ML17334A858

Annual Rept,1983. W/1984 Internal Cash Flow Projection & 841221 Ltr

ML17334A858
Person / Time
Site:	Cook
Issue date:	12/31/1983
From:	Alexich M INDIANA MICHIGAN POWER CO. (FORMERLY INDIANA & MICHIG
To:	Harold Denton Office of Nuclear Reactor Regulation
References
AEP:NRC:0909, AEP:NRC:909, NUDOCS 8501040266
Download: ML17334A858 (42)

Text

REGULATO INFORMATION DISTRIBUTION STEM (RIDS)ACCESSION NBR:8501040266 DOC~DATE: 83/12/31 NOTARIZED:

NO DOCKET FACIL:50-315 Donald C, Cook Nuclear Power Plant~Uni t 1~Indiana 8 05000315 50-316 Donald C, Cook Nuclear Power Plant~Unit 2~Indiana L 05000316 AUTH.NAME AUTHOR AFFILIATION ALEXICH,M,P, Indiana 8 Michigan E;lectric Co, RECIP~NAME RECIPIENT AFFILIATION DENTON,H.R,~4 Office of Nuclear Reactor Regulationr Director S UBJECT: "Annual Rept'983." N/1984 internal cash flow projection 8 841221 l tr.DISTRIBUTI N CODE: M004L COPIES RECEIVED!LTR

-g ENCL g SIZE: 0 TITLE: Annual Financial Reports NOTES: OL:10/25/74 OL:12/23/72 05000315 05000316 RECIPIENT ID CODE/NAME.

NRR ORB1 BC NIGGINGTONi D COPIES LTTR ENCL 1~0 1 0 RECIPIENT IO CODE/NAME NRR ORB1 LA 01 COPIES LTTR ENCL 1 1 INTERN: EG EXTERNAL: LPDR.NTIS 04 03 05 1 2, 2 1'SP NRC PDR" 02 1 1-1 1 TOTAL NUMBER OF COPIES REQUIRED: LTTR 9 ENCL" 7 il f M I 6 n I e h(1-~~II f q,,I W h f WWWI I-W M'l WW,(II'I,'(W~~Met WWW I'I'gh i"~I"~PP j<Me~M h ee ee P 1~e I II'QM I~<<i W ATTACHMENT l TO AEP:NRC:0909 I,Q INDIANA 8 MICHIGAN ELECTRIC COMPANY P.O.BOX 16631 COLUMBUS, OHIO 43216 December 21, 1984 AEP:NRC:0909 Donald C.Cook Nuclear Plant Unit Nos.1 and 2 Docket Nos.50-315 and 50-316 License Nos.DPR-58 and DPR-74 FINANCIAL INFORMATION FOR INDIANA&MICHIGAN ELECTRIC COMPANY Mr.Harold R.Denton, Director Office of Nuclear Reactor Regulation U.S.Nuclear Regulatory Commission klashington, D.C.20555

Dear Mr.Denton:

Attachment 1 contains three copies of the Indiana&Michigan Electric Company's (I&MECo)Annual Report for 1983.Attachment 2 contains three copies of I&MEGO's pro)ected oash flow for 1984.These reports are submitted pursuant to 10 CFR 50.71(b)and 10 CFR 140.21(e).

This document has been prepared following Corporate procedures which incorporate a reasonable set of controls to ensure its accuraoy and completeness prior to signature by the undersigned.

Very truly yours,~)yl Milton.Alexioh1II'ice President th Attachments cc: John E.Dolan M.G.Smith, Jr.-Bridgman G.Bruchmann R.C.Callen G.Charnoff NRC Resident Inspector<<Bridgman per r U 0 G ANNUAL REPORT 1983 AMERICAN ELECTRIC POWER SYSTEM S5010OOZSS S31aS1 PDR ADOCK 05000315 PDR y,b~"

Contents Background of the Company Directors and OIIicers of the Company Selected Financial Data Management's Discussion and Analysis of Results of Operations and Financial Condition Consolidated Statements of Income Consolidated Balance Sheets Consolidated Statements of Sources and Applications of Funds Consolidated Statements of Retained Earnings Notes to Consolidated Financial Statements Auditors'pinion Operating Statistics Price Range of Cumulative Preferred Stock 6-8 10-11 12 13 14-26 27 28-29 30 INDIANA&MICHIGAN ELECTRIC COMPANY One Summit Square, P.O.60, Fort LVayne, Indiana 46801 Background of the Company INDIANA&, MIcHIGAN ELEGTRlc CoMPANY (the Company), a subsidiary of American Electric Power Company, Inc.(AEP)is engaged in the generation, purchase, transmission and distribution of electric power.The Company was organized under the laws of Indiana on February 21, 1925, and is also authorized to transact business in Michigan and West Virginia.Its principal executive offices are in Fort Wayne, Indiana.The Company has two wholly owned subsidiaries; they are Blackhawk Coal Company, which owns coal mines and related mining assets, and Price River Coal Company, which mines coal from land owned by Blackhawk that is purchased largely by the Company.The Company serves approximately 446,000 customers in northern and eastern Indiana and a portion of southwestern Michigan.Among the principal industries served are stone, clay, glass and concrete products, primary metals, fabricated metal products, electrical and electronic machinery and transportation equipment.

In addition, the Company supplies wholesale electric power to other electric utilities, municipalities and electric cooperatives.

The Company's generating plants and important load centers are interconnected by a high-'oltage transmission network.This network in turn is interconnected either directly or indirectly with the following other AEP System companies to form a single integrated power system: Appa-lachian Power Company, Columbus and Southern Ohio Electric Company, Kentucky Power Company, Kingsport Power Company, Michigan Power Company, Ohio Power Company and Wheeling Electric Company.The Company is also interconnected with the following other utilities:

Central Illinois Public Service Company, The Cincinnati Gas 0 Electric Company, Commonwealth Edison Company, Consumers Power Company, Illinois Power Company, Indiana-Kentucky Elec-tric Corporation (a subsidiary of Ohio Valley Electric Corporation), Indianapolis Power A Light Company, Northern Indiana Public Service Company and Public Service Company of Indiana, Inc.

Directors FRANK N.BIEN W.A.BLAcK LAWRENCE R.BRUNKE (a)P.F.CARL, JR.(b)RICHARD E.DISBROW JOHN E.DOLAN WILLIAM N.D'ONOFRIO (C)M.R.HARRELL (a)G.E.LEMASTERS (b)GERALD P.MALONEY RICHARD C.MENGE J.F.STARK BEVERLY I.STEARS (d)W.S.WHITE, JR.Officers W.S.WHITE, JR.Chairman of the Board and Chief Executive Officer W.A.BLAcK President and Chief Operating Officer J.F.STARK Senior Vice President MILTGN P.ALExlcH, Adm.USN Ret.(e)Vice President FRANK N.BIEN Vice President RICHARD E.DISBROW Vice President JOHN E.DOLAN Vice President WILLIAM N.D'ONOFRIO (C)Vice President A.JOSEPH DOWD Vice President RICHARD F.HERING Vice President ROBERT S.HUNTER (0 Vice President GERALD P.MALONEY Vice President RICHARD C.MENGE Vice President BEVERLY I.STEARS (d)Vice President PETER J.DEMARIA Treasurer JOHN R.BURTON Secretary ALLEN H.STUHLMANN Assistant Secretary and Assistant Treasurer JOHN F.DILORENZO, JR.Assistant Secretary WILLIAM C.HARVEY (8)Assistant Secretary CARL J.MOOS Assistant Secretary WILLIAM E.OLSON (d)Assistant Secretary WILLIAM J.PROCHASKA (f)Assistant Secretary JOHN B.SHINNOCK (C)Assistant Secretary JOAN ST.JAMES Assistant Secretary LEONARD V.ASSANTE Assistant Treasurer BRUCE M.BARBER Assistant Treasurer GERALD R.KNORR Assistant Treasurer Tltc principal occupation of each of the above directors and ojficers of Indiana ck hfichignn Electric Compnny, with nine exceptioris, is as an employee of American Electric Power Service Corporation.

The exceptions nre IV.A.Blnck, P.F.Carl, Jr., IVilliam IV.D'Onofrio, G.E.Lehfasters, Richard C.hfengc, Cnrl J.hfoos, J.F.Stark, Beverly I.Stcars, and Allen If.Stuhhnann whose principal occupations nrc as ofJiccrs or employees of Indiana&hficlrigan Electric Company.(a)Resigned April 26, 1983 (b)Elected April 26, 1983 (c)Elected January I, 1984 (d)Resigned January I, 1984 (e)Elected June 1, 1983 (1)Resigned September I, 1983 (g)Elected September 29, 1983 INDIANA&MICHIGAN ELECTRIC COMPANY i~j AND SUBSIDIARIES Selected Financial Data Year Ended December 31, 1983 1982 1981 (in thousands) 1980 1979 INCOME STATEMENTS DATA: OPERATING REYENUEs-ELEcrRIc TOTAL OPERATING EXPENSES OPERATING INCOME TOTAL OTHER INCOME AND DEDUCTIONS INCOME BEFORE INTEREST CHARGES NET INTEREST CHARGES CQNsoLIDATED NET INcohIE-before preferred stock dividend requirements

..PREFERRED STOCK DIVIDEND REQUIREMENTS EARNINGS APPLICABLE To COMMON STOCK$868,980 686,237$809,803 634,858$812, 149 634,209$742,683 577,502$683,013 524,800 182,743 174,945 53,629 48,725 177,940 29,713 165,181 30,541 158,213 29,042 236,372 96,496 223,670 102,647 207,653 104,313 195,722 99,151 187,255 91,475 139,876 28,384$111,492 121,023 103,340 96,571 95,780 28,628 23,624 23,242 19,995$92,395$79,716$73,329$75,785 1983 1982 December 31, 1981 (in thousands) 1980 1979 BALANCE SHEETS DATA: ELECTRIC UTILITY PLANT ACCUhjULATED PROVISIONS FOR DEPRECIATION, DEPLETION AND AMORTIZATION NET ELECTRIC UTILITY PLANT TOTAL ASSETS 2,905,934 3,343,963 2,855,325 2,745,288 3,135,884 3,035,614 2,555,608 2,826, 172 2,182,287 2,616,996$3,666,823$3,541,114$3,356,987$3,117,381$2,657,930 760,889 685,789 611,699 561,773 475,643 COMMON STOCK, PREMIUMS ON CAPITAL STOCK AND OTHER PAID-IN CAPITAL RETAINED EARNINGS CUMULATIVE PREFERRED STOCK: NOT SUBJECT TO MANDATORY REDEMPTION SUBJEGT To MANDATQRY REDEhIPTIQN (a)LQNG-TERM DEBT (a)807,925 95,616 197,000 99,497 1,445,704 777,783 91,756 197,000 104,447 1,397,475 727,652 100, 170 197,000 105,509 1,404,044.637,287 114,495 197,000 68,348 1,264,673 587,193 130,480 197,000 70,000 1,124,255 (a)Including portion due within one year.

Management's Discussion and Analysis of Results of Operations and Financial Condition~, The following are the more significant factors bearing on the financial condition of Indiana&Michigan Elec-tric Company and its subsidiaries as reflected in the consolidated results of operations.

This discussion re-fers to the consolidated financial statements that fol-low.Operating Revenues and Expenses Consolidated operating revenues increased 7.3%in 1983 compared to a decrease of 0.3%in 1982.Kilowatt-hours sold increased 1.6%in 1983 compared with an 8.3%decrease in 1982.The primary reason for the increase in operating revenues was the receipt of additional rate relief coupled with an improvement in kwh sales during the second half of 1983.The improve-ment in energy sales reflects the hot summer and colder weather in late fall and early winter as well as the gradual recovery of the economy in the Company's service area.The 1982 decrease in sales of electric energy and operating revenues was attributable to the depressed economic activity and mild weather experi-enced throughout most'of the year in the service area.Revenues from retail customers (residential, com-mercial and industrial) were up" 10.6%in 1983 with a corresponding increase in kwh sales of 2.7%while in 1982 these revenues rose 7.2%on a 2.1%decline in kwh sales.The increase in revenues was due to higher rates which went into effect during 1983.The increase in kwh sales includes a 6.5%increase in sales to industrial customers as opposed to an 8.0%decrease last year, reflecting the changes in the economy in the Company's service area.Wholesale revenues for 1983 increased by 5.5%fol-lowing a 9.6%decrease in 1982.Kwh sales to wholesale customers increased 0.6%in 1983 compared to a 13.7%decrease in the preceding year.The increased revenues.were mainly the result of rate increases put into effect during 1983 and a significant rebound in energy sales to other utilities during the last half of the year.The re-bound in wholesale sales to municipalities, electric cooperatives and other electric utilities is expected to continue into 1984;however, much will depend upon the extent of improvements in the economy as well as weather patterns.Purchased and interchange power expense increased 2.8%in 1983 and 11.2%in 1982.The 1983 increase largely reflects increased purchases from other utilities and decreased interchange transactions to obtain power from other AEP System companies.

The 1982 increase was mainly the result of an increase in purchases from other utilities.

Normally, during periods of peak de-mand that exceed the available generating capacity, the Company is able to meet its wholesale customers'e-quirements by purchasing power from neighboring utilities for resale to others because of AEP's powerful interconnection and transmission capacity.Total operating expenses increased 8.1%in 1983 compared to a 0.1%increase in 1982.The increase in 1983 was primarily due to increases in Federal income taxes and fuel expenses.Federal income taxes in-creased 85.8%in 1983 due largely to an increase in pre-tax book income.Fuel expenses increased 11.9%%uo in 1983 as a result of increased generation levels and a change in fuel mix.In 1982 fuel expenses decreased 18.8%as a result of decreased kwh sales and a change in fuel mix.Future fuel expenses will be affected by gen-eration levels, contractual agreements between the coal industry and the United Mine Workers of America and the possibility of yet more stringent environmental re-strictions on burning certain types of coal.Whether or not future increases in fuel costs will adversely affect earnings will depend on the Company's continued abil-ity to recover such costs promptly in the face of efforts by certain consumer groups and others to delay or reduce rate increases and to eliminate or reduce the extent of coverage of fuel-adjustment clauses.Construction and Financing Program Expenditures for the Company's construction pro-gram over the three-year period 1984-1986 are esti-mated to be approximately

$597 million.Substantial additional expenditures may be required if existing generating plants require modification or additional facilities to comply with future environmental quality standards.

See"Environmental Matters" in Note 9 of the Notes to Consolidated Financial Statements for additional information.

In recent years, the construc-tion program has been affected by substantial increases in construction costs and the expense of obtaining financing for the program due to high costs of capital.The construction program is reviewed continuously and revised from time to time in response to revised projections of load growth and changes in the cost and availability of capital.In recent years, these reviews have resulted in extending construction schedules of a number of projects with the objective of reducing the level of annual construction expenditures.

However, deferrals of construction projects may have an adverse effect on the quality of the Company's service to its customers in the future, and any resulting reductions in INDIANA P.I~i.HIGAN ELECTRIC COMPANY AND SUBSIDIARIES current construction costs will, in the long run, be at least partially offset by general inflationary trends as well as possible cancellation charges.In addition, when the completion date of a project under construction is substantially delayed, it becomes more expensive, both because of the foregoing factors and because certain costs, principally financing costs, continue to accrue until the facility is placed in commercial operation.

It is estimated that all of the Company's projected construction expenditures for 1984-1986 will be fi-nanced with internally generated funds.If any addi-tional amounts are needed they will be raised exter-nally, as in the past, through sales of securities and investments in the Company's common equity by AEP.The Company initially finances current construction expenditures in excess of available internally generated funds by issuing unsecured short-term debt (commer-cial paper and bank loans)and then periodically reduces short-term debt with the proceeds of sales of long-term debt securities and preferred stock and with invest-ments in the Company's common equity by AEP.The amounts of short-term debt which the Company may issue are limited by regulatory restrictions under the Public Utility Holding Company Act of 1935 and by restrictions in its charter and in certain debt instru-ments.At December 31, 1983, the Company had re-ceived authorizations from the Securities and Ex-change Commission to issue a total of approximately

$135 million of short-term debt.Note 7 of the Notes to Consolidated Financial Statements contains informa-tion on the Company's short-term bank lines of credit.Bank lines of credit may be withdrawn at any time by the banks extending them, and in most cases the banks require either the maintenance of compensating deposit balances or the payment of fees in lieu of deposits.In order for the Company to issue additional long-term debt and preferred stock, it is necessary for it to comply with earnings-coverage requirements con-tained in its mortgage bond and debenture indentures and charter.In order to issue additional long-term debt (except to refund maturing long-term debt), the Com-pany must have pre-tax earnings equal to at least twice the annual interest charges on long-term debt, giving effect to the issuance of the new debt, for a period of 12 consecutive months within the 15 months immediately preceding the date of the new issue.To issue additional preferred stock, the Company must have after-tax gross income at least equal to one and one-half times annual interest charges and preferred dividends, giving effect to the issuance of the new preferred stock, for the same period.These provisions do not prevent certain types of pollution-control revenue bond financings by public bodies on behalf of the Company, but the levels of coverage under them may affect the cost and marketa-bility of such bonds.At December 31, 1983, the cover-ages of the Company under these provisions were at least 2.01 for long-term debt and 1.64 for preferred stock.In view of these restrictions on the issuance of addi-tional debt securities and preferred stock, the Company believes that it will be possible to meet the capital requirements of its construction program only if the Company receives rate increases over the next several years sufficient to meet the earnings levels required to issue the necessary amounts of long-term debt and pre-ferred stock and to provide an appropriate return on new equity investment.

See Note 2 of the Notes to Consolidated Financial Statements regarding a recent prehearing rate order in which the Public Service Commission of Indiana found that the second step por-tion of a proposed rate request was not properly pre-sented.The second step was to coincide with the De-cember 1984 commercial operation date of the Com-pany's Rockport Plant Unit 1.This finding raises a question as to the effect on the Company's net income and financial condition unless other alternatives under consideration are implemented.

Net Income and Dividends Consolidated net income before preferred dividend requirements increased in 1983 by 15.6%and in 1982 by 17.1%.These changes in net income were accompanied by a decrease in the total proportion of allowance for funds used during construction (AFUDC)reflected in net income, 85%in 1983 and 92%in 1982.AFUDC does not represent cash income or a reduction in actual inter-est expense, but is an accounting convention permitted by regulatory systems of accounts.AFUDC represents the net.cost of borrowed funds used for construction and a reasonable rate of return on other funds when so used.Such amounts are capitalized as a cost of con-struction projects with a concurrent credit to the In-come Statement.

The amount capitalized is added to the cost of construction projects and generally included in the plant investment base for setting rates and recov-ered through depreciation charges included in rates after the project is placed in commercial operation.

In the event the Company must make refunds or experience other adverse effects pursuant to the out-come of the issues relating to the Federal Energy Reg-ulatory Commission investigation of the AEP System's policies with respect to coal purchasing and practices (see"Litigation" in Note 9 of the Notes to Consoli-dated Financial Statements), this could restrict the abil-ity of the Company to pay dividends for a period of time on its outstanding Common Stock to AEP.Effects of Infiatlon In recent years inflation has had an effect on the Company's consolidated revenues, expenses and net income that is not readily evident in conventional finan-cial statements.

For additional information on the ef-fects of inflation, refer to Note 12 of the Notes to Con-solidated Financial Statements, which presents a con-solidated statement of income for 1983, adjusted for effects of inflation, and a comparison of selected sup-plementary data for a five-year period, similarly ad-justed.

INDIANA&Mi HIGAN ELECTRIC COMPANY AND SUBSIDIARIES Consolidated Statements of Income OPERATING REVENUES-ELECTRIC Year Ended December 31, 1981 1983 1982 (in thousands)

$868,980$809,803$812,149 OPERATING EXPENSES: Operation:

Fuel for Electric Generation Purchased and Interchange Power (net)Other'aintenance Depreciation; Depletion and Amortization Taxes Other Than Federal Income Taxes Federal Income Taxes Total Operating Expenses OPERATING INCOME OTHER INCohIB AND DEDUCTIONS:

Allowance for Other Funds Used During Construction

......Miscellaneous Nonoperating Income Less Deductions Total Other Income and Deductions INCOME BEFORE INTEREST CHARGES.INTEREST CHARGES: Interest on Long-term Debt.Interest on Short-term Debt Miscellaneous Interest Charges Total Interest Charges Allowance for Borrowed Funds Used During Construction (credit)Net Interest Charges CoNsoLIDATED NET INcohIE-before preferred stock dividend requirements PREFERRED STOCK DIVIDEND REQUIREhIENTS EARNINGS APPLICABLE To COMMON STOCK 159,998 159,086 122,127 53,049 83,963 37,053 70,961 686,237 182 743 60,588~6,959 53,629 236 372 144,430 8,998 1,714 155,142~58,646 96,496 139,876 28,384$111,492 143,025 154,683 126,922 56,431 83,031 32,567 38,199 634,858 174,945 57,889 (9,164)48,725 223,670 142,841 8,974 4,258 156,073 (53,426)102,647 121,023 28,628$92,395 176,074 139,119 101,792 48,895 81,458 32,698 54,173 634,209 177,940 32,885 (3,172)29,713 207,653 129,023 18,042 4,228 151,293 (46,980)104,313 103,340 23,624$79,716 See iVotes to Consolidated Financial Statements.

Consolidated Balance Sheets ASSETS ELECTRIC UTILITY PLANT: Production

.Transmission Distribution

.General and Miscellaneous (includes mining plant)Construction Work in Progress.Total Electric Utility Plant Less Accumulated Provisions for Depreciation, Depletion and Amortization Electric Utility Plant Less Provisions December 31, 1983 1982 (in thousands) 760,889 2,905,934 685,789 2,855,325$1,561,791$1,532,241 443,280 441,241 316,324 305,528 195,444 186,890 1 149,984 1,075,214 3,666,823 3,541,114 OTHER PROPERTY AND INVESTMENTS 39,691 28,319 CURRENT ASSETS: Cash Special, Deposits and Working Funds Accounts Receivable:

Customers Associated Companies Miscellaneous Accumulated Provision for Uncollectible Accounts.Materials and Supplies (at average cost or less): Fuel.Construction and Operation Materials and Supplies Accrued Utility Revenues Prepayments and Other Current Assets Total Current Assets.7,283 5,966 113,674 5,549 39327 (470)75,203 18,130 48,550 5,967 283,179 10,000 4,098 56,739 9,214 4,148 (414)72,811 19,821 21,874 5,134 203,425 DEFERRED DEBITS: Unamortized Debt Expense Property Taxes Deferred Collection of Fuel Costs Deferred Strike Costs Other Work in Progress Deferred Nuclear Fuel Disposal Costs Other Deferred Debits Total Deferred Debits Total.See hloles to Consolidate(!

Financial Siatemenrs.

3,415 2,029 1,035 3,254 72,575 32,851 115,159$3,343,963 3,570 1,740 215 2,413 3,961 36,916 48,815$3,135,884 10 INDIANA&MICHIGAN ELECTRIC COMPANY AND SUBSIDIARIES CAPITALIZATION AND LIABILITIES December 31, 1983 1982 (in thousands)

CAPITALIZATION:

Common Stock-No Par Value: Authorized

-2,500,000 Shares Outstanding

-1,400,000 Shares Premiums on Capital Stock Other Paid-in Capital.Retained Earnings Total Common Shareowner's Equity.........~.....Cumulative Preferred Stock: Not Subject to Mandatory Redemption Subject to Mandatory Redemption (less sinking fund requirements due within one year).Long-term Debt (less portion due within one year)Total Capitalization (less amounts due within one year).CURRENT LIABILITIES:

Cumulative Preferred Stock Sinking Fund Requirements Due Within One Year.Long-term Debt Due Within One Year.Short-term Debt: Notes Payable to Banks Commercial Paper.Accounts Payable: General.Associated Companies Dividends Declared: Common Stock.Cumulative Preferred Stock Customer Deposits Taxes Accrued Interest Accrued Revenue Refunds Accrued Other Current Liabilities Total Current Liabilities

$56,584 381 750,960 95,616 903,541 197,000 99,345 1,358,830 2,555 726 152 86,874 39,950 225500 40,318 55,403 17,616 6,999 2,990 14,968 35,998 98 37,904 361,770$56,584 381 720,818 91,756 869,539 197,000 104,000 1,304,505 2,475,044 447 92,970 89,150 3,000 35,147 12,586 7,140 2,836 11,464 35,120 11,921 25,895 327,676 CohthIITMBNTs AND CoNTINGENclEs (Note 9)DEFERRED CREDITS AND OPERATING RESERVES: Deferred Income Taxes Deferred Investment Tax Credits Other Deferred Credits and Operating Reserves.........Total Deferred Credits and Operating Reserves Total 338,350 32,287 52,840 423,477$3,343,963 255,098 35,877 42,189 333,164$3,135,884 Consolidated Statements of Sources and Applications of Funds 0'~Year Ended December 31, SoURcEs oF FUNDs: Funds from Operations:

Consolidated Net Income Principal Non-fund Charges (Credits)to Income: Depreciation, Depletion and Amortization Provision for Deferred Income Taxes (net)Deferred"Investment Tax Credits (net)Amortization of Deferred Strike Costs Amortization of Deferred Collection of Fuel Costs Amortization of Deferred Nuclear Fuel Disposal Costs Allowance for Other Funds Used During Construction Other (net)Total Funds from Operations Funds from Contributions and Financings:

Contributions and Financings:

Capital Contributions from Parent Company Cumulative Preferred Stock Long-term Debt Short-term Debt (net)Total Less Retirements of Cumulative Preferred Stock and Long-term Debt Net Funds from Contributions and Financings Sales of Property'.,'Total Sources of Funds APPLICATIONS OF FUNDS: Plant and Property Additions:

Gross Additions to Utility Plant Gross Other Additions Total Gross Additions.Allowance for Other Funds Used During Construction Net Plant and Property Additions Dividends on Common Stock Dividends on Cumulative Preferred Stock Deferred Strike Costs Other Changes (net)Increase in Working Capital (a)Total Applications of Funds (a)Excludes Cumulative Preferred Stock Sinking Fund Requirements Due Within One Year, Long-term Debt Due Within One Year and Short-term Debt and is represented by increase (decrease) as follows: Cash and Cash Items Accounts Receivable Materials and Supplies Accrued Utility Revenues Accounts Payable Dividends Declared on Common Stock Taxes Accrued Revenue Refunds Accrued Other (net).See Notes to Consolidated Financial Statements.

1983$139,876 86,025 84,296 55556 1,378 215 3,092 (607588)1,977 261,827 30,000 69,239~29,700 69,539 98,290~28,751 71,212$304,288$201,793 428 202,221~60,588 141,633 107,632 28,384 179070 9,569$304,288$(849)529393 701 26,676 (47,988)(17,616)(3,504)11,823~12,067 8 9 569 1982 (in thousands)

$121,023 87,459 22,533 25,638 1,378 287 (57,889)1,141 201,570 50,000 99,167 38,550 187,717 106,997 80,720 77,745$360,035$267,783 326 268,109 (57,889)210,220 100,800 28,628 (4,103)24,490$360,035$(11,962)(22,948)24,041 1,880 84 1,124 18,479 11,174 2,618$24,490 1981$103,340 85,978 36,082 9,247 3,195 287 (32,885)710 205,954 90,000 38,734 158,922~92,925 194,731 22,019 172,712 40,845$419,511$307,672 578 308,250 (32,885)275,365 92,624 23,624 6,986 2,415 18,497$419,511$11,765 2,405 (16,505)8,198 6,936 10,376 (6,139)15,121~13,660$18,497 INDIANA d': CHIGAN ELECTRIC COMPANY AND SUBSIDIARIES Consolidated Statements of Retained Earnings Year Ended December 31, Balance at Beginning of Year Consolidated Net Income Total$91,756 139,876 231 632 1983 1982 (in thousands)

$100,170 121,023 221,193 1981$114,495 103,340 217,835 Deductions:

Cash Dividends Declared: Common Stock Cumulative Preferred Stock: 4Ve%Series.4.56%Series.4.12%Series.7.08%Series 7.76%Series 8.68%Series.12%Series$2.15 Series.$2.25 Series.$2.75 Series.$3.63 Series Total Cash Dividends Declared Capital Stock Expense Total Deductions Balance at End of Year 107,632 495 273.165 2,124 2,716 2,604 2,873 3,440 3>600 4,286 5,808 136,016 136,016$95,616 100,800 495 273 165 2,124 2,716 2,604 3,003 3,440 3,600 4,400 5,808 129,428 9 129,437$91,756 92,624 495 273 165 2,124 2,716 2,604 3,226 3;440 3,600 4,400 581 116,248 1,417 117,665$100,170 See Notes to Consolidated Finaneia(Statements.

Notes to Consolidated Financial Statements I.Significant Accounting Policies: The common stock of the Company is wholly owned by American Electric Power Company, Inc.(AEP).The accounting and rates of the Company are subject in certain respects to the requirements of state regula-tory bodies and in certain respects to the requirements of the Federal Energy Regulatory Commission (FERC).The consolidated financial statements include the ac-counts of the Company and two wholly owned sub-sidiaries engaged in coal mining.Significant inter-company items have been eliminated in, consolidation.

The consolidated financial statements have been pre-pared on the basis of the accounts which are maintained for FERC purposes.Electric Utility Plant;Other Property and Investtnents; Depreciation, Depletion and Atnortization Electric utility plant is stated at original cost.Gener-ally, the plant of the Company is subject to first mortgage liens.The Company capitalizes, as a construction cost, an allowance for funds used during construction, an item not representing cash income, which is defined in the applicable regulatory systems of accounts as the net cost of borrowed funds used for construction purposes and a reasonable rate on other funds when so used.The composite rates used by the Company were 12.5%in 1983, 12.75%in 1982 and 12.0%in 1981 applied on a semi-annual compound basis.The Company provides for depreciation on a straight-line basis over the estimated useful lives of the property.The current provisions are determined largely with the use of functional composite rates as follows: Functional Composite Class of Annual Property Rates Production:

Steam-Nuclear.......................

4.0%Steam-Fossil-fired

'...3.7%Transmission 2.1%Distribution 3.7%General..........................

2.8%Depreciation, depletion and amortization of coal-mining property are provided in amounts estimated to be sufficient to amortize the costs of the related assets, less any estimated salvage (which is not significant), over their useful lives and are calculated by use of the following methods: Description Method Mining Structures and Straight-line method (original lives Equipment range from 3 to 31 years)Coal Interests and Mine Units-of-production method Development Costs (based on estimated recoverable tonnages;current rate averages$1.07 per ton)Substantially all of the amount of the provisions for depreciation, depletion and amortization of coal-mining property is classified in the Consolidated Statements of Income as fuel for electric generation.

Operating expenses are charged with the costs of labor, materials, supervision and other costs incurred in maintaining the properties.

Property accounts are charged with costs of betterments and major replace-ments of property and the accumulated provisions for depreciation are charged with retirements, together with removal costs less salvage.Other property and investments are generally stated at cost.Inconte Taxes Deferred Federal income taxes are provided except where flow-through accounting for certain timing dif-ferences is reflected in revenue levels.The Company normalizes the effect of tax reductions resulting from investment tax credits utilized in connec-tion with current Federal income tax accruals consis-tent with rate-making policies.The Company's consolidated coal subsidiaries gen-erally use the flow-through method of accounting for investment tax credits and practice deferred tax ac-counting for the effects of certain timing differences.

Pension Plans The companies participate with other companies in the AEP System in a non-contributory trusteed plan to provide pensions for all their employees who are not participants in pension plans of the United Mine Work-ers of America (UMWA), subject to certain eligibility requirements.

Pension costs for the years ended December 31, 1983, 1982 and 1981 were approximately

$3,162,000,$3,057,000 and$3,201,000, respectively.

The amounts cover the costs of currently accruing benefits and amor-tization of, and interest on, unfunded prior-service costs, which are being amortized over 30 years.The companies make annual contributions to the plan equal to the amounts accrued for pension expense.

INDIANA 8 CHIGAN ELECTRIC COMPANY AND S UBSIDIA RIES A comparison of the plan's accumulated benefits and net assets as of January 1, 1983, the date of the most recent actuarial study, is presented below: January I, 1983 1982 (in thousands)

Actuarial present value of accumulated plan benefits Vested Nonvested$51,088$46,652 5,913 4,830$57,001$51,482 Net assets available for benefits......$88,400$76,659 The assumed rate of return used by the actuary in determining the actuarial present value of accrued benefits was 8%at each valuation date.Under a contract with the UMWA, a subsidiary is required to make payments into two multi-employer pension plans based on coal production and hours worked.The cost of the plans was approximately

$713,000 in 1983,$2,442,000 in 1982 and$1,700,000 in 1981.As of June 30, 1983, the Company's actuary esti-mates, based on information that is available, that the subsidiary's share of the unfunded vested liabilities of the UMWA pension plans approximates

$5,380,000.

Other The Company accrues unbilled revenues for electric service rendered subsequent to the last billing cycle through month-end.

Black Lung Benefits The coal-mining subsidiaries are liable under the Federal Coal Mine Health and Safety Act of 1969 (Act), as amended, to pay certain black lung benefits to eligi-ble present and former employees.

The subsidiaries provide self-insurance accruals sufficient to amortize the actuarially computed present and future liabilities for such benefits as a level percentage of pay over the future working lifetime of the employees, taking into account the remaining life of the mines.Such provisions were approximately

$131,000,$530,000 and$398,000 in 1983, 1982 and 1981, respectively.

A Black Lung Bene-fits Trust is maintained under the Internal Revenue~Code.As of January 1, 1983 (the latest valuation date), the companies'ctuary estimates the unfunded actuari-al value of medical and liability benefits under the Act, as well as comparable state legislation, was approxi-mately$876,000.The companies fund the actuarially determined liabilities at a level which currently approx-imates the recorded expense provisions.

Miscellaneous nonoperating income for the years ended December 31, 1983, 1982 and 1981 includes gains amounting to$274;000,$496,000 and$489,000, respec-tively, on certain long-term debt reacquired.

Debt discount or premium and debt expenses are being amortized over the lives of the related debt issues and the amortization thereof is included within miscel-laneous interest charges.2.Operating Revenues and Operating Expenses: In February 1982, the Company filed a petition with the Public Service Commission of Indiana (PSCI)for a rate increase of$52,145,000 annually.In December 1982, the PSCI issued an order granting the Company an increase of$23,800,000 annually, a portion of which was collected subject to refund pending the outcome of additional proceedings relating to the rate-making treatment of the Company's coal subsidiaries and Western coal properties.

In March 1983;in a subdocket proceeding, the PSCI granted the Company an addi-tional increase of approximately

$6,700,000 annually, primarily covering a provision for future decommis-sioning costs of the Company's nuclear plant.In Sep-tember 1983, the PSCI issued an order regarding the Western coal issue.This order required the Company to reduce its rates approximately

$3,000,000 annually re-troactive to December 1982 and as a result the Com-pany refunded in November 1983, approximately

$2,300,000, including interest, to its Indiana retail cus-tomers.In May 1982, the Company filed with the FERC ap-plications for authority to increase its rates to its wholesale customers.

In July 1982, the FERC au-thorized the increase to take effect in two steps, subject to refund;the first step representing an increase of$26,900,000 became effective July 29, 1982, and the second step increase of$28,900,000 became effective on December 28, 1982.Settlement agreements were reached with the wholesale customers and in May 1983, the FERC issued a final order approving settlement rates in the amount of approximately

$41,000,000 on an annual basis.In July 1983, the Company filed a petition with the PSCI requesting a$160,000,000 annual rate increase to be implemented in two steps.The first step, represent-ing approximately

$44,300,000, was requested to be effective as soon as possible.In November 1983, the PSCI granted permission to increase rates$28,500,000 annually, effective November 28, 1983.The second step, representing approximately

$115,700,000, was.to NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) coincide with the date of commercial operation of the Rockport Plant Unit 1, presently scheduled to be in December 1984.In a prehearing order dated September 16, 1983, the PSCI found that the second step portion of the rate request may not properly be presented and reviewed as part of this application since the proposed test year is too remote from the in-service date of the Rockport Unit.In December 1983, the Company filed an application with the Michigan Public Service Commission (MPSC)requesting an annual rate increase of approximately

$27,600,000.

The MPSC has scheduled a prehearing conference concerning this rate application for March 13, 1984.Operating revenues derived from a certain wholesale customer represent approximately 11%of total operat-ing revenues for 1983, 10%%uo for 1982 and 9%%uo for 1981.3.Federal Income Taxes: The details of Federal income taxes as reported are as follows: Year Ended December 31, 1983 1982 1981 (in thousands)

$(16,503)29,064 25,638 38,199 Year Ended December 31, Charged (Credited) to Operating Expenses: Current (net)$(14,004)S 8,672 Deferred (nct)79,409 36,254 Deferred Investment Tax Credits (net)5,556 9,247 Total...................................................................

70,961 54,173 Charged (Credited) to Other Income and Deductions:

Current............................................................

(11,112)(890)(1,988)Deferred (net)'...........................................

4,887 (6,531)(172)Total (6,225)(7,421)(2,160)Total Federal Income Taxes as Reported S 64,736$30,778$52,013 The following'is a reconciliation of the difference between the amount of Federal income taxes computed by multiplying book income before Federal income taxes by the statutory tax rate, and the amount of Federal income taxes reported in the Consolidated Statements of Income.Consolidated Net Income Bcforc Preferred Stock Dividend Requirements Federal Income Taxes Pre-tax Book Income Federal Income Taxes on Pre-tax Book Income at Statutory Rate (46%)Increase (Decrease) in Federal Income Taxes Resulting From the Following Items on Which Deferred Taxes Are Not Provided: Excess of Book Over Tax Depreciation Allowance for Funds Used During Construction and Miscellaneous Items Capitalized on the Books but Deducted for Tax Purposes Mine Development Costs Investment Tax Credits Not Deferred Amortization of Deferred Investment Tax Credits Other.Total Federal Income Taxes as Reported Effective Federal Income Tax Rate 1983$139,876 64,736$204,612$94,122 1,185 (32,019)144 1,144 (267)427 S 64,736 31.6%1982 (in thousands)

$121,023 30,778$151,801$69,828 5,009 (32,040)(4,771)(1,727)(931)(4,590)S 30,778 20.3%1981$103,340 52,013$155,353 S 71,462 1,107 (19,658)311 (1,799)(327)917 S 52,013 33.5%

INDIANA&ICHIGAN ELECTRIC COMPANY AND SUBSIDIARIES The following are the principal components of Federal income taxes as reported: Year Ended December 31,'1983 1982 (in thousands) 1981$(4,008)(13,385)(17,393)*Current: Federal Income Taxes$(26,903)$11,598 Investment Tax Credits 1,787 (4,914)Total Current Federal Income Taxes (net)(25,116)6,684 Deferred: Depreciation (liberalized, ADR and ACRS)26,993 12,441 13,440 Allowance for Borrowed Funds Used During Construction and Miscellaneous Items Capitalized

.23,986 20,410 18,465 Deferred Fuel Costs 8,470 (1,158)1,927 Adjustments for Revenue Refunds..2,401 8,304 3,134 Nuclear Fuel Lease Adjustments (2 338)4 033 1,258 Spent Nuclear Fuel Fee 31,671 Book Provision for Subsidiary Mine Standby Costs.6,900 (6,900)Other.~~~~~~~.:~~..'(7,321)314 4,317 Investment Tax Credits Applicable to Certain Deferred Income Taxes (6,466)(14,911)(6,459)Total Deferred Federal Income Taxes (net)84,296 22,533 36,082 Total Deferred Investment Tax Credits (net)5,556 25,638 9,247 Total Federal Income Taxes as Reported 5 64,736$30.778 552,013'The consolidated current Federal income taxes were significantly decreased in 1982 by the tax loss of a coal mining subsidiary, the tax elfect of which was not reduced by investment tax credits.In addition, the Company was able to utilize investment tax credits in excess of the statutory limitation as a result of the lack of available credits of other System companies with taxable income.The companies join in the filing of a consolidated Federal income tax return with their affiliated com-panies in the AEP System.The allocation of the AEP System's consolidated Federal income tax to the Sys-tem companies is in accordance with Securities and Exchange Commission (SEC)rules under the Public Utility Holding Company Act of 1935.These rules per-mit the allocation of the benefit of current tax losses to the System companies giving rise to such losses in determining taxes currently payable.The tax loss of the System parent company, American Electric Power Company, Inc., is allocated to its subsidiaries with tax-able income.With the exception of the loss of the parent company, the method of allocation approximates a separate return result for each company in the consoli-dated group.Consolidated investment tax credits utilized are generally allocated to the System com-panies giving rise to them.Unused System investment tax credits at December 31, 1983, aggregated approximately

$174,000,000.

With the filing of the consolidated 1982 Federal in-come tax return, the Company elected to change from the double-declining balance method to the sum-of-the-years digits method of depreciation for certain classes of properties.

The System has reached a settlement with the Inter-nal Revenue Service (IRS)for the majority of issues from the audit of the consolidated Federal income tax returns for the years 1970-1976.

Several issues regard-ing the 1974-1976 returns are not covered by the settle-ment agreement and are subject to future disposition.

Returns for the years 1977 and 1978 have been reviewed by the IRS, and additional taxes for these years have been proposed, some of which the System companies have protested.

In the opinion of management, the final resolution of open matters will not have a material effect on the earnings of the Company.4.Common Stock, Premiums on Capital Stock and Other Paid-in Capital: The Company received from its parent cash capital contributions of$30,000,000 in 1983,$50,000,000 in 1982 and$90,000,000 in 1981.In 1983, 1982 and 1981 a credit to other paid-in capital of$142,000,$131,000 and$365,000, respectively, represented the excess of par value over cost of cumulative preferred stock reac-quired by the Company to meet sinking fund require-ments.There were no other changes in any of the aforementioned accounts in 1983, 1982 or 1981.5.Retained Earnings: Various restrictions on the use of retained earnings for cash dividends on common stock and other pur-poses are contained in or result from covenants in mortgage indentures, debenture and bank loan agree-ments, charter provisions, and orders of regulatory au-thorities.

Approximately

$45,900,000 at December 31, 1983, was so restricted.

17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6.Cumulative Preferred Stock: December 31, Par Value Shares Outstanding Series 1983 (in 1982 thousands)

At December 31, 1983, authorized shares of cumulative preferred stock were as follows: Par Value Shares Authorized

$100 2,250,000 25 11,200,000 The cumulative preferred stock is callable at the option of the Company at the price indicated plus accrued dividends.

The involuntary liquidation preference is par value.Unissued shares of the cumulative preferred stock may or may not possess mandatory redemption characteristics upon issuance.The Company reacquired 126,200 shares of the$2.75 series in 1983 and 17,940, 10,620 and 28,395 shares of the 12%series in 1983, 1982 and 1981, respectively.

The Company issued and sold 1,600,000 shares of the$3.63 series in 1981.A.Cumulative Preferred Stock Not Subject to Mandatory Redemption:

Amount Redemption Restricted Prior to 416%%uo 4.56%%uo 4.12%7.08%7.76%8.68%$2.15$2.25..$106.125 102 102.728 104.68 105.38 105.27 26.61 26.69$100 100 100 100 100 100 25 25 120,000 60,000 40,000 300,000 350,000 300,000 1,600,000 1,600,000$12,000 6,000 4,000 30,000 35,000 30,000 40,000 40,000$197,000 S 12,000 6,000 4,000 30,000 35,000 30,000 40,000 40,000$197,000 Current Call Price Par Value Series (a)8.Cumulative Preferred Stock Subject to Mandatory Redemption:

Redemption Restricted Prior to Shares Outstanding Amount December 31, 1983 1982 (in thousands)

S 24,447 40,000 40,000 IN,447 447$104,000$100 25 25 10/I/84 11/I/86 12%(b)...........

$112 226,525$22,652$2.75 (c)...........

27.75 1,473,800 36,845$3.63 (d)...........

28.63 1,600,000 40,000 99,497 Less Sinking Fund Requirements Due Within One Year 152$99,345 (a)The sinking fund provisions of the series subject to mandatory redemption aggregate$152,000 in 1984,$2,345,000 in 1985,$3,500,000 in 1986 and$5,500,000 in 1987 and 1988.(b)A sinking fund for the 12%series requires the Company to provide, on or before October I of each year, for thc redemption of 15,000 shares of such series.This provision may be satisfied through shares previously purchased or by redemption at$100 a share.The Company has the right, on each sinking fund date, to redeem an additional 15,000 shares.At December 31, 1983, thc Company had reacquired 13,475 shares in anticipation of future sinking fund requirements.

Unless all sinking fund provisions have been met, no distribution may be made on the common stock.(c)A cumulative sinking fund for the$2.75 series requires the Company to redeem 80,000 shares on each October 1.The Company has the option to credit shares purchased or otherwise acquired in lieu of redeeming shares for the sinking fund and has the noncumulative option to double thc number of shares to be redeemed in any year.At December 31, 1983, the Company had acquired 126 200 shares in anticipation of future sinking fund requirements.(d)A cumulative sinking fund for the$3.63 series requires the Company to redeem 80,000 shares on each January I commencing on January I, 1987.The Company has the option to credit shares purchased or otherwise acquired in lieu of redeeming shares for the sinking fund and has the noncumulative option to double the number of shares to be redeemed in any year on and after January I, 1987.18 INDIANA&M CHIGAN ELECTRIC COMPANY AND SUBSIDIARIES First Mortgage Bonds Sinking Fund Debentures Installment Purchase Contracts.Other Long-term Debt Less Portion Due Within One Year Total 1983.1982 (in thousands)

$1,184,598$1,202,904 20,166 20,964 159,209 159,073 81,731 14,534 1,445,704 1,397,475 86,874 92,970$1,358,830$1,304,505 First mortgage bonds outstanding were as follows: December 31.1983 1982 (in thousands)

%Rate Due 3N 1983-September I 11 1983-September I 38 1984-October I 1076 1984-December I (b).10 1985-March I (c)10V4 1987-January I 137{i 1987-February I 37i6 1988-February I 4N 1988-November I 14N 1989-March I 11K 1990-June I 15K 1991-November I 1616 1992-April I 4)8 1993-August I 7 1998-May I 876 2000-April I 9'003-June I (c)8N 2003-December I 9'008-March I 13N 2013-August I (a)....Unamortized Discount (net).......$15,082 54,750 9,750 80,000 55,000 22,974 17,557 120,000 80,000 40,000 100,000 42,902 35,000 50,000 254,000 40,000 100,000 70,000 (2,417)$13,762 60,000 15,082 56,938 10,500 80,000 55,000 22,974 17,557 120,000, 80,000 40,000 100,000 42,902 35,000 50,000 265,500 40,000 100,000 Q,311)Less Portion Duc Within One Year Total 1,184,598 82,082 1,202,904 88,200$1,102,516$1,114,704 (a)Issued by the Company in August 1983.(b)Guaranteed by American Electric Power Company, Inc.(c)Sinking fund payments are required as follows: 10%series due 1985-$750,000 annually on March l.9'%eries due 2003-$11,500,000 annually on June I, through 1991 and$13,500,000 annually on June I, 1992 through 2002 with the noncumulative option to redeem an additional amount in each of the specified years from a minimum of$100,000 to a maximum equal to the scheduled requirement for each year, but with a maximum optional redemption, as to all years in the aggregate, of$75,000,000.

The indentures relating to the first mortgage bonds contain improvement, maintenance and replacement provisions requiring the deposit of cash or bonds with the trustee, or in lieu thereof, certification of unfunded property additions.

The Company has elected to use unfunded property additions to meet these provisions in the past.7.Long-term Debt, Lines of Credit, and Compensating Balances: Long-term debt by major category was outstanding as follows: December 31, Sinking fund debentures outstanding were as follows: December 31, 1983 1982 (in thousands) 5Vs%%uo Due 1986-June I 7V<%Due 1998-May I Unamortized Premium Less Portion Due Within One Year Total$10,022 10,123 21 20,166 22$20,144$10,104 10,829 31 20,964$20,964 Installment purchase contracts-have been entered into by the Company in connection with the issuance of pollution control revenue bonds by govqrnmental authorities as follows: December 31, 1983 1982 (in thousands)

%Rate Date City of Lawrenceburg, Indiana: 8'006-July I 7 2006-htay I 6Vs 2006-htay I City of Rockport, Indiana: 9Vs 2005-June I 9V4 2010-Junc I City of Sullivan, Indiana: 7N 2004-May I 6Vs 2006-May I 7'009-May I Unamortized Discount Total"$25,000 40,MO 12,000$25,000 40,000 12,000 6,500 33,500 6,500 33,500 Other long-term debt outstanding consisted of: December 31, 1983 1982 (in thousands)

Nuclear Fuel Disposal Costs (a)Coal Reserve Obligations Payable in Equal Annual Installments Through 1985 with Interest at 8%Notes Payablc due 1983 Through 1985, 6%%uo-7%%uo Less Portion Due Within One Year Total (a)See Note 9.$71,964$-9,475 292 81,731 4,770$76,961 14,212 322 14,534 4,770$9,764 i9 7,000 7,000 25,000 25,000 13,000 13,000 (2,791)(2,927)$159,209$159,073 Under the terms of certain installment purchase con-tracts, the Company is required to pay purchase price installments in amounts sufficient to enable the cities to pay interest on and the principal (at stated maturities and upon mandatory redemption) of related pollution control revenue bonds issued to finance the construc-tion of pollution control facilities at certain generating plants of the Company.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Long-term debt, excluding premium or discount, outstanding at December 31, 1983 is due as follows: Principal Amount (in thousands)

$86,874 25,996 21,000 146,500 52,031 1,118,490$1,450,891 1984 1985 1986 1987 1988 Later Years Total 8.Supplementary Income Statement Information and Related-party Transactions:

Electric operating revenues shown in the Consoli-dated Statements of Income include sales of energy to AEP System companies of approximately

$25,000,000,$18,800,000 and$19,100,000 for the years ended De-cember 31, 1983, 1982 and 1981, respectively.

Operating expenses shown in the Consolidated Statements of Income include certain items not shown separately, as follows: At December 31, 1983 and 1982, the principal amounts of debentures reacquired in anticipation of sinking fund requirements were$2,055,000 and.$2,067,000, respectively.

The Company may make ad-ditional debenture or first mortgage bond sinking fund payments of up to$12,250,000 annually.The Company had unused short-term bank lines of credit of approximately

$383,000,000 and$330,000,000 at December 31, 1983 and 1982, respectively, under which notes could be issued with no maturity more than 270 days.The.available lines of, credit are subject to withdrawal at the banks'ption, and$343,000,000 and$276,000,000 at December 31, 1983 and 1982, respec-tively, of such lines are shared with other AEP System companies.

In-accordance with informal agreements with the banks, compensating balance deposits of up to 10%%uo or equivalent fees are required to maintain the lines of credit and on any amounts actually borrowed, gener-ally either additional compensating balance deposits of up to 10%are maintained or adjustments in interest rates are made.Substantially all bank balances are maintained by the Company to compensate the banks for services and for the Company's share of both used and available lines of credit.Purchased Power (a)Interchange Power (net): AEP System Electric Utilities Other Companies (b)Taxes Other Than Federal Income Taxes: Real and Personal Property Taxes.............

~..State Gross Sales, Excise and Franchise Taxes and Miscellaneous State and Local Taxes State Income Taxes Social Security Taxes Year Ended December 31, 1983 1982 1981 (in thousands)

$82,245$40,817$38,557 104,271 116,666 100,960 (27,430)(2,800)(398)$159,086$154,683$139,119$22,062$19,485$18,958 11,269 (193)3,915$37,053 8,567 708 3,807$32,567 9,399 1,074 3,267$32,698 4,434 Fuel for Electric Generation includes charges relating to mining operations, as follows: Maintenance

...........

$765$3,424$3,778 Depreciation, Depletion and Amortization

.....1,826 4,284 Taxes Other Than Federal Income Taxes........1,184 2,109 1,336 (a)Includes power purchased from Ohio Valley Electric Corpora-tion (OVEC)of approximately

$45,787,000 in 1983,$20,229,000 in 1982 and$15,066,000 in 1981.(b)Includes interchange power sold to OVEC of approximately

$66,000 in 1983,$143,000 in 1982 and$186,000 in 1981.Charges to operating expenses for royalties and for advertising are less than 1%of gross revenues in each year.Sales and purchases of energy and interchange power transactions are regulated by the various commissions having jurisdiction.

American Electric Power Service Corporation pro-vides certain services to the Company and the affiliated companies in the AEP System.The costs of the services are determined by the service company on a direct charge basis to the extent practicable and on reasonable bases of proration for indirect costs.The charges for services are made on a cost basis and include no com-pensation for the use of equity capital, all of which is furnished to the service company by AEP.The service company is subject to the regulation of the SEC under the Public Utility Holding Company Act of 1935.20 INDIANA&MICHIGAN ELECTRIC COMPANY t AND S UBSIDIA RIES 9.Commitments and Contingencies:

Construction The construction budget of the companies for the year 1984 is estimated at$119,000,000 and, in connec-tion therewith, commitments have been made.AEP Generating Company (AEGCo), a subsidiary of AEP, organized in 1982, commenced in April 1982 to acquire a 35%interest in the Company's 2.6 million kilowatt capacity Rockport Plant currently under con-struction, on a buy-in basis.The total estimated cost of the Rockport Plant is$2.14 billion.It was anticipated that Kentucky Power Company (KEPCo), an operating subsidiary of AEP, would also acquire a 15%interest in the Rockport Plant on a buy-in basis;however, in Au-gust 1982 the order of the Kentucky Public Service Commission (KPSC)approving the acquisition was re-manded back to it for a specific finding of fact with respect to the AEP System interconnection agreement.

In March 1983, the KPSC issued an order granting KEPCo's request to purchase a 15%ownership interest in the Company's Rockport Plant.The order, however, limited the amount ultimately includable in KEPCo's rate base to$312,000,000, the then estimated cost of KEPCo's ownership interest, regardless of the final cost of the Rockport Plant.Based on certain develop-ments in a KEPCo rate case, the KPSC has reopened the proceeding regarding the application of KEPCo for a certificate of convenience and necessity to acquire a 15%undivided ownership interest in the Rockport Plant.Pending further order by the KPSC, KEPCo ceased making expenditures in connection with the construction of the Rockport Plant and AEGCo is pro-viding for all construction expenditures.

In the event that KEPCo is ultimately denied authority by the KPSC to acquire its 15%ownership interest or a decision is made that such acquisition is impractical or unlikely, AEGCo may acquire all or a portion of this interest if regulatory approval is received.The 1984 estimate of construction costs for the Company reflects the as-sumption by AEGCo and KEPCo of the responsibility of providing for additional construction expenditures with respect to the Rockport Plant, to reduce the Com-pany's ownership interest in the Plant to 50%by late 1984, the estimated date of commercial operation of the first unit of the two-unit Plant.Ohio Valley Electric Corporation AEP and Columbus and Southern Ohio Electric Company (C&SOE)own 42.1%of Ohio Valley Electric Corporation (OVEC), which supplies the U.S.Depart-ment of Energy (DOE)with the power requirements of its gaseous diffusion plant near Portsmouth, Ohio.The proceeds from the sales of power by OVEC, aggregat-ing$279,000,000 in 1983, are designed to be sufficient for OVEC to meet its operating expenses and fixed costs, and to provide for a return on its equity capital.The Company, as a sponsoring company, is entitled to receive from OVEC, and is obligated to pay for, the power not required by DOE in proportion to its power participation ratio, which was 31.3%in December 1983.The DOE power agreement terminates in 1992.~Litigation On April 16, 1982, an action was commenced by 29 plaintiffs, almost all of whom are landowners, in the U.S.District Court for the Southern District of Indiana against the Army Corps of Engineers, the Company, AEP, five subsidiaries of AEP and two executive of-ficers of certain of these System companies, in connec-tion with the Rockport Plant and related transmission lines.The complaint contained three counts.The first count alleged that the Corps of Engineers improperly issued permits for the plant and transmission lines be-cause of deficiencies in an environmental impact state-ment.The second count alleged that corporate assets had been dissipated by constructing the plant and re-lated transmission lines.The third count alleged viola-tions of rights to due process, just compensation and equal protection of the law in connection with the use of condemnation proceedings,'and sought unspecified compensatory and exemplary damages from the two System executive officers named as defendants and the Company and another subsidiary, and injunctive relief ertioining the institution of any further condemnation proceedings.

The court has dismissed all three counts on motions by the defendants; however, the plaintiffs may appeal the decisions.

In 1978, several retail customers of the Company commenced an action, individually and as representa-tives of an alleged class, in the U.S.District Court, alleging that the Company's lease of electric utility as-sets from the City of Fort Wayne is in violation of Federal antitrust laws.The complaint seeks to have the lease declared null and void, asks that the Company be restrained from charging excessive prices for the pur-chase of electric power, seeks treble damages in an unspecified amount in respect of allegedly excessive charges to residents of the City of Fort Wayne and seeks to restore the control of the electric utility assets in question to the City of Fort Wayne.In May, June and July, 1979 the court granted in part and denied in part the Company's motion to dismiss or for summary judgment.The court dismissed plaintiff s allegations 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) concerning abuse of a legally acquired monopoly but ruled that plaintiffs could continue to assert other theories of violation of Federal antitrust laws and cer-tified a class of residential customers who may maintain the action.The case was tried in March 1982 and is awaiting decision.As an outgrowth of a Federal Power Commission investigation commenced in 1975 concerning, among other things, the reasonableness and prudence of the coal-purchasing policies and practices of certain Sys-tem companies, FERC, on March 18, 1980, ordered a new investigation into the System's administration of certain long-term coal-supply contracts with unaf-filiated suppliers.

In addition, on June 10, 1981 and July 29, 1981, FERC issued orders which included termina-tion of certain other portions of the original investiga-tions and ordered a hearing, relating to the procurement of Western coal from mines operated by the System in the light of the possible availability of coal from other sources.The FERC staff filed proposed testimony, on May 2, 1983, claiming that the Company (i)overstated its cost of coal by virtue of its treatment of tax benefits related to certain mine-development costs, and (ii)paid excessive prices for coal from affiliated mines.The FERC witnesses allege that the revenue effect of the first action is approximately

$11,000,000 through May 1982 and that the overcharges occasioned by the pur-portedly excessive prices total almost$76,000,000 as of December 31, 1981, exclusive of interest and certain other adjustments, and that both these effects are con-tinuing.The Company estimates that the alleged over-charges, based on the FERC witnesses'heory, would aggregate approximately

$163,000,000 for the System companies, inclusive of interest and certain other ad-justments, as of December 31, 1983, but excluding pos-sible subsequent adverse effects which could be as-sociated with a prospective limitation on the Com-pany's ability to recover affiliated costs in rates.A FERC witness also contends that the refund obligation which he claims flows from such alleged overcharges is shared by the Company, Appalachian Power Company, C8'cSOE, KEPCo and Ohio Power Company as parties to an AEP System interconnection agreement.

The Company believes that as much as 78%of a refund obligation, if finally ordered by FERC, would be borne by the Company.This case is in the discovery phase.The Company terminated its contract with Terre Haute Industries, Inc.(THI)on the grounds that THI was not meeting the schedule for the construction of an electro-static precipitator at the Breed Plant.THI insti-tuted a suit for breach of contract against the Company in an Indiana circuit court claiming damages in an un-specified amount.THI also named the American Elec-tric Power Service Corporation as a defendant and re-quested damages from it for interference with THI's contract with the Company and for libel.The Company denied THI's complaint and counterclaimed for dam-ages in the amount of$6,801,000 which the Company claims it suffered as a result of the delay in the construc-tion work.On February 20, 1981, the Company's mo-tion to add an insurance company-surety as a defendant to the Company's counterclaim was granted.The in-surance company-surety was later dismissed.

Trial of this action was completed in December 1982.In an order dated January 9, 1984, the court awarded com-pensatory and punitive damages to THI in the amounts of$4,934,000 and$12,000,000, respectively, exclusive of interest.As a result of that judgment, the Company has recorded a liability, including interest, on the Con-solidated Balance Sheet for the compensatory damages and, the Company and the Service Corporation are appealing the court decision.Environmental Matters The companies are subject to regulation by Federal, state and local authorities with regard to air-and water-quality control and other environmental matters, and are subject to zoning and other regulation by local authorities.

Although the cumulative, long-term effect of changing environmental requirements upon the companies cannot be estimated at present, compliance with such requirements may make it necessary, at costs which may be substantial, to retrofit existing facilities with additional air-pollution-control equipment; to con-struct cooling towers or some other closed-cycle cool-ing systems;to undertake new measures in connection with the storage, transportation and disposal of by-products and wastes;to curtail or cease operations at existing facilities and to delay the commercial operation of, or make design changes with respect to, facilities under.construction.

Legislative proposals are pending before the Con-gress which expressly seek to control acid deposition in the eastern portion of the United States.If any of these bills become law, stringent controls upon the emission of sulfur dioxide would be required at various existing Company generating plants.These controls would en-tail very substantial capital and operating costs which, in turn, could necessitate substantial rate increases by the Company.In addition, a number of states have commenced proceedings under the Clean Air Act seek-ing to control the emission of sulfur dioxide in certain midwestern states.22 INDIANA&MICHIGAN ELECTRIC COMPANY AND S UBSIDIA RIES iVuclear Insurance The Price-Anderson Act limits the public liability of a licensee of a nuclear plant to$580 million for a single nuclear incident.The Company has insurance covering its two-unit Cook Nuclear Plant in the maximum avail-able amount of$160 million, and the balance of$420 million is covered by a mandatory program of deferred premiums which would be assessed, after a nuclear incident, against all owners of nuclear reactors.When the 80th nuclear power reactor went into operation on November 15, 1982, the Nuclear Regulatory Commis-sion's indemnity obligation was eliminated.

Now, as each new reactor is licensed to operate, the$580 million limit increases by another$5 million.In the event of a nuclear incident the Company could be ass'essed$5 million per incident for each of its two generating units (subject to a maximum of$10 million per reactor in any year in the event of more than one incident).

The Company also has property insurance for dam-age to the Cook Plant facilities in the amount of$1.01 billion.The primary layer of$500 million is provided through nuclear insurance pools.The excess coverage above$500 million is provided partially through insur-ance pools ($85 million), with the mgority provided by Nuclear Electric Insurance Limited (NEIL), as de-scribed below.The Company is a member of NEIL and has obtained insurance under NEIL's two programs.NEIL's extra-expense program provides insurance to cover extra costs of replacement power resulting from a prolonged accidental outage of a nuclear unit.The Company's policy insures against such increased costs up to$2.5 million per week (starting 26 weeks after the outage)for one year and$1.25 million per week for the second year;or 80%%uo of those amounts per unit if both units are down for the same reason.The Company would be subject to a retrospective premium of up to$7,387,000 for Unit 1 and$7,373,000 for Unit 2 (five times annual premium)if NEIL's losses exceed its accumulated funds.Addition-ally, the Company has also joined NEIL's excess prop-erty insurance program which presently provides$425 million in coverage.The maximum assessment under this program could be$9,341,000 (seven and one-half times the annual premium on a 100%%uo coverage basis).Disposal of Spent Nuclear Fuel and Nuclear Deconunissioning The Nuclear Waste Policy Act of 1982 establishes Federal responsibility for the permanent disposal of spent nuclear fuel.Disposal costs are paid by fees as-sessed against owners of nuclear plants and deposited into the Nuclear Waste Fund created by the Act.For the disposal of nuclear fuel consumed after April 6, 1983 by the Company's Cook Nuclear Plant, the Company must pay to the fund a fee of one mill per kilowatthour, which the Company is currently recovering from its.customers In June 1983, the Company entered into a contract with DOE for the disposal of spent nuclear fuel.Under terms of the contract the Company must pay to the U.S.Treasury a fee estimated at approxi-mately$71,964,000, exclusive of'interest, for the dis-posal of nuclear fuel consumed prior to April 7, 1983.Approval by DOE of the calculation of the fee is cur-rently pending.The Company has deferred the$71,964,000 on its balance sheet pending recovery through the rate-making process.The Company has received regulatory approval in certain of its jurisdictions for the recovery of a portion of this amount and has begun to reduce the amount deferred as it is being recovered.

With respect to decommissioning, the Public Service Commission of Indiana held in an order dated De-cember 22, 1982 that"a reasonable estimate for the costs of decommissioning the (Cook Plant), when mea-sured in 1982 dollars, should be set at$155,000,000." In certain'of its jurisdictions, the Company is currently recovering, through inclusion in its current charges to customers, a portion of the future costs associated with decommissioning.

Funds recovered through the rate-making process for disposal of spent nuclear fuel consumed prior to April 7, 1983 and for nuclear decommissioning generally have been deposited in either external trust funds or internal special funds for the future payment of such costs.The Company will attempt to obtain in all its jurisdictions regulatory approval for the recovery of the remainder of such future costs.10.Leases:-The companies, as part of their operations, lease property, plant and equipment under leases ranging in length from 3 to 35 years.Most of the leases require the companies to pay related property taxes, maintenance costs and other costs of operation.

The companies ex-pect that in the normal course of business, leases will generally be renewed or replaced by other leases.The majority of the various rentals are included in leases having purchase options or renewal options for sub-.stantially all of the economic lives of the properties.

23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Rentals are analyzed as follows: Year Ended December 31, 1983 1982 1981 (in thousands)

Gross Rentals Less Rental Recoveries (including sublease rentals)(a)Net Rentals (b)...~.~~"~~~~~~$92,000$96,000$95,000 3,000$89,000 3,000$93,000 3,000$92,000 (a)Includes amounts paid for or reimbursed by associated companies.(b)Classified as: Operating Expenses Clearing and Miscellaneous Accounts (portions of which are charged to income).....$82,000$88,000$87,000 7,000 5,000 5,000$89,000$93,000$92,000 Future minimum lease payments, by year and in the aggregate, of the companies'apital leases and noncan-celable operating leases consisted of the following at December 31, 1983: Capital Operating Leases (a)Leases (in thousands) 1984 1985 1986 1987 1988 Later Years Total Future Minimum Lease Payments.$12,000 10,000 8,000 7,000 6,000 57,000 100,000$11,000 12,000 12,000 12,000 12,000 179,000$238,000 Less Estimated Interest Element Included Therein (b)..............

46,000 Estimated Present Value of Future Minimum Lease Payments.........$54,000 (a)Excludes leases of nuclear fuel, all of which are capital leases.Nuclear fuel rentals comprise the unamortized balance of the lessor's cost(approximately

$142,000,000at December 31, 1983), less salvage value, if any, to be paid in proportion to heat produced, and carrying charges on the lessor's unrecovered cost.It is contemplated that portions of the presently leased material will be replenished by addi-tional leased material.(b)Interest rates used range from 7.1%to 13.5%.The following is a pro forma analysis of properties under capital leases and related obligations assuming that such leases are capitalized:

December 31, 1983 1982 (in thousands) 28,000 19,000 12,000 13,000 357,000 11.Unaudited Quarterly Financial Information:

The following consolidated quarterly financial infor-mation is unaudited but, in the opinion of the Company, includes all adjustments (consisting of only normal re-curring accruals)necessary for a fair presentation of the amounts shown: Quarterly Periods Ended Operating Operating Revenues Income (in thousands)

Net Income'983-Mar.31 June 30 Sept.30 Dec.31 1982-Mar.31 June 30 Sept.30 Dec.31'Before preferred$197,685 191,193 235,221 244,881$47,323 43,199 43,959 48,262 241,513 52,967 183,212 43,628 202,372 35,882 182,706 42,468 stock dividend requirements.

$32,338 30,142 38,955 38,441 38,910 30,472 25,331 26,310 Nuclear Fuel$285,000$253,000 Coal.mining and Coal-transportation Equipment Other Transportation Equipment Real Estate Electric Distribution System Property...Gross Properties under Capital Leases Less Accumulated Provision for Amortization...............

162,000 153,000 Net Properties under Capital Leases....$195,000$167,000 Obligations under Capital Leases iai....0196000 0776000 (a)Including an estimated$69,000,000 and$60,000,000 at De-cember 31, 1983 and 1982, respectively, due within one year.A recent accounting standard will require the com-panies to capitalize leases beginning in 1984 for all cap-ital leases entered into after December 31, 1982 and all earlier leases beginning in 1987.This will not have any effect on the Consolidated Statements of Income.Included in the above analysis of future minimum lease payments and of properties under capital leases and related obligations are certain leases as to which portions of the related rentals are paid for or reimbursed by associated companies in the AEP System based on their usage of the leased property.The companies can-not predict the extent to which or proportion in which the associated companies will utilize the properties under such leases in the future.12.Unaudited Information On Inflation and Changing Prices: The supplementary information in the statements below is presented in compliance with the requirements 24 INDIANA&MICHIGAN EI.ECTRIC COMPANY AND S UBSIDIARIES such assets were acquired to the present, and differ from constant dollar amounts to the extent that specifltc prices have risen at a different rate than the general inflation rate as measured by the CPI-U.The current cost of property, plant and equipment represents the approximate cost of replacing such resources and in-cludes utility plant in service, construction work in progress, land, land rights and other property and in-vestments.

Current cost amounts were determined primarily by applying appropriate indexes from the Handy-Whitman Index of Public Utility Construction Costs.~Adjusted for Changes in SpeciTic Prices (current cost)Adjusted for General Inflation (constant dollar)Year Ended December 31, 1983 of the Financial Accounting Standards Board (FASB).The information is intended to disclose the effects of both general inflation and changing prices;however, the amounts should be considered approximations of such effects rather than precise measures since a num-ber of subjective judgments and estimating techniques were employed in developing the information.

Constant dollar amounts represent historical costs stated in terms of dollars of equal purchasing power as measured by the average level of the 1983 Consumer Price Index for All Urban Customers (CPI-U).Current cost amounts reflect the changes in specific prices of property, plant and equipment from the date Consolidated Statement of Income Adjusted for Effects of Changing Prices As Stated in the Primary Financial Statements Operating Revenues Operating Expenses: Operation:

Fuel for Electric Generation (a)Purchased and Interchange Power (net)Other Maintenance Depreciation, Depletion and Amortization (a)Taxes Other Than Federal Income Taxes.....Federal Income Taxes.Total Operating Expenses Operating Income Other Income and Deductions

.Net Interest Charges Preferred Stock Dividend Requirements Earnings Applicable to Common Stock (b)$868,980 159,998 159,086 122,127 53,049 83,963 37,053 70,961 686,237 182,743 53,629 (96,496)(28,384)$111,492 (in thousands)

$869,000 161,000 159,000 122,000 53,000 188,000 37,000 71,000 791,000 78,000 54,000 (97,000)(28,000)$7,000 8869,000 161,000 159,000 122,000 53,000 194,000 37,000 71,000'797,000 72,000 54,000 (97,000)(28,000)$1,000 Increase in Specific Prices (current cost)of Property, Plant and Equipment Held During the Year (c)..............

Reduction to Net Recoverable Cost (d)Effect of Increase in General Price Level.............;.......

Excess of Increase in SpeciTic Prices after Reduction to Net Recoverable Cost over Increase in General Price Level Gain from Decline in Purchasing Power of Net Amounts Owed (e).Net$249,000 (24,000)(215,000)$(5,000)10,000 68,000 68,000$63,000$78,000 (a)As prescribed by the FASB, the items in the Consolidated Statement of Income thai haec been adjusted are depredation, depledon and amortization (including portions classified as fuel for electric generation and other income and deductions).

Depreciation, depletion and amortization charges were computed by applying current accrual rates to the various plant accounts (production, transmission, distribution, general and miscellaneous) after adjusting such accounts for the effects of changing prices.(b)Including the reduction to net recoverable cost, the income (loss)from operations on a constant dollar basis and current cost basis would.have been$2,000,000 and$(23,000,000), respectively.(c)At December 31, 1983, current cost of property, plant and equipment net of accumulated depreciation, depletion and amortization was$5,803,000,000 while historical cost or net cost recoverable through depreciation, depletion and amortization was$2,908,000,000.(d)The reduction to net recoverable cost of property, plant and equipment (as expressed in terms of inflation.

adjusted cost)to historical cost recognizes that the rate-making process limits the Company to recovery of the historical cost of the subject assets.(e)To reflect properly the economics of rate regulation in the Consolidated Statement of Income Adjusted for Effects of Changing Prices, the reduction to net recoverable cost should be offset by the gain that results from the decline in purchasing power of the net amounts'owed by the Company.During a period of inflation, holders of monetary assets such as cash and receivables suffer a loss of general purchasing power while holders of monetary liabilities, generally long-term debt, experience a gain (because debt will be repaid in dollars having less purchasing power).The Company's gain from the decline in purchasing power of its net amounts owed is primarily attributable to the substantial amount of debt and cumulative preferred stock subject to mandatory redemption which has been used to finance utility plant.25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)

Five-Year Comparison of Selected Supplementary Data Adjusted for Effects of Changing Prices (dollar amounts are expressed in terms of average 1983 dollars)Year Ended December 31, 1983 1982 1981 1980 (in thousands, except index data)1979$938,000$836,000$890,000$(10,000)$(21,000)$(5,000)$28,000$1,084,000$1,088,000$1,098,000$1,189,000$(9,000)$10,000$1,082,000$(127,000)$1,088,000$(326,000)$(262,000)$1,098,000$1,189,000$76,000 289.2$220,000 246.8 Operating Revenues$869,000$898,000 Historical Cost Ittformation At(t'it st ed for General Ittflation Income (Loss)from Operations (excluding reduction to net recoverable cost)$7,000 Net Assets at Year-end at Net Recoverable Cost....$1,082,000 Carrent Cost Ittfonnation Income (Loss)from Operations (excluding reduction to net recoverable cost).............

$1,000$(11,000)$(21,000)$8,000 Excess (Deficit)of Increase in Specific Prices after Reduction to Net Recoverable Cost over Increase in General Price Level$(9,000)Net Assets at Year-end at Net Recoverable Cost....$1,084,000 General Financial Data Gain from Decline in Purchasing Power of Net Amounts Owed$68,000$158,000$237,000 Average Consumer Price Index 298.4 272.1 217.5 General information on hfining Operations Proven and Probable Coal Reserves at End of Year (thousands of tons)(Note)414,207 411,377 412,546 413,964 415,023.Tons of Coal Mined (thousands)

..-.................

360 1,168 779 1,059 669 Average Market Price (at current cost per ton)......$84.66$50.89$65.95$63.78$63.10 Note: Proven'reserves-The estimated quantities of commercially recoverable reserves that, on the basis of geological, geophysical and'ngineering data, can be demonstrated with a reasonably high degree of certainty to be recoverable in the future from known, mineral deposits by either primary or improved methods.Probable rese'rves-Thc estimated quantities of commercially recoverable reserves that are less well defined than proven reserves and that may be estimated or indicated to exist on the basis of geological, geophysical and engineering data.26 INDIANA&M HIGAN ELECTRIC COMPANY AND SUBSIDIARIES Auditors'pinion Dsloitte Has kiss+sells 155 East Broad Street Columbus.Ohio 43215 (614)221~1000 Cable OEHANOS To the Shareowners and Board of Directors of Indiana and Michigan Electric Company: We have examined the consolidated balance sheets of Indiana S Michigan Electric Company and'its subsidiaries as of December 31, 1983 and 1982 and the related consolidated statements of income, retained earnings and sources and applications of funds for each of the three years in the period ended December 31, 1983.Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

As discussed in the third paragraph under the caption"Litigation" in Note 9 of Notes to Consolidated Financial Statements, the Federal Energy Regulatory Commission staff has claimed that the Company has paid excessive prices, for coal from affiliated mines resulting in overcharges to customers which may have to be refunded'he Company estimates that the alleged overcharges would aggregate at least$163,000,000, inclusive of interest and certain other adjustments at December 31, 1983.The Company cannot assess the ultimate outcome of this proceeding, if any, on the Company's financial position or results of operations.

In our opinion, subject to the effects on the consolidated financial statements of such adjustments, if any, as might have been required had the outcome of the uncertainty referred to in the preceding paragraph been known, such consolidated financial statements present fairly the financial position of the Company and its subsidiaries at December 31, 1983 and 1982 and the results of their operations and their sources and applications of funds for each of the three years in the period ended December 31, 1983, in conformity with generally accepted accounting principles applied on a consistent basis.February 21, 1984 27 Operating Statistics 1983 1982 1981 1980 1979 ELEGTRlc OPERATING REYENUEs (in thousands):

From Kilowatt-hour Sales: Retail: Residential:

Without Electric Heating With Electric Heating Total Residential

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

Commercial Industrial Miscellaneous Total Retail Wholesale (sales for resale)Total from Kilowatt-hour Sales..Other Operating Revenues..............

Total Electric Operating Revenues.$125,798 68,793$116,340 59,826$144,370 70,851$106,488 54,277$102,543 55,458 2157221 137,616 154,751 8,696 194,591 127,470 137,152 7,568 176,166 117,725 134,519 6,953 158,001 106,151 127,815 6,099 160,765 108,764 116,165 6,150 398,066 280,639 516,284 343,427 391,844 346,513 435,363 360,096 466,781 325,468 859,711 9 269 792,249 17,554 738,357 4,326 795,459 16,690 678,705 4,308$868,980$809,803$812,149$742,683$683,013 SQURcEs AND SALEs QF ENERGY (in millions of kilowatt-hours):

Sources: Net Generated-Steam: Fossil Fuel Nuclear Fuel Net Generated-Hydroelectric

.Subtotal Purchased..Net Interchange Total Sources Less: Losses, Company Use, Etc.Net Sources Sales: Retail: Residential:

Without Electric Heating With Electric Heating Total Residential

.........Commercial Industrial Miscellaneous Total Retail Wholesale (sales for resale)Total Sales 5,684 12,301 55 18,040 4,881 573 23,494 1,441 22,053 2,596 1,458 4,054 2,807 3,941 204 11,006 11,047 22,053 4,587 12,349 77 17,013 2,154 3,775 22,942 1,243 21,699 2,472 1,540 4,012 2,803 3,701 197 10,713 10,986 21,699 6,373 13,167 98 19,638 1,570 3,704 24,912 1,239 23,673 2,467 1,513 3,980 2,748 4,021 199 10,948 12,725 23,673 6,719 13,153 85 19,957 1,883 3,669 25,509 1,426 24,083 2,493 1,549 4,042 2,716 3,932 195 10,885 13,198 24,083 6,443 11,614 79 18,136 811 5,389 24,336 1,386 22,950 2,389 1,619 4,008 2,629 4,380 194 11,211 11,739 22,950 28 INDIANA&MICHIGAN ELECTRIC COMPANY t AND S UBSIDIA RIES OPERATING STATISTICS (Concluded) 1983 1982 1981 1980 1979 ANNUAL CosTOF FUEL CONsUMED (in cents): (a)Cents per Million Btu: Coal Nuclear Overall Cents per Kilowatt-hour Generated:

Coal Nuclear Overall 183.97 54.37 91.99 1.76.59.96 189.59 187.13 49.55 49.90 84.85 91.35 1.85 1.81.53.54.89.95 164.49 48.44 84.95 1.59.52'.89 151.91 37.82 76.25 1.52.41.81 RESIDENTIAL SERvlcE-AYERAGES: Annual Kwh Use per Customer: Total With Electric Heating Annual Electric Bill: Total With Electric Heating Price per Kwh (in cents): T otal With Electric Heating-............

10,187 18,780$541$912 5.31 4.86 10,084 19,990 10,008 19,866$489"$443$893$785 4.85 4.43 4.47 3.95 10,206 20,584 10,210 21,611$406$402$721$740 3.98 3.94 3.50 3.43 NUMBER QF ELEcTRIc CUSTQMERS:

Year-End: Retail: Residential:

Without Electric Heating With Electric Heating Total Residential

...........

Commercial Industrial Miscellaneous Total Retail Wholesale (sales for resale)Total Electric Customers 320,655 78 311 398,966 42,552 3,253 1,571 446,342 106 446,448 320,097 77,335 397,432 42,233 3,249 1,458 444,372 105 444,477 321,850 77,002 398,852 42,957 2,873 1,440 446,122 104 446,226 321,432 75,618 397,050 42,758 2,802 1,424 444,034 105 444,139 319,477 75,606 395,083 42,563 2,748 1,373 441,767 103 441,870 (a)Excludes effect of deferred collection of fuel costs.29 Price Range of Cumulative Preferred Stock By Quarters (1983 anti 1982)1983-Quarters 1982-Quarters Cumulative Preferred Stock 1st 2nd 3rd 4th 1st 2nd 3rd 4th ($100 Par Value)4Ve%Series Dividends Paid Per Share Market Price-$Per Share (MSE)-High-Low 4.56%Series Dividends Paid Per Share Market Price-$Pcr Share (OTC)Ask (high/low)

Bid (high/low) 4.12%Series Dividends Paid Per Share Market Price-$Per Share (OTC)Ask (high/low)

Bid (high/low) 7.08Fo Series Dividends Paid Per Share Market Price-$Per Share (NYSE)-High-Low 7.76%Series Dividends Paid Per Share Market Price-$Per Share (NYSE)-High-Low 8.68%Series Dividends Paid Pcr.Share Market Price'$Per Share (NYSE)=High-Low 12%Series Dividends Paid Per Share, Market Price-$Per Share (N YSE)-High-Low ($25 Par Value)$2.15 Series Dividends Paid Per Share Market Price-$Per Share (N YSE)-High-Low$2.25 Series Dividends Paid Per Share Market Price-$Pcr Share (N YSE)-High-Low$2.75 Series Dividends Paid Per Share Market Price-$Per Share (NYSE)-High-Low$3.63 Series Dividends Paid Per Share Market Price-$Pcr Share (NYSE)-High-Low 30 27 59 29V4 30Ye 29th 55Vi 30$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$1.03$1.77$1.77$1.77$1.77$1.77$1.77$1.77$1.77 58 52th 59~h 54Ye 55 51th 56 49Ys 46N 42th 47 44 50 44 55 48$1.94$1.94$1.94$1.94$1.94$1.94$1.94$1.94 62Y~57 64%57th 61 56 61%54 50Yi 45Yi 52, 56th 47Ve 48 61th 52Y4$2.17$2.17$2.17$2.17$2.17$2.17$2.17$2.17 70 63th 73%65th 70Fs 65%70 60Y4 55 50N 58th 52 59N 57th 67 57Fa$3.00$3.00$3.00$3.00$3.00$3.00$3.00$3.00 100hh 94 103th 99 103Y4 97 101N 96'1th 77th 86k 79Yi 94 79Y~98th 89$0.5375$0.5375$0.5375$0.5375$0.5375$0.5375$0.5375$0.5375 17Fe 15N 18'6'7th 15N 17'4N 14h 15 15Fs 13Ye 13'3Y~17Ve 15Ye$0.5625$0.5625$0.5625$0.5625$0.5625$0.5625$0.5625$0.5625 18Ve 16th 18Y4 16'8 15h 14'5%1&%13th 13th 14V 18Y4 les$0.6875$0.6875$0.6875$0.6875$0.6875$0.6875$0.6875.$0.6875 23N 21N 25 23Ve 24 23Ye 24 23 18V4 18%20 17 V18%16th 21 20$0.9075$0.9075$0.9075$0.9075$0.63$0.9075$0.9075$0.9075 297'6N 30Ye 27N 28N.27 28N 26K 25%26N 22N 23 2%6 25th$1.03125$1.03125$1.03125$1.03125$1.03125$1.03125$1.03125.$1.03125 MSE-Midwest Stock Exchange OTC-Over-the-Counter NYSE-New York Stock Exchange Note-The above bid and asked quotations represent prices between dealers and do Market quotations provided by National Quotation Bureau, Inc.Dash indicates quotation not available.

r not represent actual transactions.

30 The Company's Annual Report (Form 10-K)to the Securities and Exchange Commission will be available on or about March 31, 1984 to shareowners upon written request and at no cost.Please address such requests to: Mr.T.P.Bowman American Electric Power Service Corporation 1 Riverside Plaza Columbus, Ohio 43215 Transfer Agent and Registrar of Cumulative Preferred Stock Morgan Guaranty Trust Company of New York 30 West Broadway, New York, N.Y.10007 e Season Hortsstr I~(I H SI.Joseph'~~~I,.Sores Heron ws os\waar scws ca ttorsOos O Kok mocoo fCrro~ct,>>ag N I C I G A N IRRILN RI~NS a+I n 4 wa sossw sown ssoo swa c>>ww y IN RRAN Jockson 0 SP I See ws a w os OOIC csww Irhk svil4 w Os aloe awe eww Fort W ,QJ I N D I A A Lafayette~vnc ows w Is'k Kokomo OY~~wpj a M~oson Moat ponlo art Honf>>d Gly sO H I 0~oo oooo Vnksn Gty wa w or wee>>ross low s sw c>>rw r'ndionopo il Lynn w or<<wa crew eesC sewn Ca ranrvrsn REED as>>wow sower~sw co 0 SL o I o oo 0~~aaRStmn SSO 0'b TANNERS CREEK I I so crew 4~~eecsec cern>>I I I r a Cincinnoti

%%OJ5%%~iiti~L K E N T U C K Y INDIANA 8 MICHIGAN ELECTRIC COMPANY ROCKPORT Q ssww.lrssootsws Q srwssa I sl lsssoanws P nroe Iaaarsws~4 ws~ss u on>>vsasle twwweee swn I ewwsw Sssw Snaw Caa.~a>>4 le 0 I I IO oa esses rearoe tale talteaoa as sssaasoaa Iuotaea toala olavsol ooatoauma s anlaenl tsal4 oossmao4 oao ATTACHMENT 2 TO AEP:NRC:0909 I i t.l (P'I k 1984 Internal Cash Flow Projection-for Donald C.Cook Nuclear Plant (Millions)

Actual 1983 Projected 1984 Net income after taxes Less dividends paid Retained earnings 139.9 136.0 3.9 155 141 14 Adjustments:

Depreciation and amortization Deferred income taxes and investment tax credits AFUDC.*'.To&al'adjustmen<s..:.:::

'6.0 89.8 (119.2):...5 6 1 6":.'8 130 (116)Internal cash flow.Average quarterly cash flow 60.5 15.1 116 29 Average cash balances and short-term investments 13.5 40 Total 28.6 69 0 Ownership in all operating nuclear units: Unit.1 and Unit, 2-1005o" Maximum Total Contingent Liability-$20.0 million (2 units) tl r