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

~4 DENTON,H.R, Office of Nuclear Reactor Regulationr Director S UBJECT: "Annual Rept'983." N/1984 internal cash flow projection 8 841221 l tr.

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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. 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

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G ANNUAL REPORT 1983 AMERICAN ELECTRIC POWER SYSTEM y,b~"

S5010OOZSS S31aS1 PDR ADOCK 05000315 PDR

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 6-8 Consolidated Statements of Income Consolidated Balance Sheets 10-11 Consolidated Statements of Sources and Applications of Funds 12 Consolidated Statements of Retained Earnings 13 Notes to Consolidated Financial Statements 14-26 Auditors'pinion 27 Operating Statistics 28-29 Price Range of Cumulative Preferred Stock 30

INDIANA& MICHIGANELECTRIC 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. is (AEP) 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 transmission network. This network in turn is interconnected either directly or indirectly high-'oltage 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 M. R. HARRELL (a)

W. A. BLAcK G. E. LEMASTERS (b)

LAWRENCE R. BRUNKE (a) GERALD P. MALONEY P. F. CARL, JR. (b) RICHARD C. MENGE RICHARD E. DISBROW J. F. STARK JOHN E. DOLAN BEVERLY I. STEARS (d)

WILLIAMN. D'ONOFRIO (C) W. S. WHITE, JR.

Officers W. S. WHITE, JR. ROBERT S. HUNTER (0 WILLIAME. OLSON (d)

Chairman of the Board Vice President Assistant Secretary and Chief Executive Officer GERALD P. MALONEY WILLIAMJ. PROCHASKA (f)

W. A. BLAcK Vice President Assistant Secretary President and RICHARD C. MENGE JOHN B. SHINNOCK (C)

Chief Operating Officer Vice President Assistant Secretary J. F. STARK BEVERLY I. STEARS (d) JOAN ST. JAMES Senior Vice President Vice President Assistant Secretary MILTGN P. ALExlcH, Adm. USN Ret. (e) PETER J. DEMARIA LEONARD V. ASSANTE Vice President Treasurer Assistant Treasurer FRANK N. BIEN JOHN R. BURTON BRUCE M. BARBER Vice President Secretary Assistant Treasurer RICHARD E. DISBROW ALLEN H. STUHLMANN GERALD R. KNORR Vice President Assistant Secretary and Assistant Treasurer JOHN E. DOLAN Assistant Treasurer Vice President JOHN F. DILORENZO, JR.

WILLIAMN. D'ONOFRIO (C) Assistant Secretary Vice President WILLIAMC. HARVEY (8)

A. JOSEPH DOWD Assistant Secretary Vice President CARL J. MOOS RICHARD F. HERING Assistant Secretary Vice President Tltc principal occupation of each of the above directors and ojficers of Indiana ck hfichignn Electric Compnny, with nine exceptioris, is as an employee ofAmerican Electric Power Service Corporation. The exceptions nre IV. A. Blnck, P. F. Carl, Jr., IVilliamIV. D'Onofrio, G.E. Lehfasters, Richard C. hfengc, CnrlJ. 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 1980 1979 (in thousands)

INCOME STATEMENTS DATA:

OPERATING REYENUEs ELEcrRIc $ 868,980 $ 809,803 $ 812, 149 $ 742,683 $ 683,013 TOTAL OPERATING EXPENSES 686,237 634,858 634,209 577,502 524,800 OPERATING INCOME 182,743 174,945 177,940 165,181 158,213 TOTAL OTHER INCOME AND DEDUCTIONS 53,629 48,725 29,713 30,541 29,042 INCOME BEFORE INTEREST CHARGES 236,372 223,670 207,653 195,722 187,255 NET INTEREST CHARGES 96,496 102,647 104,313 99,151 91,475 CQNsoLIDATED NET INcohIE before preferred stock dividend requirements .. 139,876 121,023 103,340 96,571 95,780 PREFERRED STOCK DIVIDEND REQUIREMENTS 28,384 28,628 23,624 23,242 19,995 EARNINGS APPLICABLE To COMMON STOCK $ 111,492 $ 92,395 $ 79,716 $ 73,329 $ 75,785 December 31, 1983 1982 1981 1980 1979 (in thousands)

BALANCE SHEETS DATA:

ELECTRIC UTILITY PLANT $ 3,666,823 $ 3,541,114 $ 3,356,987 $ 3,117,381 $ 2,657,930 ACCUhjULATED PROVISIONS FOR DEPRECIATION, DEPLETION AND AMORTIZATION 760,889 685,789 611,699 561,773 475,643 NET ELECTRIC UTILITY PLANT 2,905,934 2,855,325 2,745,288 2,555,608 2,182,287 TOTAL ASSETS 3,343,963 3,135,884 3,035,614 2,826, 172 2,616,996 COMMON STOCK, PREMIUMS ON CAPITAL STOCK AND OTHER PAID-IN CAPITAL 807,925 777,783 727,652 . 637,287 587,193 RETAINED EARNINGS 95,616 91,756 100, 170 114,495 130,480 CUMULATIVEPREFERRED STOCK:

NOT SUBJECT TO MANDATORYREDEMPTION 197,000 197,000 197,000 197,000 197,000 SUBJEGT To MANDATQRY REDEhIPTIQN (a) 99,497 104,447 105,509 68,348 70,000 LQNG-TERM DEBT (a) 1,445,704 1,397,475 1,404,044 1,264,673 1,124,255 (a) Including portion due within one year.

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Management's Discussion and Analysis of Results of Operations and Financial Condition The following are the more significant factors bearing other utilities. Normally, during periods of peak de-on the financial condition of Indiana & Michigan Elec- mand that exceed the available generating capacity, the tric Company and its subsidiaries as reflected in the Company is able to meet its wholesale customers'e-consolidated results of operations. This discussion re- quirements by purchasing power from neighboring fers to the consolidated financial statements that fol- utilities for resale to others because of AEP's powerful low. interconnection and transmission capacity.

Total operating expenses increased 8.1% in 1983 Operating Revenues and Expenses compared to a 0.1% increase in 1982. The increase in 1983 was primarily due to increases in Federal income Consolidated operating revenues increased 7.3% in taxes and fuel expenses. Federal income taxes in-1983 compared to a decrease of 0.3% in 1982.

creased 85.8% in 1983 due largely to an increase in Kilowatt-hours sold increased 1.6% in 1983 compared pre-tax book income. Fuel expenses increased 11.9%%uo in with an 8.3% decrease in 1982. The primary reason for 1983 as a result of increased generation levels and a the increase in operating revenues was the receipt of change in fuel mix. In 1982 fuel expenses decreased additional rate relief coupled with an improvement in 18.8% as a result of decreased kwh sales and a change in kwh sales during the second half of 1983. The improve-fuel mix. Future fuel expenses will be affected by gen-ment in energy sales reflects the hot summer and colder eration levels, contractual agreements between the coal weather in late fall and early winter as well as the industry and the United Mine Workers of America and gradual recovery of the economy in the Company's the possibility of yet more stringent environmental re-service area. The 1982 decrease in sales of electric strictions on burning certain types of coal. Whether or energy and operating revenues was attributable to the depressed economic activity and mild weather experi-not future increases in fuel costs will adversely affect enced throughout most'of the year in the service area. earnings willdepend on the Company's continued abil-Revenues from retail customers (residential, com- ity to recover such costs promptly in the face of efforts mercial and industrial) were up" 10.6% in 1983 with a by certain consumer groups and others to delay or corresponding increase in kwh sales of 2.7% while in reduce rate increases and to eliminate or reduce the 1982 these revenues rose 7.2% on a 2. 1% decline in kwh extent of coverage of fuel-adjustment clauses.

sales. The increase in revenues was due to higher rates which went into effect during 1983. The increase in kwh Construction and Financing Program sales includes a 6.5% increase in sales to industrial Expenditures for the Company's construction pro-customers as opposed to an 8.0% decrease last year, gram over the three-year period 1984-1986 are esti-reflecting the changes in the economy in the Company's mated to be approximately $ 597 million. Substantial service area. additional expenditures may be required if existing Wholesale revenues for 1983 increased by 5.5% fol- generating plants require modification or additional lowing a 9.6% decrease in 1982. Kwh sales to wholesale facilities to comply with future environmental quality customers increased 0.6% in 1983 compared to a 13.7% standards. See "Environmental Matters" in Note 9 of decrease in the preceding year. The increased revenues . the Notes to Consolidated Financial Statements for were mainly the result of rate increases put into effect additional information. In recent years, the construc-during 1983 and a significant rebound in energy sales to tion program has been affected by substantial increases other utilities during the last half of the year. The re- in construction costs and the expense of obtaining bound in wholesale sales to municipalities, electric financing for the program due to high costs of capital.

cooperatives and other electric utilities is expected to The construction program is reviewed continuously continue into 1984; however, much will depend upon and revised from time to time in response to revised the extent of improvements in the economy as well as projections of load growth and changes in the cost and weather patterns. availability of capital. In recent years, these reviews Purchased and interchange power expense increased have resulted in extending construction schedules of a 2.8% in 1983 and 11.2% in 1982. The 1983 increase number of projects with the objective of reducing the largely reflects increased purchases from other utilities level of annual construction expenditures. However, and decreased interchange transactions to obtain power deferrals of construction projects may have an adverse from other AEP System companies. The 1982 increase effect on the quality of the Company's service to its was mainly the result of an increase in purchases from customers in the future, and any resulting reductions in

INDIANAP. I~i.HIGANELECTRIC COMPANY AND SUBSIDIARIES current construction costs will, in the long run, be at pollution-control revenue bond financings by public least partially offset by general inflationary trends as bodies on behalf of the Company, but the levels of well as possible cancellation charges. In addition, when coverage under them may affect the cost and marketa-the completion date of a project under construction is bility of such bonds. At December 31, 1983, the cover-substantially delayed, it becomes more expensive, both ages of the Company under these provisions were at because of the foregoing factors and because certain least 2.01 for long-term debt and 1.64 for preferred costs, principally financing costs, continue to accrue stock.

until the facility is placed in commercial operation. In view of these restrictions on the issuance of addi-It is estimated that all of the Company's projected tional debt securities and preferred stock, the Company construction expenditures for 1984-1986 will be fi- believes that it will be possible to meet the capital nanced with internally generated funds. If any addi- requirements of its construction program only if the tional amounts are needed they will be raised exter- Company receives rate increases over the next several nally, as in the past, through sales of securities and years sufficient to meet the earnings levels required to investments in the Company's common equity by AEP. issue the necessary amounts of long-term debt and pre-The Company initially finances current construction ferred stock and to provide an appropriate return on expenditures in excess of available internally generated new equity investment. See Note 2 of the Notes to funds by issuing unsecured short-term debt (commer- Consolidated Financial Statements regarding a recent cial paper and bank loans) and then periodically reduces prehearing rate order in which the Public Service short-term debt with the proceeds of sales of long-term Commission of Indiana found that the second step por-debt securities and preferred stock and with invest- tion of a proposed rate request was not properly pre-ments in the Company's common equity by AEP. sented. The second step was to coincide with the De-The amounts of short-term debt which the Company cember 1984 commercial operation date of the Com-may issue are limited by regulatory restrictions under pany's Rockport Plant Unit 1. This finding raises a the Public UtilityHolding Company Act of 1935 and by question as to the effect on the Company's net income restrictions in its charter and in certain debt instru- and financial condition unless other alternatives under ments. At December 31, 1983, the Company had re- consideration are implemented.

ceived authorizations from the Securities and Ex-change Commission to issue a total of approximately Net Income and Dividends

$ 135 million of short-term debt. Note 7 of the Notes to Consolidated net income before preferred dividend Consolidated Financial Statements contains informa-requirements increased in 1983 by 15.6% and in 1982 by tion on the Company's short-term bank lines of credit.

17.1%. These changes in net income were accompanied Bank lines of credit may be withdrawn at any time by the banks extending them, and in most cases the banks by a decrease in the total proportion of allowance for funds used during construction (AFUDC) reflected in require either the maintenance of compensating deposit net income, 85% in 1983 and 92% in 1982. AFUDC does balances or the payment of fees in lieu of deposits.

not represent cash income or a reduction in actual inter-In order for the Company to issue additional long-est expense, but is an accounting convention permitted term debt and preferred stock, it is necessary for it to by regulatory systems of accounts. AFUDC represents comply with earnings-coverage requirements con-the net.cost of borrowed funds used for construction tained in its mortgage bond and debenture indentures and a reasonable rate of return on other funds when so and charter. In order to issue additional long-term debt used. Such amounts are capitalized as a cost of con-(except to refund maturing long-term debt), the Com- struction projects with a concurrent credit to the In-pany must have pre-tax earnings equal to at least twice come Statement. The amount capitalized is added to the the annual interest charges on long-term debt, giving cost of construction projects and generally included in effect to the issuance of the new debt, for a period of 12 the plant investment base for setting rates and recov-consecutive months within the 15 months immediately ered through depreciation charges included in rates preceding the date of the new issue. To issue additional after the project is placed in commercial operation.

preferred stock, the Company must have after-tax gross In the event the Company must make refunds or income at least equal to one and one-half times annual experience other adverse effects pursuant to the out-interest charges and preferred dividends, giving effect come of the issues relating to the Federal Energy Reg-to the issuance of the new preferred stock, for the same ulatory Commission investigation of the AEP System's period. These provisions do not prevent certain types of

policies with respect to coal purchasing and practices income that is not readily evident in conventional finan-(see "Litigation" in Note 9 of the Notes to Consoli- cial statements. For additional information on the ef-dated Financial Statements), this could restrict the abil- fects of inflation, refer to Note 12 of the Notes to Con-ity of the Company to pay dividends for a period of time solidated Financial Statements, which presents a con-on its outstanding Common Stock to AEP. solidated statement of income for 1983, adjusted for effects of inflation, and a comparison of selected sup-Effects of Infiatlon plementary data for a five-year period, similarly ad-In recent years inflation has had an effect on the justed.

Company's consolidated revenues, expenses and net

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

OPERATING REVENUES ELECTRIC $ 868,980 $ 809,803 $ 812,149 OPERATING EXPENSES:

Operation:

Fuel for Electric Generation 159,998 143,025 176,074 Purchased and Interchange Power (net) 159,086 154,683 139,119 Other 122,127 126,922 101,792

'aintenance 53,049 56,431 48,895 Depreciation; Depletion and Amortization 83,963 83,031 81,458 Taxes Other Than Federal Income Taxes 37,053 32,567 32,698 Federal Income Taxes 70,961 38,199 54,173 Total Operating Expenses 686,237 634,858 634,209 OPERATING INCOME 182 743 174,945 177,940 OTHER INCohIB AND DEDUCTIONS:

Allowance for Other Funds Used During Construction ...... 60,588 57,889 32,885 Miscellaneous Nonoperating Income Less Deductions ~6,959 (9,164) (3,172)

Total Other Income and Deductions 53,629 48,725 29,713 INCOME BEFORE INTEREST CHARGES . 236 372 223,670 207,653 INTEREST CHARGES:

Interest on Long-term Debt . 144,430 142,841 129,023 Interest on Short-term Debt 8,998 8,974 18,042 Miscellaneous Interest Charges 1,714 4,258 4,228 Total Interest Charges 155,142 156,073 151,293 Allowance for Borrowed Funds Used During Construction (credit) ~58,646 (53,426) (46,980)

Net Interest Charges 96,496 102,647 104,313 CoNsoLIDATED NET INcohIE before preferred stock dividend requirements 139,876 121,023 103,340 PREFERRED STOCK DIVIDEND REQUIREhIENTS 28,384 28,628 23,624 EARNINGS APPLICABLE To COMMON STOCK $ 111,492 $ 92,395 $ 79,716 See iVotes to Consolidated Financial Statements.

Consolidated Balance Sheets December 31, 1983 1982 (in thousands)

ASSETS ELECTRIC UTILITY PLANT:

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

Cash 7,283 10,000 Special, Deposits and Working Funds 5,966 4,098 Accounts Receivable:

Customers 113,674 56,739 Associated Companies 5,549 9,214 Miscellaneous 39327 4,148 Accumulated Provision for Uncollectible Accounts . (470) (414)

Materials and Supplies (at average cost or less):

Fuel . 75,203 72,811 Construction and Operation Materials and Supplies 18,130 19,821 Accrued Utility Revenues 48,550 21,874 Prepayments and Other Current Assets 5,967 5,134 Total Current Assets . 283,179 203,425 DEFERRED DEBITS:

Unamortized Debt Expense 3,415 3,570 Property Taxes 2,029 1,740 Deferred Collection of Fuel Costs 215 Deferred Strike Costs 1,035 2,413 Other Work in Progress 3,254 3,961 Deferred Nuclear Fuel Disposal Costs 72,575 Other Deferred Debits 32,851 36,916 Total Deferred Debits 115,159 48,815 Total . $ 3,343,963 $ 3,135,884 See hloles to Consolidate(! Financial Siatemenrs.

10

INDIANA& MICHIGANELECTRIC COMPANY AND SUBSIDIARIES December 31, 1983 1982 (in thousands)

CAPITALIZATIONAND LIABILITIES CAPITALIZATION:

Common Stock No Par Value:

Authorized 2,500,000 Shares Outstanding 1,400,000 Shares $ 56,584 $ 56,584 Premiums on Capital Stock 381 381 Other Paid-in Capital . 750,960 720,818 Retained Earnings 95,616 91,756 Total Common Shareowner's Equity ......... ~..... 903,541 869,539 Cumulative Preferred Stock:

Not Subject to Mandatory Redemption 197,000 197,000 Subject to Mandatory Redemption (less sinking fund requirements due within one year) . 99,345 104,000 Long-term Debt (less portion due within one year) 1,358,830 1,304,505 Total Capitalization (less amounts due within one year) . 2,555 726 2,475,044 CURRENT LIABILITIES:

Cumulative Preferred Stock Sinking Fund Requirements Due Within One Year . 152 447 Long-term Debt Due Within One Year . 86,874 92,970 Short-term Debt:

Notes Payable to Banks 39,950 89,150 Commercial Paper . 225500 3,000 Accounts Payable:

General . 40,318 35,147 Associated Companies 55,403 12,586 Dividends Declared:

Common Stock . 17,616 Cumulative Preferred Stock 6,999 7,140 Customer Deposits 2,990 2,836 Taxes Accrued 14,968 11,464 Interest Accrued 35,998 35,120 Revenue Refunds Accrued 98 11,921 Other Current Liabilities 37,904 25,895 Total Current Liabilities 361,770 327,676 CohthIITMBNTs AND CoNTINGENclEs (Note 9)

DEFERRED CREDITS AND OPERATING RESERVES:

Deferred Income Taxes 338,350 255,098 Deferred Investment Tax Credits 32,287 35,877 Other Deferred Credits and Operating Reserves ......... 52,840 42,189 Total Deferred Credits and Operating Reserves 423,477 333,164 Total $ 3,343,963 $ 3,135,884

0' Consolidated Statements of Sources ~

and Applications of Funds Year Ended December 31, 1983 1982 1981 (in thousands)

SoURcEs oF FUNDs:

Funds from Operations:

Consolidated Net Income $ 139,876 $ 121,023 $ 103,340 Principal Non-fund Charges (Credits) to Income:

Depreciation, Depletion and Amortization 86,025 87,459 85,978 Provision for Deferred Income Taxes (net) 84,296 22,533 36,082 Deferred"Investment Tax Credits (net) 55556 25,638 9,247 Amortization of Deferred Strike Costs 1,378 1,378 3,195 Amortization of Deferred Collection of Fuel Costs 215 287 287 Amortization of Deferred Nuclear Fuel Disposal Costs 3,092 Allowance for Other Funds Used During Construction (607588) (57,889) (32,885)

Other (net) 1,977 1,141 710 Total Funds from Operations 261,827 201,570 205,954 Funds from Contributions and Financings:

Contributions and Financings:

Capital Contributions from Parent Company 30,000 50,000 90,000 Cumulative Preferred Stock 38,734 Long-term Debt 69,239 99,167 158,922 Short-term Debt (net) ~29,700 38,550 ~92,925 Total 69,539 187,717 194,731 Less Retirements of Cumulative Preferred Stock and Long-term Debt 98,290 106,997 22,019 Net Funds from Contributions and Financings ~28,751 80,720 172,712 Sales of Property '., 71,212 77,745 40,845

'Total Sources of Funds $ 304,288 $ 360,035 $ 419,511 APPLICATIONS OF FUNDS:

Plant and Property Additions:

Gross Additions to Utility Plant $ 201,793 $ 267,783 $ 307,672 Gross Other Additions 428 326 578 Total Gross Additions . 202,221 268,109 308,250 Allowance for Other Funds Used During Construction ~60,588 (57,889) (32,885)

Net Plant and Property Additions 141,633 210,220 275,365 Dividends on Common Stock 107,632 100,800 92,624 Dividends on Cumulative Preferred Stock 28,384 28,628 23,624 Deferred Strike Costs 6,986 Other Changes (net) 179070 (4,103) 2,415 Increase in Working Capital (a) 9,569 24,490 18,497 Total Applications of Funds $ 304,288 $ 360,035 $ 419,511 (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 $ (849) $ (11,962) $ 11,765 Accounts Receivable 529393 (22,948) 2,405 Materials and Supplies 701 24,041 (16,505)

Accrued Utility Revenues 26,676 1,880 8,198 Accounts Payable (47,988) 84 6,936 Dividends Declared on Common Stock (17,616) 1,124 10,376 Taxes Accrued (3,504) 18,479 (6,139)

Revenue Refunds Accrued 11,823 11,174 15,121 Other (net) . ~12,067 2,618 ~13,660 8 9 569 $ 24,490 $ 18,497 See Notes to Consolidated Financial Statements.

INDIANAd': CHIGAN ELECTRIC COMPANY AND SUBSIDIARIES Consolidated Statements of Retained Earnings Year Ended December 31, 1983 1982 1981 (in thousands)

Balance at Beginning of Year $ 91,756 $ 100,170 $ 114,495 Consolidated Net Income 139,876 121,023 103,340 Total 231 632 221,193 217,835 Deductions:

Cash Dividends Declared:

Common Stock 107,632 100,800 92,624 Cumulative Preferred Stock:

4Ve % Series . 495 495 495 4.56% Series . 273 . 273 273 4.12% Series . 165 165 165 7.08% Series 2,124 2,124 2,124 7.76% Series 2,716 2,716 2,716 8.68% Series . 2,604 2,604 2,604 12 % Series 2,873 3,003 3,226

$ 2.15 Series . 3,440 3,440 3;440

$ 2.25 Series . 3>600 3,600 3,600

$ 2.75 Series . 4,286 4,400 4,400

$ 3.63 Series 5,808 5,808 581 Total Cash Dividends Declared 136,016 129,428 116,248 Capital Stock Expense 9 1,417 Total Deductions 136,016 129,437 117,665 Balance at End of Year $ 95,616 $ 91,756 $ 100,170 See Notes to Consolidated Finaneia(Statements.

Notes to Consolidated Financial Statements I. Significant Accounting Policies: Description Method Mining Structures and Straight-line method (original lives The common stock of the Company is wholly owned Equipment range from 3 to 31 years) by American Electric Power Company, Inc. (AEP). Coal Interests and Mine Units-of-production method The accounting and rates of the Company are subject Development Costs (based on estimated recoverable in certain respects to the requirements of state regula- tonnages; current rate averages

$ 1.07 per ton) tory bodies and in certain respects to the requirements of the Federal Energy Regulatory Commission Substantially all of the amount of the provisions for (FERC). depreciation, depletion and amortization of coal-mining The consolidated financial statements include the ac- property is classified in the Consolidated Statements of counts of the Company and two wholly owned sub- Income as fuel for electric generation.

sidiaries engaged in coal mining. Significant inter- Operating expenses are charged with the costs of company items have been eliminated in, consolidation. labor, materials, supervision and other costs incurred in The consolidated financial statements have been pre- maintaining the properties. Property accounts are pared on the basis of the accounts which are maintained charged with costs of betterments and major replace-for FERC purposes. ments of property and the accumulated provisions for depreciation are charged with retirements, together Electric UtilityPlant; Other Property and Investtnents; with removal costs less salvage.

Depreciation, Depletion and Atnortization Other property and investments are generally stated Electric utility plant is stated at original cost. Gener- at cost.

ally, the plant of the Company is subject to first mortgage liens. Inconte Taxes The Company capitalizes, as a construction cost, an Deferred Federal income taxes are provided except allowance for funds used during construction, an item where flow-through accounting for certain timing dif-not representing cash income, which is defined in the ferences is reflected in revenue levels.

applicable regulatory systems of accounts as the net The Company normalizes the effect of tax reductions cost of borrowed funds used for construction purposes resulting from investment tax credits utilized in connec-and a reasonable rate on other funds when so used. The tion with current Federal income tax accruals consis-composite rates used by the Company were 12.5% in tent with rate-making policies.

1983, 12.75% in 1982 and 12.0% in 1981 applied on a The Company's consolidated coal subsidiaries gen-semi-annual compound basis. erally use the flow-through method of accounting for The Company provides for depreciation on a investment tax credits and practice deferred tax ac-straight-line basis over the estimated useful lives of the counting for the effects of certain timing differences.

property. The current provisions are determined largely with the use of functional composite rates as Pension Plans follows: The companies participate with other companies in Functional Composite the AEP System in a non-contributory trusteed plan to Class of Annual provide pensions for all their employees who are not Property Production:

Steam Steam

Transmission Distribution Nuclear Fossil-fired General..........................

'...

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

Rates 4.0%

3.7%

2.1%

3.7%

2.8%

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, Depreciation, depletion and amortization of coal- $ 3,057,000 and $ 3,201,000, respectively. The amounts mining property are provided in amounts estimated to cover the costs of currently accruing benefits and amor-be sufficient to amortize the costs of the related assets, tization of, and interest on, unfunded prior-service less any estimated salvage (which is not significant), costs, which are being amortized over 30 years. The over their useful lives and are calculated by use of the companies make annual contributions to the plan equal following methods: to the amounts accrued for pension expense.

INDIANA8 CHIGAN ELECTRIC COMPANY AND S UBSIDIARIES A comparison of the plan's accumulated benefits and Miscellaneous nonoperating income for the years net assets as of January 1, 1983, the date of the most ended December 31, 1983, 1982 and 1981 includes gains recent actuarial study, is presented below: amounting to $274;000, $ 496,000 and $ 489,000, respec-January I, tively, on certain long-term debt reacquired.

1983 1982 Debt discount or premium and debt expenses are (in thousands) being amortized over the lives of the related debt issues Actuarial present value of and the amortization thereof is included within miscel-accumulated plan benefits Vested $ 51,088 $ 46,652 laneous interest charges.

Nonvested 5,913 4,830

$ 57,001 $ 51,482 2. Operating Revenues and Operating Expenses:

Net assets available for benefits ...... $ 88,400 $ 76,659 In February 1982, the Company filed a petition with the Public Service Commission of Indiana (PSCI) for a The assumed rate of return used by the actuary in rate increase of $ 52,145,000 annually. In December determining the actuarial present value of accrued 1982, the PSCI issued an order granting the Company benefits was 8% at each valuation date.

an increase of $ 23,800,000 annually, a portion of which Under a contract with the UMWA, a subsidiary is was collected subject to refund pending the outcome of required to make payments into two multi-employer additional proceedings relating to the rate-making pension plans based on coal production and hours treatment of the Company's coal subsidiaries and worked. The cost of the plans was approximately Western coal properties. In March 1983; in a subdocket

$ 713,000 in 1983, $ 2,442,000 in 1982 and $ 1,700,000 in proceeding, the PSCI granted the Company an addi-1981. As of June 30, 1983, the Company's actuary esti-tional increase of approximately $ 6,700,000 annually, mates, based on information that is available, that the primarily covering a provision for future decommis-subsidiary's share of the unfunded vested liabilities of sioning costs of the Company's nuclear plant. In Sep-the UMWA pension plans approximates $ 5,380,000. tember 1983, the PSCI issued an order regarding the Western coal issue. This order required the Company to Black Lung Benefits reduce its rates approximately $ 3,000,000 annually re-The coal-mining subsidiaries are liable under the troactive to December 1982 and as a result the Com-Federal Coal Mine Health and Safety Act of 1969 (Act), pany refunded in November 1983, approximately as amended, to pay certain black lung benefits to eligi- $ 2,300,000, including interest, to its Indiana retail cus-ble present and former employees. The subsidiaries tomers.

provide self-insurance accruals sufficient to amortize In May 1982, the Company filed with the FERC ap-the actuarially computed present and future liabilities plications for authority to increase its rates to its for such benefits as a level percentage of pay over the wholesale customers. In July 1982, the FERC au-future working lifetime of the employees, taking into thorized the increase to take effect in two steps, subject account the remaining life of the mines. Such provisions to refund; the first step representing an increase of were approximately $ 131,000, $ 530,000 and $ 398,000 in $ 26,900,000 became effective July 29, 1982, and the 1983, 1982 and 1981, respectively. A Black Lung Bene- second step increase of $ 28,900,000 became effective fits Trust is maintained under the Internal Revenue ~

on December 28, 1982. Settlement agreements were Code. As of January 1, 1983 (the latest valuation date), reached with the wholesale customers and in May 1983, the companies'ctuary estimates the unfunded actuari- the FERC issued a final order approving settlement al value of medical and liability benefits under the Act, rates in the amount of approximately $ 41,000,000 on an as well as comparable state legislation, was approxi- annual basis.

mately $ 876,000. The companies fund the actuarially In July 1983, the Company filed a petition with the determined liabilities at a level which currently approx- PSCI requesting a $ 160,000,000 annual rate increase to imates the recorded expense provisions. be implemented in two steps. The first step, represent-ing approximately $ 44,300,000, was requested to be Other effective as soon as possible. In November 1983, the The Company accrues unbilled revenues for electric PSCI granted permission to increase rates $ 28,500,000 service rendered subsequent to the last billing cycle annually, effective November 28, 1983. The second through month-end. step, representing approximately $ 115,700,000, was. to

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued) coincide with the date of commercial operation of the with the Michigan Public Service Commission (MPSC)

Rockport Plant Unit 1, presently scheduled to be in requesting an annual rate increase of approximately December 1984. In a prehearing order dated September $ 27,600,000. The MPSC has scheduled a prehearing 16, 1983, the PSCI found that the second step portion of conference concerning this rate application for March the rate request may not properly be presented and 13, 1984.

reviewed as part of this application since the proposed Operating revenues derived from a certain wholesale test year is too remote from the in-service date of the customer represent approximately 11% of total operat-Rockport Unit. ing revenues for 1983, 10%%uo for 1982 and 9%%uo for 1981.

In December 1983, the Company filed an application

3. Federal Income Taxes:

The details of Federal income taxes as reported are as follows:

Year Ended December 31, 1983 1982 1981 (in thousands)

Charged (Credited) to Operating Expenses:

Current (net) $ (14,004) $ (16,503) S 8,672 Deferred (nct) 79,409 29,064 36,254 Deferred Investment Tax Credits (net) 5,556 25,638 9,247 Total ................................................................... 70,961 38,199 54,173 Charged (Credited) to Other Income and Deductions:

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

Deferred (net)

Total

'........................................... (11,112) 4,887 (890)

(6,531)

(1,988)

(172)

(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.

Year Ended December 31, 1983 1982 1981 (in thousands)

Consolidated Net Income Bcforc Preferred Stock Dividend Requirements $ 139,876 $ 121,023 $ 103,340 Federal Income Taxes 64,736 30,778 52,013 Pre-tax Book Income $ 204,612 $ 151,801 $ 155,353 Federal Income Taxes on Pre-tax Book Income at Statutory Rate (46%) $ 94,122 $ 69,828 S 71,462 Increase (Decrease) in Federal Income Taxes Resulting From the Following Items on Which Deferred Taxes Are Not Provided:

Excess of Book Over Tax Depreciation 1,185 5,009 1,107 Allowance for Funds Used During Construction and Miscellaneous Items Capitalized on the Books but Deducted for Tax Purposes (32,019) (32,040) (19,658)

Mine Development Costs 144 (4,771) 311 Investment Tax Credits Not Deferred 1,144 (1,727) (1,799)

Amortization of Deferred Investment Tax Credits (267) (931) (327)

Other . 427 (4,590) 917 Total Federal Income Taxes as Reported S 64,736 S 30,778 S 52,013 Effective Federal Income Tax Rate 31.6% 20.3% 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 1981 (in thousands)

Current:

Federal Income Taxes $ (26,903) $ (4,008) $ 11,598 Investment Tax Credits 1,787 (13,385) (4,914)

Total Current Federal Income Taxes (net) (25,116) (17,393)* 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)

' 314 4,317 Other . ~ ~ ~ ~ ~ ~ ~ ~ ~ (7,321)

Investment Tax Credits Applicable to Certain Deferred Income Taxes (6,466) (14,911) (6,459) 84,296 22,533 36,082 Total Deferred Federal Income Taxes (net)

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 ment agreement and are subject to future disposition.

Federal income tax return with their affiliated com- Returns for the years 1977 and 1978 have been reviewed panies in the AEP System. The allocation of the AEP by the IRS, and additional taxes for these years have System's consolidated Federal income tax to the Sys- been proposed, some of which the System companies tem companies is in accordance with Securities and have protested. In the opinion of management, the final Exchange Commission (SEC) rules under the Public resolution of open matters will not have a material UtilityHolding Company Act of 1935. These rules per- effect on the earnings of the Company.

mit the allocation of the benefit of current tax losses to the System companies giving rise to such losses in 4. Common Stock, Premiums on Capital Stock and determining taxes currently payable. The tax loss of the Other Paid-in Capital:

System parent company, American Electric Power The Company received from its parent cash capital Company, Inc., is allocated to its subsidiaries with tax- contributions of $ 30,000,000 in 1983, $ 50,000,000 in able income. With the exception of the loss of the parent 1982 and $ 90,000,000 in 1981. In 1983, 1982 and 1981 a company, the method of allocation approximates a credit to other paid-in capital of $ 142,000, $ 131,000 and separate return result for each company in the consoli-

$ 365,000, respectively, represented the excess of par dated group. Consolidated investment tax credits value over cost of cumulative preferred stock reac-utilized are generally allocated to the System com- quired by the Company to meet sinking fund require-panies giving rise to them. ments. There were no other changes in any of the Unused System investment tax credits at December aforementioned accounts in 1983, 1982 or 1981.

31, 1983, aggregated approximately $ 174,000,000.

With the filing of the consolidated 1982 Federal in-

5. Retained Earnings:

come tax return, the Company elected to change from the double-declining balance method to the sum-of- Various restrictions on the use of retained earnings the-years digits method of depreciation for certain for cash dividends on common stock and other pur-classes of properties. poses are contained in or result from covenants in The System has reached a settlement with the Inter- mortgage indentures, debenture and bank loan agree-nal Revenue Service (IRS) for the majority of issues ments, charter provisions, and orders of regulatory au-from the audit of the consolidated Federal income tax thorities. Approximately $ 45,900,000 at December 31, returns for the years 1970-1976. Several issues regard- 1983, was so restricted.

ing the 1974-1976 returns are not covered by the settle-17

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)

6. Cumulative Preferred Stock:

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 Par Shares December 31, Series Prior to Value Outstanding 1983 1982 (in thousands) 416%%uo .. $ 106.125 $ 100 120,000 $ 12,000 S 12,000 4.56%%uo 102 100 60,000 6,000 6,000 4.12% 102.728 100 40,000 4,000 4,000 7.08% 104.68 100 300,000 30,000 30,000 7.76% 105.38 100 350,000 35,000 35,000 8.68% 105.27 100 300,000 30,000 30,000

$ 2.15 26.61 25 1,600,000 40,000 40,000

$ 2.25 26.69 25 1,600,000 40,000 40,000

$ 197,000 $ 197,000

8. Cumulative Preferred Stock Subject to Mandatory Redemption:

Amount Redemption Current Restricted Par Shares December 31, Series (a) Call Price Prior to Value Outstanding 1983 1982 (in thousands) 12% (b) ........... $ 112 $ 100 226,525 $ 22,652 S 24,447

$ 2.75 (c) ........... 27.75 10/I/84 25 1,473,800 36,845 40,000

$ 3.63 (d) ........... 28.63 11/I/86 25 1,600,000 40,000 40,000 99,497 IN,447 Less Sinking Fund Requirements Due Within One Year 152 447

$ 99,345 $ 104,000 (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 on each sinking fund date, to redeem an additional 15,000 shares. At December 31, 1983, thc Company had right, 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 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 option 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

7. Long-term Debt, Lines of Credit, and Sinking fund debentures outstanding were as follows:

Compensating Balances: December 31, 1983 1982 Long-term debt by major category was outstanding (in thousands) as follows:

Due 1986 June I $ 10,022 $ 10,104 December 31, 5Vs%%uo 7V<% Due 1998 May I 10,123 10,829 1983. 1982 Unamortized Premium 21 31 (in thousands) 20,166 20,964 Less Portion Due Within One Year 22 First Mortgage Bonds $ 1,184,598 $ 1,202,904 Sinking Fund Debentures 20,166 20,964 Total $ 20,144 $ 20,964 Installment Purchase Contracts . 159,209 159,073 Other Long-term Debt 81,731 14,534 1,445,704 1,397,475 Installment purchase contracts-have been entered Less Portion Due Within One Year 86,874 92,970 into by the Company in connection with the issuance Total $ 1,358,830 $ 1,304,505 of pollution control revenue bonds by govqrnmental authorities as follows:

First mortgage bonds outstanding were as follows: December 31, December 31. 1983 1982 1983 1982 (in thousands)

(in thousands)  % Rate Date

% Rate 3N Due 1983 1983 September I September I

$ $ 13,762 60,000 8'006 City of Lawrenceburg, Indiana:

7 2006 July I htay I

$ 25,000 40,000

$ 25,000 40,MO 11 38 1984 October I 15,082 15,082 6Vs 2006 htay I 12,000 12,000 1076 1984 December I (b) . 54,750 56,938 City of Rockport, Indiana:

10 1985 March I (c) 9,750 10,500 9Vs 2005 June I 6,500 6,500 10V4 1987 January I 80,000 80,000 9V4 2010 Junc I 33,500 33,500 137{i 1987 February I 55,000 55,000 City of Sullivan, Indiana:

37i6 1988 February I 22,974 22,974 7N 2004 May I 7,000 7,000 November I 2006 4N 14N 11K 1988 1989 March I I

17,557 120,000 80,000 17,557 120,000, 80,000 7'009 May 6Vs Unamortized Discount May I I 25,000 13,000 (2,791) 25,000 13,000 (2,927)

June 1990 15K 1991 November I 40,000 40,000 Total" $ 159,209 $ 159,073 1616 1992 April I 100,000 100,000 4)8 1993 August I 42,902 42,902 Under the terms of certain installment purchase con-7 1998 May I 35,000 35,000 2000 tracts, the Company is required to pay purchase price 9'003 876 8N 2003 April I June I (c) 50,000 254,000 50,000 265,500 installments in amounts sufficient to enable the cities to 9'008 13N 2013 December I March I August I (a) ....

40,000 100,000 70,000 40,000 100,000 pay interest on and the principal (at stated maturities and upon mandatory redemption) of related pollution Unamortized Discount (net) ....... (2,417) Q,311) control revenue bonds issued to finance the construc-1,184,598 1,202,904 tion of pollution control facilities at certain generating Less Portion Duc Within One Year 82,082 88,200 plants of the Company.

Total $ 1,102,516 $ 1,114,704 Other long-term debt outstanding consisted of:

(a) Issued by the Company in August 1983.

December 31, (b) Guaranteed by American Electric Power Company, Inc.

(c) Sinking fund payments are required as follows: 1983 1982 10% series due 1985 $ 750,000 annually on March l. (in thousands)

9'%eries due 2003 $ 11,500,000 annually on June I, through 1991 and $ 13,500,000 annually on June I, 1992 through 2002 Nuclear Fuel Disposal Costs (a) $ 71,964 $

with the noncumulative option to redeem an additional amount Coal Reserve Obligations Payable in in each of the specified years from a minimum of $ 100,000 to a Equal Annual Installments Through maximum equal to the scheduled requirement for each year, 1985 with Interest at 8% 9,475 14,212 but with a maximum optional redemption, as to all years in the Notes Payablc due 1983 Through aggregate, of $ 75,000,000. 1985, 6%%uo-7%%uo 292 322 81,731 14,534 The indentures relating to the first mortgage bonds 4,770 Less Portion Due Within One Year 4,770 contain improvement, maintenance and replacement Total $76,961 $ 9,764 provisions requiring the deposit of cash or bonds with the trustee, or in lieu thereof, certification of unfunded (a) See Note 9.

property additions. The Company has elected to use unfunded property additions to meet these provisions in the past.

i9

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)

Long-term debt, excluding premium or discount, Year Ended December 31, outstanding at December 31, 1983 is due as follows: 1983 1982 1981 Principal Amount (in thousands)

(in thousands) Purchased Power (a) $ 82,245 $ 40,817 $ 38,557 Interchange Power (net):

1984 $ 86,874 AEP System Electric 1985 25,996 Utilities 104,271 116,666 100,960 1986 21,000 Other Companies (b) (27,430) (2,800) (398) 1987 146,500 1988 52,031 $ 159,086 $ 154,683 $ 139,119 Later Years 1,118,490 Taxes Other Than Federal Total $ 1,450,891 Income Taxes:

Real and Personal Property At December 31, 1983 and 1982, the principal Taxes ............. ~ .. $ 22,062 $ 19,485 $ 18,958 State Gross Sales, Excise amounts of debentures reacquired in anticipation of and Franchise Taxes and sinking fund requirements were $ 2,055,000 and Miscellaneous State and respectively. The Company may make ad- Local Taxes 11,269 8,567 9,399

.$ 2,067,000, State Income Taxes (193) 708 1,074 ditional debenture or first mortgage bond sinking fund Social Security Taxes 3,915 3,807 3,267 payments of up to $ 12,250,000 annually. $ 37,053 $ 32,567 $ 32,698 The Company had unused short-term bank lines of Fuel for Electric Generation credit of approximately $ 383,000,000 and $ 330,000,000 includes charges relating to at December 31, 1983 and 1982, respectively, under mining operations, as which notes could be issued with no maturity more than follows:

270 days. The. available lines of, credit are subject to Maintenance ........... $ 765 $ 3,424 $ 3,778 Depreciation, Depletion withdrawal at the banks'ption, and $ 343,000,000 and and Amortization ..... 1,826 4,284 4,434 Taxes Other Than Federal

$ 276,000,000 at December 31, 1983 and 1982, respec-Income Taxes ........ 1,184 2,109 1,336 tively, of such lines are shared with other AEP System (a) Includes power purchased from Ohio Valley Electric Corpora-companies. In-accordance with informal agreements tion (OVEC) of approximately $ 45,787,000 in 1983, $ 20,229,000 in with the banks, compensating balance deposits of up to 1982 and $ 15,066,000 in 1981.

10%%uo or equivalent fees are required to maintain the lines (b) Includes interchange power sold to OVEC of approximately

$ 66,000 in 1983, $ 143,000 in 1982 and $ 186,000 in 1981.

of credit and on any amounts actually borrowed, gener-ally either additional compensating balance deposits of Charges to operating expenses for royalties and for up to 10% are maintained or adjustments in interest advertising are less than 1% of gross revenues in each rates are made. Substantially all bank balances are year.

maintained by the Company to compensate the banks Sales and purchases of energy and interchange power for services and for the Company's share of both used transactions are regulated by the various commissions and available lines of credit. having jurisdiction.

American Electric Power Service Corporation pro-

8. Supplementary Income Statement Information and vides certain services to the Company and the affiliated Related-party Transactions: companies in the AEP System. The costs of the services are determined by the service company on a direct Electric operating revenues shown in the Consoli- charge basis to the extent practicable and on reasonable dated Statements of Income include sales of energy to bases of proration for indirect costs. The charges for AEP System companies of approximately $ 25,000,000, services are made on a cost basis and include no com-

$ 18,800,000 and $ 19,100,000 for the years ended De- pensation for the use of equity capital, all of which is cember 31, 1983, 1982 and 1981, respectively. furnished to the service company by AEP. The service Operating expenses shown in the Consolidated company is subject to the regulation of the SEC under Statements of Income include certain items not shown the Public Utility Holding Company Act of 1935.

separately, as follows:

20

t INDIANA& MICHIGANELECTRIC COMPANY AND S UBSIDIARIES

9. Commitments and Contingencies: its gaseous diffusion plant near Portsmouth, Ohio. The proceeds from the sales of power by OVEC, aggregat-Construction ing $ 279,000,000 in 1983, are designed to be sufficient The construction budget of the companies for the for OVEC to meet its operating expenses and fixed year 1984 is estimated at $ 119,000,000 and, in connec- costs, and to provide for a return on its equity capital.

tion therewith, commitments have been made. The Company, as a sponsoring company, is entitled to AEP Generating Company (AEGCo), a subsidiary of receive from OVEC, and is obligated to pay for, the AEP, organized in 1982, commenced in April 1982 to power not required by DOE in proportion to its power acquire a 35% interest in the Company's 2.6 million participation ratio, which was 31.3% in December 1983.

kilowatt capacity Rockport Plant currently under con- The DOE power agreement terminates in 1992.

struction, on a buy-in basis. The total estimated cost of the Rockport Plant is $ 2.14 billion. It was anticipated ~ Litigation that Kentucky Power Company (KEPCo), an operating On April 16, 1982, an action was commenced by 29 subsidiary of AEP, would also acquire a 15% interest in plaintiffs, almost all of whom are landowners, in the the Rockport Plant on a buy-in basis; however, in Au-U.S. District Court for the Southern District of Indiana gust 1982 the order of the Kentucky Public Service against the Army Corps of Engineers, the Company, Commission (KPSC) approving the acquisition was re-AEP, five subsidiaries of AEP and two executive of-manded back to it for a specific finding of fact with ficers of certain of these System companies, in connec-respect to the AEP System interconnection agreement.

tion with the Rockport Plant and related transmission In March 1983, the KPSC issued an order granting lines. The complaint contained three counts. The first KEPCo's request to purchase a 15% ownership interest count alleged that the Corps of Engineers improperly in the Company's Rockport Plant. The order, however, issued permits for the plant and transmission lines be-limited the amount ultimately includable in KEPCo's cause of deficiencies in an environmental impact state-rate base to $ 312,000,000, the then estimated cost of ment. The second count alleged that corporate assets KEPCo's ownership interest, regardless of the final had been dissipated by constructing the plant and re-cost of the Rockport Plant. Based on certain develop-lated transmission lines. The third count alleged viola-ments in a KEPCo rate case, the KPSC has reopened tions of rights to due process, just compensation and the proceeding regarding the application of KEPCo for equal protection of the law in connection with the use of a certificate of convenience and necessity to acquire a condemnation proceedings,'and sought unspecified 15% undivided ownership interest in the Rockport compensatory and exemplary damages from the two Plant. Pending further order by the KPSC, KEPCo System executive officers named as defendants and the ceased making expenditures in connection with the Company and another subsidiary, and injunctive relief construction of the Rockport Plant and AEGCo is pro- ertioining the institution of any further condemnation viding for all construction expenditures. In the event proceedings. The court has dismissed all three counts that KEPCo is ultimately denied authority by the KPSC on motions by the defendants; however, the plaintiffs to acquire its 15% ownership interest or a decision is may appeal the decisions.

made that such acquisition is impractical or unlikely, In 1978, several retail customers of the Company AEGCo may acquire all or a portion of this interest if commenced an action, individually and as representa-regulatory approval is received. The 1984 estimate of tives of an alleged class, in the U.S. District Court, construction costs for the Company reflects the as- alleging that the Company's lease of electric utility as-sumption by AEGCo and KEPCo of the responsibility sets from the City of Fort Wayne is in violation of of providing for additional construction expenditures Federal antitrust laws. The complaint seeks to have the with respect to the Rockport Plant, to reduce the Com- lease declared null and void, asks that the Company be pany's ownership interest in the Plant to 50% by late restrained from charging excessive prices for the pur-1984, the estimated date of commercial operation of the chase of electric power, seeks treble damages in an first unit of the two-unit Plant. unspecified amount in respect of allegedly excessive charges to residents of the City of Fort Wayne and Ohio Valley Electric Corporation seeks to restore the control of the electric utility assets AEP and Columbus and Southern Ohio Electric in question to the City of Fort Wayne. In May, June and Company (C&SOE) own 42.1% of Ohio Valley Electric July, 1979 the court granted in part and denied in part Corporation (OVEC), which supplies the U.S. Depart- the Company's motion to dismiss or for summary ment of Energy (DOE) with the power requirements of judgment. The court dismissed plaintiffs allegations 21

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued) concerning abuse of a legally acquired monopoly but tric Power Service Corporation as a defendant and re-ruled that plaintiffs could continue to assert other quested damages from it for interference with THI's theories of violation of Federal antitrust laws and cer- contract with the Company and for libel. The Company tified a class of residential customers who may maintain denied THI's complaint and counterclaimed for dam-the action. The case was tried in March 1982 and is ages in the amount of $ 6,801,000 which the Company awaiting decision. claims it suffered as a result of the delay in the construc-As an outgrowth of a Federal Power Commission tion work. On February 20, 1981, the Company's mo-investigation commenced in 1975 concerning, among tion to add an insurance company-surety as a defendant other things, the reasonableness and prudence of the to the Company's counterclaim was granted. The in-coal-purchasing policies and practices of certain Sys- surance company-surety was later dismissed. Trial of tem companies, FERC, on March 18, 1980, ordered a this action was completed in December 1982. In an new investigation into the System's administration of order dated January 9, 1984, the court awarded com-certain long-term coal-supply contracts with unaf- pensatory and punitive damages to THI in the amounts filiated suppliers. In addition, on June 10, 1981 and July of $ 4,934,000 and $ 12,000,000, respectively, exclusive 29, 1981, FERC issued orders which included termina- of interest. As a result of that judgment, the Company tion of certain other portions of the original investiga- has recorded a liability, including interest, on the Con-tions and ordered a hearing, relating to the procurement solidated Balance Sheet for the compensatory damages of Western coal from mines operated by the System in and, the Company and the Service Corporation are the light of the possible availability of coal from other appealing the court decision.

sources. The FERC staff filed proposed testimony, on May 2, 1983, claiming that the Company (i) overstated Environmental Matters its cost of coal by virtue of its treatment of tax benefits The companies are subject to regulation by Federal, related to certain mine-development costs, and (ii) paid state and local authorities with regard to air- and excessive prices for coal from affiliated mines. The water-quality control and other environmental matters, FERC witnesses allege that the revenue effect of the and are subject to zoning and other regulation by local first action is approximately $ 11,000,000 through May authorities. Although the cumulative, long-term effect 1982 and that the overcharges occasioned by the pur- of changing environmental requirements upon the portedly excessive prices total almost $ 76,000,000 as of companies cannot be estimated at present, compliance December 31, 1981, exclusive of interest and certain with such requirements may make it necessary, at costs other adjustments, and that both these effects are con- which may be substantial, to retrofit existing facilities tinuing. The Company estimates that the alleged over- with additional air-pollution-control equipment; to con-charges, based on the FERC witnesses'heory, would struct cooling towers or some other closed-cycle cool-aggregate approximately $ 163,000,000 for the System ing systems; to undertake new measures in connection companies, inclusive of interest and certain other ad- with the storage, transportation and disposal of by-justments, as of December 31, 1983, but excluding pos- products and wastes; to curtail or cease operations at sible subsequent adverse effects which could be as- existing facilities and to delay the commercial operation sociated with a prospective limitation on the Com- of, or make design changes with respect to, facilities pany's ability to recover affiliated costs in rates. A under. construction.

FERC witness also contends that the refund obligation Legislative proposals are pending before the Con-which he claims flows from such alleged overcharges is gress which expressly seek to control acid deposition in shared by the Company, Appalachian Power Company, the eastern portion of the United States. Ifany of these C8'cSOE, KEPCo and Ohio Power Company as parties bills become law, stringent controls upon the emission to an AEP System interconnection agreement. The of sulfur dioxide would be required at various existing Company believes that as much as 78% of a refund Company generating plants. These controls would en-obligation, iffinally ordered by FERC, would be borne tail very substantial capital and operating costs which, by the Company. This case is in the discovery phase. in turn, could necessitate substantial rate increases by The Company terminated its contract with Terre the Company. In addition, a number of states have Haute Industries, Inc. (THI) on the grounds that THI commenced proceedings under the Clean AirAct seek-was not meeting the schedule for the construction of an ing to control the emission of sulfur dioxide in certain electro-static precipitator at the Breed Plant. THI insti- midwestern states.

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-22

INDIANA& MICHIGANELECTRIC COMPANY AND S UBSIDIARIES iVuclear Insurance the disposal of nuclear fuel consumed after April6, 1983 The Price-Anderson Act limits the public liabilityof a by the Company's Cook Nuclear Plant, the Company licensee of a nuclear plant to $ 580 million for a single must pay to the fund a fee of one mill per kilowatthour, nuclear incident. The Company has insurance covering which the Company is currently recovering from its .

its two-unit Cook Nuclear Plant in the maximum avail- customers In June 1983, the Company entered into a able amount of $ 160 million, and the balance of $ 420 contract with DOE for the disposal of spent nuclear million is covered by a mandatory program of deferred fuel. Under terms of the contract the Company must premiums which would be assessed, after a nuclear pay to the U.S. Treasury a fee estimated at approxi-incident, against all owners of nuclear reactors. When mately $ 71,964,000, exclusive of'interest, for the dis-the 80th nuclear power reactor went into operation on posal of nuclear fuel consumed prior to April 7, 1983.

November 15, 1982, the Nuclear Regulatory Commis- Approval by DOE of the calculation of the fee is cur-sion's indemnity obligation was eliminated. Now, as rently pending.

each new reactor is licensed to operate, the $ 580 million The Company has deferred the $ 71,964,000 on its limit increases by another $ 5 million. In the event of a balance sheet pending recovery through the rate-nuclear incident the Company could be ass'essed $ 5 making process. The Company has received regulatory million per incident for each of its two generating units approval in certain of its jurisdictions for the recovery (subject to a maximum of $ 10 million per reactor in any of a portion of this amount and has begun to reduce the year in the event of more than one incident). amount deferred as it is being recovered.

The Company also has property insurance for dam- With respect to decommissioning, the Public Service age to the Cook Plant facilities in the amount of $ 1.01 Commission of Indiana held in an order dated De-billion. The primary layer of $ 500 million is provided cember 22, 1982 that "a reasonable estimate for the through nuclear insurance pools. The excess coverage costs of decommissioning the (Cook Plant), when mea-above $ 500 million is provided partially through insur- sured in 1982 dollars, should be set at $ 155,000,000." In ance pools ($ 85 million), with the mgority provided by certain'of its jurisdictions, the Company is currently Nuclear Electric Insurance Limited (NEIL), as de- recovering, through inclusion in its current charges to scribed below. customers, a portion of the future costs associated with The Company is a member of NEILand has obtained decommissioning.

insurance under NEIL's two programs. NEIL's extra- Funds recovered through the rate-making process for expense program provides insurance to cover extra disposal of spent nuclear fuel consumed prior to April7, costs of replacement power resulting from a prolonged 1983 and for nuclear decommissioning generally have accidental outage of a nuclear unit. The Company's been deposited in either external trust funds or internal policy insures against such increased costs up to $ 2.5 special funds for the future payment of such costs. The million per week (starting 26 weeks after the outage) for Company will attempt to obtain in all its jurisdictions one year and $ 1.25 million per week for the second year; regulatory approval for the recovery of the remainder of or 80%%uo of those amounts per unit ifboth units are down such future costs.

for the same reason. The Company would be subject to a retrospective premium of up to $ 7,387,000 for Unit 1 10. Leases:

and $ 7,373,000 for Unit 2 (five times annual premium) if -

The companies, as part of their operations, lease NEIL's losses exceed its accumulated funds. Addition- property, plant and equipment under leases ranging in ally, the Company has also joined NEIL's excess prop- length from 3 to 35 years. Most of the leases require the erty insurance program which presently provides $ 425 companies to pay related property taxes, maintenance million in coverage. The maximum assessment under costs and other costs of operation. The companies ex-this program could be $ 9,341,000 (seven and one-half pect that in the normal course of business, leases will times the annual premium on a 100%%uo coverage basis). generally be renewed or replaced by other leases. The majority of the various rentals are included in leases Disposal of Spent Nuclear Fuel having purchase options or renewal options for sub-.

and Nuclear Deconunissioning stantially all of the economic lives of the properties.

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 23

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Continued)

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

(in thousands) Nuclear Fuel $ 285,000 $ 253,000 Coal. mining and Coal-transportation Gross Rentals $ 92,000 $ 96,000 $ 95,000 Equipment 28,000 Less Rental Recoveries (including Other Transportation Equipment 19,000 sublease rentals) (a) 3,000 3,000 3,000 Real Estate 12,000 Net Rentals (b) ... . ~ ~ ~ " ~ ~ ~ ~ ~ ~ $ 89,000 $ 93,000 $ 92,000 Electric Distribution System Property ... 13,000 Gross Properties under Capital Leases 357,000 (a) Includes amounts paid for or reimbursed by associated Less Accumulated Provision for companies. Amortization............... 162,000 153,000 (b) Classified as: Net Properties under Capital Leases .... $ 195,000 $ 167,000 Operating Expenses $ 82,000 $ 88,000 $ 87,000 Clearing and Miscellaneous Obligations under Capital Leases iai .... 0196000 0776000 Accounts (portions of which are charged to income) ..... 7,000 5,000 5,000 (a) Including an estimated $ 69,000,000 and $ 60,000,000 at De-cember 31, 1983 and 1982, respectively, due within one year.

$ 89,000 $ 93,000 $ 92,000 A recent accounting standard will require the com-Future minimum lease payments, by year and in the panies to capitalize leases beginning in 1984 for all cap-aggregate, of the companies'apital leases and noncan- ital leases entered into after December 31, 1982 and all celable operating leases consisted of the following at earlier leases beginning in 1987. This will not have any December 31, 1983: effect on the Consolidated Statements of Income.

Capital Operating Included in the above analysis of future minimum Leases (a) Leases lease payments and of properties under capital leases (in thousands) and related obligations are certain leases as to which 1984 $ 12,000 $ 11,000 portions of the related rentals are paid for or reimbursed 1985 10,000 12,000 by associated companies in the AEP System based on 1986 8,000 12,000 1987 7,000 12,000 their usage of the leased property. The companies can-1988 6,000 12,000 not predict the extent to which or proportion in which Later Years 57,000 179,000 the associated companies will utilize the properties Total Future Minimum Lease Payments . 100,000 $ 238,000 under such leases in the future.

Less Estimated Interest Element 11. Unaudited Quarterly Financial Information:

Included Therein (b) .............. 46,000 Estimated Present Value of Future The following consolidated quarterly financial infor-Minimum Lease Payments ......... $ 54,000 mation is unaudited but, in the opinion of the Company, (a) Excludes leases of nuclear fuel, all of which are capital leases. includes all adjustments (consisting of only normal re-Nuclear fuel rentals comprise the unamortized balance of the lessor's curring accruals) necessary for a fair presentation of the cost(approximately $ 142,000,000at December 31, 1983), less salvage value, ifany, to be paid in proportion to heat produced, and carrying amounts shown:

charges on the lessor's unrecovered cost. It is contemplated that Quarterly Periods Operating Operating Net portions of the presently leased material will be replenished by addi- Ended Revenues Income tional leased material. Income'983 (in thousands)

(b) Interest rates used range from 7.1% to 13.5%.

The following is a pro forma analysis of properties Mar. 31 $ 197,685 $ 47,323 $ 32,338 June 30 191,193 43,199 30,142 under capital leases and related obligations assuming Sept. 30 235,221 43,959 38,955 that such leases are capitalized: Dec. 31 244,881 48,262 38,441 1982 Mar. 31 241,513 52,967 38,910 June 30 183,212 43,628 30,472 Sept. 30 202,372 35,882 25,331 Dec. 31 182,706 42,468 26,310

'Before preferred stock dividend requirements.

12. Unaudited Information On Inflation and Changing Prices:

The supplementary information in the statements below is presented in compliance with the requirements 24

INDIANA& MICHIGANEI.ECTRIC COMPANY AND S UBSIDIARIES of the Financial Accounting Standards Board (FASB). such assets were acquired to the present, and differ The information is intended to disclose the effects of from constant dollar amounts to the extent that specifltc both general inflation and changing prices; however, prices have risen at a different rate than the general the amounts should be considered approximations of inflation rate as measured by the CPI-U. The current such effects rather than precise measures since a num- cost of property, plant and equipment represents the ber of subjective judgments and estimating techniques approximate cost of replacing such resources and in-were employed in developing the information. cludes utility plant in service, construction work in Constant dollar amounts represent historical costs progress, land, land rights and other property and in-stated in terms of dollars of equal purchasing power as vestments. Current cost amounts were determined measured by the average level of the 1983 Consumer primarily by applying appropriate indexes from the Price Index for All Urban Customers (CPI-U). Handy-Whitman Index of Public Utility Construction Current cost amounts reflect the changes in specific Costs. ~

prices of property, plant and equipment from the date Consolidated Statement of Income Adjusted for Effects of Changing Prices As Stated Adjusted Adjusted in the Primary for General for Changes Financial Inflation in SpeciTic Prices Year Ended December 31, 1983 Statements (constant dollar) (current cost)

(in thousands)

Operating Revenues $ 868,980 $ 869,000 8869,000 Operating Expenses:

Operation:

Fuel for Electric Generation (a) 159,998 161,000 161,000 Purchased and Interchange Power (net) 159,086 159,000 159,000 Other 122,127 122,000 122,000 Maintenance 53,049 53,000 53,000 Depreciation, Depletion and Amortization (a) 83,963 188,000 194,000 Taxes Other Than Federal Income Taxes ..... 37,053 37,000 37,000 Federal Income Taxes . 70,961 71,000 71,000 Total Operating Expenses 686,237 791,000 '797,000 Operating Income 182,743 78,000 72,000 Other Income and Deductions . 53,629 54,000 54,000 Net Interest Charges (96,496) (97,000) (97,000)

Preferred Stock Dividend Requirements (28,384) (28,000) (28,000)

Earnings Applicable to Common Stock (b) $ 111,492 $ 7,000 $ 1,000 Increase in Specific Prices (current cost) of Property, Plant and Equipment Held During the Year (c) .............. $ 249,000 Reduction to Net Recoverable Cost (d) $ (5,000) (24,000)

Effect of Increase in General Price Level .............;....... (215,000)

Excess of Increase in SpeciTic Prices after Reduction to Net Recoverable Cost over Increase in General Price Level 10,000 Gain from Decline in Purchasing Power of Net Amounts Owed (e) . 68,000 68,000 Net $ 63,000 $ 78,000 and (a) As prescribed by the FASB, the items in the Consolidated Statement of Income thai haec been adjusted are depredation, depledon 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.

would (b) Including the reduction to net recoverable cost, the income (loss) from operations on a constant dollar basis and current cost basis

. 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 willbe 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 FINANCIALSTATEMENTS (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 1979 (in thousands, except index data)

Operating Revenues $ 869,000 $ 836,000 $ 890,000 $ 898,000 $ 938,000 Historical Cost Ittformation At(t'itst ed for General Ittflation Income (Loss) from Operations (excluding reduction to net recoverable cost) $ 7,000 $ (10,000) $ (21,000) $ (5,000) $ 28,000 Net Assets at Year-end at Net Recoverable Cost .... $ 1,082,000 $ 1,084,000 $ 1,088,000 $ 1,098,000 $ 1,189,000 Carrent Cost Ittfonnation Income (Loss) from Operations (excluding reduction to net recoverable cost) ............. $ 1,000 $ (11,000) $ (21,000) $ (9,000) $ 8,000 Excess (Deficit) of Increase in Specific Prices after Reduction to Net Recoverable Cost over Increase in General Price Level $ 10,000 $ (9,000) $ (127,000) $ (326,000) $ (262,000)

Net Assets at Year-end at Net Recoverable Cost .... $ 1,082,000 $ 1,084,000 $ 1,088,000 $ 1,098,000 $ 1,189,000 General Financial Data Gain from Decline in Purchasing Power of Net Amounts Owed $ 68,000 $ 76,000 $ 158,000 $ 220,000 $ 237,000 Average Consumer Price Index 298.4 289.2 272.1 246.8 217.5 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 ofcommercially 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 $ 144,370 $ 125,798 $ 116,340 $ 106,488 $ 102,543 With Electric Heating 70,851 68,793 59,826 54,277 55,458 Total Residential ............... 2157221 194,591 176,166 160,765 158,001 Commercial 137,616 127,470 117,725 108,764 106,151 Industrial 154,751 137,152 134,519 116,165 127,815 Miscellaneous 8,696 7,568 6,953 6,150 6,099 Total Retail 516,284 466,781 435,363 391,844 398,066 Wholesale (sales for resale) 343,427 325,468 360,096 346,513 280,639 Total from Kilowatt-hour Sales .. 859,711 792,249 795,459 738,357 678,705 Other Operating Revenues .............. 9 269 17,554 16,690 4,326 4,308 Total Electric Operating Revenues. $ 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 5,684 4,587 6,373 6,719 6,443 Nuclear Fuel 12,301 12,349 13,167 13,153 11,614 Net Generated Hydroelectric . 55 77 98 85 79 Subtotal 18,040 17,013 19,638 19,957 18,136 Purchased .. 4,881 2,154 1,570 1,883 811 Net Interchange 573 3,775 3,704 3,669 5,389 Total Sources 23,494 22,942 24,912 25,509 24,336 Less: Losses, Company Use, Etc. 1,441 1,243 1,239 1,426 1,386 Net Sources 22,053 21,699 23,673 24,083 22,950 Sales:

Retail:

Residential:

Without Electric Heating 2,596 2,472 2,467 2,493 2,389 With Electric Heating 1,458 1,540 1,513 1,549 1,619 Total Residential ......... 4,054 4,012 3,980 4,042 4,008 Commercial 2,807 2,803 2,748 2,716 2,629 Industrial 3,941 3,701 4,021 3,932 4,380 Miscellaneous 204 197 199 195 194 Total Retail 11,006 10,713 10,948 10,885 11,211 Wholesale (sales for resale) 11,047 10,986 12,725 13,198 11,739 Total Sales 22,053 21,699 23,673 24,083 22,950 28

t INDIANA& MICHIGANELECTRIC COMPANY AND S UBSIDIARIES OPERATING STATISTICS (Concluded) 1983 1982 1981 1980 1979 ANNUALCosTOF FUEL CONsUMED (in cents): (a)

Cents per Million Btu:

Coal 183.97 189.59 187.13 164.49 151.91 Nuclear 54.37 49.55 49.90 48.44 37.82 Overall 91.99 84.85 91.35 84.95 76.25 Cents per Kilowatt-hour Generated:

Coal 1.76 1.85 1.81 1.59 1.52 Nuclear .59 .53 .54 .52 .41 Overall .96 .89 .95 '.89 .81 RESIDENTIAL SERvlcE AYERAGES:

Annual Kwh Use per Customer:

Total 10,187 10,084 10,008 10,206 10,210 With Electric Heating 18,780 19,990 19,866 20,584 21,611 Annual Electric Bill:

"

Total $ 541 $ 489 $ 443 $ 406 $ 402 With Electric Heating $ 912 $ 893 $ 785 $ 721 $ 740 Price per Kwh (in cents):

Total 5.31 4.85 4.43 3.98 3.94 With Electric Heating -............ 4.86 4.47 3.95 3.50 3.43 NUMBER QF ELEcTRIc CUSTQMERS:

Year-End:

Retail:

Residential:

Without Electric Heating 320,655 320,097 321,850 321,432 319,477 With Electric Heating 78 311 77,335 77,002 75,618 75,606 Total Residential ........... 398,966 397,432 398,852 397,050 395,083 Commercial 42,552 42,233 42,957 42,758 42,563 Industrial 3,253 3,249 2,873 2,802 2,748 Miscellaneous 1,571 1,458 1,440 1,424 1,373 Total Retail 446,342 444,372 446,122 444,034 441,767 Wholesale (sales for resale) 106 105 104 105 103 Total Electric Customers 446,448 444,477 446,226 444,139 441,870 (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 $ 1.03125 $ 1.03125 $ 1.03125 $ 1.03125 $ 1.03125 $ 1.03125 $ 1.03125 $ 1.03125

Market Price $ Per Share

.

(MSE) High 30 59 30Ye 55Vi Low 27 29V4 29th 30 4.56% Series Dividends Paid Per Share $ 1.14 $ 1.14 $ 1.14 $ 1.14 $ 1.14 $ 1.14 $ 1.14 $ 1.14

Market Price $ Pcr Share (OTC)

Ask (high/low)

Bid (high/low) 4.12% Series Dividends Paid Per Share $ 1.03 $ 1.03 $ 1.03 $ 1.03 $ 1.03 $ 1.03 $ 1.03 $ 1.03

Market Price $ Per Share (OTC)

Ask (high/low)

Bid (high/low) 7.08Fo Series Dividends Paid Per Share $ 1.77 $ 1.77 $ 1.77 $ 1.77 $ 1.77 $ 1.77 $ 1.77 $ 1.77

Market Price $ Per Share (NYSE) High 58 59~h 55 56 46N 47 50 55 Low 52th 54Ye 51th 49Ys 42th 44 44 48 7.76% Series Dividends Paid Per Share $ 1.94 $ 1.94 $ 1.94 $ 1.94 $ 1.94 $ 1.94 $ 1.94 $ 1.94

Market Price $ Per Share (NYSE) High 62Y~ 64% 61 61% 50Yi 52, 56th 61th Low 57 57th 56 54 45Yi 47Ve 48 52Y4 8.68% Series Dividends Paid Pcr. Share $ 2.17 $ 2.17 $ 2.17 $ 2.17 $ 2.17 $ 2.17 $ 2.17 $ 2.17 Market Price' $ Per Share (NYSE) = High 70 73% 70Fs 70 55 58th 59N 67 Low 63th 65th 65% 60Y4 50N 52 57th 57Fa 12% Series Dividends Paid Per Share, $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00 $ 3.00

Market Price $ Per Share (N YSE) High 100hh 103th 101N 1th 86k 94 98th Low 94 99 103Y4 97 96' 77th 79Yi 79Y~ 89

($ 25 Par Value)

$2. 15 Series Dividends Paid Per Share $ 0.5375 $ 0.5375 $ 0.5375 $ 0.5375 $ 0.5375 $ 0.5375

Market Price $ Per Share

$ 0.5375 $ 0.5375 (N YSE) High 17Fe 18'6'7th 14h Low 15N 15N 17'4N 13Ye 15 13'3Y~ 15Fs 17Ve 15Ye

$ 2.25 Series Dividends Paid Per Share $ 0.5625 $ 0.5625 $ 0.5625 $ 0.5625 $ 0.5625 $ 0.5625 $ 0.5625 $ 0.5625

Market Price $ Pcr Share (N YSE) High Low 18Ve 16th 16'8 18Y4 15h 14'5%

13th 13th 1&%

14V 18Y4 les

$ 2.75 Series Dividends Paid Per Share $ 0.6875 $ 0.6875 $ 0.6875 $ 0.6875 $ 0.6875 $ 0.6875 $ 0.6875 $ 0.6875

Market Price $ Per Share

.

(NYSE) High 23N 25 24 24 18% 20 Low 21N 23Ve 23Ye 23 18V4 17 V18% 16th 21 20

$ 3.63 Series Dividends Paid Per Share $ 0.9075 $ 0.9075 $ 0.9075 $ 0.9075 $ 0.63 $ 0.9075 $ 0.9075 $ 0.9075

Market Price $ Pcr Share

(NYSE) High 30Ye 28N 28N 25% 26N 2%6 Low 297'6N 27N .

27 26K 22N 23 25th MSE Midwest Stock Exchange OTC Over-the-Counter NYSE New York Stock Exchange Note The above bid and asked quotations r represent prices between dealers and do not represent actual transactions.

Market quotations provided by National Quotation Bureau, Inc.

Dash indicates quotation not available.

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

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ATTACHMENT 2 TO AEP:NRC:0909 I

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1984 Internal Cash Flow Projection-for Donald C. Cook Nuclear Plant (Millions)

Actual Projected 1983 1984 Net income after taxes 139.9 155 Less dividends paid 136.0 141

'6. .'8 Retained earnings 3.9 14 Adjustments:

Depreciation and amortization 0 Deferred income taxes and investment tax credits 89.8 130 AFUDC (119.2) (116)

.*'. To&al 'adjustmen<s..:.:::  : ...5 6 1 6":

Internal cash flow. 60.5 116 Average quarterly cash flow 15.1 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)

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