Common stock-without par value-authorized 60,000,000 shares-outstanding 48,472,129 shan s in 1982 f and 42,243,515 sharesin 1981 ... . . . . $ 938 025 $ 786 213 Eamings invested in the business . .. . . 324 822 248 071 Totalcommon stock equity . . . ..... .. . 1 262 847 1 034 284 Cumulative Preferred Stock (page 25)

Not subject to mandatory redemption . . . . . 235 000 235 000 Subject to mandatory redemp6on .. .. . . 95 000 71 000 Long-Term Debt (page 25) . . . . ... . .. . . 1 362 621 1 203 364 Totalcapitalization . ... .. . . . . 2 955 468 2 543 648 PIN NucIcar FuelTrust Obligations . . .. .. 55 635 24 100 Current Liabilities Long-term debt due within one year . . . .. . . . 25 000 Trust demand note . . . .. . . . 10 000 9 957 Accounts payable . .. . . ... . . . . . 141 501 129 344 Accrued taxes . . . .. . . .. . 30 456 36 992 Accmed interest . . . ... ... . .. .. . . 44 862 42 635 Customers' deposits . . . .. . .. . . 1699 1593 228 518 245 521 Other Deferred income taxes. . ... . . . . . 352 327 278 856 Unamortized investment tax credits . . . . . . . . 207 749 180 426 Miscellaneous . . . . . .. ... ... . . .. .. .. 13 501 12 939 573 577 472 221

$3 813198 $3 285 490

)

23

STATEMENTS OF SOURCES OF FUNDS USED FOR UTILITY PLANT ADDITIONS 1982 1981 1980 (thousands)

Funds Generated Internally Ikinvested earnings Net income ... . . . . . $233 232 $151628 $122 687 Irss cash dividends . . .. .. .. .. . . 151 096 119 844 97 493 8213d 31 784 25 194 Depreciation . . . .. .. .... . . . . 75 993 70 402 67 960 g Deferred income taxes-net . . .. 66 606 42 853 40 909 Investment tax credit-net ..... . . . . 32 319 26 772 37 % 7 Allowance for equity funds used during construction . (117 629) (63 768) (43 %3) 139 425 108 043 128 067 Funds from Financing and Other Sources Common stock Public offerings. . .... .. ... .. 98 083 1291% 54 500 Automatic dividend reinvestment and stock purchase plan . . . . .... . . 40 388 24 124 19 917 Employee stock purchase plans . . . 4 211 3 756 3 375 Preferred stock . . . . . .. . 24 000 21 000 50 000 First mortgage bonds. . .. . .. 115 000 250 000 225 000 Retirement of first mortgage bonds . . . .. .

(25 000) (75 000)

Pollution control note. ... . .. . ... . 45 000 Net change in working capital and other items Temporary cash investments . . ... (239) (10 561)

Pollution control construction fund (4 738)

Accounts receivable . .. . 26 595 (37 653) 1 541 Federalincome tax refunds . . ... . . . 18 650 (14 250)

Fuel and materials and supplies. . . .... (29 783) 28 306 (27 655)

Notes payable . . . . . .. . . .. 43 (40 251) 20 289 Accounts payable . . . . . .. 10 214 20 555 (17 157)

Other items-net .. .. .. . . . . 2 473 4 136 5 152 306 247 336 258 320 712 Allowance for equity funds used during construction . . 117 629 63 768 43 % 3

$563 301 $508 069 $492 742 Utility Plant Additions Construction . . . .. . ... . .. . . $547 594 $464 710 $487 099 Nuclear fuelowned . . . . . . 15 707 43 359 5 643

$563 301 $508 069 $492 742 The accompanying notes are an integral part of these financial statements. t i

24

1 l

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CUMULATIVE PREFERRED STOCK l l

PUBLIC SERVICE INDIANA l December 31 l 1982 1981 (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 sharcs-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 l 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 $ 50 000 450,000 shares,13.25% Series . . .. .. . . . . 45 000 21 000

$ 95 000 $ 71 000 LONG-TERM DEBT December 31 1982 1981 (thousands) l First Mortgage Bonds (Excluding amounts due within one year) l Series K, 3 3/8%, duc January 1,1984 . . . . . $ 25 000 $ 25 000 Series L, 4 7/8%, duc October 1,1987. . . . . . . . 35 000 35 000 Series M, 4 3/8%, due February 1,1989 ... . .. .... 25 000 25 000 l Series N, 4 3/4%, due August 1,1990. . . .. . .. . 30 000 30 000 Series P, 71/8%, dueJanuary1,1999 .. . .... ... 40 000 40 000 Series R, 7 5/8%, due January 1,2001 .. .... . . .. 50 000 50 000 l Series S, 7%, due January 1,2002 . . .. ... . .. 50 000 50 000 l Series T, 8%, dueFebruary1,2004 .. ... . 50 000 50 000 l 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 BB, 6 5/8%, dueMarch 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

, Series EE, 121/8%, due September 1,1990. . . ..... . 125 000 125 000 Series FF, 14 3/4%, due February 1,2011 . . . . .... 125 000 125 000 Sern s GG,15 3/8%, due serially August 1,1986-1989 . . . . . . 50 000 50 000 i Series HH,15 3/4%, due December 1,2011 ..... . .. 75 000 75 000 Series J), 12 7/8%, due December 1,2012 . . .. .. 115 000 Total first artgage bonds . . ... . ....... .... ...... 1 300 000 1 185 000 Pollution Control @cs l 5 3/4%, due December 10,1989 to 2003 . . . ... 22 000 22 000 l 12 3/8%,due April 1,1990. . . . .. . .. . ... ... . 10 000 l 12 3/4%, due April l,1992. . . ... .. . . .. ... 35 000 Unamortized premium and discount-net . ... . . . .. ...... (4 379) (3 636)

Total . . . . . . . ... ..... ...,. .. ............ . . . $1362 621 $1203 364 25

TAXES CHARGED TO OPERATING EXPENSES 1982 1981 1980 (thousands)

Federal and State Income Currently payable ..... .. . .. . .. . $ 6 999 $ 7 100 S 7 795 Refunds-investment tax credit carryback

_ (Note 1(c)) . . .. . . . . .

(18 650)

Deferred-net . . . . . . . .... ..... .... . 66 606 42 853 40 909 Investment tax credit-net .. .. . 32 319 26 772 37 % 7 105 924 76 725 68 021 Stcte, Local and Other Realestateandpersonalproperty . . . .. . 16 597 16 239 10 999 Indiana gross income . . . .. .. 11 679 10 600 10 137 Social security ..... . . .. . .. 8 661 6 773 5 320 Other. . . .. .... . . .. . . .. 701 643 630 37 638 34 255 27 086 Total taxes charged to operating expenses . . $143 562 $110 980 595 107 Taxes per dollar ofoperating revenue . .. . . . .. 17.7c 15.4C 14.7c NOTES TO FINANCIAL STATEMENTS-ANNUAL REPORT 1982

1. Summary of Significant Accounting Policies:

(a) Depreciation and Maintenance The Company's provision for depreciation is determined by using the straight-line method applied to the cost ofdepreciable plant in service. The composite depreciation rate was 3.5% for 1982,1981 and 1980.

Maintenance and repairs of property units and renewals of minor items of property are charged to maintenmcc 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 January 1,1982, the Company adopted an AFUDC pretax rate of 121/2% with semi-annual compounding. The previous rate of 10 3/4% with semi-annual compounding was effective Oc-tober 1,1981. The rate in effect prior to October 1,1981 was 91/2% without compounding. The related income tax effects applicable to the capitalized interest component are recorded as deferred in-come tax expense. These AFUDC changes, and increased levels ofconstruction work in progress, have resulted in significant increases in net income for 1982.

(c) Federal and State Income Taxes Income tax timing differences, due primarily to accelerated tax depreciation and deduction ofcertain utility plant costs capitalized per books, receive comprehensive income tax allocation treatment in determining the provision for taxes.

26 1

NOTES TO FINANCIAL STATEMENTS-CONTINUED PUBLIC SERVICE INDIANA He Company is deferring investment tax credits utilized and amortizing the accumulated balance over the useful lives of the property which gave rise to such credits. For the year 1982, S32.6 million of unused investment tax credits will be carried ibnvard to otiset future years' tax liabilities as permitted by law. For the year 1981, $15.5 million was carried fonvard and utilized in 1982. The unused investment tax credits of $18.7 million for 1980 were applied to prior years' taxes and a refund was received.

The Company claims an additional 1 1/2% investment tax credit for the Investment Tax Credit Employee Stock Ownership Plan; for the year 1982, approximately $7.0 million will be carried forward; for the year 1981,56.4 million was carried for-ward; for the year 1980,52.6 million was claimed and 53.2 million was carried fonvard.

(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.

(e) 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 tiscal period. l Fuel cost chaq;e 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 ditrerences are deterred and billed in subsequent months.

2. Rates. In February 1982, the Federal Energy Regulatory Commission (FERC) approved new wholesale rates, as negotiated between the Company and its wholesale customers, designed to produce additional annual revenues of $22 million etrective January 1,1982. In December 1982, the Company and its wholesale customers negotiated an increase in rates, subject to FERC approval, designed to produce additional annual revenues of approximately $15.4 million effective February 1,1983.

On January 20,1983, the Public Senice Commission ofIndiana (Indiana Commission) granted the Company a 12% in-crease in retail rates; the approved rates were designed to produce additional annual revenues of $81.2 million. The Com-pany had petitioned the Indiana Commission for a 19% increase totalling S124.7 million; the request was based on 100%

ownership ofGibson Unit 5. He transfer of49.95% ofGibson Unit 5, completed in January 1983, was reflected in the fmal order. The Company's initial rate request would have been approximately $106.6 million based on a 50.05% ownership in Gibson Unit 5 (see Note 10).

He state appointed Utility Consumer Counselor has appealed the Indiana Commission's order of June 10,1981, which i granted the Company a $112.7 million increase in retail rates, and has announced the January 20,1983 order will also be ap- l pealed. To the extent that the rates authorized by the Commission in either order are not sustained, the Company could bc l subject to refund requirements. The Company believes the orders should be upheld.

3. Capital Stock. At December 31, 1982, 3,577,275 shares of common stock were resened for issuance under the Automatic Dividend Reinvestment And Stock Purchase Plan (ADR), Employee Stock Purchase Plan (ESPP) and Invest-ment Tax Credit Employee Stock Ownership Plan (ESOP).

The changes in common stock for 1982,1981 and 1980 were as ibilows:

Shares Issued Amount 1982 1981 1980 1982 1981 1980 (millions)

Public Otferings . . 4.0 6.7 2.7 5100.8 $134.2 S56.4 ADR. . . 1.8 1.3 1.1 42.3 25.3 20.8 ESPP and ESOP . . .4 .3 .4 8.7 5.4 9.0 6.2 8.3 4.2 5151.8 $164.9 586.2 Charter provisions limit dividends on common stock to 75% of net income available if the ratio of common stock equity to total capitalization of the Company is less than 25%, or to 50% of such net income if such ratio is less than 20%. As of December 31,1982, the ratio of common stock equity to total capitalization was 43%.

27

NOTES TO FINANCIAL STATEMENTS-CONTINUED

4. Long-Term Debt. The sinking fund requirements with respect to first mortgage bonds of the Company outstanding at December 31,1982, aggregated (exclusive of redemption premiur..) $8.6 million payable on or prior to May 1,1983 and

$8.3 million in 1984,1985,1986 and 1987. The Company has met and expects to continue to meet future sinking fund re-quirements by certifying bondable property additions.

First mortgage bond maturities are $25 million in 1984, $50 million in 1985,512.5 million in 1986 and $147.5 million in 1987.

5. Preferred Stock with Mandatory Redemption. Holders of the 9.60% Cumulative Preferred Stock, S100 par value, and the 13.25% Cumulative Preferred Stock, $100 par value, are entitled to the same rights and preferences as other $100 par value cumulative preferred shareholders as stated in the Amended Articles of Consolidation of the Company except with respect to the redemption prices and sinking fund requirements.

Optional right ofredemption for preferred stock with mandatory redemption will not be cumulative and will not reduce the mandatory sinking fund requirement in any subsequent year. The sinking fund requirement may be satisfied in whole or part by crediting shares acquired by the Company. To the extent the Company does not satisfy its mandatory sinking fund obligation in any year, such obligation must be satisfied in succeeding years. If the Company is in arrears in the redemption of the shares pursuant to the mandatory sinking fund requirement, the Company shall not purchase or otherwise acquire for value or pay dividends on Common Stock.

The mandatory sinking fund for the 9.60% Cumulative Preferred Stock requires the Company to acquire by redemption 13,750 shares on December 1,1987, and on each December 1 thereafter to and including December 1,2018, and 60,000 shares, or such lesser number of shares as shall be then outstanding, on December 1, 2019.

The mandatory sinking fund for the 13.25% Cumulative Preferred Stock requires the Company to acquire by redemption 30,000 shares on March 1,1988, and on each March 1 thereafter to and including March 1,2002.

6. Pension Plan. The Company's non-contributory pension plan covers all employees meeting certain minimum age and ser-vice requirements. There was no unfunded actuarialliability of the pension plan at January 1,1982. The Company's policy is to fund pension costs accrued, which amounted to $6.1 million in 1982,56.0 million in 1981 and $5.7 million in 1930.

In making the actuanal calculations, interest assumptions of 7.5% for 1982 and 6.0% for 1981 and 1980 were used. Ac-cumulated plan benefits and assets are presented below:

Januarv 1 1982 1981 1980 Actuarial present value of accumulated plan benefits Vested . . $52.3 554.2 $51.5 Non-vested . .5 .6 .5 5523 55fg 55T0 Plan assets available for benefits $79.9 $71.1 $63.4

7. Short-Term Borrowings and Compensating Balances. At December 31,1982, the Company had bank lines of credit aggregating $174.2 million, of which $53 million required compensating balances during 1982 averaging $2.8 million; $53 million had commitment fees for the lines and compensating balances for any borrowings; $56 million had commitment fees only and $12.2 million was available without compensating balances or commitment fees. Bank loans under these lines are at the bank's prime lending rate. The sale of the Company's commercial paper is supported by a portion of these lines of credit.

The Company has a nuclear fuel leasing and credit arrang,ement (see Note 11). This arrangement also permits the Company to issue promissory notes for general corporate borrowmg; $37 million was available at December 31,1982.

At December 31,1982, the Company had a trust demand note arrang,ement 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, din ctly placed commercial paper. There is no compensating balance or fee requirement associated with this credit arrangement. The Company holds a portion ofits previously mentioned bank lines of credit available to cover any call for payment.

i 28

PUllLIC SERVICE INDIANA For the years 1982 and 1981, the Company had short-term borrowings outstanding at various times as fbilows:

( Weighted Weighted Maximum Average Average Average Amount Amount Interest Interest Outstanding Outstanding Rate Balance at Rate at at any during the during the Ike.31* Ike.31 Month End' Year

• Year 1982 Bank Loans . . . . . . . . . . . . $117.8 S34.6 10.6%

' Commercial Paper . . . . . . . 60.7 7.6 10.6 Trust Demand Note . . . . . 510.0 8.8% 10.0 10.0 12.3 PIN Energy Trust Notes . . 15.0 5.2 12.3

'1981 Bank loans .. . . S 32.6 5 2.1 13.8 %

Commercial Paper . . . 87.4 18.4 15.1 Trust Demand Notes . 510.0 13.1 % 24.8 24.6 15.5

• millions

8. Income Tax Expense. Deferred income taxes (net) are due to timing differences between book and income tax deduc-tions. Deferred income taxes arising from the debt component of AFUDC were S38.1 million for 1982, $21.5 million for L 1981 and $11.7 million for 1980; deferred taxes due to accelerated tax depreciation were S20.2 million for 1982, $15.3 million for 1981 and 518.1 million for 1980; and deferred taxes due to the capitalization ofcertain administrative costs were

$7.7 million for 1982,55.8 million for 1981 and S4.3 million for 1980.

The computation of combined federal and state income taxes, including amounts in other income-net, is as follows:

1982 1981 1980 (millions)

Ikx>k net income. . . . 5233.2 S151.6 $122.7 Income tax expense. 107.2 80.0 69.7 Pretax income . . 340.4 231.6 192.4 Irss:

AFUDC-nontaxable equity component . I17.6 63.8 44.0 Other . . .. .2 (.1) 2.1 l Taxable income . .. . 222.6 167.9 146.3 Federal and state income tr.xes at statutory rates of 48.16% for 1982 and 47.62% fbr 1981 and 1980 ... 5107.2 5 80.0 S 69.7

9. Construction and Nuclear Fuel Commitments. The Company estimates that $2.6 billion will be expended fbr construc-tion purposes and $110 million fbr nuclear fuel (excluding nudear fuel owned by PIN Energy Trust) for the period 1983-1986. In late 1982, the Company negotiated the deferral of certain scheduled deliveries of nuclear fuel from

, 1983-1986 to late 1938-1989. The Company is continuing to review its nuclear fuel commitments and exploring various t

. alternatives which could further reduce nuclear fuel expenditures ihr the 1983-1986 period.

The Company owns and will be entitled to 83% of the output of the two Marble Hill Nuclear Station units; the remaining

17% is owned by Wabash Valley Power Association, Inc. (WVPA). The ownership agreement between the Company and WVPA provides that each party shall be responsible fbr the financing ofits ownership share of project costs. Northern in-diana Public Service Company will purchase 10% of the capacity of Unit I from the Company from the date ofcommercial -

operation through September 30,1987.

29

NOTES TO FINANCIAL STATEMENTS-CONCLUDED In July 1982, the Company increased the estimated cost ofits 83% ownership in the Atarble Hill nuclear project to $4.2 billion, including $1.9 billion of AFUDC, compared with the previous estimate of $3.55 billion. The total project cost is currently estimated at $5.1 billion compared with the previous estimate of $4.3 billion. In addition, the scheduled in-senice date of Atarble Ilill Unit 2 was changed from December 1987 to June 1988. He in-senice date of Unit I remains ikccmber 1986.

(

10. Jointly Owned Plant. In August 1982, the Company entered into agreements with WVPA and Indi.ma Alunicipal Power Agency (IMPA) providing for the transfer of ownership of 49.95% of Gibson Unit 5. The Company transferred ownership of 25% of Unit 5 to WVPA in December 1982 and 24.95% ofsuch Unit to IA!PA in January 19d3. Proceeds of

$194 million, including $% million in December 1982, were received from the parties. Proportionate operating expenses are billed currently and ref!ccted as a reduction in the applicable operating expenses on the Statement ofIncome.

11. Leases. The Comparw has a nuclear fuel lease arrangement with the PIN Energy Trust which has a Imrrowing capability of

~

up to $150 million for the acquisition of nuc! car fuel. At December 31,1982, nuclear fuel lease obligations totalled $55.6 million. Payments to the Trust will begin when fuel is consumed, which is estimated to be late 1986.

Rcntals incurred under financing leases not capitalized and operating leases are less than one percent of c!cctric operating revenues. He etrect on the fmancial statements, if all financmg leases had been capitalized, is not material.

12. 1982 and 1981 Quarterly Financial Data (Unaudited).

Operating Operating Net Earnings Quarter Ended llevenues' Income' Income' Per Share 1982 Alarch 31. . . . . . . . . $222.8 $ 50.1 $ 64.2 $1.36 J une 30 . . . . . . . . . . 191.1 40.1 58.9 1.16 September 30 . . . . . 205.2 43.6 62.5 1.20 December 31. . . . . . 190.3 35.9 47.6 .83 Total 5809 4 5TW7 513T2 5T.35 1981 March 31 . . . . . . $185.6 $ 38.0 $ 34.0 $ .79 JLne30.... ..... 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 572ET 5I56T 575T3 5 I 42 millions AUDITORS' REPORT To the ik>ard of Directors of Public Senice O>mpany ofIndiana, Inc.:

We have examined the balance sheets of Pt.blic Senice Gimpany ofIndiana, Inc. (an Indiana corporation) as of December 31, 1982 and 1981, and the related statements ofincome, carmngs invested in the business, and sources of funds used tbr utility plant additions for each of the three years in the period ended December 31,1982. 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 alvve present fairly the financial position of Public Senice O>mpany ofIn-diana, Inc. as ofIkcember 31,1982 and 1981, and the results ofits operations and the sources ofits funds used ihr utility plant additions ihr each of the three years in the period ended December 31,1982, in conformity with generally accepted accounting principles applied on a consistent basis.

Arthur Andersen & Co.

Indianapolis, Indiana, January 26,1983.

30

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION PUllLIC SERVICE INDIANA kwh sales and revenues Total kwh sales decreased 6.1% in 1982 compared with a decrease of.6% in 1981 and a 3.7% increase in 1980. Continued depressed economis activity, mild weather and the January 1982 termination of firm capacity sales to a rural cooperative were the primary factors atrecting kwh sales. Sales data for the periods were as follows:

i increase (decrease) from prior year 1982 1981 1980 Kwh Sales Domestic 1.1% (3.5)% 6.0%

Commercial 4.2 1.7 4.7 Industrial (6.1) (.5) (4.2)

Total Iktail (1.2) (1.0) 1.2 Sales for Iksale (22.6) 1.0 13.1 Total Sales (6.1)% (.6)% 3.7%

Operating Revenues 12.4 % 11.5 % 2.7%

Increases in operating revenues for the 1982 and 1981 periods principally reflect rate increases while the increase in 1980 is at-tributable to increased kwh sales.

fuel costs Fuel costs per million btu for 1982 were $1.45 compared to $1.29 in 1981 and $1.17 in 1980 and reflect escalating fossil fuel pnces.

other power sales Ikginning in April 1982, the Comp.u.y sold 500 megawatts of capacity for a six-month period to an out-of-state power pool.

Sales of capacity under the Kentucky-Indiana Power Pool terminated March 31,1982, taxes Income tax expense and its components varied due to fluctuations in taxable income and investment tax credit provisions. Fluc-tuations in investment tax credits reflect the Company's inability to fully utilize increased credits generated from rising levels of construction. Unused investment tax credits are carried forward to offset future years' tax liabilities.

State, k> cal and other tax expense for 1980 reflects adjustments of re?! estate and personal propeny tax expense for prior years, operation and maintenance Other operation and maintenance expenses have increased due to the effect ofinflation, higher wage levels, customer gmwth, ad-ditions to the transmission and distribution systems and the addition of Gibson Unit 5.

czpital costs and allowance for funds used during construction (AFUDC)

Increases in interest charges and preferred stock dividends retlect the issuance of additional securities to finance the Company's construction program. To adequately reflect increases in the cost of debt and equity capital the Company increased its AFUDC rates from 91/2% without compounding to 10 3/4% with semi-annual compounding, effective October 1,1981, and to 121/2%

with semi-annual compounding, etrective January 1,1982. These increases and rising levels of construction work in progress at the Marble Hill and Gibson stations contributed to significant increases in the debt and equity portions of AFUDC.

earnings Earnings increased to $4.55 per share for the year ended December 31,1982, principally reflecting the increases in AFUDC and the implementation of the June 1981 retail rate increase and the January 1982 wholesale rate increase. The increase in carnings per share was limited by decreased kwh sales and increased operating expenses, interest costs and the increased number of pre-ferred and common si. ares outstanding. Earnings per share for 1981 and 1980 were $3.42 and $3.21, respectively.

rata matters In February 1982, the Federal Energy Ikguiatory Commission (FERC) approved new rates designed to produce a $22 million an-nual increase in wholesale revenues etTective January 1,1982. In December 1982, the Company and its wholesale customers negotiated an increase in rates, subject to FERC approval, designed to produce additional annual revenues of approximately

$15.4 million commencing February 1,1983.

31

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION-CONTINUED On January 20,1983, the Public Senice Commiwion ofIndiana (Indiana Comminion) granted the G>mpany a 12% increase in retail rates; the appn>ved rates were designed to produce additional annual revenues of $81.2 million. The G>mpany had peti- l tioned the Indiana Commiuion fi>r a 19% increase totalling S124.7 million; the request was based on 100% ownership ofGibson Unit 5. The transfer of49.95% of Gibson Unit 5, completed in January 1983, was reflected in the final ordcr. The Gimpany's in-itial rate request would have been approximately $106.6 million based on a 50.05% ounership in Gibson Unit 5.

(

construction program The G>mpany has a continuing program of major construction to provide facilities to meet expected load growth and to replace properties as they become obsolete. Expenditures ti>r plant additions and nuclear fuel owned ti>r 1982 totalled 5563 million, compared with S508 million in 1981 and $493 million in 1980.

In August 1982, the G>mpany entered into agreements with Wabash Valley Power Anociation, Inc. (WVPA) and Indiana Alunicipal Power Agency (I A1PA) providing ti>r the transfer ofownership of 49.95% ofGibson Unit 5. The Gimpany transferred ownership of 25% of Unit 5 to WVPA in December 1982 and 24.95% of such Unit to I A1PA in January 1983. Proceeds of $194 million, including 596 million in December 1982, were received from the parties.

He major component of the construction pnigram is the Gimpany's 83% share of the Alarble flill nuclear project. In July 1982, the G>mpany increased the estimated cost ofits ownership interest in the Alarble flill nuclear project to S4.2 billion, including 51.9 billion of AFUDC, compared with the previous estimate of 53.55 billion. He total project cost is currentiv estimated at

$5.1 billion compared with the previous estimate ofS4.3 billion. In addition, the scheduled m-service date of Alarble Hill Unit 2 was changed from December 1987 to June 1988; the in-service date of Unit I remains December 1986. Apprmimately 60% of the estimated cost increase is due to additional work, higher unit labor costs and increased manp>wer caused by the mereased complexity and scope of nuclear plant construction and quality contn>l requirements. The remaimng 40% is due to the increased cost of financing during the construction period.

Construction and nuclear fuel expenditures, excluding leased nuclear fuel, tiir the 1983-1986 period are estimated as fi>llows:

Year Construction Nuclear Fuel Total (millions) 1983. S 515 5 18 5 533 '

1984. . 642 21 663 1985. 680 24 704 1986. 768 47 815 S2 605 SI10 $2 715 capital resources and liquidity External financing requirements tbr the 1983-86 construction pn> gram will total 51.5 billion. He Company also intends to retinance 587.5 million of first mortgage bonds which mature prior to January 1,1987.

Rese estimates assume adequate and timely rate increases and that the two Alarble flill units will be in service in December 1986 and June 1988 and will be within estimated costs. The proposed time schedules ti>r completion of both Alarble Ilill units are shorter compared with the actual experience of other utilities; funher, the estimated in-service dates do not allow tbr .ny signiti-cant regulatory delay or other delays such as prolonged labor strikes and unavailability of skilled manpower or craft personnel.

Ilowever, the Gimpany believes, on the basis of the experience of other utilities building substantially similar units and its own experience in meeting major completion dates for the construction and installation of major structures, steam supply equipment and other components of the project, that the in-service dates tiir Alarble Ilill are achievable.

32 P

PUIRIC SERVICE INDIANA Although the cost of the Atarble Hill project has increased significantiv, the Company believes that such increases have been typical ofother nuclear plants being built within the same time frames, that its allowances for cost increases are adequate and that the estimated cost of the Atarble Hill project is consistent with estimates being made by other utilities for substantially similar units. However, the Company's experience with its past projections indicates that the ditliculties of constructing nuclear generating facilities and other matters beyond the control of the Company, which cannot now be foreseen, can result m signifi-cant cost increases and delavs. -

3 The Company anticipates significant ditliculty in financing the construction pmgram, due in large part to the inability to recover financing costs applicable to construction on a current basis through rates. Pnor to the in-senice date of December 1,1986 for the first Atarble Hill unit, AFUDC will represent a very significant portion of, or exceed, the Company's net income. AFUDC is the current cost of funds invested in a construction project; such accumulated costs over the construction period are expected to be recovered from customers over the senice life of the project commencing at the time the project is completed and included in rm base. However, since AFUDC does not represent cash earnings, it does not provide funds for use in the Company's con-struction pmgram.

The issuance and sale by the Company of preferred stock and first mortgage bonds are subject to compliance with earnings coverage and other requirements of its charter and mortgage indenture. On the basis ofits present forecasts, the Company an-ticipates that it will be unable to meet mortgage coverage tests for the issuance of additional hrst mortgage bonds from the latter part of 1983 through 1986 and will require other sources ofexternal financing such as the sale ofdebentures and preference stock which are likely to require higher interest and dividend rates. Adequacy ofcoverages beyond that time will depend upon timely and adequate rate relief.

The inclusion ofconstruction work in progress (CWIP) in determining utility rates would significantly reduce construction costs by providing a higher percentage of available internal funds thereby reducing the amount ofcapital needed from extemal sources.

Adoption of this concept would substantially reduce the Company's 1983-1986 construction estimates and improve the Com-pany's interest and preferred dividend coverages.

The Company's long-term capitalization ratio objectives are to maintain a balance of debt and equity capital. At December 31, 1982, the debt and equity ratios were 46.1% and 53.9%, respectively.

In the latter half of 1982, three rating agencies lowered their ratings of the Company's senior securities due to their concern with large expenditures required for Atarble Hill, the inability to recover financing costs applicable to Atarble Hill construction on a current basis through rates and deterioration in coverage ratios.

Under short-term financing arrangements, the Company has authority from the Indiana Commission to issue promissory notes payabic in not less than 12, nor more than 24 months from the date ofissuance in amounts not exceeding $275 million outstand-mg at any one time prior to December 31,1983. (See Note 7 of the " Notes to Financial Statements" for details of the credit ar-rangements.)

dividends Dividends have been paid each year since the Company was formed in 1941 and have increased each year for twenty-two con-secutive years.

The Company believes that the regular payment of a liberal portion ofcarnings available for common stock, as well as orderly in-carases in the dividend rate, is in the best interest of the Company, its shareholders and the public served. While the Company cannot predict future dividend actions, it is believed that the continuation of past dividend practices will be desirable in light of the Company's financing needs in the next several years.

, infl: tion The estimated etTects ofinflation on the Company's operations are presented on pages 35-37 " Supplementary Data on Changing Prices". The continued impact ofinflation on operations, as well as construction costs, will require periodic rate adjustments to maintain adequate camings levels.

33

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION-CONCLUDED selected financial data 1982 1981 1980 1979 1978 Operating revenues * $ 809.4 $ 720.1 $ M 5.7 $ 628.5 $ 538.4 Net income" 233.2 151.6 122.7 123.0 87.7 cx Common stock Earnings per share 4.55 3.42 3.21 3.79 2.92 Dividends paid per share 2.72 2.57 2.44 2.28 2.13 /

Total assets

• 3 813.2 3 285.5 2 808.9 2 342.1 2 044.4 Cumulative preferred stock subject to mandatory redemption

• 95.0 71.0 50.0 long-term debt

• 1 362.6 1 232.0 1 057.0 832.0 789.0 PIN nuclear fuel trust obligations

• 55.6 24.1

• millions RESPONSIBILITY FOR FINANCIAL STATEMENTS The financial statements of Public Senice Indiana and other financial information included herein are representations of the management of the Company; accordingly, the integrity, accuracy, objectivity and consistency of pn sentation is assumed by Company management. Financial statement preparation is in conformity with generally accepted accounting principles and follows accounting policies and principles presenbed by the Public Service Commission of Indiana and the Federal Energy Regulatory Commission.

In meeting its responsibilities for the reliability of the financial statements, management depends on the Company's system of intemal 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 respons!bilities, delegation of authority and communication programs for the entire organization to assure that policies and standants are understood.

Atanagement utilizes an intemal 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. Atanagement 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 tiracly period by employees in the normal course of perfbrming their assigned functions.

The Board of Directors, through its Audit Committee composed of Directors other than Company employees, pursues its respamibilities for these financial statements by meeting periodically with management, the mtemal auditors and the independent auditors to assure that they are carrying out their respective responsibilities. The Audit Committee has full access to the intemal and independent auditois and meets with them, with and without management being present, to discuss auditing and financial reporting matters.

James H. Pennington Vice President-Financial Operations 34

SUPPLEMENTARY DATA ON CHANGING PRICES PUllLIC SERVICE INDIANA Supplementary Data on Changing Prices (Unaudited). The following supplementary data are provided in accordance with the requirements of the Financial Accounting Standards lloard (FASil) Statement No. 33, Financial Pwporting and Changing Prices, for the purpose of reporting cenain intbrmation as to the etrects of changing prices on the Company's operations. The G>mpany's financial statements are prepared based on historical prices in effect when the transactions occurred; the FASil statement requires the statement ofincome and cenain other infbrmation to be prepared on two additional bases: the constant 3

dollar basis and the current cost basis. The data presented in the following statements should be viewed as an estimate of the effect of changing prices, rather than as a precise measure.

'ne constant dollar basis represents ti : restatement of historical costs to current-day price levels, utilizing the Gmsumer Price Index tbr All Urban Consumers (CPI).

The current cost basis represents the restatement of historical costs of net utility plant to current reproduction cost utilizing the flandy-Whitman Index of Public Utility G nstruction Gists.

Changing prices impact common stock equity in two ways. First, under ratemaking procedures prescribed by the regulatory commissions to which the Company is subject, only the o'riginal cost of utility plant is recoverable in revenues as depreciation.

'ne cost of utility plant, 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 fbr income tax purposes, and is defined as a reduction to net recoverable cost.

Second, ' monetary assets', such as cash and claims to cash, kre purchasing power during inflationary periods because monetary assets buy fewer goods and services as the general price level increases. Omversely, ' monetary liabilities', such as long-term debt, gain because the liabilities will be repaid by dollars having less purchasing power. The net change in monetary assets and liabilities (which excludes utility plant, 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 ofdepreciation) in the statement ofincome have not been restated since such amounts would not be matenally different if determined on a constant dollar or current cost basis. ~ne 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 egense has been restated by applying current Company depreciation rates to indexed utility plant amounts.

As shown on the accompanying five-year summary, earnings per share fbr the years 1979-82 have been restated to rcilect both the reduction due solely to the higher depreciation expense and to reflect the total impact of changing prices on common stock equity under the two bases.

/

35

~

SUPPLEMENTARY DATA ON CHANGING PRICES-CONTINUED

- statements ofincome For the Year Ended December 31,1982 Current Ont Basis Ilistorical Constant Dollar Basis (Based on Current Basis (Based on CI'I Index) Ikproduction Gar)

(average 1982 dollars) *

(millions)

Operating Revenues $809.4 $809.4 $809.4 <

Operating Expenses Fuel 327.4 327.4 327.4 Purchased power (76.7) (76.7) (76.7)

Taxes 143.5 143.5 143.5 Other operation and maintenance 169.5 169.5 169.5 Depreciation 76.0 179.0 194.5 639.7 742.7 758.2 Operating Income 169.7 66.7 51.2 Other income - net 119.1 119.1 119.1 less Interest Charges (net of allowance for debt funds used during construction) 55.6 55.6 55.6 Net Income 233.2 130.2 114.7 Dividends on Pirferred Stock 28.0 28.0 28.0 Income Available for Common Stock $205.2 $102.2 $ 86.7 Earnings per Common Sharr S 4.55 $ 2.26 $ 1.92 Other Impacts of Changing Prices ,

Increase in current reproduction cost of net utility plant $250.3 Irss increase in net utility plant based on CPI Index 221.7 Inc rase in current reproduction cost over CPI 28.6 Amount of restated utility plant costs over original cost not recoverable through rates (reduction to net recoverable cost) $ (44.1) (57.2)

Gain due to repayment of debt with dollars ofless purchasing power 87.3 87.3 Income Available for Common Stock (As Adjusted) $145.4 $145.4 g Earnings per Common Share (As Adjusted) $ 3.22 $ 3.22

{

36 [

SUPPLEMENTARY DATA ON CHANGING PRICES-CONCLUDED PUBLIC SERVICE INDIANA The following summary is a five-year comparison of selected supplementary financial data (historical) which have been restated in average 1982 dollars (except actual data where indicated):

Yean Ended December 31 1982 1981 1980 1979 1978 (millems) 0 Operating revenues Actual S 809.4 $ 720.1 $645.7 $628.5 5538.4

> As adjusted by CPI Index $ 809.4 $ 764.8 $756.9 $836.4 $797.2 Constant dollar information (Based on CPI Index)

Net income $ 130.2 5 73.1 $ 62.4 $ 96.4 Eamings per common share As adjusted for additional depreciation 2.26 1.30 1.16 2.64 As adjusted for totalimpact on common stock equity 3.22 1.07 (.48) .44 Net assets (common stock equity) at year-end at net recoverable cost 1240.1 b 1 062.9 942.1 927.0 Current cost information (Based on current reproduction cost)

Net income $ 114.7 $ 57.0 $ 50.6 5 76.1 Eamings per common share As adjusted for additional depreciation 1.92 .87 .79 1.92 As adjusted for totalimpact on common stock equity 3.22 1.07 (.48) .44 Increase in CPI Index over current reproduction cost-net utility plant (28.6) (101.1) 224.7 148.4 Net assets (common stock equity) at year-end at net recoverable cost 1240.1 L 1 062.9 942.1 927.0 l General information l Gain due to repayment of debt with dollars ofless I purchasing power S 87.3 $ 151.3 $198.0 $193.4 l Cash dividends declared per common share

! Actual S 2.72 5 2.57 5 2.44 $ 2.28 $ 2.13 As adjusted by CPI Index S 2.72 S 2.73 $ 2.86 5 3.03 5 3.15 t Market price per common share at year-end Actual S 24.88 $ 20.25 $20.63 $23.38 524.63 As adjusted by CPI Index $ 24.88 $ 21.51 $24.18 $31.11 $36.47 Average CPI Index 289.3 272.4 246.8 217.4 195.4 l_/ At December 31,1982, the constant dollar and current cost bases of utility plant, net of accumulated depreciation, were 55,334.1 million and $5,244.8 million, respectively, compared with net ongmal cost of utility plant of $3,540.0 million.

f 37 l

10 YEARS OF PROGRESS 1982 1981 KILOWA"IT-HOURS SOLD (millions)

Domestic . . .

4,927 4,874 Commercial . 3,654 3,508 Industrial .

5,635 6,000 REMCs . . . . . . 1,826 2,794 Municipals . . 1,525 1,535 C All Other. . 68 79 Total . . . 17,635 18,790

)

OPERATING REVENUES (thouunds) 1 Domestic . . . 5 285,293 $ 243,485 Commercial 181,553 154,074 Industrial 215,187 194,533 REMCs . . . 60,039 76,706 Municipals . 50,501 40,067 All Other. 16,821 11,261 SALES AND Total . ......

$ 809,394 5 720,126 CUSTOMERS Average Pnce per Kilowatt-hour . 4.534 3.80c CUSTOMERS (annual averages)

Domestic . . 473,260 471,825 Commercial . 63,543 63,436 Industrial . . ....

2,479 2,524

. REMCs (dclivery points served). 39 124 Municipals . 43 43 All Orher. . 982 976 Total . . . . ... ........ 540,346 538,928 HeatingCustomers(included above) 97.106 94,277 DOMESTIC SERVICE (average per customer)

Annual Use (kilowatt-hours) . 10,411 10,329 AnnualIkvenue .. . $ 602.83 $ 516.05 Price per Kilowatt-hour. 5.794 5.00e KILOWATT. HOUR OUTPl7T (millions)

Generated (nct) . . 21,841 22,809 Purchased . . (2,912) (2,517)

Total . . . . . . ... 18,929 20,292 losses and Company Use . . 1,294 1,502 TotalSales . 17,635 18,790 ELECTRIC SYSTEM GENERATING CAPABILITY (megawatts)

OPERATIONS Owned . . . . . . . 5,843 5,374 Power Pool . -

(152)

Total . 5,843 5,222 MAXIMUM SYSTEM DEMAND (megawatts)

Summer - . . 3,517 3,942 Winter . .. ... . 3,923 3,895 FUEL COST-per milli (m BTUs consumed . . . $ 1.45 $ 1.29 UTILITY PLANT CONSTRUCTED ADDITIONS (thousands) . . $ 547,594 5 464,710 COMMON SIDCK EQUITY (thousands)* . $1,262,847 51,034,284 Dividends per Share .. . . . . 2.72 2.57 Average Shares Outstanding . . ., 45,142 37,777  ;

CAPITALIZATION Eamings per Share . . ..... .. . .$ 4.55 S 3.42 (December 31) CUMULATIVE PREFERRED STOCK (thousands) . . $ 330,000 $ 306,000 Dividends . . ..... 4 . 27,529 22,577 Average Dividend Rate . . ... , . 8.65 % 8.29% ,

LONG TERM DEBT (thousands). . . . $1,367,000 $1,232,000 Interest on Debt . . , . 127,981 110,316 Average Interest Rate . . . . . . 10.47% 10.02%

EMPLOYEE NUMBER OF EMPLOYEES (at December 31) . . . . . 5,351 5,120 DATA. SALARIES, WAGES AND BENEFITS (thousands) . .. . . . $ 161,616 5 134,964

• Rcflects 3-for-2 stock split in April 1976.

38 E o _ _-

PUBLIC SERVICE INDIANA 1980 1979 19~8 1977 1976 1975 1974 1973 1972 5,049 4,763 4,731 4,568 4,136 4,068 3,657 3,632 3,323 3,450 3,295 3,080 3,248 3,025 2,924 2,617 2,653 2,439 6,029 6,291 5,81? 5,711 5,279 4,602 4,986 5,136 4,693 2,769 2,288 2,216 2,147 1,805 1,582 1,555 1,189 1,353 1,517 1,502 1,454 1,389 1,204 1,146 989 892 790 84 84 76 83 83 82 81 78 84

, I8,898 18,223 17,370 17,I46 15,532 14,404 13,885 13,580 12,682 S 218,199 $209,152 5184,771 $162,703 5141,897 $111,084 5 93,962 5 90,295 5 81,194 136,752 131,799 111,344 103,700 90.031 72,628 60,687 59,083 52,239 169,681 176,334 148,796 126,469 105,0'7 7,115 70,170 67,190 58,880 74,096 64,078 52,268 44,905 33,656 23,204 19,503 12,994 15,235 36,317 35,620 31,221 25,329 19,416 15,186 11,335 8,673 8,911 10,643 11,555 10,023 7,805 _ 7,665 6,681 5,205 5,130 4,786 5 645,688 $628,538 $538,423 5470,911 $397,742 5305,898 5260,862 $243,365 5221.245 3.39c 3.41c 3.07c 2.73c 2.54c 2. loc 1.86c 1.78c 1.73c 466,974 460,258 451,491 442,674 435,512 429,186 423,663 415,772 406,591 62,641 61,865 61,039 60,131 59,359 58,600 57,204 55,953 55,072 2,518 2,522 2,514 2,485 2,461 2,451 2,438 2,437 2,440 121 116 115 112 108 102 98 96  %

43 43 43 44 44 44 44 44 44 847 834 827 836 836 839 820 805 828 533,144 525,638 516,029 506,282 498,320 491,222 484,267 475,107 465,071 89,711 82,552 72,315 61,812 53,164 46,460 39,708 32,837 27,813 10,812 10,349 10,478 10,319 9,497 9,479 8,631 8,736 8,173

$ 467.26 5 454.42 S 409.25 5 367.55 S 325.82 5 258.83 $ 221.79 $ 217.17 $ 199.69 4.32c 4.39c 3.91c 3.56c 3.43c 2.73c 2.57c 2.49c 2.44c 23,938 23,690 19,276 20,012 18,698 16,002 14,579 14,977 14,051 (3,390) (4,01I) (652) (1,504) (1,840) (350) 492 (347) (229) 20,548 19,679 18,624 18,508 16,858 15,652 15,071 14,630 13,822 1,650 1,456 1,254 1,362 1,326 1,248 1,186 1,050 1,140 18,898 18,223 17,370 17,146 15,532 14,404 13,885 13,580 12,682 5,261 5,678 5,028 4,378 4,378 3,730 3,239 3,254 3,254 (310) (423) (229) 183 (156) 93 361 30 (180) 4,951 5,255 4,799 4,561 4,222 , 3,823 3,600 3,284 3,074 3,8% 3,598 3,381 3,320 2,922 2,924 2,706 2,751 2,514 3,554 3,718 3,676 3,388 3,138 2,845 2,567 2,430 2,326

$ 1.17 $ 1.07 $ 1.06 $ .80 $ .66 5 .52 S .39 $ .30 $ .29 5 487,099 $364,1% $297,880 $267,288 5209,392 5148,974 $160,661 $134,710 $ 91,681 5 844,401 $736,640 $624,707 5543,938 5462,427 5395,228 $343,157 $326,559 S274,054 2.44 2.28 2.13 2.01 1.89% 1.73 % 1.66 1.55 % 1.46 %

, 31,383 27,962 25,211 23,690 22,054 20,921 19,084 17,834 16,784 5 3.21 S 3.79 $ 2.92 S 3.28 5 3.01 $ 2.33 5 2.53 $ 2.43 5 2.07 5 285,000 $235,000 $200,000 $155,000 $155,000 $115,000 $ 80,000 $ 80,000 $ 50,000 21,680 16,634 13,761 10,870 8,370 5,397 4,158 3,878 2,013

, 7.92% 7.56 % 7.32% 7.01% 7.01% 6.49% 5.20% 5.20% 4.03%

$1,057,03D $832,000 $789,000 5689,000 5534,000 5534,000 $502,000 $395,000 $395,000 79,556 61,622 52,131 44,491 37,068 33,161 26,226 21,704 21,519 8.77% 7.64% 7.46% 7.25% 6.94% 6.94% 6.15% 5.49% 5.49%

4,868 4,351 4,025 3,855 3,701 3,533 3,449 3,290 3,284 S 115,136 $ 90,764 5 78,801 5 69,330 5 60,177 5 52,684 S 46,991 5 42,618 5 39,407 39 l

l

l 1

I security markets, prices and dividends The principal organized markets in which the Company's common stock is traded are:

He New York Stock Exchange The Midwest E . Exchange In addition the Company's common stock has unlisted trading privileges on the Cincinnati, Detroit and Philadelphia exchanges.

All cumulative preferred stock sold publicly is listed on the New York Stock Exchange and the 31/2%,4.16% and 4.32% Series t

are also listed on the Midwest Stock Exchange.

Company bonds sold publicly since 1%9 have been listed for trading on the New York Stock Exchange.

He following table shows the quarterly high and low sale prices of the Company's common stock on the composite tape and l dividends paid for the past two years. 4 1982 1981 high low dividend high low dividend flat $231/4 $201/8 $.65 $217/8 $18 3/8 $.62 second 24 1/4 21 1/2 .69 22 1/2 18 1/4 .65 third 24 5/8 21 3/4 .69 22 1/4 19 1/2 .65 fourth 27 1/2 22 7/8 .69 22 3/8 19 5/8 .65 tutomatic dividend reinvestment and stock purchase plan Under the Company's continuing Automatic Dividend Reinvestment And Stock Purchase Plan, common and preferred shareholders ofrecord may reinvest quarterly dividends to purchase additional shares ofcommon stock at a 5% discount from the applicable market price. He Plan also allows for optional cash payments of up to $25,000 per quarter to purchase additional shares ofcommon stock at 100% ofmarket value; amounts over $25,000 are subject to Company approval. No commissions are charged on stock purchases under the Plan. Dividends reinvested through this Plan are eligible for income tax deferral under pro- .

visions of the Economic Recovery Tax Act of 1981. A Prospectus describing the Plan and an enrollment form are available to in- i terested shareholders upon request to Shareholder Relations.

stock transfer agents and registrars

• Continental Illinois National Bank and Trust Company of Chicago 30 North LaSalle Street, Chicago 60693

• Bradford Trust Company 2 Broadway New York 10004

• These agents are authorized to serve in the dual capacity of stock transfer agent and registrar.

dividend 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 sh.d.ch. will be held in Plainfield, Indiana, on April 4,1983. Shareholders of record at the close of business on February 14,1983 will be entitled to vote at the meeting. Formal notice, proxy statement and proxy form will be mailed  ;

about March 4.

His annual report and the fir r.cial statements contained herein are submitted for the general information of the share!,olders of Public Senice Company ofIndiana, Inc., and are not intended for use in connection with any sa!c or purchase of, or any offer or solicitation ofoffers to buy or sell, any securities of the Company.

40 C m

BOARD OF DIRECTORS I

l Hugh A. Barker Darrell V. Menscer audit committee Chairman and Chief Executive Otlicer thsident and Chief Operating Otlicer W. George Pinnell, chairman of the Company of the Company Shelton A1. Hannig, vice criairman

' Richard H. Blacklidge Richard H. Blacklidge Melvin Perelman, Ph.D.

Retired Publisher, President, Eli Lilly Intemational 'E* *' 'I I "#5 He Kokomo Tribune, Kokomo Corporation, Pfiarmaceuticals, " M ^ ' ' # ** " ."

3

+

Charles W. Campbell I"di'"'P II' Retired Senior Vice President W. George Pinnell, D.B.A. compensation and I and General Counsel Executive Vice President, nominating committee of the Company Indiana University, Bloomington Richard B. Stoner, chairman Shelton M. Hannig Richard B. Stoner ^I*IVi" P*I"*"

f President and Chairman of the Board, Vice Chairman of the Board, Burr S. Swezey, Jr.

Hugh A. Barker, ex officio Alanh, Inc., Design and Cummins Engine Company, Inc.,

Construction, Tem Haute Diesel Engine Alanufactunng, Columbus Dagmar Riley Jones Burr S. Swezey, Jr. finance committee Retired Publisher, Chairman of the Board, Hugh A. Barker, chairman The Bk>omington Herald-Telephone L1fayette National Bank, %iayette; Charles W. Campbell and Bedford Daily Times-Alail, Chairman of c: Board, Darrell V. Alenscer Bloomington Union Bank and Trust Company, Delphi OFFICERS i

Hugh A. Barker Barton G. Grabow Harold L. Isaacs

, Chairman and Chief Executive Otlicer Vice President-Corporate Affairs Vice President-Southern Division Darrell V. Menscer Gerald Hofmockel Charles E. Uhl President and Chief Operating Officer Vice President-Power Supply Vice President-Western Division W. E. George Danny L. Littell W. J. Hebble Senior Vice President-Fossil Power Vice President-Administrative Senices Treasurer Jon D. Noland John P. Masselink Joe E. Rogers l Senior Vice President Vice President-Fossil Fuels and Alining Secretan- l and General Counsel James H. Pennington G. W. Roberts Vernley R. Rehnstrom Vice President-Financial Operations Assistant Treasurer Senior Vice President-Finance William M. Petro and Assistant Secretan-Seth W. Shields Vice President-Nuclear Senices Donald W. Schlehuser Senior Vice President-Nuclear Division Lorren O. Ramsett Comptroller  !

Willard Twyman Quality Assurance Otlicer James L. Koenig j Senior Vice President- Richard P. Stein Assistant Comptroller l Customer Operations Vice President-Public AtTairs William F. Brown Larry E. Thomas  !

Vice President-Labor Relations Vice President- Greg K. Kimberlin Lloyd A. Crews Customer Operations Support Assistant General Counsel Vice President-Construction Richard E. Willis John P. Edwards Vice President-Fossil Power Production Vice President. William M. Cook Corporate Communications Vice President-Northem Division

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ .