ML17331A817

Annual Financial Rept 1980

ML17331A817
Person / Time
Site:	Cook
Issue date:	12/31/1980
From:	INDIANA MICHIGAN POWER CO. (FORMERLY INDIANA & MICHIG
To:
Shared Package
ML17331A816	List: ML17331A815 ML17331A817
References
NUDOCS 8109290617
Download: ML17331A817 (31)

Text

ANNUALREPORT 1980 AMERICAN ELECTRIC POVf ER SYSTEM 8109290617 810922 PDR ADOCK 05000315 I PDR

IANA dc MICHIGANELECTRIC COM . Y 2I01 Spy Run Avenue, Fort IVayne, Indiana 46801 Contents Background of the Company .

Selected Financial Data.

Management's Discussion and Analysis of Financial Condition and Results of Operations . 6-7 Auditors'pinion Consolidated Statements of Income Consolidated Balance Sheets . 10-11 Consolidated Statements of Sources and Applications of Funds . 12 Consolidated Statements of Retained Earnings 13 Notes to Consolidated Financial Statements. 13-26 Directors and Officers of the Company 27 Operating Statistics...................................... 28-29 Price Range of Cumulative Preferred Stock 30

Background of the Company INDIANAk MtcHIQAN ELEGTRlc CohtpANY (the Company) is a subsidiary of American Electric Power Company, Inc. (AEP) and is engaged in the generation, purchase, transmission and distribution of electric power. The Company was organized under the laws of Indiana on February 21, 1925, and is also authorized to transact business in Michigan and West Virginia. Its principal executive offices are in Fort Wayne, Indiana.

On November 30, 1979, a subsidiary, Indiana 2 Michigan Power Company, which owned and operated the Donald C. Cook Nuclear Plant (the Nuclear Plant), was merged into the Company.

In September 1980, the Company transferred, at net book value, its investment in certain coal mines and related mining assets located in Carbon County, Utah, to a newly-organized subsidiary, Blackhawk Coal Company.

Price River Coal Company, a wholly owned subsidiary of the Company, is engaged in mining coal from land owned by Blackhawk which is being purchased by the Company.

The Company serves 231 communities and 444,139 customers in a 7,700-square-mile area of northern and eastern Indiana and a portion of southwestern Michigan. This area has an estimated population of 1,453,000. Among the principal industries served are manufacturers of automobiles, trucks, automotive parts, manufactured homes, aircraft parts, steel, ferrous and nonferrous castings, farm machinery, machine tools, electric motors, electric transformers, electric wire and cable, glass, textiles, rubber products and electronic components. In addition, the Company supplies wholesale electric power to other electric utilities, municipalities and cooperatives.

The Company's generating plants and important load centers are interconnected by a high-volt-age transmission network. This network in turn is interconnected either directly or indirectly with the following other AEP System companies to form a single major integrated power system: Appalachian Power Company, Columbus and Southern Ohio Electric Company, Kentucky Power Company, Kingsport Power Company, Michigan Power Company, Ohio Power Company and Wheeling Electric Company. The Company is also interconnected with the following other utilities: Central Illinois Public Service Company, The Cincinnati Gas 8; Electric Company, Commonwealth Edison Company, Consumers Power Company, Illinois Power Company, Indiana-Kentucky Electric Corporation (a subsidiary of Ohio Valley Electric Corporation), Indianapolis Power 8: Light Company, Northern Indiana Public Service Company and Public Service Company of Indiana, Inc.

INDIANA ~ ICHIGANELECTRIC COMPAN Y AND SUBSIDIARIES Selected Financial Data Year Ended December 31, S0l 1980 1979 1978 1977 1976 (in thousands)

ISSI COME STATEMENTS DATA:

OPERATING REVENUES- ELECTRIC . 5748,680 S689,066 5597,894 5506,669 S415,549 TOTALOPERATING EXPENSES ...... 580,484 527,617 440,074 378,345 313,645 OPERATING INCOME . 168,196 161,449 157,820 12S,324 101,904 TOTAL OTHER INCOhfE AND DEDUCTIONS .. 30,541 29,042 29,750 28,346. 29,867 INCohfE BEFORE 14NTEREST CHARGES 198,737 190,491 187,570 156,670 131,771 iVET IiNTEREST CHARGES 98,665 91,4Q4 74,300 61,241 76,541 CGNsoLIDATED iVET INcoME - before preferred stock dividend requirements..... 100,072 99,087 113,270 95,429 55,230 PREFERRED STOCK DIVIDENDREQUIREMENTS .. 23,242 - 19,995 18,357 14,041 11,977 EARNINGS APPLICABLE TO COMMohf STOCK.... $ 76,830 $ 79,092 $ 94,913 $ 81,388 $ 43,253 BALAiVCESHEETS DATA:

ELECTRIC UTILITYPI,ANT $ 3,117,381 $ 2,657,93Q $ 2,397,245 $ 2,107,032 $ 1,933,305 ACCUhfULATED PROVISIONS FOR DEPRECIATIONs DEPLETION AND AMORTIZATION........... 561,773 475,643 410,520 358,826 316,916 NET ELECTRIC UTILITYPLANT 2,555,608 2,182,287 1,986,725 1748,206 1,616,389 To TAI. AssETs AND OTHER DEBITs 2,826,172 2,616,996 2,360,813 2,130,899 1,919,189 Coihf MON STOCK, PREhfIUMS ON CAPITALSTOCK AND OTHER PAID IN CAPITAL..... ~ . ~ ~ ~ ~ ~ ~ 637,287 587,193 527,193 467,193 409,193 RETAIiiIEDEARNINGS 124,318 136,802 136,072 105,366 78,776 CUhfULATIVE PREFERRED STOCK:

NOT SUBJECT TO MANDATORYREDEMPTION . 197,000 197,000 197,000 157,000 117,000 SUBJEGTTG MANDATQRYREDEMPTIGN(a) .. 68,348 70,000 30,000 30,000 30,000 LGNG-TERhf DEBT (a) 1,264,673 1,124,255 1,050,626 1,038,483 913,832 (a) Including portion due within one year.

. ~

Management's Discussion and Analysis of

~

Financial Condition and Results of Operations The following are some of the more significant factors Construction and Financing Program bearing on the financial condition of Indiana Ec Michigan Expenditures for the Company's construction pro-Electric Company and its subsidiaries as reflected in the gram over the three-year period 1981-1983 are estimated consolidated results of operations. This discussion refers to be approximately $ 1.1 billion. Substantial additional to the consolidated financial statements appearing on the expenditures may be required if existing generating following pages. plants have to be further modified or require additional facilities to comply with possible future environmental Operating Revenues and Expenses quality standards. In recent years, the construction pro-Consolidated operating revenues increased 15.2% in gram has been affected by substantial increases in con-1979 and 8.7% in 1980. Operating revenues have risen struction costs and difficulties in obtaining financing for more steeply than energy sales because of higher retail the program due to high costs of capital. The construc-and wholesale rates, which went into effect during such tion program is reviewed continuously and revised from period, and higher fuel costs, a portion of which is passed time to time in response to revised projections of load on to customers through fuel adjustment charges. growth and changes in the cost and availability of capital.

Revenues from retail customers (residential, commer- In recent years, these reviews have resulted in extending cial and industrial) rose by 7.4% in 1979 on a 2.1% in- construction schedules of a number of projects with the crease in kilowatt-hour sales, and were down 1.6% in objective of reducing the level of annual construction ex-1980, on a 3.0% decline in kilowatt-hour sales. penditures. However, deferrals of construction projects The Company shared in the AEP System's ability to may have an adverse effect on the quality of the Com-take advantage of its high generating availability, low pany's service to its customers in the future, and any re-operating costs and efficient transmission system to in- sulting reductions in current construction costs may, in crease its opportunity sales to neighboring utilities. the long run, be at least partially offset by cancellation Wholesale revenues increased 29.5% in 1979 and 23.0% charges and general inflationary trends. In addition, in 1980 on increases in kilowatt-hour sales of 19.0% and when the completion date of a project under construction 12.4%, respectively. Wholesale sales to municipalities, is substantially delayed, it becomes more expensive, both electric cooperatives and other electric utilities are ex- because of the foregoing factors and because certain pected to continue to be significant during the next few costs such as real property taxes, allowances for funds years as well. used during construction and other overheads continue The gains in wholesale sales were responsible for in- to accrue until the facility is placed in commercial opera-creases in purchased and interchange power expenses tion.

(6.6% in 1979 and 5.7% in 1980). Because of AEP's It is estimated that approximately 38% of the

~ powerful interconnection and transmission capacity, Company's projected construction expenditures for during periods of peak demand which exceeded the AEP 1981-1983 will be financed with internally-generated System's internal generating capacity, wholesale cus- funds. The additional amounts needed will have to be tomers'equirements were able to be met by purchasing raised externally, as in the past, through sales of securi-power from neighboring utilities for resale to others. ties and investments in the Company's common equity by Fuel expenses increased by 18.0% in 1980, as con- AEP. The Company initially finances current construc-trasted with 16.3% in 1979, with the result that total tion expenditures in excess of available internally-operating expenses increased in line with operating rev- generated funds by issuing unsecured short-term debt enues (10.0% in 1980 and 19.9% in 1979). Future fuel (commercial paper and bank loans) and then periodically expenses may be affected by contract negotiations be- reduces short-term debt with the proceeds from sales of tween the coal industry and the United Mine Workers, long-term debt securities and preferred stock and with increasing foreign purchases of United States coal, and investments in the Company's common equity by AEP.

the possibility of yet more stringent environmental re- The amounts of short-term debt which the Company strictions on burning certain types of coal. Whether or may issue are limited by regulatory restrictions under the not continued increases in fuel costs will adversely affect Public UtilityHolding Company Act of 1935 and by re-earnings will depend on the Company's continued ability strictions in its charter and in certain debt instruments.

to recover those costs promptly in the face of efforts by At December 31, 1980, the Company had received au-consumer groups and others to delay or reduce rate in- thorizations from the Securities and Exchange Commis-creases and to eliminate or reduce the extent of coverage sion to issue a total of approximately $ 200,000,000 of of fuel adjustment clauses. short-term debt. Note 8 of Notes to Consolidated Finan-

INDIAN ICHIGANELECTRIC COMPANY AND SUBSIDIARIES cial Statements contains information on the Company's Net Income short-term bank lines of credit and rev'olving credit Consolidated net income before preferred dividend re-agreements. Bank lines of credit may be withdrawn by quirements decreased by 12.5oIo in 1979 and increased by the banks extending them at any time. I.OVO in 1980. These changes in net income were accom-ln order for the Company to issue additional long- panied by a decrease in the total proportion of allowance term debt and preferred stock, it is necessary for it to for funds used during construction (AFUDC) reflected in comply with earnings coverage requirements contained net income, from 44.7CIO in 1978 to 37.8'n 1979 and an in its mortgage bond and debenture indentures and in its increase to 50.2% in 1980, as a result of the commercial charter. ln order to issue additional long-term debt operation of the Cook Nuclear Plant Unit 2 in 1978 and (except to refund maturing long-term debt), the Com- the increasing investment in the Rockport Plant (now pany must have pre-tax earnings equal to at least twice under construction) in 1980. AFUDC does not represent the annual interest charges on long-term debt, giving cash income. or a reduction in actual interest expense, but effect to the issuance of the new debt, for a period of 12 is an accounting convention required by regulatory sys-consecutive months within the 15 months immediately tems of accounts. The net cost of borrowed funds used preceeding the date of the new issue. To issue additional for construction and a reasonable rate of return on other preferred stock, the Company must have after-tax gross funds when so used is capitalized as a cost of construction income at least equal to one and one-half times annual projects with a concurrent credit to the Income State-interest charges and preferred dividends, giving effect to ment. The amount capitalized is generally included in the the issuance of the new preferred stock, for the same plant investment base for setting rates and recovered period. These provisions do not prevent certain types of through depreciation charges included in rates after the pollution control revenue bond financings by public project is placed in commercial operation.

bodies on behalf of the Company, but the levels of cov-erage under them may affect the cost and marketability Effects of Inflation of such bonds. At December 31, 1980, the coverages of the Company under these provisions were at least 2.39 The high rates of inflation in recent years have had a for long-term debt and 1.36 for preferred stock. drastic effect on the Company's consolidated revenues, ln view of these restrictions on the issuance of addi- expenses and net income that is,not readily evident in tional debt securities and preferred stock, the Company conventional financial statements. For additional infor-believes that it will be possible to meet the capital require- mation on the effects of inflation, refer to Note 13 of the ments of its construction program only if the Company Notes to Consolidated Financial Statements, which pre-receives rate increases over the next several years suffi- sents a consolidated statement of income for 1980, ad-cient to maintain the earnings levels required to issue the justed for effects of changing prices, and a comparison necessary amounts of long-term debt and preferred stock of selected supplementary data for a two-year period, and to provide an appropriate return on new equity similarly adjusted.

investment.

Auditors'pinion Deloitte HaSkinS-SeliS 155 East Broad Street Cotvmbus. Orrio 43215 (6 t 41 221 ~ 1000 Cable DEHANDS To the Shareowners and the Board of Directors of Indiana &

Ni chigan Electric Company:

Me have examined the consolidated balance sheets of Indiana &

Hichigan Electric Company and its subsidiaries as of December 31, 1980 and 1979 and the related consolidated statements of income, retained earnings, and sources and applications of funds for each of the three years in the period ended December 31, 1980.

Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

As discussed in Note 2 of Notes to Consolidated Financial State-ments, (1) a court decision has reversed in part and remanded a 1978 Indiana retail rate order and, (2) the Company is collecting certain wholesale revenues subject to possible refund. In addi-tion, the Company is involved in the antitrust matters discussed in Note 10 of Notes to Consolidated Financial Statements.

In our opinion, subject to the effect on the consolidated finan-cial statements identified above of such adjustments, if any, as might have been requi red had the outcome of the rate and antitrust matters referred to in the preceding paragraph been known, such consolidated financial statements present fairly the financial position of the Company and its subsidiaries at December 31, 1980 and 1979, and the results of their operations, and their sources and applications of funds for each of the three years in the period ended December 31, 1980, in conformity with generally accepted accounting princip'les applied on a consistent basis.

February 24, 1981

IhfDIANA4 ~ CHIGAI)IELECTRIC COMPAIII SUBSIDIARIES I'iVD Consolidated Statements of Income Year Ended December 31, 1979 1978 (in thousands)

OPERATING REvENUEs- ELEGTRIc 5748,680 5689,066 5597,894 OPERATING EXPENSES:

Operation:

Fuel for Electric Generation... 171,943 145,743 125,277 Purchased and Interchange Power (net) . 128,645 121,706 114,154 Other: 79,788 70,184 60,001 459Iaintenance........................... 41,377 37,624 32,724 Depreciation, Depletion and Amortization 77,668 74,099 59,844 Taxes Other Than Income Taxes 26,131 27,176 26,432 State Income Taxes 165 1,529 (378)

Federal Income Taxes . 54,767 49,556 22,020 Total Operating Expenses . 580,484 527,617 440,074 OPERATING INCOME 168,196 161,449 I57,820 OTHER INCOME AND DEDUCTIONS:

Allowance for Other Funds Used During Construction ..~ 18,438 17,365 27,974 vliscellaneous Nonoperating Income Less Deductions.... 12,103 11,677 1,776 Total Other lncomeand Deductions........... 30,541 29,042 29,750 INCOME BEFORE INTEREST CHARGES 198,737 190,491 187,570 INTEREST CHARGES:

Interest on Long-term Debt . 109) 138 96,127 89,397 Interest on Short-term Debt. 18,847 13,787 5,964 ivliscellaneous Interest Charges . 2,507 1,567 1,566 TotallnterestCharges . 130)492 111,481 96,927 Allowance for Borrowed Funds Used During Construction (credit) (31,827) (20,077) (22,627) iVet Interest Charges 98,665 91,404 74,300 CoNsoLIDATED iVET INcoME before preferred stock dividend requirements 100,072 99,087 113,270 PREFERRED SI'OCK DIVIDENDREQUIREMENTS 23,242 19,995 18,357 EARNINGS APPLICABt E To COMMON STOCK S 76,830 5 79,092 5 94,913 See lvo5es ro Consolidared Financial Slalemen5s.

9

Consolidated Balance Sheets December 31, 1980 1979 ASSETS AND OTHER DEBITS (in thousands)

ELECTRIC UTILITY PLANT:

Production. $ 1,501,750 $ 1,442,315 Transmission 433,653 427,818 Distribution 283.153 269,708 General and Miscellaneous (includes nuclear fuel and mining plant) 195,140 38,163 Construction Work in Progress 703,685 479,926 Total Electric UtilityPlant 3,117,381 2,657,930 Less Accumulated Provisions for Depreciation, Depletion and Amortization . 561,773 475,643 Electric UtilityPlant Less Provisions ................. 2,555,608 2, l82,287 OTHER PROPERTY AND INVESTMENTS . 27,409 212,892 CURRENT ASSETS:

Cash 10,665 4,598 Special Deposits and Working Funds . 3,630 3,990 Accounts Receivable:

Customers 62,216 56,928 Associated Companies 23,066 20,576 Miscellaneous 5,319 3,773 Accumulated Provision for Uncollectible Accounts ... (371) '381; Materials and Supplies (at average cost or less):

Fuel. 65,586 49,284 Construction and Operation Materials and Supplies... 19,510 17,309 Accrued UtilityRevenues 11,796 20 104 Prepaymentsand Other Current Assets 4,795 2,093 Total Current Assets 206,212 178,274 DEFERRED DEBITS:

Unamortized Debt Expense . 3,520 3,220 Property Taxes. 1,473 1,402 Deferred Collection of Fuel Costs . 789 1,297 Other Work in Progress . 10,696 11,321 Other Deferred Debits 20,465 26,303 Total Deferred Debits 36,943 43,543 Total $ 2,826,172 $ 2,616,996 See Notes to Consolidated Financial S(atements.

10

INDIAN dc iMICHIGAN TRIC CObfPA/V Y rl IVD SUBSIDIARIES December 3l, 1980 1979 LIABILITIESAiVD OTHER CREDITS (in thousands)

CAPITAUZATION:

Common Stock-No Par Value:

Authorized-2,500,000 Shares Outstanding -1,400,000 Shares $ 56,584 $ 56,584 Premiums on Capital Stock 381 381 Other Paid-inCapital. 580,322 530,228 Retained Earnings 124,318 136,802 Total Common Shareowner's Equity .......... 761)605 723,995 Cumulative Preferred Stock:

Not Subject to iviandatory Redemption 197,000 197,000 Subject to 5 landatory Redemption (less sinking fund requirements due within one year). 67,000 68,500 Long-term Debt (less portion due within one year) ....... 1,245,403 1,088,222 Total Capitalization (less amounts due within one year) 2.271,008 2,077,7 I 7 CDRRENT LIABILITIEs:

Cumulative Preferred Stock Sinking F und Requirements Due Within One Year 1,348 l,500 Long-term Debt Due Within One Year . 19,270 36,033 Short-term Debt:

Notes Payable to Banks . 104,550 93,490 Commercial Paper . 41,975 55,805 Accounts Payable:

General 41,701 45,559 Associated Companies . 13,052 16,127 Dividends Declared:

Common Stock... 11,500 30,130 Cumulative Preferred Stock . 5,805 5,732 Customer Deposits 2 202 2,0I8 Taxes Accrued . 23,804 20,134 Interest Accrued 27,467 21,480 Revenue Refunds Accrued. 20,026 16,470 Other Current Liabilities 24,136 20,195 Total Current Liabilities. 336,836 364,673 COMEIITMENTs AND CGNTINGENcIEs (NQTE 10)

DEFERRED CREDITs AND OPERATING REsERvEs:

Deferred Income Taxes. 191,884 156'47 Deferred Investment Tax Credits .. 17,950 10,712 Other Deferred Credits and Operating Reserves ......... 8,494 7,447 Total Deferred Credits and Operating Reserves .. 218,328 I 74,606 Total $ 2,826,172 $ 2,6I6,996

Consolidated State's of Sources and Applications of Funds Year Ended December 31, 1980 1979 1978 (in thousands)

SQURGEs QF FUNDs:

Funds from Operations:

Consolidated Net Income . $ 100,072 $ 99,087 $ 113,270 Principal Non-fund Charges (Credits) to Income:

Depreciation, Depletion and Amortization........... 83,393 77,746 59,853 Provision for Deferred Income Taxes (net)............ 35,437 35,844 18,359 Deferred Investment Tax Credits (net) . 13,509 10,714 2,425 Allowance for Other Funds Used During Construction . (1&,438) (17,365) (27,974)

Other (net) . 1,274 1,380 506 Total Funds from Operations 215,247 207,406 166,439 Funds from Financings and Contributions:

Issuances and Contributions:

Capital Contributions from Parent Company......... 50,000 60,000 60,000 Cumulative Preferred Stock . 38,708 38,486 Long-term Debt . 177,021 164,069 369,839 Short-term Debt (net) . (2,770) 24,355 23,090 Total 224,251 287,132 491,415 Less Retirements of Cumulative Preferred Stock and Long-term Debt 38,149 90,692 357,877 Net Funds from Financings and Contributions.... 186,102 196,440 133,538 Sales of Property. 50,673 57,898 42,416 Total Sources of Funds $ 452,022 $ 461,744 $ 342,393 APPLICATIONS OF FUNDS:

Plant and Property Additions:

Gross Additions to UtilityPlant $ 304,678 $ 321,405 $ 340,209 Gross Other Additions 6,013 47,028 31,024 Total Gross Additions . 310,691 368,433 371,233 Allowance for Other Funds Used During Construction ....... (18,438) (17,365) (27,974)

Net Plant and Property Additions. 292,253 351,068 343,259 Dividends on Common Stock 89,320 77,070 62,692 Dividends on Cumulative Preferred Stock . 23,242 19,995 18,357 Other Changes (net) 11,117 1,953 13,675 Increase (Decrease) in Working Capital (a) 36,090 11,65& (95,590)

Total Applications of Funds $ 452,022 $ 461,744 $ 342,393 (a) Excludes Cumulative Preferred Stock Sinking Fund Requirements Due Within One Year, Long-term Debt Due Within One Year and Short-term Debt and is represented by increase (decrease) as follows:

Cash and Cash Items $ 5,707 $ (19,426) $ (59,280)

Accounts Receivable 9,334 12,059 8,696 Materials and Supplies . 18,503 37,698 107 Accrued UtilityRevenues (8,308) 6,293 (4,338)

Accounts Payable 6,933 4,079 (29,809)

Dividends Declared on Common Stock .............. 18,630 (15,878) (2,892)

Revenue Refunds Accrued (3,556) (3,679) (5,865)

Taxes Accrued (3,670) (129) (1,201)

Other (net) . (7,483) (9,359) (1,008)

$ 36,090 $ 11,658 $ (95,590)

See lVores to Consolidated Financial Statements.

INDIANA MICHIGANELECTRIC COMPANY AND SUBSIDIARIES Consolidated Statements of Retained Earnings Year Ended December 31, 1980 )979 t978 (in thousands)

Balance at Beginning of Year:

As Previously Reported $ 137,876 $ 136,829 $ 104,566 Restatement(Note2) . (1,074) (757) 800 As Restated 136,802 136,072 105,366 Consolidated Net Income . 100,072 99,087 173,270 Total. 236,874 235,159 278,636 Deductions:

Cash Dividends Declared:

Common Stock 89,320 77,070 62,692 Cumulative Preferred Stock:

48/i %Series . 495 495 495 4.56% Series 273 273 273 4.12% Series . 165 165 165 7.08% Series 2,124 2,124 2,124 7.76% Series 2,716 2,716 2,716 8.68% Series 2,604 2,604 2,604 12 %Series 39425 3,600 3,600

$ 2.15 Series 3,440 3,440 3,440

$ 2.25 Series 3,600 3,600 2,940

$ 2.75 Series 4,400 978 Total Cash Dividends Declared . 112,562 97,065 81,049 Capital Stock Expense . (6) 1,292 7,373 Total Deductions... 112,556 98,357 82,366 Balance at End of Year $ 124,318 $ 136,802 SI36,072 See ltiotes to Consolidated Financial Statements.

Notes to Consolidated Financial Statements

1. Significant Accounting Policies: bodies and in certain respects to the requirements of the The common stock of the Company is wholly owned Federal Energy Regulatory Commission (FERC).

by American Electric Power Company, Inc. (AEP). The consolidated financial statements include the ac-A wholly owned subsidiary, Indiana 2 Michigan counts of the Company and two wholly owned subsidi-Power Company (the Generating Subsidiary) was merg- aries engaged in coal mining. Significant inter-company ed into the Company on November 30, 1979, at which items have been eliminated in consolidation. The consoli-time the Company assumed the obligations of the Gen- dated financial statements have been prepared on the erating Subsidiary. basis of the accounts which are maintained for FERC The accounting and rates of the Company are subject purposes.

in certain respects to the requirements of state regulatory 13

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)

Electric Utility Plant; Other Property and Investments; Income Taxes Depreciation, Depletion and Amortization Deferred Federal income taxes, reduced where ap-Electric utility plant is stated at original cost. Gener- plicable by investment tax credits, are provided by the ally, the plant of the Company is subject to first mor- Company generally to the extent that such amounts are tgage liens. allowed for rate-making purposes. On October 1, 197S, The Company capitalizes, as a construction cost, an January 1, 1979 and May I, 1979, the Company expanded allowance for funds used during construction, an item deferred tax accounting to additional book/tax timing not representing cash income, which is defined in the differences pursuant to orders of the Public Service Com-applicable regulatory systems of accounts as the net cost mission of Indiana (PSCI), FERC and the Michigan Pub-of borrowed funds used for construction purposes and a lic Service Commission (MPSC), respectively.

reasonable rate on other funds when so used. The com- The Company normalizes the effect of tax reductions posite rates used by the Company were 10.75% during resulting from investment tax credits recognized in con-1980 and 1979, and 10.5% in 1978, (the Generating Sub- nection with accruals of current income taxes and provi-sidiary used 10.5% and 10.2%, during 1979 and 1978 ap- sions for certain deferred Federal income taxes, con-plied on a semi-annual compound basis). sistent with rate-making policies. The deferred invest-The Company provides for depreciation on a straight- ment tax credits applicable to current Federal income line basis over the estimated useful lives of the property. taxes payable are amortized over 30 years.

The current provisions are determined largely with the The consolidated coal subsidiaries use the "flov:-

use of functional composite rates as follows: through" method of accounting for investment tax Functional Composite cl'edt ts.

Class of Annual Property Rate Pension Plans Production: The companies participate with other companies in the Steam. Nuclear, 4.0 el'o AEP System in a non-contributory trusteed plan to pro-Steam-Fossil. fired 3.l eto Tr'ansmission. 2.9oto vide pensions for all their employees who are not partic-Distribution........,.. 3.3ei'o ipants in pension plans of the United Mine Workers of General 3.Seto America (UMWA), subject to certain eli-gibility requirements. The pension plan conforms to Depreciation, depletion and amortization of coal- the Employee Retirement Income Security Act of 1974 mining property are provided in amounts estimated to be (ERISA).

sufficient to amortize the costs of the related assets, less Pension costs for the years ended December 31, 1980, any estimated salvage (which is not significant), over 1979 and 1978 were approximately $ 3,416,000, $ 3,117,000 their useful lives and are calculated by use of the and $ 2,624,000, respectively. These amounts cover the following methods: costs of currently accruing benefits and amortization of, Description Method and interest on, unfunded prior-service costs. The latter Mining Structures and Straight-line method (original lives costs, approximately $ 1,943,000 at December 31, 1979, Equipmem range from 2 to 30 years) the date of the most recent actuarial study, are being Coal Interests and Mine Units-of-production method Developmem Costs (based on estimated recoverable amortized over 30 years. The plan may be modified or tonnages; current rate averages terminated at any time, subject to limitation of labor Sl.05 per ton) agreements.

Substantially all of the amount of the provisions for At December 31, 1979, the actuarial present value of depreciation, depletion and amortization of coal-mining accumulated vested benefits was $ 44,567,000 and the ac-property is classified in the Consolidated Statements of turarial present value of accumulated nonvested benefits Income as fuel for electric generation. was $ 2,561,000. The market value of net assets available Operating expenses are charged with the costs of for benefits at December 31, 1979 was $ 66,615,000. The labor, materials, supervision and other costs incurred in assumed rate of return used in determining the actuarial maintaining the properties. Property accounts are present value of accumulated benefits was 8%.

charged with costs of betterments and major replace- Under a contract with the UMWA, a subsidiary is re-ments of property and the accumulated provisions for quired to make payments into two multi-employer pen-depreciation are charged with retirements, together with sion plans based on coal production and hours worked.

removal costs less salvage. The cost of the plans was approximately $ 1,690,000 in Other property and investments are generally stated at 1980. As of June 30, 1980, the Company's actuary esti-cost. mates, based on information that is available, that the 14

INDIA MICHIGA>vELECTRIC COMPANYY AND SUBSIDIARIES subsidiaries'hare of the unfunded vested liabilities of The Company has collected retail revenues under final the UM~VA pension plans approximates $ 9,200,000.

orders of PSCI which became effective in February 1977 Black Lung Benefits and September 1978. In November 1979, a Court of Ap-peals ruled that the 1977 increase granted by the PSCI The subsidiaries engaged in coal-mining activities are

($ 41,800,000 on an annual basis) was excessive, said that liable under the Federal Coal Mine Health and Safety Act the PSCI had over-estimated the Company's Federal in-of 1969 (Act), as amended, to pay certain black lung bene- come tax allowance, and ordered the case sent back to the fits to eligible present and former employees. Effective PSCI for further hearings. The Company has appealed January I, 1980, self-insurance accruals are being pro-the ruling to the Supreme Court of Indiana. The Com-vided sufficient to amortize the actuarially computed pre-pany's petition to the Indiana Supreme Court for review sent and future liabilities for such benefits over the aver-of this decision was denied on April 29, 1980. Hearings age remaining life of the mines. The provision in 1980 was were held before the PSCI on October 30, 1980. On Janu-approximately $ 391,000. On December 28, 1979, a Black ary 21, 1981, the PSCI issued an order requiring the Lung Benefits Trust was established by the AEP System Company to refund to its Indiana retail customers under Section 501(c)(21) of the Internal Revenue Code.

$ 9,315,000, including interest of $ 1,215,000. Prior At January 1, 1980 (the date of the latest actuarial valua-periods have been restated to give effect to such refunds.

tion), the subsidiaries'nfunded actuarial value of medi-On February 19, 1981, the Company filed its refund plan cal and liability benefits under the Act, as weil as com-for the disposition of the $ 9,315,000 refund. The Com-parable state legislation, was approximately $ 12,000,000.

pany indicated it is prepared to proceed with the refund Commencing in 1980, the companies began funding the plan, however, it requested a stay of the refund pending actuarially determined liabilities, including a provision any appeal that may be made by another party to the pro-for the previously accrued but unfunded liabilities, at a ceeding. Subsequently, the PSCI issued an order approv-level which currently approximates the recorded expense ing the refund plan but denying the Company's request provisions.

for a stay. In a separate proceeding before the Court of Other Appeals, certain petitioners have similarly challenged the The Company accrues unbilled revenues for services tax provision allowed in the 1978 increase ($ 43,000,000 rendered subsequent to the last billing cycle through on an annual basis) granted by the PSCI. On February 5, month-end. 1981, the Court of Appeals of Indiana affirmed, in part, iviiscellaneous nonoperating income for the years and reversed, in part, the PSCI decision, relating to the ended December 31, 1980, 1979 and 1978 includes gains 1978 increase and remanded the matter to the PSCI for amounting to S397,000, S147,000 and S261,000, respec- further proceedings with respect to certain issues, includ-tively, on certain long-term debt reacquired. ing the issue relating.to Federal income tax expense.

Debt discount or premium and debt expense are being Three commercial customers have filed a complaint with amortized over the lives of the related debt issues and the a Circuit Court in lvfichigan appealing an order of MPSC amortization thereof is included within miscellaneous allowing the Company a $ 10,800,000 annual rate in-interest charges. crease in 1979, seeking a summary judgment in connec-tion with the tax provision allowed in the rate increase.

2. Restatements, Operating Revenues and Operating The Company is an intervening defendant in the proceed-Expenses: ing. The Company cannot predict the outcome of these The 1979 and 1978 financial statements have been re- matters.

stated to refiect the effects of certain revenue refunds as wholesale-for-resale transactions are effected among ordered by federal and state regulatory commissions in the principal operating companies of the AEP System 1980. The effects of such restatements are as follows: pursuant to a System interconnection agreement. In May 1975, the FPC permitted a modification to the intercon-Year Ended Increase (Decrease) in: December 31. nection agreement to be placed into effect as of June 2, 1979 1978 1975, subject to refund. The modification has the effect (in thousands) generally, of decreasing the expenses of those System Operating Revenues................. 5(2,077) 5(5,586) companies which have a generating capability in excess Operating Expense: .of their peak loads pius appropriate reserves, and of Purchased and Interchange increasing the expenses of those participating companies Power(net) (1,013) ~

(2,153) which have negative capacity balances. In July 1979, FederallncomeTax ............... (252) (1,418)

FERC issued an opinion and order which generally ap-Miscellaneous Interest Charges...... 520 278 Miscellaneous Nonoperating Income... 1,015 736 proved the 1975 modification, but ordered that the Consolidated Net Income ........., .. 5 (317) 5(1,557) monthly capacity equalization factor applicable to settle-15

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued) ments among System companies under the interconnec- complete the compliance program previously authorized tion agreement be reduced from a basis of a 17.5efo by FERC. The amounts shown in the Consolidated State-annual carrying charge, to a 16.49efo annual carrying ments of Income for the years 1979 and 1978 and the charge. In August 1979, AEP System companies filed a other financial data with respect to such periods included supplement to the modiTication causing the monthly herein, reflect the prior period adjustments authorized carrying charge factor to be reduced in accordance with by FERC.

the FERC order. In November 1979, FERC accepted the Revenues collected by the Company from other whole-supplement to the modification for filing and made it sale and retail rate increases placed into effect subject to effective June 2, 1975. In September 1979, FERC issued possible refund are estimated as follows:

an order denying an application for rehearing by AEP (in thousands)

System companies and other parties to the proceeding, 1980 . $ 16,923 confirming its decision of July 1979, and providing that 1979 18,988 adjustments from the effective date of the modification 1978 . 10,151 Prior to197S 19,320 to reflect the revised monthly carrying charge factor should be effected by credits to future billings rather than Total $ 65,3S2 through cash refunds. In October 1979, AEP System See Note10 for information with respect to an antitrust companies filed with FERC a plan designed to effect the required adjustments through credits to future billings decision enjoining the Company from charging certain and in September 1980, FERC approved the compliance wholesale rates.

program. In October 1980, the Company and other AEP Operating revenues derived from a certain wholesale System companies party to the modification requested customer represent approximately 9', 10tro and 12'f and, in December 1980, FERC authorized the Company total operating revenues for 1980, 1979 and 1978, and the other AEP System companies to restate their respectively.

respective accounts to record as prior period adjustments ln 1978, the Company received approval of the PSCI the settlement of intrasystem transactions and related to collect, over a five-year period ending in 1983, substan-interest, net of related income tax effects. Action was tially all of its deferred fuel costs.

commenced effective with December 1980 billings to

3. Federal Income Taxes:

The details of Federal income taxes are as follows:

Year Ended December 31.

1980 1979 197S (in thousands)

Charged to Operating Expensete Current Federal Income Taxes(net). $ 6,983 $ 5,293 $ l,357 Deferred Federal Income Taxes (net) . 34,275 33,549 18,238 Deferred Investment Tax Credits(net) 13.509 10,714 2.425 Total. 54,767 49,556 22,020 Charged (Credited) to Other Income and Deductions:

Current Federal Income Taxes (net).... 1,526 (1,297) 815 DcferredFederal Income Taxes(net)... 1,162 2.295 121 Total . 2,688 99S 936 Total Federal Income Taxes $ 57.455 $ 50.554 $ 22.956

INDIA MICHIGANELECTRIC COMPANY AND SUBSIDIARIES The companies'ffective Federal income tax rates were less than the statutory rates for the years 1980, 1979 and 1978.

The following is a reconciliation of the differences between the amount of Federal income taxes computed by multiply-ing net income before Federal income, taxes, by the applicable statutory tax rate and the amount of Federal income tax expense reported in the Consolidated Statements of Income.

Year Ended December 31, 1980 1979 1978 (in thousands)

Consolidated Net Income- before preferred stock dividend requirements. S 100,072 5 99,087 5113,2?0 Federal Income Taxes 57,455 50,554 22,956 Prc-Tax Book Income 5157,527 5149,641 5136.226 Federal Income Tax on Pre-Tax Book Income at Statutory Rate of 46oro in 1980 and 1979 and 48o'o in 1978 5 72,462 5 68,835 5 65,388 Increase (Decrease) in Federal income Taxes Resulting from:

ExcessofTax over Book Depreciation .. (16,794) (22,149) (19,691)

Allowance for Funds Used During Construction and Miscellaneous Items Capitalized on the Books but Deducted for Tax Purposes (not shown below) (24,532) (18,338) (25,853)

(~tine Developmem and Exploration Expense. (211) (2,487) (4,680)

Unbilled Revenues 3,793 (2,867) 2,054 Amortization of Pollution Co'ntrol Facilities ...................... (4,032) (4,030) (4,080)

Other.. 144 (4.281) (1,405)

Federal Income Tax on Current-Year Taxable Income(separate-return basis) 3Q,830 14,683 11,733 Adjustment Due to System Consolidation . (10,394) (8,380) (I l,?33)

Minimum Tax on Preference items 650 Current- Year Investment Tax Credit. (14,305) (4,431)

Currently Payable 6,131 1,872 650 Adjustments of Prior-Year Accruals(net) (210) (683) (276)

Adjustments for Tax Losses (a):

Federal Income Taxes 8,625 10,447 7,503 Investment Tax Credit (6,037) (7,640) (5.(05)

Current Federal Income Taxes (net). 8,509 3.996 2, ((2 Deferred Federal income Taxes (net of amortization) Resulting from the Following Timing Differences:

Depreciation(liberalized and asset depreciation range) . 16,689 20,513 17,439 Amortization of Pollution Control Facilities 3,'?67 3,719 573 Allowance for Borrowed Funds Used During Construction . 12,130 7,918 1,148 Unbilled Revenues. (3,822) 2,590 (2,082)

Percentage Repair Allowance 5,005 1,894 403 Accelerated Amortization at'mergency Facilities(amortization of prior.year provisions) .......... (2,131) (1,817) (1,848)

Other. (1,432) (121) (474)

Investment Tax Credit Applicable to Deferred Federal Income Taxes on Certain Timing Differences .. 5,231 1,148 3,200 Deferred Federal Income Taxes (net) . 35,437 35,844 18,359 Deferred Investment Tax Credits(net) 13,509 10,714 2,425 (b)

Total Federal Income Taxes S (7,4(( 5 5Q,554 5 22,956 (b)

(a) The AEP System allocates Federal income taxes currently payable in accordance with Securities and Exchange Commission (SEC) regulations which require that the benetit of tax losses be allocated to the AEP System companies with taxable income. The benefits of these tax losses, without affecting taxes payable, are reallocated to the AEP System companies giving rise to such losses, as it is expected that these losses would be usable in subsequent years to reduce taxes payable of the loss companies through the application of the SEC allocation.

(b) Federal income taxes for 1977 were approximately 53,194 000 less than originally estimated due to changes in repair allowance and mine develop-ment deductions. However, taxes payable were not significantly affected due to available investment tax credit offsets. The reduction was recorded in the third quarter of 1978 principally as a reduction of deferred investment tax credits.

17

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)

The companies join in the filing of a consolidated ings due predominantly to the availability of substantial'nvestment Federal income tax return with its affiliated companies tax credit carryforwards and def'erred Federal in the AEP System. Unused System investment tax income tax provisions relating to certain of the proposed credits at December 31, 1980 aggregated approximately disallowances, although the ultimate effect is not pres-

$ 267,000,000, of which approximately SI3,000,000 may ently determinable.

be carried forward through 1984, S92,300,000 through

4. Other Property and Investments'.

1985, S56,800,000 through 1986 and $ 104,900,000 through 1987. As required by the Internal Revenue Code, A portion of the Company's Western coal r'eserves approximately $ 37,300,000 of these amounts, generated were transferred to Blackhawk Coal Company (a wholly by Columbus and Southern Ohio Electric Company owned subsidiary) as of September I, 1980. The amount prior to its acquisition, must be utilized by it. Of the of the investment transferred to Blackhawk, included in System investment tax credit carryforwards, approxi- other property and investments at December 31, 1979, mately $ 29,000,000 has been applied as a reduction of was S185,373,000.

deferred income taxes prior to December 31, 1980 and will not be reflected in net income when realized in future 5. Common Stock, Premiums on Capital Stock and years except as affected by changes in deferred income Other Paid-in Capital:

taxes.

The System's consolidated Federal income tax returns The Company received from its parent cash capital for the years prior to 1970 have been settled. The returns contributions of $ 50,000,000 in 1980, $ 60,000,000 in for the years 1970 through 1973 have been reviewed by the 1979 and $ 60,000,000 in 1978. In 1980 a credit to other Internal Revenue Service (IRS) and additional taxes for paid-in capital of $ 94,000 represented the excess of par those years have been proposed, some of which the Sys- value over cost of cumulative preferred stock reacquired tem companies have protested. In the opinion of the Sys- by the Company to meet sinking fund requirements.

tem companies, adequate provision has been made for There were no common stock transactions and no trans-such additional taxes. The IRS has also completed its actions affecting premiums on capital stock during the review of the returns for the years 1974 through 1976. years 1980, 1979 and 1978.

Although the IRS has proposed substantial disallow-ances, such disallowances, ifsustained, would not result 6. Retained Earnings:

in a material assessment of additional taxes due to the Various restrictions on the use of retained earnings for availability of substantial investment tax credit carry- cash dividends on common stock and other purposes are forwards. The System companies are protesting the bulk contained in or result from covenants in mortgage of the proposed disallowances. Based on the information indentures, debenture and bank loan agreements, charter available at this time, the effect of the proposed dis- provisions and orders of regulatory authorities. Approxi-allowances is not expected to be material to System earn- mately $ 48,800,000 at December 31, 1980, was so restricted.

18

INDIAN dl IICHIGANELECTRIC COdMPANY AND SUBSIDIARIES 7, Cumulative Preferred Stock:

At December 31, 1980, 25....,

Par Value

$ 100.

authorized shares of cuinulative preferred stock were as follows:

Shares Authorised 2,250,000 11,200,000 in 1978 shareowners authorized an increase of $ 25 par value cumulative preferred stock to 7,200,000 shares and in 1980 additional authorization was received for an increase to 11,200,000 shares. The cumulative preferred stock is callable at the option of the Company at the price indicated plus accrued dividends. The involuntary liquidation preference is par value. Unissued shares of the cumulative preferred stock may or may not possess mandatory redemption characteristics upon issuance. The Company issued and sold 1,600,000 shares of the $ 2.25 series in 1978; and 1,600,000 shares of the

$ 2.75 series in 1979.

A. Cumulative Preferred Stock Not Subject to Mandatory Redemption:

Amount Redemption Current Restricted Par Shares December 31, Series Call Price Prior to Value ~Outaandin 1980 1979 (in thousands) 4i//t <o $ 106.125 $ 100 120,000 S 12,000 S 12,000 4.56o'o 102 100 60,000 6,COO 6,000 4.12o/o 102.728 100 40,000 4.000 4,000 7.08oi'o 106.45 100 300,000 30,000 30,000 7.7R'o 107.32 100 350,000 35,000 35,000 8.68o/o 107.& 100 300,000 30,000 30,000

$ 2.15 27.15 5/I/82 1,600,000 40.000 40,000

$ 2.25 27 25 3/I/83 25 1,600,000 40.000 40.000 S 197.000 $ 197.000 B. Cumulative Preferred Stock Subject To Mandatory Redemption:

Amount Redemption Current Restricted Par Shares December 31.

~Seriesic Call Price Prior to Value ~Outanndin 1980 1979 (in thousands) 12o/o(a) $ 112 $ 100 283,480 $ 28,348 $ 30,000

$ 2.75(b) 27.75 10/I/84 o5 1,600,000  %.000  %.000 68,348 70,000 Less Sinking Fund Requirements Due Within One Year. 1.348 1.500

$ 67.000 $ 68.500 (a) A sinking fund for the I2o/o series requires the Company to provide, on or before October I of each year, beginning in 1980, for the purchase, or redemption at $ 100 a share. of IS,COO shares of such series. The Company has the right, on each sinking fund dare, to redeem an additional 15,000 shares. At December 31. 1980 the Company had reacquired 1.520 shares in anticipation of sinking fund requirements. Unless all sinking fund provisions have been met, no distribution may be made on the common stock.

(b) A cumuhtive sinking fund for the $ 2 75 series requires the Company to redeem 80 000 shares on each October I commencing on October I, 1984.

The Company has the option to credit shares purchased or otherwise acquired in lieu of redeeming shares for the sinking fund and has th'e non-cumuhtive option to double the number of shares to be redeemed in any year on and after October I, 1984.

(c) The minimum sinking fund provisions of the series subject to mandatory redemption aggregate Sl,500 000 in each of the years 1981 1982 and 1983,

~

and $ 3.500,000 in 1984 and 1985.

19

NOTES TO CONSOLIDATED FINANClALSTATEMENTS (Continued)

8. Long-term Debt, Lines of Credit and Compensating trustee, or in lieu thereof, certification of unfunded Balances: property additions. The Company has elected to use un-Long-term debt by major category was outstanding as funded property additions to meet these provisions in the follows (less portion due within one year): past.

December 31, Sinking fund debentures of the Company outstanding 1980 1979 were as follows:

(in thousands) December 31.

First I)fortgage Bonds ................. $ 1.044,369 S 924.464 1980 1979 Sinking Fund Debemures.............. 22,70523,66S (in thousands)

Installmem Purchase Comracts......... 158,799 119.678 5)/88ro Due 1986- June 1 ....... $ 11,266 $ 11,898 Other Long term Debt ................ 19.$ 30 20.412 7 Vd oio Due 199S- hlay 1........ 11.390 11,'713 Total (less ponion due within Unamortized Premium........ 49 57 one year) $ 1.245.403 $ 1.088.222 Total . $ 22.705 $ 23.66S First mortgage bonds outstanding were as follows:

December 31. 1nstallment purchase contracts have been entered into o'o Rate Due 1980 1979 by the Company in connection with the issuance of pollu-(in thousands) tion control revenue bonds by governmental authorities 2i/. 1980- June I .............,. 5 5 IS,015 38/4 1982- January I ............ 16,046 16.046 as follows:

IOYd 1982- June I .. ~............ 70,000 70,000 38/8 l983-September I .......... 139762 13,762 Decembn 3l.

II 1983-September I ......,... 60,000 60,000 oro Rate Due 1980 1979 38/i 19S4-Onober I,........... 15,082 15,082 (in thousands)

IOYi 1984- December ) (c)(d)(e) ... 61,500 63,000 City of Lawrenceburg, Indiana:

10 1985-March I (e)........... 12,000 12,750 S)/: 2006- July l................ 25,000 S 258000 108/4 1987- January I ............ 80,000 S0,000 7 2006-hlayt................

S 40,000 40,000 13Yi 1987-February I (a)......... 55,000 2006- May I,...,...,...,... 12,000 12,000 19BS-February I .........,.

69/8 3 Yi 22,974 22,974 City of Rockport, Indiana:

4i/. 19SS-Novembn I ...,...... 17,557 17,557 9)/i 2005- June I ......,...,.... 6,500 118/8 1990- June I (b) . ......... 80,000 2010-Junc l ...,....,...... 33,$ 00 4'993-August I .........., .. 42,902 42,902 98/4 City of Sullivan, Indiana:

'7 1998-May I ............... 35,000 3$ ,000 2004- May l................ 7,000 7,000 2000-April l...............

7 Vi 8 Yi 50,000 $ 0,000 6 Yi 2006- May l................ 25,000 25.000 9Yi 2003- June I (d)(e).......... 288,500 300,000 7)/8 2009-May 1,...,........... 13,000 8 Yi 2003- December I........, .. 40,000 40,000 Unamortized Discount .............., (3.201) (o 3o2) 2008-March l...,,.........

9)A 100,000 100,000 Unnmorr)redo)eeoom)ner)........,... [).454) ~859) Total., $ 158.799 $ 119.678 1,058.869 956,229 Less Portion Due Within One year....... 14.500 31,765 Under the terms of certain installment purchase con-Total . Sl.(M.369 $ 924.464 tracts, the Company is required to pay purchase price (a) Issued by the Company in February 19SO. installments in amounts sufficient to enable the cities to (b) Issued by the Compan>'n June 1980. pay interest on and the principal (at stated maturities and (c) Guaranteed by American Electric Pov'er Company, inc.

(d) On Novembn 30, 1979, the Company assumed the obligation of the upon mandatory redemption) of related pollution con-Generating. Subsidiary to pay the principal of and interest on these trol revenue bonds issued to finance the construction of bonds. which are secured by a first mortgage lien on the Nuclear pollution control facilities at certain generating plants of Plant.

(e) Sinking fund payments are required as follows:

the Company.

IO)ro series due 1985-$ 750,000 annually on March I.

IOYioio series due 1984-$ 2,250,000 annually on December I, Other long-term debt outstanding consisted of:

through 1983, v:ith the noncumu! ative election to redeem an addi-tional $ 2,250,000 in each year.

98/ oi'o series due 2003-$ 11,500,000 annually on June I through

~ December 31.

)991 and $ 13,500,000 annually on June I, 1992 through 2002 with 1980 1979 the noncumulative option to redeem an additional amount in (in thousands) each of the specified years from a minimum of $ 100,000 to a Coal Resnve Obligations Payable in Equal maximum equal to the scheduled requirement for each year, but with a maximum optional redemption, as to all years in the Annual Installments Through 1985 with Interest at Soi'o . $ 23,688 $ 23,926 aggregate, of $ 75,000.000.

Notes Payable Due l981 Through 1985, 6oio. 7 od'o. 612 644 Other. 110 The indentures relating to the first mortgage bonds 24,300 24,680 contain improvement, maintenance and replacement Less Portion Due Within One Year 4.770 4.268 provisions requiring the deposit of cash or bonds with the Total . $ 19,530 $ 20.412 20

IIVDIAIV'ICHIGAIV ELECTRIC COMPAtVY AIvD SUBSIDIARIES Long-term debt of the Company, excluding premium $ 100,000,000. The line of credit requires a commitment or discount, outstanding at December 31, 1980 is due as fee of Yi of 1% per annum of unused credit.

follows: The Company had unused short-term bank lines of credit of approximately $ 195,000,000 and $ 124,000,000 (in thousands) at December 31, 1980 and 1979, respectively, under 1981 $ 19,270 which notes could be issued with no maturity more than 1982 I05)808 1983.

270 days after date of issue. The available lines of credit 93,531 1984. 87,352 are subject to withdrawal at the banks'ption, and 1985 25,536 $ 181,000,000 and $ 104,000,000, respectively, of such Later Years 937.783 lines are shared with other AEP System companies. In

$ 1.269.280 accordance with informal agreements with the banks, compensating balance deposits of up to 10% or, in cer-At December 31, 1980 and 1979, the principal amounts tain instances, equivalent fees are required to maintain of debentures reacquired in anticipation of sinking fund the lines of credit and, on any amounts actually bor-requirements were $ 1,944,000 and $ 1,789,000, respec- rowed, generally either additional compensating balance tively. The Company may make additional debenture or deposits of up to 10% are maintained or adjustments in first mortgage bond sinking fund payments of up to interest rates are made. Substantially all bank balances

$ 14,550,000 annually. are maintained by the Company to compensate the banks At December 31, 1980, the Company had an un- for services and for both used and available lines of used revolving line of credit with various banks of credit.

9. Supplementary Income Statement Information and Related-Party Transactions:

Electric operating revenues shown in the Consolidated Statements of Income include sales of energy to AEP System companies of approximately $ 17,400,000, $ 17,000,000 and $ 17,500,000 for the years ended December 31, 1980, 1979 and 1978, respectively.

Operating expenses shown in the Consolidated Statements of Income include certain items not shown separately, as 1 ollows:

Year Ended December 31.

1980 1979 1978 (in thousands)

Purchased Power(a) . 5 42,147 $ 16,485 5 6,241 Interchange Power (net):

AEP System Electric Utilities. 87,111 105,606 77,889 Other Companies (b) ., (613) ~3)) 30.024 5128.645 5121,706 $ 114.154 Taxes Other Than Income Taxes:

Real and Personal Property Taxes . 516,193 $ 15,230 S14.617 State Gross Sales, Excise and Franchise Taxes and Xtiscelianeous State and Local Taxes. 7,309 9,501 9.842 Social Security Taxes- Federal and State 2.629 2,445 1,973

$ 26.131 $ 27.176 $ 26,432 Fuel for Electric Generation includes charges relating to mining operations, as I'ollows:

) Iaintenance

$ 5,680 $ 3,787 Depreciation. Depletion and Amortization ....,.......,.... 5,653 3,643 TaxesOther ThanFederal Income Taxes ................... 1.061 686 (a) Includes power purchased from Ohio Valley Electric Corporation (OVEC) of approximately 515,S37,000 in 1980, $ 4,205,000 in 1979 and 51 ~ 558,000 in 1978.

(b) Includes interchange power sold to OVEC of approximately $ 386,000 in 19SO, 51,367,000 in 1979 and $ 908,000 in 1978.

21

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)

Charges to operating expenses for royalties and for placed limitations on the Company's putting into effect advertising are less than 1 <io of gross revenues in each year. or charging wholesale rates to the plaintiffs and enjoined Sales and purchases of energy and interchange power the Company from certain practices. The financial state-transactions are regulated by the various commissions ments at December 31, 1980 and 1979 do not include any having jurisdiction. provision for such damages. The Company, AEP and American Electric Power Service Corporation pro- American Electric Power Service Corporation have ap-vides certain services to the Company and the affiliated pealed the decision to the United States Circuit Court for companies in the AEP System. The costs of the services the Seventh Circuit which, on February 21, 1980 issued a are determined by the service company on a direct charge decision which affirmed the decision of the District basis to the extent practicable and on reasonable bases of Court, but vacated the damage and injunctive provisions proration for indirect costs. The charges for services are of its decision and remanded them to the District Court made on a costbasis and include no compensation for the for additional proceedings. In March 1979, two other use of equity capital, all of which is furnished to the municipal customers brought a separate action against service company by AEP. The service company is subject the Company, its parent and the Service Corporation al-to the regulation of the SEC under the Public Utility leging violations of the antitrust laws and 'seeking dam-Holding Company Act of 1935. ages of at least $ 7,000,000 before trebling and other rem-edies. Certain issues in the complaint are similar to those 10, Commitments and Contingencies:

tried in the consolidated case.

The construction budget of the companies for the year 1981 is estimated at $ 303,000,000 and, in connection In another proceeding, the Company is awaiting a therewith, commitments have been made. decision with respect to a ruling by an administrative law The Company participates with its parent, three judge in 1977 on a complaint made to FERC by eleven associated utility companies, several unaffiliated utility municipalities. That complaint alleged that the munici-companies, and OVEC in supplying the U.S. Depart- pal electric systems had been threatened with termination ment of Energy(DOE) with the power requirements of its of wholesale electric service. The Company has filed a plant near Portsmouth, Ohio. The proceeds from the brief on exceptions with FERC. The Company cannot sales of power by OVEC are designed to be sufficient for predict whether the initial decision will become the final OVEC to meet its operating expenses and fixed costs, decision of FERC without change or the effect thereof.

including amortization of long-term debt capital Two contractors, United Nuclear Corporation and (balance approximately $ 4,000,000 as of December 31, General Atomic Company (GAC), are variously obli-1980), over a period ending in1981 and the completion of gated to supply uranium concentrates and six fabricated the purchase of pollution control facilities (the nuclear-fuel reloads to the Company. Each contractor unamortized cost of which aggregated approximately claims, among other things, that it is not or may not be

$ 163,000,000 at December 31, 1980) and to provide for obligated to make deliveries of uranium concentrates or an annual return on its equity capital. The Company, as a fabricated nuclear-fuel reloads and that it is entitled to a participant, is entitled to receive from OVEC, and is obli- price higher than contracted. The Company received the gated to pay for 7.6'f the power not required by first two reloads and assured delivery of the remaining DOE. The power agreement terminates by its terms, in four reloads through rights-reserved agreements with 1992. GAC, which were incorporated into injunctive orders of In 1978, three court proceedings brought in recent the court. Under the agreements, pending the court's years by certain municipalities in Indiana and Michigan, judgment and without prejudice to the ultimate rights of all wholesale customers of the Company, were combined the parties, the reloads were to be supplied at a higher into a single consolidated case in the United States Dis- provisional cost to the Company. In 1978, a U.S. District trict Court for the Northern District of Indiana and a Court entered judgment ordering GAC to pay the Com-fourth action was commenced in the same court. A trial pany damages of approximately $ 16,000,000 and to of the consolidated case was held and in January 1979 the deliver the remaining reloads at the price specified in the court ruled for the plaintiffs that the Company, its par- contract. GAC has appealed the judgment. A stay of the ent, and American Electric Power Service Corporation monetary portion of the judgment has been granted, but have violated, the antitrust laws, awarded the municipali- motions to stay the specific-performance portion of the ties damages of approximately $ 12, 100,000 when trebled, judgment have been denied.

22

lÃDIAIv MICHIGAN EI ECTRIC COhIPA/VY AiVDSUBSIDIARIES In 1978, a retail customer of the Company com- record in the proceeding for review by the Commission menced an action, individually and as representative of and ordered that the procedural schedule be placed in an alleged class, in the U.S. District. Court;.,alleging that abeyance, pending a further directive. The Company the Company's lease of electric utility assets from the cannot assess the outcome or significance of this City of Fort Wayne is in violation of Federal antitrust proceeding.

laws. The complaint seeks to have the lease declared null The Company intends to apply to regulatory com-and void, asks that the Company be restrained from missions to provide, through future increased rates, for charging excessive prices for the purchase of electric the costs that will be incurred to store spent nuclear fuel power, seeks treble damages in an unspecified amount in and to decommission the Nuclear Plant at the end of its respect of allegedly excessive charges to residents of the service life. The Company plans to effect modifications City of Fort Wayne and seeks to restore the control of the to increase the present spent-fuel storage capacity of the electric utility assets in question to the City of Fort Nuclear Plant to permit normal operations through the Wayne. In 51ay, June and July, 1979 the court granted in early 1990's, at an estimated cost of $ 6,000,000. The part and denied in part the Company's motion to dismiss Company is also studying alternative methods of decom-or for summary judgment. The Court dismissed plain- missioning the Nuclear Plant but cannot reasonably tiffs'llegations concerning abuse of a legally acquired estimate, at this time, the future costs that will be monopoly but ruled that plaintiffs could continue to as- incurred.

sert other theories of violation of Federal antitrust laws The Price-Anderson Act limits the public liability of and certified a class of residential customers who may a licensee of a nuclear plant to $ 560,000,000 for a single maintain the action. nuclear incident, to be covered in part by private insur-In 1975, the Federal Power Commission issued an ance with the balance to be covered by agreements of order instituting an investigation under the Federal indemnity with the Nuclear Regulatory Commission.

Power Act concerning the reasonableness and prudence The Company has purchased private insurance in the of the coal purchasing policies and practices of members maximum available amount of $ 160,000,000. In the of the System, the manner in which wholesale fuel adjust- event of a nuclear incident involving any commercial ment clauses are implemented by System members, and nuclear facility in the country, the Company, together related matters. A complainant and eight intervenors are with other licensees, could be individually assessed also participating in the proceeding. In 1978, the FERC $ 5,000,000 per incident for each reactor owned (subject staff issued a preliminary report which alleged over- to a maximum of $ 10,000,000 in any year in the event of charges on the part of the entire System, and of which more than one incident). The Price-Anderson indemni-only a portion relates to the Company's operations. The ties have been decreased by the aggregate amount which report also questioned certain aspects of the System's fuel is assessable against existing licensees and will continue policies, including the AEP System's decision to expand to decrease as new operating units are licensed.

its use of coal from mines owned by affiliates and its use The Company has procured property insurance in of Western coal. In November 1979, the FERC staff sub- the maximum available amount of $ 300,000,000 for mitted its final recommendations to the administrative damage to the nuclear plant facilities and is a self-insurer law judge. The final recommendations urge refunds of for any property loss in excess of that amount The alleged overcharges, corrections of alleged improper coal Company also has obtained membership in Nuclear accounting and pricing practices, disallowances of cer- Electric Insurance Limited (NEIL), which provides its tain fuel costs associated with Western coal acquisitions, members with insurance to cover extra costs of replace-revision of FERC regulations regarding affiliate fuel ment power resulting from a prolonged accidental outage costs and establishment of hearing procedures to resolve of a nuclear unit. The Company's policy insures against certain of the issues and that a separate investigation be such increased costs up to $ 2,000,000 per week (starting instituted concerning System administration of long- 26 weeks after the outage) for one year and $ 1,000,000 term fuel supply contracts. The System companies have per week for the second year, or SOvIo of those amounts submitted a written response supporting the decisions per unit if both units are down for the same reason. The previously made by the System companies. On February Company would be subject to a retrospective premium of 14, 1980, FERC issued an order directing the administra- up to $ 8,200,000 per unit (five times the annual premium) tive law judge immediately to certify to FERC the entire if NEIL's losses exceed its accumulated funds.

23

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)

Il. Leases:

The Company, as part of its operations, leases property, plant, and equipment under leases ranging in length from I to 35 years. Most of the leases require the Company to pay related property taxes, maintenance costs and other costs of operation. The Company expects that in the normal course of business, leases will generally be renewed or replaced by other leases. The majority of the various rentals is under leases having purchase options or renewal options for substan-tially all of the economic lives of the properties.

Rentals are analyzed as follows:

Year Ended December 31.

1980 1979 1978 (in thousands)

Gross Rentals 's S88,000 $ 70,000 S60.000 Less Remal Recoveries(includingsublease rentals)(a). 3.000 2.000 1.000 Yet Remals(b) . $ 85.000 S68,000 $ 59.000 (a) Includes amounts paid for or reimbursed by associated companies.

(b) Classified as:

Operating Expenses ~ ~ e \ ~ e ~ $ 82.000 $ 62,000 S51,000 Clearing and Miscellaneous Accounts (portions of which are charged to income)...,...,........, .. 3,000 6,000 8.000 S85.000 $ 68.000 S59.000 Future minimum lease payments, by period and in The following is a pro forma analysis of leased the aggregate, under the Company's capital leases and properties under capital leases and related obligations, noncancelable operating leases consisted of the following assuming that such leases were capitalized:

at December 31, 1980: Decetnber 31.

Capital Operating 1980 1979

~Leases la Leases (in thousands)

(in thousands) Nuclear Fuel $ 214,000 $ 169,000 1981.. $ 7,000 S 7,000 Coal-transportation Equipment ........ 14,000 15,QOO 1982 6,000 7,000 Real Estate . 13.000 13,000 1983. 6.000 7,000 Electric Distribution System Property.... 13,000 12,000 1984. 5,000 7,000 Other TransportationEquipmem ....... 11.000 11.000 1985. 5,000 7,000 Gross Properties under Capital Leases ... 265,000 2Ã,000 Later Years., 66.000 76.000 Less Accumulated Provision fot Total Future hlinimum Lease Payments .. 95,000 $ 111.000 Amortization .. 104.000 73.000 Net Properties under Capita) Leases ..... $ )61,000 $ 147.000 Less Estimated Interest Element Included Therein (b) 55.00Q Obligationsunder Capital Leases(a)..... S167.000 $ 153.000 Estimated Present Value of Future Minimum Lease Payments.....,...,. $ 40.000 (a) Including an estimated $ 44,000,000 and S59,000,000, respec-tively, due within one'year.

(a) Excludes leases of nuclear fuel, all of svhich are capital leases, Nuclear fuel remals comprise the unatnortized balance of thc lessor's cost (approximately $ 127,000,000 at December 31, 1980) less salvage value, if any, to be paid over the period of usage in proponion to heat produced. and carrying. charges on the lessor's unrecovered cost. It is comemplated that portions of the presently leased material will be replenished by additional leased material.

(b) Interest rates used rang~ from 4.9<io to I4.7~io.

Had capital leases been capitalized, any additional net expense would have been insignificant. The above pro forma analysis does not give recognition to offsetting adjustments in allov able revenues that the Company believes would nor-mally be expected to occur through the regulatory rate-making process, if the related leases had been capitalized.

Included in the above analysis of future minimum lease payments and of properties under capital leases and related obligations are certain leases as to which portions of the related rentals are paid for or reimbursed by associated companies in the AEP System based on their usage of the leased property. The Company cannot predict the extent to which or proportion in which the associated companies will utilize the properties under such leases in the future.

24

INDIANA IICHIGANELECTRIC COMPANY AND SUBSIDIARIES

12. Unaudited Quarterly Financial Information: below is presented in compliance with the requirements The following restated consolidated quarterly finan- of the Financial Accounting Standards Board (FASB).

cial information is unaudited but, in the opinion of the The information is intended to disclose the effects of Company, includes all adjustments (consistirtg of only both general inflation and changing prices; however, the normal recurring accruals) necessary for a fair presenta- amounts should be considered approximations of such tion of the amounts shown: effects rather than precise measures since a number of Quarterly Periods Operating Operating Net subjective judgments and estimating techniques were Ended Revenues Income Income'in employed in developing the information.

thousands) Constant dollar amounts represent historical costs 1980-Mar. 31 ............... stated in terms of dollars of equal purchasing power as 5205,464 548,46I 532,946 June30 ............... 163,476 33,113 17,353 measured by the average level of the 1980 Consumer Sept. 30 ............... 187,216 4),953 23,188 Price Index for All Urban Consumers (CPI-U).

Dec.31 ............... 192,5&~ 45,669 26,585 1979- Current cost amounts reflect the changes in specific

) Iar.31 ............... 171,029 47,683 30,808 prices of property, plant and equipment from the date June30 .........,..... 173,426 33,280 19,950 such assets were acquired to the present, and differ from Sept.30 ............... 169,797 41,828 26,205 Dec.31 ............... 174,814 constant dollar amounts to the extent that specific prices 38,658 22,124 1978- have risen at a different rate than the general inflation Wlar. 31 ............... l45,106 41,787 32,614 rate as measured by the CPI-U. The current cost of prop-June30 ............... 157,958 40,416 34,909 Sept. 30 ............. 152,218 erty, plant and equipment represents the approximate 40,983 23,157 Dec.31 ............... 142,612 34,634 22,590 cost of replacing such resources and includes utility plant

'Before preferred stock dividend requirements. in service, construction work in progress, land, land rights and other property and investments. Current cost

13. Unaudited Information On Inflation and amounts were determined primarily by applying appro-Changing Prices: priate indexes from the Handy-Whitman Index of Public The supplementary information in the statements UtilityConstruction Costs.

Consolidated Statement of Income Adjusted for Effects of Changing Prices As Stated Adjusted in the Primary for General Adjusted for Changes Financial Intlation in Specific Prices Year Ended December 31. 1980 Statements (constant dollar) (current cost (in thousands)

Operating Revenues 5748.680 5749.000 5749.000 Operating Expenses:

Operation:

Fuel for Electric Generation(a) . 171,943 174,000 174.000 Purchased and Interchange Power(net) . 128.645 129,000 129.000 Other 79.7S8 80.000 80.000 Maintenance 41,377 41,000 41.000 Depreciation, Depletion and Amortization(a)................... 77.668 1$ 4,000 157,000 TaxesOther Than Federal Income Taxes . 26,296 26,000 26,000 Federal Income Taxes 54,767 55.000 55.NN Total Operating Expenses. 580.484 659.000 662.m Operating Income 168,196 90.000 87,000 0 ther Income and Deductions 30,$ 41 31,000 31,000 iVet Interest Charges (98.665) (99,000) (99,000)

Preferred Stock Dividend Requirements. ~23.m)

(23,242) ~23.m Earnings Applicable to Common Stock (b) . 5 76.830 5 (1.000) ~5(4.m increase in Specific Prices (current cost) of Property, Plant and Equipment Held During the Year(c).................,. 5 262,000 Reduction to iVet Recoverable Cost (d) S(216,000)

Effect of increase in General Price Level. (532,000)

Excess of Increase in General Price Level over Increase in Specific Prices After Reduction to iVet Recoverable Cost ....,............ (270,000)

Gain from Decline in Purchasing Power of iVet Amounts Owed (e) .... 181,000 181.000 iVet 5 (35,000) 5 (S9.000)

(Conrinuedj 25

~

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Concluded) 0 (a) As prescribed by the FASB, the items in the Consolidated Statement of Income that have been adjusted are depreciation, depletion and amortization (including portions classified as fuel for electric generation). Depreciation, depletion and amortization charges were computed by applying current accrual rates to the various plant accounts (production, transmission, distribution, general and miscellaneous) after adjusting such accoums for the effects of changing prices.

(b) Including the reduction to net recoverable cost, the loss from operations on a constam dollar basis and currem cost basis would have been

$ 217,000,000 and $ 4,000,000, respectively.

(c) At December 31, 1980, currem cost of property, plant and equipment, net of accumulated depreciation, depletion and amortization, was

$ 4,705,000,000 while historical cost or net cost recoverable through depreciation, depletion and amortization was $ 2.556,000,000.

(d) The reduction to net recoverable cost of property, plant and equipmem (as expressed in terms of inflation-adjusted cost) to historical cost recognizes that the rate-making process limits the Company to recovery of the historical cost of the subject assets.

(e) To reflect properly the economics of rate regulation in the Consolidated Statement of Income Adjusted for Effects of Changing Prices, the reduction to net rqcoverable cost should be offset by the gain that results from the decline in purchasing power of the net amounts owed by the Company. During a period of inflation, holders of monetary assets such as cash and receivables suffer a loss of general purchasing power while holders of monetary liabilities, generally long-term debt, experience a gain (because debt will be repaid in dollars having less purchasing power). The Company's gain from the decline in purchasing power of its net amounts owed is primarily attributable to the substantial amount of debt and cumulative preferred stock subject to mandatory redemption which has been used to finance utility plam.

Five-Year Comparison of Selected Supplementary Data Adjusted for Effects of Changing Prices (dollar amounts are expressed in terms of average 1980 dollars)

Year Ended December 31, 1980 1979 1978 1977 1976 (in thousands, except index data)

Operating Revenues S749,000 $ 782,000 $ 756,000 $ 689,000 $ 601,000 Historical Cost Iqformation Adjusted for General Iqflation Income (Loss) from Operations (excluding reduction to net recoverable cost) . ~ $ (1,000) $ 27,000 Net Assets at Year-end at Net Recoverable Cost $ 915,000 $ 988,000 Current Cost Iqformation Income (Loss) from Operations (excluding reduction to net recoverable cost) . $ (4,000) S11,000 Excess of Increase in General Price Level over Increase in Specific Prices after Reduction to Net Recoverable Cost S(270,000) $ (217,000)

Net Assets at Year-end at Net Recoverable Cost . $ 915,000 $ 988,000 General Financial Data Gain I'rom Decline in Purchasing Power of Net Amounts Owed... $ 181,000 $ 197,000 Average Consumer Price Index 246.8 217.5 195.4 181.5 170.5 General Iqformation on Mining Operations Proven and Probable Coal Reserves at End of Year (thousands of tons) (note) 413,964 415,023 Tons of Coal Mined (thousands) 1,059 669 Average Market Price(at currem-cost per ton) . $ 52.75 $ 52.20 Note: Proven reserves- The estimated quantities of commercially recoverable reserves that, on the basis of geological, geophysical and engineering data, can be demonstrated with a reasonably high degree of certainty to be recoverable in the future from known mineral deposits by either primary or improved methods.

Probable reserves- The estimated quantities of commercially recoverable reserves that are less well defined than proven reserves and that may be estimated or indicated to exist on the basis of geological, geophysical and engineering data.

26

INDIAN MICHIGANELECTRIC COMPANY A tVD SUBSIDIARIES Directors FRANK N. BIEN G. E. LEivtASTERS W. A. BLACK GERALD P. ivlALONEY LAWRENCE R. BRUNKE RICHARD C. MENGE RICHARD E. DISBROW C. W. ROAHRIG (b)

JOHN E. DOLAN J. F. STARK E. W. HERi(ANSEN (a) 4V. S. WHITE, JR.

Officers W. S. 1VHITE, JR. JOHN R. BURTON Chairlnan of the Board and Secretary Chief Executive Officer BPVERLY I. STEARS (d) iV. A. BLACK Assistant Secretary and President and Assistant Treasurer Cltief Operating Officer ALLEN H. STUHLS(ANN J. F. STARK Assistant Secretary and Senior Vice President Assistant Treasurer FRANK iV. BIEN RICHARD P. BOURGERIE (C)

Vice President Assistant Secretary RICHARD E. DISBROW JOHN F. DILORENZO, JR.

Vice President Assistant Secretary JOHN E. DOLAN CARL J. i~fOOS (f)

Vice President Assistant Secretary A. JOSEPH DODD WARREN O. KEITNER (e)

Vice President Assistant Secretary ROBERT S. HUNTER iVILLIAME. OLSON Vice President Assistant Secretary GERALD P. ivIALONEY WILLIAMJ. PROCHASKA (C)

Vice President rlssistant Secretary RICHARD C. ivlENGE LEONARD V. ASSANTE Vice President Assistant Treasttrer BEVERLY I. STEARS (C) WILLIA)( N. D'ONOP RIG Vice President Assistant Treasurer PETER J. DEMARIA GERALD R. KNORR Treasurer Assistant Treasurer The principal occupation of each of the above directors and officers of Indiana 4

,'Ltichigan Electric Compuny, with nine exceptions, is as an employee ofAmerican Electric Power Service Corporation. The exceptions are Alessrs. IV. A. Black, Lawrence R.

Bnrnke, G. E. LeMasters, Richard C. Menge, Carl J..SIoos, C. IV. Roahrig, J, F. Stark, Beverlv I. Stears. and Allen H. stub(mann <<hose principal occupations are as officers or employ ees of Indiana re .Slichigan Electric Company.

(n) Resigned April 22, !980 (b) Elec;ed April 22, l980 (c) Elected June I l980

~

(d) Resigned June I, l980 (e) Resigned Septetnber I. I980 (t) Elected September I. 1980 27

Operating Statistics 1980 1979 1978 1977 1976 ELEGTRIG OPERATING REvENUEs (in thousands):

From Kilowatt-hour Sales:

Residential:

Without Electric Heating............... $ 106,488 $ 102,543 S 95,676 S 89,675 S 71,888 With Electric Heating 54,277 55,458 53.557 46,324 37,447 Total Residential 160,765 158,001 149,233 135,999 109,335 Commercial . 108,764 106,151 95,423 91,153 72,527 Industrial 116,165 127,815 120,180 107,931 80,233 Sales for Resale:

Municipalities 42,295 42,028 37,230 42,391 26,197 Cooperatives. 21,652 22,176 17,732 15,619 10,491 Other Electric Utilities 288,563 222,488 166,391 103,517 I'IO,atl2 TotalSalesforResale .............. 352,510 286,692 221,353 161,527 147,070 Miscellaneous . 6,150 6,099 7,655 5,974 2,573 Total from Kilowatt-hour Sales...... 744,354 684,758 593,844 502,584 411,738 Other Operating Revenues . 4,326 4,308 4,050 4,085 3,811 Total Electric Operating Revenues.... $ 689,066 $ 597,894 $ 506,669 $ 415,549 SOURGEs AND SALEs OF ENERGY (in millions of kilowatt-hours):

Sources:

Net Generated- Steam:

Fossil Fuel 6,719 6,443 7,231 7,317 7,701 Nuclear Fuel . 13,153 11,614 10,101(a) 4,786 6,809 Net Generated- Hydroelectric ........... 85 79 75 68 72 Subtotal. 19,957 18,136 17,407 12,171 14,582 Purchased . 1,883 811 301 182 232 Net Interchange . 3,669 5,389 4,475 7,922 6,523 Total Sources. 25,509 24,336 22,183 20,275 21,337 Less: Losses, Company Use, Etc.......... 1,426 1,386 1,340 1,270 1,290 Net Sources . 24,083 22,950 20,843 19,005 20,047 Sales:

Residential:

Without Electric Heating... 2,493 2,389 2,352 2,456 2,384 With Electric Heating. 1,549 1,619 1,622 1,605 1,577 Total Residential . 4,042 4,008 3,974 4,061 3,961 Commercial 2,716 2,629 2,498 2,671 2,579 Industrial . 3,932 4,380 4,319 4,473 4,209 Sales for Resale:

Municipalities 1,541 1,534 1,585 1,642 1,527 Cooperatives. 803 819 814 786 754 Other Electric Utilities . 10,854 9,386 7,468 5,195 6,849 Total Sales for Resale .. 13,198 11,739 9,867 7,623 9,130 Miscellaneous 195 194 185 168 Total Sales 24,083 22,950 20,843 19,005 20,047 ta) Includes 69l million kilowatt-hours as test generation. The fuel cost associated with such generation is charged to other operation expense.

IIVDIAiVA IICHIGAIVELECTRIC COMPAIVY AiVDSUBSIDIARIES 1980 1979 1978 1977 1976 AYERAGE CosT oF FUEL CQNsUMED (a):

Cents per i>lillion Btu:

Coal. 164.49 151.91 109.68 74.96 65.89 Fuel Oil (c) 220.42 229.68 168.80 76.72(b) iVuclear 37.82 '8.44 34.65 29.72 26.34 Overall 84.95 76.25 71.16 59.12 46.47(b)

Cents per Kilowatt-hour Generated:

Coal. 1.59 1.52 1.11 .73 .63 Fuel Oil (c) 4.37 2 40 1.88 .84(b)

Nuclear .52 .41 .38 .33 .28 Overall .89 .81 .75 .61 .47(b)

RESIDENTIAL SERVICE AVERAGES:

Annual Kwh Use per Customer:

Total 10,206 10)210 10,260 10,641 10,439 With Electric Heating ...... 20,584 21,611 22,067 22,830 23,200 Annual Electric Bill:

Total $ 406 $ 402 $ 389 $ 361 $ 288 With Electric Heating ...... $ 721 $ 740 $ 736 $ 668 $ 551 Price per Kwh (in cents):

Total 3.98 3.94 3.79 3.39 2.76 With Electric Heating ...... 3.50 3.43 3.34 2.93 2.37 iVUMBER oF ELEGTRIc CUsToMERs Year-End:

Residential:

Electric Heating

'ithout

............. 321,432 319,477 315,472 313,085 312,211 WithElectricHeating . 75,618 75,606 74,900 72,059 69,237 Total Residential . 397,050 395,083 390,372 385,144 381,448 Commercial . 42,758 42,563 42,106 41,907 41,703 Industrial 2,802 2,748 2,689 2,500 2,452 Sales for Resale:

'07 '6 Municipalities....... 23 23 23 23 23 Cooperatives 65 65 64 61 59 Other Electric Utilities....'............ 17 15 20 . 15 Total Sales for Resale............. 105 103 100 97 Miscellaneous. 1,424 1,373 1,331 1,304 1,280 Total Electric Customers.......... 444,139 441,870 436,605 430,955 426,980 (a) Excludes effect of deferred coilection of t'uel costs.

(b) Includes effect of refund received from supplier of fuel oil resulting from seulemetu of litigation concerning pricing. Without such refund, the average cost of fuel oil for (976 would have been I73.37 cents per million Btu and I.9l cents per kilowau-hour generated, and the overall cost of fuel would have been 49.33 cents per million Btu and 0.50 cents per kilowatt-hour generated.

(c) The Company's only fuel oil ttred plant was placed in deactivated reserve during November l979.

29

INDIANAc( MICHIGANELECTRIC COMPAIv >'

I Price Range of Cumulative Preferred Stock By Quaners (I980 and I979) 1980- uarters 1979- uarters Cumulative Preferred Stock 1st 2nd 3rd 4th 1st 2nd 3rd 4th

($ 100 Par Value) 4t/io/o Series Dividends Paid Per Share $ 1.03125 51.03125 S1.03125 S1.03125 $ 1.03125 $ 1.03125 $ 1.03125 51.03125 Market Price-5 Per Share (OTC)

Ask (high/low)

Bid (high/low) 4.56~in Series Dividends Paid Per Share $ 1.14 $ 1.14 $ 1.14 51.14 $ 1.14 $ 1.14 $ 1.14 $ 1.14 Market Price-5 Per Share (OTC)

Ask (high/low)

Bid (high/low) 4.12o/o Series Dividends Paid Per Share $ 1.03 $ 1.03 $ 1.03 51.03 $ 1.03 $ 1.03 $ 1.03 $ 1.03 Market Price-5 Per Share (OTC)

Ask (high/low) 38/38 Bid (high/low) 40/40 7.08oIo Series Dividends Paid Per Share $ 1.77 S1.77 $ 1.77 $ 1.77 $ 1.77 $ 1.77 $ 1.77 51.77 Market Price-5 Per Share (NYSE) High 56 /i 59 58'/i 51'/i 70 73 69t/i 61

-Low 47 48 51 44 l/i 64'/i 65 61 52 7.76o/o Series Dividends Paid Per Share S1.94 51.94 $ 1.94 $ 1.94 $ 1.94 $ 1.94 $ 1.94 S1.94 Market Price-5 Per Share (NYSE) High 64i/i 674 64iA 55 77 i/i 76 76'/i 70ii

-Low 48 52 55 46>/i 72 71 67 60 8.68oIo Series Dividends Paid Per Share S2.17 S2.17 $ 2.17 $ 2.17 $ 2.17 $ 2.17 52.17 S2.17 Market Price-5 Per Share (NYSE) High 70tl 72 74 64 ~ 86'/i 82 82 t/i 78

-Low 60 59 65 55'l 79Yi 79Ãi 78'/ 67 Yi 12o/o Series Dividends Paid Per Share $ 3.00 $ 3.00 S3.00 $ 3.00 53.00 $ 3.00 53.00 Market Price-5 Per Share (N YSE) High 103 t/i 104 l02 100 109 i/i 106t/i 109'I 106

-Low 86/i 87 t/i 95 83'/i 103 103'/i 102 98i/i

($ 25 Par Value)

S2.15 Series Dividends Paid Per Share 5 .5375 5 .5375 5 .5375 5 .5375 5 .5375 5 .5375 5 .5375 5 .5375 Market Price-5 Per Share (NYSE) High 17 t/i 18i/i 18 15 i/i 21'li 21'/i 22'/ 19N

-Low 13 i/i 14'/i 14i/i 13'/i 20'/i 19'/i 19 16 Yi

$ 2.25 Series Dividends Paid Per Share 5 .5625 5 .5625 5 .5625 S .5625 5 .5625 $ .5625 5 .5625 5 .5625 Market Price-5 Per Share (NYSE) High 18'li 19t/i 18 17 22 3/i 22'/i 23 20t/i Love 14'li 15

'6 14 20'/ 20t/i 20Yi 17

$ 2.75 Series Dividends Paid Per Share 5 .6875 5 .6875 5 .6875 5 .6875 5 .6875 Market Price-5 Per Share (NYSE) High 25 24 Yi 23i/i 21 Yi 26Yi

-Low 22i/i 22 22 1S t/i 24 Yi OTC-Over-the-Counter NYSE-New York Stock Exchan ge Note-The above bid and asked quotations represe nt prices between dealers and do not represent actual transactions.

Market quotations provided by N atlonal Quotation Bureau, Inc. Dash indicates quotation not available.

30

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The Company's Annual Report (Form 10-K) to the Securities and Exchange Commission will be available on or about March 31, 1981 to shareowners upon their written request and at no cost.

Please address such requests to:

Mr. H. D. Post Assistant Treasurer American Electric Power Service Corporation 180 East Broad Street Columbus, Ohio 43215 Transfer Agent and Registrar of Cumulative Preferred Stock Morgan Guaranty Trust Company of i>ew York 30 %Vest Broadway, New York, iV. Y. 10007