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Forwards Indiana Michigan Power Co 1990 Annual Rept & Projected Cash Flow Statement for 1991
	ML17334B399
Person / Time
Site:	Cook
Issue date:	04/09/1991
From:	FITZPATRICK E; INDIANA MICHIGAN POWER CO. (FORMERLY INDIANA & MICHIG
To:	MURLEY T E; NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM), Office of Nuclear Reactor Regulation
Shared Package
ML17328B008	List: ML17328B007; ML17334B399;
References
	AEP:NRC:0909G, AEP:NRC:909G, NUDOCS 9104160384
	Download: ML17334B399 (38)
	v • d • e

'.ACCELERATED DISTRIBUTION DEMONSTRATION SYSTEMDREGULATORY'NFORMATION DISTRXBUTXON SYSTEM(RIDS)..ACCESSION NBR:9104160384 DOC.DATE:

91/04/09NOTARIZED:

NODOCKETgFACIL:50-315 DonaldC.CookNuclearPowerPlant,Unit1,Indiana60500031550-316DonaldC.Cook,NuclearPowerPlant,Unit2,Indiana6050003/6AUTH.NAMEAUTHORAFFILIATION FXTZPATRICK,E.

IndianaMichiganPowerCo.(formerly Indiana&MichiganEleRECIP.NAME RECIPIENT AFFILIATION RMURLEY,T.E.

OfficeofNuclearReactorRegulation, Director(Post870411I,SUMECT:Forwards"IndianaMichiganPowerCo1990AnnualRept"Iprojected cashflowstatement for1991.DISTRIBUTION.

CODE:M004DCOPIESRECEIVED:LTR

$ENCLgSIZE:+TXTLE:50.71(b)-AnnualFinancial ReportNOTES:5~RECIPIENT IDCODE/NAME PD3-1PDINTERNAL:

AEOD/DOAEXTERNAL:

NRCPDRCOPIESLTTRENCL111111RECXPXENT IDCODE/NAME COLBURN,T.

FICOPIESLTTRENCL1011ADDIISRIDSNOTETOALL"RIDS"RECIPIENTS:

PLEASEHELPUSTOREDUCEWASTE!CONTACTTHEDOCUMENTCONTROLDESK,ROOMPl-37(EXT.20079)TOELIMINATE YOURNAMEFROMDISTRIBUTION LISTSFORDOCUMENTS YOUDON'TNEED!TOTALNUMBER'FCOPIESREQUIRED:

LTTR5ENCL4ADD 0~~~bIP IndianaMichiganPowerCompanyOneSummitSquareP.O.Box60FortWayne,IN468012194252111SHEHSINdh NIICiilGQM PQStfMAEP:NRC:0909G10CFR50.71(b)&140.21(e)

DonaldC.CookNuclearPlantUnitNos~1and2DocketNos.50-315and50-316LicenseNos.DPR-58andDPR-74FINANCIAL INFORMATION FORINDIANAMICHIGANPOWERCOMPANYU.S.NuclearRegulatory Commission Attn:DocumentControlDeskWashington, D.C.20555Attn:T.E.MurleyApril9,1991

DearDr.Murley:

Enclosure 1containstheIndianaMichiganPowerCompany's (I&M)annualreportfor1990.Enclosure 2containsacopyofI&M'spro]ected cashflowfor1991.Thesereportsaresubmitted pursuantto10CFR50.71(b)and10CFR140.21(e).

Thisdocumenthasbeenpreparedfollowing Corporate procedures thatincorporate areasonable setofcontrolstoensureitsaccuracyandcompleteness priortosignature bytheundersigned.

Sincerely,

~~E~E~FitatrickVicePresident ldpEnclosures cc:D.H.Williams, Jr.A.A,Blind-BridgmanJ.R.PadgettG.CharnoffA.B.Davis-RegionIIINRCResidentInspector

-BridgmanNFEMSectionChief91pp>6038+~

p5ppp31591PqP9@DRQQOCKpDRpoopI/I

..91041603@,

1990AnnualReport ContentsBackground oftheCompanyDirectors andOfficersoftheCompany.SelectedConsolidated Financial Data.Management's Discussion andAnalysisofResultsofOperations andFinancial Condition Consolidated Statements ofIncomeConsolidated BalanceSheetsConsolidated Statements ofCashFlowsConsolidated Statements ofRetainedEarningsNotestoConsolidated Financial Statements Independent Auditors'eport Operating Statistics Dividends andPriceRangesofCumulative Preferred Stock5-91011-12131415-252627-2829 INDIANAMICHIGANPOWERCOMPANYOneSummitSquare,P.O.Box60,FortWayne,Indiana46801Background oftheCompanyINDIANAMIGHIGANPowERCQMPANY(theCompany),

asubsidiary ofAmericanElectricPowerCompany,Inc.(AEP),isengagedinthegeneration,

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

Itsprincipal executive officesareinFortWayne,Indiana.TheCompanyhastwowhollyownedsubsidiaries; theyareBlackhawk CoalCompanyandPriceRiverCoalCompany,whichwereformerlyengagedincoal-mining operations.

Blackhawk CoalCompanycurrently leasesorsubleases portionsofitscoalrights,landandrelatedminingequipment tounaffiliated companies.

Inaddition, theCompanyhasarivertransportation division(RTD)thatbargescoalontheOhioandKanawhaRiverstogenerating plantsoftheCompanyandaffiliates.

RTDalsoprovidessomebargingservicestounaffiliated companies.

TheCompanyservesapproximately 480,000customers innorthernandeasternIndianaandaportionofsouthwestern Michigan.

Amongtheprincipal industries servedaretransportation equipment, primarymetals,fabricated metalproducts, electrical andelectronic machinery, andchemicals andalliedproducts.

Inaddition, theCompanysupplieswholesale electricpowertootherelectricutilities, municipalities andelectriccooperatives.

TheCompany's generating plantsandimportant loadcentersareinterconnected byahigh-voltage trans-missionnetwork.Thisnetworkinturnisinterconnected eitherdirectlyorindirectly withthefollowing otherAEPSystemcompanies toformasingleintegrated powersystem:AEPGenerating Company,Appalachian PowerCompany,ColumbusSouthernPowerCompany,KentuckyPowerCompany,Kingsport PowerCompany,MichiganPowerCompany,OhioPowerCompanyandWheelingPowerCompany.TheCompanyisalsointerconnected withthefollowing unaffiliated utilities:

CentralIllinoisPublicServiceCompany,TheCincinnati Gas8ElectricCompany,Commonwealth EdisonCompany,Consumers PowerCompany,illinoisPowerCompany,Indianapolis PowerIrLightCompany,NorthernIndianaPublicServiceCompany,PSIEnergyInc.andRichmondPowerIrLightCompany,aswellasIndiana-Kentucky ElectricCorporation (asubsidiary ofOhioValleyElectricCorporation, anaffiliate thatisnotamemberoftheAEPSystem).

Directors MARKA.BAILEYRICHARDE.DISBROWWILLIAMN.D'ONOFRIO ALLENR.GIAssBURN (a)M.RICHARDHARRELL(b)WILLIAMJ.LHOTAGERALDP.MALONEYRICHARDC.MENGEDwiGHTLPiTTENGER (a)RONALDE.PRATER(b)DALEM.TRENARY(a)WILLIAME.WALTERS(b)W.S.WHITE,JR.DAVIDH.WILLIAMS, JR.OfficersW.S.WHITE,JR.(C)ChairmanoftheBoardRICHARDE.DISBROW(d)ViceChairmanandChiefFxecutive OfficerRICHARDC.MENGEPresident andChiefOperating OfficerMILTONP.ALEXICHVicePresident MARKA.BAILEYVicePresident WILLIAMN.D'ONOFRIO VicePresident A.JosEPHDowoVicePresident RICHARDF.HERINGVicePresident WILLIAMJ.LHOTAVicePresident GERALDP.MALONEYVicePresident DAVIDH.WILLIAMS, JR.VicePresident PETERJ.DEMARIATreasurer JOHNF.DILORENZO, JR.Secretary EuoBAFILEAssistant Secretary andAssistant Treasurer JEFFREYD.CROSSAssistant Secretary CARLJ.MoosAssistant Secretary JOHNB.SHINNOCKAssistant Secretary LEONARDV.ASSANTEAssistant Treasurer BRUCEM.BARBERAssistant Treasurer GERALDR.KNORRAssistant Treasurer AsofJanuary1,1991thecurrentdirectors andofficersofIndianaMichiganPowerCompanywereemployees olAmericanElectricPowerServiceCorporation witheightexceptions:

Messrs.Bailie,Bailey,D'Onofn'o, Gfassburn, Menge,Moos,Pittenger, andTrenary,whowereemploy.eesofIndianaMichiganPowerCompany.(a)ElectedApril24,1990(b)ResignedApril24,1990(c)ResignedasChiefExecutive OfficerJanuary1~1991(d)ElectedJanuary1,1991 INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES SelectedConsolidated Financial DataYearEndedDecember31,199019891988(inthousands) 19871986INCOMESTATEMENTS DATA:OPERATING REVENUES-ELECTRIC.......OPERATING EXPENSESOPERATING INCOMENONOPERATING INCOMEINCOMEBEFOREINTERESTCHARGES.......INTERESTCHARGESNETINCOMEPREFERRED STOCKDIVIDENDREQUIREMENTS

.EARNINGSAPPLICABLE ToCOMMONSTOCK$1,031,059

$1,005,638 829,626795,242$983,066$1,017,268

$1,091,295 767,623794,222900,151210,39632,930243,326106,181191,14466,905223,04656,828279,874113,508215,44343,454201,4333,946258,049105,568258,897107,092205,37989,064116,31515,587152,48126,256166,36620,955151,80518,848137,14518,048100,728$119,097$132,957$145,411$126,22519901989December31,1988(inthousands) 19871986BALANCESHEETSDATA:ELECTRICUTILITYPLANTIACCUMULATEO DEPRECIATION ANDAMORTIZATION NETELECTRICUTILITYPLANTTOTALASSETS$4,011,464

$3,918,616$4,411,271

$4,153,281

$3,979,822 1,403,871 1,292,430 1,218,060 1,118,254 1,018,455

$2,607,593

$2,626,186

$3,193,211

$3,035,027

$2,961,367

$3,635,435

$4,259,826

$3,993,046

$3,956,563

$3,849,208 COMMONSTOCKANDPAID-INCAPITAL...RETAINEDEARNINGS.T0TALC0MMQNSHAREowNER sEouITY..CUMULATIVE PREFERRED STOCK:NOTSUBJECTTOMANDATORY REDEMPTION SUBJEGTToMANDAT0RY REDEMPTI0N (a)TOTAL.L0NG-TERM DEBT(a)OBLIGATI0Ns UNDERCAPITALLEAsEs(a).TOTALCAPITALIZATION ANDLIABILITIES

...$774,193$774,193$838,347$828,347$828,347145,489157,825161,443145,302113,123$919,682$932,018$999,790$973,649$941,470$197,000$197,000$197,000$197,000$197,00018,03025,03032,03079,030$197,000$215,030$222,030$229,030$276,030$1,123,833

$1,522,736

$1,575,220

$1,591,768

$1,421,523

$133,064$122,977$167,920$170,830$187,845$3,635,435

$4,259,826

$3,993,046

$3,956,563

$3,849,208 (a)Including portionduewithinone-year.

Management's Discussion andAnalysisofResultsofOperations andFinancial Condition ResultsofOperations NetIncomeOeclinesNetincomedecreased to$116millionin1990comparedwith$137millionin1989.Thedeclinein1990waspredom-inantlyduetoadeclineinnonoperating incomeasaccrualsforallowance forfundsusedduringconstruction (AFUDC)ceasedwithcommercial operation ofRockportPlantUnit2(Rockport 2)inDecember1989andincreased operating andmaintenance costs.In1989netincomedecreased

$15millionfrom1988primarily fromloweroperating incomeandadeclineinnonoperating income.OutlookTheCompanyaspartoftheAEPSystemfaceschallenges inthe1990'sthatcouldadversely affecttheCompany's financial performance.

Whilemanagement believestheCompanyisequippedtodealwiththefuture,uncertainties thatcouldadversely affecttheCompanyincludetheabilitytoobtainfavorable rate-making treatment torecoverfromratepayers itscostofserviceonatimelybasiswithparticular attention currently to:~Thecostofnewgenerating capacity.

~Thecostofcompliance withtheCleanAirActAmend-mentsof1990.Inaddition, theCompany's resultscouldbenegatively affectedbyfactorsnotgenerally withinmanagement's controlsuchas:thecurrentandanyfuturedeclineineconomicactiv-ity,increased competition inthewholesale electricenergymarketandtheweather.TheabilityoftheCompanyasamemberoftheAEPSystemPowerPool(PowerPool)tomakewholesale salesequaltoorgreaterthanthelevelofsuchsalesreflected intheCompany's rates,including thePowerPool'sabilitytoselltheremaining portionoftheCompany's recentlyconstructed Rockport2generating capacitynotyetincludedinrates,willaffecttheCompany's 1991resultsofoperations.

Management willmakeeveryefforttocontinuemarketing available capacityinthenearterm.Inaddition, management willbedevotingparticular attention in1991toward:effortstoincreaseratestorecoverthecostoftherecentlyaddedRock-port2capacity; reduction ofgrowthinitscostofservice;andpreparation ofaplantocomplywithpowerplantemissionrestrictions oftherecentlyenactedCleanAirActAmendments.

Operating RevenuesandEnergySalesClimbOperating revenuesrose$25millionin1990following a$23millionincreasein1989.Increases inwholesale kilowatt-hour(kwh)salespredominantly tounaffiliated utilities accounted fortherevenueincreaseinbothyears.Thecomponents ofchangeinrevenuesareasfollows:Increase(Decrease)

FromPreviousYear19901989(dollarsinmillions)

Amount%AmountRetail:Pricevariance...VolumevarianceS(8.1)$(18.5)(8.4)10.0(16.5)(2.3)(8.5)(1.2)Wholesale:

Pricevariance.Volumevariance(9.2)(48.1)48.674.739.414.326.610.IOtherOperating Revenues........2.54.5TotalS25.42.5S22.62.3Themodestdecreasein1990retailsalesvolumereflectstheeffectsofunseasonably mildweatheronresidential sales.Industrial salesvolume,whichhadshownsteadygrowthforseveralyears,begantoslowin1989andexperienced asligdeclinein1990.Thenegativeeffectonrevenuesofthelowei.kwhsalesvolumewascompounded byareduction inratesasloweraveragefuelcostswerepassedontocustomers.

Itisimportant tonotethatwiththepastgrowthinelectricheatingandcoolingload,resultsofoperations havebecomeincreasingly sensitive toweather.Theincreasein1990wholesale kwhsaleswaspredomi-nantlyduetothecommencement inJanuary1990ofa250megawatt(mw)Iong-term Rockport2unitpowersalesagree-ment.Short-term wholesale sales,whichcanfluctuate duetocompetition, theavailability ofunaffiliated generating capacityandweatherpatterns, declinedslightlyin1990par-tiallyoffsetting thetong-term salesincrease.

Thepositiveeffectofincreased wholesale salesvolumeon1990revenueswaspartlyoffsetbyaloweraveragepriceperkwhreflecting pricecompetition intheshort-term salesforresalemarket.Thelackofavailable unaffiliated generating capacitythrough-outmostof1989,areduction bythePowerPoolofitsshort-termenergypricesandextremely coldweatherinDecember1989combinedtoproduceasignificant increasein1989'sshort-term wholesale salescomparedwith1988.

INDIANAMICHIGANPOWERCOMPANYANOSUBSIDIARIES (dollarsinmillions) 1990Amount1989AmountOperating Expenses:

FuelPurchased andInterchange Power(net).OtherOperation

............

Maintenance Depreciation andAmortization

...Amortization ofBockportunit1Phase.inCosts...........

TaxesOtherThanFederalIncomeTaxesFederalIncomeTaxesTotalS26.810.7S16.97.3(93.9)(370.1)(22.1)(46.6)73.543.09.35.830.329.114.716.44.33.44.63.9(1.1)(6.2)(2.0)(3.5)0.10.2(4.6)(10.0)5.212.4S34.4S27.6Theincreases infuelexpenseinbothyearsreflecthighernetgeneration.

Withthecommercial operation ofRockport2inDecember1989,theCompanybecameanetsuppliertothePowerPoolandassuchcommenced receiving PowerPoolcapacitycreditswhichgreatlyreduceditspurchased andinterchange powerexpensein1990.TheCompanywasabletosignificantly decreasepurchased andinterchange powerexpensein1989duetotheincreased availability ofitsgen-ratingunitsTheCompanyasamemberofthePowerPoolparticipated inalong-term contractforthesaleofupto560mwofpowertoanunaffiliated utility,whichexpiredonDecember31,1990andwasnotrenewed.Thiscontractcontributed

$16milliontotheCompany's revenuesand$5milliontonetincomein1990.ThePowerPoolisattempting toreplacetheterminated salesandrecentlyreachedanagreement tosell100mwunderalong-term contractwithanunaffiliated utility.In1989and1990thePowerPoolsoldsignificant quantities ofenergytoaCanadianutilityunderaseriesofshort-term wholesale con-tractswhichexpiredattheendof1990.Thatcustomerisnolongerexpectedtopurchaselargequantities ofenergy.In1990thesesalescontributed

$34milliontotheCompany's revenuesand$8milliontonetincome.ThePowerPoolisaggressively marketing available energybutcannotpredictwhetherreplacement saleswillbemadeduetothecompetitive natureoftheenergymarketanditsdependence onfactorswhicharenotgenerally withinthePowerPool'scontrol.Iftheaboveterminated long-term andshort-term salesarenotreplacedtheCompany's resultsofoperations willbeadversely impacted.

Operating ExpensesRiseOperating expensesincreased 4%in1990aftera4%Increasein1989.Changesinthecomponents ofoperating expenseswere:Increase(Decrease)

FromPreviousYearThesignificant increaseinotheroperation expensein1990wasprimarily duetoleaseexpenseonRockport2whichwassoldandleasedbackinDecember1989.Inaddition, otheroperation expenseandmaintenance expenseincreased in1990and1989duetoscheduled outagesofbothoftheCom-pany'snucleargenerating units.Theunitsarerefueledonan18-monthcycle.Inthesecondhalfof1990,bothunitswereoutofserviceforseveralmonthseachforscheduled refueling.

Asubstantial portionofthe1990increaseinnuclearplantmaintenance wasrecordedinthefourthquarter.In1989Unit2wasoutofservicetoreplaceitssteamgenerators, refuelandconducta10-yearserviceinspection asrequiredbytheNuclearRegulatory Commission andUnit1underwent arefueling outage.Thenextrefueling outagesarescheduled for1992.Acombination ofstricterregulatory requirements formaintenance andtrainingandthelimitedsupplyofnucleargradematerials forreplacement partshascontributed tonuclearindustryoperation andmaintenance expensesincreasing ataratehigherthanthegeneralinflation rate.Industryeffortsareunderwaytochangethistrend.The1990decreaseinFederalincometaxexpensewasprimarily duetoadjustments relatingtoprioryear'staxreturnsandanincreaseintheamortization ofdeferredinvest-menttaxcreditsduepredominantly toplacingRockport2inservice.TheincreaseinFederalincometaxexpensein1989wasprimarily duetochangesincertainbook/taxtimingdif-ferencesaccounted foronaflow-through basis.Allowance forFundsUsedOuringConstruction andInterestChargesAFUDCdecreased substantially in1990sinceaccruaisonRockport2ceasedeffective withitscommercial operation onDecember1,1989.Theincreasein1989'sAFUDCreflected theadditional accumulated Rockport2construction expenditures.

In1990interestexpensedecreased reflecting thereduction inbothlong-term andshort-term debtoutstanding withpro-ceedsfromthesaleofRockport2.The1989nonoperating incomedecreasewastheresultofaone-timeciedittoincomeinthefourthquarterof1988torecord,inaccordance withFederalEnergyRegulatory Commission (FERC)guidance, theinterestaccruedonnucleardecommissioning trustfundssincetheirinception.

Liquidity andCapitalResources Construction SpendingDecreases Grossplantandpropertyadditions amountedto$162mil-lionin1990,a21%decreasefrom1989reflecting thecom-pletionofRockport2.Construction expenditures forthenextthreeyearsareestimated at$523million,exclusive ofyettobedetermined expenditures necessary tomeettherequire-mentsoftheCleanAirActAmendments.

TheCompanyfundsitssubstantial annualcapitalrequirements forconstruction ofnewfacilities andimprovement ofexistingfacilities throughacombination ofinternally generated funds,short-term andlong-term borrowings andinvestments initscommonequitybyitsparent,AEP.DebtandPreferred StockFinancing TheCompanygenerally issuesshort-term debttoprovideinterimfinancing ofconstruction expenditures inexcessofavailable internally generated funds.AtDecember31,1990,theCompanyhadunusedshort-term linesofcreditof$263millionsharedwithotherAEPSystemcompanies.

Regulatory provisions limitshort-term debtborrowings to$200millionandacharterprovision furtherlimitsshort-term borrowings to$90million.TheCompanyperiodically reducesshort-term debtwiththeproceedsofsalesoflong-term debtandpre-ferredstocksecurities andinvestments initscommonequitybyAEP.Theissuanceofseniorsecurities isexpectedtoberelatively modestinthenextfewyearssinceitisexpectedthatapprox-imately70%oftheCompany's projected construction expenditures for1991-1993 willbefinancedinternally, exclu-siveofanyexpenditures necessary tomeettherequirements oftherecentlyenactedCleanAirActAmendments.

Additional amountsneededinexcessofinternally generated fundswillberaisedexternally throughsalesofsecurities andinvest-mentsintheCompany's commonequitybyAEP.Inordertoissueadditional levelsofcertainlong-term debt,theCompanymusthavepre-taxearningsequaltoatleasttwiceannualinterestchargesonlong-term debtaftergivingeffecttotheissuanceofthenewdebt.Generally toissueadditional levelsofpreferred stock,theCompanymusthaveafter-tax grossincomeatleastequaltooneandone-halftimesannualinterestandpreferred dividendrequirements aftergiv-ingeffecttotheissuanceofthenewpreferred stock.Asaresult,theearningsperformance oftheCompanywilldeter-mineitsabilitytofinance,which,inturn,willdetermine itsabilitytofundconstruction.

AsofDecember31,1990,theCompany's long-term debtandpreferred stockcoverageratioswere3.79and2.02,respectively.

InDecember1989theCompanyanditsaffiliate, AEPGen-eratingCompany(AEGCo),soldtheir50%interests inRock-port2andleasedbacktheunit.NetproceedstotheCompanyfromthesalewere$661millionaftertaxes.TheCompanyusedtheproceedstorepayshort-term andIong-term debt,returncapitalcontributions toitsparentandrepurchase receivables.

Thenetgainonthesaledidnotaffect1989earningssinceitwasdeferredandisbeingamortized alongwithapplicable deferredtaxesovertheinitialleaseterm.Theleaseshavebeenaccounted forasoperating leases.Thesub-stantialincreaseincashduring1989resultedfromtheRock-port2saleproceeds.

Thesubstantial amountoftaxespaidduring1990inconnection withthesaleandleaseback, aswellastherelatedbondandstockredemptions causedthecashdecreasein1990.ConcernsandContingencies CleanAirLaw-Environmental CostsInNovember1990theCleanAirActAmendments becamelawrequiring, amongotherthings,substantial reductions insulfurdioxideandnitrogenoxideemissions fromcoal-fired electricgenerating plantsandplacingapermanent nationwide limitonemissions after1999.Thenewlawestablishes astritimetable forcompliance, settingadeadlineof1995forth'irstphaseofreductions and2000forthesecondphase.AlthoughtheAEPSystemhasinthepastmadesubstantial expenditures tosatisfytheprovisions ofcleanairlaws,theSystemwillhavetoadoptsubstantial additional measurestocomplywiththenewamendments.

TheAEPSystemisreview-ingtheamendments andevaluating thecompliance alterna-tives.Thecompliance alternatives beingconsidered include:(a)installation ofnewemissions reduction equipment (scrub-bers)onaffectedgenerating unitswhichwouldrequiresub-stantialcapitalexpenditures andresultinsignificantly increased operating costsandreducedgenerating efficiency; (b)switching tolowersulfurcoalornaturalgas,resulting inlesssubstantial capitalexpenditures andadverseimpactsonaffiliated miningoperations andrelatedfacilities; (c)prema-tureretirement ofcertainexistinggenerating units;and/or(d)significant capitalexpenditures torepowerexistinggenerating unitswithpressurized fluidized bedcombustion (PFBC)tech-nologypresently beingtestedatanaffiliate's TiddPFBCdem-onstration plant.TheCompany's CookNuclearPlantisnot INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES affectedbythenewlegislation.

Additionally, theCompany's RockportPlantandthreeofthefourunitsatTannersCreek,Plant,allofwhichburnlowsulfurcoal,arecurrently incom-pliancewiththenewlaw.Alternatives tomeetthenewrequire-mentsattheCompany's tworemaining coal-fired units,TannersCreekUnit4andtheBreedPlant,arebeingstudied.AsamemberofthePowerPooltheCompanysharesinthecostofcompliance atgenerating unitsownedbyotherPowerPoolmembercompanies.

TheCompany's costofcompliance couldadversely affectresultsofoperations andfinancial con-ditionifnotrecovered throughtherate-making process.Hazardous MaterialThegeneration ofelectricity unavoidably producesanum-berofnon-hazardous andhazardous materials suchasash,slag,sludge,lowlevelradioactive waste,spentnuclearfuel,etc.Inadditionasbestos, polychlorinated biphenyls (PCB's)andotherhazardous materials havebeenemployedintheCompany's generating plantsandtransmission/distribution facilities.

TheCompanyfullycomplieswithallexistinglawsregarding

handling, transportation, storageanddisposalofhazardous andnon-hazardous materials itproducesoruses.However,additional compliance effortsandcostscouldbeincurredtomeettherequirements ofnewlawsandregulations.

TheComprehensive Environmental ResponseCompensa-tionandLiability Act(Superfund) established programsdeal-ingwithcleanupofhazardous wastedisposalsites,aswellasothermatters,andauthorized theEnvironmental Protection Agency(EPA)toadminister them.TheCompanyhasbeennamedbytheEPAasa"potentially responsible party"forfivesitesandhasreceivedinformation requestsfortwoothersites.TheCompany's presentestimates donotanticipate materialcleanupcosts.However,shouldmaterialcostsbeincurredforthecleanupofthesesitesorforanyothersiteatwhichtheCompanymayhavedisposedofmaterials, theCompany's resultsofoperations andfinancial condition couldbeadversely impactedunlessthecostscanberecovered fromratepayers.TheCompanymaintains insurance againstdamageandliability fromitsnuclearplant.IntheeventofanuclearincidentattheCompany's nuclearplantoranynuclearplantintheUnitedStatestheinsurance programcouldrequiretheCom-panytopaysignificant retrospective premiums.

InadditiontheCompanymayincuradditional uninsured costs.Ifnotrecovered fromratepayers, suchcostscouldadversely impactresultsofoperations andfinancial condition.

OtherNewEnvironmental andHealthConcernsInrecentyearstherehasbeenconsiderable discussion ofenvironmental andhealthconcernsregarding theemissionfromgenerating facilities of"greenhouse" gasessuchascarbondioxideandtheeffectsonpublichealthofelectricandmagneticfields(EMF)fromtransmission anddistribution facilities.

Management isconcerned thatnewlawsmaybepassedornewregulations promulgated withoutsufficient sci-entificevidence.

TheAEPSystemwillbeworkingtosupporteffortstoproperlystudy"globalwarming"andEMFandtodefinetheextent,ifany,towhichtheyposeathreattotheenvironment andpublichealthbeforenewrestrictions areimposed.ShouldCongressenactlegislation tocontrolorlimitgreenhouse gasesandEMF,theCompany's resultsofoper-ationsandfinancial condition couldbeadversely affectedunlessthecostofcompliance canberecovered fromratepayers.Regulatory ConcernsInJuly1989theCompanyfiledarequestwiththeIndianaUtilityRegulatory Commission (IURC)foranannualincreaseinratesof$60million.InAugust1990theIURCgrantedtheCompanyanincreaseinratesof$14.3million.InOctober1990theIURCamendeditsorder,attheCompany's request,andallowedanadditional

$5millionincreaseinrates.TheCompanyandotherpartiesrequested arehearing ofcertainportionsoftheIURC'sordersandinFebruary1991theIURCissuedanordergrantingrehearing oncertainofthoseissues.During1990,theCompanyfiledwiththeFERCforan$11millionannualrateincreasefromitsfirmwholesale cus-tomers.InDecembertheFERCgrantedtheCompany's requesttocollectratesdesignedtoproducea$4millionannualincrease, subjecttorefund,pendingtheissuanceofafinalorder.

In1990aninitialdecisionwasissuedbyaFERCadmin-istrative lawjudgeregarding acomplaint filedbyawholesale customerconcerning thereasonableness oftheCompany's coalcostsandthecoaltransportation chargesofaffiliates.

TheinitialdecisionwouldrequiretheCompanytorefundtowholesale customers

$25millionrelatedtocoalcostsandayettobedetermined amountofaffiliated transportation charges.TheCompanyhasfiledexceptions totheinitialdeci-sionandthematterissubjecttoafinaldecisionofthefullcommission.

InFebruary1991theMichiganPublicServiceCommission (MPSC)grantedtheCompanya$10.4millionannualrateincreasefromitsMichiganretailjurisdictional customers.

Thisrateincreasewillbeeffective intwosteps:$7.4millioninApril1991and$3millioninApril1992.Theorderalsoplacesamoratorium onanynewbaseratefilingpriortoJuly1992andrequirestheCompanytofileanapplication, withinsixmonths,tomergeMichiganPowerCompany,anaffiliate, intotheCompany.Itisnotpresently anticipated thatthemergerwillsignificantly impactresultsofoperations andfinancial condition.

EconomicOutlookTheeconomyslowedin1990onanationallevelandtoalesser.extent intheCompany's servicearea.Althoughtheslowingeconomyhadminimaleffecton1990saleslevels,furtherslowdowns oradeeprecession couldnegatively affectdemandforenergy,especially fromindustrial customers.

Withitslargeindustrial base,resultsofoperations fortheCompanyaresensitive toeconomicconditions whichcanbeimpactedbyinflation, foreigncurrencyfluctuations, themar-ketpriceofprimarymetals,costsofcompliance withtheCleanAirActAmendments of1990andothermattersbeyondthecontroloftheCompanyanditsmajorindustrial customers.

EffectsofInflation inflation continues toaffecttheCompany,eventhoughtheinflation ratehasbeenrelatively lowinrecentyears.Sincetherate-making processlimitstheCompanytorecoveryofthehistorical costofassets,economiclossesareexperienced whentheeffectsofinflation arenotrecovered fromcustomers onatimelybasis.Suchlossesareoffsetpartlybytheeco-nomicgainsthatresultfromtherepayment oflong-term debtwithinflateddollars.NewAccounting Standards TheFinancial Accounting StandardBoard's(FASB)newaccounting standardonincometaxesrequirestheCompanytoadopttheliability methodofaccounting forincometaxesin1992andwillresultinasignificant increaseintotalassetsandliabilities duetotherecording ofdeferredincometaxesontimingdifferences previously flowedthroughandcorre-spondingoffsetting regulatory assetsandliabilities.

Inaddi-tionexistingdeferredtaxeswillbeadjustedtothelev'elrequiredatthecurrently existingstatutory taxratewithanoffsetting regulatory assetorliability fordeferredtaxamountsassociated withutilityoperations.

WhethertheCompanyimplements thenewstandardonarestatedorprospective basishasnotyetbeendetermined.

TheFASBhasindicated thatitexpectstoissueanexposuredraftduringthefirsthalfof1991whichwillamendthenewstandardandmayextenditsrequiredeffective dateuntil1993.TheCompanyexpectstodeferimplementation ofthenewstandarduntiltheeffective dateoftheamendedstandard.

Itisnotpresently anticipated thatthefinalstandardwillsignificantly impactresultsofoper-ationsorfinancial condition.

TheFASBhasissuedanewaccounting standardthatrequiresachangeinaccounting forpostretirement benefitsotherthanpensionsfromanexpense-as-paid methodtoaaccrualmethod.Thisstandardpermitsinitialyearrecognition oftheentirepriorservicecostorrecognition ofatransition obligation overperiodsupto20yearsandhasaneffective dateof1993.TheCompanyexpectstoelectthe20yeartransition optiontocomplywiththenewstandard.

Withtheassistance ofitsindependent actuarytheCompanyispres-entlycomputing itsobligation forretireebenefitsotherthanpensions.

TheCompany's obligation issignificant asisthedifference betweentheannualaccrualsrequiredbythenewstandardunderthe20yeartransition optionandthecurrentpay-as-you-go expense.TheCompanyexpectstoseekrecov-eryoftheincreased accrualsfromratepayers.

Shouldrecov-eryoforacommitment torecovertherequiredincreased accrualsbeginning in1993bedenied,theCompany's resultsofoperations andpossiblyitsfinancial condition wouldbeadversely impacted.

INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES Consolidated Statements ofIncomeOPERATING REVENUES-ELECTRICYearEndedDecember31,1989(inthousands)

$1,031,059

$1,005,638 1988$983,066OPERATING EXPENBEs:

FuelPurchased andInterchange Power(net)OtherOperation

.Maintenance Depreciation andAmortization Amortization ofRockportPlantUnit1Phase-inCostsTaxesOtherThanFederalIncomeTaxesFederalIncomeTaxesTotalOperating ExpensesOPERATING INCOMENONOPERATING INCOME:Allowance forEquityFundsUsedDuringConstruction OtherTotalNonoperating IncomeINCOMEBEFOREINTERESTCHARGES.276,719(68,529)244,382134,521129,09116,96154,38942,092829,626201,4331,17427723,946205,379249,88625,376170,855104,223124,80916,96156,37746,755795,242210,39627,9724,95832,930243,326232,94647,503161,53289,545120,14518,08956,27141,592767,623215,44327,02316,43143,454258,897INTERESTCHARGES:Long-term Debt.Short-term DebtandOtherAllowance forBorrowedFundsUsedDuringConstruction NetInterestChargesNETINCOMEPREFERRED STOCKDIVIDENDREQUIREMENTS EARNINGSAPPLICABLE ToCOMMONSTOCKSeeNotestoConsolidated FinandatStatements.

87,3853,158~7,479131,0097,279~32,107)106,181137,14518,04889,064116931515,587$100,728$119,097130,6496,635~30,192107,092151,80518,848$132,957 Consolidated BalanceSheetsASSETSDecember31,19901989(inthousands)

ELEcTRIcUTILITYPLANT:Production Transmission Distribution General(includes nuclearfuel)Construction WorkinProgress.TotalElectricUtilityPlant.Accumulated Depreciation andAmortization

.NetElectricUtilityPlant$2,473,678 778,115482,324182,90694,4414,011,464 1,403,871 2,607,593

$2,465,133 777,782452,780170,34952,5723,918,616 1,292,430 2,626,186 OTHERPROPERTYANoINVEsTMENTs 343,307321,215CURRENTAssETs:CashandCashEquivalents

.AccountsReceivable:

Customers Affiliated Companies

.Miscellaneous Allowance forUncollectible Accounts.Fuel-ataveragecost.Materials andSupplies-ataveragecost.AccruedUtilityRevenuesOtherTotalCurrentAssets2,72170,67726,92625,237(674)54,79038,48339,085'11,860269,'105595,487114,35010,66923,441(606)40,05732,47935,8856,920858,682DEFERREODEBITS:DeferredTaxes-GainonSaleandLeaseback ofRockportPlantUnit2..DeferredDepreciation andReturn-RockportPlantUnit1........DeferredNuclearFuelDisposalCosts........................

Other176,967114,91843,61579,930183,290131,87947,82290,752TotalDeferredDebitsTotalSeeNotestoConsolidated Flnanotat Statements.

453,743415,430$3,635,435

$4,259,826 INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES CAPITALIZATION ANDLIABILITIES December31,19901989(inthousands)

CAPITALIZATION:

CommonStock-NoParValue:Authorized

-2,500,000 SharesOutstanding

-1,400,000 SharesPaid-inCapitalRetainedEarningsTotalCommonShareowner's EquityCumulative Preferred Stock-NotSubjecttoMandatory Redemption Long-term DebtTotalCapitalization

$56,584717)609145,489919,682197,0001,072,333 2,189,015

$56,584717,609157,825932,018197,0001,021,566 2,150,584 OTHERNONCURRENT LIABILITIES 220,127190,962CURRENTLIABILITIES:

Cumulative Preferred StockDueWithinOneYear.Long-term DebtDueWithinOneYearCommercial Paper.AccountsPayable:General.Affiliated Companies TaxesAccruedInterestAccruedObligations UnderCapitalLeases.OtherTotalCurrentLiabilities

.51,50033,94562,34316,83121,90036,39955,471278,38918,030501,17052,60235,811200,78736,10133,24776,878954,626DEFERREOCREOITS:DeferredIncomeTaxesDeferredInvestment TaxCredits.DeferredGainonSaleandLeaseback

-RockportPlantUnit2.OtherTotalDeferredCredits478,005212,913234,30322,683947,904485,444221,666241,25515,289963,654C0MMITMENTs ANoC0NTINGENGIEs (Note10)Total$3,635,435

$4,259,826 12 Consolidated Statements ofCashFlows1990YearEndedDecember31,1989(inthousands) 1988OPERATING ACTIVITIES:

'etIncomeAdjustments forNoncashItems:Depreciation andAmortization Amortization ofRockportPlantUnit1Phase-inCosts.......Amortization ofDeferredNuclearFuelDisposalCosts.......DeferredIncomeTaxesDeferredStateTaxes-RockportPlantUnit2SaleandLeaseback Transaction

.DeferredInvestment TaxCredits.Allowance forEquityFundsUsedDuringConstruction

......ChangesinCertainCurrentAssetsandLiabilities:

AccountsReceivable (net).Fuel,Materials andSuppliesAccruedUtilityRevenues.AccountsPayableTaxesAccruedInterestAccrued.Other(net)NetCashFlowsFromOperating Activities

..........

INYEsTING ACTIvITIEs:

Construction Expenditures

.Allowance forEquityFundsUsedDuringConstruction

........CashUsedforConstruction Expenditures ProceedsfromSaleandLeaseback

-RockportPlantUnit2...ProceedsfromSalesofOtherPropertyNetCashFlowsFrom(UsedFor)Investing Activities

.FINANCING ACTIVITIES:

CapitalContributions From(Returned to)ParentIssuanceofLong-term Debt.ChangeinShort-term Debt(net).Retirement ofCumulative Preferred StocksRetirement ofLong-term DebtDividends PaidonCommonStockDividends PaidonCumulative Preferred Stock.NetCashFlowsUsedForFinancing Activities

.......NetIncrease(Decrease) inCashandCashEquivalents

..........

CashandCashEquivalents January1CashandCashEquivalents December31SeeNotestoConsolidated Financial Statements.

$116,315$137,145$151,805138,?4?16,961.4,20?(8,804)133,55116,9613,204(196,977) 128,19118,0895,4083,161(39,943)27,445(27,972)1,93?(8,248)(1,1?4)23,672(27,023)25,53016,48524,06411,019(41,913)(759)26,704364,433(276,54527,023(249,522) 1,117~248.405)

(79,755)4,682(8,373)18,367196,502(252)26,51025,688(20,?3?)(3,200)(9,239)(200,?8?)

(14,201)~6,919211,095(196,824) 27,97230,546(104,494) 1,1?4(168,852) 850,0001,381(103,320) 6,039682,5299?28110,00050,00035,850(7,000)(74,050)(116,816)

~19,048(63,000)(35,850)(7,000)(62,512)(119,952)

~18,248)40,00033,945(19,048)(451,?70)

(113,064)

~16,064)121,064306,562~526,031(592,?66) 595,487(5,036)13,461587,0628,425627216595.48768,42513 INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES Consolidated Statements ofRetainedEarningsYearEndedDecember31,RetainedEarningsJanuary1NetIncome...............

'1990$157,825116,315274,1401989(inthousands)

$161,443137,145298,5881988$145,302151,805297,107CashDividends Declared:

CommonStock.Cumulative Preferred Stock:4)jo%Series4.56%Series4.12%Series7.08%Series7.76%Series8.68%Series12%Series$2.15Series$2.25Series$2.75SeriesTotalDividends

.NetPremiumonReacquisition ofPreferred Stock.TotalDeductions RetainedEarningsDecember31SeeNotestoConsolidated Finanelat Statements.

113,0644952731652,1242,716,2)604483,4403,600122128,651128,651$145,489119,9524952731652,1242,7162,6048383,4403,6001,793138,0002,763140.763$157,825116,8164952731652,1242,7162,6041,1983,4403,6002,233135,664135,664$161,44314 NotestoConsolidated Financial Statements 1.Significant Accounting Policies:

Principles ofConsolidation Theconsolidated financial statements includetheaccountsofIndianaMichiganPowerCompany(theCompany)anditswhollyownedsubsidiaries.

Significant intercompany trans-actionshavebeeneliminated inconsolidation.

SystemofAccountsTheaccounting andratesoftheCompanyaresubjectincertainrespectstotherequirements ofstateregulatory com-missionsandtheFederalEnergyRegulatory Commission (FERC).Thefinancial statements oftheCompanyhavebeenpreparedonthebasisoftheuniformsystemofaccountsprescribed bytheFERC.ElectricUtilityPlant;Depreciation andAmortization; OtherPropertyandInvestments Electricutilityplant,whichisstatedatoriginalcost,gen-erallyissubjecttofirstmortgageliens.TheCompanycapitalizes, asaconstruction cost,anallow-anceforfundsusedduringconstruction (AFUDC),anon-cashincomeitem,whichisdefinedintheapplicable regulatory systemsofaccountsasthenetcostofborrowedfundsusedforconstruction purposesandareasonable returnonequityfundswhensoused.Thecomposite ratesusedbytheCom-panyaftercompounding onasemi-annual basiswere10.5%in1990and1989and10.25%in1988.TheCompanyprovidesfordepreciation onastraight-line basisovertheestimated usefullivesofthepropertyanddeter-minesdepreciation provisions largelythroughtheuseofcom-positeratesbyfunctional classofproperty.

Operating expensesarechargedwiththecostsoflabor,materials, supervision andothercostsincurredinoperating andmaintaining theCompany's properties.

Propertyaccountsarechargedwiththecostofpropertyadditions, majorreplace-mentsofpropertyandbetterments.

Theaccumulated provi-sionsfordepreciation arechargedwithretirements andassociated removalcostsnetofsalvage.Otherpropertyandinvestments aregenerally statedatcost.CashandCashEquivalents TheCompanyanditssubsidiaries considercash,unre-strictedspecialdeposits, workingfunds,andtemporary cashinvestments asdefinedbytheFERCtobecashandcashequivalents.

Temporary cashinvestments includehighlyliquidinvestments purchased withamaturityofthreemonthsorless.IncomeTaxesDeferredincometaxesareprovidedexceptwherenotper-mittedbythestatecommissions andtheFERC.TheCompanydeferredandisamortizing overthelifeofitsplanttheeffectoftaxreductions resulting frominvestment taxcreditsutilizedinconnection withcurrentFederalincometaxaccrualscon-sistentwithrate-making policies.

Operating RevenuesTheCompanyaccruesrevenuesforelectricserviceren-deredbutunbilledatmonth-end.

FuelCostsTheCompanybillsitsfuelcostsunderfuelrecoverymech-anismsdesignedtoreflect,inrates,changesincostsoffuelwiththeapprovalofvariousregulatory commissions.

Accord-ingly,theCompanyaccruesrevenuesrelatedtounrecovered fuel.OtherThecommonstockoftheCompanyiswhollyownedbyAmericanElectricPowerCompany,Inc.(AEP).Inaccordance withregulatory approvals, theCompanyrecognizesgainorlossonreacquired debtinincomeintheyeaofreacquisition unlesssuchdebtisrefinanced, inwhichcase,thegainorlossisdeferredandamortized overthetermofthereplacement debt.Debtdiscountorpremiumanddebtissuanceexpensesarebeingamortized overthelivesoftherelateddebtissues,andtheamortization thereofisincludedinotherinterestchargesinaccordance withrate-making treatment.

TheCompanyiscommitted underunitpoweragreements withaffiliates topurchasefromAEPGenerating Company(AEGCo),anaffiliated company,70%ofAEGCo'sRockportPlantcapacityunlessitissoldtounaffiliated utilities.

Certainprior-period amountshavebeenreclassified tocon-formtocurrent-period presentation.

INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES 2.BateMatters:RockportPlantUnitfPhase-inPlanTheCompanyhasphase-inplansinitsIndianaandFERCjurisdictions forRockportPlantUnit1(Rockport1).

Rockport1isa1,300megawatt(mw)generating unitthatbegancom-mercialoperation inDecember1984andisjointlyandequallyownedbytheCompanyandAEGCo.AtDecember31,1990and1989,theCompanyhadunamortized deferredreturnsof$89,061,000 and$102,206,000, respectively, andun-amortized deferreddepreciation of$25,857,000 and$29,673,000, respectively.

Thesedeferrals arebeingamor-tizedonastraight-line basisthrough1997andrecovered inrates.RockportPlantUnit2SafeandLeaseback andRateRecoveryTheCompanyandAEGCoconstructed asecond1,300mwunitattheRockportPlant(Rockport 2)atacostof$1.3billion.Theunitbegancommercial operation onDecember1,1989.OnDecember7,1989,theCompanyandAEGCosoldtheirrespective 50%interests intheunitfor$1.7billion,theesti-matedfairmarketvalue,andleasedback50%interests inRockport2foraninitialtermof33years.Thegainfromthesalewasdeferredandisbeingamortized, including relatedtaxes,overtheinitialleaseterm.Theleaseshavebeenaccounted forasoperating leases.TheCompanywillreceive1,105 mwofRockport2capacity, comprised of650mw,its50%share,and455rnwitisobligated topurchasefromAEGCounderthetermsofalong-termunitpoweragreement.

InJuly1989, theCompanyfiledarequestwiththeIndianaUtilityRegulatory Commission (IURC)foranincreaseinratesofapproximately

$60,000,000 annuallytorecover,amongotherthings,theCompany's Indi-anajurisdictional shareofthecostof385mwofRockport2capacitypurchased fromAEGCo.Theraterequestdidnotseekrecoveryofthecostoftheremaining 720mwofRockport2energysinceitwasbasedontheassumption thatthe720mwwouldbesoldtounaffiliated utilities.

InAugust1990theIURCgrantedtheCompanyanincreaseinratesof$14.3million.InOctober1990theIURCamendeditsorderandallowedanadditional

$5millionincreaseinrates.TheCom-panyhasbeengrantedarehearing ofcertainotherportionsoftheIURC'sAugustorder.TheCompanyhasenteredintoalong-term unitpoweragreement withCarolinaPower&Light(CPL),anunaffiliated utility,tosupply250mwofRockport2capacityfora20-yearperiodthatbeganinJanuary1990.TheFERCallowedtheagreement tobecomeeffective subjecttorefundpendingahearingandfinalorder.During1990,theFERCresolvedthependingissuesandtheCompanymaderefundsasordered.UnlesstheCompanysellstheremaining 470mwofRockport2capacityonalong-term basisitiscontributed totheAEPSystemPowerPool(PowerPool).TheCompanywillsharewiththeothermembersofthePowerPoolinthecostoftheremaining uncommitted Rockport2capacity.

Futureresultsofoperations willbeimpactedunlessthePowerPoolcanselltheadditional capacity.

CoalandTransportation ChargesInJune1990aninitialdecisionwasissuedbyaFERCadministrative lawjudgeregarding acomplaint filedbyawholesale customerconcerning thereasonableness oftheCompany's coalcostsandthecoaltransportation chargesofaffiliates.

TheinitialdecisionwouldrequiretheCompanytorefundtowholesale customers

$25millionrelatedtocoalcostsandayettobedetermined amountforaffiliated trans-portation charges.TheCompanyhasfiledexceptions totheinitialdecisionandthematterissubjecttofinaldecisionofthefullcommission.

NOTESTOCONSOLIDATED FINANCIAL STATEMENTS (Continued) 3.FederalIncomeTaxes:ThedetailsofFederalincometaxesasreportedareasfollows:1990YearEndedDecember31,1989(inthousands) 1988S215,793(196,503) 27,46546,755YearEndedDecember31~Charged(Credited) toOperating Expenses(net):Current..............................................

$52.894$11,865Deferred........,,.......................

(5,043)5,563DeferredInvestment TaxCredits(5.759)24.164Total~~~~~~~~~~...............

42,09241.592Charged(Credited) toNonoperating Income(net):Current7,2881,2341~186Deferred............................................

(3,761)(474)(2,402)DeferredInvestment TaxCredits..................

(2.489)(20)(492)Total1,038740(1,708)TotalFederalIncomeTaxesasReported$43,130$47,495$39,884Thefollowing isareconciliation ofthedifference betweentheamountofFederalincometaxescomputedbymultiplying bookincomebeforeFederalincometaxesbythestatutory taxrate,andtheamountofFederalincometaxesreportedintheConsolidated Statements ofIncome.NetIncomeFederalIncomeTaxesPretaxBookIncomeFederalIncomeTaxesonPre-TaxBookIncomeatStatutory Rate(34%).Increase(Decrease) inFederalIncomeTaxesResulting FromtheFollowing ItemsonWhichDeferredTaxesAreNotProvided:

Allowance forEquityFundsUsedDuringConstruction NetofAmortization ofPriorYearDeferredTaxesforItemsCapitalized ontheBooksbutDeductedforTaxPurposes..MineDevelopment andMineralRightsAmortization TaxExemptincome-NuclearDecommissioning TrustFundsOtherAmortization ofDeferredInvestment TaxCredits.TotalFederalIncomeTaxesasReportedEffective FederalIncomeTaxRate1990$116,31543,130$159,445$54,211(2,476)4,369(480)(1,684)(10,810)S43,130271%1989(inthousands)

$137,14547,495$184,640$62,778(12,664)3,048(383)1~111(6,395)SS47,49525.7%1988$151,805S65,174(12,079)2,293(4,066)(4,481)(6,957)S39,88420.8%

INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES Thefollowing aretheprincipal components ofFederalincometaxesasreported:

1990YearEndedDecember31.1989(inthousands) 1988Current:FederalIncomeTaxes862,7446250,867S43,680Investment TaxCredits(2,562)(33,840)(30,629)(b)TotalCurrentFederalIncomeTaxes60,182217,027(a)13,051Deferred:

Depreciation 1,0412,2544,737Allowance forBorrowedFundsUsedDuringConstruction andMiscellaneous ItemsCapitalized

.......(2,953)7,1095,186Unrecovered andLevelized Fuel.4,214(5,453)(8,278)NuclearDecommissioning Costs(756)(514)16,432(c)UnbilledRevenue(3,349)(3,713)(4,202)DeferredReturn-RockportPlantUnit1.(2,864)(2,864)(3,538)SaleofRockportPlantUnit2(56,863)DeferredNetGain-SaleofRockportPlantUnit23,457(128,194)

Other(7,594)(8,739)(7,176)TotalDeferredFederalIncomeTaxes(8,804)(196,977) 3,161TotalDeferredInvestment TaxCredits(8,248)27,445(a)23,672(b)TotalFederalIncomeTaxesasReported$43.130S47,495S39,884(a)Thesignificant increaseincurrentFederalincometaxesresultedfromthegainonthesaleofRockport2.TheplacingofRockport2inserviceinDecember1989enabledtheCompanytoutilizesignificant investment taxcreditsgenerated bythesaleandleaseback toreduceitstaxespayabie.Thetaxeffectofboththegainandthecreditsutilizedweredeferred.

(b)BasedonInternalRevenueServiceregulations issuedin1988,theCompanyelectedtoclaiminvestment taxcreditsonqualified progressexpenditures onthe1987taxreturnandamendedtaxreturnsfor1975through1986.'Thecurrentanddeferredtaxeffectsrecordedduring1988represent thecumulative effectofthiselectionaswellas1988currentyearaccruals.

(c)BasedonarulingtheCompanyreceivedfromtheInternalRevenueSeNicein1988,theCompanyelectedtodeductnucleardecommissioning costsonthe1987taxreturnandonamendedtaxreturnsfortheyears1984through1986.Thecurrent.and deferredtaxeffectsrecordedduring1988represent thecumulative effectofthiselectionaswellas1988currentyearaccruals.

TheCompanyanditssubsidiaries joininthefilingofaconsolidated Federalincometaxreturnwiththeiraffiliated companies intheAEPSystem.Theallocation oftheAEPSystem'scurrentconsolidated FederalincometaxtotheSys-temcompanies isinaccordance withSecurities andExchangeCommission (SEC)rulesunderthePublicUtilityHoldingCom-panyActof1935(1935Act).Theserulespermittheallocation ofthebenefitofcurrenttaxlossesandinvestment taxcreditsutilizedtotheSystemcompanies givingrisetothemindeter-miningtaxescurrently payable.ThetaxlossoftheSystemparentcompany,AEP,isallocated toitssubsidiaries withtaxableincome.Withtheexception ofthelossoftheparentcompany,themethodofallocation approximates aseparatereturnresultforeachcompanyintheconsolidated group.AtDecember31,1990,thecumulative netamountofincometaxtimingdifferences onwhichdeferredtaxeshavenotbeenprovidedtotaled$448,000,000.

Theconsolidated Federalincometaxreturnsfortheyears1983through1987arebeingauditedbytheInternalRevenueService.Intheopinionofmanagement, thefinalsettlement ofopenyearsshouldnothaveamaterialeffectontheearningsoftheCompany.In'December 1987,theFinancial Accounting Standards Board(FASB)issuedSFAS96"Accounting forIncomeTaxes"whichrequiresthatcompanies adopttheliability methodofaccounting forincometaxes.Presently SFAS96mustbeadoptedbytheCompanybyJanuary1992onarestatedbasisorasacumulative effectofanaccounting changeintheyearofadoption.

However,theFASBhasindicated thattheyexpecttoissueanexposuredraftduringthefirsthalfof1991whichwillamendSFAS96andmayextenditsrequiredeffective dateuntilJanuary1993.Whenthenewstandardisadopted,totalassetsandliabilities willincreasesignificantly toreflectpre-viouslyunrecorded deferredtaxassetsandliabilities ontem-porafydifferences andrelatedoffsetting regulatory assetsandliabilities.

Inaddition, existingdeferredtaxeswillbeadjustedtothelevelrequiredatthecurrently existingstatutory taxratewhichwillbeoffsetbyaregulatory assetorliability fordeferredtaxamountsassociated withutilityoperations.

Itisnotpresently anticipated thatthefinalstandardwillsignifi-cantlyimpactresultsofoperations orfinancial condition'.

Whetherthenewstandardwillbeimplemented onarestatedorprospective basishasnotyetbeendetermined.

NOTESTOCONSOLIDATED FINANCIAL STATEMENTS (Continued)

Purchased andInterchange Power(net):Purchased Power:AEPGenerating Company(a).$78,990$13,023$3,313OhioValleyElectricCorporation (a)......52913,580Unaffiliated Companies

...28,1967,478NetInterchange Power:AEPPowerPoolMemberUtilities:

CapacityCharge(Credit)..(98,664)4,558EnergyCharge(Credit)..(77,913)(17,858)Unaffiliated Companies

...333(1,456)Total.............

$(68.529)$25.376(a)Affiliated utilities thatarenotmembersofthePowerPool.TheCompanyisamemberofthePowerPoolwhichallowstheCompanytosharethebenefitsandcostsassociated withtheSystem'sgenerating plants.UnderthetermsoftheSys-temInterchange Agreement, capacitychargesandcreditsaredesignedtoallocatethecostoftheSystem'scapacityamongthePowerPoolmembersbasedontheirrelativepeakdemandsandgenerating reserves.

Netenergychargesandcreditsareintendedtocompensate PowerPoolmembersfortheiroutofpocketcostwhentheydelivermoreenergytothePowerPoolthantheyreceive.InadditiontheCompanysharesinshort-term wholesale salestounaffiliated utilities madebythePowerPool.TheCompany's sharewascreditedtooper-atingrevenuesintheamountof$126,005,000,

$126,065,000 and$74,181,000 in1990,1989and1988,respectively.

TheCompanybecameanetsupplierofcapacitytothePowerPoolwithcommercial operation ofRockport2inDecember1989.

Accordingly theCompanyreceivedcapac-ityandenergycreditsresulting inareduction oftotalpur-chasedandinterchange powerexpensein1989andafurtherreduction toanetcreditin1990.5,62321,48614,3329,858(1,058)$47,5034.Related-party Transactions:

Operating revenuesshownintheConsolidated Statements ofIncomeincludesalesofenergytoMichiganPowerCom-pany,anaffiliated utilitythatisnotamemberofthePowerPool,ofapproximately

$31,000,000,

$32,000,000 and$34,000,000 fortheyearsendedDecember31,1990,1989and1988,respectively.

TheCompanypurchases powerandengagesininterchange powertransactions toexchangeenergywithaffiliated andunaffiliated utilities asfollows:YearEndedDecember31~199019891988(inthousands)

TheCompanyparticipates withotherAEPSystemcom-paniesinatransmission equalization agreement.

Thisagree-mentcombinescertainAEPSystemcompanies'nvestments intransmission facilities andsharesthecostsofownership inproportion totheSystemcompanies'espective peakdemands.Pursuanttothetermsoftheagreement, theCom-panyrecordedinotheroperation expensescreditsof$47,586,000,

$37,346,000 and$36,996,000 fortransmis-sionservicesin1990,1989and1988,respectively.

TheCompanyrecordedrevenuesinnonoperating incomefromproviding bargingservicesasfollows:YearEndedDecember31~199019891988(inthousands)

$17,094$21,0922.8825.173$19.976$26,265Affiliated Companies Unaffiliated Companies TotalAmericanElectricPowerServiceCorporation providescer-tainprofessional servicestotheCompanyanditsaffiliated companies intheAEPSystem.Thecostsoftheservicesaredetermined bytheservicecorporation onadirect-charge basistotheextentpracticable andonreasonable basesofproration forindirectcosts.Thechargesforservicesaremadeatcostandincludenocompensation fortheuseofequitycapital,allofwhichisfurnished totheservicecorporation byAEP.TheCompanyexpensesorcapitalizes billingsfromtheservicecorporation depending onthenatureoftheprofessional serv-icerendered.

Theservicecorporation issubjecttothereg-ulationoftheSECunderthe1935Act.S.CommonShareowner's Equity:InDecember1989theCompanyreturned$63,000,000 ofcashcapitalcontributions toitsparentfrompaid-incapital.TheCompanyreceived$10,000,000 ofcapitalcontributions in1988.In1989,theCompanyrecordedchargesof$1,154,000 topaid-incapitaland$2,763,000 toretainedearningsrepresenting thewrite-off ofpremiumspaidincon-nectionwiththereacquisition ofits$3.63SeriesCumulative Preferred Stock.Therewerenoothertransactions affecting thecommonstockorpaid-incapitalaccountsin1990,1989or1988.Covenants inmortgageindentures, debenture andbankloanagreements, charterprovisions andordersofregulatory authorities placevariousrestrictions ontheuseofretainedearningsoftheCompanytopaydividends (otherthanstockdividends) onitscommonstocksandforotherpurposes.

AtDecember31,1990,approximately

$45,900,000 ofretainedearningswererestricted.

Inaddition, regulatory approvalisrequiredfortheCompanytopaydividends outofpaid-incapital.

INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES 6.Cumulative Preferred Stock:AtDecember31,1990,authorized sharesofcumulative preferred stockwereasfollows:ParVaiueSharesAuthorized

$1002,250,000 2511,200,000 Thecumulative preferred stockiscallableattheoptionoftheCompanyatthepriceindicated plusaccrueddividends.

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

A.Cumulative Preferred StockNotSubjectToMandatory Redemption:

Series4'/s%456%4.12%708%7.76%8.68%$2.15$2.25CallPriceDecember31~1990$106.125102102.728102.91103.44103.1026.0826.13Parvaiue$100100100'1001001002525SharesOutstanding December31,1990120,00060,00040,000300,000350,000300,0001,600,000 1,600,000 AmountDecember31~19901989(inthousands)

S12,000$12,0006,0006,0004,0004,00030,00030,00035,00035,00030,00030,00040,00040,00040,00040,000$197,000$197,000ParVaiue12%$2.75$1002547,325531,90030,000160,00030,000160,0001.Cumulative Preferred StockSubjecttoMandatory Redemption:

NumberofSharesRedeemedYearEndedDecember31~199019891988SharesOutstanding December31~1990AmountDecember31,19901989(inthousands)

$4,73313,297$18,03020 NOTESTOCONSOLIDATED FINANCIAL STATEMENTS (Continued)

FirstMortgageBonds.......SinkingFundDebentures NotesPayabletoBanksInstallment PurchaseContracts

.OtherLongtermDebt(a)....LessPortionOueWithinOneYearTotal19901989(inthousands)

S599,179$1,007,744 6,1886,492-80,00080,000308,175307,953130,291120,5471,123,833 1,522,736 51,500501,170$1,072,333

$1,021,566 (a)NuclearFuelDisposalCostsincluding interestaccrued.SeeNote10.Firstmortgagebondsoutstanding wereasfollows:December31~19901989(inthousands)

%RateOue4%1993-August1.7r/e1997-February19'/e1997-July171998-May1Br/e2000-April1..9%2003-June1(a)8%2003-December19%2008-March1.133/i2013-August1.9%2015-October19%2016-July18%2017-February110~/s2017-May1Unamortized Discount(net)..S42,90250,00075,00035,00050,000173,M040,00034,034100,000(1,257)599,1791,007,744 11,500411~170$587.679S596,574(a)The9'/a%seriesdue2003requiressinkingfundpaymentsof$11,500,000 onJune1,1991and$13,500,000 annuallyonJune1,1992through2002withthenoncumulative optiontoredeemanadditional amountineachofthespecified yearsfromaminimumof$100,000toamaximumequaltothescheduled requirement foreachyear,butwithamaximumoptionalredemption, astoallyearsintheaggregate, of$75,000,000.

Theindentures relatingtothefirstmortgagebondscontainimprovement, maintenance andreplacement provisions requiring thedepositofcashorbondswiththetrustee,orinlieuthereof,certification ofunfundedpropertyadditions.

Thesinkingfunddebentures aredueMay1,1998ataninterestrateof7t/4%.PriortoDecember31,1990sufficient principal amountsofdebentures hadbeenreacquired inantic-ipationofallfuturesinkingfundrequirements.

TheCompanymaycalladditional debentures ofupto$300,000annually.

$42,90250,00075,00035,00050,000185,00040,000100,00058,704100,000100,000100,00075,000(3.862)7.Long-term OebtandUncsofCreditLong-term debtbymajorcategorywasoutstanding asfollows:December31,Unsecured promissory notespayabletobankshavebeenenteredintobytheCompanyasfollows:December31~9.12%due1990...9.18%due1990...9.28%due1991...9.28%due1991...9.07%due1995...Total19901989(inthousands) s-$20,00020,00020,00020,00020,00020,00040,000$80,000$80,000Installment purchasecontracts havebeenenteredintobytheCompanyinconnection withtheissuanceofpollution controlrevenuebondsbygovernmental authorities asfollows:December31~19901989(inthousands)

%RateOueCityofLawrenceburg, Indiana:BVi2006-July172006-May16%2006-May1CityofRockporl, Indiana:9%2005-June1...9'/42010-June1...9~/42014-August1..Pli(a)2014-August1..(b)2014-August1..CityofSullivan, Indiana:7%2004-May16%2006-May17%2009-May1Unamortized DiscountTotal$25,00040,00012,000$25,00040,00012,0006,5006,50033,50050,00050,00050,0007,0007,00025,00025,00013,000~13,000(3,825)(4,047)$308,175$307.953(a)Theadjustable interestratechangedfrom7%%onAugust1~1990andwillchangeeveryfiveyearsthereafter.

(b)Thevariableinterestrateisdetermined weekly.Theaverageweightedinterestwas6.5%for1990and7.0%for1989.Underthetermsofcertaininstallment purchasecontracts, theCompanyisrequiredtopaypurchasepriceinstallments inamountssufficient toenablethecitiestopayinterestonandtheprincipal (atstatedmaturities anduponmandatory redemption) ofrelatedpollution controlrevenuebondsissuedtofinancetheCompany's shareofconstruction ofpollution controlfacilities atcertaingenerating plantsoftheCompany.Oncertainseriestheprincipal ispayableatstatedmaturities oronthedemandofthebondholders atperiodicinterestadjustment dates.Certainseriesaresupported bybanklettersofcreditwhichexpirein1995.21 INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES Long-term debt,excluding premiumordiscount, outstand-ingatDecember31,1990isdueasfollows:Principal Amount(inthousands) 1991$51,500199213,500199356,402199413,500199553,500LaterYears940,513Total$1,128,915 Theamountofshort-term debttheCompanymayborrowislimitedbytheprovisions ofthe1935Actto$200,000,000 andfurtherlimitedbyprovision ofthecharterto$90,000,000.

TheCompanysharesbanklinesofcreditwithotherAEPSystemcompanies andatDecember31,1990and1989hadunusedsharedlinesof$263,000,000 and$233,000,000, respectively.

Underthetermsofthelinesofcredit,notescanbeissuedwithamaturityofupto270days.Inaccordance withagreements withthebanks,commitment feesofupto'/4of1%ayeararerequiredtomaintainthelines,ofcredit.8.Leases:TheCompanyanditssubsidiaries leaseproperty, plantandquipmentforperiodsupto35years.Mostoftheleasesrequirethelesseetopayrelatedpropertytaxes,maintenance costsandothercostsofoperation.

TheCompanyanditssubsidiaries expectthatleasesgenerally willberenewedorreplacedbyotherleases.Themajorityoftheleaseshavepurchaseorrenewaloptions.In1990theCompanyreplaceditsnuclearfuelleaseswithafinancial institution byenteringintoanewnuclearfuelleas-ingagreement withaspecialpurposeentitywhichprovidesforleasingofupto$140millionofnuclearfuel.Thespecialpurposeentityownsthenuclearfuelandfinancesallofitsinvestment innuclearfuel.TheCompanyaccountsfornuclearfuelleasesascapitalleases.ElectricUtilityPlant:Production Distribution General:NuclearFuel(netofamortization)

....OtherTotalElectricUtilityPlant........

Accumulated Amortization NetElectricUtilityPlantOtherPropertyAccumulated Amortization NetOtherProperty.............

NetProperties underCapitalLeases.Obligations underCapitalLeases(a)$9,09014,60796,91438.013158,62425,675132,9492,0081,893115$133,064$133,064$8,83514,60388,32834,777146,54323,783122,76016,74616,529217$122,977$122,977(a)Including amountsduewithinoneyear.Properties andrelatedobligations underoperating leasesarenotincludedintheCompany's Consolidated BalanceSheets.Futureminimumleasepayments, byyearandintheaggre-gate,consisted ofthefollowing atDecember31,1990:CapitalOperating LeasesLeases(inthousands)

$7,535$94,7916,63191,5575,41591,2674,66990,8974,35190,48334,1672,180.708 19911992199319941995LaterYearsTotalFutureMinimumLeasePayments62,768$2,639,703 LessEstimated interestElement..Estimated PresentValueofFutureMinimumLeasePaymentsUnamortized NuclearFuelTotal26,61836,15096,914(a)

$133,064(a)Including portionduewithinoneyear.Rentalpaymentsfornuclearfuelviillbepaidinproportion toheatproducedandcarryingchargesonthelessor'sunrecovered costs.Nuclearfuelrentalsof$49,990,000,

$59,212,000 and$52,568,000 werechargedtofuelexpensein1990,1989and1988,respectively.

Includedintheaboveanalysisoffutureminimumleasepaymentsandofproperties undercapitalleasesandrelatedobligations arecertainleasesinwhichportionsoftherelatedrentalsarepaidfororreimbursed byaffiliated companies intheAEPSystembasedontheirusageoftheleasedproperty.

Properties undercapitalleasesandrelatedobligations recordedontheCompany's Consolidated BalanceSheetsareasfollows:December31~19901989(inthousands) 22 NOTESTOCONSOLIDATED FINANCIAL STATEMENTS (Continued)

Operating Leases...........

CapitalLeases:Amortiaation ofPrincipal.....

InterestTotalRentalPayments199019891988(inthousands)

$87,357$16,454$16,66146,83652,81549,01410,87713,73311,690$145.070$83,002$77,3659.BenefitPlans:TheCompanyanditssubsidiaries participate withothercompanies intheAEPSysteminatrusteed, noncontributory definedbenefitplantoprovidepensions, subjecttocertaineligibility requirements, forallemployees.

Planbenefitsaredetermined byaformulawhichconsiders eachparticipant's highestaverageearnings, yearsofaccredited serviceandsocialsecuritycoveredcompensation.

Pensioncostsareallo-catedtoeachSystemcompanybyfirstchargingeachSystemcompanywithitsservicecostandthenallocating theremain-ingpensioncostinproportion toitsshareoftheprojected benefitobligation.

TheCompanyanditssubsidiaries'unding policyistomakeannualcontributions totheplan'strustfundequaltothenetperiodicpensioncosttotheextentdeductible forFederalincometaxpurposes, butnotlessthanthemin-imumrequiredcontribution.

NetpensioncostsfortheyearsendedDecember31,1990,1989and1988were$2,726,000,

$1,271,000 and$397,000,respectively.

TheCompanyoffersanemployeesavingsplanunderwhicheligibleparticipants caninvestfrom1%to16%oftheirsalar-iesamongseveralinvestment alternatives, including AEPcommonstock.Anemployercontribution equaltoone-halfofthefirst6%oftheemployees'ontribution isinvestedinAEPcommonstock.TheCompany's annualcontributions were$2,822,000 in1990,$2,726,000 in1989and$2,312,000in1988.lnadditiontoproviding perisionbenefits, theCompanyanditssubsidiaries providecertainotherbenefitsforretiredemployees.

Substantially allemployees maybecomeeligibleforthesebenefitsiftheyhave10yearsofhealthcareplanparticipation atretirement.

Thecostofretireebenefitsisrec-ognizedasanexpensewhenpaid.In1990,1989and1988,thecost-ofretireehealthcarebenefitstotaled$2,580,000,

$2,121,000 and$2,048,000, respectively.

TheFASBhasissuedSFAS106"Employers'ccounting forPostretirement BenefitsOtherThanPensions" whichrequiresemployers, beginning in1993,toaccrueforthecosts23TheCompanyanditssubsidiaries cannotpredicttheextenttowhichaffiliated companies willutilizetheproperties undersuchleasesinthefuture.Rentalpaymentsforcapitalandoperating leasesarepri-marilychargedtooperating expensesinaccordance withrate-makingtreatment.

Thecomponents ofrentalpaymentsareasfollows:YearEndedOecember31~ofretireehealthcarebenefits.

SFAS106permitstherecog-nitionofthetransition obligation (theunfundedandunrec-ognizedaccumulated postretirement benefitobligation) intheinitialyearofimplementation oroverperiodsupto20years.TheCompanyexpectstoelectthe20yeartransition option.Inanticipation ofthisnewrequirement, theCompanymadea$4.1millioncontribution in1990,themaximumamountdeductible forFederalincometaxpurposes, toaVoluntary EmployeeBeneficiary Association (VEBA)trustfundforpost-retirement benefitsotherthanpensions.

AnothermeasuretakenbytheCompanywastoimplement aprogramofcor-porateownedlifeinsurance tohelpfundandreducethefuturecostofpostretirement benefitsotherthanpensions.

Theinsurance policieshavegenerated asubstantial cashsurren-dervaluewhichisrecorded, netofequallysubstantial policyloans,asotherpropertyandinvestments.

Infutureyearsthepoliciesareexpectedtogeneratesignificant cashflowswhichwillbecontributed totheVEBAtrustfund.TheannualaccrualsrequiredbySFAS106areexpectedtobesignificantly greaterthanthecurrently recognized pay-as-you-go expenses.

TheCompanyexpectstoseekrecoveryoftheincreased accrualsfromratepayers.

Shouldrecoveryoforacommitment torecovertheSFAS106accrualsbeginning in1993bedenied,theCompany's resultsofoperations andpossiblyitsfinancicondition wouldbeadversely impacted.

10.Commitments andContingencies:

Construction Theconstruction budgetoftheCompanyanditssubsidi-ariesfortheyears1991-1993 isestimated at$523,000,000, and,inconnection therewith, commitments havebeenmade.Litigation InFebruary1990theSupremeCourtofIndianaoverruled anappealscourtandreversedanIURCorderthathadassignedamajorindustrial customertotheCompany's serv-iceterritory.

InAugust1990theIURCissuedanordertrans-ferringtherighttoservetheindustrial customertoanunaffiliated localdistribution utility.Concurrent withthetrans-ferofservicetheCompanybeganproviding servicetothelocaldistribution utilityinanamountsufficient tomeettheenergyneedsoftheindustrial customer.

Asaresulttheannuallossofrevenueisexpectedtobe$500,000ratherthanthepotential

$7millionlosspreviously reported.

InOctober1990thelocaldistribution utilitysuedtheCom-panyunderaprovision ofIndianaIawthatallowsthelocaldistribution utilitytoseekdamagesequaltothegrossreve-nuesreceivedbyautilitythatrendersretailserviceinthedesignated serviceterritory ofanotherutility.TheCompanreceivedrevenuesofapproximately

$29millionfromservinthemajorindustrial customer.

Itisnotclearwhethersuchaclaimwouldbeupheldwhentheservicewasrenderedinaccordance withanIURCorderwhichtheCompanybelievedingoodfaithtobevalid.

INDIANAMICHIGANPOIVERCOMPANYANDSUBSIDIARIES TheCompanyisinvolvedinotherlegalproceedings andclaims.Whilemanagement isunabletopredicttheoutcomeoflitigation, itisnotexpectedthattheresolution ofthesematterswillhaveamaterialadverseeffectontheCompany's financial condition.

Environmental MattersTheCompanyanditssubsidiaries aresubjecttoregulation byFederal,stateandlocalauthorities withrespecttoair-andwater-quality controlandotherenvironmental matters,andaresubjecttozoningandotherregulation bylocalauthorities.

OnNovember15, 1990President BushsignedintolawtheCleanAirActAmendments of1990which,amongotherthings,requiressignificant reductions intheemissionofsul-furdioxideandnitrogenoxidefromvariousexistingSystemgenerating plants.Withrespecttoacidraincontrolthenewlawestablishes astricttimetable forcompliance settingadeadlineof1995forthefirstphaseofreductions and2000forthesecondphaseaswellasapermanent nationwide caponsulfurdioxideemissions after1999.TheAEPSystemisreviewing theprovisions ofthenewlawandevaluating com-pliancealternatives whichinclude:(a)installation ofnewemissions reduction equipment (scrubbers) onaffectedgen-eratingunitswhichwouldrequiresubstantial capitalexpend-ituresandresultinsignificant operating costsandreducedgenerating efficiency; (b)switching tolowersulfurcoalornaturalgas,resulting inlesssubstantial capitalexpenditures andadverseimpactsonaffiliated miningoperations andrelatedfacilities; (c)premature retirement ofcertaingener-atingunits;and/or(d)significant capitalexpenditures torepowerexistinggenerating unitswithpressurized fluidized bedcombustion (PFBC)technology presently beingtestedatanaffiliate's TiddPFBCdemonstration plant.Thecostofcom-plianceforcertainoftheCompany's generating unitsandtheCompany's shareofsuchcoststhroughthePowerPoolwillbesubstantial.

Unlessthesecostsarerecovered throughrates,theCompany's resultsofoperations willbeadversely affected.

Recentconcernsaboutglobalwarminghaveledtointer-nationalnegotiations andproposedlegislation tostabilize orreduce"greenhouse" gasessuchascarbondioxide.Pro-posedlegislation, passedbytheU.S.Senateinthelastses-sionofCongress, isexpectedtobeconsidered inthecurrentsessionofCongress.

SincetheSystem'scoal-fired generating plantsemitsignificant quantities ofcarbondioxide,thecostofanyrestrictions couldadversely affecttheCompany's resultsofoperations andfinancial positionifnotrecovered fromratepayers.

ong-termPowerSalesTheCompanyasamemberofthePowerPoolhaspartic-ipatedinalong-term contractforthesaleofupto560mwofpowertoanunaffiliated utilitythatexpiredDecember31,1990andwasnotrenewed.Thiscontractcontributed

$16milliontotheCompany's revenuesand$5milliontonetincomein1990.ThePowerPoolisattempting toreplacetheterminated saleswithnewtransactions withunaffiliated util-ities.Recently, anagreement wasreachedtosell100mwunderalong-term contractwithanunaffiliated utility.WhetherthePowerPoolwillbesuccessful innegotiating additional transactions totaketheplaceoftheexpiredcontractcannotpresently bedetermined.

NuclearInsurance TheCompanyissubjecttothePrice-Anderson Actwhichlimitsthepublicliability ofalicenseeofanuclearplantforasinglenuclearincidenttotheamountofprimaryliability insur-anceavailable fromprivatesourcesandanindustryretro-spectivedeferredpremiumassessment plan.Basedon115reactorscurrently beingsubjecttotheAct,thelimitofpublicliability is$7.8billion.TheCompanymaintains themaximumprivateinsurance available of$200,000,000 foritstwo-unitDonaldC.CookNuclearPlant(CookPlant).ThemaximumstandarddeferredpremiumthattheCompanymaybeassessed, intheeventofanuclearincidentatanylicensednuclearpowerplantintheUnitedStates,is$63,000,000 perreactor,butanassessment maynotexceed$10,000,000 inanyoneyear.Ifpublicliability claimsandauthorized legalcostsexceedtheamountofliability insurance anddeferredpremiums, alicenseemustpayasurcharge ofupto5percentofthestandarddeferredpremiumforsuchclaimsandcosts.Thus,ifdamagesinexcessofprivateinsurance resultfromanuclearincident, theCompanycouldbeassesseditsproratashareoftheliability uptoamaximumof$126,000,000 foritstworeactors, inannualinstallments of$20,000,000, plus$6,300,000 forexcessclaimsandcosts.Thereisnolimitonthenumberofincidents forwhichtheCompanycouldbeassessedthesesums.TheCompanyalsohaspropertydamage,decontamination anddecommissioning insurance forlossresulting fromdam-agetotheCookPlantfacilities intheamountof$2.185billion.Nuclearinsurance poolsprovide$1.06billionofcoverageandNuclearElectricInsurance Limited(NEIL)providestheremainder.

IfNEIL'slossesexceeditsavailable resources, theCompanywouldbesubjecttoaretrospective premiumassessment ofupto$7.6million.NuclearRegulatory Com-mission(NRC)regulations requirethat,intheeventofanaccident, whenevertheestimated costsofreactorstabilization andsitedecontamination exceed$100million,theinsurance proceedsmustbeused,first,toreturnthereactorto,andmaintainitin,asafeandstablecondition and,second,todecontaminate thereactorandreactorstationsiteinaccord-ancewithaplanapprovedbytheNRC.Theinsurersthenwouldindemnify theCompanyforpropertydamageupto$1.985billionlessanyamountsusedforstabilization anddecontamination.

Theremaining

$200million,asprovided24 NOTESTOCONSOLIDATED FINANCIAL STATEMENTS (Concluded) byNEIL,(reducedbyanystabilization anddecontamination expenditures over$1.985billion)wouldcoverdecommis-sioningcostsinexcessoffundsalreadycollected fordecom-missioning, asdiscussed below.NEIL'sextra-expense programprovidesinsurance tocoverextracostsofreplacement powerresulting fromaprolonged accidental outageofanuclearunit.TheCompany's policyinsuresagainstsuchincreased costsuptoapproximately

$1.8millionperweek(starting 21weeksaftertheoutage)foroneyear,$1.2millionperweekforthesecondyearand$600,000perweekforthethirdyear,or80%ofthoseamountsperunitifbothunitsaredownforthesamereason.IfNEIL'slossesexceeditsavailable resources, theCompanywouldbesubjecttoaretrospective premiumassessment ofupto$4.6million.Somepotential lossesorliabilities maynotbeinsurable ortheamountofinsurance carriedmaynotbesufficient tomeetpotential lossesandliabilities, including liabilities relatingtodamagetotheCookPlantandcostsofreplacement powerintheeventofanuclearincidentattheCookPlant.Futurelossesorliabilities whicharenotcompletely insured,unlessrecovered throughrates,couldhaveamaterialadverseeffectonthefinancial condition oftheCompany.DisposalofSpentNuclearFuelandNuclearDecommissioning TheNuclearWastePolicyActof1982asamendedestab-lishesFederalresponsibility forthepermanent disposalofspentnuclearfuel.Disposalcostsarepaidbyfeesassessedagainstownersofnuclearplantsanddeposited intotheNuclearWasteFundcreatedbytheAct.In1983theCompanyenteredintoacontractwiththeU.S.Department ofEnergy(DOE)forthedisposalofspentnuclearfuel.Undertermsofthecontract, forthedisposalofnuclearfuelconsumedafterApril6,1983bytheCookPlant,theCompanyispayingtothefundafeeofonemillperkilowatthour, whichtheCompanyiscurrently recovering fromitscustomers.

ForthedisposalofnuclearfuelconsumedpriortoApril7,1983,theCompanymustpayoveraperiodof10yearstotheU.S.Treasuryanestimated feeof$71,964,000, exclusive ofinterest.

TheCom-panyhasdeferredthisamountplusaccruedinterestonitsbalancesheet,hasreceivedregulatory approvalfortherecov-eryofthisamountandisamortizing theamountdeferredasitisbeingrecovered.

Becauseofthecurrentuncertainties ofDOE'sprogramforpermanent disposalofspentnuclearfuel,theCompanyhasnotyetcommenced payingthisfee.Anindependent consulting firmemployedbytheCompany.hasestimated thatthecostofdecommissioning theCookPlantcouldrangefrom$330,000,000 to$369,000,000 in1989dollars.TheCompanyhasreceivedregulatory approvalfromallofitsjurisdictions fortherecoveryofsuchnucleardecommissioning costsassociated withtheCookPlantwhichStateGrossReceipts, Excise,Franchise andMiscellaneous StateandLocalStateIncomePayrollDeferredTaxes-Rockport2SaleandLeaseback 12,1565,7607,59029,28228,0577,08412,3614,9136,658Transaction

............

1,937(39.943)Total..............

$54,389$56,377$56.271Thefollowing aretheamountsofcashpaidfor:YearEndedDecember31~199019891988(inthousands)

Interest(netofcapitalized amounts)IncomeTaxes........$101,905$107,124$106,283247,17264,84367,019Theamountsofnon-cashinvesting acquisitions undercap-italleaseswere$57,112,000 in1990,$9,035,000 in1989and$46,791,000 in1988.12.Unaudited Quarterly Financial Information:

Thefollowing consolidated quarterly financial information isunaudited but,intheopinionoftheCompany,includesalladjustments (consisting ofonlynormalrecurring accruals) necessary forafairpresentation oftheamountsshown:Quarterly PeriodsOperating Operating NetEndedRevenuesIncomeIncome(inthousands) 1990March31June30September 30..December31..1989March31June30September 30..December31..$253,075248,460264,782264,742$59,28148,73352,88640,533257,68851,568244,73846,239249,76156,242253,45156,347$37,69927,44232,07719,09736,35228,02840,35732,408amountedto$10,000,000 beforeincometaxesin1990.TheCompanyintendstoreevaluate periodically amountscollected forsuchcostsandtoseekregulatory approvaltorevisesuchamountsasnecessary.

Fundsrecovered throughtherate-making processfordis-posalofspentnuclearfuelconsumedpriortoApril7,1983andfornucleardecommissioning havebeendeposited inexternalfundsforthefuturepaymentofsuchcosts.11.Supplementary Information:

Thefollowing arethecomponents oftaxesotherthanFed-eralincometaxes:YearEndedDecember31,199019891988(inthousands)

RealandPersonalProperty....

$26,946$31,897$32,33925 INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES Independent Auditors'eport 155EastBroadStreetFacsimile:

(614)2294647Columbus, Ohio43215-3650Telephone:

(614)221-1000TotheShareowners andBoardofDirectors ofIndianaMichiganPowerCompany:Wehaveauditedtheaccompanying consolidated balancesheetsofIndianaMichiganPowerCompanyanditssubsidiaries asofDecember31,1990and1989,andtherelatedconsolidated statements ofincome,retainedearnings, andcashflowsforeachofthethreeyearsintheperiodendedDecember31,1990.Thesefinancial statements aretheresponsibility oftheCompany's management.

Ourresponsibility is,toexpressanopiniononthesefinancial 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 asofDecember31,1990and1989,andtheresultsoftheiroperations andtheircashflowsforeachofthethreeyearsintheperiodendedDecember31,1990inconformity withgenerally acceptedaccounting principles.

~~~oFebruary26,199126 Operating Statistics 19901989198819871986ELEGTRIcOPERATING REVENUEs(inthousands):

FromKilowatt-hour Sales:Retail:Residential:

WithoutElectricHeating...........

WithElectricHeating.............

TotalResidential Commercial Industrial Miscellaneous

.TotalRetailWholesale (salesforresale)............

TotalfromKilowatt-hour Sales....Provision forRevenueRefunds.........

TotalNetofProvision forRevenueRefunds............

OtherOperating RevenuesTotalElectricOperating Revenues.$179,955$182,78686,10893,291$189,845$186,41896,14590,261174,55090,881266)063195,184228,92711,273276,077196,404233,99011,475285,990194,982233,85511,645276,679191,352235,47011,533265,431184,276219,34411,171717,946274,916701,447314,3511,015,798 992,862726,472248,283974,755~1.800715,034293,3791,008,413 680,222400,7791,081,001 5411,008,413 8,8551,081,542 9,753972,95510,111992,86212,7761,015,798 15,261$1,031,059

$1,005,638

$983,066$1,017,268

$1,091,295 S0URGEsANDSALEs0FENERGY(inmillionsofkilowatt-hours):

Sources:NetGenerated:

FossilFuel.NuclearFuelHydroelectric TotalNetGenerated

......Purchased NetInterchange TotalSources.Less:Losses,CompanyUse,Etc..NetSourcesSales:Retail:Residential:

WithoutElectricHeating.WithElectricHeating...TotalResidential Commercial Industrial

.Miscellaneous

.TotalRetailWholesale (salesforresale)..TotalSales14,45111,11511625,6824,724~5,97324,4331,59022,8432,7741,4844,2583,3885,14022113,0079,83622,84310,63412,0949722,8252,229~1,942)23,1121,60621,5062,7921,5854,3773,3755,16822813,1488,35821,5068,7079,7917018,5681,70073721,0051,63019,3752,8251,5714,3963,2905,03622812,9506,42519,3756,66210,0606216,7842,5581,94721,2891,45619,8332,7191,4454,1643,1424,83422112,3617,47219,8338,18710,9867919,2524,94154224,7351,64523,0902,5361,4423,9783,0074,37121227 INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES OPERATING STATISTICS (Concluded)

AYERAGECosT0FFUELCoNsUME0(incents):PerMillionBtu:Coal.Nuclear.OverallPerKilowatt-hour Generated:

Coal.Nuclear.Overall1990145581051.42.641.081989164611061.62.671.111988182701201.81.771.261987190751171.87.841..251986185741181.82.831.25RESIDENTIAL SERVICE-AVERAGES:

AnnualKwhUseperCustomer:

TotalWithElectricHeating.AnnualElectricBill:TotalWithElectricHeating.PriceperKwh(incents):TotalWithElectricHeating.10,04716,979$627.84$985.166.255.8010,43418,447$658.08$1,085.566.315.8810,596,18,551$689.33$1,135.466.516.1210,14617,341$674.13$1,083.106.646.259,81317,716$654.88$1,116.866.676.30NUMBER0FELECTRIcCvsT0MERs:

Year-End:

Retail:Residential:

WithoutElectricHeating....WithElectricHeating......TotalResidential Commercial

..Industrial Miscellaneous TotalRetail.Wholesale (salesforresale).....TotalElectricCustomers

..338,17188,258426)42947,0204,4942,018479,96154480,015335,62587,016422,64146,1764,4852,026475,32850475,378332,48885,635418,12345,2494,4791,984469,835108469,943328,93784,442413,37944,2074,3451,946463,877105463,982325,62382,324407,94743,6893,8821,846457,364106457,47028 INDIANAMICHIGANPOWERCOMPANYDividends andPriceRangesofCumulative Preferred StockByQuarters(1990and1989)Cumulative Preferred Stock1st1990-Quarters2nd3rd4th1st1989-Quarters2nd3rd4th($100ParValue)4'/8%SeriesDividends PaidPerShareMarketPrice-$PerShare(MSE)-High-Low4.56%SeriesDividends PaidPerShareMarketPrice-$PerShare(OTC)Ask(high/low)

Bid(high/low) 4.12%SeriesDividends PaidPerShareMarketPrice-$PerShare(OTC)Ask(high/low)

Bid(high/low) 7.08%SeriesDividends PaidPerShareMarketPrice-$PerShare(NYSE)-High-Low7.76%SeriesDividends PaidPerShareMarketPrice-SPerShare(NYSE)-High-Low8.68%SeriesDividends PaidPerShareMarketPrice-$PerShare(NYSE)-High-Low12%Series(a)Dividends PaidPerShareMarketPrice-$PerShare(NYSE)-High-Low($25ParValue)$2.15SeriesDividends PaidPerShareMarketPrice-SPerShare(NYSE)-High-Low$2.25SeriesDividends PaidPerShareMarketPrice-SPerShare(NYSE)-High-Low$2.75Series(a)Dividends PaidPerShareMarketPrice-SPerShare(NYSE)-High-Low$1.14$1.14$1.14$1.14$1.14$1.14$1.14$1.14$1.03$1.03$1.03$1.03$1.03$1.03$1.03$1.0344/4442~/i/41'/i 42/40'li42/39'/i$1.77$1.77$1.77$1.77$1.77$1.77$1.77$1.7778737572777375727166'/i76687777~/e73%75$1.94$1.94$1.94$1.94$1.94$1.94$1.94$1.9483798176'/i77'/476'/i77'/87485'/48084'/e80'/8$2.17$2.17$2.17$2.17$2.17$2.17$2.17$2.1788'/i85'/i87'/488'/485'/885'/i84'/i81i/z88'/i81'/i92869289$1.00$3.00$3.00$3.00$3.00103'/i101106'/i102'/i106103108104$0.53?5$0.5375$0.5375$0.5375$0.5375$0.5375$0.5375$0.537523'le21'/822'/821%23'/i21'/i24'/s22'/i22%2123203/~24'/8222422'/i$0.5625$0.5625$0.5625$0.5625$0.5625$0.5625$0.5625$0.562524'/822'/s23'/s22'/i23'/i22'/s24'/823%23'/e21'/i24215/824'/e23'/i25'/e23'/8$0.229S0.6875$0.6875$0.6875$0.68752726~/i26'/i2627'/i25'/i27'/i262726'/i$1.03125$1.03125$1.03125$1.03125$1.03125$1.03125$1.03125$1.03125MSE-MidwestStockExchangeOTC-Over-the.

CounterNYSE-NewYorkStockExchangeNote-Theabovebidandaskedquotations represent pricesbetweendealersanddonotrepresent actualtransactions.

Marketquotations providedbyNationalQuotation Bureau,inc.Dashindicates quotation notavailable.

(a)RedeemedFebruary1990.29 TheCompany's AnnualReport(Form10-K)totheSecurities andExchangeCommission willbeavailable inApril1991toshareowners uponwrittenrequestandatnocost.Pleaseaddresssuchrequeststo:Mr.G.C.DeanAmericanElectricPowerServiceCorporation 1Riverside PlazaColumbus, Ohio43215ansferAgentandRegistrar ofCumulative Preferred StockFirstChicagoTrustCompanyofNewYork30WestBroadway, NewYork,N.Y.10007-2192 IndianaMichiganPowerServiceAreaandtheAmericanElectricPowerSystemLekeMlehlyenMICHIGANOHIOINDIANAWESTVIRGINIAKENTUCKYVIRGINIALEGENDIndianaMichiganPowerCo.AreaDOtherAEPoperating companies'reas 0MajorpowerpIantTENNESSEE ENCLOSURE 2TOAEP:NRC:0909G INDIANAMICHIGANPOWERCOMPANY'S PROJECTED CASHPLOW 1991InternalCashFlowProjection forDonald"C;-

~CookNuclear.Plant"$MillionsActual.1-990Projected 1991NetincomeaftertaxesLessdividends paidRetainedearnings116.3129.2~12:9)1231176Adjustments:

Depreciation andamortization DeferredFederalincometaxesandinvestment taxcreditsAFUDCTotaladjustments InternalcashflowAveragequarterly cashflow155.7(17.0)-'(.2')136.0123.1'-30;8158(6)(~3)14915539Averagecashbalancesandshort-terminvestments*

.-28.710TotalS9i549*Adjusted toeliminate unusually highlevelfromsaleofassets.8Ownership inalloperating nuclearunits:Unit1andUnit2-100%MaximumTotalContingent Liability

-$20;70-2raillion (2units)

J

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