ML17334B399
| ML17334B399 | |
| Person / Time | |
|---|---|
| Site: | Cook  |
| Issue date: | 04/09/1991 |
| From: | Fitzpatrick E INDIANA MICHIGAN POWER CO. (FORMERLY INDIANA & MICHIG |
| To: | Murley T NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM), Office of Nuclear Reactor Regulation |
| Shared Package | |
| ML17328B008 | List: |
| References | |
| AEP:NRC:0909G, AEP:NRC:909G, NUDOCS 9104160384 | |
| Download: ML17334B399 (38) | |
Text
'.ACCELERATED DISTRIBUTION DEMONSTRATION SYSTEM D REGULATORY'NFORMATION DISTRXBUTXON SYSTEM (RIDS)..ACCESSION NBR:9104160384 DOC.DATE: 91/04/09 NOTARIZED:
NO DOCKETg FACIL:50-315 Donald C.Cook Nuclear Power Plant, Unit 1, Indiana 6 05000315 50-316 Donald C.Cook, Nuclear Power Plant, Unit 2, Indiana 6 050003/6 AUTH.NAME AUTHOR AFFILIATION FXTZPATRICK,E.
Indiana Michigan Power Co.(formerly Indiana&Michigan Ele RECIP.NAME RECIPIENT AFFILIATION R MURLEY,T.E.
Office of Nuclear Reactor Regulation, Director (Post 870411 I ,SUMECT: Forwards"Indiana Michigan Power Co 1990 Annual Rept" I projected cash flow statement for 1991.DISTRIBUTION.
CODE: M004D COPIES RECEIVED:LTR
$ENCL g SIZE:+TXTLE: 50.71(b)-Annual Financial Report NOTES: 5~RECIPIENT ID CODE/NAME PD3-1 PD INTERNAL: AEOD/DOA EXTERNAL: NRC PDR COPIES LTTR ENCL 1 1 1 1 1 1 RECXPXENT ID CODE/NAME COLBURN,T.
FI COPIES LTTR ENCL 1 0 1 1 A D D I I S R I D S NOTE TO ALL"RIDS" RECIPIENTS:
PLEASE HELP US TO REDUCE WASTE!CONTACT THE DOCUMENT CONTROL DESK, ROOM Pl-37 (EXT.20079)TO ELIMINATE YOUR NAME FROM DISTRIBUTION LISTS FOR DOCUMENTS YOU DON'T NEED!TOTAL NUMBER'F COPIES REQUIRED: LTTR 5 ENCL 4 A D D 0~~~b I P Indiana Michigan Power Company One Summit Square P.O.Box 60 Fort Wayne, IN 46801 219 425 2111 SHEHSINdh NIICiilGQM PQStfM AEP: NRC: 0909G 10 CFR 50.71(b)&140.21(e)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 POWER COMPANY U.S.Nuclear Regulatory Commission Attn: Document Control Desk Washington, D.C.20555 Attn: T.E.Murley April 9, 1991
Dear Dr.Murley:
Enclosure 1 contains the Indiana Michigan Power Company's (I&M)annual report for 1990.Enclosure 2 contains a copy of I&M's pro]ected cash flow for 1991.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 that incorporate a reasonable set of controls to ensure its accuracy and completeness prior to signature by the undersigned.
Sincerely,~~E~E~Fit atrick Vice President ldp Enclosures cc: D.H.Williams, Jr.A.A, Blind-Bridgman J.R.Padgett G.Charnoff A.B.Davis-Region III NRC Resident Inspector-Bridgman NFEM Section Chief 91pp>6038+~
p5ppp315 91PqP9@DR QQOCK pDR poop I/I
..91041603@, 1990 Annual Report Contents Background of the Company Directors and Officers of the Company.Selected Consolidated Financial Data.Management's Discussion and Analysis of Results of Operations and Financial Condition Consolidated Statements of Income Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Retained Earnings Notes to Consolidated Financial Statements Independent Auditors'eport Operating Statistics Dividends and Price Ranges of Cumulative Preferred Stock 5-9 10 11-12 13 14 15-25 26 27-28 29 INDIANA MICHIGAN POWER COMPANY One Summit Square, P.O.Box 60, Fort Wayne, Indiana 46801 Background of the Company INDIANA MIGHIGAN PowER CQMPANY (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 and Price River Coal Company, which were formerly engaged in coal-mining operations.
Blackhawk Coal Company currently leases or subleases portions of its coal rights, land and related mining equipment to unaffiliated companies.
In addition, the Company has a river transportation division (RTD)that barges coal on the Ohio and Kanawha Rivers to generating plants of the Company and affiliates.
RTD also provides some barging services to unaffiliated companies.
The Company serves approximately 480,000 customers in northern and eastern Indiana and a portion of southwestern Michigan.Among the principal industries served are transportation equipment, primary metals, fabricated metal products, electrical and electronic machinery, and chemicals and allied products.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-voltage trans-mission 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: AEP Generating Company, Appalachian Power Company, Columbus Southern Power Company, Kentucky Power Company, Kingsport Power Company, Michigan Power Company, Ohio Power Company and Wheeling Power Company.The Company is also interconnected with the following unaffiliated utilities:
Central Illinois Public Service Company, The Cincinnati Gas 8 Electric Company, Commonwealth Edison Company, Consumers Power Company, illinois Power Company, Indianapolis Power Ir Light Company, Northern Indiana Public Service Company, PSI Energy Inc.and Richmond Power Ir Light Company, as well as Indiana-Kentucky Electric Corporation (a subsidiary of Ohio Valley Electric Corporation, an affiliate that is not a member of the AEP System).
Directors MARK A.BAILEY RICHARD E.DISBROW WILLIAM N.D'ONOFRIO ALLEN R.GIAssBURN (a)M.RICHARD HARRELL (b)WILLIAM J.LHOTA GERALD P.MALONEY RICHARD C.MENGE DwiGHT L PiTTENGER (a)RONALD E.PRATER (b)DALE M.TRENARY (a)WILLIAM E.WALTERS (b)W.S.WHITE, JR.DAVID H.WILLIAMS, JR.Officers W.S.WHITE, JR.(C)Chairman of the Board RICHARD E.DISBROW (d)Vice Chairman and Chief Fxecutive Officer RICHARD C.MENGE President and Chief Operating Officer MILTON P.ALEXICH Vice President MARK A.BAILEY Vice President WILLIAM N.D'ONOFRIO Vice President A.JosEPH Dowo Vice President RICHARD F.HERING Vice President WILLIAM J.LHOTA Vice President GERALD P.MALONEY Vice President DAVID H.WILLIAMS, JR.Vice President PETER J.DEMARIA Treasurer JOHN F.DILORENZO, JR.Secretary Euo BAFILE Assistant Secretary and Assistant Treasurer JEFFREY D.CROSS Assistant Secretary CARL J.Moos Assistant Secretary JOHN B.SHINNOCK Assistant Secretary LEONARD V.ASSANTE Assistant Treasurer BRUCE M.BARBER Assistant Treasurer GERALD R.KNORR Assistant Treasurer As of January 1, 1991 the current directors and officers of Indiana Michigan Power Company were employees ol American Electric Power Service Corporation with eight exceptions:
Messrs.Bailie, Bailey, D'Onofn'o, Gfassburn, Menge, Moos, Pittenger, and Trenary, who were employ.ees of Indiana Michigan Power Company.(a)Elected April 24, 1990 (b)Resigned April 24, 1990 (c)Resigned as Chief Executive Officer January 1~1991 (d)Elected January 1, 1991 INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES Selected Consolidated Financial Data Year Ended December 31, 1990 1989 1988 (in thousands) 1987 1986 INCOME STATEMENTS DATA: OPERATING REVENUES-ELECTRIC.......OPERATING EXPENSES OPERATING INCOME NONOPERATING INCOME INCOME BEFORE INTEREST CHARGES.......INTEREST CHARGES NET INCOME PREFERRED STOCK DIVIDEND REQUIREMENTS
.EARNINGS APPLICABLE To COMMON STOCK$1,031,059$1,005,638 829,626 795,242$983,066$1,017,268$1,091,295 767,623 794,222 900,151 210,396 32,930 243,326 106,181 191,144 66,905 223,046 56,828 279,874 113,508 215,443 43,454 201,433 3,946 258,049 105,568 258,897 107,092 205,379 89,064 116,315 15,587 152,481 26,256 166,366 20,955 151,805 18,848 137,145 18,048 100,728$119,097$132,957$145,411$126,225 1990 1989 December 31, 1988 (in thousands) 1987 1986 BALANCE SHEETS DATA: ELECTRIC UTILITY PLANT I ACCUMULATEO DEPRECIATION AND AMORTIZATION NET ELECTRIC UTILITY PLANT TOTAL ASSETS$4,011,464$3,918,61 6$4,411,271$4,153,281$3,979,822 1,403,871 1,292,430 1,218,060 1,118,254 1,018,455$2,607,593$2,626,186$3,193,211$3,035,027$2,961,367$3,635,435$4,259,826$3,993,046$3,956,563$3,849,208 COMMON STOCK AND PAID-IN CAPITAL...RETAINED EARNINGS.T0TAL C0MMQN SHAREowNER s EouITY..CUMULATIVE PREFERRED STOCK: NOT SUBJECT TO MANDATORY REDEMPTION SUBJEGT To MANDAT0RY REDEMPTI0N (a)TOTAL.L0NG-TERM DEBT (a)OBLIGATI0Ns UNDER CAPITAL LEAsEs (a).TOTAL CAPITALIZATION AND LIABILITIES
...$774,193$774,193$838,347$828,347$828,347 145,489 157,825 161,443 145,302 113,123$919,682$932,018$999,790$973,649$941,470$197,000$197,000$197,000$197,000$197,000 18,030 25,030 32,030 79,030$197,000$215,030$222,030$229,030$276,030$1,123,833$1,522,736$1,575,220$1,591,768$1,421,523$133,064$122,977$167,920$170,830$187,845$3,635,435$4,259,826$3,993,046$3,956,563$3,849,208 (a)Including portion due within one-year.
Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations Net Income Oeclines Net income decreased to$116 million in 1990 compared with$137 million in 1989.The decline in 1990 was predom-inantly due to a decline in nonoperating income as accruals for allowance for funds used during construction (AFUDC)ceased with commercial operation of Rockport Plant Unit 2 (Rockport 2)in December 1989 and increased operating and maintenance costs.In1989 net income decreased$15 million from 1988 primarily from lower operating income and a decline in nonoperating income.Outlook The Company as part of the AEP System faces challenges in the 1990's that could adversely affect the Company's financial performance.
While management believes the Company is equipped to deal with the future, uncertainties that could adversely affect the Company include the ability to obtain favorable rate-making treatment to recover from ratepayers its cost of service on a timely basis with particular attention currently to:~The cost of new generating capacity.~The cost of compliance with the Clean Air Act Amend-ments of 1990.In addition, the Company's results could be negatively affected by factors not generally within management's control such as: the current and any future decline in economic activ-ity, increased competition in the wholesale electric energy market and the weather.The ability of the Company as a member of the AEP System Power Pool (Power Pool)to make wholesale sales equal to or greater than the level of such sales reflected in the Company's rates, including the Power Pool's ability to sell the remaining portion of the Company's recently constructed Rockport 2 generating capacity not yet included in rates, will affect the Company's 1991 results of operations.
Management will make every effort to continue marketing available capacity in the near term.In addition, management will be devoting particular attention in 1991 toward: efforts to increase rates to recover the cost of the recently added Rock-port 2 capacity;reduction of growth in its cost of service;and preparation of a plan to comply with power plant emission restrictions of the recently enacted Clean Air Act Amendments.
Operating Revenues and Energy Sales Climb Operating revenues rose$25 million in 1990 following a$23 million increase in 1989.Increases in wholesale kilowatt-hour (kwh)sales predominantly to unaffiliated utilities accounted for the revenue increase in both years.The components of change in revenues are as follows: Increase (Decrease)
From Previous Year 1990 1989 (dollars in millions)Amount%Amount Retail: Price variance...Volume variance S (8.1)$(18.5)(8.4)10.0 (16.5)(2.3)(8.5)(1.2)Wholesale:
Price variance.Volume variance (9.2)(48.1)48.6 74.7 39.4 14.3 26.6 10.I Other Operating Revenues........2.5 4.5 Total S 25.4 2.5 S 22.6 2.3 The modest decrease in 1990 retail sales volume reflects the effects of unseasonably mild weather on residential sales.Industrial sales volume, which had shown steady growth for several years, began to slow in 1989 and experienced a slig decline in 1990.The negative effect on revenues of the lowei.kwh sales volume was compounded by a reduction in rates as lower average fuel costs were passed on to customers.
It is important to note that with the past growth in electric heating and cooling load, results of operations have become increasingly sensitive to weather.The increase in 1990 wholesale kwh sales was predomi-nantly due to the commencement in January 1990 of a 250 megawatt (mw)Iong-term Rockport 2 unit power sales agree-ment.Short-term wholesale sales, which can fluctuate due to competition, the availability of unaffiliated generating capacity and weather patterns, declined slightly in 1990 par-tially offsetting the tong-term sales increase.The positive effect of increased wholesale sales volume on 1990 revenues was partly offset by a lower average price per kwh reflecting price competition in the short-term sales for resale market.The lack of available unaffiliated generating capacity through-out most of 1989, a reduction by the Power Pool of its short-term energy prices and extremely cold weather in December 1989 combined to produce a significant increase in 1989's short-term wholesale sales compared with 1988.
INDIANA MICHIGAN POWER COMPANY ANO SUBSIDIARIES (dollars in millions)1990 Amount 1989 Amount Operating Expenses: Fuel Purchased and Interchange Power (net).Other Operation............
Maintenance Depreciation and Amortization
...Amortization of Bockport unit 1 Phase.in Costs...........
Taxes Other Than Federal Income Taxes Federal Income Taxes Total S 26.8 10.7 S 16.9 7.3 (93.9)(370.1)(22.1)(46.6)73.5 43.0 9.3 5.8 30.3 29.1 14.7 16.4 4.3 3.4 4.6 3.9 (1.1)(6.2)(2.0)(3.5)0.1 0.2 (4.6)(10.0)5.2 12.4 S 34.4 S 27.6 The increases in fuel expense in both years reflect higher net generation.
With the commercial operation of Rockport 2 in December 1989, the Company became a net supplier to the Power Pool and as such commenced receiving Power Pool capacity credits which greatly reduced its purchased and interchange power expense in 1990.The Company was able to significantly decrease purchased and interchange power expense in 1989 due to the increased availability of its gen-rating units The Company as a member of the Power Pool participated in a long-term contract for the sale of up to 560 mw of power to an unaffiliated utility, which expired on December 31, 1990 and was not renewed.This contract contributed
$16 million to the Company's revenues and$5 million to net income in 1990.The Power Pool is attempting to replace the terminated sales and recently reached an agreement to sell 100 mw under a long-term contract with an unaffiliated utility.In 1989 and 1990 the Power Pool sold significant quantities of energy to a Canadian utility under a series of short-term wholesale con-tracts which expired at the end of 1990.That customer is no longer expected to purchase large quantities of energy.In 1990 these sales contributed
$34 million to the Company's revenues and$8 million to net income.The Power Pool is aggressively marketing available energy but cannot predict whether replacement sales will be made due to the competitive nature of the energy market and its dependence on factors which are not generally within the Power Pool's control.If the above terminated long-term and short-term sales are not replaced the Company's results of operations will be adversely impacted.Operating Expenses Rise Operating expenses increased 4%in 1990 after a 4%I ncrease in 1989.Changes in the components of operating expenses were: Increase (Decrease)
From Previous Year The significant increase in other operation expense in 1990 was primarily due to lease expense on Rockport 2 which was sold and leased back in December 1989.In addition, other operation expense and maintenance expense increased in 1990 and1989 due to scheduled outages of both of the Com-pany's nuclear generating units.The units are refueled on an 18-month cycle.In the second half of 1990, both units were out of service for several months each for scheduled refueling.
A substantial portion of the 1990 increase in nuclear plant maintenance was recorded in the fourth quarter.In 1989 Unit 2 was out of service to replace its steam generators, refuel and conduct a 10-year service inspection as required by the Nuclear Regulatory Commission and Unit 1 underwent a refueling outage.The next refueling outages are scheduled for 1992.A combination of stricter regulatory requirements for maintenance and training and the limited supply of nuclear grade materials for replacement parts has contributed to nuclear industry operation and maintenance expenses increasing at a rate higher than the general inflation rate.Industry efforts are underway to change this trend.The 1990 decrease in Federal income tax expense was primarily due to adjustments relating to prior year's tax returns and an increase in the amortization of deferred invest-ment tax credits due predominantly to placing Rockport 2 in service.The increase in Federal income tax expense in 1989 was primarily due to changes in certain book/tax timing dif-ferences accounted for on a flow-through basis.Allowance for Funds Used Ouring Construction and Interest Charges AFUDC decreased substantially in 1990 since accruais on Rockport 2 ceased effective with its commercial operation on December 1, 1989.The increase in 1989's AFUDC reflected the additional accumulated Rockport 2 construction expenditures.
In1990 interest expense decreased reflecting the reduction in both long-term and short-term debt outstanding with pro-ceeds from the sale of Rockport 2.The 1989 nonoperating income decrease was the result of a one-time ciedit to income in the fourth quarter of 1988 to record, in accordance with Federal Energy Regulatory Commission (FERC)guidance, the interest accrued on nuclear decommissioning trust funds since their inception.
Liquidity and Capital Resources Construction Spending Decreases Gross plant and property additions amounted to$162 mil-lion in 1990, a 21%decrease from 1989 reflecting the com-pletion of Rockport 2.Construction expenditures for the next three years are estimated at$523 million, exclusive of yet to be determined expenditures necessary to meet the require-ments of the Clean Air Act Amendments.
The Company funds its substantial annual capital requirements for construction of new facilities and improvement of existing facilities through a combination of internally generated funds, short-term and long-term borrowings and investments in its common equity by its parent, AEP.Debt and Preferred Stock Financing The Company generally issues short-term debt to provide interim financing of construction expenditures in excess of available internally generated funds.At December 31, 1990, the Company had unused short-term lines of credit of$263 million shared with other AEP System companies.
Regulatory provisions limit short-term debt borrowings to$200 million and a charter provision further limits short-term borrowings to$90 million.The Company periodically reduces short-term debt with the proceeds of sales of long-term debt and pre-ferred stock securities and investments in its common equity by AEP.The issuance of senior securities is expected to be relatively modest in the next few years since it is expected that approx-imately 70%of the Company's projected construction expenditures for 1991-1993 will be financed internally, exclu-sive of any expenditures necessary to meet the requirements of the recently enacted Clean Air Act Amendments.
Additional amounts needed in excess of internally generated funds will be raised externally through sales of securities and invest-ments in the Company's common equity by AEP.In order to issue additional levels of certain long-term debt, the Company must have pre-tax earnings equal to at least twice annual interest charges on long-term debt after giving effect to the issuance of the new debt.Generally to issue additional levels of preferred stock, the Company must have after-tax gross income at least equal to one and one-half times annual interest and preferred dividend requirements after giv-ing effect to the issuance of the new preferred stock.As a result, the earnings performance of the Company will deter-mine its ability to finance, which, in turn, will determine its ability to fund construction.
As of December 31, 1990, the Company's long-term debt and preferred stock coverage ratios were 3.79 and 2.02, respectively.
In December 1989 the Company and its affiliate, AEP Gen-erating Company (AEGCo), sold their 50%interests in Rock-port 2 and leased back the unit.Net proceeds to the Company from the sale were$661 million after taxes.The Company used the proceeds to repay short-term and Iong-term debt, return capital contributions to its parent and repurchase receivables.
The net gain on the sale did not affect 1989 earnings since it was deferred and is being amortized along with applicable deferred taxes over the initial lease term.The leases have been accounted for as operating leases.The sub-stantial increase in cash during 1989 resulted from the Rock-port 2 sale proceeds.The substantial amount of taxes paid during 1990 in connection with the sale and leaseback, as well as the related bond and stock redemptions caused the cash decrease in 1990.Concerns and Contingencies Clean Air Law-Environmental Costs In November 1990 the Clean Air Act Amendments became law requiring, among other things, substantial reductions in sulfur dioxide and nitrogen oxide emissions from coal-fired electric generating plants and placing a permanent nationwide limit on emissions after 1999.The new law establishes a stri timetable for compliance, setting a deadline of 1995 for th'irst phase of reductions and 2000 for the second phase.Although the AEP System has in the past made substantial expenditures to satisfy the provisions of clean air laws, the System will have to adopt substantial additional measures to comply with the new amendments.
The AEP System is review-ing the amendments and evaluating the compliance alterna-tives.The compliance alternatives being considered include: (a)installation of new emissions reduction equipment (scrub-bers)on affected generating units which would require sub-stantial capital expenditures and result in significantly increased operating costs and reduced generating efficiency;(b)switching to lower sulfur coal or natural gas, resulting in less substantial capital expenditures and adverse impacts on affiliated mining operations and related facilities;(c)prema-ture retirement of certain existing generating units;and/or (d)significant capital expenditures to repower existing generating units with pressurized fluidized bed combustion (PFBC)tech-nology presently being tested at an affiliate's Tidd PFBC dem-onstration plant.The Company's Cook Nuclear Plant is not INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES affected by the new legislation.
Additionally, the Company's Rockport Plant and three of the four units at Tanners Creek , Plant, all of which burn low sulfur coal, are currently in com-pliance with the new law.Alternatives to meet the new require-ments at the Company's two remaining coal-fired units, Tanners Creek Unit 4 and the Breed Plant, are being studied.As a member of the Power Pool the Company shares in the cost of compliance at generating units owned by other Power Pool member companies.
The Company's cost of compliance could adversely affect results of operations and financial con-dition if not recovered through the rate-making process.Hazardous Material The generation of electricity unavoidably produces a num-ber of non-hazardous and hazardous materials such as ash, slag, sludge, low level radioactive waste, spent nuclear fuel, etc.In addition asbestos, polychlorinated biphenyls (PCB's)and other hazardous materials have been employed in the Company's generating plants and transmission/distribution facilities.
The Company fully complies with all existing laws regarding handling, transportation, storage and disposal of hazardous and non-hazardous materials it produces or uses.However, additional compliance efforts and costs could be incurred to meet the requirements of new laws and regulations.
The Comprehensive Environmental Response Compensa-tion and Liability Act (Superfund) established programs deal-ing with clean up of hazardous waste disposal sites, as well as other matters, and authorized the Environmental Protection Agency (EPA)to administer them.The Company has been named by the EPA as a"potentially responsible party" for five sites and has received information requests for two other sites.The Company's present estimates do not anticipate material clean up costs.However, should material costs be incurred for the clean up of these sites or for any other site at which the Company may have disposed of materials, the Company's results of operations and financial condition could be adversely impacted unless the costs can be recovered from rate payers.The Company maintains insurance against damage and liability from its nuclear plant.In the event of a nuclear incident at the Company's nuclear plant or any nuclear plant in the United States the insurance program could require the Com-pany to pay significant retrospective premiums.In addition the Company may incur additional uninsured costs.If not recovered from ratepayers, such costs could adversely impact results of operations and financial condition.
Other New Environmental and Health Concerns In recent years there has been considerable discussion of environmental and health concerns regarding the emission from generating facilities of"greenhouse" gases such as carbon dioxide and the effects on public health of electric and magnetic fields (EMF)from transmission and distribution facilities.
Management is concerned that new laws may be passed or new regulations promulgated without sufficient sci-entific evidence.The AEP System will be working to support efforts to properly study"global warming" and EMF and to define the extent, if any, to which they pose a threat to the environment and public health before new restrictions are imposed.Should Congress enact legislation to control or limit greenhouse gases and EMF, the Company's results of oper-ations and financial condition could be adversely affected unless the cost of compliance can be recovered from rate payers.Regulatory Concerns In July 1989 the Company filed a request with the Indiana Utility Regulatory Commission (IURC)for an annual increase in rates of$60 million.In August 1990 the IURC granted the Company an increase in rates of$14.3 million.In October 1990 the IURC amended its order, at the Company's request, and allowed an additional
$5 million increase in rates.The Company and other parties requested a rehearing of certain portions of the IURC's orders and in February 1991 the IURC issued an order granting rehearing on certain of those issues.During 1990, the Company filed with the FERC for an$11 million annual rate increase from its firm wholesale cus-tomers.In December the FERC granted the Company's request to collect rates designed to produce a$4 million annual increase, subject to refund, pending the issuance of a final order.
In 1990 an initial decision was issued by a FERC admin-istrative law judge regarding a complaint filed by a wholesale customer concerning the reasonableness of the Company's coal costs and the coal transportation charges of affiliates.
The initial decision would require the Company to refund to wholesale customers$25 million related to coal costs and a yet to be determined amount of affiliated transportation charges.The Company has filed exceptions to the initial deci-sion and the matter is subject to a final decision of the full commission.
In February 1991 the Michigan Public Service Commission (MPSC)granted the Company a$10.4 million annual rate increase from its Michigan retail jurisdictional customers.
This rate increase will be effective in two steps:$7.4 million in April 1991 and$3 million in April 1992.The order also places a moratorium on any new base rate filing prior to July 1992 and requires the Company to file an application, within six months, to merge Michigan Power Company, an affiliate, into the Company.It is not presently anticipated that the merger will significantly impact results of operations and financial condition.
Economic Outlook The economy slowed in 1990 on a national level and to a lesser.extent in the Company's service area.Although the slowing economy had minimal effect on 1990 sales levels, further slowdowns or a deep recession could negatively affect demand for energy, especially from industrial customers.
With its large industrial base, results of operations for the Company are sensitive to economic conditions which can be impacted by inflation, foreign currency fluctuations, the mar-ket price of primary metals, costs of compliance with the Clean Air Act Amendments of 1990 and other matters beyond the control of the Company and its major industrial customers.
Effects of Inflation inflation continues to affect the Company, even though the inflation rate has been relatively low in recent years.Since the rate-making process limits the Company to recovery of the historical cost of assets, economic losses are experienced when the effects of inflation are not recovered from customers on a timely basis.Such losses are offset partly by the eco-nomic gains that result from the repayment of long-term debt with inflated dollars.New Accounting Standards The Financial Accounting Standard Board's (FASB)new accounting standard on income taxes requires the Company to adopt the liability method of accounting for income taxes in 1992 and will result in a significant increase in total assets and liabilities due to the recording of deferred income taxes on timing differences previously flowed through and corre-sponding offsetting regulatory assets and liabilities.
In addi-tion existing deferred taxes will be adjusted to the lev'el required at the currently existing statutory tax rate with an offsetting regulatory asset or liability for deferred tax amounts associated with utility operations.
Whether the Company implements the new standard on a restated or prospective basis has not yet been determined.
The FASB has indicated that it expects to issue an exposure draft during the first half of 1991 which will amend the new standard and may extend its required effective date until 1993.The Company expects to defer implementation of the new standard until the effective date of the amended standard.It is not presently anticipated that the final standard will significantly impact results of oper-ations or financial condition.
The FASB has issued a new accounting standard that requires a change in accounting for postretirement benefits other than pensions from an expense-as-paid method to a accrual method.This standard permits initial year recognition of the entire prior service cost or recognition of a transition obligation over periods up to 20 years and has an effective date of 1993.The Company expects to elect the 20 year transition option to comply with the new standard.With the assistance of its independent actuary the Company is pres-ently computing its obligation for retiree benefits other than pensions.The Company's obligation is significant as is the difference between the annual accruals required by the new standard under the 20 year transition option and the current pay-as-you-go expense.The Company expects to seek recov-ery of the increased accruals from ratepayers.
Should recov-ery of or a commitment to recover the required increased accruals beginning in 1993 be denied, the Company's results of operations and possibly its financial condition would be adversely impacted.
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES Consolidated Statements of Income OPERATING REVENUES-ELECTRIC Year Ended December 31, 1989 (in thousands)
$1,031,059$1,005,638 1988$983,066 OPERATING EXPENBEs: Fuel Purchased and Interchange Power (net)Other Operation.Maintenance Depreciation and Amortization Amortization of Rockport Plant Unit 1 Phase-in Costs Taxes Other Than Federal Income Taxes Federal Income Taxes Total Operating Expenses OPERATING INCOME NONOPERATING INCOME: Allowance for Equity Funds Used During Construction Other Total Nonoperating Income INCOME BEFORE INTEREST CHARGES.276,719 (68,529)244,382 134,521 129,091 16,961 54,389 42,092 829,626 201,433 1,174 2 772 3,946 205,379 249,886 25,376 170,855 104,223 124,809 16,961 56,377 46,755 795,242 210,396 27,972 4,958 32,930 243,326 232,946 47,503 161,532 89,545 120,145 18,089 56,271 41,592 767,623 215,443 27,023 16,431 43,454 258,897 INTEREST CHARGES: Long-term Debt.Short-term Debt and Other Allowance for Borrowed Funds Used During Construction Net Interest Charges NET INCOME PREFERRED STOCK DIVIDEND REQUIREMENTS EARNINGS APPLICABLE To COMMON STOCK See Notes to Consolidated Finandat Statements.
87,385 3,158~7,479 131,009 7,279~32,107)106,181 137,145 18,048 89,064 1169315 15,587$100,728$119,097 130,649 6,635~30,192 107,092 151,805 18,848$132,957 Consolidated Balance Sheets ASSETS December 31, 1990 1989 (in thousands)
ELEcTRIc UTILITY PLANT: Production Transmission Distribution General (includes nuclear fuel)Construction Work in Progress.Total Electric Utility Plant.Accumulated Depreciation and Amortization
.Net Electric Utility Plant$2,473,678 778,115 482,324 182,906 94,441 4,011,464 1,403,871 2,607,593$2,465,133 777,782 452,780 170,349 52,572 3,918,616 1,292,430 2,626,186 OTHER PROPERTY ANo INVEsTMENTs 343,307 321,215 CURRENT AssETs: Cash and Cash Equivalents
.Accounts Receivable:
Customers Affiliated Companies.Miscellaneous Allowance for Uncollectible Accounts.Fuel-at average cost.Materials and Supplies-at average cost.Accrued Utility Revenues Other Total Current Assets 2,721 70,677 26,926 25,237 (674)54,790 38,483 39,085'11,860 269,'105 595,487 114,350 10,669 23,441 (606)40,057 32,479 35,885 6,920 858,682 DEFERREO DEBITS: Deferred Taxes-Gain on Sale and Leaseback of Rockport Plant Unit 2..Deferred Depreciation and Return-Rockport Plant Unit 1........Deferred Nuclear Fuel Disposal Costs........................
Other 176,967 114,918 43,615 79,930 183,290 131,879 47,822 90,752 Total Deferred Debits Total See Notes to Consolidated Flnanotat Statements.
453,743 415,430$3,635,435$4,259,826 INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES CAPITALIZATION AND LIABILITIES December 31, 1990 1989 (in thousands)
CAPITALIZATION:
Common Stock-No Par Value: Authorized
-2,500,000 Shares Outstanding
-1,400,000 Shares Paid-in Capital Retained Earnings Total Common Shareowner's Equity Cumulative Preferred Stock-Not Subject to Mandatory Redemption Long-term Debt Total Capitalization
$56,584 717)609 145,489 919,682 197,000 1,072,333 2,189,015$56,584 717,609 157,825 932,018 197,000 1,021,566 2,150,584 OTHER NONCURRENT LIABILITIES 220,127 190,962 CURRENT LIABILITIES:
Cumulative Preferred Stock Due Within One Year.Long-term Debt Due Within One Year Commercial Paper.Accounts Payable: General.Affiliated Companies Taxes Accrued Interest Accrued Obligations Under Capital Leases.Other Total Current Liabilities
.51,500 33,945 62,343 16,831 21,900 36,399 55,471 278,389 18,030 501,170 52,602 35,811 200,787 36,101 33,247 76,878 954,626 DEFERREO CREOITS: Deferred Income Taxes Deferred Investment Tax Credits.Deferred Gain on Sale and Leaseback-Rockport Plant Unit 2.Other Total Deferred Credits 478,005 212,913 234,303 22,683 947,904 485,444 221,666 241,255 15,289 963,654 C0MMITMENTs ANo C0NTINGENGIEs (Note 10)Total$3,635,435$4,259,826 12 Consolidated Statements of Cash Flows 1990 Year Ended December 31, 1989 (in thousands) 1988 OPERATING ACTIVITIES:
'et Income Adjustments for Noncash Items: Depreciation and Amortization Amortization of Rockport Plant Unit 1 Phase-in Costs.......Amortization of Deferred Nuclear Fuel Disposal Costs.......Deferred Income Taxes Deferred State Taxes-Rockport Plant Unit 2 Sale and Leaseback Transaction
.Deferred Investment Tax Credits.Allowance for Equity Funds Used During Construction
......Changes in Certain Current Assets and Liabilities:
Accounts Receivable (net).Fuel, Materials and Supplies Accrued Utility Revenues.Accounts Payable Taxes Accrued Interest Accrued.Other (net)Net Cash Flows From Operating Activities
..........
INYEsTING ACTIvITIEs:
Construction Expenditures
.Allowance for Equity Funds Used During Construction
........Cash Used for Construction Expenditures Proceeds from Sale and Leaseback-Rockport Plant Unit 2...Proceeds from Sales of Other Property Net Cash Flows From (Used For)Investing Activities
.FINANCING ACTIVITIES:
Capital Contributions From (Returned to)Parent Issuance of Long-term Debt.Change in Short-term Debt (net).Retirement of Cumulative Preferred Stocks Retirement of Long-term Debt Dividends Paid on Common Stock Dividends Paid on Cumulative Preferred Stock.Net Cash Flows Used For Financing Activities
.......Net Increase (Decrease) in Cash and Cash Equivalents
..........
Cash and Cash Equivalents January 1 Cash and Cash Equivalents December 31 See Notes to Consolidated Financial Statements.
$116,315$137,145$151,805 138,?4?16,961.4,20?(8,804)133,551 16,961 3,204 (196,977)128,191 18,089 5,408 3,161 (39,943)27,445 (27,972)1,93?(8,248)(1,1?4)23,672 (27,023)25,530 16,485 24,064 11,019 (41,913)(759)26,704 364,433 (276,545 27,023 (249,522)1,117~248.405)(79,755)4,682 (8,373)18,367 196,502 (252)26,510 25,688 (20,?3?)(3,200)(9,239)(200,?8?)(14,201)~6,91 9 211,095 (196,824)27,972 30,546 (104,494)1,1?4 (168,852)850,000 1,381 (103,320)6,039 682,529 9?281 10,000 50,000 35,850 (7,000)(74,050)(116,816)~19,048 (63,000)(35,850)(7,000)(62,512)(119,952)~18,248)40,000 33,945 (19,048)(451,?70)(113,064)~16,064)121,064 306,562~526,031 (592,?66)595,487 (5,036)13,461 587,062 8,425 6 2 721 6 595.487 6 8,425 13 INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES Consolidated Statements of Retained Earnings Year Ended December 31, Retained Earnings January 1 Net Income...............
'1990$157,825 116,315 274,140 1989 (in thousands)
$161,443 137,145 298,588 1988$145,302 151,805 297,107 Cash Dividends Declared: Common Stock.Cumulative Preferred Stock: 4)jo%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 Total Dividends.Net Premium on Reacquisition of Preferred Stock.Total Deductions Retained Earnings December 31 See Notes to Consolidated Finanelat Statements.
113,064 495 273 165 2,124 2,716 ,2)604 48 3,440 3,600 122 128,651 128,651$145,489 119,952 495 273 165 2,124 2,716 2,604 838 3,440 3,600 1,793 138,000 2,763 140.763$157,825 116,816 495 273 165 2,124 2,716 2,604 1,198 3,440 3,600 2,233 135,664 135,664$161,443 14 Notes to Consolidated Financial Statements 1.Significant Accounting Policies: Principles of Consolidation The consolidated financial statements include the accounts of Indiana Michigan Power Company (the Company)and its wholly owned subsidiaries.
Significant intercompany trans-actions have been eliminated in consolidation.
System of Accounts The accounting and rates of the Company are subject in certain respects to the requirements of state regulatory com-missions and the Federal Energy Regulatory Commission (FERC).The financial statements of the Company have been prepared on the basis of the uniform system of accounts prescribed by the FERC.Electric Utility Plant;Depreciation and Amortization; Other Property and Investments Electric utility plant, which is stated at original cost, gen-erally is subject to first mortgage liens.The Company capitalizes, as a construction cost, an allow-ance for funds used during construction (AFUDC), a non-cash income item, which is defined in the applicable regulatory systems of accounts as the net cost of borrowed funds used for construction purposes and a reasonable return on equity funds when so used.The composite rates used by the Com-pany after compounding on a semi-annual basis were 10.5%in 1990 and 1989 and 10.25%in 1988.The Company provides for depreciation on a straight-line basis over the estimated useful lives of the property and deter-mines depreciation provisions largely through the use of com-posite rates by functional class of property.Operating expenses are charged with the costs of labor, materials, supervision and other costs incurred in operating and maintaining the Company's properties.
Property accounts are charged with the cost of property additions, major replace-ments of property and betterments.
The accumulated provi-sions for depreciation are charged with retirements and associated removal costs net of salvage.Other property and investments are generally stated at cost.Cash and Cash Equivalents The Company and its subsidiaries consider cash, unre-stricted special deposits, working funds, and temporary cash investments as defined by the FERC to be cash and cash equivalents.
Temporary cashinvestments include highly liquid investments purchased with a maturity of three months or less.Income Taxes Deferred income taxes are provided except where not per-mitted by the state commissions and the FERC.The Company deferred and is amortizing over the life of its plant the effect of tax reductions resulting frominvestment tax credits utilized in connection with current Federal income tax accruals con-sistent with rate-making policies.Operating Revenues The Company accrues revenues for electric service ren-dered but unbilled at month-end.
Fuel Costs The Company bills its fuel costs under fuel recovery mech-anisms designed to reflect, in rates, changes in costs of fuel with the approval of various regulatory commissions.
Accord-ingly, the Company accrues revenues related to unrecovered fuel.Other The common stock of the Company is wholly owned by American Electric Power Company, Inc.(AEP).In accordance with regulatory approvals, the Company rec ognizes gain or loss on reacquired debt in income in the yea of reacquisition unless such debt is refinanced, in which case, the gain or loss is deferred and amortized over the term of the replacement debt.Debt discount or premium and debt issuance expenses are being amortized over the lives of the related debt issues, and the amortization thereof is included in other interest charges in accordance with rate-making treatment.
The Company is committed under unit power agreements with affiliates to purchase from AEP Generating Company (AEGCo), an affiliated company, 70%of AEGCo's Rockport Plant capacity unless it is sold to unaffiliated utilities.
Certain prior-period amounts have been reclassified to con-form to current-period presentation.
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES 2.Bate Matters: Rockport Plant Unit f Phase-in Plan The Company has phase-in plans in its Indiana and FERC jurisdictions for Rockport Plant Unit1 (Rockport1).
Rockport 1 is a 1,300 megawatt (mw)generating unit that began com-mercial operation in December 1984 and is jointly and equally owned by the Company and AEGCo.At December 31, 1990 and 1989, the Company had unamortized deferred returns of$89,061,000 and$102,206,000, respectively, and un-amortized deferred depreciation of$25,857,000 and$29,673,000, respectively.
These deferrals are being amor-tized on a straight-line basis through 1997 and recovered in rates.Rockport Plant Unit 2 Safe and Leaseback and Rate Recovery The Company and AEGCo constructed a second 1,300 mw unit at the Rockport Plant (Rockport 2)at a cost of$1.3 billion.The unit began commercial operation on December 1, 1989.On December 7, 1989, the Company and AEGCo sold their respective 50%interests in the unit for$1.7 billion, the esti-mated fair market value, and leased back 50%interests in Rockport 2 for an initial term of 33 years.The gain from the sale was deferred and is being amortized, including related taxes, over the initial lease term.The leases have been accounted for as operating leases.The Company will receive1,105 mw of Rockport 2 capacity, comprised of 650 mw, its 50%share, and 455 rnw it is obligated to purchase from AEGCo under the terms of a long-term unit power agreement.
In July1989, the Company filed a request with the Indiana Utility Regulatory Commission (IURC)for an increase in rates of approximately
$60,000,000 annually to recover, among other things, the Company's Indi-ana jurisdictional share of the cost of 385 mw of Rockport 2 capacity purchased from AEGCo.The rate request did not seek recovery of the cost of the remaining 720 mw of Rockport 2 energy since it was based on the assumption that the 720 mw would be sold to unaffiliated utilities.
In August 1990 the IURC granted the Company an increase in rates of$14.3 million.In October 1990 the IURC amended its order and allowed an additional
$5 million increase in rates.The Com-pany has been granted a rehearing of certain other portions of the IURC's August order.The Company has entered into a long-term unit power agreement with Carolina Power&Light (CPL), an unaffiliated utility, to supply 250 mw of Rockport 2 capacity for a 20-year period that began in January 1990.The FERC allowed the agreement to become effective subject to refund pending a hearing and final order.During 1990, the FERC resolved the pending issues and the Company made refunds as ordered.Unless the Company sells the remaining 470 mw of Rockport 2 capacity on a long-term basis it is contributed to the AEP System Power Pool (Power Pool).The Company will share with the other members of the Power Pool in the cost of the remaining uncommitted Rockport 2 capacity.Future results of operations will be impacted unless the Power Pool can sell the additional capacity.Coal and Transportation Charges In June 1990 an initial decision was issued by a FERC administrative law judge regarding a complaint filed by a wholesale customer concerning the reasonableness of the Company's coal costs and the coal transportation charges of affiliates.
The initial decision would require the Company to refund to wholesale customers$25 million related to coal costs and a yet to be determined amount for affiliated trans-portation charges.The Company has filed exceptions to the initial decision and the matter is subject to final decision of the full commission.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3.Federal Income Taxes: The details of Federal income taxes as reported are as follows: 1990 Year Ended December 31, 1989 (in thousands) 1988 S 215,793 (196,503)27,465 46,755 Year Ended December 31~Charged (Credited) to Operating Expenses (net): Current..............................................
$52.894$11,865 Deferred........,,.......................
(5,043)5,563 Deferred Investment Tax Credits (5.759)24.164 Total~~~~~~~~~~...............
42,092 41.592 Charged (Credited) to Nonoperating Income (net): Current 7,288 1,234 1~186 Deferred............................................
(3,761)(474)(2,402)Deferred Investment Tax Credits..................
(2.489)(20)(492)Total 1,038 740 (1,708)Total Federal Income Taxes as Reported$43,130$47,495$39,884 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.Net Income Federal Income Taxes Pre tax Book Income Federal Income Taxes on Pre-Tax Book Income at Statutory Rate (34%).Increase (Decrease) in Federal Income Taxes Resulting From the Following Items on Which Deferred Taxes Are Not Provided: Allowance for Equity Funds Used During Construction Net of Amortization of Prior Year Deferred Taxes for Items Capitalized on the Books but Deducted for Tax Purposes..Mine Development and Mineral Rights Amortization Tax Exempt income-Nuclear Decommissioning Trust Funds Other Amortization of Deferred Investment Tax Credits.Total Federal Income Taxes as Reported Effective Federal Income Tax Rate 1990$116,315 43,130$159,445$54,211 (2,476)4,369 (480)(1,684)(10,810)S 43,130 27 1%1989 (in thousands)
$137,145 47,495$184,640$62,778 (12,664)3,048 (383)1~111 (6,395)S S47,495 25.7%1988$151,805 S 65,174 (12,079)2,293 (4,066)(4,481)(6,957)S 39,884 20.8%
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES The following are the principal components of Federal income taxes as reported: 1990 Year Ended December 31.1989 (in thousands) 1988 Current: Federal Income Taxes 862,744 6250,867 S 43,680 Investment Tax Credits (2,562)(33,840)(30,629)(b)Total Current Federal Income Taxes 60,182 217,027 (a)13,051 Deferred: Depreciation 1,041 2,254 4,737 Allowance for Borrowed Funds Used During Construction and Miscellaneous Items Capitalized
.......(2,953)7,109 5,186 Unrecovered and Levelized Fuel.4,214 (5,453)(8,278)Nuclear Decommissioning Costs (756)(514)16,432 (c)Unbilled Revenue (3,349)(3,713)(4,202)Deferred Return-Rockport Plant Unit 1.(2,864)(2,864)(3,538)Sale of Rockport Plant Unit 2 (56,863)Deferred Net Gain-Sale of Rockport Plant Unit 2 3,457 (128,194)Other (7,594)(8,739)(7,176)Total Deferred Federal Income Taxes (8,804)(196,977)3,161 Total Deferred Investment Tax Credits (8,248)27,445 (a)23,672 (b)Total Federal Income Taxes as Reported$43.130 S 47,495 S 39,884 (a)The significant increase in current Federal income taxes resulted from the gain on the sale of Rockport 2.The placing of Rockport 2 in service in December 1989 enabled the Company to utilize significant investment tax credits generated by the sale and leaseback to reduce its taxes payabie.The tax effect of both the gain and the credits utilized were deferred.(b)Based on Internal Revenue Service regulations issued in 1988, the Company elected to claim investment tax credits on qualified progress expenditures on the 1987 tax return and amended tax returns for 1975 through 1986.'The current and deferred tax effects recorded during 1988 represent the cumulative effect of this election as well as 1988 current year accruals.(c)Based on a ruling the Company received from the Internal Revenue SeNice in 1988, the Company elected to deduct nuclear decommissioning costs on the 1987 tax return and on amended tax returns for the years 1984 through 1986.The current.and deferred tax effects recorded during 1988 represent the cumulative effect of this election as well as 1988 current year accruals.The Company and its subsidiaries join in the filing of a consolidated Federal income tax return with their affiliated companies in the AEP System.The allocation of the AEP System's current consolidated Federal income tax to the Sys-tem companies is in accordance with Securities and Exchange Commission (SEC)rules under the Public Utility Holding Com-pany Act of 1935 (1935 Act).These rules permit the allocation of the benefit of current tax losses and investment tax credits utilized to the System companies giving rise to them in deter-mining taxes currently payable.The tax loss of the System parent company, AEP, is allocated to its subsidiaries with taxable 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 consolidated group.At December 31, 1990, the cumulative net amount of income tax timing differences on which deferred taxes have not been provided totaled$448,000,000.
The consolidated Federal income tax returns for the years 1983 through 1987 are being audited by the Internal Revenue Service.In the opinion of management, the final settlement of open years should not have a material effect on the earnings of the Company.In'December 1987, the Financial Accounting Standards Board (FASB)issued SFAS 96"Accounting for Income Taxes" which requires that companies adopt the liability method of accounting for income taxes.Presently SFAS 96 must be adopted by the Company by January 1992 on a restated basis or as a cumulative effect of an accounting change in the year of adoption.However, the FASB has indicated that they expect to issue an exposure draft during the first half of 1991 which will amend SFAS 96 and may extend its required effective date until January 1993.When the new standard is adopted, total assets and liabilities will increase significantly to reflect pre-viously unrecorded deferred tax assets and liabilities on tem-porafy differences and related offsetting regulatory assets and liabilities.
In addition, existing deferred taxes will be adjusted to the level required at the currently existing statutory tax rate which will be offset by a regulatory asset or liability for deferred tax amounts associated with utility operations.
It is not presently anticipated that the final standard will signifi-cantly impact results of operations or financial condition'.
Whether the new standard will be implemented on a restated or prospective basis has not yet been determined.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Purchased and Interchange Power (net): Purchased Power: AEP Generating Company (a).$78,990$13,023$3,313 Ohio Valley Electric Corporation (a)......529 13,580 Unaffiliated Companies...28,196 7,478 Net Interchange Power: AEP Power Pool Member Utilities:
Capacity Charge (Credit)..(98,664)4,558 Energy Charge (Credit)..(77,913)(17,858)Unaffiliated Companies...333 (1,456)Total.............
$(68.529)$25.376 (a)Affiliated utilities that are not members of the Power Pool.The Company is a member of the Power Pool which allows the Company to share the benefits and costs associated with the System's generating plants.Under the terms of the Sys-tem Interchange Agreement, capacity charges and credits are designed to allocate the cost of the System's capacity among the Power Pool members based on their relative peak demands and generating reserves.Net energy charges and credits are intended to compensate Power Pool members for their out of pocket cost when they deliver more energy to the Power Pool than they receive.In addition the Company shares in short-term wholesale sales to unaffiliated utilities made by the Power Pool.The Company's share was credited to oper-ating revenues in the amount of$126,005,000,$126,065,000 and$74,181,000 in 1990, 1989 and 1988, respectively.
The Company became a net supplier of capacity to the Power Pool with commercial operation of Rockport 2 in December1989.
Accordingly the Company received capac-ity and energy credits resulting in a reduction of total pur-chased and interchange power expense in 1989 and a further reduction to a net credit in 1990.5,623 21,486 14,332 9,858 (1,058)$47,503 4.Related-party Transactions:
Operating revenues shown in the Consolidated Statements of Income include sales of energy to Michigan Power Com-pany, an affiliated utility that is not a member of the Power Pool, of approximately
$31,000,000,$32,000,000 and$34,000,000 for the years ended December 31, 1990, 1989 and 1988, respectively.
The Company purchases power and engages in interchange power transactions to exchange energy with affiliated and unaffiliated utilities as follows: Year Ended December 31~1990 1989 1988 (in thousands)
The Company participates with other AEP System com-panies in a transmission equalization agreement.
This agree-ment combines certain AEP System companies'nvestments in transmission facilities and shares the costs of ownership in proportion to the System companies'espective peak demands.Pursuant to the terms of the agreement, the Com-pany recorded in other operation expenses credits of$47,586,000,$37,346,000 and$36,996,000 for transmis-sion services in 1990, 1989 and 1988, respectively.
The Company recorded revenues in nonoperating income from providing barging services as follows: Year Ended December 31~1990 1989 1988 (in thousands)
$17,094$21,092 2.882 5.173$19.976$26,265 Affiliated Companies Unaffiliated Companies Total American Electric Power Service Corporation provides cer-tain professional services to the Company and its affiliated companies in the AEP System.The costs of the services are determined bythe service corporation on a direct-charge basis to the extent practicable and on reasonable bases of proration for indirect costs.The charges for services are made at cost and include no compensation for the use of equity capital, all of which is furnished to the service corporation by AEP.The Company expenses or capitalizes billings from the service corporation depending on the nature of the professional serv-ice rendered.The service corporation is subject to the reg-ulation of the SEC under the 1935 Act.S.Common Shareowner's Equity: In December 1989 the Company returned$63,000,000 of cash capital contributions to its parent from paid-in capital.The Company received$10,000,000 of capital contributions in 1988.In 1989, the Company recorded charges of$1,154,000 to paid-in capital and$2,763,000 to retained earnings representing the write-off of premiums paid in con-nection with the reacquisition of its$3.63 Series Cumulative Preferred Stock.There were no other transactions affecting the common stock or paid-in capital accounts in 1990, 1989 or 1988.Covenants in mortgage indentures, debenture and bank loan agreements, charter provisions and orders of regulatory authorities place various restrictions on the use of retained earnings of the Company to pay dividends (other than stock dividends) on its common stocks and for other purposes.At December 31, 1990, approximately
$45,900,000 of retained earnings were restricted.
In addition, regulatory approval is required for the Company to pay dividends out of paid-in capital.
INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES 6.Cumulative Preferred Stock: At December 31, 1990, authorized shares of cumulative preferred stock were as follows: Par Vaiue 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.A.Cumulative Preferred Stock Not Subject To Mandatory Redemption:
Series 4'/s%4 56%4.12%7 08%7.76%8.68%$2.15$2.25 Call Price December 31~1990$106.125 102 102.728 102.91 103.44 103.10 26.08 26.13 Par vaiue$100 100 100'100 100 100 25 25 Shares Outstanding December 31, 1990 120,000 60,000 40,000 300,000 350,000 300,000 1,600,000 1,600,000 Amount December 31~1990 1989 (in thousands)
S 12,000$12,000 6,000 6,000 4,000 4,000 30,000 30,000 35,000 35,000 30,000 30,000 40,000 40,000 40,000 40,000$197,000$197,000 Par Vaiue 12%$2.75$100 25 47,325 531,900 30,000 160,000 30,000 160,000 1.Cumulative Preferred Stock Subject to Mandatory Redemption:
Number of Shares Redeemed Year Ended December 31~1990 1989 1988 Shares Outstanding December 31~1990 Amount December 31, 1990 1989 (in thousands)
$4,733 13,297$18,030 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
First Mortgage Bonds.......Sinking Fund Debentures Notes Payable to Banks Installment Purchase Contracts.Other Long term Debt (a)....Less Portion Oue Within One Year Total 1990 1989 (in thousands)
S 599,179$1,007,744 6,188 6,492-80,000 80,000 308,175 307,953 130,291 120,547 1,123,833 1,522,736 51,500 501,170$1,072,333$1,021,566 (a)Nuclear Fuel Disposal Costs including interest accrued.See Note 10.First mortgage bonds outstanding were as follows: December 31~1990 1989 (in thousands)
%Rate Oue 4%1993-August 1.7r/e 1997-February 1 9'/e 1997-July 1 7 1998-May 1 Br/e 2000-April 1..9%2003-June 1 (a)8%2003-December 1 9%2008-March 1.133/i 2013-August 1.9%2015-October 1 9%2016-July 1 8%2017-February 1 10~/s 2017-May 1 Unamortized Discount (net)..S 42,902 50,000 75,000 35,000 50,000 173,M0 40,000 34,034 100,000 (1,257)599,179 1,007,744 11,500 411~170$587.679 S 596,574 (a)The 9'/a%series due 2003 requires sinking fund payments of$11,500,000 on June 1, 1991 and$13,500,000 annually on June 1, 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 sinking fund debentures are due May 1, 1998 at an interest rate of 7t/4%.Prior to December 31, 1990 sufficient principal amounts of debentures had been reacquired in antic-ipation of all future sinking fund requirements.
The Company may call additional debentures of up to$300,000 annually.$42,902 50,000 75,000 35,000 50,000 185,000 40,000 100,000 58,704 100,000 100,000 100,000 75,000 (3.862)7.Long-term Oebt and Uncs of Credit Long-term debt by major category was outstanding as follows: December 31, Unsecured promissory notes payable to banks have been entered into by the Company as follows: December 31~9.12%due 1990...9.18%due 1990...9.28%due 1991...9.28%due 1991...9.07%due 1995...Total 1990 1989 (in thousands) s-$20,000 20,000 20,000 20,000 20,000 20,000 40,000$80,000$80,000 Installment purchase contracts have been entered into by the Company in connection with the issuance of pollution control revenue bonds by governmental authorities as follows: December 31~1990 1989 (in thousands)
%Rate Oue City of Lawrenceburg, Indiana: BVi 2006-July 1 7 2006-May 1 6%2006-May 1 City of Rockporl, Indiana: 9%2005-June 1...9'/4 2010-June 1...9~/4 2014-August 1..Pli (a)2014-August 1..(b)2014-August 1..City of Sullivan, Indiana: 7%2004-May 1 6%2006-May 1 7%2009-May 1 Unamortized Discount Total$25,000 40,000 12,000$25,000 40,000 12,000 6,500 6,500 33,500 50,000 50,000 50,000 7,000 7,000 25,000 25,000 13,000~13,000 (3,825)(4,047)$308,175$307.953 (a)The adjustable interest rate changed from 7%%on August 1~1990 and will change every five years thereafter.(b)The variable interest rate is determined weekly.The average weighted interest was 6.5%for 1990 and 7.0%for 1989.Under the terms of certain installment purchase contracts, 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 Company's share of construction of pollution control facilities at certain generating plants of the Company.On certain series the principal is payable at stated maturities or on the demand of the bondholders at periodic interest adjustment dates.Certain series are supported by bank letters of credit which expire in 1995.21 INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES Long-term debt, excluding premium or discount, outstand-ing at December 31, 1990 is due as follows: Principal Amount (in thousands) 1991$51,500 1992 13,500 1993 56,402 1994 13,500 1995 53,500 Later Years 940,513 Total$1,128,915 The amount of short-term debt the Company may borrow is limited by the provisions of the 1935 Act to$200,000,000 and further limited by provision of the charter to$90,000,000.
The Company shares bank lines of credit with other AEP System companies and at December 31, 1990 and 1989 had unused shared lines of$263,000,000 and$233,000,000, respectively.
Under the terms of the lines of credit, notes can be issued with a maturity of up to 270 days.In accordance with agreements with the banks, commitment fees of up to'/4 of 1%a year are required to maintain the lines, of credit.8.Leases: The Company and its subsidiaries lease property, plant and quipment for periods up to 35 years.Most of the leases require the lessee to pay related property taxes, maintenance costs and other costs of operation.
The Company and its subsidiaries expect that leases generally will be renewed or replaced by other leases.The majority of the leases have purchase or renewal options.In 1990 the Company replaced its nuclear fuel leases with a financial institution by entering into a new nuclear fuel leas-ing agreement with a special purpose entity which provides for leasing of up to$140 million of nuclear fuel.The special purpose entity owns the nuclear fuel and finances all of its investment in nuclear fuel.The Company accounts for nuclear fuel leases as capital leases.Electric Utility Plant: Production Distribution General: Nuclear Fuel (net of amortization)
....Other Total Electric Utility Plant........
Accumulated Amortization Net Electric Utility Plant Other Property Accumulated Amortization Net Other Property.............
Net Properties under Capital Leases.Obligations under Capital Leases (a)$9,090 14,607 96,914 38.013 158,624 25,675 132,949 2,008 1,893 115$133,064$133,064$8,835 14,603 88,328 34,777 146,543 23,783 122,760 16,746 16,529 217$122,977$122,977 (a)Including amounts due within one year.Properties and related obligations under operating leases are not included in the Company's Consolidated Balance Sheets.Future minimum lease payments, by year and in the aggre-gate, consisted of the following at December 31, 1990: Capital Operating Leases Leases (in thousands)
$7,535$94,791 6,631 91,557 5,415 91,267 4,669 90,897 4,351 90,483 34,167 2,180.708 1991 1992 1993 1994 1995 Later Years Total Future Minimum Lease Payments 62,768$2,639,703 Less Estimated interest Element..Estimated Present Value of Future Minimum Lease Payments Unamortized Nuclear Fuel Total 26,618 36,150 96,914(a)$133,064 (a)Including portion due within one year.Rental payments for nuclear fuel viill be paid in proportion to heat produced and carrying charges on the lessor's unrecovered costs.Nuclear fuel rentals of$49,990,000,$59,212,000 and$52,568,000 were charged to fuel expense in 1990, 1989 and 1988, respectively.
Included in the above analysis of future minimum lease payments and of properties under capital leases and related obligations are certain leases in which portions of the related rentals are paid for or reimbursed by affiliated companies in the AEP System based on their usage of the leased property.Properties under capital leases and related obligations recorded on the Company's Consolidated Balance Sheets are as follows: December 31~1990 1989 (in thousands) 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Operating Leases...........
Capital Leases: Amortiaation of Principal.....
Interest Total Rental Payments 1990 1989 1988 (in thousands)
$87,357$16,454$16,661 46,836 52,815 49,014 10,877 13,733 11,690$145.070$83,002$77,365 9.Benefit Plans: The Company and its subsidiaries participate with other companies in the AEP System in a trusteed, noncontributory defined benefit plan to provide pensions, subject to certain eligibility requirements, for all employees.
Plan benefits are determined by a formula which considers each participant's highest average earnings, years of accredited service and social security covered compensation.
Pension costs are allo-cated to each System company by first charging each System company with its service cost and then allocating the remain-ing pension cost in proportion to its share of the projected benefit obligation.
The Company and its subsidiaries'unding policy is to make annual contributions to the plan's trust fund equal to the net periodic pension cost to the extent deductible for Federal income tax purposes, but not less than the min-imum required contribution.
Net pension costs for the years ended December 31, 1990, 1989 and1988 were$2,726,000,$1,271,000 and$397,000, respectively.
The Company offers an employee savings plan under which eligible participants can invest from 1%to 16%of their salar-ies among several investment alternatives, including AEP common stock.An employer contribution equal to one-half of the first 6%of the employees'ontribution is invested in AEP common stock.The Company's annual contributions were$2,822,000 in 1990,$2,726,000 in 1989 and$2,31 2,000 in 1988.ln addition to providing perision benefits, the Company and its subsidiaries provide certain other benefits for retired employees.
Substantially all employees may become eligible for these benefits if they have 10 years of health care plan participation at retirement.
The cost of retiree benefits is rec-ognized as an expense when paid.In 1990, 1989 and 1988, the cost-of retiree health care benefits totaled$2,580,000,$2,121,000 and$2,048,000, respectively.
The FASB has issued SFAS 106"Employers'ccounting for Postretirement Benefits Other Than Pensions" which requires employers, beginning in1993, to accrue for the costs 23 The Company and its subsidiaries cannot predict the extent to which affiliated companies will utilize the properties under such leases in the future.Rental payments for capital and operating leases are pri-marily charged to operating expenses in accordance with rate-making treatment.
The components of rental payments are as follows: Year Ended Oecember 31~of retiree health care benefits.SFAS 106 permits the recog-nition of the transition obligation (the unfunded and unrec-ognized accumulated postretirement benefit obligation) in the initial year of implementation or over periods up to 20 years.The Company expects to elect the 20 year transition option.In anticipation of this new requirement, the Company made a$4.1 million contribution in 1990, the maximum amount deductible for Federal income tax purposes, to a Voluntary Employee Beneficiary Association (VEBA)trust fund for post-retirement benefits other than pensions.Another measure taken by the Company was to implement a program of cor-porate owned life insurance to help fund and reduce the future cost of postretirement benefits other than pensions.The insurance policies have generated a substantial cash surren-der value which is recorded, net of equally substantial policy loans, as other property and investments.
In future years the policies are expected to generate significant cash flows which will be contributed to the VEBA trust fund.The annual accruals required by SFAS 106 are expected to be significantly greater than the currently recognized pay-as-you-go expenses.The Company expects to seek recovery of the increased accruals from ratepayers.
Should recovery of or a commitment to recover the SFAS 106 accruals beginning in 1993 be denied, the Company's results of operations and possibly its financi condition would be adversely impacted.10.Commitments and Contingencies:
Construction The construction budget of the Company and its subsidi-aries for the years 1991-1993 is estimated at$523,000,000, and, in connection therewith, commitments have been made.Litigation In February 1990 the Supreme Court of Indiana overruled an appeals court and reversed an IURC order that had assigned a major industrial customer to the Company's serv-ice territory.
In August 1990 the IURC issued an order trans-ferring the right to serve the industrial customer to an unaffiliated local distribution utility.Concurrent with the trans-fer of service the Company began providing service to the local distribution utility in an amount sufficient to meet the energy needs of the industrial customer.As a result the annual loss of revenue is expected to be$500,000 rather than the potential$7 million loss previously reported.In October 1990 the local distribution utility sued the Com-pany under a provision of Indiana Iaw that allows the local distribution utility to seek damages equal to the gross reve-nues received by a utility that renders retail service in the designated service territory of another utility.The Compan received revenues of approximately
$29 million from servin the major industrial customer.It is not clear whether such a claim would be upheld when the service was rendered in accordance with an IURC order which the Company believed in good faith to be valid.
INDIANA MICHIGAN POIVER COMPANY AND SUBSIDIARIES The Company is involved in other legal proceedings and claims.While management is unable to predict the outcome of litigation, it is not expected that the resolution of these matters will have a material adverse effect on the Company's financial condition.
Environmental Matters The Company and its subsidiaries are subject to regulation by Federal, state and local authorities with respect to air-and water-quality control and other environmental matters, and are subject to zoning and other regulation by local authorities.
On November15, 1990 President Bush signed into law the Clean Air Act Amendments of 1990 which, among other things, requires significant reductions in the emission of sul-fur dioxide and nitrogen oxide from various existing System generating plants.With respect to acid rain control the new law establishes a strict timetable for compliance setting a deadline of 1995 for the first phase of reductions and 2000 for the second phase as well as a permanent nationwide cap on sulfur dioxide emissions after 1999.The AEP System is reviewing the provisions of the new law and evaluating com-pliance alternatives which include: (a)installation of new emissions reduction equipment (scrubbers) on affected gen-erating units which would require substantial capital expend-itures and result in significant operating costs and reduced generating efficiency;(b)switching to lower sulfur coal or natural gas, resulting in less substantial capital expenditures and adverse impacts on affiliated mining operations and related facilities;(c)premature retirement of certain gener-ating units;and/or (d)significant capital expenditures to repower existing generating units with pressurized fluidized bed combustion (PFBC)technology presently being tested at an affiliate's Tidd PFBC demonstration plant.The cost of com-pliance for certain of the Company's generating units and the Company's share of such costs through the Power Pool will be substantial.
Unless these costs are recovered through rates, the Company's results of operations will be adversely affected.Recent concerns about global warming have led to inter-national negotiations and proposed legislation to stabilize or reduce"greenhouse" gases such as carbon dioxide.Pro-posed legislation, passed by the U.S.Senate in the last ses-sion of Congress, is expected to be considered in the current session of Congress.Since the System's coal-fired generating plants emit significant quantities of carbon dioxide, the cost of any restrictions could adversely affect the Company's results of operations and financial position if not recovered from ratepayers.
ong-term Power Sales The Company as a member of the Power Pool has partic-ipated in a long-term contract for the sale of up to 560 mw of power to an unaffiliated utility that expired December 31, 1990 and was not renewed.This contract contributed
$16 million to the Company's revenues and$5 million to net income in 1990.The Power Pool is attempting to replace the terminated sales with new transactions with unaffiliated util-ities.Recently, an agreement was reached to sell 100 mw under a long-term contract with an unaffiliated utility.Whether the Power Pool will be successful in negotiating additional transactions to take the place of the expired contract cannot presently be determined.
Nuclear Insurance The Company is subject to the Price-Anderson Act which limits the public liability of a licensee of a nuclear plant for a single nuclear incident to the amount of primary liability insur-ance available from private sources and an industry retro-spective deferred premium assessment plan.Based on 115 reactors currently being subject to the Act, the limit of public liability is$7.8 billion.The Company maintains the maximum private insurance available of$200,000,000 for its two-unit Donald C.Cook Nuclear Plant (Cook Plant).The maximum standard deferred premium that the Company may be assessed, in the event of a nuclear incident at any licensed nuclear power plant in the United States, is$63,000,000 per reactor, but an assessment may not exceed$10,000,000 in any one year.If public liability claims and authorized legal costs exceed the amount of liability insurance and deferred premiums, a licensee must pay a surcharge of up to 5 percent of the standard deferred premium for such claims and costs.Thus, if damages in excess of private insurance result from a nuclear incident, the Company could be assessed its pro rata share of the liability up to a maximum of$126,000,000 for its two reactors, in annual installments of$20,000,000, plus$6,300,000 for excess claims and costs.There is no limit on the number of incidents for which the Company could be assessed these sums.The Company also has property damage, decontamination and decommissioning insurance for loss resulting from dam-age to the Cook Plant facilities in the amount of$2.185 billion.Nuclear insurance pools provide$1.06 billion of coverage and Nuclear Electric Insurance Limited (NEIL)provides the remainder.
If NEIL's losses exceed its available resources, the Company would be subject to a retrospective premium assessment of up to$7.6 million.Nuclear Regulatory Com-mission (NRC)regulations require that, in the event of an accident, whenever the estimated costs of reactor stabilization and site decontamination exceed$100 million, the insurance proceeds must be used, first, to return the reactor to, and maintain it in, a safe and stable condition and, second, to decontaminate the reactor and reactor station site in accord-ance with a plan approved by the NRC.The insurers then would indemnify the Company for property damage up to$1.985 billion less any amounts used for stabilization and decontamination.
The remaining$200 million, as provided 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded) by NEIL, (reduced by any stabilization and decontamination expenditures over$1.985 billion)would cover decommis-sioning costs in excess of funds already collected for decom-missioning, as discussed below.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 suchincreased costs up to approximately
$1.8 million per week (starting 21 weeks after the outage)for one year,$1.2 million per week for the second year and$600,000 per week for the third year, or 80%of those amounts per unit if both units are down for the same reason.If NEIL's losses exceed its available resources, the Company would be subject to a retrospective premium assessment of up to$4.6 million.Some potential losses or liabilities may not be insurable or the amount of insurance carried may not be sufficient to meet potential losses and liabilities, including liabilities relating to damage to the Cook Plant and costs of replacement power in the event of a nuclear incident at the Cook Plant.Future losses or liabilities which are not completely insured, unless recovered through rates, could have a material adverse effect on the financial condition of the Company.Disposal of Spent Nuclear Fuel and Nuclear Decommissioning The Nuclear Waste Policy Act of 1982 as amended estab-lishes Federal responsibility for the permanent disposal of spent nuclear fuel.Disposal costs are paid by fees assessed against owners of nuclear plants and deposited into the Nuclear Waste Fund created by the Act.In1983 the Company entered into a contract with the U.S.Department of Energy (DOE)for the disposal of spent nuclear fuel.Under terms of the contract, for the disposal of nuclear fuel consumed after April 6, 1983 by the Cook Plant, the Company is paying to the fund a fee of one mill per kilowatthour, which the Company is currently recovering from its customers.
For the disposal of nuclear fuel consumed prior to April 7, 1983, the Company must pay over a period of 10 years to the U.S.Treasury an estimated fee of$71,964,000, exclusive of interest.The Com-pany has deferred this amount plus accrued interest on its balance sheet, has received regulatory approval for the recov-ery of this amount and is amortizing the amount deferred as it is being recovered.
Because of the current uncertainties of DOE's program for permanent disposal of spent nuclear fuel, the Company has not yet commenced paying this fee.An independent consulting firm employed by the Company.has estimated that the cost of decommissioning the Cook Plant could range from$330,000,000 to$369,000,000 in 1989 dollars.The Company has received regulatory approval from all of its jurisdictions for the recovery of such nuclear decommissioning costs associated with the Cook Plant which State Gross Receipts, Excise, Franchise and Miscellaneous State and Local State Income Payroll Deferred Taxes-Rockport 2 Sale and Leaseback 12,156 5,760 7,590 29,282 28,057 7,084 12,361 4,913 6,658 Transaction
............
1,937 (39.943)Total..............
$54,389$56,377$56.271 The following are the amounts of cash paid for: Year Ended December 31~1990 1989 1988 (in thousands)
Interest (net of capitalized amounts)Income Taxes........$101,905$107,124$106,283 247,172 64,843 67,019 The amounts of non-cash investing acquisitions under cap-ital leases were$57,112,000 in 1990,$9,035,000 in 1989 and$46,791,000 in 1988.12.Unaudited Quarterly Financial Information:
The following consolidated quarterly financial information is unaudited but, in the opinion of the Company, includes all adjustments (consisting of only normal recurring accruals)necessary for a fair presentation of the amounts shown: Quarterly Periods Operating Operating Net Ended Revenues Income Income (in thousands) 1990 March 31 June 30 September 30..December 31..1989 March 31 June 30 September 30..December 31..$253,075 248,460 264,782 264,742$59,281 48,733 52,886 40,533 257,688 51,568 244,738 46,239 249,761 56,242 253,451 56,347$37,699 27,442 32,077 19,097 36,352 28,028 40,357 32,408 amounted to$10,000,000 before income taxes in 1990.The Company intends to reevaluate periodically amounts collected for such costs and to seek regulatory approval to revise such amounts as necessary.
Funds recovered through the rate-making process for dis-posal of spent nuclear fuel consumed prior to April 7, 1983 and for nuclear decommissioning have been deposited in external funds for the future payment of such costs.11.Supplementary Information:
The following are the components of taxes other than Fed-eral income taxes: Year Ended December 31, 1990 1989 1988 (in thousands)
Real and Personal Property....
$26,946$31,897$32,339 25 INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES Independent Auditors'eport 155 East Broad Street Facsimile:
(614)229 4647 Columbus, Ohio 4321 5-3650 Telephone:
(614)221-1000 To the Shareowners and Board of Directors of Indiana Michigan Power Company: We have audited the accompanying consolidated balance sheets of Indiana Michigan Power Company and its subsidiaries as of December 31, 1990 and 1989, and the related consolidated statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 1990.These financial statements are the responsibility of the Company's management.
Our responsibility is,to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Indiana Michigan Power Company and its subsidiaries as of December 31, 1990 and 1989, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1990 in conformity with generally accepted accounting principles.
~~~o February 26, 1991 26 Operating Statistics 1990 1989 1988 1987 1986 ELEGTRIc OPERATING REVENUEs (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....Provision for Revenue Refunds.........Total Net of Provision for Revenue Refunds............
Other Operating Revenues Total Electric Operating Revenues.$179,955$182,786 86,108 93,291$189,845$186,418 96,145 90,261 174,550 90,881 266)063 195,184 228,927 11,273 276,077 196,404 233,990 11,475 285,990 194,982 233,855 11,645 276,679 191,352 235,470 11,533 265,431 184,276 219,344 11,171 717,946 274,916 701,447 314,351 1,015,798 992,862 726,472 248,283 974,755~1.800 715,034 293,379 1,008,413 680,222 400,779 1,081,001 541 1,008,413 8,855 1,081,542 9,753 972,955 10,111 992,862 12,776 1,015,798 15,261$1,031,059$1,005,638$983,066$1,017,268$1,091,295 S0URGEs AND SALEs 0F ENERGY (in millions of kilowatt-hours):
Sources: Net Generated:
Fossil Fuel.Nuclear Fuel Hydroelectric Total Net Generated......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 14,451 11,115 116 25,682 4,724~5,973 24,433 1,590 22,843 2,774 1,484 4,258 3,388 5,140 221 13,007 9,836 22,843 10,634 12,094 97 22,825 2,229~1,942)23,112 1,606 21,506 2,792 1,585 4,377 3,375 5,168 228 13,148 8,358 21,506 8,707 9,791 70 18,568 1,700 737 21,005 1,630 19,375 2,825 1,571 4,396 3,290 5,036 228 12,950 6,425 19,375 6,662 10,060 62 16,784 2,558 1,947 21,289 1,456 19,833 2,719 1,445 4,164 3,142 4,834 221 12,361 7,472 19,833 8,187 10,986 79 19,252 4,941 542 24,735 1,645 23,090 2,536 1,442 3,978 3,007 4,371 212 27 INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES OPERATING STATISTICS (Concluded)
AYERAGE CosT 0F FUEL CoNsUME0 (in cents): Per Million Btu: Coal.Nuclear.Overall Per Kilowatt-hour Generated:
Coal.Nuclear.Overall 1990 145 58 105 1.42.64 1.08 1989 164 61 106 1.62.67 1.11 1988 182 70 120 1.81.77 1.26 1987 190 75 117 1.87.84 1..25 1986 185 74 118 1.82.83 1.25 RESIDENTIAL SERVICE-AVERAGES: Annual Kwh Use per Customer: Total With Electric Heating.Annual Electric Bill: Total With Electric Heating.Price per Kwh (in cents): Total With Electric Heating.10,047 16,979$627.84$985.16 6.25 5.80 10,434 18,447$658.08$1,085.56 6.31 5.88 10,596 ,18,551$689.33$1,135.46 6.51 6.12 10,146 17,341$674.13$1,083.10 6.64 6.25 9,813 17,716$654.88$1,116.86 6.67 6.30 NUMBER 0F ELECTRIc CvsT0MERs:
Year-End: Retail: Residential:
Without Electric Heating....With Electric Heating......Total Residential Commercial
..Industrial Miscellaneous Total Retail.Wholesale (sales for resale).....Total Electric Customers..338,171 88,258 426)429 47,020 4,494 2,018 479,961 54 480,015 335,625 87,016 422,641 46,176 4,485 2,026 475,328 50 475,378 332,488 85,635 418,123 45,249 4,479 1,984 469,835 108 469,943 328,937 84,442 413,379 44,207 4,345 1,946 463,877 105 463,982 325,623 82,324 407,947 43,689 3,882 1,846 457,364 106 457,47028 INDIANA MICHIGAN POWER COMPANY Dividends and Price Ranges of Cumulative Preferred Stock By Quarters (1990 and 1989)Cumulative Preferred Stock 1st 1990-Quarters 2nd 3rd 4th 1st 1989-Quarters 2nd 3rd 4th ($100 Par Value)4'/8%Series Dividends Paid Per Share Market Price-$Per Share (MSE)-High-Low 4.56%Series Dividends Paid Per Share Market Price-$Per Share (OTC)Ask (high/low)
Bid (high/low) 4.12%Series Dividends Paid Per Share Market Price-$Per Share (OTC)Ask (high/low)
Bid (high/low) 7.08%Series Dividends Paid Per Share Market Price-$Per Share (NYSE)-High-Low 7.76%Series Dividends Paid Per Share Market Price-S Per Share (NYSE)-High-Low 8.68%Series Dividends Paid Per Share Market Price-$Per Share (NYSE)-High-Low 12%Series (a)Dividends Paid Per Share Market Price-$Per Share (NYSE)-High-Low ($25 Par Value)$2.15 Series Dividends Paid Per Share Market Price-S Per Share (NYSE)-High-Low$2.25 Series Dividends Paid Per Share Market Price-S Per Share (NYSE)-High-Low$2.75 Series (a)Dividends Paid Per Share Market Price-S Per Share (NYSE)-High-Low$1.14$1.14$1.14$1.14$1.14$1.14$1.14$1.14$1.03$1.03$1.03$1.03$1.03$1.03$1.03$1.03 44/44 42~/i/41'/i 42/40'li 42/39'/i$1.77$1.77$1.77$1.77$1.77$1.77$1.77$1.77 78 73 75 72 77 73 75 72 71 66'/i 76 68 77 77~/e 73%75$1.94$1.94$1.94$1.94$1.94$1.94$1.94$1.94 83 79 81 76'/i 77'/4 76'/i 77'/8 74 85'/4 80 84'/e 80'/8$2.17$2.17$2.17$2.17$2.17$2.17$2.17$2.17 88'/i 85'/i 87'/4 88'/4 85'/8 85'/i 84'/i 81 i/z 88'/i 81'/i 92 86 92 89$1.00$3.00$3.00$3.00$3.00 103'/i 101 106'/i 102'/i 106 103 108 104$0.53?5$0.5375$0.5375$0.5375$0.5375$0.5375$0.5375$0.5375 23'le 21'/8 22'/8 21%23'/i 21'/i 24'/s 22'/i 22%21 23 203/~24'/8 22 24 22'/i$0.5625$0.5625$0.5625$0.5625$0.5625$0.5625$0.5625$0.5625 24'/8 22'/s 23'/s 22'/i 23'/i 22'/s 24'/8 23%23'/e 21'/i 24 215/8 24'/e 23'/i 25'/e 23'/8$0.229 S0.6875$0.6875$0.6875$0.6875 27 26~/i 26'/i 26 27'/i 25'/i 27'/i 26 27 26'/i$1.03125$1.03125$1.03125$1.03125$1.03125$1.03125$1.03125$1.03125 MSE-Midwest Stock Exchange OTC-Over-the.Counter NYSE-New York Stock Exchange Note-The above bid and asked quotations represent prices between dealers and do not represent actual transactions.
Market quotations provided by National Quotation Bureau, inc.Dash indicates quotation not available.(a)Redeemed February 1990.29 The Company's Annual Report (Form 10-K)to the Securities and Exchange Commission will be available in April 1991 to shareowners upon written request and at no cost.Please address such requests to: Mr.G.C.Dean American Electric Power Service Corporation 1 Riverside Plaza Columbus, Ohio 43215 ansfer Agent and Registrar of Cumulative Preferred Stock First Chicago Trust Company of New York 30 West Broadway, New York, N.Y.10007-2192 Indiana Michigan Power Service Area and the American Electric Power System Leke Ml eh l ye n MICHIGAN OHIO INDIANA WEST VIRGINIA KENTUCKY VIRGINIA LEGEND Indiana Michigan Power Co.Area D Other AEP operating companies'reas 0 Major power pIant TENNESSEE ENCLOSURE 2 TO AEP:NRC:0909G INDIANA MICHIGAN POWER COMPANY'S PROJECTED CASH PLOW 1991 Internal Cash Flow Projection for Donald"C;-
~Cook Nuclear.Plant"$Millions Actual.1-9 9 0 Projected 1991 Net income after taxes Less dividends paid Retained earnings 116.3 129.2~12: 9)123 117 6 Adjustments:
Depreciation and amortization Deferred Federal income taxes and investment tax credits AFUDC Total adjustments Internal cash flow Average quarterly cash flow 155.7 (17.0)-'(.2')136.0 123.1'-30;8 158 (6)(~3)149 155 39 Average cash balances and short-term investments*
.-28.7 10 Total S9i5 49*Adjusted to eliminate unusually high level from sale of assets.8 Ownership in all operating nuclear units: Unit 1 and Unit 2-100%Maximum Total Contingent Liability-$20;70-2raillion (2 units)
J