ML17333A426

Indiana Michigan Power Co 1995 Annual Rept. W/960412 Ltr

ML17333A426
Person / Time
Site:	Cook
Issue date:	12/31/1995
From:	FITZPATRICK E INDIANA MICHIGAN POWER CO. (FORMERLY INDIANA & MICHIG
To:	NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM)
References
AEP:NRC:0909L, AEP:NRC:909L, NUDOCS 9604160188
Download: ML17333A426 (40)

Text

CATEGORY1REGULAR...Z INFORMATION DISTRIBUTION YSTEM(RIDS)-ACCESSION NBR:9604160188 DOC.DATE:

95/12/31NOTARIZED:

NOFAC.L":p0-,

315DonaldC.CookNuclearPowerPlant,Unit1,IndianaM50-3.';.6 DonaldC.CookNuclearPowerPlant,Unit2,IndianaMAUTH.NAMEAUTHORAFFILIATION FITZPATRICK,E.

IndianaMichigan'Power Co.(formerly IndianaaMichiganEleRECIP.NAME RECIPIENT AFFILIATION

SUBJECT:

"IndianaMichiganPower,DISTRIBUTION CODE:M004DCOPIESTITLE:50.71(b)AnnualFinancial NOTES:Co1995AnnualRept."W/960412ltr.CRECEIVED:LTR (ENCLlSIZE:~5AReportTRECIPIENT IDCODE/NAME PD3-1LAHICKMANJINTERNAL:

"'ILECENTER01EXTERNAL:

NRCPDRCOPIESLTTRENCL11111111RECIPIENT IDCODE/NAME PD3-1PDCOPIESLTTRENCL11D0NOTETOALL"RZDS"RECIPIENTS:

PLEASEHELPUSTOREDUCEWASTElCONTACTTHEDOCUMENTCONTROLDESK,ROOMOWFN5D-5(EX'15-2083)

TOELIMZNATE YOURNAMEFROMDISTRIBUTION LISTSFORDOCUMENTS YOUDON'TNEEDITOTALNUMBEROFCOPIESRF(>URED:LTTR5ENCL5 q4',aindianaMichigan~PowerCompanyP.O.Box16631Columbus, OH43216April12,1996AEP:NRC:0909L DocketNos.:50-31550-316U.S.NuclearRegulatory Commission ATTN:,Document ControlDeskWashington, D.C.20555Gentlemen:

DonaldC.CookNuclearPlantUnits1and2FINANCIAL INFORMATION FORINDIANAMICHIGANPOWERCOMPANYAttachment 1containstheIndianaMichiganPowerCompany's annualreportfor1995.Attachment 2containsacopyofI&M'sprojected cashflowfor1996.Thesereportsaresubmitted pursuantto10CFR50.71(b)and10CFR140.21(e).

Sincerely, E.E.Fitzpatrick VicePresident ehAttachments CC:A.A.BlindG.CharnoffH.J.MillerNFEMSectionChiefNRCResidentInspector

-BridgmanJ.R.Padgett9604i60i88 95i23iPDRADQCK050003i5IPDRyr~(}OQQpg$

ATTACHMENT 1TOAEP'NRC:0909L INDIANAMICHIGANPOWERCOMPANY'S ANNUALREPORTFOR1995 InianaMichiganPowerCompany1995AnnualReport

(((~NAMICHIGANPOWERCOI(IIPANY ANDSUBSIDIARIES OneSummitSquare,P.O.Box60,FortWayne,indiana46801CONTENTSBackground

.Directors andOfficers~2~~3SelectedConsolidated Financial Data..Management's Discussion andAnalysisofResultsofOperations andFinancial Condition

..5-9Independent Auditors'eport

.10Consolidated Statements ofIncomeConsolidated BalanceSheets12-13Consolidated Statements ofCashFlowsConsolidated Statements ofRetainedEarningsNotestoConsolidated Financial Statements

..Operating Statistics

.14.1516-2829-30Dividends andPriceRangesofCumulative'Preferred Stock31-32 BACKGROUND INDIANAMICHIGANPOWERCOMPANY(theCompany)isengagedinthegeneration,

purchase, transmission anddistribution ofelectricpower.TheCompanyservesapproximately 537,000retailcustomers innorthernandeasternIndianaandaportionofsouthwestern Michiganandsellsandtransmits poweratwholesale tootherelectricutilities, municipalities andelectriccooperatives.

Approximately 82%oftheCompany's retailsalesareinIndianaand18%inMichigan.

Theprincipal industries servedareprimarymetals,electrical andelectronic machinery, transportation equipment, fabricated metalproducts, rubberandmiscellaneous plasticproductsandchemicals andalliedproducts.

TheCompanyisasubsidiary ofAmericanElectricPowerCompany,Inc.,apublicutilityholdingcompany,andwasorganized underthelawsofIndianaonFebruary21,1925.AsofJanuary1,1996,theCompanybegandoingbusinessasAmericanElectricPower(AEP)alongwithalloftheparent'soperating subsidiary companies inordertoserveitscustomers moreefficiently asoneoperating organization realigned bydistinct, separately managedgeneration, energydeliveryandnon-regulated businessgroups.TheCompany's twowholly-owned subsidiaries, Blackhawk CoalCompanyandPriceRiverCoalCompany,wereformerlyengagedincoal-mining operations inUtah.Blackhawk CoalCompanycurrently leasesorsubleases portionsofitscoalrights,landandrelatedminingequipment tounaffiliated companies.

Inaddition, theCompanyhasarivertransportation division(RTD)thatbargescoalontheOhioandKanawhaRiverstoAEPSystemgenerating plantsownedbytheCompanyandaffiliated companies.

TheRTDalsoprovidessomebargingservicestounaffiliated companies.

TheCompanyownsandleases4,434megawatts (mw)ofgenerating capacitywhichincludes2,295mwofcoal-fired generation and2,110mwofnucleargeneration.

TheCompanyownsthetwounitDonaldC.CookNuclearPlantlocatedinMichigan.

Thegenerating plantsandtransmission facilities oftheCompanyandcertainotheraffiliated AEPSystemutilitysubsidiaries areoperatedasanintegrated systemwiththeircostsandbenefitssharedthroughtheAEPSystemPowerPoolandAEPTransmission Agreement.

Wholesale energysalesmadebythePowerPoolareallocated tothePoolmembers.TheotherAEPSystemPoolmembersare:Appalachian PowerCompany,ColumbusSouthernPowerCompany,KentuckyPowerCompanyandOhioPowerCompany.TheCompanyisalsodirectlyinterconnected withitsaffiliate, AEPGenerating Company,andthefollowing unaffiliated entities:

CentralIllinoisPublicServiceCompany,TheCincinnati Gas5ElectricCompany,Commonwealth EdisonCompany,Consumers PowerCompany,IllinoisPowerCompany,Indianapolis Power5LightCompany,Louisville GasandElectricCompany,NorthernIndianaPublicServiceCompany,PSIEnergyInc.andRichmondPowerandLightCompany,aswellasIndiana-Kentucky ElectricCorporation (asubsidiary ofOhioValleyElectricCorporation, anaffiliate thatisnotamemberoftheAEPSystem).Inaddition, theCompanyisinterconnected throughtheAEPSystemwithtwootheraffiliated companies, Kingsport PowerCompanyandWheelingPowerCompanythatarenotmembersofthePowerPool,andwithnumerousunaffiliated utilities.

INDMICHIGANPOWERCOMPANYANDSUBSIDIARIES Dl(ACTORSMarkA.Bailey(a)CoulterR.Boyle,III(b)GregoryA.Clark(c)PeterJ.DeMariaWilliamN.D'Onofrio OFFICERSE.LinnDraper,Jr.WilliamJ.LhotaGeraldP.MaloneyJamesJ.Markowsky RichardC.Menge(a)AlbertH.PotterDavidB.Synowiec(c)DaleM.Trenary(b)JosephH.Vipperman (b)WilliamE.Walters(b)E.LinnDraperJr.ChairmanoftheBoardandChiefExecutive OfficerWilliamJ.Lhota(b)President andChiefOperating OfficerRichardC.Menge(a)President andChiefOperating OfficerMarkA.Bailey(a)VicePresident JohnF.DiLorenzo, Jr.Secretary ArmandoA.Pena(d)Treasurer ElioBafileAssistant Controller andAssistant Secretary LeonardV.AssanteAssistant Controller A.AlanBlindSiteVicePresident, DonaldC.CookNuclearPlantCoulterR.Boyle,III(b)VicePresident PeterJ.DeMariaVicePresident andController WilliamN.O'Onofrio (a)VicePresident EugeneE.Fitzpatrick VicePresident GeraldP.MaloneyVicePresident JamesJ.Markowsky VicePresident WilliamL.Scott(d)Assistant Controller JohnM.Adams,Jr.(d)Assistant Secretary JeffreyD.Cross(e)Assistant Secretary RobertG.Griffin(f)Assistant Secretary CarlJ.Moos(g)Assistant Secretary JohnB.ShinnockAssistant Secretary BruceM.BarberAssistant Treasurer JosephH.Vipperman (b)VicePresident Christopher J.Keklak(d)Assistant Treasurer GeraldR.Knorr(e)Assistant Treasurer AsofJanuary1,1996thecunentdirectors andofficersofIndionaMichiganPowerCompanyworeomployoes ofAmericanElectricPowerServiceCorporation withsevenexceptionst Messrs.Bofile,Blind,Boyle,Clark,Griffin,TrenaryandWalters,whowereomployees ofIndianaMichiganPowerCompany.tofResignedJonoetr1,1996tbfElectedJenoottr1,1996IcfElectedAftn725,1995IdfElectedNovember1,1995lofResignedNovember1,1995illElectedSeptetnber 1,1995(glResignedSeptember 1,1995 SelectedConsolidated Financial DataINCOMESTATEMENTS DATA:1994rEnDcm~1(inthousands) 192Operating RevenuesOperating ExpensesOperating IncomeNonoperating Income(Loss)IncomeBeforeInterestChargesInterestChargesNetIncomePreferred StockDividendRequirements EarningsApplicable toCommonStockS1,283,157 1077434S1,251,309

~12~4S1,202,643

~9245S1,196,755

~100997S1,225,867

~9989205,723~272221,969~742210,158195,788227,528~24)~11~721211,995229,397~7003~7189209,924209,903~852223,807~)44129301~145821411508841085314121515141,092157,502129,344123,983136,963~1791~111~142~1542~144BALANCESHEETSDATA:1995194Decmbr31~199(inthousands)

~192191ElectricUtilityPlantAccumulated Depreciation andAmortization NetElectricUtilityPlantS4,319,564 S4,269,306 S4,290,957 S4,266,480 S4,135,820 17~14~5~15~94(2~171421fg~14~12~1442567599426093664257612842635042~26'l4471TotalAssets~3928337~38780354372364843608645~3442606CommonStockandPaid-inCapitalRetainedEarningsTotalCommonShareholder's Equity95102641022793$100689249682634953127S787,686S790,234S790,625S781,818S781,783~23517~21665~1778~17109~124Cumulative Preferred Stock:NotSubjecttoMandatory Redemption SubjecttoMandatory Redemption (a)TotalCumulative Preferred StockS52,000135000S197,000S197,000S87,000100000S52,0001350001970004187000418700041870004197000Long-term Debt(a)$10401014106988741073154~1211623~1130709Obligations UnderCapitalLeases(a)ll14250641525894987534126689102985TotalCapitalization andLiabilities (alIncluding gordonduewirhrnoneyear.43928337438780354372364843608645~3442606 DIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES MANAGElVlENT'S DISCUSSION ANDANALYSISOFRESULTSOFOPERATIONS ANDFINANCIAL CONDITION BusinessOutlookSinceitsenactment in1992,theEnergyPolicyActhasfosteredcompetition inthegeneration andsaleofelectricity inthewholesale market.Theprospectformarketdrivenratesispoweringamovement, mainlyamonglargeindustrial energyusers,tointroduce competition totheretailmarketaswell.Asaresultmanagement expectsthatcompetition willbeasignificant factorinfluencing theCompany's futureresultsofoperations.

Amongtheotherfactorsthatcouldimpactfutureearningsarenuclearfueldisposalcostsandnucleardecom-missioning costs.Asignificant expansion ofcompetition inthegeneration andsaleofelectricity couldresultinanadverseeffectonfutureresultsofoperations fromstrandedcostsandthewrite-off ofregulatory assets.Strandedcostsoccurwhenacustomerswitchestoanewsuppliercreatingtheissueofwhopaysforinvestments andcommitments thatarenolongerneeded,economical orrecoverable inacompetitive market.TheamountofanylossestheCompanymayexperience fromstrandedcostsdependsontheextenttowhichdirectcompetition isintroduced totheCompany's businessandthemarketpriceofenergy.Cost-based regulation traditionally resultsintherecognition ofrevenuesandexpensesinaccordance withratecommission orderswhichcanresultinrevenueandexpenserecognition indifferent timeperiodsthanforenter-prisesthatarenotregulated.

Asaresult,regula-toryassetshavebeenrecordedbyregulated utilitycompanies representing thedeferralofcostsforrecoveryinfutureperiods.AtDecember31,1995,theCompanyhad$459millionofregulatory assets.Inordertomaintainregulatory assets,theCom-pany'sratesmustbecost-based regulated.

Man-agementhasreviewedtheevidencecurrently available andconcluded thattheCompanycontin-uestomeettherequirements toapplyrate-regu-latedaccounting standards.

IntheeventaportionoftheCompany's businessnolongermettheserequirements, regulatory assetswouldhavetobewrittenoffforthatportionofthebusiness.

Whetherfutureresultsofoperations areadversely affectedbylossesorwrite-offs willalsodependonwhetherandhowequitable recoveryisprovidedforbytheapplicable regulators.

Weintendtoseekappropriate recoveryofanystrandedcostsandregulatory assetsthatmayresultfromatransition tocompetition.

TheCompany,asamemberoftheAEPSystem,hasthefinancial

strength, geographic reach,loca-tionandcoststructure tobeanablecompetitor.

Althoughnoassurance canbegiventhattheCompanycanmaintainthispositioninthefuture,management istakingstepstoprepareforthechallenges thatincreased competition willpresent.In1995management tookstepstoprepareforcompetition byrealigning theCompany's opera-tions,alongwiththeoperations oftheAEPSys-tem'sotheroperating companies,,into functional operating units,expanding marketing andcustomerserviceeffortsandproposing aplanforanorderlytransition toretailcompetition.

Management alsoproposedandfiledopenaccesstransmission rates.Therealignment fromseparateoperating companyorganizations todistinctfossil-fired andhydroelec-tricgeneration, nucleargeneration andenergydeliveryoperating unitswillfacilitate theunbundling ofelectricservicestoseparatecompetitive genera-tionservicesfromregulated transmission anddistribution services.

Italsoshouldfacilitate ourabilitytomoreefficiently andeffectively meetcustomerneeds.Processimprovement andcostcontrolwillbekeyperformance objectives forournewoperating units.InOctoberof1995management proposedthecreationofanIndependent SystemOperatortooperateamulti-state transmission gridtofacilitate equal,safeandefficient transmission.

Management alsoproposedtheeventualcreationofaRegionalPowerExchangethatwouldacceptofferstobuyandsellpowerandwouldsettletransactions basedonthepriceatwhichsupplyanddemandarebalanced.

Undertheproposalregulators wouldcontinuetoregulatedeliveryservicesandprovidefortherecoveryofanystrandedcostsandregula-toryassetsthroughausagecharge.

Management hasalsoofferedaccesstoAEP'sextensive transmission gridat142interconnections toallpartiesunderthesametermsandconditions available totheAEPSystem.ThisshouldprovidetheCompanywithgreateropportunities fortrans-missionservicerevenues.

Management hasalsoresponded toourretailcustomers'eeds byintro-ducingnewcost-based regulated ratedesigns(interruptible buy-through andrealtimepricing).

Theseproposals wereissuedtoenabletheCom-panytoparticipate inameaningful wayintheprocessofshapingtheformofthefuturecompeti-tiveplayingfield.Oursuccesswilldependonourabilitytoobtainalevelplayingfield,improveandexpandonourenergysalesandservicesandmaintainandimproveonourrelatively lowcoststructure.

NuclearCostTheCompany's nuclearplant,theDonaldC.CookNuclearPlant,hasrecentlyachievedasuperiorratingfromtheInstitute ofNuclearPowerOpera-tions,anuclearindustryoversight group,andreceivedimprovedNuclearRegulatory Commission (NRC)performance ratings.Inanefforttocontinuetoreducecostsandenhanceorganizational effi-ciency,management announced inNovemberthatduringthesummerof1996wewillconsolidate ourColumbus-based nuclearengineering, management andsupportstaffwiththeplantstaffatorneartheCookPlantinBridgman, Michigan.

Thecosttooperateandmaintainthetwo-unitCookPlantisimpactedbyfederallawsandNRCrequirements.

TheNuclearWastePolicyActof1982established federalresponsibility forthepermanent off-sitedisposalofspentnuclearfuelandhigh-level radioactive waste.BylawtheCompanyparticipates intheDepartment ofEn-ergy's(DOE's)SpentNuclearFuel(SNF)disposalprogramwhichisdescribed inNote3oftheNotestoConsolidated Financial Statements.

Since1983ourconsumers ofnucleargenerated electricity havepaid$237millionforthefuturedisposal, atayettobebuiltDOEdisposalfacility, ofspentnuclearfuelconsumedattheCookPlant.Undertheprovisions oftheNuclearWastePolicyAct,collections fromcustomers aretoprovidetheDOEwithmoneytobuildapermanent repository forspentfuel.Thefederalgovernment hasnotmadesufficient prog-resstowardtheselection ofasiteandconstruction ofapermanent repository andaslongasthereisadelayinestablishing thepermanent storagereposi-toryforspentnuclearfuel,thecostofatemporary orpermanent repository willcontinuetoincrease.

Thecosttodecommission theCookPlantisaffectedbyNRCregulations andtheDOE'sSNFdisposalprogram.Studiescompleted in1994estimatethecosttodecommission theplantanddisposeoflow-level nuclearwasteaccumulation torangefrom$634millionto$988millionin1993dollars.Thedecommissioning estimatecouldescalateduetouncertainty intheDOE'sSNFdisposalprogramandthelengthoftimethatSNFmayneedtobestoredattheplantsitedelayingdecommissioning.

Decommissioning costsarebeingrecovered inthethreerate-making jurisdic-tionsbasedonatleastthelowerendoftherangeinthemostrecentdecommissioning studyatthetimeofthelastrateproceeding.

However,futureresultsofoperations andpossiblyfinancial condi-tioncouldbeadversely affectedifthecostsofspentnuclearfueldisposalanddecommissioning continuetoincreaseandifforsomereasonsuchcostscannotberecovered.

Environmen alConcernsHazardous MaterialBy-products fromthegeneration ofelectricity includematerials suchasash,slag,sludge,low-levelradioactive wasteandspentnuclearfuel.Inaddition, thegenerating plantsandtransmission anddistribution facilities haveusedasbestos, polychlorinated biphenyls (PCBs)andotherhazard-ousandnon-hazardous materials.

TheCompanyiscurrently incurring coststosafelystoreanddisposeofsuchsubstances, andadditional costscouldbeincurredtocomplywithnewlawsandregulations ifenacted.TheComprehensive Environmental

Response, Compensation andLiability Act(CERCLAorSuperfund legislation) addresses'clean-up ofhazard-oussubstances atdisposalsitesandauthorizes theUnitedStatesEnvironmental Protection Agency aNDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES (FederalEPA)toadminister theclean-upprograms.

Asofyear-end1995,ISMiscurrently involvedinlitigation withrespecttotwositesbeingoverseenbytheFederalEPAandhasbeennamedbytheFederalEPAasa"Potentially Responsible Party"(PRP)forthreeothersites.Information requestshavebeenreceivedforfouradditional siteswhichcouldleadtoPRPdesignation.

IS.Malsohasreceivedinformation requestswithrespecttotwositesadministered bystateauthorities.

Liability hasbeenresolvedforanumberofsiteswithnosignifi-canteffectonresultsofoperations.

TheCom-pany'spresentestimates donotanticipate materialcleanupcostsforidentified sitesforwhichI%MhasbeendeclaredaPRP.However,ifforreasonsnotcurrently identified significant costsarerequiredforcleanup,futureresultsofoperations andpossiblyfinancial condition wouldbeadversely affectedunlessthecostscanberecovered.

Litigation TheCompanyisinvolvedinanumberoflegalproceedings andclaims.Whilemanagement isunabletopredicttheoutcomeofsuchlitigation, itisnotexpectedthattheresolution ofthesematterswillhaveamaterialadverseeffectontheresultsofoperations and/orfinancial condition.

Resulsof0erationsNetIncomeAlthoughrevenuesincreased 2.5%in1995,netincomedeclined10.4%to$141millionmainlyduetoincreased operating

expenses, including theunfavorable effectofaprovision forseverance benefitsinconnection withtherealignment ofoperations andincreased federalincometaxex-pense.Theincreaseinnetincomein1994of21.8%wastheresultofaretailbaserateincreaseintheIndianajurisdiction, reducedinterestexpenseduetotheretirement oflong-term debt,theeffectofadoptingStatement ofFinancial Accounting Standards No.109,"Accounting forIncomeTaxes"(SFAS109)in1993andtheretirement in1994ofagenerating plant.Operating RevenuesandEnergySalesIncreaseOperating revenuesincreased 2.5%in1995following a4%increasein1994.Thechangesinrevenuesareanalyzedasfollows:Increase(Oecrease)

FromPreviousYeardollarsinmillions19951994Retail:PriceVarianceVolumeVariance$(0.7)$69.829.930.529.23.3100.312.9Mholesale:

PowerPool:PriceVariance(7.9)VolumeVariance39.4CapacityCharges~28.3)32Unaffiliated Utilities:

PriceVariance(12.7)VolumeVariance14.01.3TotalMholesale 4.51.3(3.8)(62.4)2.1~64.)21.1~9.0)12.1~52.0)(12.8)

OtherOperating Revenues~1.9)0.4Total~31.82.5~48.74.0Theincreasein1995operating revenuesresultedfromincreased energyusagebyretailandunaffili-atedwholesale customers.

Retailenergysalesincreased 3%reflecting warmersummerweatherin1995andacolderfourthquarterin1995than1994andcontinuing growthinthenumberofresidential, commercial andindustrial customers.

Whilewholesale energysalesincreased 34%,wholesale revenuesincreased only1%in1995.Thesubstantial increaseinwholesale energysaleswasprimarily duetoa69%increaseinenergysalestotheAEPSystemPowerPool(PowerPool),whicharemadeatcost,reflecting theincreased availability oflowercostnucleargenerating capac-ityin1995.During1995onenucleargenerating unitwasoutofserviceforrefueling whilebothunitswererefueledin1994.Alsocontributing tothewholesale energysalesincreasewereincreased salestounaffiliated entities.

SalestotheCom-pany'smunicipal andcooperative customers andtounaffiliated utilities bythePowerPoolwhicharesharedbytheCompanyincreased primarily dueto thewarmersummerandthecolderfourthquarterweatherin1995ascomparedto1994.Thein-creaseinwholesale salesdidnotleadtoacorre-spondingincreaseinrevenuesduetoreducedcapacitycreditsfromthePowerPoolandincreasing competition inthewholesale energymarket.CapacitycreditsaredesignedtoallocatethecostoftheAEPSystem'sgenerating capacityamongthemembersofthePowerPoolbasedontheirrelativepeakdemandsandgenerating reserves.

Anin-creaseintheCompany's peakdemandduring1995relativetothepeakdemandofallPowerPoolmemberscausedthedecreaseincapacityrevenues.

In1994revenuesrose4%largelyduetoin-creasedretailrevenuespartlyoffsetbyadeclineintotalwholesale revenues.

Thegrowthinretailrevenuesresultedfroma$34.7millionannualbaserateincreaseintheIndianajurisdiction, increased decommissioning expenserecoveries intheMichi-ganjurisdiction anda4%increaseinenergysalesduetogrowthinthenumberofretailcustomers.

Thedeclinein1994wholesale revenuesreflected thedecreaseinenergyavailable fordeliverytothePowerPoolduetothescheduled refueling andmaintenance outagesattheCompany's twonuclearunitsin1994andlowerenergysalesbythePowerPoolduetomildweatherthroughout mostof1994.WhilesevereweatherinJanuary1994andhotJuneweatherincreased thePowerPool'sshort-termwholesale salesinthosemonths,themildweatherthroughout theremainder of1994,com-binedwithincreased competition inthewholesale marketreducedshort-term salesfortheyear.Operating ExpensesIncreaseTotaloperating expensesincreased 5%in1995or$48millionreflecting theincreased operation oftheCompany's nuclearunitsandseverance payaccruals.

In1994totaloperating expensesrose4%or$37millionlargelyduetoincreased accrualsfornucleardecommissioning expenseandemployeebenefits.

Thesignificant changesinoperating expenseswere:Fuelexpenseincreased substantially in1995duetoa51%increaseinnucleargeneration reflecting theincreased availability ofnucleargenerating capacity.

During1995oneunitwasoutofserviceforrefueling whilebothunitswereoutofserviceforrefueling in1994.Fuelexpensedeclinedin1994duetoasignificant reduction (43%)innu-cleargeneration reflecting therefueling outagespartially offsetbya6%increaseinfossilgenera-tion.Theincreaseinpurchased powerexpensein1994reflectsincreased receiptsfromthePowerPoolduetothenuclearoutagesandincreased purchases fromunaffiliated utilities forimmediate resaletootherunaffiliated utilities.

Otheroperation expenseincreased in1995primarily duetoaprovision forseverance payrelatedtothefunctional realignment ofoperations andcostsrelatedtothedevelopment ofanewactivitybasedbudgeting system.The1994in-creasewascausedbyregulatory-approved in-creasesinnucleardecommissioning

accruals, accrualsforotherpostretirement benefitscommen-suratewithraterecoveryandexpensesrelatedtotheclosingoftheCompany's BreedPlant.Theincreaseinfederalincometaxesattributable tooperations in1995wasprimarily duetochangesincertainbook/taxdifferences accounted foronaflow-through basisandtheeffectsoffavorable accrualadjustments recordedin1994inconnection withtheresolution oftheauditofprioryears'axreturns.Federalincometaxesattributable tooperations increased in1994duetoincreased pre-taxoperating income.Nonoperating IncomeandFinancing CostsNonoperating incomeincreased in1994reflecting afavorable taxeffectfromtheBreedPlantclosingandtheunfavorable effectin1993ofadoptingSFAS109fornonutility assetsandliabilities.

dollarsinmillionsFuelPurchased PowerOtherOperation FederalIncomeTaxesIncrease(Oecrease)

FromPreviousYear1995Amount~Amount1994$21.210.5$(18.5)(8.4)(5.8)(4.4)23.021.210.33.528.510.615.740.96.419.9Interestchargesdeclinedin1994duetodebtrepayments andarefinancing programwhichloweredinterestrates.In1994,$10millionoflong-term bondswereretiredand$90millionwererefinanced.

Thefullyeareffectsfrom1993refinancings andretirements alsocontributed tothe1994reduction.

NDIANAMICHIGANPOWERCOMPANy'ND SUBSIDIARIES Construction SpendingEffectsofInflation Grossplantandpropertyadditions wereS151millionin1995and$212millionin1994.Manage-mentestimates construction expenditures forthenextthreeyearstobe$315millionwithnomajornewgenerating plantconstruction planned.Thefundsforconstruction ofnewfacilities andim-provement ofexistingfacilities cancomefromacombination ofinternally generated funds,short-termandlong-term borrowings, preferred stockissuances andinvestments incommonequitybytheCompany's parent,AmericanElectricPowerCo.,Inc.However,alloftheconstruction expendi-turesforthenextthreeyearsareexpectedtobefinancedinternally.

Liquidity andCapitalResources Whennecessary theCompanygenerally issuesshort-term debttoprovideforinterimfinancing ofcapitalexpenditures thatexceedinternally generat-edfunds.AtDecember31,1995,$372millionofunusedshort-term linesofcreditsharedwithotherAEPSystemcompanies wereavailable.

Anauthorization bytheSecurities andExchangeCommission limitsshort-term borrowings to$175million.Periodicreductions ofoutstanding short-termdebtaremadethroughissuances oflong-term debtandpreferred stockandthroughadditional capitalcontributions bytheparentcompany.TheCompanyhasregulatory approvaltoissueupto$150millionoflong-term debt.Management expectstousetheproceedsoffuturelong-term financings toretireshort-term debt,refinance maturingandotherlong-term debt,refundcumula-tivepreferred stockandfundconstruction expendi-tures.Inflation affectsthecostofreplacing utilityplantandthecostofoperating andmaintaining suchplant.Therate-making processgenerally limitsrecoverytothehistorical costofassetsresulting ineconomiclosseswheninflation effectsarenotrecovered fromcustomers onatimelybasis.However,economicgainsthatresultfromtherepayment oflong-term debtwithinflateddollarspartlyoffsetsuchlosses.NewAccounting RulesTheFinancial Accounting Standards Board(FASB)issuedanewaccounting

standard, SFAS121"Accounting forImpairment ofLong-Lived AssetsandforLong-Lived AssetstoBeDisposedOf."Thenewstandardiseffective beginning with1996accounting periods.Theinitialimplementation ofthisnewstandardisnotexpectedtohaveasignifi-cantimpactontheCompany.In1996theFASBissuedanexposuredraft"Accounting forCertainLiabilities RelatedtoClo-sureorRemovalofLong-Lived Assets."Thisdocumentproposesthatthepresentvalueofanydecommissioning orotherclosureorremovalobligation berecordedasaliability whentheobligation isincurred.

Acorresponding assetwouldberecordedintheplantinvestment accountandrecovered throughdepreciation chargesovertheasset'slife.Aproposedtransition rulewouldrequirethatanentityreportinincomethecumula-tiveeffectofinitially applyingthenewstandard.

TheCompanyiscurrently studyingtheimpactoftheproposedrulesandevaluating itspotential impact.TheCompanypresently exceedsallminimumcoveragerequirements forissuanceofmortgagebondsandpreferred stock.Theminimumcoverageratiosare2.0formortgagebondsand1.5forpreferred stock.AtDecember31,1995,themortgagebondsandpreferred stockcoverageratioswere6.25and2.63,respectively.

INDEPENDENT AUDITORS'EPORT TotheShareholders andBoardofDirectors ofIndianaMichiganPowerCompany:Wehaveauditedtheaccompanying consolidated balancesheetsofIndianaMichiganPowerCompanyanditssubsidiaries asofDecember31,1995and1994,andtherelatedconsolidated statements ofincome,retainedearnings, andcashflowsforeachofthethreeyearsintheperiodendedDecember31,1995.Thesefinancial statements aretheresponsibility oftheCompany's management.

Ourresponsibility istoexpressanopiniononthesefinancial statements basedonouraudits.Weconducted ourauditsinaccordance withgenerally acceptedauditingstandards.

Thosestandards requirethatweplanandperformtheaudittoobtainreasonable assurance aboutwhetherthefinancial statements arefreeofmaterialmisstatement.

Anauditincludesexamining, onatestbasis,evidencesupporting theamountsanddisclosures inthefinancial statements.

Anauditalsoincludesassessing theaccounting principles usedandsignificant estimates madebymanagement, aswellasevaluating theoverallfinancial statement presentation.

Webelievethatourauditsprovideareasonable basisforouropinion.Inouropinion,suchconsolidated financial statements presentfairly,inallmaterialrespects, thefinancial positionofIndianaMichiganPowerCompanyanditssubsidiaries asofDecember31,1995and1994,andtheresultsoftheiroperations andtheircashflowsforeachofthethreeyearsintheperiodendedDecember31,1995inconformity withgenerally acceptedaccounting principles.

v-/~ML-t-IDELOITTE5TOUCHELLPColumbus, OhioFebruary27,199610 Consolidated Statements ofIncomeNDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES 1995YrEnDmr11994(inthousands)

OPERATING REVENUES~$128157~1251309~$12024OPERATING EXPENSES:

FuelPurchased PowerOtherOperation Maintenance Depreciation andAmortization Amortization ofRockportPlantUnit1Phase-inPlanDeferrals TaxesOtherThanFederalIncomeTaxesFederalIncomeTaxesTotalOperating Expenses222,967125,413306,967141,813138,814201,739131,234296,625139,423136,24415,64471,7915402515,64470,078~38310774341029340220,206108,274268,144142,637138,79415,64466,805~19199248OPERATING INCOMENONOPERATING INCOME(LOSS)INCOMEBEFOREINTERESTCHARGESINTERESTCHARGESNETINCOMEPREFERRED STOCKDIVIDENDREQUIREMENTS EARNINGSAPPLICABLE TOCOMMONSTOCK205,723221,969210,15862727428~2341211,995229,397209,9247090371895~580141,092157,502129,34411791~1181~1426$1293014'145821~115088SeeNotestoConsolidated Financial Statements.

11 Consolidated BalanceSheetsASSETSDemr1~11994(inthousands)

ELECTRICUTILITYPLANT:Production Transmission Distribution General(including nuclearfuel)Construction WorkinProgressTotalElectricUtilityPlantAccumulated Depreciation andAmortization NETELECTRICUTILITYPLANT$2,494,834 849,920644,720204,909~742$2,507,667 867,541666,810186,959~@5924,269,306

~1~44,319,564

~171t¹~2567592ff0~96NUCLEARDECOMMISSIONING ANDSPENTNUCLEARFUELDISPOSALTRUSTFUNDS436195349OTHERPROPERTYANDINVESTMENTS 15094127424CURRENTASSETS:CashandCashEquivalents AccountsReceivable:

Customers Affiliated Companies Miscellaneous Allowance forUncollectible AccountsFuel-ataveragecostMaterials andSupplies-ataveragecostAccruedUtilityRevenuesPrepayments TOTALCURRENTASSETS13.72382,43421,88111,450(334)29,09372,86143,937~11128239,90774,49124,84820,334(121)35,80259,89740,582~41427414REGULATORY ASSETS~4'~24217DEFERREDCHARGES326431515TOTAL$3928337$3878035See/VotestoConsolidated hnanoialStatements.

12 INDICHIGANPOWERCOMPANYANDSUBSIDIARIES CAPITALIZATION ANDLIABILITIES December3119951994(inthousands)

CAPITALIZATION:

CommonStock-NoParValue:Authorized

-2,500,000 SharesOutstanding

-1,400,000 SharesPaid-inCapitalRetainedEarningsTotalCommonShareholder's EquityCumulative Preferred Stock:NotSubjecttoMandatory Redemption SubjecttoMandatory Redemption Long-term DebtTOTALCAPITALIZATION S56,584731,1022351t371,022,793 56,584733,65021ljJjg81,006,892 52,000135,000~10344852,000135,000~29II87~2243412123779OTHERNONCURRENT LIABILITIES:

NuclearDecommissioning Other269,392184103211,963192758TOTALOTHERNONCURRENT LIABILITIES

~45495404721CURRfNTLIABILITIES:

Long-term DebtDueWithinOneYearShort-term DebtAccountsPayable-GeneralAccountsPayable-Affiliated Companies TaxesAccruedInterestAccruedObligations UnderCapitalLeasesOther6,05389,97537,74422,96271,69616,15831,77674463140,00050,60040,41722,72063,62119,43639,003~6540TOTALCURRENTLIABILITIES DEFERREDINCOMETAXESDEFERREDINVfSTMENTTAXCRfDITSDEFERREDGAINONSALEANDLfASfBACK-ROCKPORTPLANTUNIT2DEFERREDCREDITSCOMMITMENTS ANDCONTINGENCIES tNote3)~5I~274412612147~$4!g29982~1)~59562~15202~14~2TOTAL$3928337$387803513 Consolidated Statements ofCashFlowsYarEnedDcmr31195~194(inthousands)

OPERATING ACTIVITIES:

NetIncomeAdjustments forNoncashItems:Depreciation andAmortization Amortization ofRockportPlantUnit1Phase-inPlanDeferrals Amortization (Deferral) ofIncremental NuclearRefueling OutageExpenses(net)DeferredFederalIncomeTaxesDeferredInvestment TaxCreditsChangesinCertainCurrentAssetsandLiabilities:

AccountsReceivable (net)Fuel,Materials andSuppliesAccruedUtilityRevenuesAccountsPayableTaxesAccruedOther(net)NetCashFlowsFromOperating Activities 148,44115,644146,96615,644148,27015,6448,684(23,564)(9,004)(18,779)(19,775)(13,877)33,827(52,631)(8,543)4,121(6,255)(3,355)(2,431)8,075~2399)2549(7,200)(3,423)(5,940)5,2199,148~1214)~2'~)4(414,44114,93843,9138,23338,644~1'~70)~I7(7,$72S141,092S157,502S129,344INVESTING ACTIVITIES:

Construction Expenditures Long-term Receivable fromCustomerforConstruction ofFacilities ProceedsfromSalesofPropertyandOtherNetCashFlowsUsedForInvesting Activities (117,785)

(18,733)9325~127193)(118,094)~238~I1056)(108,867)

KZ5~)0482)FINANCING ACTIVITIES:

CapitalContributions fromParentCompanyIssuanceofCumulative Preferred StockIssuanceofLong-term DebtRetirement ofCumulative Preferred StockRetirement ofLong-term DebtChangeinShort-term Debt(net)Dividends PaidonCommonStockDividends PaidonCumulative Preferred StockNetCashFlowsUsedForFinancing Activities Netincrease(Decrease) inCashandCashEquivalents CashandCashEquivalents January1CashandCashEquivalents December31SeehfotestoConsolidated RnancialStatements.

96,819(141,122) 39,375(110,852)

~)156)34,61889,221(35,798)(101,833) 525(106,608)

~1)24)10,00098,776243,426(112,300)

(392,093) 5,875(108,696)

~15585)3,816~9976,155~72(3,707)~74~1372349907$3752@112734)~13112)~271~57) 7'onsolidated Statements ofRetainedEarningsDIANAMICHIGAIV POWERCOMPANYAIVDSUBSIDIARIES

~199YearEneDecemr1~14(inthousands)

RetainedEarningsJanuary1NetIncomeDeductions:

CashDividends Declared:

CommonStockCumulative Preferred Stock:4-1/8%Series4.56%Series4.12%Series5.90%Series6-1/4%Series6.30%Series6-7/8%Series7.08%Series7.76%Series8.68%Series,$2.15Series$2.25SeriesTotalCashDividends DeclaredCapitalStockExpenseTotalDeductions

$216,658~14102~3577110,8524952731652,3601,8752,2052,0632,124122,412~21~1224$177,638157502335140106,6084952731652,3601,8751,9782,0632,124317118,258224118482$171,309~1244108,6964952731653741611,7992,1242,7162,5173,001~6122,921~4123015RetainedEarningsDecember31$235107$216658177638SeeIVo(astoConsolidated RnonciolStotements.

15 NOTESTOCONSOLIDATED FINANCIAL STATEMENTS 1.SIGNIFICANT ACCOUNTING POLICIES:

Organization IndianaMichiganPowerCompany(theCompanyorI%M)isawholly-owned subsidiary ofAmericanElectricPowerCompany,Inc.(AEPCo.,Inc.),apublicutilityholdingcompany.TheCompanyisengagedinthegeneration,

purchase, transmission anddistribution ofelectricpowerto537,000retailcustomers innorthernandeasternIndianaandaportionofsouthwestern Michigan.

Wholesale electricpoweris.suppliedtoneighboring utilitysystems.AsamemberoftheAmericanElectricPower(AEP)SystemPowerPool(PowerPool)andasignatory companytotheAEPTransmission Equalization Agreement, itsfacilities areoperatedinconjunction withthefacilities ofcertainotherAEPaffiliated utilities asanintegrated utilitysystem.TheCompanyhastwowholly-owned subsidiar-ies,whichareconsolidated inthesefinancial statements, Blackhawk CoalCompanyandPriceRiverCoalCompany,thatwereformerlyengagedincoal-mining operations.

Blackhawk CoalCompanycurrently leasesandsubleases portionsofitsUtahcoalrights,landandrelatedminingequipment tounaffiliated companies.

PriceRiverCoalCompany,whichownsnolandormineralrights,isinactive.

Regulation Asasubsidiary ofAEPCo.,Inc.,I@Missubjecttoregulation bytheSecurities andExchangeCom-mission(SEC)underthePublicUtilityHoldingCom-panyActof1935(1935Act).Retailratesareregulated bytheIndianaUtilityRegulatory Commis-sion(IURC)andtheMichiganPublicServiceCom-mission.TheFederalEnergyRegulatory Commis-sion(FERC)regulates wholesale rates.Principles ofConsolidation Theconsolidated financial statements includeItkManditswholly-owned subsidiaries.

Significant intercompany itemsareeliminated inconsolidation.

BasisofAccounting Asacost-based rate-regulated entity,IRM'sfinancial statements reflecttheactionsofregulators thatresultintherecognition ofrevenuesandexpensesindifferent timeperiodsthanenterprises thatarenotcost-based rateregulated.

Inaccor-dancewithStatement ofFinancial Accounting Standards (SFAS)No.71,"Accounting fortheEffectsofCertainTypesofRegulation,"

regulatory assetsandliabilities arerecordedtoreflecttheeconomiceffectsofregulation.

UseofEstimates Thepreparation ofthesefinancial statements inconformity withgenerally acceptedaccounting principles requiresincertaininstances theuseofmanagement's estimates.

Actualresultscoulddifferfromthoseestimates.

UtilityPlantElectricutilityplantisstatedatoriginalcostandisgenerally subjecttofirstmortgageliens.Addi-tions,majorreplacements andbetterments areaddedtotheplantaccounts.

Retirements fromtheplantaccountsandassociated removalcosts,netofsalvage,aredeductedfromaccumulated depreci-ation.Thecostsoflabor,materials andoverheads incurredtooperateandmaintainutilityplantareincludedinoperating expenses.

Allowance forFundsUsedDuringConstruction (AFUDCJAFUDCisanoncashnonoperating incomeitemthatisrecovered withregulator approvalovertheservicelifeofutilityplantthroughdepreciation andrepresents theestimated costofborrowedandequityfundsusedtofinanceconstruction projects.

TheamountsofAFUDCfor1995,1994and1993werenotsignificant.

16 IANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES Functional Class~ofProetProduction:

Steam-Huclear Steam-Fossil-Fired Hydroelectric-Conventional Transmission Distribution GeneralCompostteAnnualRates3.4X4.4X3.2X1.9X4.2X3.8XAmountstobeusedfordemolition ofnon-nuclear plantarepresently recovered throughdepreciation chargesincludedinrates.Theaccounting andrate-makingtreatment affordednucleardecommissioning costsandnuclearfueldisposalcostsarediscussed inNote3.CashandCashEquivalents Cashandcashequivalents includetemporary cashinvestments withoriginalmaturities ofthreemonthsorless.Operating RevenuesRevenuesincludetheaccrualofelectricity con-sumedbutunbilledatmonth-end aswellasbilledrevenues.

FuelCostsDepreciation andAmortizatI'on

'Depreciation isprovidedonastraight-line basisovertheestimated usefullivesofutilityplantandiscalculated largelythroughtheuseofcomposite ratesbyfunctional classasfollows:Levelization ofNuclearRefueling OutageCostsIncremental operation andmaintenance costsassociated withrefueling outagesattheDonaldC.CookNuclearPlant(CookPlant)aredeferredforamortization overtheperiod(generally eighteenmonths)beginning withthecommencement ofanoutageandendingwiththebeginning ofthenextoutage.IncomeTaxesTheCompanyfollowstheliability methodofaccounting forincometaxesasprescribed bySFAS109,"Accounting forIncomeTaxes."Undertheliability method,deferredincometaxesareprovidedforalltemporary differences betweenbookcostandtaxbasisofassetsandliabilities whichwillresultinafuturetaxconsequence.

Wheretheflow-through methodofaccounting fortemporary differences isreflected inrates,regulatory assetsandliabilities arerecordedinaccordance withSFAS71.Investment TaxCreditsBasedondirectives ofregulatory commissions, theCompanyreflected investment taxcreditsinratesonadeferralbasis.Commensurate withratetreatment deferredinvestment taxcreditsarebeingamortized overthelifeoftherelatedplantinvest-ment.TheCompany's policywithregardtoinvest-menttaxcreditsfornonutility propertywastopracticetheflow-through methodofaccounting.

DebtandPreferred StockFuelcostsarematchedwithrevenuesinaccor-dancewithratecommission orders.Revenuesareaccruedrelatedtounrecovered fuelinbothretailjurisdictions andforreplacement powercostsintheMichiganjurisdiction untilapprovedforbilling.IftheCompany's earningsexceedtheallowedreturnintheIndianajurisdiction, thefuelclausemecha-nismprovidesfortherefunding oftheexcessearningstoratepayers.

Wholesale jurisdictional fuelcostchangesareexpensedandbilledasincurred.

Gainsandlossesonreacquired debtaredeferredaridamortized overtheremaining termofthereacquired debtinaccordance withrate-making treatment.

Ifthedebtisrefinanced thereacquisi-tioncostsaredeferredandamortized overthetermofthereplacement debtcommensurate withtheirrecoveryinrates.Inaccordance withrate-making treatment debtdiscountorpremiumanddebtissuanceexpensesareamortized overthetermoftherelateddebt,withtheamortization includedininterestcharges.17 Redemption premiumspaidtoreacquire preferred stockaredeferred, debitedtopaid-incapitalandamortized toreduceretainedearningsinaccordance withrate-making treatment.

Theexcessofparvalueovercostsofpreferred stockreacquired tomeetsinkingfundrequirements iscreditedtopaid-incapital.NuclearDecommissioning andSpentNuclearFuelDisposalTrustFundsSecurities heldintrustfundsfordecommissioning nuclearfacilities andforthedisposalofspentnuclearfuelarerecordedatmarketvalueinaccor-dancewithSFAS115,"Accounting forCertainInvestments inDebtandEquitySecurities."

Securi-tiesinthetrustfundshavebeenclassified asavailable-for-sale duetotheirlong-term purpose.Duetotherate-making process,adjustments forunrealized gainsandlossesarenotreportedinequitybutresultinadjustments toregulatory assetsandliabilities.

OtherPropertyandInvestments Otherpropertyandinvestments arestatedatCost.Reclassifications Certainprior-period amountswerereclassified toconformwithcurrent-period presentation.

2.EFFECTSOFREGULATION ANDPHASE-INPLANS:theCompany's business'o longermettheserequirements regulatory assetsandliabilities wouldhavetobewrittenoffforthatportionofthebusi-ness.Regulatory assetsandliabilities arecomprised ofthefollowing:

December3119951994(inthousands)

Regulatory Assets:AmountsDueFromCustomers forFutureIncomeTaxesDepartment ofEnergyDecontamination andOecocmissioning Assessment RatePhase-inPlanDeferrals NuclearRefueling OutageCostLevelization Unamortized LossOnReacquired DebtOtherTotalRegulatory Assets$309,640$308,83148,86227,51551,89643,15923,46732,15120,82720214~45852518,47227500~402107Regulatory Liabilities:

DeferredInvestment TaxCredits$155,202$164,206Other*1576350TotalRegulatory tiaailitiaa

~t56770~164556*IncludedinDeferredCreditsonConsolidated BalanceSheets.TheRockportPlantconsistsoftwo1,300mega-watt(mw)coal-fired units.IS.MandAEPGenerat-ingCompany(AEGCo),anaffiliate, eachown50%ofoneunit(Rockport 1)andleasea50%interestintheotherunit(Rockport 2)fromunaffiliated lessorsunderanoperating lease.Thegainonthesaleandleaseback ofRockport2wasdeferredandisbeingamortized, withrelatedtaxes,overtheinitialleasetermwhichexpiresin2022.Theconsolidated financial statements includeassetsandliabilities recordedinaccordance withregulatory actionsinordertomatchexpenseswiththerelatedrevenuesincludedincost-based regu-latedrates.Regulatory assetsareexpectedtoberecovered infutureperiodsthroughtherate-making processandregulatory liabilities areexpectedtoreducefuturecostrecoveries.

TheCompanyhasreviewedalltheevidencecurrently available andconcluded thatitcontinues tomeettherequire-mentstoapplySFAS71.IntheeventaportionofRatephase-inplansintheCompany's IndianaandFERCjurisdictions foritsshareofRockport1providefortherecoveryandstraight-line amortiza-tionthrough1997ofprior-year deferrals.

Unamor-tizeddeferredamountsunderthephase-inplanswere$27.5millionand$43.2millionatDecember31,1995and1994,respectively.

Amortization was$16millionin1995,1994and1993.18 IANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES 3.COMMITMENTS ANDCONTINGENCIES:

Construction andOtherCommitments Substantial construction commitments havebeenmade.Suchcommitments donotincludeanyexpenditures fornewgenerating capacity.

Theaggregate construction programexpenditures for1996-1998 areestimated tobe$315million.Long-term fuelsupplycontracts containclausesthatprovideforperiodicpriceadjustments.

Theretailjurisdictions havefuelclausemechanisms thatprovideforrecoveryofchangesinthecostoffuelwiththeregulators'eview andapproval.

Thecontracts areforvariousterms,thelongestofwhichextendsto2014,andcontainvariousclaus-esthatwouldreleasetheCompanyfromitsobliga-tionundercertainforcemajeureconditions.

UnitPowerAgreements TheCompanyiscommitted underunitpoweragreements topurchase70%ofAEGCo's1,300mwRockportPlantcapacityunlessitissoldtounaffiliated utilities.

AEGCohasonelong-term contractwithanunaffiliated utilitythatexpiresin1999for455mwofRockportPlantcapacity.

TheCompanysellsundercontractupto250mwofRockportPlantcapacitytoanunaffiliated utility.Thecontractexpiresin2009.territory.

Thelowercourthaddismissed thecasefiledunderaprovision ofIndianalawthatallowsautilitytoseekdamagesequaltothegrossrevenuesreceivedbytheCompanyforrendering serviceinthedesignated serviceterritory ofanotherutility.TheCompanyisinvolvedinanumberofotherlegalproceedings andclaims.Whilemanagement isunabletopredicttheultimateoutcomeoflitiga-tion,itisnotexpectedthattheresolution ofthesematterswillhaveamaterialadverseeffectontheresultsofoperations orfinancial condition.

NuclearPlantI@Mownsandoperatesthetwo-unit2,110mwCookPlantunderlicensesgrantedbyaregulatory authority.

Theoperation ofanuclearfacilityin-volvesspecialrisks,potential liabilities, andspecificregulatory andsafetyrequirements.

ShouldanuclearincidentoccuratanynuclearpowerplantfacilityintheUnitedStates,theresultant liability couldbesubstantial.

Syagreement IS.Mispartially liabletogetherwithallotherelectricutilitycompa-niesthatownnucleargenerating unitsforanuclearpowerplantincident.

Intheeventnuclearlossesorliabilities areunderinsured orexceedaccumulated fundsandrecoveryisnotpossible, resultsofopera-tionsandfinancial condition wouldbenegatively affected.

NuclearIncidentLiability Litigation InSeptember 1995,theIndianaSupremeCourtruledinfavoroftheCompanywhenitdeniedanappealofaMarch1995opinionfromtheCourtofAppealsofIndiana.Theappealscourthadupheldandaffirmedalowercourt'sdecision.

ThecaseresultedfromanearlierSupremeCourtofIndianadecisionwhichoverruled alowercourtdecisionandvoidedanIURCorderassigning acustomertotheCompany.TheCompanyhadreceivedapproxi-mately$29millioningrossrevenuesfromthecustomerwhichwasnotintheCompany's servicePublicliability islimitedbylawto$8.9billionshouldanincidentoccuratanylicensedreactorintheUnitedStates.Commercially available insur-anceprovides$200millionofcoverage.

IntheeventofanuclearincidentatanynuclearplantintheUnitedStatestheremainder oftheliability wouldbeprovidedbyadeferredpremiumassess-mentof$79.3milliononeachlicensedreactorpayableinannualinstallments of$10million.Asaresult,IRMcouldbeassessed$158.6millionpernuclearincidentpayableinannualinstallments of$20million.Thenumberofincidents forwhichpaymentscouldberequiredisnotlimited.19 Nuclearinsurance poolsandotherinsurance policiesprovide$3.6billionofpropertydamage,decommissioning anddecontamination coverageforCookPlant.Additional insurance providescoverageforextracostsresulting fromaprolonged acciden-talCookPlantoutage.Someofthepolicieshavedeferredpremiumprovisions whichcouldbetrig-geredbylossesinexcessoftheinsurer's resources.

ThelossescouldresultfromclaimsattheCookPlantorcertainothernon-affiliate nu-clearunits.TheCompanycouldbeassessedupto$40.9millionannuallyunderthesepolicies.

SpentNuclearFuelDisposalFederallawprovidesforgovernment responsibility forpermanent spentnuclearfueldisposalandassessesnuclearplantownersfeesforspentfueldisposal.

Afeeofonemillperkilowatthour forfuelconsumedafterApril6,1983isbeingcollected fromcustomers andremittedtotheU.S.Treasury.

Feesandrelatedinterestof$163millionforfuelconsumedpriortoApril7,1983havebeenrecord-edaslong-term debt.IRMhasnotpaidthegovern-mentthepre-April 1983feesduetovariousfactorsincluding continued delaysanduncertainties relatedtothefederaldisposalprogram.AtDecember31,1995,fundscollected fromcustomers toeventually paythepre-April 1983feeandrelatedearningsincluding accruedinterestapproximated theliability.

Decommissioning andLowLevelWasteAccumula-tionDisposalDecommissioning costsareaccruedovertheservicelifeoftheCookPlant.Thelicensestooperatethetwonuclearunitsexpirein2014and2017.Afterexpiration ofthelicensestheplantisexpectedtobedecommissioned throughdisman-tlement.TheCompany's latestestimatefordecom-missioning andlowlevelradioactive wasteaccumulation disposalcostsrangefrom$634millionto$988millionin1993nondiscounted dollars.Thewiderangeiscausedbyvariables inassumptions including theestimated lengthoftimespentnuclearfuelmustbestoredattheplantsubsequent toceasingoperations whichdependsonfuturedevelopments inthefederalgovernment's 4.RELATEDPARTYTRANSACTIONS:

BenefitsandcostsoftheSystem'sgenerating plantsaresharedbymembersofthePowerPool.TheCompanyisamemberofthePowerPool.UnderthetermsoftheSystemInterconnection Agreement, capacitychargesandcreditsarede-signedtoallocatethecostoftheSystem'scapacityamongthePowerPoolmembersbasedontheirrelativepeakdemandsandgenerating reserves.

PowerPoolmembersarealsocompensated fortheout-of-pocket costsofenergydelivered tothePowerPoolandchargedforenergyreceivedfromthePowerPool.TheCompanyisanetsuppliertothepooland,therefore, receivesnetcapacitycreditsfromthePowerPool.Operating revenuesincludesrevenuesforsupply-ingenergyandcapacitytothePowerPoolasfollows:YearEndedOecember31199519941993(inthousands)

CapacityRevenuesEnergyRevenuesTotal$59,918$88,183$86,0508379952274118533~l43717~l40457~204583.spentnuclearfueldisposalprogram.Continued delaysinthefederalfueldisposalprogramcanresultinincreased decommissioning costs.Decommissioning costsarebeingrecovered inthethreerate-making jurisdictions basedonatleastthelowerendoftherangeinthemostrecentdecom-missioning studyatthetimeofthelastratepro-ceeding.TheCompanyrecordsdecommissioning costsinotheroperation expenseandrecordsanoncurrent liability equaltothedecommissioning costrecovered inrateswhichwas$30millionin1995,$26millionin1994and$13millionin1993.Decommissioning amountsrecovered fromcustom-ersaredeposited inexternaltrusts.Trustfundearningsincreasethefundassetsandtherecordedliability anddecreasetheamounttoberecovered fromratepayers.

AtDecember31;1995theCompanyhasrecognized adecommissioning liability of$269million.20 IANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES Purchased powerexpenseincludeschargesof$25.4millionin1995,$33.1millionin1994and$20.9millionin1993forenergyreceivedfromthePowerPool.PowerPoolmembersshareinwholesale salestounaffiliated utilities madebythePowerPool.TheCompany's shareofthePowerPoolwholesale salesincludedinoperating revenueswere$52.6millionin1995,$54.1millionin1994and$57millionin1993.Inaddition, thePowerPoolpurchases powerfromunaffiliated companies forimmediate resaletootherunaffiliated utilities.

TheCompany's shareofthesepurchases wasincludedinpurchased powerex-penseandtotaled$10.7millionin1995,$14.2millionin1994and$5.1millionin1993.Revenuesfromthesetransactions including atransmission feeareincludedintheabovePowerPoolwholesale operating revenues.

Thecostofpowerpurchased fromAEGCo,anaffiliated companythatisnotamemberofthePowerPool,wasincludedinpurchased powerexpenseintheamountsof$85.2million,$82.4millionand$78.9millionin1995,1994and1993,respectively.

TheCompanyoperatestheRockportPlantandbillsAEGCoforitsshareofoperating costs.AEPSystemcompanies participate inatransmis-sionequalization agreement.

Thisagreement combinescertainAEPSystemcompanies'nvest-mentsintransmission facilities andsharesthecostsofownership inproportion totheSystemcompa-nies'espective peakdemands.Pursuanttothetermsoftheagreement, otheroperation expenseincludesequalization creditsof$46.7million,$50.3millionand$47.4millionin1995,1994and1993,respectively.

Revenuesfromproviding bargingserviceswererecordedinnonoperating incomeasfollows:YearEndedDecember31199519941993(inthousands)

Affiliat,ed Companies

$23,160$24,001$21,332Unaffiltaaed Cnepanlea 599250215757Total~30152~29022~27099AmericanElectricPowerService-Corporation

{AEPSC)providescertainmanagerial andprofes-sionalservicestoAEPSystemcompanies.

ThecostsoftheservicesarebilledbyAEPSConadirect-charge basistotheextentpracticable andonreasonable basesofproration forindirectcosts.Thechargesforservicesaremadeatcostandincludenocompensation fortheuseofequitycapital,whichisfurnished toAEPSCbyAEPCo.,Inc.BillingsfromAEPSCarecapitalized orexpenseddepending onthenatureoftheservicesrendered.

AEPSCanditsbillingsaresubjecttotheregulation oftheSECunderthe1935Act.5.BENEFITPLANS:TheCompanyanditssubsidiaries participate intheAEPSystempensionplan,atrusteed, noncon-tributory definedbenefitplancoveringallemploy-eesmeetingeligibility requirements.

Benefitsarebasedonserviceyearsandcompensation levels.Pensioncostsareallocated byfirstchargingeachSystemcompanywithitsservicecostandthenallocating theremaining pensioncost'inproportion toitsshareoftheprojected benefitobligation.

Thefundingpolicyistomakeannualtrustfundcontri-butionsequaltothenetperiodicpensioncostuptothemaximumamountdeductible forfederalincometaxes,butnotlessthantheminimumrequiredcontribution inaccordance withtheEmployeeRetirement IncomeSecurityActof1974.NetpensioncostsfortheyearsendedDecember31,1995,1994and1993were$2.7million,$5millionand$4.7million,respectively.

Anemployeesavingsplanisofferedwhichallowsparticipants tocontribute upto17%oftheirsala-riesintovariousinvestment alternatives, including AEPCo.,lnc.commonstock.Anemployermatch-ingcontribution, equalingone-halfoftheemployees'ontribution totheplanuptoamaxi-mumof3%oftheemployees'ase salary,isinvestedinAEPCoedInc.commonstock.Theemployer's annualcontributions totaled$3.9millionin1995and1994andS3.5millionin1993.21 Postretirement benefitsotherthanpensions(OPEB)areprovidedforretiredemployees underanAEPSystemplan.Substantially allemployees areeligibleforpostretirement healthcareandlifeinsurance iftheyhaveatleast10serviceyearsandareage55orolderwhenemployment terminates.

SFAS106,"Employers'ccounting forPostretirement BenefitsOtherThanPensions" wasadoptedinJanuary1993fortheCompany's aggre-gateliability forOPEB.SFAS106requirestheaccrualduringtheemployee's serviceyearsofthepresentvalueliability forOPEBcosts.Costsfortheaccumulated postretirement benefitsearnedandnotrecognized atadoptionarebeingrecognized, inaccordance withSFAS106,asatransition obliga-tionover20years.OPEBcostsaredetermined bytheapplication ofAEPSystemactuarial assump-tionstoeachoperating company's employeecomplement.

TheannualaccruedOPEBcostsforemployees andretireesrequiredbySFAS106,whichincludestherecognition ofone-twentieth ofthepriorservicetransition obligation, were$13.6millionin1995,$13.2millionin1994and$12.4millionin1993.TheCompanyreceivedapprovalfromtheIURCtorecovertheincreased OPEBcostsresulting fromSFAS106.IntheMichiganandwholesale juris-dictions, theCompanyreceivedauthority todeferundercertainconditions theincreased OPEBcostswhicharenotbeingcurrently recovered inrates.Futurerecoveryofanydeferrals andincreased OPEBcostswillbesoughtinthenextbaseratefilings.AtDecember31,1995and1994,$6.7millionofincremental OPEBcostsweredeferred.

AsaresultofSFAS106,aVoluntary Employees Beneficiary Association (VEBA)trustfundforOPEBbenefitswasestablished andacorporate ownedlifeinsurance (COLI)programwasimplemented tolowerthenetOPEBcosts.Theinsurance policieshaveasubstantial cashsurrender valuewhichisrecorded, netofequallysubstantial policyloans,inotherpropertyandinvestments.

Legislation waspassedbyCongresswhichwouldhavesignificantly reducedthetaxbenefitsofaCOLIprograminthefuture.Thelegislation containing thisprovision wasvetoedbythePresident.

Atthistimeitisuncertain iflegislation repealing certaintaxbenefitsforCOLIprogramswillbeenacted.Ifenactedthislegislation wouldnegatively impacttheeffective-nessoftheCOLIprogramasafundingandcostreduction mechanism.

ThefundingpolicyistomakeVEBAtrustfundcontributions equaltotheincreaseinOPEBcostsresulting fromtheimplementation ofSFAS106.Thesecontributions includeamountscollected fromratepayers andthenetearningsfromtheCOLIpro-gram.Contributions totheVEBAtrustfundwere$10.3millionin1995,86.6millionin1994and81.3millionin1993.6.SUPPLEMENTARy INFORMATION:

YearEndedOecember31199519941993(inthousands)

Cashwaspaidfor:Interest(netofcapitalized amounts)$71,457$68,946$82,509IncomeTaxes88,67585,85468,303NoncashAcquisitions UnderCapitalLeaseswere32,07392,19915,467Inconnection withthesaleofwesterncoallandandequipment theCompanywillreceivecashpaymentsfromthebuyerof$31.6millionoverasixyearperiodwhichhasbeenrecordedatanetpresentvalueof$26.9million.Inconnection withconstruction offacilities toprovideservicetoanewcustomertheCompanywillreceivecashpaymentsof$20.9millionplusaccruedinterestover20years.22 IANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES 7.FEDERALINCOMETAXES:Thedetailsoffederalincometaxesasreportedareasfollows:1995YearEndedDecember311994(inthousands) 1993Charged(Credited) toOperating Expenses(net):CurrentDeferredDeferredInvestment TaxCreditsTotalCharged(Credited) toNonoperating Income(net):CurrentDeferredDeferredInvestment TaxCreditsTotalTotalFederalIncomeTaxesasReported$75,686(13,732)~7929)5402512,872(9,832)~)075)1965~55990$64,565(18,057)~8)55)383531,390(1,718)~5722)~6050)~32303$93,974(53,685)~8308)319816,0261,054~235)6845~388261995Thefollowing isareconciliation ofthedifference betweentheamountoffederalincometaxescomputedbymultiplying bookincomebeforefederalincometaxesbythestatutory taxrate,andtheamountoffederalincometaxesreported.

YearEndedDecember3119941993(inthousands)

NetIncomeFederalIncomeTaxesPre-taxBookIncomeFederalIncomeTaxonPre-taxBookIncomeatStatutory Rate(35K)Increase(Decrease) inFederalIncomeTaxResulting FromtheFollowing Items:Depreciation AdoptionofSFAS109Corporate OwnedLifeInsurance NuclearFuelDisposalCostsAmortization ofDeferredInvestment TaxCredits(net)OtherTotalFederalIncomeTaxesasReportedEffective FederalIncomeTaxRate$141,09255990~)97082$68,9798,954(5,187)(3,060)(9,004)~4692)~5599028.4'A$157,50232303~)89805$66,432(1,033)(4,521)(4,498)(13,875)~10202)~3230317.0X$129,34438826~168170$58,860(747)5,271(4,697)(2,432)(8,543)~8886)~3882623.I'A23 Thefollowing tablesshowtheelementsofthenetdeferredtaxliability andthesignificant temporary differences thatgaverisetoit:December3119951994(inthousands)

DeferredTaxAssets$221,604$198,7500eferredTaxLiabllitlea

~833751)~833652)liat0eferredTaxLlabilitlea

~612147)~634902)AtDecember31,1995and1994thefairvaluesoftrustinvestments were$434millionand$353million,respectively.

Accumulated grossunrealized holdinggainsandlosseswere$19.1millionand$1.0million,respectively, atDecember31,1995.Thechangeinmarketvalueduring1995and1994wasa$24.9millionnetholdinggainanda$27.1millionnetholdingloss,respectively.

Temporary Differences inTaxDollars:PropertyRelatedTemporary Differences AmountsDueFromCustomers ForFutureFederalIncomeTaxesDeferredStateIncomeTaxesDeferredNetGain-RockportPlantUnit2AllOther(net)TotalNetDeferredTaxLiabilities

$(490,986)

$(498,124)

(83,277)(71,712)(81,812)(71,712)34,94136,239~))13)~)9493)~6)2147)~634902)Thetrustinvestments'ost basisbysecuritytypewere:December3119951994(inthousands)

TreasurybondsTax-exempt bondsEquitysecurities Cash,cashequivalents andinterestaccruedTotal$14,963336,07324,10140356~4)5493$997332,0981,66525304~360064Proceedsfromsalesandmaturities ofsecurities of$78.2millionduring1995resultedin$1.4millionofrealizedgainsand$0.3millionofrealizedlosses.Proceedsfromsalesandmaturities ofsecurities of$20l1millionduring1994resultedin$52,000ofrealizedgainsand$155,000ofrealizedlosses.Thecostofsecurities fordetermining realizedgainsandlossesisoriginalacquisition costincluding amor-tizedpremiumsanddiscounts.

TheCompanyanditssubsidiaries joininthefilingofaconsolidated federalincometaxreturnwiththeiraffiliates intheAEPSystem.Theallocation oftheAEPSystem'scurrentconsolidated federalincometaxtotheSystemcompanies isinaccor-dancewithSECrulesunderthe1935Act.Theserulespermittheallocation ofthebenefitofcurrenttaxlossestotheSystemcompanies givingrisetothemindetermining theircurrenttaxexpense.ThetaxlossoftheSystemparentcompany,AEPCoedIncedisallocated toitssubsidiaries withtaxableincome.Withtheexception ofthelossoftheparentcompany,themethodofallocation approxi-matesaseparatereturnresultforeachcompanyintheconsolidated group.TheAEPSystemhassettledwiththeInternalRevenueService(IRS)allissuesfromtheauditsoftheconsolidated federalincometaxreturnsfortheyearspriorto1991.Returnsfortheyears1991through1993arepresently beingauditedbytheIRS.Intheopinionofmanagement, thefinalsettlement ofopenyearswillnothaveamaterialeffectonresultsofoperations.

8.FAIRVALUEOFFINANCIAL INSTRUMENTS:

NuclearTrustFundsRecordedatMarketValueThetrustinvestments arerecordedatmarketvalueinaccordance withSFAS115andconsistprimarily oftax-exempt municipal bonds.AtDecember31,1995,theyearofmaturityoftrustfundinvestments, otherthanequitysecurities, was:(inthousands) 19961997-2000 2001-2005 After2005Total$55,74896,882162,56376199~39)392OtherFinancial Instruments RecordedatHistorical CostThecarryingamountsofcashandcashequiva-lents,accountsreceivable, short-term debt,andaccountspayableapproximate fairvaluebecauseoftheshort-term maturityoftheseinstruments.

Fairvaluesforpreferred stockssubjecttomandatory redemption were$140millionand$117millionandforlong-term debtwere$1.1billionand$1.0billionatDecember31,1995and1994,respectively.

Thecarryingamountsforpreferred stocksubjecttomandatory redemption were$135millionateachyearendandforlong-term debtwere$1.0billion IANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES 9.LEASES:Leasesofproperty, plantandequipment areforperiodsupto35yearsandrequirepaymentsofrelatedpropertytaxes,maintenance andoperating costs.Themajorityoftheleaseshavepurchaseorrenewaloptionsandwillberenewedorreplacedbyotherleases.Properties undercapitalleasesandrelatedobliga-tionsrecordedontheConsolidated BalanceSheetsareasfollows:Oecember3119951994(inthousands)

ElectricUtilityPlant:Production Oistribution General:NuclearFuel(netofamortization)

OtherTotalElectricUtilityPlantAccumulated Amortization NetElectricUtilityPlant$9,34614,75369,44254554148,09524933123162$8,37114,71789,47853781166,34727225139122and$1.1billionatDecember31,1995and1994,res'pectively.

Fairvaluesarebasedonquotedmarketpricesforthesameorsimilarissuesandthecurrentdividendorinterestratesofferedforinstru-mentsofthesameremaining maturities.

Thecarryingamountofthepre-April 1983spentnuclearfueldisposalliability approximates theCompany's bestestimateofitsfairvalue.Thenoncurrent portionofcapitalleaseobliga-tionsisincludedinothernoncurrent liabilities.

Properties underoperating leasesandrelatedobligations arenotincludedintheConsolidated BalanceSheets.Operating LeasesAmortization ofCapitalLeasesinterestonCapitalLeasesTotalRentalCosts$96,472$104,519$103,88445,84330,87546,063998776438873~752302~743037~758820Futureminimumleasepaymentsconsisted ofthefollowing atDecember31,1995:Non-Cancelable CapitalOperating LeasesLeases(inthousands) 19961997199819992000LaterYears$13,76512,51810,6209,3898,27544362$98,35796,59391,45491,31291,1651840723TotalFutureMinimumLeasePayments98,929(a)

~2309604Leaserentalsaregenerally chargedtooperating expensesinaccordance withrate-making treat-ment.Thecomponents ofrentalcostsareasfollows:YearEndedOecember31199519941993(inthousands)

OtherPropertyAccumulated Amortization NetOtherPropertyNetProperties underCapitalLeasesCapitalLeaseObligations:

Noncurrent Liability Liability OueMithinOneYearTotalCapitalLeaseObligations 22,361301719344142506$110,73031776~74250615,842237513467152589$113,58639003~752589LessEstimated InteractElement25865Estimated PresentValueofFutureMinimumLeasePaymentsUnamortized NuclearFuelTotal73,06469442~742506(a)Excludesnuclearfuelrentalswhicharepaidinproportion toheatproducedandcarryingchargesontheunamortized nuclearfuelbalance.Therearenominimumleasepaymentrequirements for-leasednuclearfuel.25 10.CUMULATIVE PREFERRED STOCK:AtDecember31,1995,authorized sharesofcumulative preferred stockwereasfollows:ParValue$10025SharesAuthorized 2,250,000 11,200,000 Thecumulative preferred stockiscallableatthepriceindicated plusaccrueddividends.

Theinvoluntary liquidation preference isparvalue.Unissuedsharesofthecumulative preferred stockmayormaynotpossessmandatory redemption characteristics uponissuance.

During1994theCompanyredeemedandcancelled 350,000sharesofthe7.76%series.During1993theCompanyredeemedandcancelled thefollowing entireseries:8.68%seriesconsisting of300,000sharesand$2.15and$2.25serieseachconsisting of1,600,000 shares.A.Cumulative Preferred StockNotSubjecttoMandatory Redemption:

Series4-1/BX4.56K4.12'.OBIOCallPriceDecember31,1995$106.125102102.728101.85ParValue$100100100100SharesOutstanding Oecember311995120,00060,00040,000300,000AmountOecember3119951994(inthousands)

$12,000$12,0006,0006,0004,0004,0003DODO30ODO~52OOD~52ODOB.Cumulative Preferred StockSubjecttoMandatory Redemption:

Series(a)

ParValueSharesOutstanding December311995AmountOecember3119951994(inthousands) 5.90!(b)6-1/4X(c) 6.30K(d)6-7/BX(e)

$100100100100400,000300,000350,000300,000$40,00030,00035,00030ODD~235000$40,00030,00035,00030ODD~135000(a)Notcallableuntilafter2002.Thoroarenoaggregate sinkingfundprovisions through2002.(b)SharesissuedNovember1993.Commencing in2004andcontinuing throughtheyear2008,asinkingfundwillrequirethoredemption of20,000shoreseachyearandthoredemption ofthoremaining sharesoutstanding onJanuary1,2009,ineachcaseatS100pefshare.(c)SharesissuedNovember1993.Commencing in2004andcontinuing throughthoyear2008,asinkingfundwillrequiretheredemption of15,000shareseachyearandthoredemption oftheremaining sharesoutstanding onApril1,2009,ineachcaseat$100porshare.(d)SharesissuedFebruary1994.Commencing in2004andcontinuing throughtheyear2008,asinkingfundwillrequiretheredemption of17,500shareseachyearandtheredemption ofthoremaining sharesoutstanding onJuly1,2009,ineachcaseatS100pershare.(e)SharesissuedFebruary1993.Commencing in2003andcontinuing throughthoyear2007,asinkingfundwillrequiretheredemption of15,000shoreseachyearandtheredemption oftheremaining sharesoutstanding onApril1,2008,ineachcaseatS100pershare.26 0ANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES 11.LONG-TERIVI DEBTANDLINESOFCREDIT:Long-term debtbymajorcategorywasout-standingasfollows:December3119951994(inthousands)

FirstMortgageBondsInstallment PurchaseContracts OtherLong-term Oebt(a)NotesPayabletoBanksSinkingFundOebentures(b)

$562,017$561,770308,971163,0606053308,087153,97740,00060531,040,101 1,069,887 LessPortionOueWithinOneYearTotal6053140000~1034040~929807(a)Nuc(earFuelDisposalCostsincluding interestaccrued.SeeNots3.(b)Calledforredemption onMarch1,1996.Firstmortgagebondsoutstanding wereasfol-lows:Oecember3119951994(inthousands)

IRateOue71998-May17.301999-Oecember157.632001-June17.602002-November17.702002-Oecember156.802003-July16.552003-October16.102003-November16.552004-HarchI9.502021-Hay19.502021-Hay19.502021-May18.752022-May18.502022-December157.802023-July17.352023-October17.202024-February17.502024-MarchIUnamortized Oiscount(net)$35,00035,00040,00050,00040,00020,00020,00030,00025,00010,00010,00020,00050,00075F00020,00020,00040,00025,000~2903)$35,00035,00040,00050,00040,00020,00020,00030,00025,00010,00010,00020,00050,00075,00020,00020,00040,00025,000~3230)Total~562017~56)770Certainindentures relatingtothefirstmortgagebondscontainimprovement, maintenance andre-placement provisions requiring thedepositofcashorbondswiththetrustee,orinlieuthereof,certifi-cationofunfundedpropertyadditions.

Installment purchasecontracts havebeenenteredintoinconnection withtheissuanceofpollution controlrevenuebondsbygovernmental authorities asfollows:Oecember3119951994(inthousands)

~RateOueCityofLawrenceburg, Indiana:72015-April15.92019-November1CityofRockport, Indiana:9-1/42014-August16-3/42014-August1(a)2014-August17.62016-Harch16.552025-June1(b)2025-June1CityofSullivan, Indiana:5.952009-Hay1Unamortized OiscountLessPortionOueWithinOneYear$25,00052,00050,00040,00050,00050,00045,000~3029)308,971$25,00052,00050,00050,00050,00040,00045,000~3913)308,087Total100000~300971~200007(a)Thevariableinterestrateisdetermined weekly.Theaverageweightedinterestratewas4.6Xfor1995and3.8Xfor1994.(b)Theadjustable interestratecanbeadaily,weekly,contnercial paperortermrateasdesignated bytheCompany.Initially, aweeklyratewasselectedduring1995whichrangedfrom2.9XtoSXandaveraged4.0X.Underthetermsofcertaininstallment purchasecontracts, theCompanyisrequiredtopayamountssufficient toenablethecitiestopayinterestonandtheprincipal (atstatedmaturities anduponmandatory redemption) ofrelatedpollution controlrevenuebondsissuedtofinancetheconstruction ofpollution controlfacilities atcertaingenerating plants.Onthetwovariablerateseriestheprincipal ispayableatthestatedmaturities oronthedemandofthebondhoiders atperiodicinterestadjustment dateswhichoccurweekly.Thevariableratebondsduein2014aresupported byabankletterofcreditwhichexpiresin2002.I&Mhasagreements thatprovideforbrokerstoremarketthevariableratebondsduein2025tenderedatinterestadjustment dates.Intheeventcertainbondscannotberemarketed, I&Mhasastandbybondpurchaseagreement withabankthat27 providesforthebanktopurchaseanybondsnotremarketed.

Thepurchaseagreement expiresin2000.Accordingly, thevariablerateinstallment purchasecontracts havebeenclassified forrepayment purposesbasedontheexpiration datesofthestandbypurchaseagreement andtheletterofcredit.AtDecember31,1995,annuallong-term debtpayments, excluding premiumordiscount, areasfollows:PrincialAmount(inthousands) 19961997199819992000LaterYearsTotal$6,05335,00035,00050,0009200601046113Short-term debtborrowings arelimitedbyprovi-sionsofthe1935Actto$175million.LinesofcreditaresharedwithAEPSystemcompanies andatDecember31,1995and1994wereavailable intheamountsof$372millionand$558million,respectively.

Commitment feesofapproximately 1/8of17%oftheunusedshort-term linesofcreditarepaideachyeartothebankstomaintainthelinesofcredit.Outstanding short-term debtcon-sistedof:Year-endBalanceWeightedOutstanding Average12.COMMONSHAREHOLDER'S EQUITY'he CompanyreceivedfromAEPCo.,Inc.acashcapitalcontribution of$10millionin1993whichwascreditedtopaid-incapital~In1995,1994and1993netchargestopaid-incapitalof$2,548,000,

$422,000and$1,224,000, respectively, repre-sentedexpensesofissuingandretiringcumulative preferred stock.Therewerenoothertransactions affecting thecommonstockandpaid-incapitalaccountsin1995,1994and1993.13.UNAUDITED QUARTERLY FINANCIAL INFOR-IVIATION:

Iiuarterly PeriodstndedOperating Operating RevenuesIncome(inthousands)

NetIncome1995Harch31June30September 30December31$327,177307,820334,846313,314$56,31151,38654,40043,626$38,38833,78037,40431,520Mortgageindentures, debentures, charterprovi-sionsandordersofregulatory authorities placevariousrestrictions ontheuseofretainedearningsforthepaymentofcashdividends oncommonstock.AtDecember31,1995,$5.9millionofretainedearningswererestricted.

Regulatory approvalisrequiredtopaydividends outofpaid-incapital.December31,1995:NotePayableComnercial PaperTotalDecember31,1994:Comnercial Paper506006.3X$52,2006.1X377756.1~599756.71994Harch31June30September 30December31337,921310,104317,061286,22358,87554,69155,46952,93444,97637,28137,73637,50928 IANAMICHIGANPOWERCOMPANYANDSIJBSIDIARIES OPERATING STATISTICS 19951994199319921991OPERATING REVENUES(Inthousands):

Retail:Residential:

WithoutElectricHeatingWithElectricHeatingTotalResidential Commercial Industrial Miscellaneous TotalRetailWholesale (salesforresale)TotalRevenuesfromEnergySalesProvision forRefundsofRevenuesCollected inPriorYearsTotalNetofProvision forRefundsOtherTotalOperating Revenues239,266S227,358S205,315$209,682S206,257109504~107529756898553~289348,770334,881302,883308,235299,546256,319247,938220,938228,285216,303298,256291,527250,939267,643241,858~42i~1~559~1112~1212909,827880,662780,353815,175769,827~574413528894049103693794360831,267,268 1,233,551 1,185,263 1,184,554 1,205,910

~7551~4038151761,267,268 1,233,551 1,184,508 1,180,516 1,211,086 15889~17751813516239~14714128315741251309$1202643~119675541225867SOURCESANDSALESOFENERGY(inmillionsofkilowatthours):

Sources:NetGenerated:

FossilFuelNuclearFuelHydroelectric TotalNetGenerated Purchased andPowerPoolTotalSourcesLess:Losses,CompanyUse,Etc.NetSources12,85013,999~826,935587132,806~1703110613,0229,29122,408~57728,16513982676712,23616,31310028,655487933,53413493218511,5976,41810(}18,115934227,457~1462599112,10915,5241II927,742~52732,979~14431525Sales:Retail:Residential:

WithoutElectricHeatingWithElectricHeatingTotalResidential Commercial Industrial Miscellaneous TotalRetailWholesale (salesforresale)TotalSales3,39017685,1584,3006,5828216,12214984311063,21017274,9374,1486,4538215,62011147267673,17817064,884.3,9776,0258314,969~1721321853,001~1634,6343,7475,68519414,260~1171259913,166~1254,7913,7265,382~2314,132~17',~93152529 OPERATING STATISTICS (Concluded) 1995194199AVERAGECOSTOFFUELCONSUMED(incents):PerMillionBtu:CoalNuclearOverallPerKilowatthour Generated:

CoalNuclearOverall12643781.23.47.8312442851.21.47.9013036721.27.40.77136541031.34.611.0814148841.39~53.91RESIDENTIAL SERVICE-AVERAGES:

AnnualKwhUseperCustomer:

WithElectricHeatingTotalAnnualElectricBill:WithElectricHeatingTotalPriceperKwh(incents):WithElectricHeatingTotal18,04410,94317,90710,5726.196.766.236.78$1,117.55$1,115.19$739.99$717.1717,98010,55917,51310,1075.726.206.046.65$1,028.26$1,056.91$654.76$672.3117,70210,535$1,016.16$658.765.746.25NUMBEROFCUSTOMERS:

Year-End:

Retail:Residential:

WithoutElectricHeatingWithElectricHeatingTotalResidential Commercial Industrial Miscellaneous TotalRetailWholesale (salesforresale)TotalElectricCustomers 372,473~7~42375,929QQ~3'i469,87553,9275,213~10475,03455,0775,316~177530,82154537,224~2537286~53087369,385465,18053,0815,157~17525,201366,835~417461,01052,5425,000~17520,303364,154~2~7456,81151,4914,847~222515,37552525752035651542830 IgNAMICHIGANPOWERCOMPANYANDSUBSIDIARIES DIVIDENDS ANDPRICERANGESOFCUMULATIVE PREFERRED STOCKByQuarters(1996and1994)1995-uarters1994-uartersCUMULAT(VE PREFERRED STOCK1st2nd3rd4th1st2nd3rd4th($100ParValue)4-1/8/SeriesDividends PaidPerShareMarketPrice-$PerShare(CSE)-High-Low$1.03125$1.03125$1.03125$1.03125$1.03125$1.03125$1.03125$1.031254.56/,SeriesDividends PaidPerShareMarketPrice-$PerShare(OTC)Ask-High-LowBid-High-Low4.12KSeriesDividends PaidPerShareMarketPrice-$PerShare(OTC)Ask-High-LowBid-High-Low46-5/845-1/247-1/446-1/447"1/247-1/449"1/247-1/2$1.03$1.03$1.03$1.0346-1/247434651465146$1.14$1.14$1.14$1.1455-5/84954-1/845-1/250-5/845-1/246-1/845-1/2$1.03$1.03$1.03$1.0358-1/2515446-1/24846-1/84843-1/2$1.14$1.14$1.14$1.145.90KSeriesDividends PaidPerShareMarketPrice-$PerShare(OTC)Ask(high/low)

Bid(high/low) 6-1/4XSeriesDividends PaidPerShareMarketPrice-$PerShare(OTC)Ask(high/low)

Bid(high/low) 6.30KSeries(a)Dividends PaidPerShareMarketPrice-$PerShare(OTC)Ask(high/low)

Bid(high/low) 6-7/8/SeriesDividends PaidPerShareMarketPrice-$PerShare(OTC)Ask(high/low)

Bid(high/low)

$1.475$1.475$1.475$1.475$1.475$1.475$1.475$1.475$1.5625$1.5625$1.5625$1.5625$1.5625$1.5625$1.5625$1.5625$1.575$1.575$1.575$1.575$0.9275$1.575$1.575$1.575$1.71875$1.71875$1.71875$1.71875$1.71875$1.71875$1.71875$1.718757.08KSeriesDividends PaidPerShareMarketPrice-$PerShare(MYSE)-High-Low83-5/87688-1/29199"1/2848686$1.77$1.77$1.77$1.7797-1/295948387-1/2808076$1.77$1.77$1.77$1.7731 INDIANAMICHIGANPOWERCOMPANYDIVIDENDS ANDPRICERANGESOFCUMULATIVE PREFERRED STOCKByQuarters(1995and1994)(Concluded) 1995-uarters1994-uartersCUMULATIVE PREFERRED STOCK($100ParValue)7.76KSeries(Redeened)

Dividends PaidPerShareMarketPrice-$PerShare(NYSE)-High-Low1st2nd3rd4th1st$0.90541011002nd3rd4thCSE-ChicagoStockExchangeOTC-Over-the-Counter NYSE-NewYorkStockExchangeNote-Theabovebidandaskedquotations represent pricesbetweendealersanddonotrepresent actualtransactions.

Marketquotations providedbyNationalquotation Bureau,Inc.Bashindicated quotation notavailable.

(a)IssuedFebruary1994SECURITYOWNERINQUIRIES Securityownersshoulddirecttheirinquiries totheSecurityOwnerRelations Divisionusingthetollfreenumber:1-800-AEP-COMP (1-800-237-2667) orbywritingto:BetteJoRozsaSecurityOwnerRelations DivisionAmericanElectricPowerServiceCorporation 28thFloor1Riverside PlazaColumbus, OH43215-2373 FORM10-KANNUALREPORTTheAnnualReport(Form10-K)totheSecurities andExchangeCommission willbeavailable inApril1996atnocosttoshareholders.

Pleaseaddresssuchrequeststo:GeoffreyC.DeanAmericanElectricPowerServiceCorporation 27thFloor1Riverside PlazaColumbus, OH43215-2373 TRANSFERAGENTANDREGISTRAR OFCUMULATIVE PREFERRED STOCKFirstChicagoTrustCompanyofNewYorkP.O.Box2534Suite4692JerseyCity,NJ07303-2534 32 IndianaMichiganPowerServiceAreaandtheAmericanElectricPowerSystemLAKEMICHIGANMICHIGANIAKEERIEOHIOINDIANAWESTVIRGINIAKENTUCKYVIRGINIAIndianaMichiganPowerCo.areaOtherAEPoperating companies'reas gMajorpowerplantTENNESSEE Cl+priniedonrecycledpaper ATTACHMENT 2TOAEPNRC'0909L INDIANAMICHIGANPOWERCOMPANY'S PROJECTED CASHFLOWFOR1996 IndianaMichiganPowerCo.1996Forecasted SourcesandUsesofFundsBasedonForecasted Case9600Revision1$MillionsProjected 1996NetIncomeAfterTaxesLessDividends Paid150.0122.3RetainedEarningsAdjustments:

Depreciation AndAmortization DeferredOperating CostsDeferredFederalIncomeTaxesandInvestment TaxCreditsAFUDCOther27.7153.89.8(29.2)(1.5)(9.2)TotalAdjustments 123.7InternalCashFlow151.4AverageQuarterly CashFlow37.9AverageCashBalancesandShort-TermInvestments 0.5Total38.4 p:4