ML17334B399

Forwards Indiana Michigan Power Co 1990 Annual Rept & Projected Cash Flow Statement for 1991

ML17334B399
Person / Time
Site:	Cook
Issue date:	04/09/1991
From:	FITZPATRICK E INDIANA MICHIGAN POWER CO. (FORMERLY INDIANA & MICHIG
To:	MURLEY T E NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM), Office of Nuclear Reactor Regulation
Shared Package
ML17328B008	List: ML17328B007 ML17334B399
References
AEP:NRC:0909G, AEP:NRC:909G, NUDOCS 9104160384
Download: ML17334B399 (38)

Text

'.ACCELERATEDDISTRIBUTIONDEMONSTRATIONSYSTEMDREGULATORY'NFORMATIONDISTRXBUTXONSYSTEM(RIDS)..ACCESSIONNBR:9104160384DOC.DATE:91/04/09NOTARIZED:NODOCKETgFACIL:50-315DonaldC.CookNuclearPowerPlant,Unit1,Indiana60500031550-316DonaldC.Cook,NuclearPowerPlant,Unit2,Indiana6050003/6AUTH.NAMEAUTHORAFFILIATIONFXTZPATRICK,E.IndianaMichiganPowerCo.(formerlyIndiana&MichiganEleRECIP.NAMERECIPIENTAFFILIATIONRMURLEY,T.E.OfficeofNuclearReactorRegulation,Director(Post870411I,SUMECT:Forwards"IndianaMichiganPowerCo1990AnnualRept"Iprojectedcashflowstatementfor1991.DISTRIBUTION.CODE:M004DCOPIESRECEIVED:LTR$ENCLgSIZE:+TXTLE:50.71(b)-AnnualFinancialReportNOTES:5~RECIPIENTIDCODE/NAMEPD3-1PDINTERNAL:AEOD/DOAEXTERNAL:NRCPDRCOPIESLTTRENCL111111RECXPXENTIDCODE/NAMECOLBURN,T.FICOPIESLTTRENCL1011ADDIISRIDSNOTETOALL"RIDS"RECIPIENTS:PLEASEHELPUSTOREDUCEWASTE!CONTACTTHEDOCUMENTCONTROLDESK,ROOMPl-37(EXT.20079)TOELIMINATEYOURNAMEFROMDISTRIBUTIONLISTSFORDOCUMENTSYOUDON'TNEED!TOTALNUMBER'FCOPIESREQUIRED:LTTR5ENCL4ADD 0~~~bIP IndianaMichiganPowerCompanyOneSummitSquareP.O.Box60FortWayne,IN468012194252111SHEHSINdhNIICiilGQMPQStfMAEP:NRC:0909G10CFR50.71(b)&140.21(e)DonaldC.CookNuclearPlantUnitNos~1and2DocketNos.50-315and50-316LicenseNos.DPR-58andDPR-74FINANCIALINFORMATIONFORINDIANAMICHIGANPOWERCOMPANYU.S.NuclearRegulatoryCommissionAttn:DocumentControlDeskWashington,D.C.20555Attn:T.E.MurleyApril9,1991

DearDr.Murley:

Enclosure1containstheIndianaMichiganPowerCompany's(I&M)annualreportfor1990.Enclosure2containsacopyofI&M'spro]ectedcashflowfor1991.Thesereportsaresubmittedpursuantto10CFR50.71(b)and10CFR140.21(e).ThisdocumenthasbeenpreparedfollowingCorporateproceduresthatincorporateareasonablesetofcontrolstoensureitsaccuracyandcompletenesspriortosignaturebytheundersigned.Sincerely,~~E~E~FitatrickVicePresidentldpEnclosurescc:D.H.Williams,Jr.A.A,Blind-BridgmanJ.R.PadgettG.CharnoffA.B.Davis-RegionIIINRCResidentInspector-BridgmanNFEMSectionChief91pp>6038+~p5ppp31591PqP9@DRQQOCKpDRpoopI/I

..91041603@,1990AnnualReport ContentsBackgroundoftheCompanyDirectorsandOfficersoftheCompany.SelectedConsolidatedFinancialData.Management'sDiscussionandAnalysisofResultsofOperationsandFinancialConditionConsolidatedStatementsofIncomeConsolidatedBalanceSheetsConsolidatedStatementsofCashFlowsConsolidatedStatementsofRetainedEarningsNotestoConsolidatedFinancialStatementsIndependentAuditors'eportOperatingStatisticsDividendsandPriceRangesofCumulativePreferredStock5-91011-12131415-252627-2829 INDIANAMICHIGANPOWERCOMPANYOneSummitSquare,P.O.Box60,FortWayne,Indiana46801BackgroundoftheCompanyINDIANAMIGHIGANPowERCQMPANY(theCompany),asubsidiaryofAmericanElectricPowerCompany,Inc.(AEP),isengagedinthegeneration,purchase,transmissionanddistributionofelectricpower.TheCompanywasorganizedunderthelawsofIndianaonFebruary21,1925,andisalsoauthorizedtotransactbusinessinMichiganandWestVirginia.ItsprincipalexecutiveofficesareinFortWayne,Indiana.TheCompanyhastwowhollyownedsubsidiaries;theyareBlackhawkCoalCompanyandPriceRiverCoalCompany,whichwereformerlyengagedincoal-miningoperations.BlackhawkCoalCompanycurrentlyleasesorsubleasesportionsofitscoalrights,landandrelatedminingequipmenttounaffiliatedcompanies.Inaddition,theCompanyhasarivertransportationdivision(RTD)thatbargescoalontheOhioandKanawhaRiverstogeneratingplantsoftheCompanyandaffiliates.RTDalsoprovidessomebargingservicestounaffiliatedcompanies.TheCompanyservesapproximately480,000customersinnorthernandeasternIndianaandaportionofsouthwesternMichigan.Amongtheprincipalindustriesservedaretransportationequipment,primarymetals,fabricatedmetalproducts,electricalandelectronicmachinery,andchemicalsandalliedproducts.Inaddition,theCompanysupplieswholesaleelectricpowertootherelectricutilities,municipalitiesandelectriccooperatives.TheCompany'sgeneratingplantsandimportantloadcentersareinterconnectedbyahigh-voltagetrans-missionnetwork.ThisnetworkinturnisinterconnectedeitherdirectlyorindirectlywiththefollowingotherAEPSystemcompaniestoformasingleintegratedpowersystem:AEPGeneratingCompany,AppalachianPowerCompany,ColumbusSouthernPowerCompany,KentuckyPowerCompany,KingsportPowerCompany,MichiganPowerCompany,OhioPowerCompanyandWheelingPowerCompany.TheCompanyisalsointerconnectedwiththefollowingunaffiliatedutilities:CentralIllinoisPublicServiceCompany,TheCincinnatiGas8ElectricCompany,CommonwealthEdisonCompany,ConsumersPowerCompany,illinoisPowerCompany,IndianapolisPowerIrLightCompany,NorthernIndianaPublicServiceCompany,PSIEnergyInc.andRichmondPowerIrLightCompany,aswellasIndiana-KentuckyElectricCorporation(asubsidiaryofOhioValleyElectricCorporation,anaffiliatethatisnotamemberoftheAEPSystem).

DirectorsMARKA.BAILEYRICHARDE.DISBROWWILLIAMN.D'ONOFRIOALLENR.GIAssBURN(a)M.RICHARDHARRELL(b)WILLIAMJ.LHOTAGERALDP.MALONEYRICHARDC.MENGEDwiGHTLPiTTENGER(a)RONALDE.PRATER(b)DALEM.TRENARY(a)WILLIAME.WALTERS(b)W.S.WHITE,JR.DAVIDH.WILLIAMS,JR.OfficersW.S.WHITE,JR.(C)ChairmanoftheBoardRICHARDE.DISBROW(d)ViceChairmanandChiefFxecutiveOfficerRICHARDC.MENGEPresidentandChiefOperatingOfficerMILTONP.ALEXICHVicePresidentMARKA.BAILEYVicePresidentWILLIAMN.D'ONOFRIOVicePresidentA.JosEPHDowoVicePresidentRICHARDF.HERINGVicePresidentWILLIAMJ.LHOTAVicePresidentGERALDP.MALONEYVicePresidentDAVIDH.WILLIAMS,JR.VicePresidentPETERJ.DEMARIATreasurerJOHNF.DILORENZO,JR.SecretaryEuoBAFILEAssistantSecretaryandAssistantTreasurerJEFFREYD.CROSSAssistantSecretaryCARLJ.MoosAssistantSecretaryJOHNB.SHINNOCKAssistantSecretaryLEONARDV.ASSANTEAssistantTreasurerBRUCEM.BARBERAssistantTreasurerGERALDR.KNORRAssistantTreasurerAsofJanuary1,1991thecurrentdirectorsandofficersofIndianaMichiganPowerCompanywereemployeesolAmericanElectricPowerServiceCorporationwitheightexceptions:Messrs.Bailie,Bailey,D'Onofn'o,Gfassburn,Menge,Moos,Pittenger,andTrenary,whowereemploy.eesofIndianaMichiganPowerCompany.(a)ElectedApril24,1990(b)ResignedApril24,1990(c)ResignedasChiefExecutiveOfficerJanuary1~1991(d)ElectedJanuary1,1991 INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIESSelectedConsolidatedFinancialDataYearEndedDecember31,199019891988(inthousands)19871986INCOMESTATEMENTSDATA:OPERATINGREVENUES-ELECTRIC.......OPERATINGEXPENSESOPERATINGINCOMENONOPERATINGINCOMEINCOMEBEFOREINTERESTCHARGES.......INTERESTCHARGESNETINCOMEPREFERREDSTOCKDIVIDENDREQUIREMENTS.EARNINGSAPPLICABLEToCOMMONSTOCK$1,031,059$1,005,638829,626795,242$983,066$1,017,268$1,091,295767,623794,222900,151210,39632,930243,326106,181191,14466,905223,04656,828279,874113,508215,44343,454201,4333,946258,049105,568258,897107,092205,37989,064116,31515,587152,48126,256166,36620,955151,80518,848137,14518,048100,728$119,097$132,957$145,411$126,22519901989December31,1988(inthousands)19871986BALANCESHEETSDATA:ELECTRICUTILITYPLANTIACCUMULATEODEPRECIATIONANDAMORTIZATIONNETELECTRICUTILITYPLANTTOTALASSETS$4,011,464$3,918,616$4,411,271$4,153,281$3,979,8221,403,8711,292,4301,218,0601,118,2541,018,455$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$3,849,208COMMONSTOCKANDPAID-INCAPITAL...RETAINEDEARNINGS.T0TALC0MMQNSHAREowNERsEouITY..CUMULATIVEPREFERREDSTOCK:NOTSUBJECTTOMANDATORYREDEMPTIONSUBJEGTToMANDAT0RYREDEMPTI0N(a)TOTAL.L0NG-TERMDEBT(a)OBLIGATI0NsUNDERCAPITALLEAsEs(a).TOTALCAPITALIZATIONANDLIABILITIES...$774,193$774,193$838,347$828,347$828,347145,489157,825161,443145,302113,123$919,682$932,018$999,790$973,649$941,470$197,000$197,000$197,000$197,000$197,00018,03025,03032,03079,030$197,000$215,030$222,030$229,030$276,030$1,123,833$1,522,736$1,575,220$1,591,768$1,421,523$133,064$122,977$167,920$170,830$187,845$3,635,435$4,259,826$3,993,046$3,956,563$3,849,208(a)Includingportionduewithinone-year.

Management'sDiscussionandAnalysisofResultsofOperationsandFinancialConditionResultsofOperationsNetIncomeOeclinesNetincomedecreasedto$116millionin1990comparedwith$137millionin1989.Thedeclinein1990waspredom-inantlyduetoadeclineinnonoperatingincomeasaccrualsforallowanceforfundsusedduringconstruction(AFUDC)ceasedwithcommercialoperationofRockportPlantUnit2(Rockport2)inDecember1989andincreasedoperatingandmaintenancecosts.In1989netincomedecreased$15millionfrom1988primarilyfromloweroperatingincomeandadeclineinnonoperatingincome.OutlookTheCompanyaspartoftheAEPSystemfaceschallengesinthe1990'sthatcouldadverselyaffecttheCompany'sfinancialperformance.WhilemanagementbelievestheCompanyisequippedtodealwiththefuture,uncertaintiesthatcouldadverselyaffecttheCompanyincludetheabilitytoobtainfavorablerate-makingtreatmenttorecoverfromratepayersitscostofserviceonatimelybasiswithparticularattentioncurrentlyto:~Thecostofnewgeneratingcapacity.~ThecostofcompliancewiththeCleanAirActAmend-mentsof1990.Inaddition,theCompany'sresultscouldbenegativelyaffectedbyfactorsnotgenerallywithinmanagement'scontrolsuchas:thecurrentandanyfuturedeclineineconomicactiv-ity,increasedcompetitioninthewholesaleelectricenergymarketandtheweather.TheabilityoftheCompanyasamemberoftheAEPSystemPowerPool(PowerPool)tomakewholesalesalesequaltoorgreaterthanthelevelofsuchsalesreflectedintheCompany'srates,includingthePowerPool'sabilitytoselltheremainingportionoftheCompany'srecentlyconstructedRockport2generatingcapacitynotyetincludedinrates,willaffecttheCompany's1991resultsofoperations.Managementwillmakeeveryefforttocontinuemarketingavailablecapacityinthenearterm.Inaddition,managementwillbedevotingparticularattentionin1991toward:effortstoincreaseratestorecoverthecostoftherecentlyaddedRock-port2capacity;reductionofgrowthinitscostofservice;andpreparationofaplantocomplywithpowerplantemissionrestrictionsoftherecentlyenactedCleanAirActAmendments.OperatingRevenuesandEnergySalesClimbOperatingrevenuesrose$25millionin1990followinga$23millionincreasein1989.Increasesinwholesalekilowatt-hour(kwh)salespredominantlytounaffiliatedutilitiesaccountedfortherevenueincreaseinbothyears.Thecomponentsofchangeinrevenuesareasfollows:Increase(Decrease)FromPreviousYear19901989(dollarsinmillions)Amount%AmountRetail:Pricevariance...VolumevarianceS(8.1)$(18.5)(8.4)10.0(16.5)(2.3)(8.5)(1.2)Wholesale:Pricevariance.Volumevariance(9.2)(48.1)48.674.739.414.326.610.IOtherOperatingRevenues........2.54.5TotalS25.42.5S22.62.3Themodestdecreasein1990retailsalesvolumereflectstheeffectsofunseasonablymildweatheronresidentialsales.Industrialsalesvolume,whichhadshownsteadygrowthforseveralyears,begantoslowin1989andexperiencedasligdeclinein1990.Thenegativeeffectonrevenuesofthelowei.kwhsalesvolumewascompoundedbyareductioninratesasloweraveragefuelcostswerepassedontocustomers.Itisimportanttonotethatwiththepastgrowthinelectricheatingandcoolingload,resultsofoperationshavebecomeincreasinglysensitivetoweather.Theincreasein1990wholesalekwhsaleswaspredomi-nantlyduetothecommencementinJanuary1990ofa250megawatt(mw)Iong-termRockport2unitpowersalesagree-ment.Short-termwholesalesales,whichcanfluctuateduetocompetition,theavailabilityofunaffiliatedgeneratingcapacityandweatherpatterns,declinedslightlyin1990par-tiallyoffsettingthetong-termsalesincrease.Thepositiveeffectofincreasedwholesalesalesvolumeon1990revenueswaspartlyoffsetbyaloweraveragepriceperkwhreflectingpricecompetitionintheshort-termsalesforresalemarket.Thelackofavailableunaffiliatedgeneratingcapacitythrough-outmostof1989,areductionbythePowerPoolofitsshort-termenergypricesandextremelycoldweatherinDecember1989combinedtoproduceasignificantincreasein1989'sshort-termwholesalesalescomparedwith1988.

INDIANAMICHIGANPOWERCOMPANYANOSUBSIDIARIES(dollarsinmillions)1990Amount1989AmountOperatingExpenses:FuelPurchasedandInterchangePower(net).OtherOperation............MaintenanceDepreciationandAmortization...AmortizationofBockportunit1Phase.inCosts...........TaxesOtherThanFederalIncomeTaxesFederalIncomeTaxesTotalS26.810.7S16.97.3(93.9)(370.1)(22.1)(46.6)73.543.09.35.830.329.114.716.44.33.44.63.9(1.1)(6.2)(2.0)(3.5)0.10.2(4.6)(10.0)5.212.4S34.4S27.6Theincreasesinfuelexpenseinbothyearsreflecthighernetgeneration.WiththecommercialoperationofRockport2inDecember1989,theCompanybecameanetsuppliertothePowerPoolandassuchcommencedreceivingPowerPoolcapacitycreditswhichgreatlyreduceditspurchasedandinterchangepowerexpensein1990.TheCompanywasabletosignificantlydecreasepurchasedandinterchangepowerexpensein1989duetotheincreasedavailabilityofitsgen-ratingunitsTheCompanyasamemberofthePowerPoolparticipatedinalong-termcontractforthesaleofupto560mwofpowertoanunaffiliatedutility,whichexpiredonDecember31,1990andwasnotrenewed.Thiscontractcontributed$16milliontotheCompany'srevenuesand$5milliontonetincomein1990.ThePowerPoolisattemptingtoreplacetheterminatedsalesandrecentlyreachedanagreementtosell100mwunderalong-termcontractwithanunaffiliatedutility.In1989and1990thePowerPoolsoldsignificantquantitiesofenergytoaCanadianutilityunderaseriesofshort-termwholesalecon-tractswhichexpiredattheendof1990.Thatcustomerisnolongerexpectedtopurchaselargequantitiesofenergy.In1990thesesalescontributed$34milliontotheCompany'srevenuesand$8milliontonetincome.ThePowerPoolisaggressivelymarketingavailableenergybutcannotpredictwhetherreplacementsaleswillbemadeduetothecompetitivenatureoftheenergymarketanditsdependenceonfactorswhicharenotgenerallywithinthePowerPool'scontrol.Iftheaboveterminatedlong-termandshort-termsalesarenotreplacedtheCompany'sresultsofoperationswillbeadverselyimpacted.OperatingExpensesRiseOperatingexpensesincreased4%in1990aftera4%Increasein1989.Changesinthecomponentsofoperatingexpenseswere:Increase(Decrease)FromPreviousYearThesignificantincreaseinotheroperationexpensein1990wasprimarilyduetoleaseexpenseonRockport2whichwassoldandleasedbackinDecember1989.Inaddition,otheroperationexpenseandmaintenanceexpenseincreasedin1990and1989duetoscheduledoutagesofbothoftheCom-pany'snucleargeneratingunits.Theunitsarerefueledonan18-monthcycle.Inthesecondhalfof1990,bothunitswereoutofserviceforseveralmonthseachforscheduledrefueling.Asubstantialportionofthe1990increaseinnuclearplantmaintenancewasrecordedinthefourthquarter.In1989Unit2wasoutofservicetoreplaceitssteamgenerators,refuelandconducta10-yearserviceinspectionasrequiredbytheNuclearRegulatoryCommissionandUnit1underwentarefuelingoutage.Thenextrefuelingoutagesarescheduledfor1992.Acombinationofstricterregulatoryrequirementsformaintenanceandtrainingandthelimitedsupplyofnucleargradematerialsforreplacementpartshascontributedtonuclearindustryoperationandmaintenanceexpensesincreasingataratehigherthanthegeneralinflationrate.Industryeffortsareunderwaytochangethistrend.The1990decreaseinFederalincometaxexpensewasprimarilyduetoadjustmentsrelatingtoprioryear'staxreturnsandanincreaseintheamortizationofdeferredinvest-menttaxcreditsduepredominantlytoplacingRockport2inservice.TheincreaseinFederalincometaxexpensein1989wasprimarilyduetochangesincertainbook/taxtimingdif-ferencesaccountedforonaflow-throughbasis.AllowanceforFundsUsedOuringConstructionandInterestChargesAFUDCdecreasedsubstantiallyin1990sinceaccruaisonRockport2ceasedeffectivewithitscommercialoperationonDecember1,1989.Theincreasein1989'sAFUDCreflectedtheadditionalaccumulatedRockport2constructionexpenditures.In1990interestexpensedecreasedreflectingthereductioninbothlong-termandshort-termdebtoutstandingwithpro-ceedsfromthesaleofRockport2.The1989nonoperatingincomedecreasewastheresultofaone-timeciedittoincomeinthefourthquarterof1988torecord,inaccordancewithFederalEnergyRegulatoryCommission(FERC)guidance,theinterestaccruedonnucleardecommissioningtrustfundssincetheirinception.

LiquidityandCapitalResourcesConstructionSpendingDecreasesGrossplantandpropertyadditionsamountedto$162mil-lionin1990,a21%decreasefrom1989reflectingthecom-pletionofRockport2.Constructionexpendituresforthenextthreeyearsareestimatedat$523million,exclusiveofyettobedeterminedexpendituresnecessarytomeettherequire-mentsoftheCleanAirActAmendments.TheCompanyfundsitssubstantialannualcapitalrequirementsforconstructionofnewfacilitiesandimprovementofexistingfacilitiesthroughacombinationofinternallygeneratedfunds,short-termandlong-termborrowingsandinvestmentsinitscommonequitybyitsparent,AEP.DebtandPreferredStockFinancingTheCompanygenerallyissuesshort-termdebttoprovideinterimfinancingofconstructionexpendituresinexcessofavailableinternallygeneratedfunds.AtDecember31,1990,theCompanyhadunusedshort-termlinesofcreditof$263millionsharedwithotherAEPSystemcompanies.Regulatoryprovisionslimitshort-termdebtborrowingsto$200millionandacharterprovisionfurtherlimitsshort-termborrowingsto$90million.TheCompanyperiodicallyreducesshort-termdebtwiththeproceedsofsalesoflong-termdebtandpre-ferredstocksecuritiesandinvestmentsinitscommonequitybyAEP.Theissuanceofseniorsecuritiesisexpectedtoberelativelymodestinthenextfewyearssinceitisexpectedthatapprox-imately70%oftheCompany'sprojectedconstructionexpendituresfor1991-1993willbefinancedinternally,exclu-siveofanyexpendituresnecessarytomeettherequirementsoftherecentlyenactedCleanAirActAmendments.Additionalamountsneededinexcessofinternallygeneratedfundswillberaisedexternallythroughsalesofsecuritiesandinvest-mentsintheCompany'scommonequitybyAEP.Inordertoissueadditionallevelsofcertainlong-termdebt,theCompanymusthavepre-taxearningsequaltoatleasttwiceannualinterestchargesonlong-termdebtaftergivingeffecttotheissuanceofthenewdebt.Generallytoissueadditionallevelsofpreferredstock,theCompanymusthaveafter-taxgrossincomeatleastequaltooneandone-halftimesannualinterestandpreferreddividendrequirementsaftergiv-ingeffecttotheissuanceofthenewpreferredstock.Asaresult,theearningsperformanceoftheCompanywilldeter-mineitsabilitytofinance,which,inturn,willdetermineitsabilitytofundconstruction.AsofDecember31,1990,theCompany'slong-termdebtandpreferredstockcoverageratioswere3.79and2.02,respectively.InDecember1989theCompanyanditsaffiliate,AEPGen-eratingCompany(AEGCo),soldtheir50%interestsinRock-port2andleasedbacktheunit.NetproceedstotheCompanyfromthesalewere$661millionaftertaxes.TheCompanyusedtheproceedstorepayshort-termandIong-termdebt,returncapitalcontributionstoitsparentandrepurchasereceivables.Thenetgainonthesaledidnotaffect1989earningssinceitwasdeferredandisbeingamortizedalongwithapplicabledeferredtaxesovertheinitialleaseterm.Theleaseshavebeenaccountedforasoperatingleases.Thesub-stantialincreaseincashduring1989resultedfromtheRock-port2saleproceeds.Thesubstantialamountoftaxespaidduring1990inconnectionwiththesaleandleaseback,aswellastherelatedbondandstockredemptionscausedthecashdecreasein1990.ConcernsandContingenciesCleanAirLaw-EnvironmentalCostsInNovember1990theCleanAirActAmendmentsbecamelawrequiring,amongotherthings,substantialreductionsinsulfurdioxideandnitrogenoxideemissionsfromcoal-firedelectricgeneratingplantsandplacingapermanentnationwidelimitonemissionsafter1999.Thenewlawestablishesastritimetableforcompliance,settingadeadlineof1995forth'irstphaseofreductionsand2000forthesecondphase.AlthoughtheAEPSystemhasinthepastmadesubstantialexpenditurestosatisfytheprovisionsofcleanairlaws,theSystemwillhavetoadoptsubstantialadditionalmeasurestocomplywiththenewamendments.TheAEPSystemisreview-ingtheamendmentsandevaluatingthecompliancealterna-tives.Thecompliancealternativesbeingconsideredinclude:(a)installationofnewemissionsreductionequipment(scrub-bers)onaffectedgeneratingunitswhichwouldrequiresub-stantialcapitalexpendituresandresultinsignificantlyincreasedoperatingcostsandreducedgeneratingefficiency;(b)switchingtolowersulfurcoalornaturalgas,resultinginlesssubstantialcapitalexpendituresandadverseimpactsonaffiliatedminingoperationsandrelatedfacilities;(c)prema-tureretirementofcertainexistinggeneratingunits;and/or(d)significantcapitalexpenditurestorepowerexistinggeneratingunitswithpressurizedfluidizedbedcombustion(PFBC)tech-nologypresentlybeingtestedatanaffiliate'sTiddPFBCdem-onstrationplant.TheCompany'sCookNuclearPlantisnot INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIESaffectedbythenewlegislation.Additionally,theCompany'sRockportPlantandthreeofthefourunitsatTannersCreek,Plant,allofwhichburnlowsulfurcoal,arecurrentlyincom-pliancewiththenewlaw.Alternativestomeetthenewrequire-mentsattheCompany'stworemainingcoal-firedunits,TannersCreekUnit4andtheBreedPlant,arebeingstudied.AsamemberofthePowerPooltheCompanysharesinthecostofcomplianceatgeneratingunitsownedbyotherPowerPoolmembercompanies.TheCompany'scostofcompliancecouldadverselyaffectresultsofoperationsandfinancialcon-ditionifnotrecoveredthroughtherate-makingprocess.HazardousMaterialThegenerationofelectricityunavoidablyproducesanum-berofnon-hazardousandhazardousmaterialssuchasash,slag,sludge,lowlevelradioactivewaste,spentnuclearfuel,etc.Inadditionasbestos,polychlorinatedbiphenyls(PCB's)andotherhazardousmaterialshavebeenemployedintheCompany'sgeneratingplantsandtransmission/distributionfacilities.TheCompanyfullycomplieswithallexistinglawsregardinghandling,transportation,storageanddisposalofhazardousandnon-hazardousmaterialsitproducesoruses.However,additionalcomplianceeffortsandcostscouldbeincurredtomeettherequirementsofnewlawsandregulations.TheComprehensiveEnvironmentalResponseCompensa-tionandLiabilityAct(Superfund)establishedprogramsdeal-ingwithcleanupofhazardouswastedisposalsites,aswellasothermatters,andauthorizedtheEnvironmentalProtectionAgency(EPA)toadministerthem.TheCompanyhasbeennamedbytheEPAasa"potentiallyresponsibleparty"forfivesitesandhasreceivedinformationrequestsfortwoothersites.TheCompany'spresentestimatesdonotanticipatematerialcleanupcosts.However,shouldmaterialcostsbeincurredforthecleanupofthesesitesorforanyothersiteatwhichtheCompanymayhavedisposedofmaterials,theCompany'sresultsofoperationsandfinancialconditioncouldbeadverselyimpactedunlessthecostscanberecoveredfromratepayers.TheCompanymaintainsinsuranceagainstdamageandliabilityfromitsnuclearplant.IntheeventofanuclearincidentattheCompany'snuclearplantoranynuclearplantintheUnitedStatestheinsuranceprogramcouldrequiretheCom-panytopaysignificantretrospectivepremiums.InadditiontheCompanymayincuradditionaluninsuredcosts.Ifnotrecoveredfromratepayers,suchcostscouldadverselyimpactresultsofoperationsandfinancialcondition.OtherNewEnvironmentalandHealthConcernsInrecentyearstherehasbeenconsiderablediscussionofenvironmentalandhealthconcernsregardingtheemissionfromgeneratingfacilitiesof"greenhouse"gasessuchascarbondioxideandtheeffectsonpublichealthofelectricandmagneticfields(EMF)fromtransmissionanddistributionfacilities.Managementisconcernedthatnewlawsmaybepassedornewregulationspromulgatedwithoutsufficientsci-entificevidence.TheAEPSystemwillbeworkingtosupporteffortstoproperlystudy"globalwarming"andEMFandtodefinetheextent,ifany,towhichtheyposeathreattotheenvironmentandpublichealthbeforenewrestrictionsareimposed.ShouldCongressenactlegislationtocontrolorlimitgreenhousegasesandEMF,theCompany'sresultsofoper-ationsandfinancialconditioncouldbeadverselyaffectedunlessthecostofcompliancecanberecoveredfromratepayers.RegulatoryConcernsInJuly1989theCompanyfiledarequestwiththeIndianaUtilityRegulatoryCommission(IURC)foranannualincreaseinratesof$60million.InAugust1990theIURCgrantedtheCompanyanincreaseinratesof$14.3million.InOctober1990theIURCamendeditsorder,attheCompany'srequest,andallowedanadditional$5millionincreaseinrates.TheCompanyandotherpartiesrequestedarehearingofcertainportionsoftheIURC'sordersandinFebruary1991theIURCissuedanordergrantingrehearingoncertainofthoseissues.During1990,theCompanyfiledwiththeFERCforan$11millionannualrateincreasefromitsfirmwholesalecus-tomers.InDecembertheFERCgrantedtheCompany'srequesttocollectratesdesignedtoproducea$4millionannualincrease,subjecttorefund,pendingtheissuanceofafinalorder.

In1990aninitialdecisionwasissuedbyaFERCadmin-istrativelawjudgeregardingacomplaintfiledbyawholesalecustomerconcerningthereasonablenessoftheCompany'scoalcostsandthecoaltransportationchargesofaffiliates.TheinitialdecisionwouldrequiretheCompanytorefundtowholesalecustomers$25millionrelatedtocoalcostsandayettobedeterminedamountofaffiliatedtransportationcharges.TheCompanyhasfiledexceptionstotheinitialdeci-sionandthematterissubjecttoafinaldecisionofthefullcommission.InFebruary1991theMichiganPublicServiceCommission(MPSC)grantedtheCompanya$10.4millionannualrateincreasefromitsMichiganretailjurisdictionalcustomers.Thisrateincreasewillbeeffectiveintwosteps:$7.4millioninApril1991and$3millioninApril1992.TheorderalsoplacesamoratoriumonanynewbaseratefilingpriortoJuly1992andrequirestheCompanytofileanapplication,withinsixmonths,tomergeMichiganPowerCompany,anaffiliate,intotheCompany.Itisnotpresentlyanticipatedthatthemergerwillsignificantlyimpactresultsofoperationsandfinancialcondition.EconomicOutlookTheeconomyslowedin1990onanationallevelandtoalesser.extentintheCompany'sservicearea.Althoughtheslowingeconomyhadminimaleffecton1990saleslevels,furtherslowdownsoradeeprecessioncouldnegativelyaffectdemandforenergy,especiallyfromindustrialcustomers.Withitslargeindustrialbase,resultsofoperationsfortheCompanyaresensitivetoeconomicconditionswhichcanbeimpactedbyinflation,foreigncurrencyfluctuations,themar-ketpriceofprimarymetals,costsofcompliancewiththeCleanAirActAmendmentsof1990andothermattersbeyondthecontroloftheCompanyanditsmajorindustrialcustomers.EffectsofInflationinflationcontinuestoaffecttheCompany,eventhoughtheinflationratehasbeenrelativelylowinrecentyears.Sincetherate-makingprocesslimitstheCompanytorecoveryofthehistoricalcostofassets,economiclossesareexperiencedwhentheeffectsofinflationarenotrecoveredfromcustomersonatimelybasis.Suchlossesareoffsetpartlybytheeco-nomicgainsthatresultfromtherepaymentoflong-termdebtwithinflateddollars.NewAccountingStandardsTheFinancialAccountingStandardBoard's(FASB)newaccountingstandardonincometaxesrequirestheCompanytoadopttheliabilitymethodofaccountingforincometaxesin1992andwillresultinasignificantincreaseintotalassetsandliabilitiesduetotherecordingofdeferredincometaxesontimingdifferencespreviouslyflowedthroughandcorre-spondingoffsettingregulatoryassetsandliabilities.Inaddi-tionexistingdeferredtaxeswillbeadjustedtothelev'elrequiredatthecurrentlyexistingstatutorytaxratewithanoffsettingregulatoryassetorliabilityfordeferredtaxamountsassociatedwithutilityoperations.WhethertheCompanyimplementsthenewstandardonarestatedorprospectivebasishasnotyetbeendetermined.TheFASBhasindicatedthatitexpectstoissueanexposuredraftduringthefirsthalfof1991whichwillamendthenewstandardandmayextenditsrequiredeffectivedateuntil1993.TheCompanyexpectstodeferimplementationofthenewstandarduntiltheeffectivedateoftheamendedstandard.Itisnotpresentlyanticipatedthatthefinalstandardwillsignificantlyimpactresultsofoper-ationsorfinancialcondition.TheFASBhasissuedanewaccountingstandardthatrequiresachangeinaccountingforpostretirementbenefitsotherthanpensionsfromanexpense-as-paidmethodtoaaccrualmethod.Thisstandardpermitsinitialyearrecognitionoftheentirepriorservicecostorrecognitionofatransitionobligationoverperiodsupto20yearsandhasaneffectivedateof1993.TheCompanyexpectstoelectthe20yeartransitionoptiontocomplywiththenewstandard.WiththeassistanceofitsindependentactuarytheCompanyispres-entlycomputingitsobligationforretireebenefitsotherthanpensions.TheCompany'sobligationissignificantasisthedifferencebetweentheannualaccrualsrequiredbythenewstandardunderthe20yeartransitionoptionandthecurrentpay-as-you-goexpense.TheCompanyexpectstoseekrecov-eryoftheincreasedaccrualsfromratepayers.Shouldrecov-eryoforacommitmenttorecovertherequiredincreasedaccrualsbeginningin1993bedenied,theCompany'sresultsofoperationsandpossiblyitsfinancialconditionwouldbeadverselyimpacted.

INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIESConsolidatedStatementsofIncomeOPERATINGREVENUES-ELECTRICYearEndedDecember31,1989(inthousands)$1,031,059$1,005,6381988$983,066OPERATINGEXPENBEs:FuelPurchasedandInterchangePower(net)OtherOperation.MaintenanceDepreciationandAmortizationAmortizationofRockportPlantUnit1Phase-inCostsTaxesOtherThanFederalIncomeTaxesFederalIncomeTaxesTotalOperatingExpensesOPERATINGINCOMENONOPERATINGINCOME:AllowanceforEquityFundsUsedDuringConstructionOtherTotalNonoperatingIncomeINCOMEBEFOREINTERESTCHARGES.276,719(68,529)244,382134,521129,09116,96154,38942,092829,626201,4331,17427723,946205,379249,88625,376170,855104,223124,80916,96156,37746,755795,242210,39627,9724,95832,930243,326232,94647,503161,53289,545120,14518,08956,27141,592767,623215,44327,02316,43143,454258,897INTERESTCHARGES:Long-termDebt.Short-termDebtandOtherAllowanceforBorrowedFundsUsedDuringConstructionNetInterestChargesNETINCOMEPREFERREDSTOCKDIVIDENDREQUIREMENTSEARNINGSAPPLICABLEToCOMMONSTOCKSeeNotestoConsolidatedFinandatStatements.87,3853,158~7,479131,0097,279~32,107)106,181137,14518,04889,064116931515,587$100,728$119,097130,6496,635~30,192107,092151,80518,848$132,957 ConsolidatedBalanceSheetsASSETSDecember31,19901989(inthousands)ELEcTRIcUTILITYPLANT:ProductionTransmissionDistributionGeneral(includesnuclearfuel)ConstructionWorkinProgress.TotalElectricUtilityPlant.AccumulatedDepreciationandAmortization.NetElectricUtilityPlant$2,473,678778,115482,324182,90694,4414,011,4641,403,8712,607,593$2,465,133777,782452,780170,34952,5723,918,6161,292,4302,626,186OTHERPROPERTYANoINVEsTMENTs343,307321,215CURRENTAssETs:CashandCashEquivalents.AccountsReceivable:CustomersAffiliatedCompanies.MiscellaneousAllowanceforUncollectibleAccounts.Fuel-ataveragecost.MaterialsandSupplies-ataveragecost.AccruedUtilityRevenuesOtherTotalCurrentAssets2,72170,67726,92625,237(674)54,79038,48339,085'11,860269,'105595,487114,35010,66923,441(606)40,05732,47935,8856,920858,682DEFERREODEBITS:DeferredTaxes-GainonSaleandLeasebackofRockportPlantUnit2..DeferredDepreciationandReturn-RockportPlantUnit1........DeferredNuclearFuelDisposalCosts........................Other176,967114,91843,61579,930183,290131,87947,82290,752TotalDeferredDebitsTotalSeeNotestoConsolidatedFlnanotatStatements.453,743415,430$3,635,435$4,259,826 INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIESCAPITALIZATIONANDLIABILITIESDecember31,19901989(inthousands)CAPITALIZATION:CommonStock-NoParValue:Authorized-2,500,000SharesOutstanding-1,400,000SharesPaid-inCapitalRetainedEarningsTotalCommonShareowner'sEquityCumulativePreferredStock-NotSubjecttoMandatoryRedemptionLong-termDebtTotalCapitalization$56,584717)609145,489919,682197,0001,072,3332,189,015$56,584717,609157,825932,018197,0001,021,5662,150,584OTHERNONCURRENTLIABILITIES220,127190,962CURRENTLIABILITIES:CumulativePreferredStockDueWithinOneYear.Long-termDebtDueWithinOneYearCommercialPaper.AccountsPayable:General.AffiliatedCompaniesTaxesAccruedInterestAccruedObligationsUnderCapitalLeases.OtherTotalCurrentLiabilities.51,50033,94562,34316,83121,90036,39955,471278,38918,030501,17052,60235,811200,78736,10133,24776,878954,626DEFERREOCREOITS:DeferredIncomeTaxesDeferredInvestmentTaxCredits.DeferredGainonSaleandLeaseback-RockportPlantUnit2.OtherTotalDeferredCredits478,005212,913234,30322,683947,904485,444221,666241,25515,289963,654C0MMITMENTsANoC0NTINGENGIEs(Note10)Total$3,635,435$4,259,82612 ConsolidatedStatementsofCashFlows1990YearEndedDecember31,1989(inthousands)1988OPERATINGACTIVITIES:'etIncomeAdjustmentsforNoncashItems:DepreciationandAmortizationAmortizationofRockportPlantUnit1Phase-inCosts.......AmortizationofDeferredNuclearFuelDisposalCosts.......DeferredIncomeTaxesDeferredStateTaxes-RockportPlantUnit2SaleandLeasebackTransaction.DeferredInvestmentTaxCredits.AllowanceforEquityFundsUsedDuringConstruction......ChangesinCertainCurrentAssetsandLiabilities:AccountsReceivable(net).Fuel,MaterialsandSuppliesAccruedUtilityRevenues.AccountsPayableTaxesAccruedInterestAccrued.Other(net)NetCashFlowsFromOperatingActivities..........INYEsTINGACTIvITIEs:ConstructionExpenditures.AllowanceforEquityFundsUsedDuringConstruction........CashUsedforConstructionExpendituresProceedsfromSaleandLeaseback-RockportPlantUnit2...ProceedsfromSalesofOtherPropertyNetCashFlowsFrom(UsedFor)InvestingActivities.FINANCINGACTIVITIES:CapitalContributionsFrom(Returnedto)ParentIssuanceofLong-termDebt.ChangeinShort-termDebt(net).RetirementofCumulativePreferredStocksRetirementofLong-termDebtDividendsPaidonCommonStockDividendsPaidonCumulativePreferredStock.NetCashFlowsUsedForFinancingActivities.......NetIncrease(Decrease)inCashandCashEquivalents..........CashandCashEquivalentsJanuary1CashandCashEquivalentsDecember31SeeNotestoConsolidatedFinancialStatements.$116,315$137,145$151,805138,?4?16,961.4,20?(8,804)133,55116,9613,204(196,977)128,19118,0895,4083,161(39,943)27,445(27,972)1,93?(8,248)(1,1?4)23,672(27,023)25,53016,48524,06411,019(41,913)(759)26,704364,433(276,54527,023(249,522)1,117~248.405)(79,755)4,682(8,373)18,367196,502(252)26,51025,688(20,?3?)(3,200)(9,239)(200,?8?)(14,201)~6,919211,095(196,824)27,97230,546(104,494)1,1?4(168,852)850,0001,381(103,320)6,039682,5299?28110,00050,00035,850(7,000)(74,050)(116,816)~19,048(63,000)(35,850)(7,000)(62,512)(119,952)~18,248)40,00033,945(19,048)(451,?70)(113,064)~16,064)121,064306,562~526,031(592,?66)595,487(5,036)13,461587,0628,425627216595.48768,42513 INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIESConsolidatedStatementsofRetainedEarningsYearEndedDecember31,RetainedEarningsJanuary1NetIncome...............'1990$157,825116,315274,1401989(inthousands)$161,443137,145298,5881988$145,302151,805297,107CashDividendsDeclared:CommonStock.CumulativePreferredStock:4)jo%Series4.56%Series4.12%Series7.08%Series7.76%Series8.68%Series12%Series$2.15Series$2.25Series$2.75SeriesTotalDividends.NetPremiumonReacquisitionofPreferredStock.TotalDeductionsRetainedEarningsDecember31SeeNotestoConsolidatedFinanelatStatements.113,0644952731652,1242,716,2)604483,4403,600122128,651128,651$145,489119,9524952731652,1242,7162,6048383,4403,6001,793138,0002,763140.763$157,825116,8164952731652,1242,7162,6041,1983,4403,6002,233135,664135,664$161,44314 NotestoConsolidatedFinancialStatements1.SignificantAccountingPolicies:PrinciplesofConsolidationTheconsolidatedfinancialstatementsincludetheaccountsofIndianaMichiganPowerCompany(theCompany)anditswhollyownedsubsidiaries.Significantintercompanytrans-actionshavebeeneliminatedinconsolidation.SystemofAccountsTheaccountingandratesoftheCompanyaresubjectincertainrespectstotherequirementsofstateregulatorycom-missionsandtheFederalEnergyRegulatoryCommission(FERC).ThefinancialstatementsoftheCompanyhavebeenpreparedonthebasisoftheuniformsystemofaccountsprescribedbytheFERC.ElectricUtilityPlant;DepreciationandAmortization;OtherPropertyandInvestmentsElectricutilityplant,whichisstatedatoriginalcost,gen-erallyissubjecttofirstmortgageliens.TheCompanycapitalizes,asaconstructioncost,anallow-anceforfundsusedduringconstruction(AFUDC),anon-cashincomeitem,whichisdefinedintheapplicableregulatorysystemsofaccountsasthenetcostofborrowedfundsusedforconstructionpurposesandareasonablereturnonequityfundswhensoused.ThecompositeratesusedbytheCom-panyaftercompoundingonasemi-annualbasiswere10.5%in1990and1989and10.25%in1988.TheCompanyprovidesfordepreciationonastraight-linebasisovertheestimatedusefullivesofthepropertyanddeter-minesdepreciationprovisionslargelythroughtheuseofcom-positeratesbyfunctionalclassofproperty.Operatingexpensesarechargedwiththecostsoflabor,materials,supervisionandothercostsincurredinoperatingandmaintainingtheCompany'sproperties.Propertyaccountsarechargedwiththecostofpropertyadditions,majorreplace-mentsofpropertyandbetterments.Theaccumulatedprovi-sionsfordepreciationarechargedwithretirementsandassociatedremovalcostsnetofsalvage.Otherpropertyandinvestmentsaregenerallystatedatcost.CashandCashEquivalentsTheCompanyanditssubsidiariesconsidercash,unre-strictedspecialdeposits,workingfunds,andtemporarycashinvestmentsasdefinedbytheFERCtobecashandcashequivalents.Temporarycashinvestmentsincludehighlyliquidinvestmentspurchasedwithamaturityofthreemonthsorless.IncomeTaxesDeferredincometaxesareprovidedexceptwherenotper-mittedbythestatecommissionsandtheFERC.TheCompanydeferredandisamortizingoverthelifeofitsplanttheeffectoftaxreductionsresultingfrominvestmenttaxcreditsutilizedinconnectionwithcurrentFederalincometaxaccrualscon-sistentwithrate-makingpolicies.OperatingRevenuesTheCompanyaccruesrevenuesforelectricserviceren-deredbutunbilledatmonth-end.FuelCostsTheCompanybillsitsfuelcostsunderfuelrecoverymech-anismsdesignedtoreflect,inrates,changesincostsoffuelwiththeapprovalofvariousregulatorycommissions.Accord-ingly,theCompanyaccruesrevenuesrelatedtounrecoveredfuel.OtherThecommonstockoftheCompanyiswhollyownedbyAmericanElectricPowerCompany,Inc.(AEP).Inaccordancewithregulatoryapprovals,theCompanyrecognizesgainorlossonreacquireddebtinincomeintheyeaofreacquisitionunlesssuchdebtisrefinanced,inwhichcase,thegainorlossisdeferredandamortizedoverthetermofthereplacementdebt.Debtdiscountorpremiumanddebtissuanceexpensesarebeingamortizedoverthelivesoftherelateddebtissues,andtheamortizationthereofisincludedinotherinterestchargesinaccordancewithrate-makingtreatment.TheCompanyiscommittedunderunitpoweragreementswithaffiliatestopurchasefromAEPGeneratingCompany(AEGCo),anaffiliatedcompany,70%ofAEGCo'sRockportPlantcapacityunlessitissoldtounaffiliatedutilities.Certainprior-periodamountshavebeenreclassifiedtocon-formtocurrent-periodpresentation.

INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES2.BateMatters:RockportPlantUnitfPhase-inPlanTheCompanyhasphase-inplansinitsIndianaandFERCjurisdictionsforRockportPlantUnit1(Rockport1).Rockport1isa1,300megawatt(mw)generatingunitthatbegancom-mercialoperationinDecember1984andisjointlyandequallyownedbytheCompanyandAEGCo.AtDecember31,1990and1989,theCompanyhadunamortizeddeferredreturnsof$89,061,000and$102,206,000,respectively,andun-amortizeddeferreddepreciationof$25,857,000and$29,673,000,respectively.Thesedeferralsarebeingamor-tizedonastraight-linebasisthrough1997andrecoveredinrates.RockportPlantUnit2SafeandLeasebackandRateRecoveryTheCompanyandAEGCoconstructedasecond1,300mwunitattheRockportPlant(Rockport2)atacostof$1.3billion.TheunitbegancommercialoperationonDecember1,1989.OnDecember7,1989,theCompanyandAEGCosoldtheirrespective50%interestsintheunitfor$1.7billion,theesti-matedfairmarketvalue,andleasedback50%interestsinRockport2foraninitialtermof33years.Thegainfromthesalewasdeferredandisbeingamortized,includingrelatedtaxes,overtheinitialleaseterm.Theleaseshavebeenaccountedforasoperatingleases.TheCompanywillreceive1,105mwofRockport2capacity,comprisedof650mw,its50%share,and455rnwitisobligatedtopurchasefromAEGCounderthetermsofalong-termunitpoweragreement.InJuly1989,theCompanyfiledarequestwiththeIndianaUtilityRegulatoryCommission(IURC)foranincreaseinratesofapproximately$60,000,000annuallytorecover,amongotherthings,theCompany'sIndi-anajurisdictionalshareofthecostof385mwofRockport2capacitypurchasedfromAEGCo.Theraterequestdidnotseekrecoveryofthecostoftheremaining720mwofRockport2energysinceitwasbasedontheassumptionthatthe720mwwouldbesoldtounaffiliatedutilities.InAugust1990theIURCgrantedtheCompanyanincreaseinratesof$14.3million.InOctober1990theIURCamendeditsorderandallowedanadditional$5millionincreaseinrates.TheCom-panyhasbeengrantedarehearingofcertainotherportionsoftheIURC'sAugustorder.TheCompanyhasenteredintoalong-termunitpoweragreementwithCarolinaPower&Light(CPL),anunaffiliatedutility,tosupply250mwofRockport2capacityfora20-yearperiodthatbeganinJanuary1990.TheFERCallowedtheagreementtobecomeeffectivesubjecttorefundpendingahearingandfinalorder.During1990,theFERCresolvedthependingissuesandtheCompanymaderefundsasordered.UnlesstheCompanysellstheremaining470mwofRockport2capacityonalong-termbasisitiscontributedtotheAEPSystemPowerPool(PowerPool).TheCompanywillsharewiththeothermembersofthePowerPoolinthecostoftheremaininguncommittedRockport2capacity.FutureresultsofoperationswillbeimpactedunlessthePowerPoolcanselltheadditionalcapacity.CoalandTransportationChargesInJune1990aninitialdecisionwasissuedbyaFERCadministrativelawjudgeregardingacomplaintfiledbyawholesalecustomerconcerningthereasonablenessoftheCompany'scoalcostsandthecoaltransportationchargesofaffiliates.TheinitialdecisionwouldrequiretheCompanytorefundtowholesalecustomers$25millionrelatedtocoalcostsandayettobedeterminedamountforaffiliatedtrans-portationcharges.TheCompanyhasfiledexceptionstotheinitialdecisionandthematterissubjecttofinaldecisionofthefullcommission.

NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)3.FederalIncomeTaxes:ThedetailsofFederalincometaxesasreportedareasfollows:1990YearEndedDecember31,1989(inthousands)1988S215,793(196,503)27,46546,755YearEndedDecember31~Charged(Credited)toOperatingExpenses(net):Current..............................................$52.894$11,865Deferred........,,.......................(5,043)5,563DeferredInvestmentTaxCredits(5.759)24.164Total~~~~~~~~~~...............42,09241.592Charged(Credited)toNonoperatingIncome(net):Current7,2881,2341~186Deferred............................................(3,761)(474)(2,402)DeferredInvestmentTaxCredits..................(2.489)(20)(492)Total1,038740(1,708)TotalFederalIncomeTaxesasReported$43,130$47,495$39,884ThefollowingisareconciliationofthedifferencebetweentheamountofFederalincometaxescomputedbymultiplyingbookincomebeforeFederalincometaxesbythestatutorytaxrate,andtheamountofFederalincometaxesreportedintheConsolidatedStatementsofIncome.NetIncomeFederalIncomeTaxesPretaxBookIncomeFederalIncomeTaxesonPre-TaxBookIncomeatStatutoryRate(34%).Increase(Decrease)inFederalIncomeTaxesResultingFromtheFollowingItemsonWhichDeferredTaxesAreNotProvided:AllowanceforEquityFundsUsedDuringConstructionNetofAmortizationofPriorYearDeferredTaxesforItemsCapitalizedontheBooksbutDeductedforTaxPurposes..MineDevelopmentandMineralRightsAmortizationTaxExemptincome-NuclearDecommissioningTrustFundsOtherAmortizationofDeferredInvestmentTaxCredits.TotalFederalIncomeTaxesasReportedEffectiveFederalIncomeTaxRate1990$116,31543,130$159,445$54,211(2,476)4,369(480)(1,684)(10,810)S43,130271%1989(inthousands)$137,14547,495$184,640$62,778(12,664)3,048(383)1~111(6,395)SS47,49525.7%1988$151,805S65,174(12,079)2,293(4,066)(4,481)(6,957)S39,88420.8%

INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIESThefollowingaretheprincipalcomponentsofFederalincometaxesasreported:1990YearEndedDecember31.1989(inthousands)1988Current:FederalIncomeTaxes862,7446250,867S43,680InvestmentTaxCredits(2,562)(33,840)(30,629)(b)TotalCurrentFederalIncomeTaxes60,182217,027(a)13,051Deferred:Depreciation1,0412,2544,737AllowanceforBorrowedFundsUsedDuringConstructionandMiscellaneousItemsCapitalized.......(2,953)7,1095,186UnrecoveredandLevelizedFuel.4,214(5,453)(8,278)NuclearDecommissioningCosts(756)(514)16,432(c)UnbilledRevenue(3,349)(3,713)(4,202)DeferredReturn-RockportPlantUnit1.(2,864)(2,864)(3,538)SaleofRockportPlantUnit2(56,863)DeferredNetGain-SaleofRockportPlantUnit23,457(128,194)Other(7,594)(8,739)(7,176)TotalDeferredFederalIncomeTaxes(8,804)(196,977)3,161TotalDeferredInvestmentTaxCredits(8,248)27,445(a)23,672(b)TotalFederalIncomeTaxesasReported$43.130S47,495S39,884(a)ThesignificantincreaseincurrentFederalincometaxesresultedfromthegainonthesaleofRockport2.TheplacingofRockport2inserviceinDecember1989enabledtheCompanytoutilizesignificantinvestmenttaxcreditsgeneratedbythesaleandleasebacktoreduceitstaxespayabie.Thetaxeffectofboththegainandthecreditsutilizedweredeferred.(b)BasedonInternalRevenueServiceregulationsissuedin1988,theCompanyelectedtoclaiminvestmenttaxcreditsonqualifiedprogressexpendituresonthe1987taxreturnandamendedtaxreturnsfor1975through1986.'Thecurrentanddeferredtaxeffectsrecordedduring1988representthecumulativeeffectofthiselectionaswellas1988currentyearaccruals.(c)BasedonarulingtheCompanyreceivedfromtheInternalRevenueSeNicein1988,theCompanyelectedtodeductnucleardecommissioningcostsonthe1987taxreturnandonamendedtaxreturnsfortheyears1984through1986.Thecurrent.anddeferredtaxeffectsrecordedduring1988representthecumulativeeffectofthiselectionaswellas1988currentyearaccruals.TheCompanyanditssubsidiariesjoininthefilingofaconsolidatedFederalincometaxreturnwiththeiraffiliatedcompaniesintheAEPSystem.TheallocationoftheAEPSystem'scurrentconsolidatedFederalincometaxtotheSys-temcompaniesisinaccordancewithSecuritiesandExchangeCommission(SEC)rulesunderthePublicUtilityHoldingCom-panyActof1935(1935Act).TheserulespermittheallocationofthebenefitofcurrenttaxlossesandinvestmenttaxcreditsutilizedtotheSystemcompaniesgivingrisetothemindeter-miningtaxescurrentlypayable.ThetaxlossoftheSystemparentcompany,AEP,isallocatedtoitssubsidiarieswithtaxableincome.Withtheexceptionofthelossoftheparentcompany,themethodofallocationapproximatesaseparatereturnresultforeachcompanyintheconsolidatedgroup.AtDecember31,1990,thecumulativenetamountofincometaxtimingdifferencesonwhichdeferredtaxeshavenotbeenprovidedtotaled$448,000,000.TheconsolidatedFederalincometaxreturnsfortheyears1983through1987arebeingauditedbytheInternalRevenueService.Intheopinionofmanagement,thefinalsettlementofopenyearsshouldnothaveamaterialeffectontheearningsoftheCompany.In'December1987,theFinancialAccountingStandardsBoard(FASB)issuedSFAS96"AccountingforIncomeTaxes"whichrequiresthatcompaniesadopttheliabilitymethodofaccountingforincometaxes.PresentlySFAS96mustbeadoptedbytheCompanybyJanuary1992onarestatedbasisorasacumulativeeffectofanaccountingchangeintheyearofadoption.However,theFASBhasindicatedthattheyexpecttoissueanexposuredraftduringthefirsthalfof1991whichwillamendSFAS96andmayextenditsrequiredeffectivedateuntilJanuary1993.Whenthenewstandardisadopted,totalassetsandliabilitieswillincreasesignificantlytoreflectpre-viouslyunrecordeddeferredtaxassetsandliabilitiesontem-porafydifferencesandrelatedoffsettingregulatoryassetsandliabilities.Inaddition,existingdeferredtaxeswillbeadjustedtothelevelrequiredatthecurrentlyexistingstatutorytaxratewhichwillbeoffsetbyaregulatoryassetorliabilityfordeferredtaxamountsassociatedwithutilityoperations.Itisnotpresentlyanticipatedthatthefinalstandardwillsignifi-cantlyimpactresultsofoperationsorfinancialcondition'.Whetherthenewstandardwillbeimplementedonarestatedorprospectivebasishasnotyetbeendetermined.

NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)PurchasedandInterchangePower(net):PurchasedPower:AEPGeneratingCompany(a).$78,990$13,023$3,313OhioValleyElectricCorporation(a)......52913,580UnaffiliatedCompanies...28,1967,478NetInterchangePower:AEPPowerPoolMemberUtilities:CapacityCharge(Credit)..(98,664)4,558EnergyCharge(Credit)..(77,913)(17,858)UnaffiliatedCompanies...333(1,456)Total.............$(68.529)$25.376(a)AffiliatedutilitiesthatarenotmembersofthePowerPool.TheCompanyisamemberofthePowerPoolwhichallowstheCompanytosharethebenefitsandcostsassociatedwiththeSystem'sgeneratingplants.UnderthetermsoftheSys-temInterchangeAgreement,capacitychargesandcreditsaredesignedtoallocatethecostoftheSystem'scapacityamongthePowerPoolmembersbasedontheirrelativepeakdemandsandgeneratingreserves.NetenergychargesandcreditsareintendedtocompensatePowerPoolmembersfortheiroutofpocketcostwhentheydelivermoreenergytothePowerPoolthantheyreceive.InadditiontheCompanysharesinshort-termwholesalesalestounaffiliatedutilitiesmadebythePowerPool.TheCompany'ssharewascreditedtooper-atingrevenuesintheamountof$126,005,000,$126,065,000and$74,181,000in1990,1989and1988,respectively.TheCompanybecameanetsupplierofcapacitytothePowerPoolwithcommercialoperationofRockport2inDecember1989.AccordinglytheCompanyreceivedcapac-ityandenergycreditsresultinginareductionoftotalpur-chasedandinterchangepowerexpensein1989andafurtherreductiontoanetcreditin1990.5,62321,48614,3329,858(1,058)$47,5034.Related-partyTransactions:OperatingrevenuesshownintheConsolidatedStatementsofIncomeincludesalesofenergytoMichiganPowerCom-pany,anaffiliatedutilitythatisnotamemberofthePowerPool,ofapproximately$31,000,000,$32,000,000and$34,000,000fortheyearsendedDecember31,1990,1989and1988,respectively.TheCompanypurchasespowerandengagesininterchangepowertransactionstoexchangeenergywithaffiliatedandunaffiliatedutilitiesasfollows:YearEndedDecember31~199019891988(inthousands)TheCompanyparticipateswithotherAEPSystemcom-paniesinatransmissionequalizationagreement.Thisagree-mentcombinescertainAEPSystemcompanies'nvestmentsintransmissionfacilitiesandsharesthecostsofownershipinproportiontotheSystemcompanies'espectivepeakdemands.Pursuanttothetermsoftheagreement,theCom-panyrecordedinotheroperationexpensescreditsof$47,586,000,$37,346,000and$36,996,000fortransmis-sionservicesin1990,1989and1988,respectively.TheCompanyrecordedrevenuesinnonoperatingincomefromprovidingbargingservicesasfollows:YearEndedDecember31~199019891988(inthousands)$17,094$21,0922.8825.173$19.976$26,265AffiliatedCompaniesUnaffiliatedCompaniesTotalAmericanElectricPowerServiceCorporationprovidescer-tainprofessionalservicestotheCompanyanditsaffiliatedcompaniesintheAEPSystem.Thecostsoftheservicesaredeterminedbytheservicecorporationonadirect-chargebasistotheextentpracticableandonreasonablebasesofprorationforindirectcosts.Thechargesforservicesaremadeatcostandincludenocompensationfortheuseofequitycapital,allofwhichisfurnishedtotheservicecorporationbyAEP.TheCompanyexpensesorcapitalizesbillingsfromtheservicecorporationdependingonthenatureoftheprofessionalserv-icerendered.Theservicecorporationissubjecttothereg-ulationoftheSECunderthe1935Act.S.CommonShareowner'sEquity:InDecember1989theCompanyreturned$63,000,000ofcashcapitalcontributionstoitsparentfrompaid-incapital.TheCompanyreceived$10,000,000ofcapitalcontributionsin1988.In1989,theCompanyrecordedchargesof$1,154,000topaid-incapitaland$2,763,000toretainedearningsrepresentingthewrite-offofpremiumspaidincon-nectionwiththereacquisitionofits$3.63SeriesCumulativePreferredStock.Therewerenoothertransactionsaffectingthecommonstockorpaid-incapitalaccountsin1990,1989or1988.Covenantsinmortgageindentures,debentureandbankloanagreements,charterprovisionsandordersofregulatoryauthoritiesplacevariousrestrictionsontheuseofretainedearningsoftheCompanytopaydividends(otherthanstockdividends)onitscommonstocksandforotherpurposes.AtDecember31,1990,approximately$45,900,000ofretainedearningswererestricted.Inaddition,regulatoryapprovalisrequiredfortheCompanytopaydividendsoutofpaid-incapital.

INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES6.CumulativePreferredStock:AtDecember31,1990,authorizedsharesofcumulativepreferredstockwereasfollows:ParVaiueSharesAuthorized$1002,250,0002511,200,000ThecumulativepreferredstockiscallableattheoptionoftheCompanyatthepriceindicatedplusaccrueddividends.Theinvoluntaryliquidationpreferenceisparvalue.Unissuedsharesofthecumulativepreferredstockmayormaynotpossessmandatoryredemptioncharacteristicsuponissuance.A.CumulativePreferredStockNotSubjectToMandatoryRedemption:Series4'/s%456%4.12%708%7.76%8.68%$2.15$2.25CallPriceDecember31~1990$106.125102102.728102.91103.44103.1026.0826.13Parvaiue$100100100'1001001002525SharesOutstandingDecember31,1990120,00060,00040,000300,000350,000300,0001,600,0001,600,000AmountDecember31~19901989(inthousands)S12,000$12,0006,0006,0004,0004,00030,00030,00035,00035,00030,00030,00040,00040,00040,00040,000$197,000$197,000ParVaiue12%$2.75$1002547,325531,90030,000160,00030,000160,0001.CumulativePreferredStockSubjecttoMandatoryRedemption:NumberofSharesRedeemedYearEndedDecember31~199019891988SharesOutstandingDecember31~1990AmountDecember31,19901989(inthousands)$4,73313,297$18,03020 NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)FirstMortgageBonds.......SinkingFundDebenturesNotesPayabletoBanksInstallmentPurchaseContracts.OtherLongtermDebt(a)....LessPortionOueWithinOneYearTotal19901989(inthousands)S599,179$1,007,7446,1886,492-80,00080,000308,175307,953130,291120,5471,123,8331,522,73651,500501,170$1,072,333$1,021,566(a)NuclearFuelDisposalCostsincludinginterestaccrued.SeeNote10.Firstmortgagebondsoutstandingwereasfollows:December31~19901989(inthousands)%RateOue4%1993-August1.7r/e1997-February19'/e1997-July171998-May1Br/e2000-April1..9%2003-June1(a)8%2003-December19%2008-March1.133/i2013-August1.9%2015-October19%2016-July18%2017-February110~/s2017-May1UnamortizedDiscount(net)..S42,90250,00075,00035,00050,000173,M040,00034,034100,000(1,257)599,1791,007,74411,500411~170$587.679S596,574(a)The9'/a%seriesdue2003requiressinkingfundpaymentsof$11,500,000onJune1,1991and$13,500,000annuallyonJune1,1992through2002withthenoncumulativeoptiontoredeemanadditionalamountineachofthespecifiedyearsfromaminimumof$100,000toamaximumequaltothescheduledrequirementforeachyear,butwithamaximumoptionalredemption,astoallyearsintheaggregate,of$75,000,000.Theindenturesrelatingtothefirstmortgagebondscontainimprovement,maintenanceandreplacementprovisionsrequiringthedepositofcashorbondswiththetrustee,orinlieuthereof,certificationofunfundedpropertyadditions.ThesinkingfunddebenturesaredueMay1,1998ataninterestrateof7t/4%.PriortoDecember31,1990sufficientprincipalamountsofdebentureshadbeenreacquiredinantic-ipationofallfuturesinkingfundrequirements.TheCompanymaycalladditionaldebenturesofupto$300,000annually.$42,90250,00075,00035,00050,000185,00040,000100,00058,704100,000100,000100,00075,000(3.862)7.Long-termOebtandUncsofCreditLong-termdebtbymajorcategorywasoutstandingasfollows:December31,UnsecuredpromissorynotespayabletobankshavebeenenteredintobytheCompanyasfollows:December31~9.12%due1990...9.18%due1990...9.28%due1991...9.28%due1991...9.07%due1995...Total19901989(inthousands)s-$20,00020,00020,00020,00020,00020,00040,000$80,000$80,000InstallmentpurchasecontractshavebeenenteredintobytheCompanyinconnectionwiththeissuanceofpollutioncontrolrevenuebondsbygovernmentalauthoritiesasfollows:December31~19901989(inthousands)%RateOueCityofLawrenceburg,Indiana:BVi2006-July172006-May16%2006-May1CityofRockporl,Indiana:9%2005-June1...9'/42010-June1...9~/42014-August1..Pli(a)2014-August1..(b)2014-August1..CityofSullivan,Indiana:7%2004-May16%2006-May17%2009-May1UnamortizedDiscountTotal$25,00040,00012,000$25,00040,00012,0006,5006,50033,50050,00050,00050,0007,0007,00025,00025,00013,000~13,000(3,825)(4,047)$308,175$307.953(a)Theadjustableinterestratechangedfrom7%%onAugust1~1990andwillchangeeveryfiveyearsthereafter.(b)Thevariableinterestrateisdeterminedweekly.Theaverageweightedinterestwas6.5%for1990and7.0%for1989.Underthetermsofcertaininstallmentpurchasecontracts,theCompanyisrequiredtopaypurchasepriceinstallmentsinamountssufficienttoenablethecitiestopayinterestonandtheprincipal(atstatedmaturitiesanduponmandatoryredemption)ofrelatedpollutioncontrolrevenuebondsissuedtofinancetheCompany'sshareofconstructionofpollutioncontrolfacilitiesatcertaingeneratingplantsoftheCompany.Oncertainseriestheprincipalispayableatstatedmaturitiesoronthedemandofthebondholdersatperiodicinterestadjustmentdates.Certainseriesaresupportedbybanklettersofcreditwhichexpirein1995.21 INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIESLong-termdebt,excludingpremiumordiscount,outstand-ingatDecember31,1990isdueasfollows:PrincipalAmount(inthousands)1991$51,500199213,500199356,402199413,500199553,500LaterYears940,513Total$1,128,915Theamountofshort-termdebttheCompanymayborrowislimitedbytheprovisionsofthe1935Actto$200,000,000andfurtherlimitedbyprovisionofthecharterto$90,000,000.TheCompanysharesbanklinesofcreditwithotherAEPSystemcompaniesandatDecember31,1990and1989hadunusedsharedlinesof$263,000,000and$233,000,000,respectively.Underthetermsofthelinesofcredit,notescanbeissuedwithamaturityofupto270days.Inaccordancewithagreementswiththebanks,commitmentfeesofupto'/4of1%ayeararerequiredtomaintainthelines,ofcredit.8.Leases:TheCompanyanditssubsidiariesleaseproperty,plantandquipmentforperiodsupto35years.Mostoftheleasesrequirethelesseetopayrelatedpropertytaxes,maintenancecostsandothercostsofoperation.TheCompanyanditssubsidiariesexpectthatleasesgenerallywillberenewedorreplacedbyotherleases.Themajorityoftheleaseshavepurchaseorrenewaloptions.In1990theCompanyreplaceditsnuclearfuelleaseswithafinancialinstitutionbyenteringintoanewnuclearfuelleas-ingagreementwithaspecialpurposeentitywhichprovidesforleasingofupto$140millionofnuclearfuel.Thespecialpurposeentityownsthenuclearfuelandfinancesallofitsinvestmentinnuclearfuel.TheCompanyaccountsfornuclearfuelleasesascapitalleases.ElectricUtilityPlant:ProductionDistributionGeneral:NuclearFuel(netofamortization)....OtherTotalElectricUtilityPlant........AccumulatedAmortizationNetElectricUtilityPlantOtherPropertyAccumulatedAmortizationNetOtherProperty.............NetPropertiesunderCapitalLeases.ObligationsunderCapitalLeases(a)$9,09014,60796,91438.013158,62425,675132,9492,0081,893115$133,064$133,064$8,83514,60388,32834,777146,54323,783122,76016,74616,529217$122,977$122,977(a)Includingamountsduewithinoneyear.PropertiesandrelatedobligationsunderoperatingleasesarenotincludedintheCompany'sConsolidatedBalanceSheets.Futureminimumleasepayments,byyearandintheaggre-gate,consistedofthefollowingatDecember31,1990:CapitalOperatingLeasesLeases(inthousands)$7,535$94,7916,63191,5575,41591,2674,66990,8974,35190,48334,1672,180.70819911992199319941995LaterYearsTotalFutureMinimumLeasePayments62,768$2,639,703LessEstimatedinterestElement..EstimatedPresentValueofFutureMinimumLeasePaymentsUnamortizedNuclearFuelTotal26,61836,15096,914(a)$133,064(a)Includingportionduewithinoneyear.Rentalpaymentsfornuclearfuelviillbepaidinproportiontoheatproducedandcarryingchargesonthelessor'sunrecoveredcosts.Nuclearfuelrentalsof$49,990,000,$59,212,000and$52,568,000werechargedtofuelexpensein1990,1989and1988,respectively.IncludedintheaboveanalysisoffutureminimumleasepaymentsandofpropertiesundercapitalleasesandrelatedobligationsarecertainleasesinwhichportionsoftherelatedrentalsarepaidfororreimbursedbyaffiliatedcompaniesintheAEPSystembasedontheirusageoftheleasedproperty.PropertiesundercapitalleasesandrelatedobligationsrecordedontheCompany'sConsolidatedBalanceSheetsareasfollows:December31~19901989(inthousands)22 NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Continued)OperatingLeases...........CapitalLeases:AmortiaationofPrincipal.....InterestTotalRentalPayments199019891988(inthousands)$87,357$16,454$16,66146,83652,81549,01410,87713,73311,690$145.070$83,002$77,3659.BenefitPlans:TheCompanyanditssubsidiariesparticipatewithothercompaniesintheAEPSysteminatrusteed,noncontributorydefinedbenefitplantoprovidepensions,subjecttocertaineligibilityrequirements,forallemployees.Planbenefitsaredeterminedbyaformulawhichconsiderseachparticipant'shighestaverageearnings,yearsofaccreditedserviceandsocialsecuritycoveredcompensation.Pensioncostsareallo-catedtoeachSystemcompanybyfirstchargingeachSystemcompanywithitsservicecostandthenallocatingtheremain-ingpensioncostinproportiontoitsshareoftheprojectedbenefitobligation.TheCompanyanditssubsidiaries'undingpolicyistomakeannualcontributionstotheplan'strustfundequaltothenetperiodicpensioncosttotheextentdeductibleforFederalincometaxpurposes,butnotlessthanthemin-imumrequiredcontribution.NetpensioncostsfortheyearsendedDecember31,1990,1989and1988were$2,726,000,$1,271,000and$397,000,respectively.TheCompanyoffersanemployeesavingsplanunderwhicheligibleparticipantscaninvestfrom1%to16%oftheirsalar-iesamongseveralinvestmentalternatives,includingAEPcommonstock.Anemployercontributionequaltoone-halfofthefirst6%oftheemployees'ontributionisinvestedinAEPcommonstock.TheCompany'sannualcontributionswere$2,822,000in1990,$2,726,000in1989and$2,312,000in1988.lnadditiontoprovidingperisionbenefits,theCompanyanditssubsidiariesprovidecertainotherbenefitsforretiredemployees.Substantiallyallemployeesmaybecomeeligibleforthesebenefitsiftheyhave10yearsofhealthcareplanparticipationatretirement.Thecostofretireebenefitsisrec-ognizedasanexpensewhenpaid.In1990,1989and1988,thecost-ofretireehealthcarebenefitstotaled$2,580,000,$2,121,000and$2,048,000,respectively.TheFASBhasissuedSFAS106"Employers'ccountingforPostretirementBenefitsOtherThanPensions"whichrequiresemployers,beginningin1993,toaccrueforthecosts23TheCompanyanditssubsidiariescannotpredicttheextenttowhichaffiliatedcompanieswillutilizethepropertiesundersuchleasesinthefuture.Rentalpaymentsforcapitalandoperatingleasesarepri-marilychargedtooperatingexpensesinaccordancewithrate-makingtreatment.Thecomponentsofrentalpaymentsareasfollows:YearEndedOecember31~ofretireehealthcarebenefits.SFAS106permitstherecog-nitionofthetransitionobligation(theunfundedandunrec-ognizedaccumulatedpostretirementbenefitobligation)intheinitialyearofimplementationoroverperiodsupto20years.TheCompanyexpectstoelectthe20yeartransitionoption.Inanticipationofthisnewrequirement,theCompanymadea$4.1millioncontributionin1990,themaximumamountdeductibleforFederalincometaxpurposes,toaVoluntaryEmployeeBeneficiaryAssociation(VEBA)trustfundforpost-retirementbenefitsotherthanpensions.AnothermeasuretakenbytheCompanywastoimplementaprogramofcor-porateownedlifeinsurancetohelpfundandreducethefuturecostofpostretirementbenefitsotherthanpensions.Theinsurancepolicieshavegeneratedasubstantialcashsurren-dervaluewhichisrecorded,netofequallysubstantialpolicyloans,asotherpropertyandinvestments.InfutureyearsthepoliciesareexpectedtogeneratesignificantcashflowswhichwillbecontributedtotheVEBAtrustfund.TheannualaccrualsrequiredbySFAS106areexpectedtobesignificantlygreaterthanthecurrentlyrecognizedpay-as-you-goexpenses.TheCompanyexpectstoseekrecoveryoftheincreasedaccrualsfromratepayers.ShouldrecoveryoforacommitmenttorecovertheSFAS106accrualsbeginningin1993bedenied,theCompany'sresultsofoperationsandpossiblyitsfinanciconditionwouldbeadverselyimpacted.10.CommitmentsandContingencies:ConstructionTheconstructionbudgetoftheCompanyanditssubsidi-ariesfortheyears1991-1993isestimatedat$523,000,000,and,inconnectiontherewith,commitmentshavebeenmade.LitigationInFebruary1990theSupremeCourtofIndianaoverruledanappealscourtandreversedanIURCorderthathadassignedamajorindustrialcustomertotheCompany'sserv-iceterritory.InAugust1990theIURCissuedanordertrans-ferringtherighttoservetheindustrialcustomertoanunaffiliatedlocaldistributionutility.Concurrentwiththetrans-ferofservicetheCompanybeganprovidingservicetothelocaldistributionutilityinanamountsufficienttomeettheenergyneedsoftheindustrialcustomer.Asaresulttheannuallossofrevenueisexpectedtobe$500,000ratherthanthepotential$7millionlosspreviouslyreported.InOctober1990thelocaldistributionutilitysuedtheCom-panyunderaprovisionofIndianaIawthatallowsthelocaldistributionutilitytoseekdamagesequaltothegrossreve-nuesreceivedbyautilitythatrendersretailserviceinthedesignatedserviceterritoryofanotherutility.TheCompanreceivedrevenuesofapproximately$29millionfromservinthemajorindustrialcustomer.ItisnotclearwhethersuchaclaimwouldbeupheldwhentheservicewasrenderedinaccordancewithanIURCorderwhichtheCompanybelievedingoodfaithtobevalid.

INDIANAMICHIGANPOIVERCOMPANYANDSUBSIDIARIESTheCompanyisinvolvedinotherlegalproceedingsandclaims.Whilemanagementisunabletopredicttheoutcomeoflitigation,itisnotexpectedthattheresolutionofthesematterswillhaveamaterialadverseeffectontheCompany'sfinancialcondition.EnvironmentalMattersTheCompanyanditssubsidiariesaresubjecttoregulationbyFederal,stateandlocalauthoritieswithrespecttoair-andwater-qualitycontrolandotherenvironmentalmatters,andaresubjecttozoningandotherregulationbylocalauthorities.OnNovember15,1990PresidentBushsignedintolawtheCleanAirActAmendmentsof1990which,amongotherthings,requiressignificantreductionsintheemissionofsul-furdioxideandnitrogenoxidefromvariousexistingSystemgeneratingplants.Withrespecttoacidraincontrolthenewlawestablishesastricttimetableforcompliancesettingadeadlineof1995forthefirstphaseofreductionsand2000forthesecondphaseaswellasapermanentnationwidecaponsulfurdioxideemissionsafter1999.TheAEPSystemisreviewingtheprovisionsofthenewlawandevaluatingcom-pliancealternativeswhichinclude:(a)installationofnewemissionsreductionequipment(scrubbers)onaffectedgen-eratingunitswhichwouldrequiresubstantialcapitalexpend-ituresandresultinsignificantoperatingcostsandreducedgeneratingefficiency;(b)switchingtolowersulfurcoalornaturalgas,resultinginlesssubstantialcapitalexpendituresandadverseimpactsonaffiliatedminingoperationsandrelatedfacilities;(c)prematureretirementofcertaingener-atingunits;and/or(d)significantcapitalexpenditurestorepowerexistinggeneratingunitswithpressurizedfluidizedbedcombustion(PFBC)technologypresentlybeingtestedatanaffiliate'sTiddPFBCdemonstrationplant.Thecostofcom-plianceforcertainoftheCompany'sgeneratingunitsandtheCompany'sshareofsuchcoststhroughthePowerPoolwillbesubstantial.Unlessthesecostsarerecoveredthroughrates,theCompany'sresultsofoperationswillbeadverselyaffected.Recentconcernsaboutglobalwarminghaveledtointer-nationalnegotiationsandproposedlegislationtostabilizeorreduce"greenhouse"gasessuchascarbondioxide.Pro-posedlegislation,passedbytheU.S.Senateinthelastses-sionofCongress,isexpectedtobeconsideredinthecurrentsessionofCongress.SincetheSystem'scoal-firedgeneratingplantsemitsignificantquantitiesofcarbondioxide,thecostofanyrestrictionscouldadverselyaffecttheCompany'sresultsofoperationsandfinancialpositionifnotrecoveredfromratepayers.ong-termPowerSalesTheCompanyasamemberofthePowerPoolhaspartic-ipatedinalong-termcontractforthesaleofupto560mwofpowertoanunaffiliatedutilitythatexpiredDecember31,1990andwasnotrenewed.Thiscontractcontributed$16milliontotheCompany'srevenuesand$5milliontonetincomein1990.ThePowerPoolisattemptingtoreplacetheterminatedsaleswithnewtransactionswithunaffiliatedutil-ities.Recently,anagreementwasreachedtosell100mwunderalong-termcontractwithanunaffiliatedutility.WhetherthePowerPoolwillbesuccessfulinnegotiatingadditionaltransactionstotaketheplaceoftheexpiredcontractcannotpresentlybedetermined.NuclearInsuranceTheCompanyissubjecttothePrice-AndersonActwhichlimitsthepublicliabilityofalicenseeofanuclearplantforasinglenuclearincidenttotheamountofprimaryliabilityinsur-anceavailablefromprivatesourcesandanindustryretro-spectivedeferredpremiumassessmentplan.Basedon115reactorscurrentlybeingsubjecttotheAct,thelimitofpublicliabilityis$7.8billion.TheCompanymaintainsthemaximumprivateinsuranceavailableof$200,000,000foritstwo-unitDonaldC.CookNuclearPlant(CookPlant).ThemaximumstandarddeferredpremiumthattheCompanymaybeassessed,intheeventofanuclearincidentatanylicensednuclearpowerplantintheUnitedStates,is$63,000,000perreactor,butanassessmentmaynotexceed$10,000,000inanyoneyear.Ifpublicliabilityclaimsandauthorizedlegalcostsexceedtheamountofliabilityinsuranceanddeferredpremiums,alicenseemustpayasurchargeofupto5percentofthestandarddeferredpremiumforsuchclaimsandcosts.Thus,ifdamagesinexcessofprivateinsuranceresultfromanuclearincident,theCompanycouldbeassesseditsproratashareoftheliabilityuptoamaximumof$126,000,000foritstworeactors,inannualinstallmentsof$20,000,000,plus$6,300,000forexcessclaimsandcosts.ThereisnolimitonthenumberofincidentsforwhichtheCompanycouldbeassessedthesesums.TheCompanyalsohaspropertydamage,decontaminationanddecommissioninginsuranceforlossresultingfromdam-agetotheCookPlantfacilitiesintheamountof$2.185billion.Nuclearinsurancepoolsprovide$1.06billionofcoverageandNuclearElectricInsuranceLimited(NEIL)providestheremainder.IfNEIL'slossesexceeditsavailableresources,theCompanywouldbesubjecttoaretrospectivepremiumassessmentofupto$7.6million.NuclearRegulatoryCom-mission(NRC)regulationsrequirethat,intheeventofanaccident,whenevertheestimatedcostsofreactorstabilizationandsitedecontaminationexceed$100million,theinsuranceproceedsmustbeused,first,toreturnthereactorto,andmaintainitin,asafeandstableconditionand,second,todecontaminatethereactorandreactorstationsiteinaccord-ancewithaplanapprovedbytheNRC.TheinsurersthenwouldindemnifytheCompanyforpropertydamageupto$1.985billionlessanyamountsusedforstabilizationanddecontamination.Theremaining$200million,asprovided24 NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS(Concluded)byNEIL,(reducedbyanystabilizationanddecontaminationexpendituresover$1.985billion)wouldcoverdecommis-sioningcostsinexcessoffundsalreadycollectedfordecom-missioning,asdiscussedbelow.NEIL'sextra-expenseprogramprovidesinsurancetocoverextracostsofreplacementpowerresultingfromaprolongedaccidentaloutageofanuclearunit.TheCompany'spolicyinsuresagainstsuchincreasedcostsuptoapproximately$1.8millionperweek(starting21weeksaftertheoutage)foroneyear,$1.2millionperweekforthesecondyearand$600,000perweekforthethirdyear,or80%ofthoseamountsperunitifbothunitsaredownforthesamereason.IfNEIL'slossesexceeditsavailableresources,theCompanywouldbesubjecttoaretrospectivepremiumassessmentofupto$4.6million.Somepotentiallossesorliabilitiesmaynotbeinsurableortheamountofinsurancecarriedmaynotbesufficienttomeetpotentiallossesandliabilities,includingliabilitiesrelatingtodamagetotheCookPlantandcostsofreplacementpowerintheeventofanuclearincidentattheCookPlant.Futurelossesorliabilitieswhicharenotcompletelyinsured,unlessrecoveredthroughrates,couldhaveamaterialadverseeffectonthefinancialconditionoftheCompany.DisposalofSpentNuclearFuelandNuclearDecommissioningTheNuclearWastePolicyActof1982asamendedestab-lishesFederalresponsibilityforthepermanentdisposalofspentnuclearfuel.DisposalcostsarepaidbyfeesassessedagainstownersofnuclearplantsanddepositedintotheNuclearWasteFundcreatedbytheAct.In1983theCompanyenteredintoacontractwiththeU.S.DepartmentofEnergy(DOE)forthedisposalofspentnuclearfuel.Undertermsofthecontract,forthedisposalofnuclearfuelconsumedafterApril6,1983bytheCookPlant,theCompanyispayingtothefundafeeofonemillperkilowatthour,whichtheCompanyiscurrentlyrecoveringfromitscustomers.ForthedisposalofnuclearfuelconsumedpriortoApril7,1983,theCompanymustpayoveraperiodof10yearstotheU.S.Treasuryanestimatedfeeof$71,964,000,exclusiveofinterest.TheCom-panyhasdeferredthisamountplusaccruedinterestonitsbalancesheet,hasreceivedregulatoryapprovalfortherecov-eryofthisamountandisamortizingtheamountdeferredasitisbeingrecovered.BecauseofthecurrentuncertaintiesofDOE'sprogramforpermanentdisposalofspentnuclearfuel,theCompanyhasnotyetcommencedpayingthisfee.AnindependentconsultingfirmemployedbytheCompany.hasestimatedthatthecostofdecommissioningtheCookPlantcouldrangefrom$330,000,000to$369,000,000in1989dollars.TheCompanyhasreceivedregulatoryapprovalfromallofitsjurisdictionsfortherecoveryofsuchnucleardecommissioningcostsassociatedwiththeCookPlantwhichStateGrossReceipts,Excise,FranchiseandMiscellaneousStateandLocalStateIncomePayrollDeferredTaxes-Rockport2SaleandLeaseback12,1565,7607,59029,28228,0577,08412,3614,9136,658Transaction............1,937(39.943)Total..............$54,389$56,377$56.271Thefollowingaretheamountsofcashpaidfor:YearEndedDecember31~199019891988(inthousands)Interest(netofcapitalizedamounts)IncomeTaxes........$101,905$107,124$106,283247,17264,84367,019Theamountsofnon-cashinvestingacquisitionsundercap-italleaseswere$57,112,000in1990,$9,035,000in1989and$46,791,000in1988.12.UnauditedQuarterlyFinancialInformation:Thefollowingconsolidatedquarterlyfinancialinformationisunauditedbut,intheopinionoftheCompany,includesalladjustments(consistingofonlynormalrecurringaccruals)necessaryforafairpresentationoftheamountsshown:QuarterlyPeriodsOperatingOperatingNetEndedRevenuesIncomeIncome(inthousands)1990March31June30September30..December31..1989March31June30September30..December31..$253,075248,460264,782264,742$59,28148,73352,88640,533257,68851,568244,73846,239249,76156,242253,45156,347$37,69927,44232,07719,09736,35228,02840,35732,408amountedto$10,000,000beforeincometaxesin1990.TheCompanyintendstoreevaluateperiodicallyamountscollectedforsuchcostsandtoseekregulatoryapprovaltorevisesuchamountsasnecessary.Fundsrecoveredthroughtherate-makingprocessfordis-posalofspentnuclearfuelconsumedpriortoApril7,1983andfornucleardecommissioninghavebeendepositedinexternalfundsforthefuturepaymentofsuchcosts.11.SupplementaryInformation:ThefollowingarethecomponentsoftaxesotherthanFed-eralincometaxes:YearEndedDecember31,199019891988(inthousands)RealandPersonalProperty....$26,946$31,897$32,33925 INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIESIndependentAuditors'eport155EastBroadStreetFacsimile:(614)2294647Columbus,Ohio43215-3650Telephone:(614)221-1000TotheShareownersandBoardofDirectorsofIndianaMichiganPowerCompany:WehaveauditedtheaccompanyingconsolidatedbalancesheetsofIndianaMichiganPowerCompanyanditssubsidiariesasofDecember31,1990and1989,andtherelatedconsolidatedstatementsofincome,retainedearnings,andcashflowsforeachofthethreeyearsintheperiodendedDecember31,1990.ThesefinancialstatementsaretheresponsibilityoftheCompany'smanagement.Ourresponsibilityis,toexpressanopiniononthesefinancialstatementsbasedonouraudits.Weconductedourauditsinaccordancewithgenerallyacceptedauditingstandards.Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreeofmaterialmisstatement.Anauditincludesexamining,onatestbasis,evidencesupportingtheamountsanddisclosuresinthefinancialstatements.Anauditalsoincludesassessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,aswellasevaluatingtheoverallfinancialstatementpresentation.Webelievethatourauditsprovideareasonablebasisforouropinion.Inouropinion,suchconsolidatedfinancialstatementspresentfairly,inallmaterialrespects,thefinancialpositionofIndianaMichiganPowerCompanyanditssubsidiariesasofDecember31,1990and1989,andtheresultsoftheiroperationsandtheircashflowsforeachofthethreeyearsintheperiodendedDecember31,1990inconformitywithgenerallyacceptedaccountingprinciples.~~~oFebruary26,199126 OperatingStatistics19901989198819871986ELEGTRIcOPERATINGREVENUEs(inthousands):FromKilowatt-hourSales:Retail:Residential:WithoutElectricHeating...........WithElectricHeating.............TotalResidentialCommercialIndustrialMiscellaneous.TotalRetailWholesale(salesforresale)............TotalfromKilowatt-hourSales....ProvisionforRevenueRefunds.........TotalNetofProvisionforRevenueRefunds............OtherOperatingRevenuesTotalElectricOperatingRevenues.$179,955$182,78686,10893,291$189,845$186,41896,14590,261174,55090,881266)063195,184228,92711,273276,077196,404233,99011,475285,990194,982233,85511,645276,679191,352235,47011,533265,431184,276219,34411,171717,946274,916701,447314,3511,015,798992,862726,472248,283974,755~1.800715,034293,3791,008,413680,222400,7791,081,0015411,008,4138,8551,081,5429,753972,95510,111992,86212,7761,015,79815,261$1,031,059$1,005,638$983,066$1,017,268$1,091,295S0URGEsANDSALEs0FENERGY(inmillionsofkilowatt-hours):Sources:NetGenerated:FossilFuel.NuclearFuelHydroelectricTotalNetGenerated......PurchasedNetInterchangeTotalSources.Less:Losses,CompanyUse,Etc..NetSourcesSales:Retail:Residential:WithoutElectricHeating.WithElectricHeating...TotalResidentialCommercialIndustrial.Miscellaneous.TotalRetailWholesale(salesforresale)..TotalSales14,45111,11511625,6824,724~5,97324,4331,59022,8432,7741,4844,2583,3885,14022113,0079,83622,84310,63412,0949722,8252,229~1,942)23,1121,60621,5062,7921,5854,3773,3755,16822813,1488,35821,5068,7079,7917018,5681,70073721,0051,63019,3752,8251,5714,3963,2905,03622812,9506,42519,3756,66210,0606216,7842,5581,94721,2891,45619,8332,7191,4454,1643,1424,83422112,3617,47219,8338,18710,9867919,2524,94154224,7351,64523,0902,5361,4423,9783,0074,37121227 INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIESOPERATINGSTATISTICS(Concluded)AYERAGECosT0FFUELCoNsUME0(incents):PerMillionBtu:Coal.Nuclear.OverallPerKilowatt-hourGenerated:Coal.Nuclear.Overall1990145581051.42.641.081989164611061.62.671.111988182701201.81.771.261987190751171.87.841..251986185741181.82.831.25RESIDENTIALSERVICE-AVERAGES:AnnualKwhUseperCustomer:TotalWithElectricHeating.AnnualElectricBill:TotalWithElectricHeating.PriceperKwh(incents):TotalWithElectricHeating.10,04716,979$627.84$985.166.255.8010,43418,447$658.08$1,085.566.315.8810,596,18,551$689.33$1,135.466.516.1210,14617,341$674.13$1,083.106.646.259,81317,716$654.88$1,116.866.676.30NUMBER0FELECTRIcCvsT0MERs:Year-End:Retail:Residential:WithoutElectricHeating....WithElectricHeating......TotalResidentialCommercial..IndustrialMiscellaneousTotalRetail.Wholesale(salesforresale).....TotalElectricCustomers..338,17188,258426)42947,0204,4942,018479,96154480,015335,62587,016422,64146,1764,4852,026475,32850475,378332,48885,635418,12345,2494,4791,984469,835108469,943328,93784,442413,37944,2074,3451,946463,877105463,982325,62382,324407,94743,6893,8821,846457,364106457,47028 INDIANAMICHIGANPOWERCOMPANYDividendsandPriceRangesofCumulativePreferredStockByQuarters(1990and1989)CumulativePreferredStock1st1990-Quarters2nd3rd4th1st1989-Quarters2nd3rd4th($100ParValue)4'/8%SeriesDividendsPaidPerShareMarketPrice-$PerShare(MSE)-High-Low4.56%SeriesDividendsPaidPerShareMarketPrice-$PerShare(OTC)Ask(high/low)Bid(high/low)4.12%SeriesDividendsPaidPerShareMarketPrice-$PerShare(OTC)Ask(high/low)Bid(high/low)7.08%SeriesDividendsPaidPerShareMarketPrice-$PerShare(NYSE)-High-Low7.76%SeriesDividendsPaidPerShareMarketPrice-SPerShare(NYSE)-High-Low8.68%SeriesDividendsPaidPerShareMarketPrice-$PerShare(NYSE)-High-Low12%Series(a)DividendsPaidPerShareMarketPrice-$PerShare(NYSE)-High-Low($25ParValue)$2.15SeriesDividendsPaidPerShareMarketPrice-SPerShare(NYSE)-High-Low$2.25SeriesDividendsPaidPerShareMarketPrice-SPerShare(NYSE)-High-Low$2.75Series(a)DividendsPaidPerShareMarketPrice-SPerShare(NYSE)-High-Low$1.14$1.14$1.14$1.14$1.14$1.14$1.14$1.14$1.03$1.03$1.03$1.03$1.03$1.03$1.03$1.0344/4442~/i/41'/i42/40'li42/39'/i$1.77$1.77$1.77$1.77$1.77$1.77$1.77$1.7778737572777375727166'/i76687777~/e73%75$1.94$1.94$1.94$1.94$1.94$1.94$1.94$1.9483798176'/i77'/476'/i77'/87485'/48084'/e80'/8$2.17$2.17$2.17$2.17$2.17$2.17$2.17$2.1788'/i85'/i87'/488'/485'/885'/i84'/i81i/z88'/i81'/i92869289$1.00$3.00$3.00$3.00$3.00103'/i101106'/i102'/i106103108104$0.53?5$0.5375$0.5375$0.5375$0.5375$0.5375$0.5375$0.537523'le21'/822'/821%23'/i21'/i24'/s22'/i22%2123203/~24'/8222422'/i$0.5625$0.5625$0.5625$0.5625$0.5625$0.5625$0.5625$0.562524'/822'/s23'/s22'/i23'/i22'/s24'/823%23'/e21'/i24215/824'/e23'/i25'/e23'/8$0.229S0.6875$0.6875$0.6875$0.68752726~/i26'/i2627'/i25'/i27'/i262726'/i$1.03125$1.03125$1.03125$1.03125$1.03125$1.03125$1.03125$1.03125MSE-MidwestStockExchangeOTC-Over-the.CounterNYSE-NewYorkStockExchangeNote-Theabovebidandaskedquotationsrepresentpricesbetweendealersanddonotrepresentactualtransactions.MarketquotationsprovidedbyNationalQuotationBureau,inc.Dashindicatesquotationnotavailable.(a)RedeemedFebruary1990.29 TheCompany'sAnnualReport(Form10-K)totheSecuritiesandExchangeCommissionwillbeavailableinApril1991toshareownersuponwrittenrequestandatnocost.Pleaseaddresssuchrequeststo:Mr.G.C.DeanAmericanElectricPowerServiceCorporation1RiversidePlazaColumbus,Ohio43215ansferAgentandRegistrarofCumulativePreferredStockFirstChicagoTrustCompanyofNewYork30WestBroadway,NewYork,N.Y.10007-2192 IndianaMichiganPowerServiceAreaandtheAmericanElectricPowerSystemLekeMlehlyenMICHIGANOHIOINDIANAWESTVIRGINIAKENTUCKYVIRGINIALEGENDIndianaMichiganPowerCo.AreaDOtherAEPoperatingcompanies'reas0MajorpowerpIantTENNESSEE ENCLOSURE2TOAEP:NRC:0909GINDIANAMICHIGANPOWERCOMPANY'SPROJECTEDCASHPLOW 1991InternalCashFlowProjectionforDonald"C;-~CookNuclear.Plant"$MillionsActual.1-990Projected1991NetincomeaftertaxesLessdividendspaidRetainedearnings116.3129.2~12:9)1231176Adjustments:DepreciationandamortizationDeferredFederalincometaxesandinvestmenttaxcreditsAFUDCTotaladjustmentsInternalcashflowAveragequarterlycashflow155.7(17.0)-'(.2')136.0123.1'-30;8158(6)(~3)14915539Averagecashbalancesandshort-terminvestments*.-28.710TotalS9i549*Adjustedtoeliminateunusuallyhighlevelfromsaleofassets.8Ownershipinalloperatingnuclearunits:Unit1andUnit2-100%MaximumTotalContingentLiability-$20;70-2raillion(2units)

J