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)

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{{#Wiki_filter:ANNUALREPORT1980AMERICANELECTRICPOVfERSYSTEM8109290617 810922PDRADOCK05000315IPDR IANAdcMICHIGANELECTRICCOM.Y2I01SpyRunAvenue,FortIVayne,Indiana46801ContentsBackground oftheCompany.SelectedFinancial Data.Management's Discussion andAnalysisofFinancial Condition andResultsofOperations .Auditors'pinion Consolidated Statements ofIncomeConsolidated BalanceSheets.Consolidated Statements ofSourcesandApplications ofFunds.Consolidated Statements ofRetainedEarningsNotestoConsolidated Financial Statements. Directors andOfficersoftheCompanyOperating Statistics...................................... PriceRangeofCumulative Preferred Stock6-710-11121313-262728-2930

Background

oftheCompanyINDIANAkMtcHIQANELEGTRlcCohtpANY(theCompany)isasubsidiary ofAmericanElectricPowerCompany,Inc.(AEP)andisengagedinthegeneration,

purchase, transmission anddistribution ofelectricpower.TheCompanywasorganized underthelawsofIndianaonFebruary21,1925,andisalsoauthorized totransactbusinessinMichiganandWestVirginia.

Itsprincipal executive officesareinFortWayne,Indiana.OnNovember30,1979,asubsidiary, Indiana2MichiganPowerCompany,whichownedandoperatedtheDonaldC.CookNuclearPlant(theNuclearPlant),wasmergedintotheCompany.InSeptember 1980,theCompanytransferred, atnetbookvalue,itsinvestment incertaincoalminesandrelatedminingassetslocatedinCarbonCounty,Utah,toanewly-organized subsidiary, Blackhawk CoalCompany.PriceRiverCoalCompany,awhollyownedsubsidiary oftheCompany,isengagedinminingcoalfromlandownedbyBlackhawk whichisbeingpurchased bytheCompany.TheCompanyserves231communities and444,139customers ina7,700-square-mile areaofnorthernandeasternIndianaandaportionofsouthwestern Michigan. Thisareahasanestimated population of1,453,000. Amongtheprincipal industries servedaremanufacturers ofautomobiles, trucks,automotive parts,manufactured homes,aircraftparts,steel,ferrousandnonferrous

castings, farmmachinery, machinetools,electricmotors,electrictransformers, electricwireandcable,glass,textiles, rubberproductsandelectronic components.

Inaddition, theCompanysupplieswholesale electricpowertootherelectricutilities, municipalities andcooperatives. TheCompany's generating plantsandimportant loadcentersareinterconnected byahigh-volt-agetransmission network.Thisnetworkinturnisinterconnected eitherdirectlyorindirectly withthefollowing otherAEPSystemcompanies toformasinglemajorintegrated powersystem:Appalachian PowerCompany,ColumbusandSouthernOhioElectricCompany,KentuckyPowerCompany,Kingsport PowerCompany,MichiganPowerCompany,OhioPowerCompanyandWheelingElectricCompany.TheCompanyisalsointerconnected withthefollowing otherutilities: CentralIllinoisPublicServiceCompany,TheCincinnati Gas8;ElectricCompany,Commonwealth EdisonCompany,Consumers PowerCompany,IllinoisPowerCompany,Indiana-Kentucky ElectricCorporation (asubsidiary ofOhioValleyElectricCorporation), Indianapolis Power8:LightCompany,NorthernIndianaPublicServiceCompanyandPublicServiceCompanyofIndiana,Inc. INDIANA~ICHIGANELECTRICCOMPANYANDSUBSIDIARIES SelectedFinancial DataS0l1980YearEndedDecember31,19791978(inthousands) 19771976ISSICOMESTATEMENTS DATA:OPERATING REVENUES-ELECTRIC.TOTALOPERATING EXPENSES......OPERATING INCOME.TOTALOTHERINCOhfEANDDEDUCTIONS ..INCohfEBEFORE14NTEREST CHARGESiVETIiNTEREST CHARGESCGNsoLIDATED iVETINcoME-beforepreferred stockdividendrequirements..... PREFERRED STOCKDIVIDENDREQUIREMENTS ..EARNINGSAPPLICABLE TOCOMMohfSTOCK.... 5748,680S689,0665597,8945506,669S415,549313,645101,90429,867580,484527,617440,074378,345161,449157,82012S,324168,19629,75028,346.29,04230,541198,737187,57074,300156,670131,771190,49161,24176,54191,4Q498,665100,07299,087113,27095,42955,23023,242-19,99518,35714,04111,977$76,830$79,092$94,913$81,388$43,253BALAiVCESHEETSDATA:ELECTRICUTILITYPI,ANT$3,117,381 $2,657,93Q $2,397,245 $2,107,032 $1,933,305 ACCUhfULATED PROVISIONS FORDEPRECIATIONs DEPLETION ANDAMORTIZATION........... NETELECTRICUTILITYPLANTToTAI.AssETsANDOTHERDEBITs561,773475,643410,5202,555,608 2,182,287 1,986,725 2,826,172 2,616,996 2,360,813 358,826316,9161748,206 1,616,389 2,130,899 1,919,189 CoihfMONSTOCK,PREhfIUMS ONCAPITALSTOCKANDOTHERPAIDINCAPITAL..... ~~~~.~~~RETAIiiIED EARNINGSCUhfULATIVE PREFERRED STOCK:NOTSUBJECTTOMANDATORY REDEMPTION .SUBJEGTTG MANDATQRY REDEMPTIGN(a) ..LGNG-TERhf DEBT(a)637,287587,193527,193467,193409,193124,318136,802136,072105,36678,776197,000197,000197,000157,000117,00068,34870,00030,00030,00030,0001,264,673 1,124,255 1,050,626 1,038,483 913,832(a)Including portionduewithinoneyear. .~.:~Management's Discussion andAnalysisofFinancial Condition andResultsofOperations Thefollowing aresomeofthemoresignificant factorsbearingonthefinancial condition ofIndianaEcMichiganElectricCompanyanditssubsidiaries asreflected intheconsolidated resultsofoperations. Thisdiscussion referstotheconsolidated financial statements appearing onthefollowing pages.Operating RevenuesandExpensesConsolidated operating revenuesincreased 15.2%in1979and8.7%in1980.Operating revenueshaverisenmoresteeplythanenergysalesbecauseofhigherretailandwholesale rates,whichwentintoeffectduringsuchperiod,andhigherfuelcosts,aportionofwhichispassedontocustomers throughfueladjustment charges.Revenuesfromretailcustomers (residential, commer-cialandindustrial) roseby7.4%in1979ona2.1%in-creaseinkilowatt-hour sales,andweredown1.6%in1980,ona3.0%declineinkilowatt-hour sales.TheCompanysharedintheAEPSystem'sabilitytotakeadvantage ofitshighgenerating availability, lowoperating costsandefficient transmission systemtoin-creaseitsopportunity salestoneighboring utilities. Wholesale revenuesincreased 29.5%in1979and23.0%in1980onincreases inkilowatt-hour salesof19.0%and12.4%,respectively. Wholesale salestomunicipalities, electriccooperatives andotherelectricutilities areex-pectedtocontinuetobesignificant duringthenextfewyearsaswell.Thegainsinwholesale saleswereresponsible forin-creasesinpurchased andinterchange powerexpenses(6.6%in1979and5.7%in1980).BecauseofAEP's~powerfulinterconnection andtransmission

capacity, duringperiodsofpeakdemandwhichexceededtheAEPSystem'sinternalgenerating

capacity, wholesale cus-tomers'equirements wereabletobemetbypurchasing powerfromneighboring utilities forresaletoothers.Fuelexpensesincreased by18.0%in1980,ascon-trastedwith16.3%in1979,withtheresultthattotaloperating expensesincreased inlinewithoperating rev-enues(10.0%in1980and19.9%in1979).Futurefuelexpensesmaybeaffectedbycontractnegotiations be-tweenthecoalindustryandtheUnitedMineWorkers,increasing foreignpurchases ofUnitedStatescoal,andthepossibility ofyetmorestringent environmental re-strictions onburningcertaintypesofcoal.Whetherornotcontinued increases infuelcostswilladversely affectearningswilldependontheCompany's continued abilitytorecoverthosecostspromptlyinthefaceofeffortsbyconsumergroupsandotherstodelayorreduceratein-creasesandtoeliminate orreducetheextentofcoverageoffueladjustment clauses.Construction andFinancing ProgramExpenditures fortheCompany's construction pro-gramoverthethree-year period1981-1983 areestimated tobeapproximately

$1.1billion.Substantial additional expenditures mayberequiredifexistinggenerating plantshavetobefurthermodifiedorrequireadditional facilities tocomplywithpossiblefutureenvironmental qualitystandards. Inrecentyears,theconstruction pro-gramhasbeenaffectedbysubstantial increases incon-struction costsanddifficulties inobtaining financing fortheprogramduetohighcostsofcapital.Theconstruc-tionprogramisreviewedcontinuously andrevisedfromtimetotimeinresponsetorevisedprojections ofloadgrowthandchangesinthecostandavailability ofcapital.Inrecentyears,thesereviewshaveresultedinextending construction schedules ofanumberofprojectswiththeobjective ofreducingthelevelofannualconstruction ex-penditures. However,deferrals ofconstruction projectsmayhaveanadverseeffectonthequalityoftheCom-pany'sservicetoitscustomers inthefuture,andanyre-sultingreductions incurrentconstruction costsmay,inthelongrun,beatleastpartially offsetbycancellation chargesandgeneralinflationary trends.Inaddition, whenthecompletion dateofaprojectunderconstruction issubstantially delayed,itbecomesmoreexpensive, bothbecauseoftheforegoing factorsandbecausecertaincostssuchasrealpropertytaxes,allowances forfundsusedduringconstruction andotheroverheads continuetoaccrueuntilthefacilityisplacedincommercial opera-tion.Itisestimated thatapproximately 38%oftheCompany's projected construction expenditures for1981-1983 willbefinancedwithinternally-generated funds.Theadditional amountsneededwillhavetoberaisedexternally, asinthepast,throughsalesofsecuri-tiesandinvestments intheCompany's commonequitybyAEP.TheCompanyinitially financescurrentconstruc-tionexpenditures inexcessofavailable internally-generated fundsbyissuingunsecured short-term debt(commercial paperandbankloans)andthenperiodically reducesshort-term debtwiththeproceedsfromsalesoflong-term debtsecurities andpreferred stockandwithinvestments intheCompany's commonequitybyAEP.Theamountsofshort-term debtwhichtheCompanymayissuearelimitedbyregulatory restrictions underthePublicUtilityHoldingCompanyActof1935andbyre-strictions initscharterandincertaindebtinstruments. AtDecember31,1980,theCompanyhadreceivedau-thorizations fromtheSecurities andExchangeCommis-siontoissueatotalofapproximately $200,000,000 ofshort-term debt.Note8ofNotestoConsolidated Finan-INDIANICHIGANELECTRICCOMPANYANDSUBSIDIARIES cialStatements containsinformation ontheCompany's short-term banklinesofcreditandrev'olving creditagreements. Banklinesofcreditmaybewithdrawn bythebanksextending thematanytime.lnorderfortheCompanytoissueadditional long-termdebtandpreferred stock,itisnecessary forittocomplywithearningscoveragerequirements contained initsmortgagebondanddebenture indentures andinitscharter.lnordertoissueadditional long-term debt(excepttorefundmaturinglong-term debt),theCom-panymusthavepre-taxearningsequaltoatleasttwicetheannualinterestchargesonlong-term debt,givingeffecttotheissuanceofthenewdebt,foraperiodof12consecutive monthswithinthe15monthsimmediately preceeding thedateofthenewissue.Toissueadditional preferred stock,theCompanymusthaveafter-tax grossincomeatleastequaltooneandone-halftimesannualinterestchargesandpreferred dividends, givingeffecttotheissuanceofthenewpreferred stock,forthesameperiod.Theseprovisions donotpreventcertaintypesofpollution controlrevenuebondfinancings bypublicbodiesonbehalfoftheCompany,butthelevelsofcov-erageunderthemmayaffectthecostandmarketability ofsuchbonds.AtDecember31,1980,thecoverages oftheCompanyundertheseprovisions wereatleast2.39forlong-term debtand1.36forpreferred stock.lnviewoftheserestrictions ontheissuanceofaddi-tionaldebtsecurities andpreferred stock,theCompanybelievesthatitwillbepossibletomeetthecapitalrequire-mentsofitsconstruction programonlyiftheCompanyreceivesrateincreases overthenextseveralyearssuffi-cienttomaintaintheearningslevelsrequiredtoissuethenecessary amountsoflong-term debtandpreferred stockandtoprovideanappropriate returnonnewequityinvestment. NetIncomeConsolidated netincomebeforepreferred dividendre-quirements decreased by12.5oIoin1979andincreased byI.OVOin1980.Thesechangesinnetincomewereaccom-paniedbyadecreaseinthetotalproportion ofallowance forfundsusedduringconstruction (AFUDC)reflected innetincome,from44.7CIOin1978to37.8'n1979andanincreaseto50.2%in1980,asaresultofthecommercial operation oftheCookNuclearPlantUnit2in1978andtheincreasing investment intheRockportPlant(nowunderconstruction) in1980.AFUDCdoesnotrepresent cashincome.orareduction inactualinterestexpense,butisanaccounting convention requiredbyregulatory sys-temsofaccounts. Thenetcostofborrowedfundsusedforconstruction andareasonable rateofreturnonotherfundswhensousediscapitalized asacostofconstruction projectswithaconcurrent credittotheIncomeState-ment.Theamountcapitalized isgenerally includedintheplantinvestment baseforsettingratesandrecovered throughdepreciation chargesincludedinratesaftertheprojectisplacedincommercial operation. EffectsofInflation Thehighratesofinflation inrecentyearshavehadadrasticeffectontheCompany's consolidated

revenues, expensesandnetincomethatis,notreadilyevidentinconventional financial statements.

Foradditional infor-mationontheeffectsofinflation, refertoNote13oftheNotestoConsolidated Financial Statements, whichpre-sentsaconsolidated statement ofincomefor1980,ad-justedforeffectsofchangingprices,andacomparison ofselectedsupplementary dataforatwo-yearperiod,similarly adjusted. Auditors'pinion DeloitteHaSkinS-SeliS 155EastBroadStreetCotvmbus. Orrio43215(6t41221~1000CableDEHANDSTotheShareowners andtheBoardofDirectors ofIndiana&NichiganElectricCompany:Mehaveexaminedtheconsolidated balancesheetsofIndiana&HichiganElectricCompanyanditssubsidiaries asofDecember31,1980and1979andtherelatedconsolidated statements ofincome,retainedearnings, andsourcesandapplications offundsforeachofthethreeyearsintheperiodendedDecember31,1980.Ourexaminations weremadeinaccordance withgenerally acceptedauditingstandards and,accordingly, includedsuchtestsoftheaccounting recordsandsuchotherauditingprocedures asweconsidered necessary inthecircumstances. Asdiscussed inNote2ofNotestoConsolidated Financial State-ments,(1)acourtdecisionhasreversedinpartandremandeda1978Indianaretailrateorderand,(2)theCompanyiscollecting certainwholesale revenuessubjecttopossiblerefund.Inaddi-tion,theCompanyisinvolvedintheantitrust mattersdiscussed inNote10ofNotestoConsolidated Financial Statements. Inouropinion,subjecttotheeffectontheconsolidated finan-cialstatements identified aboveofsuchadjustments, ifany,asmighthavebeenrequiredhadtheoutcomeoftherateandantitrust mattersreferredtointhepreceding paragraph beenknown,suchconsolidated financial statements presentfairlythefinancial positionoftheCompanyanditssubsidiaries atDecember31,1980and1979,andtheresultsoftheiroperations, andtheirsourcesandapplications offundsforeachofthethreeyearsintheperiodendedDecember31,1980,inconformity withgenerally acceptedaccounting princip'les appliedonaconsistent basis.February24,1981 IhfDIANA4~CHIGAI)IELECTRICCOMPAIIII'iVDSUBSIDIARIES Consolidated Statements ofIncomeOPERATING REvENUEs-ELEGTRIcYearEndedDecember31,19791978(inthousands) 5748,6805689,0665597,894OPERATING EXPENSES: Operation: FuelforElectricGeneration... Purchased andInterchange Power(net).Other:459Iaintenance........................... Depreciation, Depletion andAmortization TaxesOtherThanIncomeTaxesStateIncomeTaxesFederalIncomeTaxes.TotalOperating Expenses.OPERATING INCOMEOTHERINCOMEANDDEDUCTIONS: Allowance forOtherFundsUsedDuringConstruction ~..vliscellaneous Nonoperating IncomeLessDeductions.... TotalOtherlncomeand Deductions........... INCOMEBEFOREINTERESTCHARGESINTERESTCHARGES:InterestonLong-term Debt.InterestonShort-term Debt.ivliscellaneous InterestCharges.TotallnterestCharges .Allowance forBorrowedFundsUsedDuringConstruction (credit)iVetInterestCharges171,943128,64579,78841,37777,66826,13116554,767580,484168,19618,43812,10330,541198,737109)13818,8472,507130)492(31,827)98,665145,743121,70670,18437,62474,09927,1761,52949,556527,617161,44917,36511,67729,042190,49196,12713,7871,567111,481(20,077)91,404125,277114,15460,00132,72459,84426,432(378)22,020440,074I57,82027,9741,77629,750187,57089,3975,9641,56696,927(22,627)74,300CoNsoLIDATED iVETINcoME-beforepreferred stockdividendrequirements PREFERRED SI'OCKDIVIDENDREQUIREMENTS EARNINGSAPPLICABt EToCOMMONSTOCK100,07223,242S76,83099,087113,27019,99518,357579,092594,913Seelvo5esroConsolidared Financial Slalemen5s. 9 Consolidated BalanceSheetsASSETSANDOTHERDEBITSDecember31,19801979(inthousands) ELECTRICUTILITYPLANT:Production. Transmission Distribution GeneralandMiscellaneous (includes nuclearfuelandminingplant)Construction WorkinProgressTotalElectricUtilityPlantLessAccumulated Provisions forDepreciation, Depletion andAmortization .ElectricUtilityPlantLessProvisions ................. $1,501,750 433,653283.153195,140703,6853,117,381 561,7732,555,608 $1,442,315 427,818269,70838,163479,9262,657,930 475,6432,l82,287OTHERPROPERTYANDINVESTMENTS .27,409212,892CURRENTASSETS:CashSpecialDepositsandWorkingFunds.AccountsReceivable: Customers Associated Companies Miscellaneous Accumulated Provision forUncollectible Accounts...Materials andSupplies(ataveragecostorless):Fuel.Construction andOperation Materials andSupplies... AccruedUtilityRevenues Prepaymentsand OtherCurrentAssetsTotalCurrentAssets10,6653,63062,21623,0665,319(371)65,58619,51011,7964,795206,2124,5983,99056,92820,5763,773'381;49,28417,309201042,093178,274DEFERREDDEBITS:Unamortized DebtExpense.PropertyTaxes.DeferredCollection ofFuelCosts.OtherWorkinProgress.OtherDeferredDebitsTotalDeferredDebitsTotal3,2201,4021,29711,32126,3033,5201,47378910,69620,46543,54336,943$2,826,172 $2,616,996 SeeNotestoConsolidated Financial S(atements. 10 INDIANdciMICHIGAN TRICCObfPA/VYrlIVDSUBSIDIARIES LIABILITIES AiVDOTHERCREDITSCAPITAUZATION: CommonStock-NoParValue:Authorized-2,500,000 SharesOutstanding -1,400,000 SharesPremiumsonCapitalStockOtherPaid-inCapital. RetainedEarningsTotalCommonShareowner's Equity.......... Cumulative Preferred Stock:NotSubjecttoiviandatory Redemption Subjectto5landatory Redemption (lesssinkingfundrequirements duewithinoneyear).Long-term Debt(lessportionduewithinoneyear).......TotalCapitalization (lessamountsduewithinoneyear)$56,584381580,322124,318761)605197,000$56,584381530,228136,802723,995197,00067,0001,245,403 68,5001,088,222 2.271,008 2,077,7I7December3l,19801979(inthousands) undRequirements CDRRENTLIABILITIEs: Cumulative Preferred StockSinkingFDueWithinOneYearLong-term DebtDueWithinOneYear.Short-term Debt:NotesPayabletoBanks.Commercial Paper.AccountsPayable:GeneralAssociated Companies .Dividends Declared: CommonStock...Cumulative Preferred Stock.CustomerDepositsTaxesAccrued.InterestAccruedRevenueRefundsAccrued.OtherCurrentLiabilities TotalCurrentLiabilities. 1,34819,270104,55041,97541,70113,05211,5005,805220223,80427,46720,02624,136336,836l,50036,03393,49055,80545,55916,12730,1305,7322,0I820,13421,48016,47020,195364,673COMEIITMENTs ANDCGNTINGENcIEs (NQTE10)DEFERREDCREDITsANDOPERATING REsERvEs: DeferredIncomeTaxes.DeferredInvestment TaxCredits..OtherDeferredCreditsandOperating Reserves......... TotalDeferredCreditsandOperating Reserves..Total191,88417,9508,494218,328156'4710,7127,447I74,606$2,826,172 $2,6I6,996 Consolidated State'sofSourcesandApplications ofFundsYearEndedDecember31,SQURGEsQFFUNDs:FundsfromOperations: Consolidated NetIncome.Principal Non-fundCharges(Credits) toIncome:Depreciation, Depletion andAmortization........... Provision forDeferredIncomeTaxes(net)............ DeferredInvestment TaxCredits(net).Allowance forOtherFundsUsedDuringConstruction .Other(net).TotalFundsfromOperations FundsfromFinancings andContributions: Issuances andContributions: CapitalContributions fromParentCompany......... Cumulative Preferred Stock.Long-term Debt.Short-term Debt(net).TotalLessRetirements ofCumulative Preferred StockandLong-term DebtNetFundsfromFinancings andContributions.... SalesofProperty. TotalSourcesofFunds1980$100,07283,39335,43713,509(1&,438)1,274215,24750,000177,021(2,770)224,25138,149186,10250,673$452,022$99,08777,74635,84410,714(17,365)1,380207,406$113,27059,85318,3592,425(27,974)506166,43960,00038,708164,06924,355287,13290,692196,44057,898$461,74460,00038,486369,83923,090491,415357,877133,53842,416$342,39319791978(inthousands) APPLICATIONS OFFUNDS:PlantandPropertyAdditions: GrossAdditions toUtilityPlantGrossOtherAdditions TotalGrossAdditions .Allowance forOtherFundsUsedDuringConstruction .......NetPlantandPropertyAdditions. Dividends onCommonStockDividends onCumulative Preferred Stock.OtherChanges(net)Increase(Decrease) inWorkingCapital(a)TotalApplications ofFunds(a)ExcludesCumulative Preferred StockSinkingFundRequirements DueWithinOneYear,Long-term DebtDueWithinOneYearandShort-term Debtandisrepresented byincrease(decrease) asfollows:CashandCashItemsAccountsReceivable Materials andSupplies.AccruedUtilityRevenuesAccountsPayableDividends DeclaredonCommonStock.............. RevenueRefundsAccruedTaxesAccruedOther(net).SeelVorestoConsolidated Financial Statements. $304,6786,013310,691(18,438)292,25389,32023,24211,11736,090$452,022$5,7079,33418,503(8,308)6,93318,630(3,556)(3,670)(7,483)$36,090$321,40547,028368,433(17,365)351,06877,07019,9951,95311,65&$461,744$(19,426)12,05937,6986,2934,079(15,878)(3,679)(129)(9,359)$11,658$340,20931,024371,233(27,974)343,25962,69218,35713,675(95,590)$342,393$(59,280)8,696107(4,338)(29,809)(2,892)(5,865)(1,201)(1,008)$(95,590) INDIANAMICHIGANELECTRICCOMPANYANDSUBSIDIARIES Consolidated Statements ofRetainedEarnings1980YearEndedDecember31,)979t978(inthousands) BalanceatBeginning ofYear:AsPreviously ReportedRestatement(Note2) .AsRestatedConsolidated NetIncome.Total.$137,876(1,074)136,802100,072236,874$136,829(757)136,07299,087235,159$104,566800105,366173,270278,636Deductions: CashDividends Declared: CommonStockCumulative Preferred Stock:48/i%Series.4.56%Series4.12%Series.7.08%Series7.76%Series8.68%Series12%Series$2.15Series$2.25Series$2.75SeriesTotalCashDividends Declared.CapitalStockExpense.TotalDeductions... BalanceatEndofYear89,3204952731652,1242,7162,604394253,4403,6004,400112,562(6)112,556$124,31877,0704952731652,1242,7162,6043,6003,4403,60097897,0651,29298,357$136,80262,6924952731652,1242,7162,6043,6003,4402,94081,0497,37382,366SI36,072SeeltiotestoConsolidated Financial Statements. NotestoConsolidated Financial Statements 1.Significant Accounting Policies: ThecommonstockoftheCompanyiswhollyownedbyAmericanElectricPowerCompany,Inc.(AEP).Awhollyownedsubsidiary, Indiana2MichiganPowerCompany(theGenerating Subsidiary) wasmerg-edintotheCompanyonNovember30,1979,atwhichtimetheCompanyassumedtheobligations oftheGen-eratingSubsidiary. Theaccounting andratesoftheCompanyaresubjectincertainrespectstotherequirements ofstateregulatory bodiesandincertainrespectstotherequirements oftheFederalEnergyRegulatory Commission (FERC).Theconsolidated financial statements includetheac-countsoftheCompanyandtwowhollyownedsubsidi-ariesengagedincoalmining.Significant inter-company itemshavebeeneliminated inconsolidation. Theconsoli-datedfinancial statements havebeenpreparedonthebasisoftheaccountswhicharemaintained forFERCpurposes. 13 NOTESTOCONSOLIDATED FINANCIAL STATEMENTS (Continued) ElectricUtilityPlant;OtherPropertyandInvestments; Depreciation, Depletion andAmortization Electricutilityplantisstatedatoriginalcost.Gener-ally,theplantoftheCompanyissubjecttofirstmor-tgageliens.TheCompanycapitalizes, asaconstruction cost,anallowance forfundsusedduringconstruction, anitemnotrepresenting cashincome,whichisdefinedintheapplicable regulatory systemsofaccountsasthenetcostofborrowedfundsusedforconstruction purposesandareasonable rateonotherfundswhensoused.Thecom-positeratesusedbytheCompanywere10.75%during1980and1979,and10.5%in1978,(theGenerating Sub-sidiaryused10.5%and10.2%,during1979and1978ap-pliedonasemi-annual compoundbasis).TheCompanyprovidesfordepreciation onastraight-linebasisovertheestimated usefullivesoftheproperty. Thecurrentprovisions aredetermined largelywiththeuseoffunctional composite ratesasfollows:Functional Composite ClassofAnnualPropertyRateProduction: Steam.Nuclear,Steam-Fossil. firedTr'ansmission. Distribution........,.. General4.0el'o3.leto2.9oto3.3ei'o3.SetoDepreciation, depletion andamortization ofcoal-miningpropertyareprovidedinamountsestimated tobesufficient toamortizethecostsoftherelatedassets,lessanyestimated salvage(whichisnotsignificant), overtheirusefullivesandarecalculated byuseofthefollowing methods:Description MethodMiningStructures andStraight-line method(original livesEquipmemrangefrom2to30years)CoalInterests andMineUnits-of-production methodDevelopmem Costs(basedonestimated recoverable tonnages; currentrateaveragesSl.05perton)Substantially alloftheamountoftheprovisions fordepreciation, depletion andamortization ofcoal-mining propertyisclassified intheConsolidated Statements ofIncomeasfuelforelectricgeneration. Operating expensesarechargedwiththecostsoflabor,materials, supervision andothercostsincurredinmaintaining theproperties. Propertyaccountsarechargedwithcostsofbetterments andmajorreplace-mentsofpropertyandtheaccumulated provisions fordepreciation arechargedwithretirements, togetherwithremovalcostslesssalvage.Otherpropertyandinvestments aregenerally statedatcost.IncomeTaxesDeferredFederalincometaxes,reducedwhereap-plicablebyinvestment taxcredits,areprovidedbytheCompanygenerally totheextentthatsuchamountsareallowedforrate-making purposes. OnOctober1,197S,January1,1979andMayI,1979,theCompanyexpandeddeferredtaxaccounting toadditional book/taxtimingdifferences pursuanttoordersofthePublicServiceCom-missionofIndiana(PSCI),FERCandtheMichiganPub-licServiceCommission (MPSC),respectively. TheCompanynormalizes theeffectoftaxreductions resulting frominvestment taxcreditsrecognized incon-nectionwithaccrualsofcurrentincometaxesandprovi-sionsforcertaindeferredFederalincometaxes,con-sistentwithrate-making policies. Thedeferredinvest-menttaxcreditsapplicable tocurrentFederalincometaxespayableareamortized over30years.Theconsolidated coalsubsidiaries usethe"flov:-through"methodofaccounting forinvestment taxcl'edtts.PensionPlansThecompanies participate withothercompanies intheAEPSysteminanon-contributory trusteedplantopro-videpensionsforalltheiremployees whoarenotpartic-ipantsinpensionplansoftheUnitedMineWorkersofAmerica(UMWA),subjecttocertaineli-gibilityrequirements. ThepensionplanconformstotheEmployeeRetirement IncomeSecurityActof1974(ERISA).PensioncostsfortheyearsendedDecember31,1980,1979and1978wereapproximately $3,416,000, $3,117,000 and$2,624,000, respectively. Theseamountscoverthecostsofcurrently accruingbenefitsandamortization of,andintereston,unfundedprior-service costs.Thelattercosts,approximately $1,943,000 atDecember31,1979,thedateofthemostrecentactuarial study,arebeingamortized over30years.Theplanmaybemodifiedorterminated atanytime,subjecttolimitation oflaboragreements. AtDecember31,1979,theactuarial presentvalueofaccumulated vestedbenefitswas$44,567,000 andtheac-turarialpresentvalueofaccumulated nonvested benefitswas$2,561,000. Themarketvalueofnetassetsavailable forbenefitsatDecember31,1979was$66,615,000. Theassumedrateofreturnusedindetermining theactuarial presentvalueofaccumulated benefitswas8%.UnderacontractwiththeUMWA,asubsidiary isre-quiredtomakepaymentsintotwomulti-employer pen-sionplansbasedoncoalproduction andhoursworked.Thecostoftheplanswasapproximately $1,690,000 in1980.AsofJune30,1980,theCompany's actuaryesti-mates,basedoninformation thatisavailable, thatthe14 INDIAMICHIGA>v ELECTRICCOMPANYYANDSUBSIDIARIES Increase(Decrease) in:Operating Revenues................. Operating Expense:Purchased andInterchange Power(net) FederallncomeTax ............... Miscellaneous InterestCharges...... Miscellaneous Nonoperating Income... Consolidated NetIncome........., ..YearEndedDecember31.19791978(inthousands) 5(2,077)5(5,586)(1,013)(252)5201,0155(317)~(2,153)(1,418)2787365(1,557)subsidiaries'hare oftheunfundedvestedliabilities oftheUM~VApensionplansapproximates $9,200,000. BlackLungBenefitsThesubsidiaries engagedincoal-mining activities areliableundertheFederalCoalMineHealthandSafetyActof1969(Act),asamended,topaycertainblacklungbene-fitstoeligiblepresentandformeremployees. Effective JanuaryI,1980,self-insurance accrualsarebeingpro-videdsufficient toamortizetheactuarially computedpre-sentandfutureliabilities forsuchbenefitsovertheaver-ageremaining lifeofthemines.Theprovision in1980wasapproximately $391,000.OnDecember28,1979,aBlackLungBenefitsTrustwasestablished bytheAEPSystemunderSection501(c)(21) oftheInternalRevenueCode.AtJanuary1,1980(thedateofthelatestactuarial valua-tion),thesubsidiaries'nfunded actuarial valueofmedi-calandliability benefitsundertheAct,asweilascom-parablestatelegislation, wasapproximately $12,000,000. Commencing in1980,thecompanies beganfundingtheactuarially determined liabilities, including aprovision forthepreviously accruedbutunfundedliabilities, atalevelwhichcurrently approximates therecordedexpenseprovisions. OtherTheCompanyaccruesunbilledrevenuesforservicesrenderedsubsequent tothelastbillingcyclethroughmonth-end. iviiscellaneous nonoperating incomefortheyearsendedDecember31,1980,1979and1978includesgainsamounting toS397,000, S147,000andS261,000, respec-tively,oncertainlong-term debtreacquired. Debtdiscountorpremiumanddebtexpensearebeingamortized overthelivesoftherelateddebtissuesandtheamortization thereofisincludedwithinmiscellaneous interestcharges.2.Restatements, Operating RevenuesandOperating Expenses: The1979and1978financial statements havebeenre-statedtorefiecttheeffectsofcertainrevenuerefundsasorderedbyfederalandstateregulatory commissions in1980.Theeffectsofsuchrestatements areasfollows:TheCompanyhascollected retailrevenuesunderfinalordersofPSCIwhichbecameeffective inFebruary1977andSeptember 1978.InNovember1979,aCourtofAp-pealsruledthatthe1977increasegrantedbythePSCI($41,800,000 onanannualbasis)wasexcessive, saidthatthePSCIhadover-estimated theCompany's Federalin-cometaxallowance, andorderedthecasesentbacktothePSCIforfurtherhearings. TheCompanyhasappealedtherulingtotheSupremeCourtofIndiana.TheCom-pany'spetitiontotheIndianaSupremeCourtforreviewofthisdecisionwasdeniedonApril29,1980.HearingswereheldbeforethePSCIonOctober30,1980.OnJanu-ary21,1981,thePSCIissuedanorderrequiring theCompanytorefundtoitsIndianaretailcustomers $9,315,000, including interestof$1,215,000. Priorperiodshavebeenrestatedtogiveeffecttosuchrefunds.OnFebruary19,1981,theCompanyfileditsrefundplanforthedisposition ofthe$9,315,000 refund.TheCom-panyindicated itispreparedtoproceedwiththerefundplan,however,itrequested astayoftherefundpendinganyappealthatmaybemadebyanotherpartytothepro-ceeding.Subsequently, thePSCIissuedanorderapprov-ingtherefundplanbutdenyingtheCompany's requestforastay.Inaseparateproceeding beforetheCourtofAppeals,certainpetitioners havesimilarly challenged thetaxprovision allowedinthe1978increase($43,000,000 onanannualbasis)grantedbythePSCI.OnFebruary5,1981,theCourtofAppealsofIndianaaffirmed, inpart,andreversed, inpart,thePSCIdecision, relatingtothe1978increaseandremandedthemattertothePSCIforfurtherproceedings withrespecttocertainissues,includ-ingtheissuerelating.to Federalincometaxexpense.Threecommercial customers havefiledacomplaint withaCircuitCourtinlvfichigan appealing anorderofMPSCallowingtheCompanya$10,800,000 annualratein-creasein1979,seekingasummaryjudgmentinconnec-tionwiththetaxprovision allowedintherateincrease. TheCompanyisanintervening defendant intheproceed-ing.TheCompanycannotpredicttheoutcomeofthesematters.wholesale-for-resale transactions areeffectedamongtheprincipal operating companies oftheAEPSystempursuanttoaSysteminterconnection agreement. InMay1975,theFPCpermitted amodification totheintercon-nectionagreement tobeplacedintoeffectasofJune2,1975,subjecttorefund.Themodification hastheeffectgenerally, ofdecreasing theexpensesofthoseSystemcompanies whichhaveagenerating capability inexcess.oftheirpeakloadspiusappropriate

reserves, andofincreasing theexpensesofthoseparticipating companies whichhavenegativecapacitybalances.

InJuly1979,FERCissuedanopinionandorderwhichgenerally ap-provedthe1975modification, butorderedthatthemonthlycapacityequalization factorapplicable tosettle-15 NOTESTOCONSOLIDATED FINANCIAL STATEMENTS (Continued) mentsamongSystemcompanies undertheinterconnec-tionagreement bereducedfromabasisofa17.5efoannualcarryingcharge,toa16.49efoannualcarryingcharge.InAugust1979,AEPSystemcompanies filedasupplement tothemodiTication causingthemonthlycarryingchargefactortobereducedinaccordance withtheFERCorder.InNovember1979,FERCacceptedthesupplement tothemodification forfilingandmadeiteffective June2,1975.InSeptember 1979,FERCissuedanorderdenyinganapplication forrehearing byAEPSystemcompanies andotherpartiestotheproceeding, confirming itsdecisionofJuly1979,andproviding thatadjustments fromtheeffective dateofthemodification toreflecttherevisedmonthlycarryingchargefactorshouldbeeffectedbycreditstofuturebillingsratherthanthroughcashrefunds.InOctober1979,AEPSystemcompanies filedwithFERCaplandesignedtoeffecttherequiredadjustments throughcreditstofuturebillingsandinSeptember 1980,FERCapprovedthecompliance program.InOctober1980,theCompanyandotherAEPSystemcompanies partytothemodification requested and,inDecember1980,FERCauthorized theCompanyandtheotherAEPSystemcompanies torestatetheirrespective accountstorecordaspriorperiodadjustments thesettlement ofintrasystem transactions andrelatedinterest, netofrelatedincometaxeffects.Actionwascommenced effective withDecember1980billingstocompletethecompliance programpreviously authorized byFERC.TheamountsshownintheConsolidated State-mentsofIncomefortheyears1979and1978andtheotherfinancial datawithrespecttosuchperiodsincludedherein,reflectthepriorperiodadjustments authorized byFERC.Revenuescollected bytheCompanyfromotherwhole-saleandretailrateincreases placedintoeffectsubjecttopossiblerefundareestimated asfollows:1980.19791978.Priorto197STotal(inthousands) $16,92318,98810,15119,320$65,3S2SeeNote10forinformation withrespecttoanantitrust decisionenjoining theCompanyfromchargingcertainwholesale rates.Operating revenuesderivedfromacertainwholesale customerrepresent approximately 9',10troand12'ftotaloperating revenuesfor1980,1979and1978,respectively. ln1978,theCompanyreceivedapprovalofthePSCItocollect,overafive-year periodendingin1983,substan-tiallyallofitsdeferredfuelcosts.3.FederalIncomeTaxes:ThedetailsofFederalincometaxesareasfollows:YearEndedDecember31.ChargedtoOperating Expensete CurrentFederalIncomeTaxes(net). DeferredFederalIncomeTaxes(net).DeferredInvestment TaxCredits(net) Total.Charged(Credited) toOtherIncomeandDeductions: CurrentFederalIncomeTaxes(net).... DcferredFederal IncomeTaxes(net)... Total.TotalFederalIncomeTaxes1980$6,98334,27513.50954,7671,5261,1622,688$57.4551979(inthousands) $5,29333,54910,71449,556(1,297)2.29599S$50.554197S$l,35718,2382.42522,020815121936$22.956 INDIAMICHIGANELECTRICCOMPANYANDSUBSIDIARIES Thecompanies'ffective Federalincometaxrateswerelessthanthestatutory ratesfortheyears1980,1979and1978.Thefollowing isareconciliation ofthedifferences betweentheamountofFederalincometaxescomputedbymultiply-ingnetincomebeforeFederalincome,taxes,bytheapplicable statutory taxrateandtheamountofFederalincometaxexpensereportedintheConsolidated Statements ofIncome.YearEndedDecember31,Consolidated NetIncome-beforepreferred stockdividendrequirements. FederalIncomeTaxesPrc-TaxBookIncome1980S100,07257,4555157,5271979(inthousands) 599,08750,5545149,64119785113,2?022,9565136.226FederalIncomeTaxonPre-TaxBookIncomeatStatutory Rateof46oroin1980and1979and48o'oin1978Increase(Decrease) inFederalincomeTaxesResulting from:ExcessofTax overBookDepreciation ..Allowance forFundsUsedDuringConstruction andMiscellaneous ItemsCapitalized ontheBooksbutDeductedforTaxPurposes(notshownbelow)(~tineDevelopmem andExploration Expense.UnbilledRevenuesAmortization ofPollution Co'ntrolFacilities ...................... Other..FederalIncomeTaxonCurrent-Year TaxableIncome(separate-return basis)Adjustment DuetoSystemConsolidation .MinimumTaxonPreference itemsCurrent-YearInvestment TaxCredit.Currently PayableAdjustments ofPrior-Year Accruals(net) Adjustments forTaxLosses(a):FederalIncomeTaxesInvestment TaxCreditCurrentFederalIncomeTaxes(net).(16,794)(24,532)(211)3,793(4,032)1443Q,830(10,394)(14,305)6,131(210)8,625(6,037)8,509(22,149)(18,338)(2,487)(2,867)(4,030)(4.281)14,683(8,380)(4,431)1,872(683)10,447(7,640)3.996(19,691)(25,853)(4,680)2,054(4,080)(1,405)11,733(Il,?33)650650(276)7,503(5.(05)2,((2572,462568,835565,388DeferredFederalincomeTaxes(netofamortization) Resulting fromtheFollowing TimingDifferences: Depreciation(liberalized andassetdepreciation range).Amortization ofPollution ControlFacilities Allowance forBorrowedFundsUsedDuringConstruction .UnbilledRevenues. Percentage RepairAllowance Accelerated Amortization at'mergency Facilities(amortization ofprior.yearprovisions) .......... Other.Investment TaxCreditApplicable toDeferredFederalIncomeTaxesonCertainTimingDifferences ..DeferredFederalIncomeTaxes(net).DeferredInvestment TaxCredits(net) TotalFederalIncomeTaxes16,6893,'?6712,130(3,822)5,005(2,131)(1,432)5,23135,43713,509S(7,4((20,5133,7197,9182,5901,894(1,817)(121)1,14835,84410,71455Q,55417,4395731,148(2,082)403(1,848)(474)3,20018,3592,425(b)522,956(b)(a)TheAEPSystemallocates Federalincometaxescurrently payableinaccordance withSecurities andExchangeCommission (SEC)regulations whichrequirethatthebenetitoftaxlossesbeallocated totheAEPSystemcompanies withtaxableincome.Thebenefitsofthesetaxlosses,withoutaffecting taxespayable,arereallocated totheAEPSystemcompanies givingrisetosuchlosses,asitisexpectedthattheselosseswouldbeusableinsubsequent yearstoreducetaxespayableofthelosscompanies throughtheapplication oftheSECallocation. (b)Federalincometaxesfor1977wereapproximately 53,194000lessthanoriginally estimated duetochangesinrepairallowance andminedevelop-mentdeductions. However,taxespayablewerenotsignificantly affectedduetoavailable investment taxcreditoffsets.Thereduction wasrecordedinthethirdquarterof1978principally asareduction ofdeferredinvestment taxcredits.17 NOTESTOCONSOLIDATED FINANCIAL STATEMENTS (Continued) Thecompanies joininthefilingofaconsolidated Federalincometaxreturnwithitsaffiliated companies intheAEPSystem.UnusedSysteminvestment taxcreditsatDecember31,1980aggregated approximately $267,000,000, ofwhichapproximately SI3,000,000 maybecarriedforwardthrough1984,S92,300,000 through1985,S56,800,000 through1986and$104,900,000 through1987.AsrequiredbytheInternalRevenueCode,approximately $37,300,000 oftheseamounts,generated byColumbusandSouthernOhioElectricCompanypriortoitsacquisition, mustbeutilizedbyit.OftheSysteminvestment taxcreditcarryforwards, approxi-mately$29,000,000 hasbeenappliedasareduction ofdeferredincometaxespriortoDecember31,1980andwillnotbereflected innetincomewhenrealizedinfutureyearsexceptasaffectedbychangesindeferredincometaxes.TheSystem'sconsolidated Federalincometaxreturnsfortheyearspriorto1970havebeensettled.Thereturnsfortheyears1970through1973havebeenreviewedbytheInternalRevenueService(IRS)andadditional taxesforthoseyearshavebeenproposed, someofwhichtheSys-temcompanies haveprotested. IntheopinionoftheSys-temcompanies, adequateprovision hasbeenmadeforsuchadditional taxes.TheIRShasalsocompleted itsreviewofthereturnsfortheyears1974through1976.AlthoughtheIRShasproposedsubstantial disallow-ances,suchdisallowances, ifsustained, wouldnotresultinamaterialassessment ofadditional taxesduetotheavailability ofsubstantial investment taxcreditcarry-forwards. TheSystemcompanies areprotesting thebulkoftheproposeddisallowances. Basedontheinformation available atthistime,theeffectoftheproposeddis-allowances isnotexpectedtobematerialtoSystemearn-ingsduepredominantly totheavailability ofsubstantial'nvestment taxcreditcarryforwards anddef'erred Federalincometaxprovisions relatingtocertainoftheproposeddisallowances, althoughtheultimateeffectisnotpres-entlydeterminable. 4.OtherPropertyandInvestments'. AportionoftheCompany's Westerncoalr'eserves weretransferred toBlackhawk CoalCompany(awhollyownedsubsidiary) asofSeptember I,1980.Theamountoftheinvestment transferred toBlackhawk, includedinotherpropertyandinvestments atDecember31,1979,wasS185,373,000. 5.CommonStock,PremiumsonCapitalStockandOtherPaid-inCapital:TheCompanyreceivedfromitsparentcashcapitalcontributions of$50,000,000 in1980,$60,000,000 in1979and$60,000,000 in1978.In1980acredittootherpaid-incapitalof$94,000represented theexcessofparvalueovercostofcumulative preferred stockreacquired bytheCompanytomeetsinkingfundrequirements. Therewerenocommonstocktransactions andnotrans-actionsaffecting premiumsoncapitalstockduringtheyears1980,1979and1978.6.RetainedEarnings: Variousrestrictions ontheuseofretainedearningsforcashdividends oncommonstockandotherpurposesarecontained inorresultfromcovenants inmortgageindentures, debenture andbankloanagreements, charterprovisions andordersofregulatory authorities. Approxi-mately$48,800,000 atDecember31,1980,wassorestricted. 18 INDIANdlIICHIGANELECTRICCOdMPANYANDSUBSIDIARIES 7,Cumulative Preferred Stock:AtDecember31,1980,authorized sharesofcuinulative preferred stockwereasfollows:ParValueSharesAuthorised $100.2,250,000 25....,....,...11,200,000 in1978shareowners authorized anincreaseof$25parvaluecumulative preferred stockto7,200,000 sharesandin1980additional authorization wasreceivedforanincreaseto11,200,000 shares.Thecumulative preferred stockiscallableattheoptionoftheCompanyatthepriceindicated plusaccrueddividends. Theinvoluntary liquidation preference isparvalue.Unissuedsharesofthecumulative preferred stockmayormaynotpossessmandatory redemption characteristics uponissuance. TheCompanyissuedandsold1,600,000 sharesofthe$2.25seriesin1978;and1,600,000 sharesofthe$2.75seriesin1979.Shares~Outaandin CurrentCallPriceParValueSeries4i//t<o4.56o'o4.12o/o7.08oi'o7.7R'o8.68o/o$2.15$2.25$106.125102102.728106.45107.32107.&27.1527255/I/823/I/83$10010010010010010025120,00060,00040,000300,000350,000300,0001,600,000 1,600,000 A.Cumulative Preferred StockNotSubjecttoMandatory Redemption: Redemption Restricted PriortoAmountDecember31,19801979(inthousands) S12,000S12,0006,COO6,0004.0004,00030,00030,00035,00035,00030,00030,00040.00040,00040.00040.000S197.000$197.000ParValueCurrentCallPrice12o/o(a)$2.75(b)$11227.7510/I/84$100o5LessSinkingFundRequirements DueWithinOneYear.B.Cumulative Preferred StockSubjectToMandatory Redemption: Redemption Restricted ~Seriesic PriortoShares~Outanndin 283,4801,600,000 AmountDecember31.1980(in$28,348%.00068,3481.348$67.0001979thousands) $30,000%.00070,0001.500$68.500(a)AsinkingfundfortheI2o/oseriesrequirestheCompanytoprovide,onorbeforeOctoberIofeachyear,beginning in1980,forthepurchase, orredemption at$100ashare.ofIS,COOsharesofsuchseries.TheCompanyhastheright,oneachsinkingfunddare,toredeemanadditional 15,000shares.AtDecember31.1980theCompanyhadreacquired 1.520sharesinanticipation ofsinkingfundrequirements. Unlessallsinkingfundprovisions havebeenmet,nodistribution maybemadeonthecommonstock.(b)Acumuhtive sinkingfundforthe$275seriesrequirestheCompanytoredeem80000sharesoneachOctoberIcommencing onOctoberI,1984.TheCompanyhastheoptiontocreditsharespurchased orotherwise acquiredinlieuofredeeming sharesforthesinkingfundandhasth'enon-cumuhtive optiontodoublethenumberofsharestoberedeemedinanyyearonandafterOctoberI,1984.(c)Theminimumsinkingfundprovisions oftheseriessubjecttomandatory redemption aggregate Sl,500000ineachoftheyears1981~1982and1983,and$3.500,000 in1984and1985.19 NOTESTOCONSOLIDATED FINANClAL STATEMENTS (Continued) 8.Long-term Debt,LinesofCreditandCompensating Balances: Long-term debtbymajorcategorywasoutstanding asfollows(lessportionduewithinoneyear):December31,19801979(inthousands) FirstI)fortgage Bonds................. $1.044,369 S924.464SinkingFundDebemures.............. 22,70523,66S Installmem PurchaseComracts......... 158,799119.678OtherLongtermDebt................ 19.$3020.412Total(lessponionduewithinoneyear)$1.245.403 $1.088.222 Firstmortgagebondsoutstanding wereasfollows:December31.o'oRateDue19801979(inthousands) 2i/.1980-JuneI.............,. 5-5IS,01538/41982-JanuaryI............ 16,04616.046IOYd1982-JuneI..~............ 70,00070,00038/8l983-September I.......... 13976213,762II1983-September I......,... 60,00060,00038/i19S4-Onober I,........... 15,08215,082IOYi1984-December)(c)(d)(e) ...61,50063,000101985-March I(e)........... 12,00012,750108/41987-JanuaryI............ 80,000S0,00013Yi1987-February I(a)......... 55,0003Yi19BS-February I.........,. 22,97422,9744i/.19SS-Novembn I...,...... 17,55717,557118/81990-JuneI(b).......... 80,0004'993-August I.........., ..42,90242,902'71998-MayI............... 35,0003$,0008Yi2000-April l............... 50,000$0,0009Yi2003-JuneI(d)(e).......... 288,500300,0008Yi2003-DecemberI........, ..40,00040,0009)A2008-March l...,,......... 100,000100,000Unnmorr)redo)eeoom)ner)........,... [).454)~859)1,058.869 956,229LessPortionDueWithinOneyear....... 14.50031,765Total.Sl.(M.369 $924.464(a)IssuedbytheCompanyinFebruary19SO.(b)IssuedbytheCompan>'n June1980.(c)Guaranteed byAmericanElectricPov'erCompany,inc.(d)OnNovembn30,1979,theCompanyassumedtheobligation oftheGenerating. Subsidiary topaytheprincipal ofandinterestonthesebonds.whicharesecuredbyafirstmortgagelienontheNuclearPlant.(e)Sinkingfundpaymentsarerequiredasfollows:IO)roseriesdue1985-$750,000annuallyonMarchI.IOYioioseriesdue1984-$2,250,000 annuallyonDecemberI,through1983,v:iththenoncumu!ativeelectiontoredeemanaddi-tional$2,250,000 ineachyear.98/oi'oseriesdue2003-$11,500,000 annuallyonJuneI~through)991and$13,500,000 annuallyonJuneI,1992through2002withthenoncumulative optiontoredeemanadditional amountineachofthespecified yearsfromaminimumof$100,000toamaximumequaltothescheduled requirement foreachyear,butwithamaximumoptionalredemption, astoallyearsintheaggregate, of$75,000.000. Theindentures relatingtothefirstmortgagebondscontainimprovement, maintenance andreplacement provisions requiring thedepositofcashorbondswiththe5)/88roDue1986-June1.......7VdoioDue199S-hlay1........ Unamortized Premium........ Total.19801979(inthousands) $11,266$11,89811.39011,'7134957$22.705$23.66S1nstallment purchasecontracts havebeenenteredintobytheCompanyinconnection withtheissuanceofpollu-tioncontrolrevenuebondsbygovernmental authorities asfollows:oroRateDueCityofLawrenceburg, Indiana:S)/:2006-Julyl................ 72006-hlayt................ 69/82006-MayI,...,...,...,... CityofRockport, Indiana:9)/i2005-JuneI......,...,.... 98/42010-Junc l...,....,...... CityofSullivan, Indiana:7Vi2004-Mayl................ 6Yi2006-Mayl................ 7)/82009-May1,...,........... Unamortized Discount.............., .Total.,Decembn3l.19801979(inthousands) S25,00040,00012,0006,50033,$007,00025,000(3.201)$158.799S25800040,00012,0007,00025.00013,000(o3o2)$119.678Underthetermsofcertaininstallment purchasecon-tracts,theCompanyisrequiredtopaypurchasepriceinstallments inamountssufficient toenablethecitiestopayinterestonandtheprincipal (atstatedmaturities anduponmandatory redemption) ofrelatedpollution con-trolrevenuebondsissuedtofinancetheconstruction ofpollution controlfacilities atcertaingenerating plantsoftheCompany.Otherlong-term debtoutstanding consisted of:December31.19801979(inthousands) CoalResnveObligations PayableinEqualAnnualInstallments Through1985withInterestatSoi'o.NotesPayableDuel981Through1985,6oio.7od'o.Other.LessPortionDueWithinOneYearTotal.$23,68861224,3004.770$19,530$23,92664411024,6804.268$20.412trustee,orinlieuthereof,certification ofunfundedpropertyadditions. TheCompanyhaselectedtouseun-fundedpropertyadditions tomeettheseprovisions inthepast.Sinkingfunddebentures oftheCompanyoutstanding wereasfollows:December31.20 IIVDIAIV'ICHIGAIV ELECTRICCOMPAtVYAIvDSUBSIDIARIES Long-term debtoftheCompany,excluding premiumordiscount, outstanding atDecember31,1980isdueasfollows:(inthousands) $19,270I05)80893,53187,35225,536937.783$1.269.280 198119821983.1984.1985LaterYearsAtDecember31,1980and1979,theprincipal amountsofdebentures reacquired inanticipation ofsinkingfundrequirements were$1,944,000 and$1,789,000, respec-tively.TheCompanymaymakeadditional debenture orfirstmortgagebondsinkingfundpaymentsofupto$14,550,000 annually. AtDecember31,1980,theCompanyhadanun-usedrevolving lineofcreditwithvariousbanksof$100,000,000. Thelineofcreditrequiresacommitment feeofYiof1%perannumofunusedcredit.TheCompanyhadunusedshort-term banklinesofcreditofapproximately $195,000,000 and$124,000,000 atDecember31,1980and1979,respectively, underwhichnotescouldbeissuedwithnomaturitymorethan270daysafterdateofissue.Theavailable linesofcreditaresubjecttowithdrawal atthebanks'ption, and$181,000,000 and$104,000,000, respectively, ofsuchlinesaresharedwithotherAEPSystemcompanies. Inaccordance withinformalagreements withthebanks,compensating balancedepositsofupto10%or,incer-taininstances, equivalent feesarerequiredtomaintainthelinesofcreditand,onanyamountsactuallybor-rowed,generally eitheradditional compensating balancedepositsofupto10%aremaintained oradjustments ininterestratesaremade.Substantially allbankbalancesaremaintained bytheCompanytocompensate thebanksforservicesandforbothusedandavailable linesofcredit.9.Supplementary IncomeStatement Information andRelated-Party Transactions: Electricoperating revenuesshownintheConsolidated Statements ofIncomeincludesalesofenergytoAEPSystemcompanies ofapproximately $17,400,000, $17,000,000 and$17,500,000 fortheyearsendedDecember31,1980,1979and1978,respectively. Operating expensesshownintheConsolidated Statements ofIncomeincludecertainitemsnotshownseparately, as1ollows:YearEndedDecember31.Purchased Power(a).Interchange Power(net):AEPSystemElectricUtilities. OtherCompanies (b).,TaxesOtherThanIncomeTaxes:RealandPersonalPropertyTaxes.StateGrossSales,ExciseandFranchise TaxesandXtiscelianeous StateandLocalTaxes.SocialSecurityTaxes-FederalandStateFuelforElectricGeneration includeschargesrelatingtominingoperations, asI'ollows: )Iaintenance Depreciation. Depletion andAmortization ....,.......,.... TaxesOther ThanFederal IncomeTaxes................... 1980542,14787,111(613)5128.645516,1937,3092.629$26.131$5,6805,6531.0611979(inthousands) $16,485105,606~3))5121,706$15,2309,5012,445$27.176$3,7873,643686197856,24177,88930.024$114.154S14.6179.8421,973$26,432(a)Includespowerpurchased fromOhioValleyElectricCorporation (OVEC)ofapproximately 515,S37,000 in1980,$4,205,000 in1979and51~558,000in1978.(b)Includesinterchange powersoldtoOVECofapproximately $386,000in19SO,51,367,000 in1979and$908,000in1978.21 NOTESTOCONSOLIDATED FINANCIAL STATEMENTS (Continued) Chargestooperating expensesforroyalties andforadvertising arelessthan1<ioofgrossrevenuesineachyear.Salesandpurchases ofenergyandinterchange powertransactions areregulated bythevariouscommissions havingjurisdiction. AmericanElectricPowerServiceCorporation pro-videscertainservicestotheCompanyandtheaffiliated companies intheAEPSystem.Thecostsoftheservicesaredetermined bytheservicecompanyonadirectchargebasistotheextentpracticable andonreasonable basesofproration forindirectcosts.Thechargesforservicesaremadeonacostbasis andincludenocompensation fortheuseofequitycapital,allofwhichisfurnished totheservicecompanybyAEP.Theservicecompanyissubjecttotheregulation oftheSECunderthePublicUtilityHoldingCompanyActof1935.10,Commitments andContingencies: Theconstruction budgetofthecompanies fortheyear1981isestimated at$303,000,000 and,inconnection therewith, commitments havebeenmade.TheCompanyparticipates withitsparent,threeassociated utilitycompanies, severalunaffiliated utilitycompanies, andOVECinsupplying theU.S.Depart-mentofEnergy(DOE) withthepowerrequirements ofitsplantnearPortsmouth, Ohio.TheproceedsfromthesalesofpowerbyOVECaredesignedtobesufficient forOVECtomeetitsoperating expensesandfixedcosts,including amortization oflong-term debtcapital(balanceapproximately $4,000,000 asofDecember31,1980),overaperiodendingin1981andthecompletion ofthepurchaseofpollution controlfacilities (theunamortized costofwhichaggregated approximately $163,000,000 atDecember31,1980)andtoprovideforanannualreturnonitsequitycapital.TheCompany,asaparticipant, isentitledtoreceivefromOVEC,andisobli-gatedtopayfor7.6'fthepowernotrequiredbyDOE.Thepoweragreement terminates byitsterms,in1992.In1978,threecourtproceedings broughtinrecentyearsbycertainmunicipalities inIndianaandMichigan, allwholesale customers oftheCompany,werecombinedintoasingleconsolidated caseintheUnitedStatesDis-trictCourtfortheNorthernDistrictofIndianaandafourthactionwascommenced inthesamecourt.Atrialoftheconsolidated casewasheldandinJanuary1979thecourtruledfortheplaintiffs thattheCompany,itspar-ent,andAmericanElectricPowerServiceCorporation haveviolated, theantitrust laws,awardedthemunicipali-tiesdamagesofapproximately $12,100,000whentrebled,placedlimitations ontheCompany's puttingintoeffectorchargingwholesale ratestotheplaintiffs andenjoinedtheCompanyfromcertainpractices. Thefinancial state-mentsatDecember31,1980and1979donotincludeanyprovision forsuchdamages.TheCompany,AEPandAmericanElectricPowerServiceCorporation haveap-pealedthedecisiontotheUnitedStatesCircuitCourtfortheSeventhCircuitwhich,onFebruary21,1980issuedadecisionwhichaffirmedthedecisionoftheDistrictCourt,butvacatedthedamageandinjunctive provisions ofitsdecisionandremandedthemtotheDistrictCourtforadditional proceedings. InMarch1979,twoothermunicipal customers broughtaseparateactionagainsttheCompany,itsparentandtheServiceCorporation al-legingviolations oftheantitrust lawsand'seekingdam-agesofatleast$7,000,000 beforetreblingandotherrem-edies.Certainissuesinthecomplaint aresimilartothosetriedintheconsolidated case.Inanotherproceeding, theCompanyisawaitingadecisionwithrespecttoarulingbyanadministrative lawjudgein1977onacomplaint madetoFERCbyelevenmunicipalities. Thatcomplaint allegedthatthemunici-palelectricsystemshadbeenthreatened withtermination ofwholesale electricservice.TheCompanyhasfiledabriefonexceptions withFERC.TheCompanycannotpredictwhethertheinitialdecisionwillbecomethefinaldecisionofFERCwithoutchangeortheeffectthereof.Twocontractors, UnitedNuclearCorporation andGeneralAtomicCompany(GAC),arevariously obli-gatedtosupplyuraniumconcentrates andsixfabricated nuclear-fuel reloadstotheCompany.Eachcontractor claims,amongotherthings,thatitisnotormaynotbeobligated tomakedeliveries ofuraniumconcentrates orfabricated nuclear-fuel reloadsandthatitisentitledtoapricehigherthancontracted. TheCompanyreceivedthefirsttworeloadsandassureddeliveryoftheremaining fourreloadsthroughrights-reserved agreements withGAC,whichwereincorporated intoinjunctive ordersofthecourt.Undertheagreements, pendingthecourt'sjudgmentandwithoutprejudice totheultimaterightsoftheparties,thereloadsweretobesuppliedatahigherprovisional costtotheCompany.In1978,aU.S.DistrictCourtenteredjudgmentorderingGACtopaytheCom-panydamagesofapproximately $16,000,000 andtodelivertheremaining reloadsatthepricespecified inthecontract. GAChasappealedthejudgment. Astayofthemonetaryportionofthejudgmenthasbeengranted,butmotionstostaythespecific-performance portionofthejudgmenthavebeendenied.22 lÃDIAIvMICHIGANEIECTRICCOhIPA/VY AiVDSUBSIDIARIES In1978,aretailcustomeroftheCompanycom-mencedanaction,individually andasrepresentative ofanallegedclass,intheU.S.District. Court;.,alleging thattheCompany's leaseofelectricutilityassetsfromtheCityofFortWayneisinviolation ofFederalantitrust laws.Thecomplaint seekstohavetheleasedeclarednullandvoid,asksthattheCompanyberestrained fromchargingexcessive pricesforthepurchaseofelectricpower,seekstrebledamagesinanunspecified amountinrespectofallegedly excessive chargestoresidents oftheCityofFortWayneandseekstorestorethecontroloftheelectricutilityassetsinquestiontotheCityofFortWayne.In51ay,JuneandJuly,1979thecourtgrantedinpartanddeniedinparttheCompany's motiontodismissorforsummaryjudgment. TheCourtdismissed plain-tiffs'llegations concerning abuseofalegallyacquiredmonopolybutruledthatplaintiffs couldcontinuetoas-sertothertheoriesofviolation ofFederalantitrust lawsandcertified aclassofresidential customers whomaymaintaintheaction.In1975,theFederalPowerCommission issuedanorderinstituting aninvestigation undertheFederalPowerActconcerning thereasonableness andprudenceofthecoalpurchasing policiesandpractices ofmembersoftheSystem,themannerinwhichwholesale fueladjust-mentclausesareimplemented bySystemmembers,andrelatedmatters.Acomplainant andeightintervenors arealsoparticipating intheproceeding. In1978,theFERCstaffissuedapreliminary reportwhichallegedover-chargesonthepartoftheentireSystem,andofwhichonlyaportionrelatestotheCompany's operations. Thereportalsoquestioned certainaspectsoftheSystem'sfuelpolicies, including theAEPSystem'sdecisiontoexpanditsuseofcoalfromminesownedbyaffiliates anditsuseofWesterncoal.InNovember1979,theFERCstaffsub-mitteditsfinalrecommendations totheadministrative lawjudge.Thefinalrecommendations urgerefundsofallegedovercharges, corrections ofallegedimpropercoalaccounting andpricingpractices, disallowances ofcer-tainfuelcostsassociated withWesterncoalacquisitions, revisionofFERCregulations regarding affiliate fuelcostsandestablishment ofhearingprocedures toresolvecertainoftheissuesandthataseparateinvestigation beinstituted concerning Systemadministration oflong-termfuelsupplycontracts. TheSystemcompanies havesubmitted awrittenresponsesupporting thedecisions previously madebytheSystemcompanies. OnFebruary14,1980,FERCissuedanorderdirecting theadministra-tivelawjudgeimmediately tocertifytoFERCtheentirerecordintheproceeding forreviewbytheCommission andorderedthattheprocedural schedulebeplacedinabeyance, pendingafurtherdirective. TheCompanycannotassesstheoutcomeorsignificance ofthisproceeding. TheCompanyintendstoapplytoregulatory com-missionstoprovide,throughfutureincreased rates,forthecoststhatwillbeincurredtostorespentnuclearfuelandtodecommission theNuclearPlantattheendofitsservicelife.TheCompanyplanstoeffectmodifications toincreasethepresentspent-fuel storagecapacityoftheNuclearPlanttopermitnormaloperations throughtheearly1990's,atanestimated costof$6,000,000. TheCompanyisalsostudyingalternative methodsofdecom-missioning theNuclearPlantbutcannotreasonably

estimate, atthistime,thefuturecoststhatwillbeincurred.

ThePrice-Anderson Actlimitsthepublicliability ofalicenseeofanuclearplantto$560,000,000 forasinglenuclearincident, tobecoveredinpartbyprivateinsur-ancewiththebalancetobecoveredbyagreements ofindemnity withtheNuclearRegulatory Commission. TheCompanyhaspurchased privateinsurance inthemaximumavailable amountof$160,000,000. Intheeventofanuclearincidentinvolving anycommercial nuclearfacilityinthecountry,theCompany,togetherwithotherlicensees, couldbeindividually assessed$5,000,000 perincidentforeachreactorowned(subjecttoamaximumof$10,000,000 inanyyearintheeventofmorethanoneincident). ThePrice-Anderson indemni-tieshavebeendecreased bytheaggregate amountwhichisassessable againstexistinglicensees andwillcontinuetodecreaseasnewoperating unitsarelicensed. TheCompanyhasprocuredpropertyinsurance inthemaximumavailable amountof$300,000,000 fordamagetothenuclearplantfacilities andisaself-insurer foranypropertylossinexcessofthatamountTheCompanyalsohasobtainedmembership inNuclearElectricInsurance Limited(NEIL),whichprovidesitsmemberswithinsurance tocoverextracostsofreplace-mentpowerresulting fromaprolonged accidental outageofanuclearunit.TheCompany's policyinsuresagainstsuchincreased costsupto$2,000,000 perweek(starting 26weeksaftertheoutage)foroneyearand$1,000,000 perweekforthesecondyear,orSOvIoofthoseamountsperunitifbothunitsaredownforthesamereason.TheCompanywouldbesubjecttoaretrospective premiumofupto$8,200,000 perunit(fivetimestheannualpremium)ifNEIL'slossesexceeditsaccumulated funds.23 NOTESTOCONSOLIDATED FINANCIAL STATEMENTS (Continued) Il.Leases:TheCompany,aspartofitsoperations, leasesproperty, plant,andequipment underleasesranginginlengthfromIto35years.MostoftheleasesrequiretheCompanytopayrelatedpropertytaxes,maintenance costsandothercostsofoperation. TheCompanyexpectsthatinthenormalcourseofbusiness, leaseswillgenerally berenewedorreplacedbyotherleases.Themajorityofthevariousrentalsisunderleaseshavingpurchaseoptionsorrenewaloptionsforsubstan-tiallyalloftheeconomiclivesoftheproperties. Rentalsareanalyzedasfollows:GrossRentalsLessRemalRecoveries(includingsublease rentals)(a). YetRemals(b) .'sYearEndedDecember31.198019791978(inthousands) S88,000$70,000S60.0003.0002.0001.000$85.000S68,000$59.000(a)Includesamountspaidfororreimbursed byassociated companies. (b)Classified as:Operating Expenses~~e\~e~ClearingandMiscellaneous Accounts(portions ofwhicharechargedtoincome)...,...,........, ..$82.0003,000S85.000$62,0006,000$68.000S51,0008.000S59.000Futureminimumleasepayments, byperiodandintheaggregate, undertheCompany's capitalleasesandnoncancelable operating leasesconsisted ofthefollowing atDecember31,1980:1981..19821983.1984.1985.LaterYears.,TotalFuturehlinimumLeasePayments..LessEstimated InterestElementIncludedTherein(b)Estimated PresentValueofFutureMinimumLeasePayments.....,...,. CapitalOperating ~LeaseslaLeases(inthousands) $7,000S7,0006,0007,0006.0007,0005,0007,0005,0007,00066.00076.00095,000$111.00055.00Q$40.000(a)Excludesleasesofnuclearfuel,allofsvhicharecapitalleases,Nuclearfuelremalscomprisetheunatnortized balanceofthclessor'scost(approximately $127,000,000 atDecember31,1980)lesssalvagevalue,ifany,tobepaidovertheperiodofusageinproponion toheatproduced. andcarrying. chargesonthelessor'sunrecovered cost.Itiscomemplated thatportionsofthepresently leasedmaterialwillbereplenished byadditional leasedmaterial. (b)Interestratesusedrang~from4.9<iotoI4.7~io.Thefollowing isaproformaanalysisofleasedproperties undercapitalleasesandrelatedobligations, assumingthatsuchleaseswerecapitalized: Decetnber 31.19801979(inthousands) $214,000$169,00014,00015,QOO13.00013,00013,00012,00011.00011.000265,0002Ã,000NuclearFuelCoal-transportation Equipment ........RealEstate.ElectricDistribution SystemProperty.... OtherTransportationEquipmem .......GrossProperties underCapitalLeases...LessAccumulated Provision fotAmortization ..NetProperties underCapita)Leases.....Obligationsunder CapitalLeases(a)..... 73.000$147.000$153.000104.000$)61,000S167.000(a)Including anestimated $44,000,000 andS59,000,000, respec-tively,duewithinone'year. Hadcapitalleasesbeencapitalized, anyadditional netexpensewouldhavebeeninsignificant. Theaboveproformaanalysisdoesnotgiverecognition tooffsetting adjustments inallovablerevenuesthattheCompanybelieveswouldnor-mallybeexpectedtooccurthroughtheregulatory rate-making process,iftherelatedleaseshadbeencapitalized. Includedintheaboveanalysisoffutureminimumleasepaymentsandofproperties undercapitalleasesandrelatedobligations arecertainleasesastowhichportionsoftherelatedrentalsarepaidfororreimbursed byassociated companies intheAEPSystembasedontheirusageoftheleasedproperty. TheCompanycannotpredicttheextenttowhichorproportion inwhichtheassociated companies willutilizetheproperties undersuchleasesinthefuture.24 INDIANAIICHIGANELECTRICCOMPANYANDSUBSIDIARIES1980-Mar.31............... June30............... Sept.30............... Dec.31............... 1979-)Iar.31............... June30.........,..... Sept.30............... Dec.31............... 1978-Wlar.31............... June30............... Sept.30............. Dec.31............... 'Beforepreferred stockdividend5205,464163,476187,216192,5&~171,029173,426169,797174,814l45,106157,958152,218142,612requirements. 548,46I33,1134),95345,66947,68333,28041,82838,65841,78740,41640,98334,634532,94617,35323,18826,58530,80819,95026,20522,12432,61434,90923,15722,59013.Unaudited Information OnInflation andChangingPrices:Thesupplementary information inthestatements 12.Unaudited Quarterly Financial Information: Thefollowing restatedconsolidated quarterly finan-cialinformation isunaudited but,intheopinionoftheCompany,includesalladjustments (consistirtg ofonlynormalrecurring accruals) necessary forafairpresenta-tionoftheamountsshown:Quarterly PeriodsOperating Operating NetEndedRevenuesIncomeIncome'in thousands) belowispresented incompliance withtherequirements oftheFinancial Accounting Standards Board(FASB).Theinformation isintendedtodisclosetheeffectsofbothgeneralinflation andchangingprices;however,theamountsshouldbeconsidered approximations ofsucheffectsratherthanprecisemeasuressinceanumberofsubjective judgments andestimating techniques wereemployedindeveloping theinformation. Constantdollaramountsrepresent historical costsstatedintermsofdollarsofequalpurchasing powerasmeasuredbytheaveragelevelofthe1980ConsumerPriceIndexforAllUrbanConsumers (CPI-U).Currentcostamountsreflectthechangesinspecificpricesofproperty, plantandequipment fromthedatesuchassetswereacquiredtothepresent,anddifferfromconstantdollaramountstotheextentthatspecificpriceshaverisenatadifferent ratethanthegeneralinflation rateasmeasuredbytheCPI-U.Thecurrentcostofprop-erty,plantandequipment represents theapproximate costofreplacing suchresources andincludesutilityplantinservice,construction workinprogress, land,landrightsandotherpropertyandinvestments. Currentcostamountsweredetermined primarily byapplyingappro-priateindexesfromtheHandy-Whitman IndexofPublicUtilityConstruction Costs.YearEndedDecember31.1980Consolidated Statement ofIncomeAdjustedforEffectsofChangingPricesAsStatedinthePrimaryFinancial Statements AdjustedforGeneralIntlation (constant dollar)AdjustedforChangesinSpecificPrices(currentcostOperating RevenuesOperating Expenses: Operation: FuelforElectricGeneration(a) .Purchased andInterchange Power(net) .OtherMaintenance Depreciation, Depletion andAmortization(a)................... TaxesOther ThanFederalIncomeTaxes.FederalIncomeTaxesTotalOperating Expenses. Operating Income0therIncomeandDeductions iVetInterestChargesPreferred StockDividendRequirements. EarningsApplicable toCommonStock(b).increaseinSpecificPrices(currentcost)ofProperty, PlantandEquipment HeldDuringtheYear(c).................,. Reduction toiVetRecoverable Cost(d)EffectofincreaseinGeneralPriceLevel.ExcessofIncreaseinGeneralPriceLeveloverIncreaseinSpecificPricesAfterReduction toiVetRecoverable Cost....,............ GainfromDeclineinPurchasing PowerofiVetAmountsOwed(e)....iVet5748.680171,943128.64579.7S841,37777.66826,29654,767580.484168,19630,$41(98.665)(23,242)576.830(inthousands) 5749.000174,000129,00080.00041,0001$4,00026,00055.000659.00090.00031,000(99,000)~23.m)5(1.000)S(216,000) 181,0005(35,000)5749.000174.000129.00080.00041.000157,00026,00055.NN662.m87,00031,000(99,000)~23.m~5(4.m5262,000(532,000) (270,000) 181.0005(S9.000)(Conrinuedj 25 ~0NOTESTOCONSOLIDATED FINANCIAL STATEMENTS (Concluded) (a)Asprescribed bytheFASB,theitemsintheConsolidated Statement ofIncomethathavebeenadjustedaredepreciation, depletion andamortization (including portionsclassified asfuelforelectricgeneration). Depreciation, depletion andamortization chargeswerecomputedbyapplyingcurrentaccrualratestothevariousplantaccounts(production, transmission, distribution, generalandmiscellaneous) afteradjusting suchaccoumsfortheeffectsofchangingprices.(b)Including thereduction tonetrecoverable cost,thelossfromoperations onaconstamdollarbasisandcurremcostbasiswouldhavebeen$217,000,000 and$4,000,000, respectively. (c)AtDecember31,1980,curremcostofproperty, plantandequipment, netofaccumulated depreciation, depletion andamortization, was$4,705,000,000 whilehistorical costornetcostrecoverable throughdepreciation, depletion andamortization was$2.556,000,000. (d)Thereduction tonetrecoverable costofproperty, plantandequipmem(asexpressed intermsofinflation-adjusted cost)tohistorical costrecognizes thattherate-making processlimitstheCompanytorecoveryofthehistorical costofthesubjectassets.(e)Toreflectproperlytheeconomics ofrateregulation intheConsolidated Statement ofIncomeAdjustedforEffectsofChangingPrices,thereduction tonetrqcoverable costshouldbeoffsetbythegainthatresultsfromthedeclineinpurchasing powerofthenetamountsowedbytheCompany.Duringaperiodofinflation, holdersofmonetaryassetssuchascashandreceivables sufferalossofgeneralpurchasing powerwhileholdersofmonetaryliabilities, generally long-term debt,experience again(becausedebtwillberepaidindollarshavinglesspurchasing power).TheCompany's gainfromthedeclineinpurchasing powerofitsnetamountsowedisprimarily attributable tothesubstantial amountofdebtandcumulative preferred stocksubjecttomandatory redemption whichhasbeenusedtofinanceutilityplam.Operating RevenuesHistorical CostIqformation AdjustedforGeneralIqflation Income(Loss)fromOperations (excluding reduction tonetrecoverable cost).~NetAssetsatYear-endatNetRecoverable Cost$(1,000)$27,000$915,000$988,000Five-Year Comparison ofSelectedSupplementary DataAdjustedforEffectsofChangingPrices(dollaramountsareexpressed intermsofaverage1980dollars)YearEndedDecember31,1980197919781977(inthousands, exceptindexdata)S749,000$782,000$756,000$689,0001976$601,000CurrentCostIqformation Income(Loss)fromOperations (excluding reduction tonetrecoverable cost).ExcessofIncreaseinGeneralPriceLeveloverIncreaseinSpecificPricesafterReduction toNetRecoverable CostNetAssetsatYear-endatNetRecoverable Cost.GeneralFinancial DataGainI'romDeclineinPurchasing PowerofNetAmountsOwed...AverageConsumerPriceIndexGeneralIqformation onMiningOperations ProvenandProbableCoalReservesatEndofYear(thousands oftons)(note)TonsofCoalMined(thousands) AverageMarketPrice(atcurrem-cost perton).$(4,000)S11,000S(270,000) $915,000$181,000246.8413,964415,0231,059669$52.75$52.20$(217,000) $988,000$197,000217.5195.4181.5170.5Note:Provenreserves-Theestimated quantities ofcommercially recoverable reservesthat,onthebasisofgeological, geophysical andengineering data,canbedemonstrated withareasonably highdegreeofcertainty toberecoverable inthefuturefromknownmineraldepositsbyeitherprimaryorimprovedmethods.Probablereserves-Theestimated quantities ofcommercially recoverable reservesthatarelesswelldefinedthanprovenreservesandthatmaybeestimated orindicated toexistonthebasisofgeological, geophysical andengineering data.26 INDIANMICHIGANELECTRICCOMPANYAtVDSUBSIDIARIES Directors FRANKN.BIENW.A.BLACKLAWRENCER.BRUNKERICHARDE.DISBROWJOHNE.DOLANE.W.HERi(ANSEN (a)G.E.LEivtASTERS GERALDP.ivlALONEY RICHARDC.MENGEC.W.ROAHRIG(b)J.F.STARK4V.S.WHITE,JR.OfficersW.S.1VHITE,JR.Chairlnan oftheBoardandChiefExecutive OfficeriV.A.BLACKPresident andCltiefOperating OfficerJ.F.STARKSeniorVicePresident FRANKiV.BIENVicePresident RICHARDE.DISBROWVicePresident JOHNE.DOLANVicePresident A.JOSEPHDODDVicePresident ROBERTS.HUNTERVicePresident GERALDP.ivIALONEY VicePresident RICHARDC.ivlENGEVicePresident BEVERLYI.STEARS(C)VicePresident PETERJ.DEMARIATreasurer JOHNR.BURTONSecretary BPVERLYI.STEARS(d)Assistant Secretary andAssistant Treasurer ALLENH.STUHLS(ANN Assistant Secretary andAssistant Treasurer RICHARDP.BOURGERIE (C)Assistant Secretary JOHNF.DILORENZO, JR.Assistant Secretary CARLJ.i~fOOS(f)Assistant Secretary WARRENO.KEITNER(e)Assistant Secretary iVILLIAME.OLSONAssistant Secretary WILLIAMJ.PROCHASKA (C)rlssistant Secretary LEONARDV.ASSANTEAssistant Treasttrer WILLIA)(N.D'ONOPRIGAssistant Treasurer GERALDR.KNORRAssistant Treasurer Theprincipal occupation ofeachoftheabovedirectors andofficersofIndiana4,'Ltichigan ElectricCompuny,withnineexceptions, isasanemployeeofAmericanElectricPowerServiceCorporation. Theexceptions areAlessrs.IV.A.Black,LawrenceR.Bnrnke,G.E.LeMasters, RichardC.Menge,CarlJ..SIoos, C.IV.Roahrig,J,F.Stark,BeverlvI.Stears.andAllenH.stub(mann <<hoseprincipal occupations areasofficersoremployeesofIndianare.Slichigan ElectricCompany.(n)ResignedApril22,!980(b)Elec;edApril22,l980(c)ElectedJuneI~l980(d)ResignedJuneI,l980(e)ResignedSeptetnber I.I980(t)ElectedSeptember I.198027 Operating Statistics 19801979197819771976ELEGTRIGOPERATING REvENUEs(inthousands): FromKilowatt-hour Sales:Residential: WithoutElectricHeating............... WithElectricHeatingTotalResidential Commercial .Industrial SalesforResale:Municipalities Cooperatives. OtherElectricUtilities TotalSalesforResale .............. Miscellaneous .TotalfromKilowatt-hour Sales...... OtherOperating Revenues.TotalElectricOperating Revenues.... $106,48854,277160,765108,764116,16542,29521,652288,563352,5106,150744,3544,326$102,54355,458158,001106,151127,81542,02822,176222,488286,6926,099684,7584,308$689,066S95,67653.557149,23395,423120,18037,23017,732166,391221,3537,655593,8444,050$597,894S89,67546,324135,99991,153107,93142,39115,619103,517161,5275,974502,5844,085$506,669S71,88837,447109,33572,52780,23326,19710,491I'IO,atl2 147,0702,573411,7383,811$415,549SOURGEsANDSALEsOFENERGY(inmillionsofkilowatt-hours): Sources:NetGenerated-Steam:FossilFuelNuclearFuel.NetGenerated-Hydroelectric ........... Subtotal. Purchased .NetInterchange .TotalSources.Less:Losses,CompanyUse,Etc.......... NetSources.6,71913,1538519,9571,8833,66925,5091,42624,0836,44311,6147918,1368115,38924,3361,38622,95017,4073014,47522,1831,34020,84312,1711827,92220,2751,27019,0057,2317,31710,101(a) 4,78675687,7016,8097214,5822326,52321,3371,29020,047Sales:Residential: WithoutElectricHeating... WithElectricHeating.TotalResidential .Commercial Industrial .SalesforResale:Municipalities Cooperatives. OtherElectricUtilities .TotalSalesforResale..Miscellaneous TotalSales2,4931,5494,0422,7163,9321,54180310,85413,19819524,0832,3891,6194,0082,6294,3801,5348199,38611,73919422,9502,3521,6223,9742,4984,3191,5858147,4689,86718520,8432,4561,6054,0612,6714,4731,6427865,1957,62319,0052,3841,5773,9612,5794,2091,5277546,8499,13016820,047ta)Includes69lmillionkilowatt-hours astestgeneration. Thefuelcostassociated withsuchgeneration ischargedtootheroperation expense. IIVDIAiVA IICHIGAIV ELECTRICCOMPAIVYAiVDSUBSIDIARIES 19801979197819771976AYERAGECosToFFUELCQNsUMED(a):Centsperi>lillion Btu:Coal.FuelOiliVuclearOverallCentsperKilowatt-hour Generated: Coal.FuelOilNuclearOverall164.49151.91-(c)220.42'8.4437.8284.9576.251.591.52-(c)4.37.52.41.89.81109.6874.9665.89229.68168.8076.72(b)34.6529.7226.3471.1659.1246.47(b)1.11.73.632401.88.84(b).38.33.28.75.61.47(b)RESIDENTIAL SERVICE-AVERAGES: AnnualKwhUseperCustomer: TotalWithElectricHeating......AnnualElectricBill:TotalWithElectricHeating......PriceperKwh(incents):TotalWithElectricHeating......10,20620,58410)21021,611$406$402$721$7403.983.943.503.4310,26010,64122,06722,83010,43923,2003.793.343.392.932.762.37$389$361$288$736$668$551iVUMBERoFELEGTRIcCUsToMERs -Year-End: Residential: 'ithoutElectricHeating............. WithElectricHeating .TotalResidential .Commercial .Industrial SalesforResale:Municipalities....... Cooperatives OtherElectricUtilities....'............ TotalSalesforResale............. Miscellaneous. TotalElectricCustomers.......... 321,43275,618319,47775,606315,47274,900313,085312,21172,05969,23723651723651523232364615920'6.15105103'07100971,4241,3731,3311,3041,280444,139441,870436,605430,955426,980397,050395,083390,372385,144381,44842,75842,56342,10641,90741,7032,8022,7482,6892,5002,452(a)Excludeseffectofdeferredcoilection oft'uelcosts.(b)Includeseffectofrefundreceivedfromsupplieroffueloilresulting fromseulemetu oflitigation concerning pricing.Withoutsuchrefund,theaveragecostoffueloilfor(976wouldhavebeenI73.37centspermillionBtuandI.9lcentsperkilowau-hour generated, andtheoverallcostoffuelwouldhavebeen49.33centspermillionBtuand0.50centsperkilowatt-hour generated. (c)TheCompany's onlyfueloilttredplantwasplacedindeactivated reserveduringNovemberl979.29 INDIANAc(MICHIGANELECTRICCOMPAIv>'IPriceRangeofCumulative Preferred StockByQuaners(I980andI979)Cumulative Preferred Stock1st1980-uarters2nd3rd4th1st1979-uarters2nd3rd4th($100ParValue)4t/io/oSeriesDividends PaidPerShareMarketPrice-5PerShare(OTC)Ask(high/low) Bid(high/low) 4.56~inSeriesDividends PaidPerShareMarketPrice-5PerShare(OTC)Ask(high/low) Bid(high/low) 4.12o/oSeriesDividends PaidPerShareMarketPrice-5PerShare(OTC)Ask(high/low) Bid(high/low)

7.0 8oIoSeriesDividends

PaidPerShareMarketPrice-5PerShare(NYSE)-High-Low7.76o/oSeriesDividends PaidPerShareMarketPrice-5PerShare(NYSE)-High-Low8.68oIoSeriesDividends PaidPerShareMarketPrice-5PerShare(NYSE)-High-Low12o/oSeriesDividends PaidPerShareMarketPrice-5PerShare(NYSE)-High-Low($25ParValue)S2.15SeriesDividends PaidPerShareMarketPrice-5PerShare(NYSE)-High-Low$2.25SeriesDividends PaidPerShareMarketPrice-5PerShare(NYSE)-High-Love$2.75SeriesDividends PaidPerShareMarketPrice-5PerShare(NYSE)-High-LowOTC-Over-the-Counter NYSE-NewYorkStockExchanNote-TheabovebidandaskedMarketquotations providedbyN$1.14$1.14$1.1451.14$1.14$1.14$1.14$1.14$1.03$1.03$1.03$1.0351.03$1.03$1.03$1.0338/3840/4051.77$1.77$1.77$1.77$1.77S1.77$1.77$1.77615273657064'/i51'/i44l/i69t/i61594858'/i5156/i47$1.94$1.94$1.94S1.94S1.9451.94$1.94$1.9470ii60767176'/i6777i/i7264iA5564i/i48674525546>/iS2.17$2.1752.17$2.17$2.17S2.17S2.17$2.1782t/i78'/~86'/i79Yi8279Ãi7867Yi6455'l7465725970tl6053.00$3.0053.00$3.00$3.00$3.00S3.0010698i/i10083'/il029510487t/i103t/i86/i109i/i103109'I102106t/i103'/i5.53755.53755.53755.53755.53755.53755.53755.537521'li20'/i19N16Yi21'/i19'/i15i/i13'/i1814i/i18i/i14'/i22'/1917t/i13i/i5.56255.56255.5625S.56255.5625$.56255.56255.5625223/i20'/171418'620t/i172320Yi22'/i20t/i19t/i1518'li14'li5.68755.68755.68755.68755.687526Yi24Yi21Yi1St/i2522i/i23i/i2224Yi22gequotations represeatlonalQuotation ntpricesbetweendealersanddonotrepresent actualtransactions. Bureau,Inc.-Dashindicates quotation notavailable. $1.0312551.03125S1.03125S1.03125$1.03125$1.03125$1.0312551.0312530 ¹~.:.,~0t{olor<<oioo ji'I0Sortie{;feeiJot{rior{ 00SerrtoreIcorbotfrI.ttiyrrStJocetrtrj Iliii{i~tenDONALDC.COOKII40j~OIttl(tt of~ItSr'II0rtft'tfriTV(IN{r,iBRANClCrtJMICHI64Nr'rOttcopoLCR<<erICP)'./By<<ro<<tr~II~trHINDIANAfi,k.I<<r/II/i~VIllIIf<<el<<4e"/"IOitIpSCTeferr<<IIi~Ag~Motto{i~;rIStttrterrtpet~r<<r/gg~i'0/Oonloirdi+tfert{C4{rty+IIIHI0fIISo{oyetie ock~writ{tetttDvictor{{'yo"r<<e<<rlY{cIllH1I<<<<fIlka~"Vl~ir~C~<<<<<<~~~r<<r~!-l:T.=',. 6~isoI!>SRTEO~rri<<irr~~Ici<<cc~re<<ci'Ll~i'LWCCr<<<<re<<tcc'4I.IIIr'~e'fc'~tc{'tce<<Pm~Oftoftttroti TANNTRSt:RTTKP+~~)t"r"<<,r~rf'<<CCygg1114'0%%%%%%%%%laai%%iil )KENTUCK~r'SWRN~t1IlgROCKPORT] )INDIANA8MICHIGANELECTRICCOMPANYplec.I<<<<<<cern Qrr<<ecIII<<r<<co<<<<c 0trio<<Iic<<<<t~~e~~~Cia<<eee<<t 1~~maem~~I~c~I<<<<wCe<<>>.~k<<<<cOoC~'~l~leIceINDIANAckMICHIGANELECTRICCOMPANY TheCompany's AnnualReport(Form10-K)totheSecurities andExchangeCommission willbeavailable onoraboutMarch31,1981toshareowners upontheirwrittenrequestandatnocost.Pleaseaddresssuchrequeststo:Mr.H.D.PostAssistant Treasurer AmericanElectricPowerServiceCorporation 180EastBroadStreetColumbus, Ohio43215TransferAgentandRegistrar ofCumulative Preferred StockMorganGuarantyTrustCompanyofi>ewYork30%VestBroadway, NewYork,iV.Y.10007}}