ML17334B092
| ML17334B092 | |
| Person / Time | |
|---|---|
| Site: | Cook  |
| Issue date: | 12/31/1986 |
| From: | ALEXICH M P INDIANA MICHIGAN POWER CO. (FORMERLY INDIANA & MICHIG |
| To: | MURLEY T E NRC OFFICE OF ADMINISTRATION & RESOURCES MANAGEMENT (ARM) |
| References | |
| AEP:NRC:0909C, AEP:NRC:909C, NUDOCS 8705270419 | |
| Download: ML17334B092 (38) | |
Text
REQULATOINFORMAlIONDISTRIBUTION TEN(RIDS)'r'CCESSION,NBR:
870527041 9DOC.DAlE:Bb/12/31NOTARIZED:
NODOCKETNFACIk:50-315DonaldC.CookNuclearPoverPlantiUnit1>Indiana0050003f550-31bDonaldC.CookNuclearPoI.ierPlantiUriit24IndianaPr05000316AUTH.NAMEAUTHORAFFILIATICIN ALEXICH>M.P.IndianaLicMichiganElectricCo.RECIP.NAMERECIPIENT AFFILIATE ll~NMURLEY>T.E.DocumentControlBIanch(Document ControlDes.")
SUBJECT:
"Indiana5MichiganElectricCoiAnnualRept198b."W/870of81tr.DISTRIBUTION CODE:N004DCOPIESRFCEIVED:
LTRlENCL3SIZE:QTITLE:50.71(b)AnnualFinancial Repori.NOTES:RECIPIENTIDCODE/NAME PD3-3PDINTERNAL.
AEOD/DOANRR/PMAS/PTSB EXTERNAL:
LPDRCOPIESLTTRENCL1111111RECIPIENT IDCODE/MANE WTCQINQTONi DAF/TPABFIE01t":HCPDRCOPIP~LTTRFi'c.L011f11TOTALNUMBEROFCOPIESREQUIRED:
LTTR8ENCL7 I)~4JII,J(tQp,y,,I'4tII,t4"II8lyt",h INDIANA8NICHIGANELECTRICCONPANYP,O,BOX16631COLUMBUS, OHIO43216Mav18,1987AEP'NRC:0909C 10CFR50.71(b)6140.21(e)
DonaldC.CookNuclearPlantUnitNos.1and2DocketNos.50-315and50-316LicenseNos.DPR-58andDPR-74FINANCIAL INFORMATION FORINDIANA6MICHIGANELECTRICCOMPANYU.S.NuclearRegulatory Commission Attn:DocumentControlDeskWashington, D.C.20555Attn:T.E.Murley
DearMr.Murley:
Enclosure 1containstheIndiana6MichiganElectricCompany's (I&MECo)annualreportfor1986.Enclosure 2containsacopyof16MECo'sprojected cashflowfor1987.Thesereportsaresubmitted pursuantto10CFR50.71(b)and10CFR140.21(e).
Thisdocumenthasbeenpreparedfollowing Corporate procedures whichincorporate areasonable setofcontrolstoinsureitsaccuracyandcompleteness priortosignature bytheundersigned.
Verytrulyyours,M.P.AlxichVicePresident cmEnclosures cc:JohnE.Dolan(w/oenclosures)
W.G.Smith,Jr.-Bridgman(w/oenclosures)
R.C.Callen(w/oenclosures)
G.Charnoff(w/oenclosures)
G.Bruchmann (w/oenclosures)
NRCResidentInspector
-BridgmanA.B.Davis-RegionIIIJpoil
'Enclosure 2toAEP:NR:0909C1987InternalCashPlowProjection forDonaldC.CookNuclearPlant,(Millions)
Actual1986Projected 1987NetincomeaftertaxesLessdividends paidRetainedearningsAdjustments:
Depreciation andamortization Deferredincometaxesandinvestment taxcreditsAFUDCTotaladjustments InternalcashflowAveragequarterly cashflowAveragecashbalancesandshort-terminvestments Total152.5139.513.0107.949.5(52.0)105.4118.429.649.078.61521361611710(51)7692233558%Ownership inalloperating nuclearunits:Unit1andUnit2-100%MaximumTotalContingent Liability
-$20.0million(2units)'
lr'4Al 000ANNUALREPORT1986AMERICANELECTRICPOWERSYSTEM8705270419 Qgos(Q'DRADOCK0000315IPDR/
ContentsBackground oftheCompanySelectedFinancial DataManagement's Discussion andAnalysisofResultsofOperations andFinancial Condition Auditors'pinion Consolidated Statements ofIncomeConsolidated BalanceSheets5-710-11Consolidated Statements ofSourcesandApplications ofFundsConsolidated Statements ofRetainedEarningsNotestoConsolidated Financial Statements Operating Statistics Directors andOfficersoftheCompanyDividends andPriceRangesofCumulative Preferred Stock121314-2526-272829 INDIANA&MICHIGANELECTRICCOMPANYOneSummitSquare,P.O.Box60,FortWayne,Indiana4680IBackground oftheCompanyINDtANA&MrcHroANELEcnucCoMpANY(theCompany),
asubsidiary ofAmericanElectricPowerCompany,Inc.(AEP),isengagedinthegeneration,
- purchase, transmission anddistribution ofelectric,power.TheCompanywasorganized underthelawsofIndianaonFebruary21,1925,andisalsoauthorized totransactbusinessinMichiganandWestVirginia.
Itsprincipal executive officesareinFortWayne,Indiana.TheCompanyhastwowhollyownedsubsidiaries; theyareBlackhawk CoalCompanyandPriceRiverCoalCompany,whichwereformerlyengagedincoal-mining operations.
TheCompanyservesapproximately 457,000customers innorthernandeasternIndianaandaportionofsouthwestern Michigan.
Amongtheprincipal industries servedaretransportation equipment, primarymetals,fabricated metalproducts, electrical andelectronic machinery, andrubberandplasticproducts.
Inaddition, theCompanysupplieswholesale electricpowertootherelectricutilities, municipalities andelectriccooperatives.
TheCompany's generating plantsandimportant loadcentersareinterconnected byahigh-voltage transmission network.Thisnetworkinturnisinterconnected eitherdirectlyorindirectly withthefollowing otherAEPSystemcompanies toformasingleintegrated powersystem:AEPGenerating Company,Appalachian PowerCompany,ColumbusandSouthernOhioElectricCompany,KentuckyPowerCom-pany,Kingsport PowerCompany,MichiganPowerCompany,OhioPowerCompanyandWheelingElectricCompany.TheCompanyisalsointerconnected withthefollowing otherutilities:
CentralIllinoisPublicServiceCompany,TheCincinnati Gas&ElectricCompany,Commonwealth EdisonCompany,Consumers PowerCompany,IllinoisPowerCompany,Indiana-Kentucky ElectricCorporation (asub-+sidiaryofOhioValleyElectricCorporation),
Indianapolis Power&LightCompany,NorthernIndianaPublicServiceCompanyandPublicServiceCompanyofIndiana,Inc.
SelectedFinancial DataYearEndedDecember31,198619851984(inthousands) 19831982$1,059,903 868,014191,88976,879268,768122,667INCOMESTATEMENTS DATA:OPERATING REvENUEs-ELEcrRIC..........
$1,069,359 TOTALOFBRATINO EXFBNSBS...............
878215OPERATING INCOME191,144TOTALOTHERINCOMEANDDEDUCTIONS
......669051NCOMEEEFORBINIBRFBTCHAROBS.........
2586049NETINTERESTCHARGES105568CoNsoLIDATED NETINcoME-beforepreferred stockdividendrequirements
.....152,481146,101PREFERRED STOCKDIVIDENDREQUIREMENTS
..2625627,056EAIININOS AFFLICABLE TOCOMMONSTOCK....$126225$119,045$965,972785,814$868,980686,237$809,803634,858180,15853,044182,74353,629174,94548,725236,37296,496223,670102,647233,20291,017142,18527,705139,87628,384121,02328,628$114,480$111,492$92,395BALANCESHEETSDATA:ELEcrRIcUTILITYPLANrACCUMULATED PROVISIONS FORDEPRECIATION, DEPLETION ANDAMORTIZATION NETELECIRIcUTILITYPLANTTGTALAssErs19861985December31,1984(inthousands) 2,784,257 2,940,338 3,669,867 3,559,078 2,878,042 3,463,874
$3,783,973
$3,878,707
$3,715,005 999716938,369836,9631983$3,666,823 4760,8892,905,934 3,343,963
/1982$3,541,114 685,7892,855,325 3,135,884 COMMONSTOCK,PREMIUMSONCAPITALSTOCKANDOTHERPAID-INCAPrrAL.............
RETAINEDEARNINGSCUMULATIVE PREFERRED STOCK:Nol'UBJEcf ToMANDAToRY REDEMPrIQN SUBIEcrToMANDATQRY REDEMPrtoN (a)LONG-TERM DEBT(a)828,347113,123197,00079,0301,421,523 828,347100,130828,34494,317197,000197,00086,03093,1971,442,070, 1,347,623 (807,92595,616197,00099,4971,445,704 777,78391,756197,000104,4471,397,475 (a)Including portionduewithinoneyear.
INDIANA&MICHIGANELECTRICCOMPANYANDSUBSIDIARIES Management's Discussion andAnalysisofResultsofOperations andFinancial Condition Thefollowing arethemoresignificant factorsbearingonthefinancial condition ofIndiana&MichiganElectricCompanyanditssubsidiaries asreflected intheconsoli-datedresultsofoperations.
Thisdiscussion referstqtheconsolidated financial statements thatfollow.RESULTSOFOPERATIONS
¹tIncomeConsolidated netincomebeforepreferred dividendre-quirements increased by4.4%in1986and2.8%in1985.The1986increaseresultedprimarily fromlowerfixedchargesforinterestandincreased miscellaneous nonoper-atingincomelessdeductions duepredominantly toade-creaseincertaincostsassociated withasubsidiary's Utahminingproperties.
Theproportion ofallowances forfundsusedduringcon-struction (AFUDC)includedinnetincomebeforepreferred dividendrequirements remainedevenwiththepreviousyear:34.1%(27.2%netofincometaxes)in1986and33.3%'27.1%
netofincometaxes)in1985.Thisisincontrastto82.1%(66.0%netofincometaxes)in1984.ThedecreaseintheAFUDCpercentage in1985,comparedwith1984,waslargelytheresultofadecreaseinconstruc-tionworkinprogresssubjecttosuchallowance duetothecommercial operation ofRockportPlantUnitNo.'(Rock-port1)inlate1984.See.Note1oftheNotestoConsolidated Financial Statements foradescription ofAFUDC.Anotheritemaffecting earningswasadeferredreturnrecordedbytheCompanyonitsinvestment inRockportUnit1.Thedeferredreturnrepresented 28.5%ofnetin-comein1986and41.3%in1985.SeeNote3oftheNotestoConsolidated Financial Statements.
Operating RevenuesandExpensesConsolidated operating revenuesincreased slightlyin1986overthepreviousyearcomparedtoa9.7%increasein1985.Theincreasein1986revenueswasmostlyduetoadditional ratereliefandasmallincreaseinsalesofelectricenergypartially offsetbyreducedfuelcostrecoveries.
In1985,kilowatt-hour (kwh)salesdecreased 10.5%primar-ilyduetoadropinkwhsalestowholesale customers.
Operating revenuesincreased in1985evenwiththissalesdecline,primarily duetoratereliefalongwithincreased recoveryoffuelcosts.Revenuesfromretailcustomers (residential, commercial andindustrial) wereup1.2%in1986,afterincreasing by18.4%in1985.Theincreasein1986retailrevenueswasmainlybecauseofadditional ratereliefcoupledwithaslightincreaseinenergysalespartially offsetbylowerfuelcostrecoveries.
Theslightincreasein1986energysalesincludedanincreaseinindustrial andcommercial salesof2.1%and1.3%,respectively, partially offsetbyadecreaseof1.5%inresidential sales.Theincreaseinenergysalestoindustrial customers, thefourthconsecutive yearofgrowth,reflected acontinuation ofarecoveryinthein-dustrialsectoroftheCompany's serviceterritory.
Thein-creasein1985revenueswasdueprimarily tohigherrates.Revenuesfromenergysalestootherutilities remainedvirtually unchanged despitea3.5%riseinkwhsales,anddropped5.7%in1985ona20.9%dropinkwhsales.Althoughkwhsalesrosein1986,revenuesremainedflatbecauseofaloweraveragerealization perkwhsold.Com-petitionandpricecuttinginthewholesale marketweredirectlyresponsible forthereducedrealization perkwh.Thedecreasein1985kwhsales,causedprimarily bylowersalestoneighboring utilities, waspartially offsetbyin-creasedrateschargedbytheCompanytoitswholesale customers.
Thehighlycompetitive wholesale marketplace isexpectedtocontinueinthenearfuturesinceanumberofnonaffiliated midwestern utilities havecapacitytosell.TheCompanyhasalong-term contractthatexpiresonDecember31,1987toprovide400,000kilowatts ofenergy(200,000kilowatts afterFebruary1,1987)toanonaffil-iatedutility.Thiscontractcontributed approximately 12%,12%and11%oftheCompany's totaloperating revenuesand37%,37%and32%oftheCompany's earningsap-plicabletocommonstockbeforeanypro-forma adjust-mentsfortheAEPSystemInterchange PowerPool(Pool)in1986,1985and1984,respectively.
IfthiscontractdidnotexisttheCompanywould'have beenrequiredtomakepaymentsinalesseramount,oralternatively beenentitledtocertainreceipts, duetotheoperation ofthePool.Afterthesepro-forma adjustments, thecontractcontributed ap-proximately 18%,17%and24%ofsuchearningsforsuchrespective years TheCompanyhasreflected thereduction inrevenuesresulting fromtheFebruary1reduction inthecontractinitspetitionbeforethePublicServiceCommission ofIn-dianaforarateincrease.
TheCompanycangivenoas-surancethatitwillreceivesuchrelieforarrangeothertransactions andfailuretoreceivesuchrelieforarrangeothertransactions couldhaveamaterialadverseeffectontheCompany's netincome.Purchased andinterchange powerexpensedecreased 23.9%in1986following a23.2%increasein1985.Thechangesin1986and1985weremostlycausedbytheun-availability oftheDonaldC.CookNuclearPlantUnitNo.1(CookI)during1985,becauseofthe10-yearan-niversary serviceoutagerequiredbytheNuclearRegula-toryCommission.
WhenCook1wasreturnedtoservice,thepurchased andinterchange powertransactions werenolongerneededtomeettheCompany's loadrequirements.
Inaddition, thepurchaseofanaffiliated company's shareofthegeneration ofRockport1furtherincreased purchased andinterchange powerexpensein1985.Fuelexpense,thesinglelargestexpenseoftheCom-pany,increased by8.7%and11.4%in1986and1985,respectively.
In1986theconsumption offuelincreased asaresultofahighergeneration levelmostlytheresultofCook1beingreturnedto.serviceasexplained above.In1985fuelexpenseincreased dueprimarily tothecommer-cialoperation ofRockport1aswellasanincreaseinotherinternalfossilgeneration.
Thisrelatively moreexpensive fossilgeneration wasusedtohelpoffsetthedecreaseinnucleargeneration available becauseoftheCook1outagediscussed earlier.Futurefuelexpensewillbeaffectedbygeneration levels,supply-and-demand factors,contractual agreements betweenthecoalindustryandtheUnitedMineWorkersofAmericaandthepossibility ofmorestringent environmental restrictions ontheburningofcertaintypesofcoal.Whetherornotfutureincreases infuelcostswillaffectearningsadversely willdependontheCompany's continued abilitytorecoversuchcostspromptlyinthefaceofeffortsbysomeconsumergroupsandotherstodelayorreducerateincreases andtoeliminate orreducetheextentofcoverageoffuel-adjustment clauses.Maintenance expensehadasmalldecreasein1986butincreased 28.7%in1985.The1985increaseincludedtheexpenseofthe10-yearanniversary serviceoutageofCook1,thecommercial operation ofRockport1,andthefailureofstep-uptransformers atRockport1.Depreciation expenseincreased inboth1986and1985.Theincreasein1985wasduemainlytothecommercial operation ofRockport1.The1986increasewasduelargelytotheamortization ofpreviously deferredRockport1costs.Federalincometaxesincreased 31.4%in1986comparedtoamodestincreasein1985.The1986increaseinFederalincometaxeswasdueprimarily toanincreaseinpre-taxbookoperating incomeandchangesincertainbook/taxtimingdifferences, thetaxeffectsofwhichareaccounted foronaflow-through basis.Totalinterestchargesdecreased 8.9%in1986afterasmalldecreasein1985.The1986decreaseresultedfromtheCompany's replacement ofhigh-interest bondswithbondshavinglowerinterestrates.EgectsofInflation Inflation hashadaneffectontheCompany's consoli-datedrevenues, expensesandnetincomebeforepreferred stockdividendrequirements thatisnotreadilyevidentinconventional financial statements.
Overthepasttheeyears,consolidated revenuesshowedaslightincreaseonanhistorical basis;however,whenadjustedfor,theeffectsofinflation theyremainrelatively flat.MostoftheCom-pany'sassetsarelong-lived
- property, plantaridequipment acquiredoveraperiodofyears.Thedepreciation oftheseassetschargedtoincomeisbasedon'historical costandwouldbesubstantially greaterwhenadjustedforthecostofreplacing theseresources atcurrentcost.However,therate-making processlimitstheCompanytorecoveryofthehistorical costofassets.Iftheincomestatement weread-justedforinflation, netincomewouldbesubstantially lower.Thelowrateofinflation overthepastseveralyearsdidnoteliminate theseeffectsbutratherminimized thevariation fromyeartoyear.
INDIANA&MICHIGANELECTRICCOMPANYANDSUBSIDIARIES
-LIQUIDITY ANDCAPITALRESOURCES Construction andFinancing ProgramTheCompanyhasaconstruction programtobuild,ac-quire,improveandreplaceplant,propertyandequipment usedforthegeneration, transmission anddistribution ofelectricity andforotherutilityservices.
Construction ex-penditures forthethree-year period1987-1989 areesti-matedat$748million.Ifacidrainlegislation similartothatcurrently proposedisenactedintolaw,theCompanywouldberequiredtomakesubstantial additional expend-itures.See"Environmental Matters"inNote10oftheNotestoConsolidated Financial Statements foradditional information.
Theneedforexternalfundstosupporttheconstruction programisexpectedtoincrease.
Itisexpectedthatap-proximately'45%
oftheCompany's projected construction expenditures for1987-1989 willbefinancedwithinternally generated funds.Theadditional amountsneeded,inexcessofotheravailable funds,willhavetoberaisedexternally, asinthepast,throughsalesofsecurities andwithinvest-mentsintheCompany's commonequitybyAEP.TheCompanygenerally issuesshort-term debt(com-mercialpaperandbankloans)toprovideinterimfinancing ofconstruction expenditures inexcessofavailable inter-nallygenerated and"other funds.TheCompanythenpe-riodically reducesshort-term debtwiththeproceedsofsalesoflong-term debtsecurities andpreferred stockandwithinvestments initscommonequitybyAEP.Theamountsofshort-term debtthattheCompanymayissuearelimitedbyregulatory restrictions underthePublicUtilityHoldingCompanyActof1935andbyrestrictions initscharterandincertaindebtinstruments.
AtDecember31,1986,theCompanyhadreceivedauthorizations fromtheSecurities andExchangeCommission toissueatotalofapproximately
$220millionofshort-term debt,andhadoutstanding unusedshort-term linesofcreditwithbanksofapproximately
$269millionsharedwithotherAEPSys-,temcompanies.
Thelinesofcreditmaybewithdrawn atanytimebythebanksextending them,andinmostcasesthebanksrequirethemaintenance ofcompensating depositbalancesorthepaymentoffeesinlieuofdeposits.
TheCompanycanissueadditional long-term debtandpreferred stockonlyifitcomplieswithearnings-coverage requirements contained initsmortgagebondanddebenture indentures andcharter.Theseprovisions donotpreventcertaintypesofpollution-control revenuebondfinancings bypublicbodiesonbehalfoftheCompany,butthelevelsofcoverageunderthemmayaffectthecostandmarketa-bilityofsuchbonds.AtDecember31,1986,thelong-term debtandpreferred stockcoverages oftheCompanywereatleast2.80and1~80,respectively.
CookNuclearPlantTheCookNuclearunitsareexhibiting indications ofintergranular corrosion (IGC)inthesteamgenerator tub-ing,acondition whichhasdeveloped inotherpressurized waterreactors.
ThishasledtoadecisiontooperateUnitNo.2at80%powerandUnitNo.1at90%powerasasteam-generator'ife conservation measure.Itispresently plannedtoreplacetheUnitNo.2steamgenerators inlate1988or1989,atanestimated costof$160million,tocorrectthiscondition.
TheIGCproblemintheUnitNo.1steamgenerators isoccurring ataslowerratethaninUnitNo.2,butitispossiblethattheUnitNo.1steamgen-eratorswillalsohave.tobereplacedeventually.
However,therearenopresentplansforsuchreplacement.
WhentheUnitNo.2replacement programoccurs,itwillrequireanextendedoutage,estimated at12months.Thisisnotex-pectedtohaveamaterially adverseeffectontheCompa-ny'soperations orfinancial results.TarReformActTheTaxReformActof1986,enactedOctober22,1986,providesforextensive revisions toFederaltaxlaw.Amajorprovision oftheActreducesthecorporate incometaxratefrom46%to34%,effective July1,1987.Asaresultofthisandotherchangesinthetaxlaw,ourregulatory com-missionsarereviewing theAct'simpactonratestocon-sumersintheirjurisdictions.
WhiletheCompanyisnotabletoquantify, atthistime,the,overalleffectsonfinancial resultsforalloftheCompany's jurisdictions, theCompanydoesnotanticipate amaterialimpactonnetincomeasaresultofthesechangesinthetaxlaw.However,provisions intheActrelatingtodepreciation lives,repealofthein-vestmenttaxcreditandtaxationofunbilledrevenueswillresultinreducedinternalcashflow.
Auditors'pinion DeleitteHeskiiis+Sells 155festBroadStreetCofumbus.
Ohio4321&3650 (614)221-1000ITTTeterc4995627TotheShareowners andtheBoardofDirectors ofIndianaSMichiganElectricCompany:Wehaveexaminedtheconsolidated balancesheetsofIndianaSMichiganElectricCompanyanditssubsidiaries asofDecember31,1986and1985andtherelatedconsolidated statements ofincome,retainedearningsandsourcesandapplications offundsforeachofthethreeyearsintheperiodendedDecember31,1986.Ourexaminations weremadeinaccordance withgenerally acceptedauditingstandards and,accordingly, includedsuchtestsoftheaccounting recordsandsuchotherauditingprocedures asweconsidered necessary inthecircumstances.
Inouropinion,suchconsolidated financial statements presentfairlythefinancial positionoftheCompanyanditssubsidiaries atDecember31,1986and1985andtheresultsoftheiroperations andtheirsourcesandapplications offundsforeachofthethreeyearsintheperiodendedDecember31,1986,inconformity withgenerally acceptedaccounting principles appliedonaconsistent basis.February24,1987 INDIANA&MICHIGANELECTRICCOMPANYANDSUBSIDIARIES Consolidated Statements ofIncomeYearEndedDecember31,OPERATING REVENUES-ELECIRICOPERATING EXPENSES:
Operation:
FuelforElectricGeneration Purchased andInterchange Power(net)OtherMaintenance Depreciation andAmortization TaxesOtherThanFederalIncomeTaxesFederalIncomeTaxesTotalOperating ExpensesOPERATING INCOMEOTHERINcoMEANDDEDUcrtoNs:
Allowance forOtherFundsUsedDuringConstruction
.DeferredReturn-RockportPlantMiscellaneous Nonoperating IncomeLessDeductions
.TotalOtherIncomeandDeductions
........INCOMEBEFOREINTERESTCHARGESINTERESTCHARGES:InterestonLong-term Debt.InterestonShort-term Debt.Miscellaneous InterestCharges.TotalInterestChargesAllowance forBorrowed, FundsUsedDuringConstruction (credit)NetInterestChargesCoNsoLIDATED NETINcoME-beforepreferred stockdividendrequirements PREFERRED STOCKDIVIDEND'REQUIREMENTS EARNINGSAPPLICABLE TOCOMMONSTOCK1986$1069359233,2411589684157950080,171101,4565192919587287821519114425939743,438~1930)66905258049124,3336,1181725132,17626608105568152,48126256$1262251985(inthousands)
$1,059,903 214,545208,501151,65881,08992,89546,33972,987868,014191,88926,21460,378~9,713)76,879268,768134,1179,1191,909145,14522,478122,667146,10127,056$119,0451984$965,972192,592169,217161,43063,00285,26844,92169,384785,814180,15861,3613,401~11,718)53,044233,202142,7191,8091,884146,41255,39591,017142,18527,705$114,480SccIVotcstoConsolidatt dFinancial Statcmcnts Consolidated BalanceSheetsASSETSDecember31,19861985(inthousands)
ELEcTRlcUTILITYPmNr:Production Transmlsston Distribution GeneralandMiscellaneous Construction WorkinProgress.TotalElectricUtilityPlantLessAccumulated Provisions forDepreciation andAmortization ElectricUtilityPlantLessProvisions
$292399863 713,398362,31446,3014220973,783,973 9997162784257$2,164,035 599,029340,769229,269545,6053,878,707 938,3692,940,338 OTHERPRQPERTYANDINVEsTMENm 26056974,092CURRENrAssam:CashSpecialDepositsandWorkingFundsTemporary CashInvestments (atcost,whichapproximates market)AccountsReceivable:
Customers Associated Companies Miscellaneous Accumulated Provision forUncollectible AccountsMaterials andSupplies(ataveragecostorless):FuelConstruction andOperation Materials andSuppliesAccruedUtilityRevenuesPrepayments andOtherCurrentAssetsTotalCurrentAssets3,06241,89189,1295,36010,7011(609)58,46320,94749,00097272876714,50352,2814,97288,7435,6117,117(526)48,50721,54271,6158,772313,137DEFERREDDEBITS:Unamortized DebtExpensePropertyTaxesOtherWorkinProgress.DeferredNuclearFuelDisposalCostsDeferredDepreciation andReturn-RockportPlant.OtherDeferredDebitsTotalDeferredDebitsTotal5,6192,7761,56664,546134,4831283803373705,3982,4782,44972,62080,31368,253231,511$3669867$3,559,078 10SeebootestoConsolidated Financial Statements.
INDIANA&MICHIGANELECTRICCOMPANYANDSUBSIDIARIES CAPITALIZATION ANDLIABILITIES December31,19861985(inthousands)
CAPITALIZATION:
CommonStock-NoParValue:Authorized
-2,500,000 SharesOutstanding
-1,400,000 Shares.PremiumsonCapitalStockOtherPaid-inCapitalRetainedEarnings.TotalCommonShareowner's Equity...............
Cumulative Preferred Stock:NotSubjecttoMandatory Redemption SubjecttoMandatory Redemption (lesssinkingfundrequirements duewithinoneyear)Long-term Debt(lessportionduewithinoneyear)............
TotalCapitalization (lessamountsduewithinoneyear).~OTHERNONCURRENT LIABILITIES
$569584381771,382113123941,470197,00075,0301410023262352359520$56,584381771,382100,130,928,477197,00086,0301,302,872 2,514,379 45,544CIIRRENTLIABILITIES:
1Cumulative Preferred StockSinkingFundRequirements DueWithinOneYearLong-term DebtDueWithinOneYearShort-term Debt:NotesPayable,.
Commercial PaperAccountsPayable:GeneralAssociated Companies Dividends DeclaredonCumulative Preferred Stock.....CustomerDeposits'axesAccruedInterestAccruedRevenueRefundsAccrued.OtherCurrentLiabilities TotalCurrentLiabilities 4,00011,50011,32538,60034,42025,0096,4143,66253,47232914348521269066139,19835,43134,5696,6143,15532,91835,38118,62534,156340,047CoMMITMENTs ANDCQNTINGENcIEs (Note10)DEFERREDCREDITS:DeferredIncomeTaxesDeferredInvestment TaxCreditsOtherDeferredCredits.TotalDeferredCredits.Total525,044180,30612408717758492,728154,74511,635659,108$3669867$3,559,078 Consolidated Statements ofSourcesandApplications ofFundsSOURCESOFFUNDS:FundsfromOperations:
Consolidated NetIncome-.Principal Non-fundCharges(Credits) toIncome:Depreciation andAmortization Provision forDeferredIncomeTaxes(net)DeferredInvestment TaxCredits(net)Amortization ofDeferredNuclearFuelDisposalCostsAllowance forOtherFundsUsedDuringConstruction
.......DeferredReturn-RockportPlantOther(net)TotalFundsfromOperations FundsfromContributions andFinancings:
Contributions andFinancings:
CapitalContributions fromParentCompany...............
Long-term DebtShort-term Debt(net)TotalLessRetirements ofCumulative Preferred StockandLong-term DebtNetFundsfromContributions andFinancings SalesofPropertyDecrease(increase) inWorkingCapital(a)TotalSourcesofFundsAPPLICATIONS OFFUNDS:PlantandPropertyAdditions:
GrossAddttions toUtilityPlantGrossOtherAdditions TotalGrossAdditions Allowance forOtherFundsUsedDuringConstruction
.........
NetPlantandPropertyAdditions
.Dividends onCommonStockDividends onCumulative Preferred StockDeferredDepreciation
-RockportPlant...OtherChanges(net)TotalApplications ofFunds(a)ExcludesCumulative Preferred StockSinkingFundRequirements DueWithinOneYear,Long-term DebtDueWithinOneYearandShort-term Debtandisrepresented bydecrease(increase) asfollows:CashandCashItemsAccountsReceivable Materials andSupplies.AccruedUtilityRevenuesAccountsPayableDividends DeclaredonCommonStock...............
TaxesAccruedRevenueRefundsAccruedOther(net).See¹testoConsolidated Financial Statements.
1986YearEndedDecember31,19851984(inthousands)
$1529481$146,101$142,185107,91524,21925,32813,247(25,397)(43,438)458525894093,46082,16346,5719,206(26,214)(60,378)3,789294,69888,29854,63858,0784,163(61,361)(3,401)5,187287,787197,68149925144,660~110,000) 20,00046,605247,60623543234,66080,34712174~45,687394762825852,82873,71066,605103,982.37,377243,579~115,113$204,9423933208,875(25397)183,478113,23226,25612,7653117$222,625105222,730~26,2)4196,516113,23227,05616,65222,093$297,232122297,354~6),361235,993115,77927,705~601$338848$375.549$378,876$16,803(3,636)(9,361)22,615(10,571)20,554(18,625)10479$28258$81,4795,497',22,402(26,236)(1,687)(2,660)6,096(1,052)~10,129)$73,710$(129,986) 15,6388823,171(24,034)(14,956)11,85419,5792,739~$I)5,113)$338848$375,549$378,87612 INDIANA&MICHIGANELECTRICCOMPANYANDSUBSIDIARIES Consolidated Statements ofRetainedEarningsYearEndedDecember31,BalanceatBeginning ofYearConsolidated NetIncomeTotal1986$100,1301524812526111985(inthousands)
$94,317146,101240,4181984$95,616142,185237,801Deductions:
CashDividends Declared:
CommonStockCumulative Preferred Stock:4'/8%Series4.56%Series4.12%Series7.08%Series7.76%Series8.68%Series12%Series$2.15Series$2.25Series$2.75Series$3.63SeriesTotalDeductions BalanceatEndofYearSeeiVotestoConsolidated Financial Statements.
11392324952731652,1242,7162,6041,9183,4403,6003,11358081394885113123113,2324952731652,1242,7162,6042,2783,4403,6003,5535,808140,288$100,130115,7794952731652,1242,7162,6042,6153,4403,6003,8655,808143,484$94,317 NotestoConsolidated Financial Statements 1.Significant Accounting Policies:
ThecommonstockoftheCompanyiswhollyownedbyAmericanElectricPowerCompany,Inc.(AEP).Theaccounting and'ratesoftheCompanyaresubjectincertainrespectstotherequirements ofstateregulatory bod-iesandincertainrespectstotherequirements oftheFederalEnergyRegulatory Commission (FERC).Theconsolidated financial statements includetheac-countsoftheCompanyandtwowhollyownedsubsidiaries previously engagedincoal-mining operations.
Significant intercompany itemshavebeeneliminated inconsolidation.
Theconsolidated financial statements havebeenpreparedonthebasisoftheaccountswhicharemaintained forFERCpurposes.
ElectricUtilityPlant;Depreciation andAmortization; OtherPropertyandInvestments Electricutilityplantisstatedatoriginalcost.Generally, theplantoftheCompanyissubjecttofirstmortgageliens.TheCompanycapitalizes, asaconstruction cost,anal-lowanceforfundsusedduringconstruction (AFUDC),anitemnotrepresenting cashincome,whichisdefinedintheapplicable regulatory systemsofaccountsasthenetcostofborrowedfundsusedforconstruction purposesandareasonable rateonotherfundswhensoused.Thecom-positeratesusedbytheCompanyaftercompounding onasemi-annual basiswere11.5%in1986,12.55%in1985and12.5%in1984.TheCompanyprovidesfordepreciation onastraight-linebasisovertheestimated usefullivesoftheproperty.
Thecurrentprovisions aredetermined largelywiththeuseoffunctional composite ratesasfollows:Functional Composite ClassofAnnual~PlOflRatesProduction:
Steam-Nuc1ear4.0%Steam-Fossil-fired
.3.7%Transmission 2.1%Distribution
'.6%General2.9%Operating expensesarechargedwiththecostsoflabor,materials, supervision andothercostsincurredinmain-tainingtheproperties.
Propertyaccountsarechargedwithcostsofbetterments andmajorreplacements ofproperty, andtheaccumulated provisions fordepreciation arechargedwithretireinents, togetherwithremovalcostslesssalvage.Otherpropertyandinvestments aregenerally statedatcost.IncomeTaxesDeferredFederalincometaxesareprovidedtotheextentthatsuchamountsarereflected inrevenuelevels.TheCom-panynormalizes theeffectoftaxreductions resulting frominvestment taxcreditsutilizedinconnection withcurrentFederalincometaxaccrualsconsistent withrate-making policies.
TheCompany's consolidated coalsubsidiaries generally usetheflow-through methodofaccounting forinvestment taxcreditsandpracticedeferredtaxaccounting fortheeffectsofcertaintimingdifferences.
PensionPlansThecompanies participate withothercompanies intheAEPSysteminanon-contributory trusteedplantoprovidepensionsforalltheiremployees, subjecttocertaineligi-bilityrequirements.
Thecompanies recordednopensioncostfortheyearsendedDecember31,1986and1985.PensioncostfortheyearendedDecember31,1984wasapproximately
$2,713,000.
In1985thecompanies changedtheactuarial costmethodfromtheprojected benefitmethodtotheproj-ectedunitcreditmethodandchangedtheassumedinvest-mentrateofreturnusedindetermining pensionexpenseundertheplanto9%from7%.The1985costwasreducedbyapproximately
$2,035,000 becauseofthechangeinassumedrateofreturnandbyapproximately
$678,000becauseofthechangeincostmethod.Theactuarial changesmadearebelievedtoreflectmoreappropriate ac-tuarialassumptions andwillpositiontheplantoreflectforthcoming changesinaccounting forpensioncostssched-uledtotakeeffectin1987.Pensioncostsprovideforthecostofcurrently accruingbenefitsandamortization of,andintereston,unfundedpriorservicecostsamortized overperiodsofupto30years.Pensioncost,ifdetermined undertheforthcoming accounting standards, wouldnotbesig-nificantly different.
Thecompanies makeannualcontri-butionstotheplanequaltotheamountsaccruedforpensionexpense.Inadditiontoproviding pensionbenefits, thecompanies providecertainhealthcarebenefitsforretiredemployees.
Substantially allofthecompanies'mployees maybecomeeligibleforthesebenefitsiftheyhavecom-pleted10yearsofcontinuous serviceatretirement.
Thecostofretireehealthcarebenefitsisrecognized asexpensewhenpaid.In1986,1985and1984,thesecoststotaled$1,061,000,
$780,000and$852,000,respectively.
INDIANA&MICHIGANELECTRICCOMPANYANDSUBSIDIARIES Actuarial presentvalueofaccumulated planbenefits:
VestedNonvested
..........
Netassetsavailable forbenefits$75,1248,233$83,357$128,726$67,4217.945$75,366$108,534Theassumedrateofreturnusedbytheactuaryindeter-miningtheactuarial presentvalueofaccruedbenefitswas8%ateachvaluation date.TheCompanyisoftheopinionthatcomparing theac-tuarialvalueofaccumulated planbenefitswithnetassetsavailable forbenefits, asintheabovetable,maytendtobemisleading.
Theplan-asrequiredbytheEmployeeRetirement IncomeSecurityActof1974(ERISA)-isbeingfundedonanongoingbasisontheassumption thatitwillbeinexistence formanyyearstocome.However,thestatement ofactuarial valueofaccumulated planben-efits-asrequiredbytheFinancial Accounting Standards Board-isessentially ahypothetical plantermination cal-culationnottakingintoaccountfuturesalaryandwageincreases orfutureservice.Additionally, itshouldberec-ognizedthatnetassets,whichareatfairvalue,willfiuc-tuatefromtimetotime,whichmaycreateerroneous impressions ofthestatusofthelong-term fundingprocess.However,the1987pensionaccounting changesreferredtoabovedoprovideforincluding theeffectoffuturesalaryincreases onaccumulated planbenefits, inadditiontochangingthepensioncostdetermination.
Assuch,thenewstandardwouldprovideforamoreappropriate ongoingbasisofcomparing accumulated planbenefitswithassets.OtherThe'Company accruesunbilledrevenuesforelectricservicerenderedsubsequent tothelastbillingcyclethroughmonth-end.
Debtdiscountorpremiumanddebtexpensesarebeingamortized overthelivesoftherelateddebtissuesandtheamortization tliereofisincludedwithinmiscellaneous interestcharges.Operating revenuesderivedfromacertainwholesale'ustomer represent approximately 12%oftotaloperating revenuesfor1986,12%for1985and11%for1984.Acomparison oftheplan'saccumulated benefitsandnetassetsasofJanuary1,1986,thedateofthemostrecentactuarial study,ispresented below:Janu1,19861985(inthousands) 2.MiningOperations:
InMay1986,Blackhawk CoalCompany(Blackhawk),
asubsidiary formerlyengagedincoal-mining operations, consummated anagreement toleaseorsubleasecertainofitscoalrights,landandrelatedminingequipment andfa-cilitiesinCarbonCounty,Utah.Inconnection withthelease/sublease transaction, Blackhawk transferred
$107,000,000 ofitsinvestment fromgeneralandmiscel-laneouselectricutilityplanttootherpropertyandinvest-ments.Theremainder ofitsinvestment inthispropertynotrecovered inthelease/sublease transaction, approximately
$50,000,000, issubjecttorecoveryinthefuturefromwholesale customers inaccordance withaFERCsettlement agreement andwastransferred tootherdeferreddebits.SeeNote10.Blackhawk's remaining partially developed CarbonCounty,Utahcoalrightsnotbeingrecovered fromwhole-salecustomers orthroughtheabovelease/sublease trans-action,withanetbookvalueofapproximately
$51,000,000, havebeenretainedasaninvestment andtransferred tootherpropertyandinvestments.
3.RateMatters:TheCompanyhasbeenengagedinrateproceedings fortheinclusion inratebaseofconstruction costsofUnit1oftheRockportPlant(Rockport 1).Rockport1isa1,300,000-kilowatt generating unitjointlyownedbytheCompanyandAEPGenerating Company(AEGCo),alsoanAEPsubsidiary.
Theunitbegancommercial operation onDecember10,1984.TheCompanyandAEGCohaveexpended$725,847,000 throughDecember1986ontheconstruction ofasecondunitattheRockportPlant(Rock-port2),whichisexpectedtobecompleted in1989atanestimated costof$1.3to$1.4billion.TheCompanyiscommitted topurchase70%ofAEGCo'sshareofRock-port2energy.Theinclusion ofRockport2inratebase,therecoveryofrelatedpurchased powerandthetimingofsucharedependent ontheoutcomeoffutureregulatory proceedings.
15 NOTESTOCONSOLIDATED FINANCIAL STATEMENTS (Continued)
ThePublicServiceCommission ofIndiana(PSCI)ap-provedatwo-steprateincreasewiththefirststepeffective inDecember1984andthesecondstepeffective oneyearlater.Thefirststepandthesecondstepexcludedfromratebase$315,153,000 and$245,000,000, respectively, ofconstruction costsassociated withRockport1butallowedtheCompanytoaccrueadeferredreturnbasedonarateequaltoitsAFUDCrateandtodeferannualdepreciation expenseontheamountsexcludedfromratebase.Thesecond-step ratelevelsprovideforamortization ofthefirst-stepdeferredreturnanddeferreddepreciation tocostofserviceovera30-yearperiod.InMay1986,theCompanypetitioned thePSCIforarateincreasewhichincludedplac-inginratebasetheremainder ofRockport1andtheam-ortization ofthesecond-step'eferred returnanddeferreddepreciation tocostofserviceovera30-yearperiod.TheFERCissuedordersin1985,providing foratotalincreaseofapproximately
$47,216,000 inthreesteps.StepIofapproximately
$17,446,000 waseffective inOctober1984;StepIIofapproximately
$17,534,000 waseffective inDecember1984;andStepIIIofapproximately
$12,236,000 waseffective inDecember1985.TheStepIIandStepIIIratesexcludedfromratebase$170,724,000 and$132,721,000, respectively, ofconstruction costsas-sociatedwithRockport1butallowedtheCompanytoac-crueadeferredreturnbasedonarateequaltoitsAFUDCrateandtodeferannualdepreciation expenseontheamountsexcludedfromratebase.TheStepIIIratelevelsprovideforamortization oftheStepIIdeferredreturnanddeferreddepreciation tocostofserviceovera30-yearperiod.Asaresultoftheaboverateproceedings, theCompanyhasrecordedthroughDecember31,1986and1985anetdeferredreturnof$105,065,000 and$63,661,000, respec-tively,andnetdeferreddepreciation of$29,418,000 and$16,652,000, respectively, onRockport1.TheCompanyhasreceivedregulatory approvals ineachofitsjurisdictions toutilizeafuel-cost-levelization planinconnection withacertainlong-term coalsupplycontractforRockport1.Undertheseplans,thedifference betweenactualfuelcostsandaveragefuelcostswasdeferredthroughJune1986withmonthlyamortization tofuelex-penseofRockport1beginning inJuly1986.AtDecember31,1986,theCompanyhadapproximately
$33,585,000 deferredpursuanttotheseplans.InDecember1986,theFinancial Accounting Standards Board(FASB)issuedStatement ofFinancial Accounting Standards No.90,"Regulated Enterprises
-Accounting forAbandonments andDisallowances ofPlantCosts,"whichamendedStatement No.71,"Accounting fortheEffectsofCertainTypesof'Regulation,"
asitrelatestotheaccounting forplantabandonments andpartialratedis-allowances, whichpresently doesnotaffecttheCompany.TheFASBcontinues toconsideradditional amendments toFASB71which,amongotherthings,willaddressphase-inplans.InOctober1986,theFERCapprovedanofferofsettle-mentconcerning wholesale ratesthatAEGComaychargeunderitsUnitPowerAgreements withtheCompanyandKentuckyPowerCompany(KEPCo).TheCompanyUnitPowerAgreement providesforthesalebyAEGCototheCompanyof50%ofthetotaloutputoftheRockportPlant.Pursuanttoanagreement betweentheCompanyandKEPCo,AEGCohasenteredintoaunitpoweragreement withKEPCotosellKEPCo15%ofthetotaloutputofRockportPlant.Asaresult,theCompanypurchased 35%oftheoutputoftheRockportPlantfromAEGCothroughDecember31,1986.TheCompanyhasalsoenteredintoanagreement withanunaffiliated utilitywhichpermitsAEGCotosellfromJanuary1,1987throughDecember31,1999the35%oftheoutputofRockport1whichtheCompanyisobligated topurchasefromAEGCo.TheFERChadpermitted theUnitPowerAgreements betweenaffiliated companies tobecomeeffective subjecttorefundDecember10,1984.AsaresultoftheFERCapprovalofthesettlement offer,theCompanyreceivedfromAEGCoarefundofapproximately
$4,700,000 inNovember1986whichwascreditedtopurchased andinterchange powerexpense.KEPCoisinvolvedinlitigation atboththestateandFederallevelsrelatedtoitsparticipation intheUnitPowerAgreement withAEGCo.IntheeventthatKEPCodoesnotpayforitsfuturepurchases undertheUnitPowerAgreement, theCompanywouldbecontractually obligated tomakesuchpaymentsandpurchasetherelatedenergy.16 INDIANA&MICHIGANELECTRICCOMPANYANDSUBSIDIARIES 4.FederalIncomeTaxes:ThedetailsofFederalincometaxesasreportedareasfollows:1986YearEndedDecember31.19&51984(inthousands)
Charged(Credited) toOperating Expenses:
Current(net)Deferred(net)DcferrcdInvestment TaxCredits(net)TotalYChedCreditedtoOtherIncomeandDeductions:
$44,34026,20825,32495,872()Current(7,414)Dcferrcd(net)(1,989)DefcrrcdInvestment TaxCredits(net)......
~...4Total(9.399)TotalFederalIncomeTaxesasReported$86,473Thefollowing isareconciliation ofthedifference betweentheamountofFederalincometaxesbookincomebeforeFederalincometaxesbythestatutory taxrate,andtheamountofFederaltheConsolidated Statements ofIncome.$(55,991)82,40746,57172,987$(45,036)56,34258,07869,384(7,706)(8,429)(244)(1,704)(7,950)(10,133)$65,037$59,251computedbymultiplying incometaxesreportedinYearEndedDecember31,Consolidated NetIncomeBcforcPreferred StockDividendRequirements
.FederalIncomeTaxesPre-taxBookIncome.FederalIncomeTaxesonPre-TaxBookIncomeatStatutory Rate(46%)Increase(Decrease) inFederalIncomeTaxesResulting FromtheFollowing ItemsonWhichDeferredTaxesArcNotProvided:
ExcessofBookOverTaxDepreciation Allowance forFundsUsedDuringConstruction andMiscellaneous ItemsCapitalized ontheBooksbutDeductedforTaxPurposesDeferredReturn-RockportPlantInvestment TaxCreditsNotDeferredAmortization ofDeferredInvestment TaxCredits.OtherTotalFederalIncomeTaxesa'sReportedEffective FederalIncomeTaxRate1986$152,48186,473$238,954$109,9196,242(15,529)(9,228)751(4,530)(1,152)$86,47336.2%1985(inthousands)
$146,10165,037$211,138$97,1234,930(15,633)(14,929)(82)(4,786)(1.586)$65,03730.8%1984$142,18559.251$201,436$92,6612,659(31,437)(820)295(2,233)(1,874)$59.25129.4%17 NOTESTOCONSOLIDATED FINANCIAL STATEMENTS (Continued)
Thefollowing aretheprincipal components ofFederalincometaxesasreported:
Current:FederalIncomeTaxesInvestment TaxCredits.TotalCurrentFederalIncomeTaxes(net)Deferred:
Depreciation (liberalized, ADRandACRS).Allowance forBonowcdFundsUsedDuringConsuuction andMiscellaneous ItemsCapitalized Percentage RepairAl!owanccYearEndedDcccmber31.198619851984(inthousands)
$68,308(31,382)36;926$(11,824)(51,873)(a)
(63,697)$26,589(80.054)(a)
(53.465)26,27233,09922,5829,4486,51124,1681,452(329)14,420(b)NuclearDecommissioning Costs.(4,820)(4,820)(4,945)Unrecovcrcd andLcvelized Fuel.(2,466)14,506(415)Adjustments forRevenueRefunds9,052(9,052)NuclearFuelLeaseAdjustments
.(638)9,530(4,141)SpentNuclearFuelFee(7,845)(3,175)(4,084)UnbilledRcvcnue(4,247)6,8041,219DeferredReturn-RockportPlant9,81812,791745Other(5,031)(2,240)(5,897)Investment TaxCreditsApplicable toCertainDeferredIncomeTaxes2,27643420,038TotalDefenedFederalIncomeTaxes(net)24,21982,16354,638TotalDeferredInvestment TaxCredits(nct)25,32846,57158,078TotalFederalIncomeTaxesasReported$86,473$65,037$59,251(a)TheCompanywasabletoutilizeinvestment taxcreditsinexcessofthestatutory limitation asaresultofthclackofavailable creditsofotherSystemcompanies withtaxableincome.(b)BasedonIntcmalRevenueServiceregulations issuedin1984,theCompanyelectedpercentage repairallowance onthc1983taxreturnandfiledamendedtaxreturnsfor1981and1982.Thedeferredtaxesprovidedin1984represent thecumulative effectoftheseelections aswellas1984currentyearaccruals.
Thecompanies joininthefilingofaconsolidated Federalincometaxreturnwiththeiraffiliated companies intheAEPSystem.Theallocation oftheAEPSystem'sconsol-idatedFederalincometaxtotheSystemcompanies isinaccordance withSECrulesunderthePublicUtilityHoldingCompanyActof1935.Theserulespermittheallocation ofthebenefitofcurrenttaxlossestotheSystemcompanies givingrisetosuchlossesindetermining taxescurrently payable.ThetaxlossoftheSystemparentcompany,Amer-icanElectricPowerCompany,Inc.,isallocated toitssub-sidiaries withtaxableincome.Withtheexception ofthelossoftheparentcompany,themethodofallocation ap-proximates aseparatereturnresultforeachcompanyintheconsolidated group.Consolidated investment taxcreditsutilizedareallocated totheSystemcompanies givingrisetothem.AtDecember31,1986,thecompanies'umulative netamountofincometaxtimingdifferences onwhichdeferredtaxeshavenotbeenprovidedtotaled$493,000,000.
TheSystemhasreachedasettlement withtheInternalRevenueService(IRS)forthemajorityofissuesfromtheauditoftheconsolidated Federalincometaxreturnsfortheyears1974-1976.
Severalissuesregarding thesereturnsarenotcoveredbythesettlement agreement andaresubjecttofuturedisposition.
Returnsfortheyears1977-1982 havebeenreviewedbytheIRS,andadditional taxesfortheseyearshavebeenproposed, someofwhichtheSystemcom-panieshaveprotested orwillbeprotesting.
Intheopinionofmanagement, thefinalresolution ofopenmatterswillnothaveamaterialeffectontheearningsoftheCompany.5.CommonStock,PremiumsonCapitalStockandOtherPaid-inCapital:TheCompanyreceivedfromitsparentcashcapitalcon-tributions of$20,000,000 in1984.In1985and1984acredittootherpaid-incapitalof$3,000and$419,000,respectively, represented theexcessofparvalueovercostofcumulative preferred stockreacquired bytheCompanytomeetsinkingfundrequirements.
Therewerenootherchangesinanyoftheaforementioned accountsin1986,1985or1984.18 INDIANA&MICHIGANELECTRICCOMPANYANDSUBSIDIARIES 6.RetainedEarnings:
Variousrestrictions ontheuseofretainedearningsforcashdividends oncommonstockandotherpurposesarecontained inorresultfromcovenants inmortgageindentures, debenture andbankloanagreements, charterprovisions, andordersofregulatory authorities.
Approximately
$45,900,000 atDecember31,1986,wassorestricted.
7.Cumulative Preferred Stock:AtDecember31,1986,authorized sharesofcumulative preferred stockwereasfollows:ParValueSharesAuthorized
$1002,250,000 2511,200,000 December31,SharesO~uuaaadta 1986(inthousa$12,0006,0004,00030,00035,00030,00040,00040,000$197,0001985nds)$12,0006,0004,00030,00035,00030,00040,00040,000$197,0004'h%4.56%..4.12%..7.08%..7.76%'.8.68%..$2.15$106.125102102.728102.91103A4105.2726.6126.69$1001001001001001002525120,00060,00040,000300,000350,000300,0001,600,000 1,600,000 Thecumulative preferred stockiscallableattheoptionoftheCompanyatthepriceindicated plusaccrueddividends.
Theinvoluntary liquidation preference isparvalue.Unissuedsharesofthecumulative preferred stock'ayormaynotpossessmandatory redemption characteristics uponissuance.
A.Cumulative Preferred StockNotSubjectToMandatory Redemption:
NumberofSharesRedeemedAmountYearEndedDecember31.SeriesCallPrice198619851984B.Cumulative Preferred StockSubjecttoMandatory Redemption:
Series(a)137,3251,011,900 1,600,000 12%(b)$2.75(c)$3.63(d)NumberofSharesRedeemedAmountParYearEndedDecember31,SharesDecember31,CalldrluaValual988l988l984~Outslandin 19861985(inthousands)
$106$10030,00031,67327,527$13,733$16,73327.0725160,000160,000141,90025,29729,29727.722540.00040,00079,03086,030LessSinkingFundRequirements DueWithinOneYear.4,000$75.030$86,030(a)'Ihesinkingfundprovisions ofthcseriessubjecttomandatory redemption aggregate
$2,000,000 in1987,$2,232,500 in1988,$4,797,500 in1989,$5,500,000 in1990and1991.Unlessallsinkingfundprovisions havebeenmet;nodistribution maybemadeonthccommonstock.(b)Asinkingfundforthe12%seriesrequirestheCompanytoprovide,onorbeforeOctober1ofeachyear,forthcredemption of15,000sharesofsuchseries.Thisprovision maybesatisfied thmughsharespreviously purchased orbyredemption at$100ashare.TheCompanyhastheright,oneachsinkingfunddate,toredeemanadditional 15,000shares.AtDecember31,1986,thcCompanyhadreacquired 27,675sharesinanticipation offuturesinkingfundrequirements.
(c)Acumulative sinkingfundforthe$2.75seriesrequirestheCompanytoredeem80,000sharesonorbeforeOctober1,ofeachyear.TheCompanyhastheoptiontocreditsharespurchased orotherwise acquiredinlieuofredeeming sharesforthcsinking1'undandhasthcnoncumulative optiontodoublethenumberofsharestoberedeemedinanyyear.AtDecember31,1986,theCompanyhadacquired188,100sharesinanticipation offuturesinkingfundrequirements.
(d)Commencing withthcyear1987,acumulative sinkingfundforthe$3.63seriesrequiresthcCompanytoredeem80,000sharesonorbeforeJanuary1,ofeachyear.'IheCompanyhastheoptiontocreditsharespurchased orotherwisc acquiredinlieuofredeeming sharesforthesinkingfundandhasthenoncumulative optiontodoublethcnumberofsharestoberedeemedinanyyearonandafterJanuary1,1987.19 NOTESTOCONSOLIDATED FINANCIAL STATEMENTS (Continued) 8.Long-term Debt,LinesofCredit,andCompensating Balances:
Long-term debtbymajorfollows:FirstMortgageBonds.......
SinkingFundDebentures Installment PurchaseContracts
.'therLong-term Debt(a)....LessPortionDueWithinOncYearTotalcategorywasoutstanding asDecember31,19861985(inthousands)
$1,008,248
$1,026,400 8,35716,911307,289307,06897,62991.6911,421,523 1,442,070 11,500139,198$1,410,023
$1,302,872 (a)NuclearFuelDisposalCosts.SeeNote10.Firstmortgagebondsoutstanding wereasfollows:December31,19861985(inthousands)
%RateDu10'/iI3'/sI4'/4114'/~1Iis/sI15'/s116'/s14i/s1718'/s29'h28'/s29'/i213s/i29s/s29s/42Unamortize c987-JanuaryI...988-FebruaryI..988-November1.989-MarchI990-June1.....991-November1.992-April1993-August1...998-May1i....000-April1003-JuneI(a)003-DecemberI008-March1013-August1...015-October1016-July1dDiscount(net)....$22,97417,55780,00038,80097,00042,90235,00050,000219,50040,000100,00067,200100,000100,000(2,685)$80,00022,97417,557120,00080,00039,60099,00042,90235,00050,000231,00040,000100,00070,000(1,633)LessPortionDucWithinOneYearTotal1,008,248 11,5001,026,400 131,500$996,748$894.900(a)Thc9/i%seriesdue2003requiressinkingfundpaymentsof$11,500,000 annuallyonJune1,through1991and$13,500,000 annuallyonJuneI,1992through2002withthenoncumulative optiontoredeemanadditional amountineachofthcspecified yearsfromaminiinumof$100,000toamaximumequaltothescheduled requirement foreachyear,butwithamaximumoptionalredemption, astoallyearsintheaggregate, of$75,000,000.
Theindentures relatingtothefirstmortgagebondscon-tainimprovement, maintenance andreplacement provi-sionsrequiring thedepositofcashorbondswiththetrustee,orinlieuthereof,certification ofunfundedpropertyadditions.
%RateDueCityofLawrenceburg, Indiana:8'/z2006-July172006-May1.....67/s2006-MayI.....CityofRockport, Indiana:9i/s2005-Junc1.....9i/42010-June1.....9i/42014-AugustI...7iA(a)2014-August1...(b)2014-August1CityofSullivan, Indiana:7'/s2004-May1.....67/s2006-May1.....7'009-May1.....Unamortized DiscountTotal19861985(inthousands)
$25,00040,00012,0006,50033,50050,000~50,00050,0007,00025,00013,000(4.711)$307,289$25,00040,00012,0006,50033,50050,00050,00050,0007,00025,00013,000(4.932)$307,068(a)Adjustable interestratewillchangeAugust1,1990andeveryfiveyearsthereafter.
(b)Variableinterestrateisdetermined weekly.Theaverageweightedinterestwas5.3%for1986and5.6%for1985.Underthetermsofcertaininstallment purchasecon-tracts,theCompanyisrequiredtopaypurchasepricein-stallments inamountssufficient toenablethecitiestopayinterestonandtheprincipal (atstatedmaturities anduponmandatory redemption) ofrelatedpollution controlrevenuebondsissuedtofinancetheconstruction ofpollution controlfacilities atcertaingenerating plantsoftheCompany.Oncertainseriestheprincipal willbepayableatstatedma-turitiesoronthedemandoftheownersatperiodic-interest adjustment dates.Sinkingfunddebentures outstanding wereasfollows:December31,19861985(inthousands)
$.-$7,698-8,3579,21038,35716,911LessPortionDueWithinOneYear...7,698Total$8,357$9.213AtDecember31,1986and1985,theprincipal amountsofdebentures reacquired inanticipation ofsinkingfundrequirements were$2,443,000 and$3,692,000, respec-tively.Inadditiontothesinkingfundrequirements theCompanymaycalladditional debentures ofupto$300,000annually.
Installment purchasecontracts havebeenenteredintobytheCompanyinconnection withtheissuanceofpollution controlrevenuebondsbygovernmental authorities asfollows:December31,20 INDIANA&MICHIGANELECTRICCOMPAM'ND SUBSIDIARIES
- Certainseriesaresupported bylettersofcreditfromabankwhichexpirein1990and1992.Portionsoftheproceedsoftheinstallment purchasecon-tractsaredeposited withtrusteesandmaybeusedonlyforspecified construction expenditures.
Approximately
$35,743,000 and$43,566,000 offundssodeposited isincludedin.specialdepositsandworkingfundsatDecem-ber31,1986and1985,respectively.
Long-term debt,excluding premiumordiscount, out-standingatDecember31,1986isdueasfollows:(inthousands) 1987......................
$11,5001988........
52,0311989.....................
11,5001990.....
91,5001991....................
50,300LaterYears....................
1,212,088 Total.$1,428.919 TheCompanyhadunusedshort-term banklinesofcreditofapproximately
$269,000,000 and$375,000,000 atDecember31,1986'and1985,respectively, underwhichnotescouldbeissuedwithnomaturitymorethan270days.Theavailable linesofcreditaresubjecttowithdrawal atthebanks'ption, and$269,000,000 and$345,000,000 atDecember31,1986and1985,respectively, ofsuchlinesaresharedwithotherAEPSystemcompanies.
Inaccord-ancewithinformalagreements withthebanks,compen-satingbalancedepositsofupto10%orequivalent feesarerequiredtomaintainthelinesofcreditandonanyamountsactuallyborrowed, generally eitheradditional compensat-ingbalancedepositsofupto10%aremaintained orad-justments ininterestratesaremade.Substantially allbankbalancesaremaintained bytheCompanytocompensate thebanksforservicesandfortheCompany's shareofbothusedandavailable linesofcredit.Purchased andInterchange Power(net):Purchased Power(a)....Interchange Power(net):AEPSystemElectricUtilities
.........
OtherCompanies Total...........
198619851984(inthousands)
$166,179$145,518$106,75510,720(18,215)$158,68478,718(15,735)$208,50176I271(13.809)$169,217TaxesOther'IhanFederalIncomeTaxes:,RealandPersonalPropertyTaxesStateGrossReceiptsExciseandFranchise TaxesandMiscellaneous StateandLocalTaxes.........
StateIncomeTaxesSocialSecurityTaxes....Total$27,795$27,141$25,26313,83213,30513,0234,1216322,1135,5435,2614,522$51,291$46,339$44,921(a)Includespowerpurchased fromOhioValleyElectricCorporation (OVEC)ofapproximately
$39,378,000 in1986,$6,733,000 in1985and$17,688,000 in1984.Alsoincludespowerpurchased fromAEGCoofapproximately
$122,023,000 in1986,$119,952,000 in1985and$26,034,000 in1984.Chargestooperating expensesforroyalties andforad-vertising arelessthan1%ofgrossrevenuesineachyear.Salesandpurchases ofenergyandinterchange powertransactions, areregulated bythevariouscommissions hav-ingjurisdiction.
AmericanElectricPowerServiceCorporation (AEPSC)providescertainservicestotheCompanyandtheaffiliated companies intheAEPSystem.Thecostsoftheservicesaredetermined bytheservicecompanyonadirectchargebasistotheextentpracticable andonreasonable basesofproration forindirectcosts.Thechargesforservicesaremadeonacostbasisandincludenocompensation fortheuseofequitycapital,allofwhichisfurnished totheservicecompanybyAEP.Theservicecompanyissubjecttotheregulation oftheSECunderthePublicUtilityHoldingCompanyActof1935.9.Supplementary IncomeStatement Information andRelated-party Transactions:
Electricoperating revenuesshownintheConsolidated Statements ofIncomeincludesalesofenergytoAEPSys-temcompanies ofapproximately
$33,000,000,
$32,000,000 and$27,000,000 fortheyearsendedDecem-ber31,1986,1985and1984,respectively.
Operating expensesshownintheConsolidated State-mentsofIncomeincludecertainitemsnotshownsepa-rately,asfollows:YearEndedDecember31,21 NOTESTOCONSOLIDATED FINANCIAL STATEMENTS (Continued) 10.Commitments andContingencies:
Construction Theconstruction budgetofthecompanies fortheyear1987isestimated at$243,000,000 and,inconnection therewith, commitinents havebeenmade.OhioValleyElectricCorporation AEPandColumbusandSouthernOhioElectricCom-panyown42.1%ofOhioValleyElectricCorporation (OVEC),whichsuppliestheU.S.Department ofEnergy(DOE)withthepowerrequirements ofitsgaseousdiffusion plantnearPortsmouth, Ohio.TheproceedsfromthesalesofpowerbyOVEC,aggregating
$332,000,000 in1986,aredesignedtobesufficient forOVECtomeetitsoperating expensesandfixedcosts,andtoprovideforareturnonitsequitycapital.TheCompany,asasponsoring company,isentitledtoreceivefromOVEC,andisobligated topayfor,thepowernotrequiredbyDOEinproportion toitspowerparticipation ratio,whichaveraged18.5%in1986.TheDOEpoweragreement terminates in1992.Regulatory MattersInJanuary1985asettlement agreement wasreachedstemmingfromaFederalPowerCommission investigation begunin1975intothereasonableness andprudenceofthecoal-purchasing policiesandpractices ofcertainSystemcompanies.
Thesettlement agreement providesfora$21,931,000 refund($18,084,000 bytheCompany)tocer-tainwholesale customers.
Theagreement furtherprovidestheopportunity fortheCompanytorecoverfromcertainwholesale customers certaincoststotaling$50,000,000 whichwhenincreased forrelatedincometaxescannotex-ceed$75,000,000 inrevenuesandcanberecovered overaperiodnottoexceed12years.TheCompanyhasre-covered$7,660,000 throughDecember1986.Thestatusoftheremainder oftheinvestment inUtahcoalminesisdiscussed inNote2.Inanticipation ofthesettlement agree-ment,theCompanyrecordedinDecember1984provisions aggregating
$11,336,000, netoftaxes,toreflecttherefundtermsofthesettlement agreement.
Litigation TheCompanyterminated acontractwithTerreHauteIndustries, Inc.(THI)onthegroundsthatTHIwasnotmeetingtheschedulefortheconstruction ofanelectro-staticprecipitator attheBreedPlant.THIinstituted asuitforbreachofcontractagainsttheCompanyinanIndianacircuitcourtclaimingdamagesinanunspecified amount.THIalsonamedtheAEPSCasadefendant andrequested damagesfromitforinterference withTHI'scontractwiththeCompanyandforlibel.Thedefendants deniedTHI'scomplaint andtheCompanycounterclaimed fordamagesintheamountof$6,801,000 whichtheCompanyclaimsitsufferedasaresultofthedelayintheconstruction work.Trialofthisactionwascompleted inDecember1982.InanorderdatedJanuary9,1984,thecourtawardedcom-pensatory andpunitivedamagestoTHIintheamountsof$4,934,000 and$12,000,000, respectively, exclusive ofinterest.
Asaresultofthatjudgment, theCompanyre-cordedin1983aliability, including
- interest, ontheCon-solidated BalanceSheetforthecompensatory damages.TheCompanyandtheServiceCorporation areappealing thecourtdecision.
Environmental MattersThecompanies aresubjecttoregulation byFederal,stateandlocalauthorities
~withrespecttoair-andwater-quality controlandotherenvironmental matters,andaresubjecttozoningandotherregulation bylocalauthorities.
Al-thoughthecumulative, long-term effectofchangingenvironmental requirements uponthecompanies cannotbeestimated atpresent,compliance withsuchrequirements maymakeitnecessary, atcostswhichmaybesubstantial, toretrofitexistingfacilities withadditional air-pollution-controlequipment; tochangefuelsuppliestolowersulfurcontentcoal;toconstruct coolingtowersorsomeotherclosed-cycle coolingsystems;toundertake newmeasuresinconnection withthestorage,transportation anddisposalofby-products andwastes;tocurtailorceaseoperations
.atexistingfacilities, andtodelaythecommercial operation of,ormakedesignchangeswithrespectto,facilities underconstruction.
22 INDIANA&MICHIGANELECTRICCOMPANYANDSUBSIDIARIES Legislative proposals arependingbeforetheUnitedStatesCongressthatexpressly seektocontrolaciddepo-sitionintheeasternportionoftheUnitedStates.Ifanyofthesebillsbecomelaw,significant reductions intheemis-sionofsulfurdioxidefromvariousexistingCompanygen-eratingplantswouldberequired.
Thesereductions wouldentailverysubstantial capitalandoperating coststhat,inturn,couldnecessitate substantial rateincreases bytheCompany.Inaddition, anumberofstatesandenviron-mentalorganizations havecommenced proceedings undertheCleanAirActseekingsubstantial reductions intheemissionofsulfurdioxideincertainmidwestern states.Further,theU.S.Environmental Protection Agencyiscontemplating anumberofsignificant policychangesinitsrulesgoverning sulfurdioxideemissions.
Adoptionofanyofthecontemplated policychangescouldrequiresub-stantialreductions insulfurdioxideemissions fromtheCompany's coal-fired generating plants.Transmission Agreement TheCompanyparticipates withotherAEPSystemcom-paniesinaTransmission Agreement.
Thisagreement poolscertainAEPSystemcompanies'nvestments inextra-high-voltagelinesandsharesamongthepartiesthecostsofownership inproportion totheparties'espective demandratios.Theequalization ofcostsamongthepartieswillbephased-in overtheperiod1985-1989.
Theagreement waspermitted bytheFERCtobeimplemented, effective Jan-uary22,1985,subjecttorefund.Pursuanttothetermsoftheagreement, theCompanyrecordedcreditsof$10,672,000 and$5,338,000 fortrans-missionservicesinotheroperation expensefortheyears.endedDecember.31, 1986and1985,respectively.
NuclearInsurance ThePrice-Anderson Actlimitsthepublicliability ofalicenseeofanuclearplantto$560,000,000 forasinglenuclearincident.
Whenthe80thnuclearpowerreactorintheUnitedStateswentintooperation onNovember15,1982,theNuclearRegulatory Commission's indemnity ob-ligationwaseliminated.
Now,aseachnewreactorisli-censedtooperate,the$560,000,000 limitisincreased byanother$5,000,000.
Thecurrentlevelis$700,000,000.
TheCompanyhasinsurance coveringitstwo-unitDonaldC.CookNuclearPlantinthemaximumavailable amountof$160,000,000, andthebalanceof$540,000,000 iscov-eredbyamandatory programofdeferredpremiumsthatwouldbeassessed, afteranuclearincident, againstallownersofnuclearreactors.
Intheeventofanuclearin-cident,theCompanycouldbeassessed$5,000,000 perincidentforeachofitstwonucleargenerating units(subjecttoamaximumof$10,000,000 perreactorinanyyearintheeventofmorethanoneincident).
ThePrice-Anderson Actexpiresin1987,andCongresshasbegunconsideration ofitsrenewal.IftheActisnotrenewed,theCookPlantwouldcontinuetobesubjecttotheprogramcurrently inexistence.
IftheActisrenewed,itislikelythatthelimitsofpublicliability willbeincreased.
TheCompanyalsohaspropertyinsurance fordamagetotheCookPlantfacilities intheamountof$1.23billion.Theprimarylayerof$500,000,000 isprovidedthroughnuclearinsurance pools.Theexcesscoverageabove$500,000,000 isprovidedthroughinsurance pools($120,000,000) andNuclearElectricInsurance Limited(NEIL).NEIL'sexcesspropertyinsurance programpro-vides$610,000,000 incoverage.
Themaximumassess-mentunderthisprogramcouldbe$9,250,000 (sevenandone-halftimestheannualpremiumona100%coveragebasis).NEIL'sextra-expense programprovidesinsurance tocoverextracostsofreplacement powerresulting fromaprolonged accidental, outageofanuclearunit.TheCom-pany'spolicyinsuresagainstsuchincreased costsuptoapproximately
$2,250,000 perweek(starting 26weeksaftertheoutage)foroneyearand$1,125,000 perweekforthesecondyear,or80%ofthoseamountsperunitifbothunitsaredownforthesamereason.TheCompanywouldbesubjecttoaretrospective premiumofupto$8,326,000 (fivetimesannualpremium)ifNEIL'slossesexceededitsaccumulated funds.AnincidentattheCookPlantcouldhaveasubstantial adverseeffectupontheCompany.23 NOTESTOCONSOLIDATED FINANCIAL STATEMENTS (Concluded)
DisposalofSpentNuclearFuelandNuclearDecommissioning TheNuclearWastePolicyActof1982establishes Federalresponsibility forthepermanent disposalofspentnuclearfuel.Disposalcostsarepaidbyfeesassessedagainstownersofnuclearplantsanddeposited intotheNuclearWasteFundcreatedbytheAct.ForthedisposalofnuclearfuelconsumedafterApril6,1983bytheCom-pany'sCookNuclearPlant,theCompanymustpaytothefundafeeofonemillperkilowatthour, whichtheCompanyiscurrently recovering fromitscustomers.
InJune1983,theCompanyenteredintoacontractwithDOEforthedisposalofspentnuclearfuel.UndertermsofthecontracttheCompanymustpaytotheU.S.Treasuryafeeestimated atapproximately
$71,964,000, exclusive ofinterest, forthedisposalofnuclearfuelconsumedpriortoApril7,1983.TheCompanyhasdeferredthisamountplusaccrued~interestonitsbalancesheetpendingrecoverythroughtherate-making process.TheCompanyhasreceivedregula-toryapprovalfortherecoveryofthisamountandhasbeguntoreducetheamountdeferredasitisbeingrecovered.
TheCompanyhasfiledapetitionwiththePSCIwhich,amongotherthings,requestsanincreaseintheamountsbeingrecovered fornucleardecommissioning costsasso-ciatedwiththeCookPlant.Anindependent consulting firmemployedbytheCompanyforthepurposesofthispro-ceedinghasestimated thatthecostofdecommissioning thisplantcouldrangefrom$284,000,000 to$321,000,000 in1986dollars.TheCompanyisrecovering fromitscus-tomersnucleardecommissioning costsbasedonlevelslessthan$284,000,000.
Fundsrecovered throughtherate-making processfordisposalofspentnuclearfuelconsumedpriortoApril7,1983andfornucleardecommissioning generally havebeendeposited ineitherexternaltrustfundsorinternalspecial'undsforthefuturepaymentofsuchcosts.11.Leases:December31,19861985(inthousands)
ElectricUtilityPlant:Production
$2,714GeneralandMiscellaneous
...........
8.568TotalElectricUtilityPlant.......'...
11,282LessAccumulated Provision forAmortization
.2,9821,861ElectricUtilityPlantLessProvision
....8,3007,910OtherProperty.42138LessAccumulated Provision forAmortization 21713OtherPropertyLessProvision........
20425NetProperties underCapitalLeases..$8.504$7,935Obligations underCapitalLeases(a)..$8,504$7,935(a)Including anestimated
$1,826,000 and$1,504,000 atDecember31,1986and1985,respectively, duewithinoncyear.PaymentsmadeundercapitalleasesenteredintoafterDecember31,1982include$1,013,000,
$999,000and$710,000ofamortization expensefortheyearsendedDe-cember31,1986,1985and1984,respectively.
$1,99877739,771Thecompanies, aspartoftheiroperations, leaseprop-.erty,plantandequipment underleasesranginginlengthfrom1to35years.Mostoftheleasesrequirethecompanies topayrelatedpropertytaxes,maintenance costsandothercostsofoperation.
Thecompanies expectthatinthenormalcourseofbusiness, leaseswillgenerally berenewedorreplacedbyotherleases.Themajorityofthevariousrentalsareincludedinleaseshavingpurchaseoptionsorrenewaloptionsforsubstantially alloftheeconomiclivesoftheproperties.
Anaccounting standardrequiredthecompanies tocap-italizeleasesbeginning in1984forallcapitalleasesenteredintoafterDecember31,1982andallearlierleasesbegin-ningin1987.Thisstandardrequiresthecompanies tore-cordrentalexpenseinamannerconsistent withrate-makingtreatment, therefore thereisnoeffectontheCon-solidated Statements ofIncome.Thefollowing isananalysisofproperties undercapitalleasesandrelatedobligations enteredintoafterDecember31,1982:24 IIIDIAHA&MICHIGANELECTRICCOhfPANYANDSUBSIDIARIES NuclearFuelCoal-mining andCoal-transportation Equipment OtherTransportation Equipment.....
RealEstateElectricDistribution SystemPropertyGrossProperties underCapitalLeases.LessAccumulated Provision forAmortization NetProperties underCapitalLeases22,0006,00012,00019,000367,000,24,0007,00012,00020,000390,000188,000185,000$179,000$205,000$179,000$205,000Obligations underCapitalLeases(a)(a)Including anestimated
$60,000,000 atDecember31,1986and1985,duewithinoneyear.Futureminimumleasepayments, byyearandintheaggregate, ofthecompanies'apital leasesandnoncan-celableoperating leasesconsisted ofthefollowing atDecember31,1986:CapitalLeases(a)(b)Operatlllg Leases1987.1988198919901991LaterYearsTotalFutureMinimumLeasePayments.(inthousands)
$10,000$19,0009,00019,0006,00019,0005,00019,0004,00019,00045,000198,00079,000~$293,000LessEstimated InterestElementIncludedThereinEstimated PresentValueofFutureMinimumLeasePayments.....37,000$42,000(a)IncludescapitalleasesenteredintopriortoJanuaryI,1983assumingthatsuchleaseswerecapitalized.
'b)Minimumpaymentsdonotincludeleasesofnuclearfuel.Nuclearfuelrentalscomprisetheunamortized balanceofthelessor'scost(approx-imately$146,000,000) lesssalvagevalue,ifany,tobepaidinproportion toheatproduced, andcarryingchargesonthelessor'sunrecovered costs.Itiscontemplated thatportionsofthepresently leasedmaterialwill'bereplenished byadditional leasedmaterial.
Thefollowing isaproformaanalysisofproperties undercapitalleasesandrelatedobligations assumingthatleasesenteredintopriortoJanuary1,1983werecapitalized:
December31,19861985(inthousands)
$308,000$327,000GrossRentalsLessRentalRecoveries (including subleaserentals)(a)........
NctRentals(b)1986$92,0003,000$89,0001985(inthousands)
$73,0003,000$70,0001984$100,0003,000$97,000(a)Includesamountspaidfororreimbursed byassociated companies.
(b)Classified approximately as:Operating Expenses.......
ClearingandMiscellaneous Accounts(portions ofwhicharechargedtoincome).....
Total$81,000$63,000$90,0008,0007,0007,000$89.000$70,000$97,000Includedintheaboveanalysisoffutureminimumleasepaymentsandofproperties undercapitalleasesandrelatedobligations arecertainleasesastowhichportionsoftherelatedrentalsarepaidfororreimbursed byassociated companies intheAEPSystembasedontheirusageoftheleasedproperty.
Thecompanies cannotpredicttheextenttowhichorproportion inwhichtheassociated companies willutilizetheproperties undersuchleasesinthefuture.12.Unaudited Quarterly Financial Information:
Thefollowing consolidated quarterly financial infor-mationisunaudited but,intheopinionoftheCompany,includesalladjustments (consisting ofonlynormalrecur-ringaccruals) necessary forafairpresentation oftheamountsshown:Quarterly PeriodsEndedNetIncome~Operating Operating Revenuesincome(inIhausanck)1986March31...........
June30............
September 30........December311985March31...........
June30............
September 30........December31iBeforepreferred stockdividend$274,112261,147268,939265,161274,692240,360269,603275,248requirements.
$54,72036,67447,53452,21658,06140,62239,97553,231$37,92127,66541,48545,41043,46026,11630,60845,917Rentalsforalloperating leasesareclassified approxi-matelyasfollows:YearEndedDecember31,25 Operating Statistics.
19861985198419831982ELEcrntcOFERATING REYENUEs(inthousands):
FromKilowatt-hour Sales:Retail:Residential:
WithoutElectricHeating.....~......WithElectricHeating...............
TotalResidential
...............
~.Commercial Industrial Miscellaneous TotalRetail.Wholesale (salesforresale)..............
TotalfromKilowatt-hour Sales....~Provision forRevenueRefunds~..........
TotalNetofProvision forRevenueRefundsOtherOperating Revenues.................
TotalElectricOperating Revenues..$174,55090881265,431184,276219,34411171175,53490,949266,483181,240213,16111,234$150,33482,739233,073150,733173,9869,666$144,37070,851215,221137,616154,7518,696$125,79868,793194,591127,470137,1527,568680,222378843672,118378,0901,059,065 1,050,208 541~105567,458400,811968,269~12,494)516,284343,427859,711466,781325,468792,2491,059,606 9753955,77510,1971,050,103 9,800859,7119,269792,24917,554$1069359$1,059,903
$965,972$868,980$809,803SQURcEsANDSALEsoFENERGY(inmillionsofkilowatt-hours):
Sources:NetGenerated
-Steam:FossilFuel.NuclearFuelNetGenerated
-Hydroelectric SubtotalPurchased NetInterchange TotalSourcesLess:Losses,CompanyUse,Etc..........
NetSourcesSales:Retail:Residential:
WithoutElectricHeating..........
WithElectricHeating...........
~~TotalResidential
...............
Commercial Industrial Miscellaneous TotalRetail.Wholesale (salesforresale)............
TotalSales8,18710,9867919,2524,733~272)23,713~1645~220682,536~14423,9783,0074,37121211,568~10500~220687,9337,80074I5,8073,0654,31923,1911,54221,6492,5571,4814,0382,9684,28221611,504'0,14521,6497,07112,9136820,0524,90574825,7051,50824,1972,5341,5614,0952,8704,20120911,37512,82224,1975,68412,3015518,0404,88157323,4941,44122,0532,5961,4584,0542,8073,94120411,00611,04722,0534,58712,3497717,0132,1543,77522,9421,24321,6992,4721,5404,0122,8033,70119710,71310,98621,69926 INDIANA&MICHIGANELECTRICCOMPANYANDSUBSIDIARIES OPERATING STATISTICS (Concluded)
AYERAGECosToFFUELCQNsUMED(incents):(a)PerMillionBtu:CoalNuclearOverallPerKilowatt-hour Generated:
CoalNuclearOverall1986185741181.82.831.251985194801361.97.861.421984189651031.83.701.08198318454921.76.59.96198219050851.85'.53.89RESID~SERvlcE-AvERAGEs:
'nnualKwhUseperCustomer:
TotalWithElectricHeatingAnnualElectricBill:TotalWithElectricHeatingPriceperKwh(incents):TotalWithElectricHeating9,813179716$654.88$1,116.866.676.3010,05018,48610,24919,7716.606.145.695.30$663.18$583.35$1,135.42$1,048.2710,18718,780$540.74$912.315.314.8610,08419,990$489.08$892.914.854.47NUMBEROFELECTRICCUSTOMERS.'ear-End:
Retail:Residential:
WithoutElectricHeating............
WithElectricHeating...............
TotalResidential
...~~..~~........
Commercial Industrial Miscellaneous TotalRetail.Wholesale (salesforresale)..............
TotalElectricCustomers
..........
325,62382324407,94743,6893,882I846457,364106457470322,92280,734403,65643,0173,7011,852452,226104452,330.321,28679,823401,109"42,9123,4151,584449,020105449,125320,65578,31'1398,96642,5523,2531,571446,342106446,448320,09777,335397,43242,2333,2491,458444,372105444,477(a)Excludeseffecofdefenedcollection offuelcosts.27 Directors J.M.ALLIsoN(a)W.A.BLAcKRICHARDE.DISBROWJOHNE.DOLAN'ILLIAMN.D'ONOFRIO M.R.HARRELLE.W.HERMANSEN (b)GERALDP.MALONEYRICHARDC.MENGEC.W.Romeo(a)J.F.STARK(C)JOSEPHH.VIPPERMAN W.S.WHITE,JR.OfficersW.S.WHITE,JR.ChairmanoftheBoardandChiefZrecutive OftI'cerW.A.BLAcKPresident andChiefOperating OfftcerJ.F.STARK(c)SeniorVicePresident MILTONP.ALEXICHVicePresident RICHARDE.DISBROWVicePresident JOHNE.DOLANVicePresident WiLLIAMN.D'ONOFRIO VicePresident A.JosEPHDowD'icePresident RICHARDF.HERINOVicePresident GERALDP.MALONEYVicePresident RICHARDC.MENGEVicePresident JOSEPHH.VIPPERMAN VicePresident PETERJ.DEMARIATreasurer JOHNR.BURTONSecretary ELIOBAFILEAssistant Secretary andAssistant Treasurer JQHNF.DILoaamo, JR.Assistant Secretary WILLIAMC.HARVEYAssistant Secretary CARLJ.MoosAssisTAmSEcRETARY JOHNB.SHINNOCKAssistant Secretary JoANST.JAMasAssistant Secretary LEQNARDV.AssAmaAssistant Treasurer BRUCEM.BARBERAssistant Treasurer
'AMasD.HUEBNERAssistant Treasurer GERALDR.KNORRAssistant Treasurer Theprincipal occupation ofeachoftheabovedirectors andogccrsofIndianadthfichigan ElectricCompany,withtcnexceptions, isasanemployeeofAmericanElectricPowerServiceCorporation.
Thccxccptions areJ.M.Allison,EtioBafile,1V.A.Black,IVilliamN.D'OnoPio, M.R.Harrell,E.IV.Hermansen, RichardC.Mcnge,CarlJ.Moos,C.1V.RoahrigandJ.F.Starkwhoseprincipal occupations areasofftccrsoremployees ofIndiana*MichiganElectricCompany.(a)ElectedApril22,1986(b)ResignedFebruary28,1986(c)ResignedJanuary29,198728 INDIANAchicMICHIGANELECTRICCOMPANYDividends andPriceRangesofCumulative Preferred StockByQuarters(1986and1985)1986-uarters1st2nd3rd4th1985-uatters1st2nd3rd4th($100ParValue)4t/e%SeriesDividends PaidPerShareMarketPrice-$PerShare(MSE)-High-Low4.56%SeriesDividends PaidPerShareMarketPrice-$PerShare(OTC)Ask(high/low)
Bid(high/low) 4.12%SeriesDividends PaidPerShareMarketPrice-$PerShare(OTC)Ask(high/low)
Bid(high/low) 7.08%SeriesDividends PaidPerShareMarketPrice-$PerShare(NYSE)-High~-Low7.76%SeriesDividends PaidPerShareMarketPrice-$PerShare(NYSE)-High-Low8.68%SeriesDividends PaidPerShareMarketPrice-$PerShare(NYSE)-High-Low12%SeriesDividends PaidPerShareMarketPrice-$PerShare(NYSE)-High-Low($25ParValue)$2.15SeriesDividends PaidPerShamMarketPrice-$PerShare(NYSE)-High-Low$2.25SeriesDividends PaidPerShareMarketPrice-$PerShare(NYSE)-High-Low$2.75SeriesDividends PaidPerShareMarketPrice-$PerShare(NYSE)-High-Low$3.63SeriesDividends PaidPerShareMarketPrice-$PerShare(NYSE)-High-Low36'/e34'/e36'/e354435'le$1.14$1.14$1.14$1.14$1.14$1.14$1.14$1.14$1.03$1.03$1.03$1.03$1.03$1.03$1.03$1.03$1.77$1.77$1.77$1.77$1.77$1.77$1.77$1.77766580'/e67s/480'A7088t/e7756'/e50t/e6253'/262'le57'/46657s/e$1.94$1.94$1.94$1.94$1.94$1.94,$1.94$1.948469t/4897587'/i7694'/e83'/e617/e55'/e68596863'le71s/e63'/4$2.17$2.17$2.17$2.17$2.17$2.17$2.17$2.1793'/e78'A98'/e85'/498t/e88~/s102'/z92~/e69t/e637564'/e7571s/e8072$3.00$3.00$3.00$3.00$3.00$3.00$3.00$3.00106/e101'/e10799'/e106IOOYi10610210197'le106'/e97'/e105'/2100107100$0.5375$0.5375$0.5375$0.5375$0.5375$0.5375$0.5375$0.537524'/e19'le252124s/e22t/e25'/e23s/e17s/e16'/z19'/e16'/e19'/e17s/e20'/e17s/e$0.5625$0.5625$0.5625$0.5625$0.5625$0.5625$0.5625$0.562524'/220'/e25'/e21s/e25'/423t/e26'/e24s/e18t/41719s/417'/e20s/e18'A207/e18'/e$0.6875$0.6875$0.6875$0.6875$0.6875$0.6875$0.6875$0.6875292627~/225282727s/e27s/e25'/e22'/e25'le24'/e25'/z24s/e2724s/4.$0.9075$0.9075$0.9075$0.9075$0.9075$0.9075$0.9075$0.907531t/e28s/e30'/e28s/e31s/e28'/e30t/i2728'/e26'/e30'/e27s/e30'/i27s/e31t/e28$1.03125$1.03125$1.03125$1.03125$1.03125$1.03125$1.03125$1.03125MSE-MidwestStockExchangeOTC-Over.the-Counter NYSE-NewYorkStockExchange'Note-Theabovebidandaskedquotations represent pricesbetweendealersanddonotrepresent actualtransactions.
Marketquotations providedbyNationalQuotation Bureau,Inc.Dashindicates quotation notavailable.
29 TheCompany's AnnualReport(Form10-K)totheSecurities andExchangeCommission willbeavailable onoraboutMarch31,1987toshareowners uponwrittenrequestandatnocost.Pleaseaddresssuchrequeststo:Mr.G.C.DeanAmericanElectricPowerServiceCorporation 1Riverside PlazaColumbus, Ohio43215TransferAgentandRegistrar ofCumulative Preferred StockMorganShareholder ServicesTrustCompany30WestBroadway, NewYork,N.Y.1000730 PALISADES ICP)~KALAMAZOO LekeBENTONHARBORRIVERSIDE ST,JOSEPH~HARTFORDCISCAOOToWHIonCorri~I(CE)CSQo(MICglg()N HICKORYCREEDONALDC.COOKHEWCASLELAPORT'T.TodIcbltanCHYLEI'NIPS)4+uIToCreenAcresI'abaoca(NIPS)(NIPS)IToCrtle(CEREYHOLOSA(HIPS)ToMohllc~No(HIPS)DEQUINEr.,WESTWOOD(P2I)SCRRITNSPAINOSNILESHYORAMATIC
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