ML19322E933

Annual Financial Rept 1979

ML19322E933
Person / Time
Site:	Zimmer
Issue date:	01/23/1980
From:	CINCINNATI GAS & ELECTRIC CO.
To:
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ML19322E930	List: ML19322E929 ML19322E933 ML19322E937 ML19354C300
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Download: ML19322E933 (32)

Text

The Cincinnati Gas & Electric Company Annual Report 1979 and Subsidiary Companies O

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g The Cincinnati Gas & Electric Company U. S. POSTAGE PAlD 139 East Fourth Street, Cincinnati, Ohio 45202 Cincinnati, Ohio Telephone 513-381-2000 Permit No. 874 Shareholders' Inquiries Public Accountants:

. Arthur Andersen & Co.

Commum. cations regarding stock transfer require- 105 East Fourth Street, ments or lost certificates may be directed to either Cincinnati, Ohio 45202 Stock Transfer Agent. All communications regard- Trustee for Bonds and ing a Shareholder's account, dividends and changes Interest Paying Agent:

of address should be directed to The Cincinnati ining Trust Company Gas & Electric Company Attention: Corporate One wall Street, New Y rk, N.Y.10015 Department, P.O. Box 960, Cincinnati, Ohio 45201.

Preferred Shares Listed on:

New York & Guinnati Stock Excnanges SEC Form 10-K to be Available Common Shares Listed on:

A copy of CG&E's annual report on SEC Form New York, Cincinnati, 10-K will be available, without charge, on or about Midwest and Pacific Stock Exchanges April 1,1980 to each holder of common shares Transfer Agents and Registrars for Common Shares:

upon written request to C. Robert Everman, The First National Bank of Cincinnati Treasurer, P.O. Box 960, Cincinnati, Ohio 45201, P.O. Box 2058, Cincinnati, Ohio 45201 Manufacturers Hanover Trust Company Four New York Plaza.

New York, N.Y.10015 Transfer Agents for Preferred Shares:

The First National Bank of Cincinnati P.O. Box 2058, Cincinnati, Ohio 45201 Manufacturers Hanover Trust Company Four New York Plaza.

New York, N.Y.10015 Registrars for Preferred Shares:

The Central Trust Company. N.A.

Fifth and Main Streets.

Cincinnati, Ohio 45202 Morgan Guaranty Trust Company of New York 30 West Broadway, New York, N.Y.10015 Administrator of Dividend Reinvestment and Stock Purchase Plan:

The Central Trust Company, N.A.

Corporate Trust

> P.O. Box 1198, Cincinnati, Ohio 45201 l

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The Cincinnati Gas & Electric Company AnnualReport 1979 This annual report and the financial statements contained herein are subtral:!*d to the shareholders of the Companyfor their general information and not in connection with any sole, or offer to sell, or solicitation of an offer to buy any securities.

The annual meeting of shareholders of the Company will be held at the office of the Company in Cincinnati, O'io on April 23,1980, at 11 A.M.

PROXIESfor the annual meeting wi'a be requestedfrom shareholders when notice of meeting, poxy statement andform of proxy are mailed on or about March 26,1980.

Board of Directors Executive Officers Neil A. Armstrongm William H. Dickhoner University Professor of Aerospace Engineering. President and Chief Executive Officer University of Cincinnati B. John Yeager William Beckett (1) Chairman of the Board Ret idtnt, The Beckett Paper Company, g4g Senior Vice-President Elmer R. Best m Donald R. Blum .

Retired President. The Union Centrai Life Insurance Company Cincinnati Secretary Oliver W. Birckhead Arthur R. Ehrnschwender President and Chief Executive Officer. Vice-President- Administrative Senices The Central Bancorp. oration, Inc. and C. Robert Everman The Central Trust Company. N. A., Cincinnati Trester Sanford M. Brooks m

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OeNn*c"., bncinNi ic esid t usto$er Relations William H. Dickhoner m Paul W. Herking Vice-President-Gas Operations President and Chief Executive Officer. CG&E James P. Herring William J. Moran General Counsel Retired Chairman of the Board.

The Kroger Co., Cincinnati Jackson H. Randolph Harry Holiday, Jr. m Vice-President-Rates and Economic Research Chief Executive Officer. Milton L Van Schoik Armco Middletown, Ohio Controller William N. Liggett Robert P. Wiwi Chairman of the Board and Chie: Executive Officer. Vice-President-Elcetric Operations First National Cincinnati Corporat.an and The First National Bank of Cmcinnvi William H. Zimmer, Jr.

Vice-President-Finance Donald I. lewry Group Vice-President.

The Procter & Gamble Company, Cincinnati Jane L Rees, Ph.D.

Professor and Chair of the Department of Home Economics and Consumer Sciences, Miami University, Osford Ohio William S. Rowe m Chairman of the Board and Chief Executive Officer, The Fifth Third Bank. smiinc Ar*

Fifth Third Bancorp. Cincinnati Richard E. Wagner Former President, and Consultant, Pepsi-Cola Bottling Company of Cincinnati B. John Yeagerm Chairman of the Board. CG&E t11 Member of Executive Committee

12) Member of Committee on Audit l

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45' The Company primarily is engaged in providing electric Corporation,The West Harrison >

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western portion of Ohio and lawrenceburg Gas Company, l

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adjacent areas in Kentucky and and Lawrenceburg Gas Trans- l I mission Corporation, operate in

,, i .'- Indiana. The area served with contiguous territories. Tri-State V l. g.,H -( electricity or gas, or both, f

covers approximately 3,000 Improvement Company is a

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square miles with an estimated wholly-owned real estate devel-

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I population of 1.7 million. opment company and YGK Inc.

is a wholly-owned rail and barge L 1

Among the major communities M, served are the cities of terminal company organized

, Cincinnati and hiiddletown in to service Zimmer Nuclear P Ohio, Covington and Newport Station. All of the companies j

[i_,7 *l ,- in Kentucky, anc' Lawrenceburg are managed by substantially

in Indiana. the same officers.

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1. I CG&E and its subsidiarv

' l companies, The Union Light, l

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i Heat and Power Company 1

Contents Page Page I Litigation . 9 Ixtter to Shareholders.

2 Organizational Changes. 10 Summary.

3 Employee Relations. 10 Summary of Operations.

3 Public Affairs. 11 Electric Sales and Peak Load.

Electric Operations and Fuel Supply. 3 Area Development. 11 Gas Sales . 5 Management's Discussion and Gas Operations and Supply. 5 Analysis of Consolidated 6 Statement of Income. 12 Rate Matters.

6 Financial Statements. 13 Construction .

Statistics: 1 % 9-1979. 26 Financing . 8 Environmental hiatters. 9 Greater Cincinnati Area hiap. 28 Directors and Officers (inside back cover) l l

k The Cincinnati Gas & Electrk Company 139 East Fourth Street, Cincir:.ati, Ohio 45202 l Telephone 513-381-2000

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To Our Shareholders: .

Earnings for 1979 were 569.8 million which was an increase of 58.0 million over 1978. Earnings per common share were $2.59 in 1979 as compared with 52.54 in 1978. ,g We are generally pleased with these results for B. John reager witham H. DicAhoner several reasons. Our area has experienced a general c3oj,m,,of,3, goo,s p,,3fs,,, ons slowdown in business activity and continued double-digit chier riecutive orricer inflation. The Company's rates in 1979, with the ex- g g g ception of The Union Light, Heat and Power Company,s needs of our service area, we spent 5269 million on new operations, were based on 1974 costs and did not property, plant, and equipment during 1979. We carefully .

reflect the current lesel of inflated expenses. However. i m nit r changes .m sales and load forecasts and, as a on January 7,1980, The Public Utilit es Commission of result, have deferred the in-service dates of certain gen-Ohio (PUCO) authorized an annual electric rate increase crating units. Even w,thi those deferrals, construction of $35.1 million. (The 535.1 million increase and the expenditures are expected to total 5288 milh,on m 1980 increases granted Union Light in April 1979 in both and $1.21I milhon for the five-year penod 1980-1984.

electric and gas rates totaling $5.3 million are discussed Our objective is to provide dependable service at the under " Rate Matters"in the text of this report.) l I west possible price, consistent with a fair return to the  ;

The weather played a crucial role in our operations ,

investor. Only by operating from a position of financial during 1979. A cooler than normal summer resulted ,

t strength can this objective be realized. We will continue  ;

in lower than anticipated electric Kwh sales. Although t Press vigorously for adequate rates, and we have j the expected 7.2% increase in Kwh sales failed to inf rmed the PUCO that we will be seeking rate in-materialize, sales did increase 3.8% over 1978. Despite ,

t creases on an annual basis for the next several years. Our the cooler weather a new record electric peak load was  !

c nstruction and financing plans for the future hinge on established. The new record peak was 5% higher than l the success of these efforts. i the previous record set in 1977. Electric Kwh sales are As we close the decade of the 1970's, and review expected to increase at an average annual rate of 4.3% l the complex events that were never envisioned when i during the 1980-1984 period. ,

the decade began, we beg,m the 1980 s with renewed l Another bright spot in 1979 was the increase in the c nfidence m our capabilities as a Company. It was j supply of natural gas. We were able to add new gas through the efforts of our dedicated employees and j customers to our service lines and to supply additional m nagement that we successfully met the challenges of the needs of existing customers. Over the next five years, total ,

1970s, m, eludmg two of the most severe winters in the l gas Mcf sales are expected to increase at an average history of our area, the longest coal strike in our nation's  !

annual rate of 3.6%.

history, natural gas supply problems, environmental The year was not without its problems. The accident l at Three Mile Island further clouded the future of y dblocks, and increasingly burdensome regulation. It is with renewed determmation and dedication that we  ;

nuclear power. The scheduled commercial operation '

f ce the 1980s.

date of the Wm. H. Zimmer Nuclear Power Station was once again delayed. It is now scheduled for operation 3;, ,

otwithstanding, we still believe that nuclear power is a safe and reliable source of energy. If our country is

, William H. Dickhoner B. John Yeager t ever to extricate itself from its dangerous dependence President and Chairman of the Board on uncertam and expensive foreign energy sources, i nuclear power must be developed as an integral part Chief Executive Officer  ;

of the total energy mix. January 23,1980. l 1

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Summary

% Increase 1979 1978  : Decrease 1 Earnings on Common Shares (000 omitted) . S 69,824 5 61,808 13.0 Average Number of Common Shares Outstanding (000 omitted) . 26,964 24,253 11.2 Earnings per Common Share. S 2.59 5 2.54 2.0 Year End Annual Dividend Rate. S 1.% 5 1.96 -

Number of Iloiders of Common Shares. 69,000 69,000 -

Electric Sales (million Kwh)

Residential 4,822 4.728 2.0 Commercial 3,182 3,%9 3.7 Ind ustrial . 4,757 4,517 5.3 1,155 1,103 4.7 Other Retail .

Total Retail 13,916 13,417 3.7 Other Utilities 172 151 14.2 Total 14,088 13.568 3.8 Gas Sales (million cu. ft.)

Residential 48,213 50,312 (4.2)

Commercial 21,837 22,589 (3.3)

Industrial 35,929 32.004 12.3 Other. 4,1(M 3.747 9.5 Total 110,083 108.652 1.3 Electric Net System Peak Load (thousand Kw). 2,978 2,835 5.0 Construction Expenditures (000 omitted) . S 269,298 5 206,876 30.2 Gross Plant-Year End (000 omitted) . 82,213,749 51,957,983 13.1 l

$519 Million 1v%

Other 4% $

Other -

$307 28 %

Million Industrial 1. ,

29 %

Industrial i 20 %

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Commercial 2.C 26 %

Commercial 47 % 5  % -

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l Gas Electric 1975 1976 1977 1978 1979 Source of Revenue 1979 Earnings and Dividends Per Common Share 2

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Summary of Operations i Electric Sales and Electric Operations and Peak Load Fuel Supply i Electric kilowatt-hour (Kwh) CG&E generates most of its senice. To that end, our con- i sales of the Company (CG&E electricity from coal, the nation's struction program is designed to and its subsidiaries) continued most abundant fuel, and will maintain a minimum generating their upward trend during 1979, remain a predominantly coal- reserve margin of 20% of peak j inueasing 3.8% over 1978. This burning company for many years load. Generating reserve levels  !

was significantly less than the to come. During 1979, approxi- may vary from year to year, due ,

7.2% increase anticipated for mately 98% of the electricity to changes in economic and 1979, primarily because cooler generated by CG&E was pro- i weather conditions, and because i than normal weather during the duced by coal-fired generating i additional generating capacity air conditioning season adversely units. Even after the Wm. H.  ! must be added in sizable blocks i affected sales to residential and Zimmer Nuclear Unit 1 (Zimmer , to obtain economies of scale.

commercial customers.The total Unit 1) is placed in service, coal I

At the time of the 1979 peak .

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I Kwh sales gain was divided will be used to generate more l load, CG&E's installed summer l

! among customer classifications than 90% of CG&E's electricity. net generating capability was i j

as follows: residential sales in- Most of our coalis purchased 3,595 megawatts. This provided creased 2.0%, commercial 3.7%, under several long-term con- a reserve of 21% over the 2.978 and industrial 5.3%. tracts which expire between 1984 megawact peak load.

Although the summer was .

and 1995. The coal delivered We do not plan to add any ,

cooler than normal, a new record under these contracts is primarily ,

new generating capacity until  :

system electric peak load of from mines located in Kentucky, 1981. However. CG&E has , I l

l 2.978 megawatts was established Ohio, and West Virginia. We are i l on August 8,10~9. This peak fortunate to have adequate sup-  ! l' was 5% higher than our previous plies of coal in close proximity i record peak load of 2,841 mega- to our service area. 1 l

' i watts, established on July 20,1977. ! Fundamental to the j Increased availability of nat- { Company's operating policy is  ;

ural gas, conservation, changing i the maintenance of reliability of l socio-economic factors, and price l t elasticity have made the accurate  ;

forecasting of long-range electric  !

sales and peak demands increas-  !

f ingly difficult. Our revised fore- '

i casts indicate a 4.3% average annual increase in electric Kwh l l I

sales and a 4.0% average annual increase in electric peak demand '

during the 1980-1984 period. / I l

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l ne tmme< w war n, , stan. v v e npn , te i t. h e s! wt .~mmo r i ope ru:vm m iJ ciimnutted to purchase sars mg the N1 arch 19'9 accident at the amount required f - the imtial amounts of power through Three Niile Island Nuclear Sta- f uel load. The f uel is bemp stored Neptember M 19xl fiom (lhio i i, " ioperated by anot her utiht s t on site until the operating hcense

\ alles Flect ra ( ~orporation and adoincnal m meering and is receised from tl e NRC at

'I tus will en tble l'( M i to hase refittmg work to comph with w hich time the fuci will be loaded an estimated reserse of 21" m additional Nuclear Regulatory mto t he reactor.

ewess of its proiected 14N) sum- Commission I NRC i construction Niost of the prot lems relatmp mer peak of 3DM megawatts critena. the commercial opera to nuclear power ari questions In our 19~'h Annual Report to tion date of Zimmer I'mt I will recardmg its safety ; nd the

$hareholders. we informed you be delased to the spring of 19xl storage of spent fue These that Zimmer i mt I was sched An operatmg hcense. which problems continue o emt only uled for commercial operation m must be obtained from the NR(' as a result of pohti al mdecision before loading nuclear fuel and since. techrucalh. ,olutions do 19N) How eser. as a result of placing Zimmer l' nit 1 in sersice.

was applied for in 19T Hear-l ings on that application are being I held. although the NRC has put sn .t .

l into effect a de taao moratorium N" on the further issuance af con-2978 k

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l is not issued by the time the 1 nit is ready for loading of nu-21 clear fuel Icurrently scheduled W for the fall of 19NH. construction costs (piesently estimated at 5850 million) will increase. and the presently scheduled in-service date will be delayed further.

CGAF owns @% of Zimmer Unit 1 last summer. about 11.5 tons 1975 1976 1977 1978 1979 1975 1976 1977 1978 1979 of nuclear fuel were delivered to System Capability and Peak Load g p , ,g Zimmer Station. Ihis is the total g u,,,,,,ny q r g rg "xP '"'1"y]

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exist. In view of the uncertain oil supply. it is essential that the < ,

United States move forward with the development of nuclear y power. In Europe and Japan, I

nuclear plants are being com-pleted in half the time required 'w

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in the United States and at a ~

lower cost. ,

Gas Sales An increase in the availability of natural gas from our suppliers in 1979 was reflected in an in-crease of total gas Mcf sales, up p*

1.3% over 1978. Milder weather during the heating season de- [

creased residential sales by 4.2%.

and commercial sales were down swi 3.3% Howeser. industrial sales were 12.3% higher than the presious year. .h j y , , , ,

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- ; L' --< 4 Gas Operations and Supply 75.g Q The improvement in the l

l natural gas supply was princi- Y ((J .('

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1 pally due to the passage of the /

National Energy Act which per-mitted an increase in the price 5

of natural gas at the wellhead.

This increase in price made it s financially attractive for drillers .

to drill new wells, especially in ,

more difficult terrain where the -

,f conditions increase costs and make the risk of failure greater. -

Important ew gas finds in P/mac rubmg liner a maerred en eusting go a Mexico. Canada, and Alaska l'nes a' rari of CGAEs onRom8 program to en u e df to m Mi hC nR should alleviate the serious gas ,,, "'",",'ldinjn g , {g,fu ,

shortages of the past decade. ,y,,3 , ns ,,q,,,,. .

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Understandably. the price will go up far above the old federally- end of 1979,1,800 new gas cus-I regulated, unrealistically low tomers had been added to our levels which created the shortage service lines. To accelerate new of supplies in the first place. " hook-ups:' we are supplement-Both CG&E and its Kentucky ing our work force by using local subsidiary. The Union Light, contractors wherever possible. ( p.

Heat and Power Company As a result of being permitted to (Union Light). obtained permis- add new gas customers and to sion f rom their respective state serve the additional requirements '{ ,

o regulatory commissions to accept of existing customers, the l new gas customers and to serve Company expects total gas Mcf the additional requirements of sales to increase 3.6% annually existing customers, except new over the 1980-1984 period. 3g boiler loads in excess of 300,000 CG&E is continuing to re-

• cubic feet per day. Both CG&E ceive gas as a result of six and Union Light had discon- contracts negotiated with Ohio tinued adding gas customers in producers. CG&E obtained ap- g,7 mg ,,Jsf,, , ,,, ,,yp,,,,cs ,,,,,,,,

1973 due to the shortage in the proximately 2.2 million Mcf from 3,my jo ,,..s m ,3c z, mmc,3, anon ,r ni-supply of natural gas. As of the this source during 1979.

fue/ roollocated m the reat i"r hu'/dmr '"'

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In August 1977, CG&E began participating in a joint venture Gas Rates Electric Rates exploring for supplies of natural gas in the Texas-Louisiana on- 1. Honolulu $112.92 1. New York 5 42.29 shore areas. Because of in. 2. New York 52.70 2. Honolulu 30.85 creased gas supplies, CG&E 3. Boston 48.78 3. Boston 3039 canceled the joint Exploration ' 4. Portland 45.41 4. Philadelphia 29.52 and Development Agreement 5. Seattle 44.25 5. Cleveland 29.24 effective August 1,1979, but will 6. Miami 43.74 6. San Diego 28.84 participate in any development 7. Washington 42.93 7. Washington 28.08 wells in the five prospects where 8. Buffalo 4134 8. Baltimore 28.08 oil and/or gas were found. 9. Philadelphia 40.68 9. Ios Angeles-Long Beach 28.01

10. Baltimore 38.51 10. Detroit 27.66 Average 38.10 11. Pittsburgh 27.29 l 12. Miami 27.08 Rate Matters 11. Nor'theastern Pennsylvania 37.91 37.70 13. Chicago 2635 l 12. St. Louis 26.05 On January 7,1980, The 36.14 14. Denver j , 13. Milwaukee

Public Utilities Commission of 14. Chicago 35.58 Average 25.33 Ohio (PUCO) issued an order 15. Atlanta 34.51 15. Kansas City 25.19 authorizing CG&E an annual in-

, 16. Detroit 33.85 16. Buffalo 24.58 crease in electric revenues of 17. Houston 3338 17. St. Iouis 2431 535.1 million. The new rates will 18. Denver 32.74 18. Minneapolis 23.75 become effective February 15. 31.75 19. Houston 23.42

19. Cincinnati '

1980. Although the PUCO ap- 20. Pittsburgh 31.25 20. Northeastern Pennsylvania 23.27 proved an increase of only 43% 21. San Diego 30.94 21. Atlanta 22.79 of our 580.6 million request, 22. Minneapolis 30.91 22. Cincinnati 22.37 there were some decisions by the 29.74 23. Dallas 21.67

23. Cleveland i PUCO which were favorable. 24. Dallas 2636 24. Anchorage 21.17 The PUCO allowed 50% of our 25. San Francisco 25.12 25. Milwaukee 21.00 investment m Zimmer Unit 1 in 26. Ios Angeles-long Beach 25.02 26. San Francisco 19.29 the rate base (Ohio's rate base 27. Kansas City 23.23 27. Portland 17.26 i 1939 28. Seattle 9.45

28. Anchorage i cret t inci de n he

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• 8"#** *N ptog e on prOJec at e t residential customers for 10,000 cubic feet of 500 Kilowatt hours use of electricity in 75% completed, but only in an ses in November Im. November Im.

aggregate amount up to 20% of the remainder of the rate base).

The PUCO found that the proper rate of return was 10.24% based and gas revenues totaling 553 major metropolitan areas for on capital structure as of June million. Union Light had filed an years. A comparison is given in 30,1979 and determined that a application in October 1978, re- the accompanying table pub-return of 1439% on common questing a total annual increase lished by the U.S. Department of equity was fair and reasonable. in revenue of $7.8 million. Labor, Bureau of labor Statistics.

Our requests to normalize the UrSn Light has pending an tax effect of the interest portion application filed in November of Allowance for Funds Used 1979 with the ERC of Ky. request-ing an annual increase in electric Construction  ;

l During Construction and to normalize for the tax effects re- revenues of 55.5 million. The During 1979, CG&E and its '

sulting from the use ofliberalized requested increase represents subsidiaries invested 5269 mil-depreciation on an additions the pass through of a proposed lion for both new facilities and  ;

forward basis were approved increase in wholesale rates from the replacement and upgrading i (these changes will not increase CG&E presently pending before of existing facilities. Of this I reported earnings but will im- the Federal Energy Regulatory amount,5255 million were for prove our internal cash gener- Commission. Union Light re- electric facilities,512 million ation in 1980 and in subsequent quested that the new rates be for gas facilities, and the re-I years). placed in effect simultaneously maining $2 million for common In April 1979, the new Energy with the wholesale rate increase facilities used in both electric  ;

Regulatory Commission of from CG&E, expected to be- and gas operations. These ex- 1 Kentucky (ERC of Ky.), a re- come effective February 19, penditures were necessary to organization of the Public Service 1980, subject to refund. meet the demands for energy by l 6 Commission of Kentucky, issued

• Gas and electric rates in our existing customers and the  ;

an order authorizing Union Light service area have been con- anticipated requirements for an annual increase in electric sistently below the average of the future.

Construction expenditures go,,, ,, ,,,,, ,on ,,, ,,,,g,,,,u ,,,,

for 1980 are expected to be g ,3,ns S,,,,on,njg g ,,o ,,ght Ned

$288 million. Over the next five A Armstronx Harr, nonsa, Jr waham H years (1980-19M) construction DecAhoner Donald / Lonrt Jamet P Hening and Larl A Borgmann l expenditures are expected to ,

total 51,211 raillion, primarily for ---g ..

electric generating and trans- 7

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..J" mission facilities 15879 million). ,

l An estimated 587 million will be i e '

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The amounts for the electric .

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vear in the scheduled commercial  !.

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operation dates of certain O # - ~ ~

DFN electric generating units. These estimates also reflect a proposed ' , '

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Bend and Killen Generating ~.( '- -

1 Stations, both of which are under ' '

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33 o of Killen Station as opposed <

J to its present 51% share of each '? -

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Company (DPLi. with CG&E re- 3 - I - -- '

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sponsible for the construction -

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and operation of East Bend

• Station and DPL responsible for f@j .,IC'p% ECS." y EY

• p,k 4,

4 u J'

~

the construction and operation  %, ,-

of Killen Station. ,' Ei t " * - ' * -

The 1980-1984 construction E5 "

O. ., .

. [7.'

expenditures include an esti- .

M r'f. [

~

..' ~g' mated $220 million for pollution " .' ,

control facilities such as elec-trostatic precipitators. cooling .

s > .1 -

I I

~ ~ ' '

S====ry e(Rammed Future.Genersaise t e tt .

.n

. WMMW. 9,1

e. myg . .7 Oset to Owned by M OG4E Apprestemase Total Kw CG&E g ,, g 3m Emergy "

Plant or Unk (a) Seeree Imcaslee r%ydmary  % Kw t-- WDeBars) j Wm. H. Zimmer Nuclear 25 miles upstream 792,000 40 316,800 1981 $ 332 Nuclear Power from Cincinnati on ,

Station (Unit 1) Ohio River  :

East Bend Coal In Kentucky,40 miles 600,000 69 414,000 1981,  !

414,000 1985; 571 ,

. Generating Station downstream from 600,000 69 Cincinnation uL  !

WiUnits 1 and 2)(b) - 4 (gig' '*) Ohio River # ~

. d @ M Ip . j 33' 198,000 MJ9Ei 52g-P KMien Generating Coal ~ W miles upstream ~ 6W,WO from Cincinnation .600,000 33.. J98,000.4985

.[t. 1 Station f OhioRiver lof h(Unies

w. 1 and 2)(b) j ot W.,

w .i S c.,~,.*MF$fehOdeWyn%.,$lW;ssMr

@.4f.Qgga, M.Q1yf*.;;4sy w3,1Wp% ML

.$$ . ~ . 1

w. _. , .

.yr s - .

M; ts) AE units will be -- -h owood by CG&E and The Dayton Pbwe r and lightCamp=y (DPIJ. except h- Unk I

@ which wtB be owned by CG&E, Cohenbus and Southern Ohio Electne Couspany, and DFL. DFL is rW for 7 construction and operation of Kiuse Station. CGAE is . . 7 for construceos and operasson of as other unies. ,

' (b) Reflects a proposed change in ownership of t$e East Bond and Keen Generadag Stanons (see 'Construcemon*). : " ,

o o

Plans allow eligible employees to become owners of CG&E com-mon stock, thereby adding further incentive for employees t i strive r,

for the success of the Company.

k Standard and Poor's rating

) agency downrated all of CG&E's g,~ '

outstanding issues of first mort-

< gage bonds from double A to double A , and downrated all of

- CG&E's outstanding series of ,

preferred stock from single A to single A . Moody's, another rat-ing agency, lowered its rating on all series of CG&E's preferred (i stock from double A to single A.

1 Both agencies expressed concern regarding a weakness in earnings  ;

protection measures, the need for improved internal generation of funds, and the increase in construction expenditures. The reduced ratings will result in  ;

higher costs to CG&E or future  !

The coalfired East Bendpower station debt and preferred stock issues. l' locatedin Boone County. Kentucky b However. as discussed in " Rate now about 75% complete. Matters," we have taken steps to j increase the internal generation l towers, fly-ash handling and dis- the County of Boone, Kentucky, of funds. The 535.1 million t annual electric increase author- l posal systems, waste water in October 1979. The loan was obtained in connection with the ized in January 1980 will provide j disposal systems, and sulfur '

dioxide removal equipment. County's issuance of 548 rnillion some of the needed rate relief.

The cost of these pollution of Pollution Control Revenue On January 4,1980, CG&E control facilities represents Bonds (Bonds) to finance certain sold through underwriters, pollution control facilities at'the 500,000 shares of 10.20% series 18% of the total 1980-1984 con-struction expenditures. The in- East Bend Generating Station. 5100 par value Cumulative Pre-stallation of pollution control The Bonds have an average hfe ferred Stock. As of the date of of 28 years,5 months and an this Report, CG&E plans to offer equipment adds to the construc-tion cost of generating facilities, annual cost of money to CG&E through underwriters,3,400,000 and its operation consumes of 7.27%. shares of new common stock late i Approximately 52.2 million in January 1980, subject to electricity which otherwise market conditions. Proceeds li would be available for our cus- of common equity (121,850 tomers. Ultimately, it is the shares of previously unissued from the sale of the preferred l customer who pays the increased CG&E common stock) was raised stock were used to repay short-capital and operating costs of through the Dividend Rein- term indebtedness incurred in vestment and Stock Purchase connection with the construction pollution control equipment Plan. This Plan provides for the of new facilities and the proceeds through higher prices.

automatic reinvestment of from the proposed sale of com-dividends in additional common mon stock will be used to repay st ek. The Plan also provides for additional short-term indebted- j Financing optional cash payments by par- ness and for additional  !

In March 1979, CG&E sold at ticipants of no less than $100 nor construction.

competitive bidding 5100 million more than 53,000 per quarter for Present plans are to obtain of 30-year first mortgage bonds the purchase of additional shares. the balance of the 1980 external at an interest rate of 10%. The At December 31,1979, approxi- capital requirements from the l mately 5,100 shareholders were sale of first mortgage bonds, the l proceeds from the sale were used to repay short-term indebted- enrolled in the Plan. issuance of pollution control (

Additional equity capital of bonds, and the issuance of com-  !

ness incurred in connection with CG&E's construction program $6.7 million was provided in mon shares through the Plans  !

1979 by the issuance of 359,553 mentioned above. Any additional l and for additional construction.

shares of CG&E common stock requirements will be obtained i In an effort to minimize the 8 through the Employee Incentive through the issuance of short- l cost of compliance with environ-mental regulations, CG&E ob- Thrift Plan and the Employee term indebtedness. [

tained a loan of $48 million from Stock Ownership Plan. These D**D lD 9'Y f AL

~ n J _ _ , _;

i

i l

CG AE has notified the tember 19'9. issued a proposed Environmental Matters ,

finding that the use by Ohio Federal Environmental Pro- 1 Unreasonable environmental tection Agency IFederal EPAi utilit;es of low sulfur coal to

(

l regulation continues to be a that the electric generating units comply with sulfur dioxide i primary problem for the industry operated by it are in compliance emission limitations would not '

and CGaE. Adserse rulings on with the sulfur dioxide emission result m significant unemploy-various pendmg actions would regulations contained m its plan ment in Ohio. This action I result in substantial additional for Ohio. This plan is enforceable stemmed trem proceedings  ;

I cost to CG AE. by the Federal EPA without instituted in 194 by the Federal -

l A Precipitator Upgrading reference to the Ohio Environ- EPA under Section 125 of the Program. w hich began m 1971. mental Protection Agency Clean Air Act. The exclusise j has been completed with the IOhio EPAi. use of coal mined in Ohio will '

installation of a new precipitator The Ohio EPA has adopted not permit CG&E to comply on Beckjord Unit t All of the regulations (subject to approval with the Federal EPA sulfur l coal-burning units operated by by the Federal EPAl relating to dioxide regulations for Ohio l CG AE now are equipped with emissions of sulfur dioxide. which without the addition of costh I l

I electrostatic precipitators de- are generally less restrictise than sulfur dioxide control equipment. j signed to meet particulate emis- the emission limitations con-sion requirements of applicable tained in the federal plan.

regulations. The Federal EPA in Sep- g

?dr. -g ? .. - .. ? - 4' 4~ ? $$ h The Supreme Court of Ohio

, 7'I has determined that an excise tax M': IL J.N m . 'c .,-1,.,,. - . ~

& ~'

,z. $ ".' ^,, on coal used for the generation p , E. .[.; - of electric power. as imposed by

~

'}. a 1977 Ohio law. discriminates

~

w#' .

~

7 .' .

. i.

against interstate commerce in l

^

p .m

7 s

- .~ ' i

- "iolation of the United States

-)

4

!l.-*M' *' ) ~. .

anstitution. The tax imposed a

~

vs j  : --

s' -' .

graduated rate, with the highest f y . N

.- ,~ -

rate applicable to coal with the I J f A. , fg'

• lowest sulfur content. CG&E and 4-

' j' other electric utilities contested

%l.,,- , . ..I ~ - = the tax as discriminating against f ..- ' ' f '- ' -

m M' the use of low sulfur coal from

.g  ;

• l '3 interstate sources.

m

- .. .Q.-.

.?'Lr --

.~^y ,. (

l Both state and federal courts approsed the settlement agree-

% ,. - 1

' , x g-V .g ment reached between Union

j. - j. . Light and the plaintiffs in the

.f .' 1 class action suits resulting from a l t .

.N 1 fire in 1977 at the Beverly Hills

~"% ^ -

Suppe Club. The settlement 4

' ' 's , > protects Union Light and its insurers from liability arising

, - from all claims of the class and claims of other defendants aris-6, ----- ing out of those class claims. I F -

The agreement called for a total

- settlement of 55.750.000 of which i

• i Union Light paid 5500.000. with

( .

the remainder coming from its A msurers. The basis of the actions against Union Light was alleged

?r negligence in supplying elec-l trical energy to the Club. The decision to make an out-of-court settlement was made by the insurers. Union Ligb: accepted the decision, but did so without i High/r sophisticated cash handimg eqwpment was installed in the an) implication of negligence by companr s4th and vam off,ce bwidme it or any of its employees. 9l f u.

i ,

1

Employee Relations CG AE and its subsidiaries employ about 4,700 full-time j - employees. The average length

, of ser' ice for an employee is i ,

almost 15 years. and about 35%

i of our employees have been with I the Company for 20 years or

. 4 longer.

New three-year contracts

$4 i were negotiated with the International Brotherhood of I Electrical Workers (IBEWi.

representing about 1.650 electri-i cal workers and with the United l

Steelworkers of America (USWA). representing about 500 emph)yees in gas operations. In Elected officrah who serve communities with,n CGA ri wrwc. area were addrews addition to increased benefits.

bi President udham H D,ckho,er the IBEW agreement provides a concerning Jeraib of CG&E s grownnR 7% wage increase each year and P"""'" the USWA contract provides for a 71 2%. 7% and 6b2 % increase Organizational Changes elected Dr. Jane L. Rees to fill for the first. second, and third the vacancy created b5 the retire- vears, respectively. Both con-l It is with regret that we report ment of NIE Doan. DrI Rees heads 'racts t provide for cost-of-living the death of William J. Whittaker the Department of Home Eco- adjustments depending upon in-in January 1%0. Nir. Whittaker nomics and Consumer Sciences creases in the Consumer Price was sening in his mnth year as at Niiami Unisersity. Oxford. Index. Changes in work rules.

I a member of CG AE's Board of Ohio. designed to increase productivity.

Directors. The service of N1r. William H. Zimmer. Jr.. former- were also agreed upon during Whitteker as an outstanding busi- jy y;ce_ President and Treasurer, the negotiations.

ness executise and civic leader r'elinquished the title of Treasurer in accordance with a wage will be greatly missed by CG AE effectise September 1 to assume reopener provision for the third and the community. primary responsibility for all and final year of the existing i At the April 19-'9 organization financial matters of CG AE. Independent Utilities Union meeting of the Board of Direc- C. Robert Everman. formerly (IUU) Agreement, the 1,200 tors. following the Annual Assistant Secretary and Assistant clerical and tect "al employees N1eeting of Shareholders. Earl A. Treasurer, was elected Treasurer represented by ti.,: IUU received Borgmann was elected Senior and Assistant Secretarv. '

a wage adjustment and changes i l Vice-President and Jackson H.  ;

l Randolph was elected Vice-  !

I President of Rates and Economic Research. N1r. Borgmann former- g g g , gh g'ng ly sened as Vice-President of Engineering Services and Electric h N:q Ja i

4

'ul'n

[h Production, and Ntr. Randolph formerly sened as Nianager of the Rate and Economic Research Department.

l On September 1. Niiles J.

Doan retired as Senior Vice-President and Director conclud- ,

ing 30 years of valuable service.

The Board of Directors. at its meeting on September 20.

gf The annuallobby Chnstmas trann duplar 10 attracted more than 2itutC school chal-dren and vuitors dunng the 19'9 season More than 4 mdhon persoru have vuoted l

\ the exhibus since 1946

~f 4 i

in benefits comparable to the tion. and a variety of general expansion of its Sharonsille.

other unions. topics. The Bureau scheduled Ohio. automatic transmission In the opinion of manage- more than 10 programs a week pla n t .

ment. all provisions of the during 1979. In order to keep the The Greater Cincinnati area contracts meet guidelmes public informed through news continues to attract international established by the Council on media the Niedia Senices Divi- companies. Four of them hase Wage and Price Stability. sion is asailable. at virtually all plants under construction hours around the clock to press Toyota is building a $10 million and broadcast journalists. Inde- training and d;stribution center Public Affairs pendent suneys f custo er t Blue Ash, Ohio; GKN Windsor attitudes proside keys to subjects has started construction of a $10 The Company has reorgan- on which there is need for million facility to manufacture iied and strengthened its exterior more information about our machine tools at Erlanger.

communications program. We operations. Kentucky: Didier-Taylor Refrac-are providmg our customers and tories Corporation, a subsidiary their elected governmental of Didier-Werke AG. has pur-representatises with usable and chased and is expanding a refrac-Area Development beneficial mformation about tories operation in Newtown.

increasingly complex energy New and expanded industrial Ohio; and American Tente issues plant ac: nit) in our senice Casters. Inc. is ins esting 51 mil-  ;

The Company has been area announced during 19'9 will lion in a manufacturing plant in l actnely insoked in disseminat- create approximately 6.000 new Florence. Kentucky.

ing information regarding the jobs at a capital mvestment of Cincinnati's downtown Federal weatherization program oser $789 million. Eighteen new renewal program continues to and the sarious gosernment firms located here and 70 local progress. A new major hotel and assistance programs that are expansions got under way. two office buildings are under asailable to qualified customers Among major projects an- construction The solume of durmg the heatmg season. nounced was N1 iller Brewing inquiries receised by the Com- l j in order to improse our sen- Company's new $412 million pany's Area Deselopment De j ice to customers and assist brewery to be constructed at vision in the fourth quarter of l Company personnel in providmg Trenton. Ohio. The new facilii> 1979 indicates good prospects for )

continued growth of the area in complete. accurate. and timely will einploy 1.M0 initially. with answers to customers' questions. an estimated annual payroll of 1950.

an Energy Assistance infor- 530 million. General N1otors mation Center was established scheduled a $100 million expan-within the Public Affairs sion at its Norwood. Ohio. as-Depart men t . sembly plant. and Ford N1otor The Company has also made Company started a 593 million known to the customers that programs such as the Budget Bill-ing Plan. Extended Payment i Plans. and Third Party Notice e

Plan are asailable as part of the

,f M _,

Company's ongoing program of g 4 g helping needy customers with t~ 3--

the payment of their utility bilk.

_ _ ' ' gf gyg Top management tearns meet .

regularly with government offi- .,

/ . #

cials. community leaders, local and regional media editors. con-l l

sumer groups and representa-tives of industrial and com- .

'A

( _

mercial customers. Our Speakers jq Bureau provides informational -,,,. c. y programs on ene gy issues. .., t nuclear power. energy conserva-1 The Mdler Brenung Compans purcha. sed a ItM' acre tract on Trenton Ohio The l

< ompans plaru to budd the largest bremers l rser budt at one rame m the Umred States on the propert> Governor James A Rhodes RRY ~~

m-elcomed Mdler executives as the ground breakmg l

- e un l

Management's Discussion and Analysis of  :

Consolidated Statement of Income The decrease in earnings per Operating Expenses Other Income and common share for the year 1978 increases in gas purchased Deductions-net compared to 1977 was due to several factors, including the expense resulted from increases The increase in other income in verage cost per Mcf pur- and deductions-net in 1978 L following: depressed electric  !

chased and to increases in quan- primarily resulted from the pre-Kwh sales due to mild weather tities purchased. Increases m fuel mium paid for the redemption in during the second and third used in electric production m September 1977 of Union Light's quarters of 1978 and conserva.

tion by commercial and industrial 1978 and 1979 resulted from m- $10 million principal amount of creased fuel prices, increased First Mortgage Bonds,95 A Series custoiners during and subsequent electric generation, and in 1978 Due June 1,2000. and from a loss j to the coal miners strike; an fr m burm,ng of more expensive in 1977 on the sale of non utility l increase in the number of com. ,

mon shares outstanding: and oil help stretch diminishmg property which had been held for j c I supplies during the coal future industrial development. .

general inflation, which caused miners strike. i increases in labor and material Other operation expense in- Allowance for Funds Used costs. In addition. CG&E was not creased in 1978 due to a number permitted to recoup all of the cost of power purchased to con.

f factors meludmg significant DWhwh f Purchases of electricity. wage The allowance for funds used j serve coal supplies during the increases, and the general effects during construction increased (

coal miners strike.

of inflation. The decrease in due to higher levels of construc-ther operation expense in 1979 tion work in progress and to an OPerating Revenues resulted primarily from a de- increase in the allowance for Increases in gas and electric crease in purchases of electricity. funds rate from 736 to 81 2%

operating revenues in 1978 and The increases in maintenance effective January 1,1979.

~

1979 were primarily due to the costs largely were attributable to operation of fuel charge adjust- increased maintenance on elec- Interest Charges ment clauses reflecting changes tric generating units.

in the cost of fuel used for elec- Taxes other than income Interest on long-term debt in-tric production, to the operation taxes increased in 1978 because creased due to the issuance of ,

of escalation clauses reflecting of higher excise taxes resulting additional securities to finance a i changes in the cost of gas pur- from increased revenues. portion of the construction pro-chased, and to increases in total Income taxes decreased pri- gram. The increase in other sales volumes. marily as a result of decreases interest in 1979 occurred due to in taxable income and to a reduc- greater amounts of short-term tion in the Federal income tax borrowings at higher interest rate for 1979. rates.

D *i)) D ^T The Revenue Dollar

^

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~

Where It Commes Pseum... Where It Goes...

e.

BII g Q , Y+ \ .

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( ThDA " '  ;

, gime n Use . BooWic Mmmedin i b, MM

.. . - =

GasPw' chased m". n; l

ggdj i

{a

% mMh - ,

R '$9{mwj% interestcharges not (

y.3. > . - ,,

""jjjy?in'],q twidends l 12

^- s - ' ,

a Retained Eeminee i i 4s4@pmmh[ - Q+3;.3 % .W %ph g gg h g . < -

byg>N5NhNbb ANfMO@

[

@I$ - : on. ope non.nd I wegw weer.

e- -

f

The Cincinn:ri G:s & Electric Comp:ny And Subsidiary Companies Consolidated Statement of Income (Thousands of Dollars) g the years ended December 31. 1979 1978 1977 1976 1975 OPERATING REVENUES Electric . 3518,916 5493,323 5450,182 5352,419 5324,510 Gas . 306,910 279.353 239.684 194.714 155,358 Total operating revenues. 825,826 772.676 689.866 547,133 479,868 OPERATING EXPENSES Gas purchased. 232,055 199,309 168,435 140.583 116,915 Fuel used in electric production. 216,279 194,126 161,934 136.982 116,089 Other operation . 83,673 92.896 81,946 55.885 53,381 hiamtenance . 50,337 43,822 39,858 28,674 25,094 Provision for depreciation . 49,711 47,693 43,921 41,174 38,467 Taxes other than income taxes (Schedule on page 19) . 59,941 55.139 48,671 44,971 39,593 Ineome taxes (Schedule on page 19). 21,442 33,299 38.537 16.436 13.060 Total operating expenses . 713,438 666.284 583,302 4M.705 402.599 OPERATING INCOh1E. 112,388 106.392 106.564 82,428 77.269 OTHER INCOh1E AND DEDUCTIONS Allowance for other funa used during construction (Note 1). 19,218 11,243 9.290 6.884 5.572 Other income and deductions-net . 614 215 (2.781) 19 452 Total ether income and deductions 19,832 11.458 6.509 6,903 6.024 INCOh!E BEFORE INTEREST CHARGES. 132,220 117,850 113,073 89.331 83.293 INTEREST CHARGES Interest on long term debc . 61,052 50,133 46.415 41,086 38,320 Other interest . 2,977 1,290 1,239 1,952 1,887 Amortization of debt discount, premium and expense. 20 27 39 14 (2)

Allowance for borrowed funds used during construction-credit (Note 1). J17,577) (11.332) (10.735) (8.118) (6.650)

Net interest charges. _ 46,472 40,118 36.958 34.934 33.555 NET INCOh1E . 35,748 77,732 76.115 54,397 49,738 Preferred dividends . 15,924 15.924 15,924 15,758 11.641 EARNINGS ON COhih10N SHARES. S 69.824 5 61,808 5 60,191 5 38,639 5 38,097 AVERAGE NUh1BER OF COhih10N SHARES OUTSTANDING (000 omitted). 26,9M 24.253 21,450 21,000 20,233 EARNINGS PER COhih10N SHARE. S 2.59 5 2.54 5 2.80 5 1.84 5 1.88 DIVIDENDS DECLARED PER CON 1510N SHARE . ... S 1.% 5 1.90 $ 1.79 5 1.M 5 1.64 P

13 The accompanying notes are an integral part of the financial statements and schedules.

The Cincinnzti G:s & Electric Comp:ny And Subsidiary Companies Crsolidated Statement of Sources of Funds for tThousands of Dollars)

Construction Expenditures 1979 1978 1977 1976 1975 for the years ended December 31, SOURCES OF FUNDS Operations 5 38,639 5 38,097 Earnings on common shares . S 69,824 5 61,808 5 60,191 Less-Dividends declared on 34,440 33,497 52,9M 46,639 38,832 common shares.

16,860 15,169 21359 4,199 4,600 Non-cash provisions deducted in arriving at earnings on common shares 38,467 49,711 47,693 43,921 41,174 Depreciation -

150 1,105 396 463 807 Deferred income taxes-net . 7,433 24,719 15.248 12,953 7,213 Investment tax credits-net .

Total allowance for funds used (12,222)

(36,795) (22,575) (20.025) (15,002) during construction Funds provided by 39,085 M,645 56,M0 58,6N 38,047 operations .

Financing Common shares 34,500 55300 61,425 -

Public offering -

Dividend Reinsestment and Stock Purchase Plan 2,210 707 - - -

Employee incentive Thrift Plan 3,885 2,163 - - -

l 2,582 Employee Stock Ownership Plan . 2,859 - - -

- 45,000 -

Cumulative preferred shares. - -

100,000 85,000 - 75,000 60,000 First mortgage bonds.

48,109 8 110 10,127 124 Other long term debt .

(5,545) (15,507) (10,791) (765) (46,0M)

Repayment of long-term debt . 33,974 53,705 17,073 (17.044) (31,188)

Increase (decrease) in short term debt-net .

205.223 147 326 33,700 98,174 82,534 Funds provided by financing.

Other Sources of Funds-net Decrease (increasel in net current assets (excluding short-term debt and (43,389) (21,580) 24,353 (16,958) (1,509) temporary investments) .

2,666 (2,966) 11,979 (8,982) (1,800)

Decrease (increase) in temporary investments .

Refunds from gas suppliers 12,100 4,470 (6331) 6,120 437 received (distributed)-net.

1,258 411 11,901 2,425 11325 Other- net .

(27.365) (19,665) 41,902 (17395) 8.453 Funds provided from other sources .

l 232,503 184 301 134.2 % 118.826 130,072 Total Funds for Construction from above Sources.

Total Allowance for Funds used 12,222 36,795 22,575 20,025 15,002 during Construction .

S269.298 S206,876 5154,231 5133,828 5142,294 l CONSTRUCTION EXPENDITURES.

l l

14 The accompanying notes are an integral part of the financial statements and schedules.

The Cincinnati Gas & Electric Company And Subsidiary Compan;es (Th usands f Dollars)

Consolidated Balance Sheet December 31,1979 and 197h 1979 1978 ASSETS PROPERTY, PLANT AND EQUIPMENT, at original cost (Notes 2 and 7)

In service-Electric . S1,370,612 51,292302 Gas . 211,841 202,456 Common . 36,331 34,969 1,618,7M 1,529,727 Less- Accumulated provisions for deprciation. 484,906 447 348 Net property, plant and equipment in s'ervice . 1,133,878 1,082379 Construction work in progress. 594,%5 428,256 1,728,843 1,510,635 OTHER PROPERTY AND INVESTMENTS. 8,827 9380 CURRENT ASSETS Cash (Note 6) . 6,199 10332 Short-term investments, at cost . 300 2,966 Construction fui.us (pollution control) held in escrow. 21,475 -

Accounts receivable,less accumulated provision of

$2307.000 in 1979 and 52,(M6,000 in 1978 for doubtful accounts. 81,256 80,199 Materials, supplies and fuel, at average cost-Fuel for use in electric production . 51,696 36,026 Other. 26,637 23,012 Taxes applicable to subsequent year . 28,739 27,906 Prepayments . 22,632 14,974 Other. 288 486 239,222 195.901 OT11ER ASSETS. 3,943 3357 S1,980,835 51,719,273 LIABILITIES AND SilAREll0LDERS' EQUITY CAPITALIZATION (Schedules on pages 17 and 18)

Common shareholders' equity . S 556,5(M $ 530,815 Cumulative preferred shares (Note 4). 200,000 200,000 Long-term debt (Note 2) . M6,652 698,974 1,603,156 1,429,789 CURRENT LI ABILITIES Current portion of bonds. 58 5,054 Notes payable (Note 61-bank . 25,290 5,000

-commercial paper . 51,350 17,950

-other. 554 499 Accounts payable . 75,446 65,602 Dividends payable on common shares. 13,347 13,112 Dividends payable on preferred shares. 3,981 3,981 Accrued taxes. 45,589 59,467 Accrued interest on debt . 13,214 9,471 Other current and accrued liabilities 13,094 10.440 241,923 190,576 DEFERRED CREDITS AND OTHER Deferred income taxes. 31,249 31,099 Investment tax credits. 86,257 61,538 18,250 6,271 Other liabilities and deferred credits .

135,756 98.908 1' S1,980,835 51,719,273 The accompanying notes are an integral part of the financial statements and schedules.

The Cincinnzti G:s & Electric Company And Subsidiary Companies Consolidated Statement of Changes (Thousands of Dollars)

I, Shareholders' Equity for the years ended December 31, 1979 1978 1977 1976 1975 l

l COMMON SHARES t Balance, beginning of year. $227,392 5201,450 5178,500 5178,500 5158,950

$8.50 par value of 481,403, 3,051,996, 2,700,000 and 2,300,000 shares sold in 1979, 1978,1977 and 1975, respectively . 4,092 25,942 22.950 -

19.550 Balance, end of year. $231,484 5227,392 5201,450 5178,500 5178,500 l

PREMIUM ON COMMON SHARES

$140,068 5105,258 5 66,783 5 66,783 5 51,833

! Balance, beginning of year.

4,862 34,810 38,475 - 14,950 Premium on sale of common shares.

$144.930 $140,068 5105,258 5 66,783 5 66,783 Balance, end of year.

RETAINED EARNINGS 5128,743

$174,070 5158.901 5137,542 5133,343 Balance, beginning of year.

85,748 77,732 76,115 54,397 49,738 Net income .

Cash dividends declared on capital shares-Cumulative preferred (See page 17 for rates) . (15,924) (15,424) (15,924) (15,758) (ll MI)

Common (52,9M) (46,639) (38,832) (34,440) (33,497)

(See page 13 for rates) .

$190,930 5174,070 5158,901 5137,542 5133,343 l Balance, end of year.

l CAPITAL STOCK EXPENSE 5 4,131 S 10,715 5 8,760 5 6,691 5 5,903

Balance, beginning of year .

125 1,955 2,069 - 1,772 Common stock expense .

Preferred stock expense . - - -

788 -

S 10,840 5 10,715 5 8,760 5 6,691 5 5,903 Balance, end of year.

CUMULATIVE PREFERRED SHARES 5155,000 S200,000 5200,000 5200,000 5155,000 Balance, beginning of year.

Sale of 450,000 shares in 1976. - - - 45,000 -

$200,000 5200,000 5200,000 5200,000 5155,000 Balance, end of year.

l l

16 e accompanying notes are an integral part of the financial statements and schedules.

The Cincinn:ri G:s & Electric Comp:ny And Subsidiary Companies Schedule of Shareholders' Equity (Thousands of Dollars)

December 31,1979 and 1978 1979 1978 COMMON SHAREHOLDERS' EQUITY Common shares, par value 58.50 per share (Note 3)-

Authorized-40,000,000 shares Outstanding-27,233.399 and 26,751,996 shares, respectively, S231,484 5227.392 Premium on common shares. 144,930 140,068 Retained earnings. 190,930 174,070 Capital stock expense. (10,M0) (10,715)

Total common shareholders' equity . $556,5N 5530,815 CUMULATIVE PREFERRED SH ARES, par value 5100 per share (Note 4)-

Authorized-3,000,000 shares Outstanding-4% series-270,000 shares tredeemable, upon call, at 5108) . S 27,000 5 27,000 4%% series- 130,000 shares (redeemable, upon call. at $1011 13,000 13,000 9.30% series-350,000 shares (redeemable, upon call, prior to July 1,1980 at 5110; reduced amounts thereafter) . 35,000 35,000 7.44% series-400,000 shares (redeemable, upon call, prior to April 1,1982 at 5105: reduced amounts thereafter). 40/ 40,000 9.28% series-400,000 shares (redeemable, upon call, prior to July 1,1984 at $106; reduced amounts thereafter). 40,000 40,000 9.52% series-450,000 shares (redeemable, upon call, prior to January 1,1981 at 5109.52: reduced amounts thereafter). 45,000 45,000 Total cumulative preferred shares . S200,000 $200,000 l

17 The accompanying notes are an integral part of the financial statements and schedules.

The Cincinn:ri Gas & Electric Comp:ny And Subsidiary Companies Schedule of Long-Term Debt (Thousands of Dollars)

December 31.1979 and 1978 1979 1978 The Cincinnati Gas & Electric Company First mortgage bonds-3% % series due 1982 . S 20,000 5 20,000 3% % series due 1983 . 20,000 20,000 4% % series due 1987 25,000 25,000 5 % series due 1990 . 30,000 30,000 4% % series due 1992 . 25,000 25,000 5% % series due 1997 . 30,000 30,000 7% % series due 1999 . 50,000 50.000 8% % series due 2000 . 60,000 60,000 7% % series due 2001 60,000 60.000 8% % series due 2003. 60,000 60.000 9.15% series due 20(M. 60,000 60,000 9.85% series due 2005. 60,000 60,000 8.55% seaies due 2006. 75,000 75,000 9% % series due 2008. 75,000 75.000 10 % series due 2009. 100,000 -

750.000 650,000 Notes payable-4% due through 1985 2,303 2,699 6%-7%% due through 1984 . 126 175 Other long-term debt-6.70% due 1997 through 2006. 10,000 10,000 7.10% due 2004. 10,500 -

7.20% due 2005 through 2009. 37,500 -

810,429 662.874 The Union Light, Heat and Power Company First mortgage bonds-3 % series due 1979. - 5,000 3%% series due 1981. 1,400 1,400 3%% series due 1984. 1,500 1,500 5 % series due 1989. 6,100 6,100 4%% series due 1993 6,500 6,500 8 *A series due 2003 10,000 10,000 9%% series due 2008 10,000 10,000 35,500 40,500 Less 3% series due 1979. - 5.000 35,500 35,500 Other Subsidiary Companies' Debt 5%% 8%% due through 1991. 446 481 Unamortized premium and discount (net) . 277 119 Total long-term debt . 8846,652 5698,974 i

!8 The accompanying notes are an integral part of the financial statements and schedules.

The Cincinn:ti G:s & Electric Company And Subsidiary Companies Uh usandsof Douan)

Schedule of Taxes for the years ended December 31, 1979 1978 1977 1976 1975 TAXES OTHER THAN INCOME TAXES Property . S28,3 % $26,702 525,946 525,454 522,555 State Public Utility Excise. 25,904 23,608 18,529 15,982 13,742 Payroll . 3,850 3,283 2,711 2,516 2,293 Other. 1,791 1,M6 1,485 1,019 1,003 859,941 555,139 548,671 544,971 539,593 INCOME TAXES Included in operating expenses-Currently payable. S(6,708) 514,693 523,059 5 8,283 5 4,820 Deferred-Accelerated amortization . (563) (716) (723) (723) (723)

Liberalized depreciation-net . 1,061 988 901 812 716 Other. . . (348) 833 218 374 814 Investment tax credits-net. 28,000 17,501 15,082 7,690 7,433 Total . 21,442 33,299 38,537 16,436 13,060 Included in other income and deductions-net . 442 38 (%) 46 263 Total provision S21,884 533,337 538,441 516,482 513,323 Analysis of provision Federal income taxes. $21,269 532,804 537,939 516,172 513,012 State income taxes. 615 533 502 310 311 533,337 538,441 516,482 513.323 S21g COMPUTATION OF FEDERAL INCOME TAX PROVISION Tax at statutory Federal income tax rate applied to pre-tax income. S49,228 553,057 $M,746 533,873 530,120 Reductions in Federalincome taxes resulting from-Allowance for funds used during construction which does not constitute taxable income . (16,926) (10,836) (9,612) (7,201) (5,867)

Excess of tax depreciation over book depreciation . (5,885) (7,077) (8,198) (8,008) (9.253)

Cost of removal for property retired . (1,190) (866) (609) (714) (979)

Amortization of investment tax credits. t1,503) (1,386) (840) (968) (783)

Other-net . (2,455) (88) 2,452 (810) (226)

Federalincome tax provision. 321,269 532,8(M $37,939 516,172 513.012 11 The accompanying notes are an integral part of the financial statements and schedules.

The Ci ci=:ti G:s & Electric Ccmp:ny And Subsidian Companies N:tes to Consolidated Financial Statements (1) Summery of Significant Accounting Policies:

CG&E and its subsidiaries follow the Uniform Systems of Accounts prescribed by the Federal Energy Regulatory Commission (FERC). The more significant accounting policies are summarized below:

Principles of Ccnsolidation. All subsidiaries of CG&E are included in the consolidated statements. Intercompany items and transactions have been eliminated.

Utility Plant. Property, plant and equipment is stated at the original cost of construction, which includes payroll and wlated costs such as taxes, pensions and other fringe benefits, general and administrative costs, and an allowance for funds used during construction.

Revenues and Fuel. Revenues are included in income as billed to customers on a cycle basis. The companies charge to expense the cost of fuel used to generate electricity as it is consumed and the cost of gas as it is purchased.

Depreciation and Maintenance. The companies determme their provision for depreciation using the straight-line method and by the application of rates to various classes of property, plant and equipment. The rates are based on periodic studies of the estimated service lives of the properties. The percentages of the annual provisions for depreciation to the weighted average of depreciable property during the five years ended December 31,1979, were equivalent to:

1979 1978 1977 1976 1975 Electric . 3.4 3.4 3.4 3.2 3.2 G as . 2.9 2.9 2.9 2.7 2.5 Common . 2.2 2.3 2.6 2.7 2.7 Changes in depreciation accrual rates, as authorized by The Public Utilities Commission of Ohio (PUCO), were made effective August 1,1976 (applicable to CG&E's gas and common plant) and as of January 1,1977 (applicable to CG&E's electric plant). The changes resulted in annual increases of approximately 5500.000 and $1,200.000, respectively,in depreciation expense.

All expenditures for maintenance and repairs of units of property, including renewals of minct items, are charged to the appropriate maintenance expense accounts. A betterment or replacement of a unit of property is accounted for as an addition and retirement of property, plant and equipment. At the time of such a retirement, the accumulated provision for depreciation is charged with the original cost of the property retired and also for the net cost of removal.

Income Taxes. CG&E and its subsidiaries use liberalized depreciation methods (including ADR depreciation and cost of removal deductions) for Federalincome tax purposes. In conformity with an order of PUCO effective January 1,1962, CG&E does not provide for income tax deferrals resulting from the use of liberalized depreciation.

Based on a decision of the Supreme Court of Ohio, CG&E will be allowed to collect through future rates the income taxes payable in the future as a result of currently using liberalized depreciation income tax deductions.

CG&E and its subsidiaries do provide for deferred taxes arising from use of liberalized depreciation for operations regulated by utility commissions other than PUCO. Income taxes deferred in prior years from the use of five-year emergency facility amortization certificates are being credited to income over the estimated remaining useful lives of such facilities. Investment tax credits are deferred and amortized over the estimated useful lives of the applicable properties.

Retirement income Plan. The companies have a trusteed non-contributory retirement income plan which provides monthly income to employees at retirement (normal retirement age is 65). Total assets of the pension fund are sufficient to meet the actuarial estimate of vested benefits under the plan. Pension costs accrued and funded were

$5,310,000 in 1979,54.600,000 in 1978,54,250,000 in 1977,53,400.000 in 1976, and $2,980,000 in 1975.

At December 31,1979, the estimated actuarialliability of the plan was $149 million and the estimated market value of assets in the pension fund totaled 5136 million.

Allowancefor Funds Used During Construction. The applicable regulatory uniform systems of accounts define

" allowance for funds used during construction"(AFC) as including "the net cost for the period of construction of borrowed funds used for construction purposes and a reasonable rate on other funds when so used". This amount of AFC constitutes an actual cost of construction and, under established regulatory rate practices, a return on 20 and recovery of such costs heretofore has been permitted in determining the rates charged for utility services.

The companies used an accrual rate for AFC of 7%% for 1975 through 1978 and 8h% for 1979. The rate does not include a reduction for the income tax effect on the cost of debt.

Beginning in 1977, in compliance with Order No. 561 of FERC. AFC is reported in terms of its debt and other funds' components and the combined rate is less than the maximum rate allowed under *he procedure specified by that Order. The years prior to 1977 have been reclassifed in accordance with Order No. 561.

(2) Assets Subject to Lien:

Under the terms of the respective mortgage indentures securing first mortgage bonds issued by CG&E und its subsidiaries, substantially all property is subject to a direct first mortgage lien, except that a portion of CG&E's headquarters property is pledged as collateral for a purchase-money 4% rote payable in installments through 1985.

(3) Common Stock:

CG&E issued authorized but previously unissued shares of Common Stock pursuant to three plans as follows:

Shares Reserved Shares issued go, g ,,,,,,, ,,

1979 g December 31,1979 Dividend Reinvestment and Stock Purchase Plan . 121,850 33,855 244,295 Employee incentive Thrift Plan . 208J15 102,802 488,883 Employee Stock Ownership Plan 151,238 115,339 33.423 481,403 251,996 766.601 Reference is made to " Financing" herein for information concerning the proposed sale of additional common stock on or about January 29,1980.

(4) Sale of New Cumulathe Preferred Stock (Redeemable Pre 1 erred Stock):

On January 4,1980, CG&E offered through Underwriters 500,000 shares of Cumulative Preferred Stock,10.20%

Series $100 Par Value. The proceeds from the sale were used to repay a portion of CG&E's short-term indebtedness incurred in connection with its construction program.

The Cumulative Preferred Stock,10.20% Series is subject to mandatory redemption in an amount sufficient to retire on each January 1, beginning in 1985,15,000 shares at $100 per share plus accrued dividends, and CG&E will have the noncumulative option to redeem up to 15,000 additional shares in each year, CG&E will have the option to satisfy the mandatory redemption requirement in whole or in part by crediting shares of the Cumulative Preferred Stock,10.20% Series acquired by CG&E. To the extent CG&E does not satisfy its mandatory sinking fund obligation in any year such obligation must be satisfied in the succeeding year or years. If CG&Eisin arrears in the redemption of the Cumulative Preferred Stock,10.20% Series pursuant to the mandatory sinking fund requirement, CG&E shall not purchase or otherwise acquire for value, or pay dividends on, Common Stock.

(5) Rates:

Reference is made to " Rate Matters" herein with respect to electric and gas rate increases.

(6) Compensating Bank Balances and Notes Payable:

Substantially all of the cash balances of CG&E and its subsidiaries are maintained to compensate the respective banks for banking services and to obtain lines of credit: however, no specific amounts have been designated as compensating balances and CG&E and its subsidiaries have the right of withdrawal of such funds. Unused lines of credit under agreements in effect at December 31,1979, totaled 514.0 million. The maximum amount of outstanding short-term notes payable, including commercial paper, authorized by CG&E's Board of Directors and approved by PUCO to be incurred at any time in 1980 is 5100 million and, in addition, FERC authorized Union Light to issue a maximum of 510 million of short-term notes payable in 1980.

Certain information relatir.g to short-term notes payable to banks and commercial paper of CG&E and its subsidiaries is set forth below:

l l 1979 1978 tthousands, except percents)

Amount outstanding at December 31. 376,640 522,950 Weighted average annual interest rate. 14.22 % 10.38 %

Average daily total outstanding during period. 824,326 514,646 Weighted average annualinterest rate. 11,98 % 8.39%

Maximum amount outstanding during period . S76,640 566,175 (7) Commitments:  ;

The companies estimate that their construction programs will require expenditures of approximately $1.2 billion during the period 1980 through 1984. Substantial commitments have been made by the companies in connection with these programs, including the construction of several electric generating units and related transmission lines

on a common own:rship basis with Columbus end South rn Ohio El:ctric Compiny and/or The D:yton Power and Light Company. Reference is made to " Environmental Matters" and " Construction" herein for further information.

CG&E owns 9% of the common stock of Ohio Valley Electric Corporation (OVEC) which has a long-term contract to supply power to the Department of Energy (DOE). The proceeds from the sales of power by OVEC are to be sufficient to meet all of its costs, including amortization of debt capital. As of December 31,1979, debt capital of approximately $24 million remains to be amortized over a period ending 1981. CG&E and other sponsoring utilities are entitled to receive, and are obligated to pay for the right to receive, any available power from OVEC's facilities not required by DOE: CG&E's portion of available OVEC capacity is 9%.

(8) Quarterly Financial Data (Thousandsi:

Average Number of Earnings on Common Earnings per Total .

Operating Operating Net Common Shares Common income income Shares Outstanding Share Quarter Ended Resenues March 31,1978. 5254,210 5 35,037 528,1191 524,910 23.700 51.05 June 30,1978. 170,599 28,503 20,933 16,952 23,714 .71 159,277 21,026 13329 9,348 23,799 39 September 30,1978.

December 31,1978. 21,826 14.579 10.598 25,800 .41 188.590 5772,676 5106 392 577,732 561,808 (a) 5265,396 5 41,509 535,218 531,237 26,796 51,16 March 31,1979 June 30,1979. 179,237 24,909 18345 14,364 26,868 .53 I68,758 25,697 19,008 15,027 26,996 .55 September 30,1979.

December 31,1979. 212,435 20,273 13,177 9,196 27,197 .33 5825,826 5112 388 585,748 569.824 (a) tal Total does not equal annt.al earnings per share due to change in shares outstanding.

(9) Financial Information By Business Segments (Thousands of Dollarsi:

Operating Operating income Provision for Construction Resenues income Taies Depreciation Espenditures (al Year Ended December 31,1977 5450,182 5 90.528 529,086 537,818 5148,137 Electric. 6,103 5,509 Gas . 239,684 16.036 9.451 5689,866 5106,564 538,537 543,921 5153,646 Total .

Year Ended December 31,1978 ,

5493,323 5 87,316 521,659 541,486 5199,% 5 Electric. 7,278 279.353 19,076 11,640 6.207 Gas .

$772.676 5106 392 533,299 547,693 5206 343 Total .

Year Ended December 31,1979 5518,916 5 95,258 514 319 543358 5256,771 Electric .

306,910 17,130 7,123 6353 12.731 G as .

521,442 549,711 5269,502 Total . 1825.826 5112 388 (al Excludes construction expenditures for nomutility plant of 5585,000 in 1977,5533.000 in 1978, and $(204.0006 in 1979.

December 31,1979 December 31,1978 Gas Total Electric Gas Total Electric Property, Plant and 5142,271 51,510,635 51,580,541 5148 302 51,728,843 51 368,364 Equipment, net . 208.638 251,992 Other Corporate Assets.

$1.980,835 51.719,273 ,

Total Asset <

22 (10) Supplementa- Information Concerning the Effects of Inflation (Unaudlied)t The est; mates o' r ,,ntects of inflation on the Operations of CG&E and its subsidiaries at December 31,1979, set forth be ov ,* ere prepared on the basis prescribed by the Financial Accounting Standards Board in Statement

of Financial Accounting Standards No. 33. " Financial Reporting and Changing Prices". The effens of inflation cre not recognized for income tax or rate-making purposes. This data is not intended as a substitute for earnings rrported on a historical cost basis. Explanations of relevant information are set forth below.

Statement of Income Adjusted for Changing Prices For the Year Ended December 31,1979 Constant Dollar Current Cost Conventional Aserate Atersee Historical Cost 1979 Dollars 1979 Dollars (Thousandsof Dollars)

Total operating revenues . 5825.826 5825.826 5825,826 Gas purchased . 232,055 232,055 232,055 Fuel used in electric production . 216,279 216,279 216.279 Provision for depreciation . 49,711 03,931 106,890 Other operating expenses. 193,951 193,951 193.951 Income taxes. 21,442 21,442 21,442 Total other income and deductions . (19,832) (19,832) (19,832)

Net interest charges. 46,472 46,472 46,472 740,078 784,298 797,257 Net income . 85,748 41,528 28,569 Preferred dividends. 15.924 15,924 15,924 Earnings on common shares. 5 69,824 5 25,6N(a) 5 12 M5 increase in specific prices (current cost) of property, plant and equipment held during the year (b) . 5318,083 Reduction to net recoverable cost. 5(156,496) (82,362)

Effect of increase in general price level . (379.258)

Excess of increase in general price level over increase in specific prices, after reduction to net recoverable cost. (143,537)

Gain from decline in purchasing power of net amounts owed . 133,212 133,212 Net . 5(23,28 ) 5(10.325)

(a) including the reduction to net recoverable cost, the earnings on common shares on a constant dollar basis would have been 5(130,892.000) for 1979.

(b) At December 31,1979, current cost of property, plant and equipment, net of accumulated depreciation, was 53,318.439,000 whiie historical cost was 51,728,M3,000 Five Year Comparison of Selected Supplementary Financial Data Adjusted for Effects of Chenging Prices Years Ended December 31 1979 1978 1977 1976 1975 (Thousands of Average 1979 Dollars)

Total operating revenues . S825,826 5859,671 5826,319 5697,635 5M7,167 Constant dollar information Earnings on common shares . S 25,6N Earnings per common share . S .95 Net assets at year end at net recoverable cost. 8526,934 Current cost Information Earnings on common shares. $ 12,HS Earnings per common share. S .47 Excess of increase in general price level over increase in specific prices, after reduction to net recoverable cost . 8143,537 Net assets at year end at net recoverable cost. 8526,934 General information Gain from decline in purchasing power of net amounts owed. $133,212 Cash dividends declared per common share. 8 1.% 5 2.11 5 2.14 5 2.09 5 2.21 23 Market price per common share at year end. S 15.74 5 21,43 5 27.01 5 28.53 5 24.67 Average consumer price index (1979 projected) . 217.4 195,4 181.5 170.5 161.2

. -- . _ - _ _ - - . = . _

General. Constant dollar data was determined by converting the historical cost of property, plant and equipment

into dollars of the same general purchasing power using the Consumer Price Index for All Urban Consumers.

The current cost data reflects the cost of currently replacing existing property, plant and equipment. The current cost of property, plant and equipment was measured by applying the Handy-Whitman Index of Public Utility Construction Costs to plant accounts by vintage years. This method shows the effect of inflation on specific l plant assets.

The difference between current cost and the constant dollar data results from specific prices of plant assets l increasing at a rate different than the rate of generalinflation.

As prescribed in Statement of Financial Accounting Standards No. 33, items in the income statement, other than depreciation expense, were not adjusted. Fuel used in electric production and gas purchased were not adjusted j because the effect on earnings on common shares was not material. The related inventories were considered  ;

~

to be monetary assets for purposes of this disclosure.

l Property, Plant and Equipment. Estimated property, plant and equipment, primarily consisting of plant in service i and construction work in progress, was determined using the indices specified above applied to the historical cost j j of plant and restated to average 1979 dollars. The adjusted cost data for property, plant and equipment is not t indicative of the current value of existing property, plant and equipment nor of the Company's future capital

requirements. The actual replacement of existing property, plant and equipment will take place over many years

and not necessarily in the same manner as the presently existing assets. j Accumulated Depreciation. The accumulated provisions for depreciation under both of the methods described i above were developed by applying the same percentage relationship that existed between gross plant and l accumulated provision for depreciation on a historical cost basis at December 31,1979 to the respective adjusted cost data.

4

! Depreciation Expense. Depreciation expense for both methods was determined by applying the rates used for j computing historical depreciation to the respective adjusted cost data.

A Writedown of Property, Plant and Equipment to Net Recoverable Cost. The rate regulatory process limits the Company to the recovery of the historical cost of property, plant and equipment. Therefore, the value of the j property, plant and equipment under both methods must be reduced to the net recoverable cost which is  !

historical cost adjusted to average 1979 dollars.

r Gain from the Decline in Purchasing Power ofNet Amounts Owed. The Company, by holding monetary assets l such as cash, receivables, and inventory, loses purchasing power during periods of inflation because these items l

can purchase less at a future date. Alternatively, by holding monetary liabilities, primarily long-term debt, the  !

I Company benefits because the payment in the future will be made with dollars having less purchasing power. The Company has significant amounts of long term debt outstanding which will be paid back in dollars having less ,

purchasing power and therefore, for purposes of these calculations, has a net monetary gain. l Specific Prices of Property Plant and Equipment Held During the Year. Specific prices of property, plant and equipment held during the year increased less than the general price level because the value of the property, ,'

i plant and equipment held by the Company increased at a lower rate than the rate of generalinflation.

i I y  !

i f

i f

i 24 l

ow , , , .-

Auditors' Report To the Shareholders of The Cincinnati Gas & Electric Company:

We have examined the consolidated balance sheet and schedules of shareholders' equity and long-term debt of THE CINCINNATI G AS & ELECTRIC COMPANY (an Ohio corporation) and its subsidiary companies as of December 31,1978, and December 31,1979, and the related consolidated statements of income, changes in shareholders' equity, and sources of funds for construction expenditures and schedule of taxes for each of the five years in the period ended December 31,1979. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the accompanying consolidated financial statements and schedules referred to above present fairly the financial position of The Cincinnati Gas & Electric Company and its subsidiary companies as of December 31,1978, and December 31,1979, and the results of their operations and their sources of funds for construction expenditures for each of the five years in the period ended December 31,1979, in conformity with generally accepted accounting principles applied on a consistent basis.

Arthur Andersen & Co.

Cincinnati, Ohio, January 23,1980.

1 1

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The Cizci:nati G1s & Electric Comp =y And Subsidiary Companies 1979 1978 Consolidated Statistics: 1969 1979 69,824 61,808 Earnings on common shares (5000 omitted) .

Average number of common shares outstanding (000 omitted) . 26,9M 24,253 GENERAL Earnings per common share (5) . 2.59 2.54 Cash dividends declared per common share (5) . 1.% 1.90 Pay out ratio (%) . 75.7 74.8 269,298 206,876 Construction expenditures (5000 omitted) .

13,802 8,371 Plant retirements (5000 omitted).

Operating income-before income taxes (5000 omitted) 109,577 108,975 Electric .

24,253 30,716 G as .

Property, Plant and Equipment, net (5000 omitted) 1,580,541 1,368,364 Electric .

148,302 142.271 Gas .

Electric revenues (5000 omitted) 186,216 180,476 ELECTRIC Residential .

135,705 129,402 DEPARTMENT Commercial .

146,490 136,903 Industrial .

50,505 46.542 All other .

Total revenue . 518,916 493.323 Electric sales (million kwh) 4,822 4,728 Residential .

3,182 3,069 Commercial .

4,757 4,517 Industrial .

1,327 1.254 All other .

14,088 13,568 Total sales .

583,195 570,536 Number of customers December 31.

9.303 9,328 Average annual sales per residential customer (kwh) .

14,879 14,196 Electricity generated-net (million kwh) .

Electricity purchased and interchanged-net (million kwh). 240 332 15,119 14,528 Total available (million kwh) .

KW capability at 12/31-net (thousand kw). 3,880 3,800 2,978 2,835 System peak load-net (thousand kw) .

Fuel cost per kwh generated (cents) . 1.454 1.383 10,409 10,555 Btu per kwh sendout . .s.

load factor-electric. 57.8 58.4 Gas revenues ($000 omitted) 143,657 137,440 GAS Residential .

61,166 58,010 DEPARTMENT Commercial .

89,250 72,756 Industrial .

12,837 11,147 All other.

Total revenue. 306,910 279.353 Gas sales (million cu. ft.)

48,213 50,312 Residential .

21,837 22,589 Commercial .

35,929 32,004 '

Industrial .

4,104 3,747  :

All other.

110,083 108,652 Total sales.

5,669 6,145 Annual degree days-billing .

361,190 360,988 Number of customers December 31.

Average annual sales per residential customer (thousand cu. ft.) . 149 155 111,890 109,753 l Gas purchased (million cu. ft.).

28 36 l Gas produced (million cu. ft.) .

111,918 109.789 l Total available (million cu. f t.) .

747 803 System maximum day sendout (million cu. ft.) .

Average cost per Mcf purchased (cents). 207.4 181.6 Mean temperature on maximum day ( F). 13 1 l load factor-gas. 41.0 37.4 l I

1977 1976 IMS 1974 1973 1972 IMI 100 1969 60,191 38,639 38,097 35,736 42,241 40,108 32,771 33,687 33,256 21,450 21,000 20.233 18,700 18,700 17,000 16,001 15,502 15,502 2.80 1.84 1.88 1,91 2.25 235 2.04 2.17 2.14 1.79 1.64 1.64 1.64 1.64 1.58 1.56 1.51 % 1.42 %

63.9 89.1 87.2 85.9 72.9 67.2 76.5 69.8 66.6 IM,231 133,828 142,294 136,578 126,004 113,500 141,710 IM,658 87,883 20,N2 26,632 14,825 11,806 17,953 10,139 15.4 % 6,209 8,224 119,614 81,848 85,670 65,707 77,671 71,751 61,644 57,022 55,879 i 25,487 17,016 4,659 15,657 13,029 13,852 9,836 10,467 14,140 1,212,423 1,109.285 1,019,472 919,400 822,495 740,155 660,030 552,326 477,552 ,

141.373 141,897 143,821 145,080 144,552 144,584 141,696 135.569 126,282 '

161,531 132,093 125,887 100,899 89,097 81,155 74,976 67,501 62,215 120,399 91,534 83,786 69,758 61,109 53,981 47,824 41,877 37,943 123,721 94,748 83,188 73,151 59,870 53,788 47,988 41,822 38,790 44,531 34 M4 31 M9 29,707 21,439 19,174 17,208 15,041 14.064 450,182 352.4i5 324.510 273.515 231,515 208,098 187,996 166,241 153,012 4,569 4,068 3,969 3,574 3,510 3,228 3,M2 2,808 2,586 t 3.057 2.873 2,755 2,644 2,632 2,398 2,209 2,124 1,928 4,487 4,295 3,938 4,334 4,373 4,118 3,926 3,722 3,642 1312 1,193 _ 1,178 1319 1.059 %1 910 858 846 13.425 12.429 _ 11,840 11,871 11,574 10,705 10,087 9,512 9,002 560,551 553,915 544,494 533,079 521,833 510,324 499,797 491,676 484,637 9,149 8.251 8,183 7,551 7,574 7,117 6,836 6,406 6,003 13,M8 13.247 12352 11,886 11,830 10,936 9,899 8,814 7,971 586 189 476 899 684 685 1,001 1,520 1,796 14,434 13,436 12.828 12,785 12,514 11,621 10,900 10334 9.767 3,480 3,492 3,739 3,482 3,254 2,934 2,461 2,146 1,957 2,841 2,598 2,511 2,402 2,439 2,243 2,093 2,011 1,784 1.172 1.034 .944 .761 .444 .411 382 J19 .273 10,500 10.252 10.183 10,262 10,024 10,178 10,308 10,667 10,685 57.8 58.4 58,1 59 3 58.2 58.8 59 3 58.6 62.1 123.082 94,775 76,038 63,567 54,745 57,736 51,528 47,435 47,684 50,105 40,381 32322 27,478 23,256 23,783 20,481 18,454 17,666 56,856 49,321 37,369 40,161 30,716 27,805 25,734 20,782 20,923

, 9.641 10,237 9.629 11.365 8,989 8,613 8,633 8,717 8,0M 239,684 194,714 155,358 142,571 117,706 117,937 106376 95,388 94,280 l

48,769 50,156 48,527 50,201 50,137 55,182 53,044 51,646 53,550 21,238 22,902 22,356 24,114 24,M2 26,047 24,463 23,269 22,866 27,465 33,823 31,433 47,687 47,474 47,945 47,641 40,185 42,427 3,484 5,536 6,150 12353 11,138 10,912 13,587 16,956 15,375 100,956 112,417 108,466 134 355 132,821 140,066 138,735 132,056 134,218 5,749 5,360 4,712 5,034 4,725 5,362 4,928 5,094 5,321 363,275 366.288 367,427 369,329 370,441 366,277 361,661 356,745 352,027 149 152 147 151 152 169 165 163 171 100,352 115,723 110,216 134,485 134,350 142,026 137,9M 132,705 135,779 1,353 77 -

20 135 540 661 2,431 1,206 101,705 115,800 110,216 134,505 134,485 142,566 138,568 135,136 136,%5 27 832 770 720 767 781 900 884 886 738 167.8 121,5 106.1 71.1 56.2 53.2 49.9 43.6 41.8

- 17 6 16 20 14 -5 6 -2 6 33.5 41,1 41.9 48,0 47.2 43 3 43.0 41.8 50.8

DAYTON-53 MILES The Greater a ..

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LOUISVILLE LEXINGTON 79 MILES 110 MILES Legend E Gs.s Service Area E Electric Service Area 8"Ilt Interstate liighway _,

h Gas Storage Cavern k Gas Aquifer E Gas Turbine Generating Plant h Fossil Fueled Power Plant The Greater Cincinnati Area served by CG&E and its 2

Planned Fossil Fueled Power Plant subsidiary companies covers approximately 3,000 square miles of Southwestern Ohio, Northern Kentucky and Southeastern Indiana with an estimated population of h Planned Nuclear Power Plant 1.7 million.

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