ML17331B339
| ML17331B339 | |
| Person / Time | |
|---|---|
| Site: | Cook  |
| Issue date: | 12/31/1993 |
| From: | FITZPATRICK E INDIANA MICHIGAN POWER CO. (FORMERLY INDIANA & MICHIG |
| To: | NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| References | |
| AEP:NRC:0909J, AEP:NRC:909J, NUDOCS 9404130143 | |
| Download: ML17331B339 (43) | |
Text
.ACCELERATEDD.TRIBUTIONDEMONSTPWTIONSYSTEM~~"iREGULATORYINFORMATIONDISTRIBUTIONSYSTEM(RIDS)ACCESSIONNBR:9404130143DOC.DATE:/~+53.NOTARIZED:NODOCKETFACIL:50-315DonaldC.CookNuclearPowerPlant,Unit1,IndianaM0500031550-316DonaldC.CookNuclearPowerPlant,Unit2,IndianaM05000316AUTH.NAMEAUTHORAFFILIATIONFITZPATRICK,E.IndianaMichiganPowerCo.(formerlyIndiana&MichiganEleRECIP.NAMERECIPIENTAFFILIATION
SUBJECT:
"IndianaMichiganPowerCompany1993AnnualRept."W~B4040ltrDISTRIBUTIONCODEM004DCOPIESRECEIVED:LTRENCLSIZE:TITLE:50.71(b)AnnualFinancialReportNOTES:DRECIPIENTIDCODE/NAMEPD3-1LAHICKMAN,JINTERNAL:AEOD/DOAEXTERNAL:NRCPDRCOPIESLTTRENCL111111RECIPIENTIDCODE/NAMEPD3-1PD01COPIESLTTRENCL1111DRDDNOTETOALL"RIDS"RECIPIENTSPLEASEHELPUSTOREDUCEWASTE!CONTACTTHEDOCUMENTCONTROLDESK,ROOMPl-37(EXT.20079)TOELIMINATEYOURNAMEFROMDISTRIBUTIONLIFfSFORDOCUMENTSYOUDON'7NEED!TOTALNUMBEROFCOPIESREQUIRED:LTTR6ENCL6 rt~'ll IndianaMichigan~PowerCompaIy~P.O.'Box16631Columbus,OH43216AEP:NRC:0909J10CFR50.71(b)6140.21(e)DonaldC.CookNuclearPlantUnits1and2DocketNos.50-315and50-316LicenseNos.DPR-58andDPR-74FINANCIALINFORMATIONFORINDIANAMICHIGANPOWERCOMPANYU.S.NuclearRegulatoryCommissionDocumentControlDeskWashington,D.C.20555Attn:W.T.RussellApril6,1994
DearMr.Russell:
Enclosure1containstheIndianaMichiganPowerCompany's'(I&M)annualreportfor1993.Enclosure2containsacopyofI&M'sprojectedcashflowfor1994.Thesereportsaresubmittedpursuantto10CFR50.71(b)and10CFR140.21(e).Sincerely,E.E.Fitzpatrick~~VicePresidentdrEnclosurescc:A.A.BlindG.CharnoffJ.B.Martin-RegionIIINRCResidentInspectorNFEMSectionChiefJ.R.Padgett9404130143931231PDRADOCK05000315'I('.'PDR.',,
e-r.I~
ENCLOSURE1TOAEP:NRC:0909JINDIANAMICHIGANPOWERCOMPANY'1993ANNUALREPORT 01993AnnualReport CONTENTS0~~Background...~0~~~0~~~~~~~~~~~1DirectorsandOfficers~~~~~~~\~~~~~~~~~~~~~~~2SelectedConsolidatedFinancialData~~\~~~~~~~~~~~~~~~~~~~3~~~~~~~~~~Management'sDiscussionandAnalysisofResultsofOperationsandFinancialCondition..........4-9IndependentAuditors'eport....~~~~~~~~~~~~~~~~~~~~~~~~o10ConsolidatedStatementsofIncome~~~~~~~~~~~~11ConsolidatedBalanceSheets..~~~~~~~~~~~~~~~~~1213ConsolidatedStatementsofCashFlows14ConsolidatedStatementsofRetainedEarnings.....15NotestoConsolidatedFinancialStatements.........,.........................16-28OperatingStatistics~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~DividendsandPriceRangesofCumulativePreferredStock~~~~~~~3132 tINDIANAMICHIGANPOWERCOMPANYAIVDSUBSIDIARIESOneSummitSquare,p.O.Box60,FortWayne,indiana46801BACKGROUNDINDIANAMICHIGANPOWERCOMPANY(theCompany)isengagedinthegeneration,purchase,transmissionanddistributionofelectricpowerservingapproximately525,000retailcustomersinnorthernandeasternIndianaandaportionofsouthwesternMichiganandsupplyingwholesaleelectricpowertootherelectricutilities,municipalitiesandelectriccooperatives.Approximately83o%%doftheCompany'sretailsalesareinIndianaand17o%%dinMichigan.Theprincipalindustriesservedaretransportationequipment,primarymetals,fabricatedmetalproducts,electricalandelectronicmachinery,rubberandmiscellaneousplasticproductsandchemicalsandalliedproducts.TheCompanyisasubsidiaryofAmericanElectricPowerCompany,Inc.,andhasitsprincipalexecutiveofficesinFortWayne,Indiana.IndianaMichiganPowerCompanywasorganizedunderthelawsofIndianaonFebruary21,1925,andisalsoauthorizedtotransactbusinessinMichiganandWestVirginia.TheCompany'stwowholly-ownedsubsidiaries,BlackhawkCoalCompanyandPriceRiverCoalCompany,wereformerlyengagedincoal-miningoperationsinUtah.BlackhawkCoalCompanycurrentlyleasesorsubleasesportionsofitscoalrights,landandrelatedminingequipmenttounaffiliatedcompanies.Inaddition,theCompanyhasarivertransportationdivision(RTD)thatbargescoalontheOhioandKanawhaRiverstoAEPSystemgeneratingplants.TheRTDalsoprovidessomebargingservicestounaffiliatedcompanies.ThegeneratingplantsandtransmissionfacilitiesoftheCompanyandcertainotheraffiliatedAEPSystemutilitysubsidiariesareoperatedasanintegratedsystemwiththeircostsandbenefitssharedthroughtheAEPSystemPowerPoolandAEPTransmissionAgreement.WholesaleenergysalesmadebythePowerPoolareallocatedtothePoolmembers.TheotherAEPSystemPoolmembersare:AppalachianPowerCompany,ColumbusSouthernPowerCompany,KentuckyPowerCompanyandOhioPowerCompany.TheCompanyisalsointerconnectedwithitsaffiliate,AEPGeneratingCompany,andthefollowingunaffiliatedentities:CentralIllinoisPublicServiceCompany,TheCincinnatiGas&,ElectricCompany,CommonwealthEdisonCompany,ConsumersPowerCompany,IllinoisPowerCompany,IndianapolisPower5LightCompany,LouisvilleGasandElectricCompany,NorthernIndianaPublicServiceCompany,PSIEnergyInc.andRichmondPowerandLightCompany,aswellasIndiana-KentuckyElectricCorporation(asubsidiaryofOhioValleyElectricCorporation,anaffiliatethatisnotamemberoftheAEPSystem).Inaddition,theCompanyisinterconnectedthroughtheAEPSystemwithtwootheraffiliatedcompanies,KingsportPowerCompanyandWheelingPowerCompany.
DIRECTORSMarkA.BaileyPeterJ.DeMariaRichardE.Disbrow(a)WilliamN.D'OnofrioA.JosephDowd(b)E.LinnDraper,Jr.AllenR.Glassburn(c)OFFICERSWilliamJ.LhotaGeraldP.MaloneyRichardC.MengeRonaldE.Prater(d)DavidB.Synowiec(d)DaleM.Trenary(c)WilliamE.WaltersRichardE.Disbrow(a)ChairmanoftheBoardandChiefExecutiveOfficerGeraldP.MaloneyVicePresidentE.LinnDraper,Jr.(b)ChairmanoftheBoardandChiefExecutiveOfficerJamesJ.Markowsky(f)VicePresidentRichardC.MengePresidentandChiefOperatingOfficerJohnF.DiLorenzo,Jr.SecretaryMarkA.BaileyVicePresidentElioBafileAssistantSecretaryandAssistantTreasurerPeterJ.DeMariaVicePresidentandTreasurerJeffreyD.CrossAssistantSecretaryWilliamN.D'OnofrioVicePresidentCarlJ.MoosAssistantSecretaryA.JosephDowdVicePresidentJohnB.ShinnockAssistantSecretaryEugeneE.FitzpatrickVicePresidentLeonardV.AssanteAssistantTreasurerRichardF.Hering(e)VicePresidentBruceM.BarberAssistantTreasurerWilliamJ.LhotaVicePresidentGeraldR.KnorrAssistantTreasurerAsofJanuary1,1994thecurrentdirectorsandoff(carsofIndianaMichiganPowerCompanywereemployeesofAmericanE/ectr(cRowerServiceCorporationwitheightexceptions:Messrs.Bafile,Bailey,D'Onofno,Mange,Moos,Proter,SynowiecandWe(ters,whowereemployeesofIndianaMt'eh(PanPowerCompany.(elResignedApn728,1993(blE(ectedApn728,1993(clRee'gnedApn727.1993(dlElectedApnt27,1993(elRex'gnedJuty1,1993(/1ElectedJuty1,1993 tINDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIESSelectedConsolidatedFinancialDataINCOMESTATEMENTSDATA:rEnDm~1(inthousands)OperatingRevenuesOperatingExpensesOperatingIncomeNonoperatingIncome(Loss)IncomeBeforeInterestChargesInterestChargesNetIncomePreferredStockDividendRequirementsEarningsApplicabletoCommonStock$1,202,643~99272209,920~24i209,686~8037129,313~14224115088$1,196,755~1Q)~12195,520~ts11209,635tL5687123,948~1417~108531S1,225,867227,289~721223,568~636136,932~tet7~l2151501,271,514~1(~7~2201,491~77209,0489~7118,391~17~10280401,135,587~~~21g4213,983~~27246,720~1~74139,2371~412118BALANCESHEETSDATA:1991992mr1~11(inthousands)ElectricUtilityPlantAccumulatedDepreciationandAmortizationNetElectricUtilityPlant$4,290,957$4,266,48004,135,820S4,066,22703,969,6021714l72~1'1~14[~12~14~l4212~F8,~7~2576'12842635042~2614471~2644942~266053RegulatoryAssets(a)S492822~42688120406024075428076TotalAssets43765458~3645798~348178~350192~412553CommonStockandPaid-inCapitalRetainedEarningsTotalCommonShareowner'sEquity791,517S782,7410782,7410782,7410782,741177tftt17~1~1~241'i~4[~122149691554954050495198449331494944954CumulativePreferredStock:NotSubjecttoMandatoryRedemptionS87,000SubjecttoMandatoryRedemption(b)1~9'otalCumulativePreferredStock~187000$197,000~197000197,000~197000197,000~19700197,000M1LQK~21503Long-termDebt(b)10731541211621130709113383153273ObligationsUnderCapitalLeaseslbl49875341266894102985133447123361TotalCapitalizationandLiabilities4376545843645798434818783501925~4125534lalEffectiveJanuary1,1993onawaccountingstandardStatementofRnancielAccountingStandardsNo.109,AccountingforIncomeTaxes,wasadoptedresultinginonIncreaseInregulatoryassets.(SeeIVota1ofNotestoConsolidatedRnanclalStotemontsl.fbIIncludingportionduewithinonayear.
MANAGEMENT'SDISCUSSIONANDANALYSISOFRESULTSOFOPERATIONSANDFINANCIALCONDITIONNetIncomeIncreasesNetincomeincreased4.3%in1993andde-creased9.6%in1992.Thescheduledrefuelingofthetwonucleargeneratingunitsandanunsched-uledoutageatoneoftheunitsin1992requiredthepurchaseofmoreexpensivereplacementpowerfromtheAEPSystemPowerPool(PowerPool)andreducedwholesalesalestothePowerPoolreduc-ingnetincomein1992.Thereturntoserviceofthenuclearunitsalongwiththeretirementandtherefinancingofdebtatlowerinterestrateswasresponsiblefortheincreaseinnetincomein1993.OutlookTheelectricutilityindustryisexpectedtoundergosignificantchangesfortheremainderofthedecadebecauseofincreasingcompetitioninthegenerationandsaleofelectricityandincreasingenergyflowsresultingfromopentransmissionaccess.AlthoughmanagementbelievesthattheCompanyiswellpositioned,asalowcostproduc-er,tocompete,effortswillcontinuetofurtherreducecostsandincreaseeffectiveness.TheCompanyfacesadditionalchallengesfromcompliancewiththeCleanAirActAmendmentsof1990,otherenvironmentalconcernsandcosts,thecostofoperating,maintainingandeventuallydecommissioningthetwonucleargeneratingunitsandthedisposaloftheirspentnuclearfuelthatcouldaffectfinancialperformanceandpossiblytheabilitytomeetfinancialobligationsandcommit-ments.WhilemanagementbelievestheCompanyisequippedtomeetthesechallenges,futurefinan-cialperformanceisheavilydependentontheabilitytoobtainfavorablerate-makingtreatmenttorecov-ercostsofserviceonatimelybasis.Futureresultsofoperationswillbeaffectedbyseveralfactors,includingthecontinuedeconomichealthofourserviceterritory,theweather,compe-titionforwholesalesales,newenvironmentallawsandregulationsandtherate-makingpoliciesoftheCompany'sregulators.Manyofthesefactorsarenotgenerallywithinmanagement'sdirectcontrolyeteveryeffortwillbemadetoworkwithregula-tors,governmentofficials,andcurrentandpro-spectivecustomerstopositivelyinfluencethesecriticalfactorsandtotakeadvantageoftheoppor-tunitiesincreasedcompetitionwillbring.OperatingRevenuesandEnergySalesOperatingrevenuesincreased$6millionin1993followingadeclineof$29millionin1992.The1993increaseandthe1992decreasewereattrib-utabletotheDonaldC.CookNuclearPlant(CookPlant)generatingunitsbeingoutofserviceforscheduledrefuelingandmaintenanceandanun-scheduledoutagein1992whichreducedtheamountofenergytheCompanyhadavailableforsaletothePowerPool.Retail:PricevarianceVolumevariance$(75.1)$42.3~3~34.6)(4.3)4535.9Wholesale:PricevarianceVolumevariance(137.2)172.7,35.5OthevOpevetln9Revenues5.2Total~5.975.2~(41)9.6~66.7)(15.3)~7.7)0.5~29.()(2.4)Theunfavorableretailandwholesalepricevariancesin1993reflecttheoperationoffuelandpowersupplycostrecoverymechanismsduetotheavailabilityoftheCookPlantandloweraveragecostgeneration.Undertheretailjurisdictionalfuelclauses,revenueswereaccruedin1992forfuturerecoveryofhighercostreplacementpowerduringthenuclearoutages.Theincreasein1993retailsalesvolumere-flectscontinuingimprovementinindustrialsales,areturntonormalweatherandmoderategrowthinresidentialandcommercialcustomerclasses.Theincreaseinwholesalesalesvolumein1993result-edfromtheincreasedavailabilityofenergyfordeliverytothePowerPoolduetoavailabilityoftheCookPlantaswellasincreasedsalesbythePowerPooltounaffiliatedutilitieswhichtheCompanysharesasamemberofthePool.Thechangesinrevenuescanbeanalyzedasfollows:Increase(Decrease)FromPreviousYear~dollarsinmillions19931992~unt~~un tINDIANAMICHIGANPOWERCOMPANVANDSUPSIDIARIESOperatingExpensesDeclineChangesinthecomponentsofoperatingex-penseswereasfollows:Increase(Oecrease)FromPreviousYeardollarsinmillions19931992~unt~~unt$(57.5)(22.9)57.847.15.02.018.515.6$26.413.6(72.0)(40.0)12.65.04.93.5FuelPurchasedPowerOtherOperationMaintenanceDepreciationandAmortization5.44.1AmortizationofRockportPlantUnitIPhase-inPlanOeferrals(0.7)(4.0)(0.7)(3.9)TaxesOtherThanFederalIncomeTaxes5.79.2(0.6)(0.9)FederalIncomeTaxes~9.36.I~20.9)(45.1)Total~8.5)(0.9)~2.70.31.10.8Fuelexpenseincreasedin1993duetothesignificantincreaseinnucleargenerationanda6%increaseinfossilgeneration,partiallyoffsetbyadecreaseintheaveragecostoffuel.Thereductioninfuelexpensein1992resultedlargelyfromreducedgenerationduetooutagesatthetwonuclearunitsaswellasloweraveragefossilfuelcosts.Thesubstantialretailandwholesalepricevari-ancein1992resultedfromrecoveryofhigherfossilfuelgenerationcostsandpowerpoolpur-chaseswhichwereincurredduringtheCookPlantoutages.Thereductionin1992wholesalesalesvolumereflectsadecreaseinsalestothePowerPoolbecauseoftheCookPlantoutagesandre-ducedwholesalesalesbythePowerPool,Effortstoimproveshort-termwholesalesalesareaffectedbythehighlycompetitivenatureoftheshort-termenergymarketandotherfactorssuchasunaffiliat-edgeneratingplantavailability,theweatherandtheeconomy,thatarenotgenerallywithinmanagement'scontrol~Futureresultsofoperationswillbeaffectedbytheabilitytomakecost-effec-tivewholesalesalesor,ifsuchsalesarereduced,theabilitytotimelyraiseretailrates.Thedeclineinpurchasedpowerexpensein1993reflectsareducedlevelofenergyreceiptsfromthePowerPoolbecauseoftheincreasedavailabilityofthenuclearunitsandreducedpowerpurchasesfromAEPGeneratingCompanyasaresultofRockportPlantmaintenanceoutages.Theincreaseinpurchasedpowerexpensein1992wastheresultofanincreasedlevelofenergyreceiptsfromthePowerPoolduringthenuclearoutages.Certainotheroperationandmaintenanceproce-durescanbeperformedonlywhenanuclearunitisoutofservice.Therefore,duringthe1992nuclearrefuelingoutages,significantotheroperationandmaintenanceexpenseswereincurred.However,theimpacton1992earningsfromrefuelingoutag-eswasmitigatedthroughtheimplementationoflevelizedaccountingin1992.Levelizedaccountingspreadstheincrementalcostofrefuelingoutagessothatthecostofanaveragenumberofrefuelingsarereflectedineachyear'sexpenses.TheCompa-nyreceivedregulatoryapprovaltodeferincremen-talnuclearrefuelingoutagecostsandtoamortizethemfromthestartofanoutageuntilthebegin-ningofthenextoutage.Asaresult,1993operat-ingexpensesincludetheamortizationof$35.2millionofincrementalnuclearrefuelingoutageexpensesthatweredeferredin1992.Taxesotherthanfederalincometaxesin-creasedin1993primarilyduetoasubstantialincreaseinIndianasupplementalnetincometaxbecausethenuclearrefuelingoutagecostsincurredin1992weretaxdeductibleinthatyear.Therewerenorefuelingoutagesin1993.Federalincometaxesattributabletooperationsincreasedin1993duetoanincreaseinpre-taxoperatingincomeandareductionininterestcharges.Thedeclineinfederalincometaxesattributabletooperationsin1992reflectsadecreaseinpre-taxoperatingincome, NonoperatingIncomeandFinancingCostsDeclineConstructionSpendingNonoperatingincomedeclinedin1993duetotheimplementationofStatementofFinancialAccountingStandardsNo.109,AccountingforIncomeTexes,therecordationin1992ofinterestincomeonfederalincometaxrefundsinconnectionwiththesettlementofauditsofprioryears'axreturnsandthereversalofaprovisionin1992asaresultofthesuccessfulsettlementofacoalroyaltydisputewiththestateofUtah.Interestexpensedeclinedin1993duetotheretirementof$142millionoflong-termdebtandtherefinancingof$150millionoflong-termdebtand$97millionofinstallmentpurchasecontracts(IPC)atlowerinterestrates.Thedeclinein1992waslargelyattributabletotherefinancingof$25millionofIPCsandaloweraverageinterestrateonavariablerateIPC.AccruedUtilityRevenuesandTaxesAccruedAtDecember31,1992underretailfuelandpowersupplycostrecoverymechanisms,$38millionoffuelrevenueswereaccruedrelatedtofuelandreplacementpowercostsincurredduringthenuclearunitoutages.Bothretailjurisdictionsapprovedrecovery.RecoverywascompletedintheIndianajurisdictionandsubstantiallycompletedintheMichiganjurisdictionin1993reducingtheaccruedutilityrevenuesbalanceatDecember31,1993.TheremainingbalanceintheMichiganjurisdictionwillberecoveredin1994.Taxesaccruedincreasedin1993reflectingtheeffectsoffederalincometaxreturnauditsettle-mentsrecordedin1992.Asignificantrefundresultingfromtheauditcausedareductioninthe1992balance.RegulatoryAssetsandDeferredTaxLiabilitiesIncreaseTheCompanyprospectivelyadoptedanewaccountingstandardforincometaxesonJanuary1,1993.Thenewstandardrequired,amongotherthings,thatregulatedentitiesrecorddeferredtaxliabilitiesontemporarydifferencespreviouslyflowed-throughforrate-makingandbookaccount-ing.Whererate-makingprovidesforflow-throughtreatment,correspondingregulatoryassetswererecordedresultinginanincreaseintotalassetsandliabilities.Grossplantandpropertyadditionswere$125millionin1993and$176millionin1992.Manage-mentestimatesconstructionexpendituresforthenextthreeyearstobe$410million.Thefundsforconstructionofnewfacilitiesandimprovementofexistingfacilitiescomefromacombinationofinternallygeneratedfunds,short-termandlong-termborrowingsandinvestmentsincommonequitybytheCompany'sparent,AmericanElectricPowerCompany,Inc.(AEPCo.,Inc.).Approximately92%oftheconstructionexpendi-turesforthenextthreeyearswillbefinancedinternallywiththeremainderfinancedexternally.CapitalResourcesTheCompanygenerallyissuesshort-termdebttoprovideforinterimfinancingofcapitalexpendi-turesthatexceedinternallygeneratedfunds.AtDecember31,1993,unusedshort-termlinesofcreditof$537millionsharedwithotherAEPSystemcompanieswereavailable,Short-termborrowingsincreasedby$5.9millionin1993.Acharterprovisionlimitsshort-termborrowingsto$127million.Periodicreductionsofoutstandingshort-termdebtaremadethroughissuanceoflong-termdebtandpreferredstockandthroughequitycapitalcontributionsbytheparentcompany.TheCompanyreceivedorhasrequestedregula-toryapprovaltoissueupto$185millionoflong-termdebtandpreferredstock.Managementexpectstousetheproceedstoretireshort-termdebt,refinancehighercostandmaturinglong-termdebt,refundcumulativepreferredstockandfundconstructionexpenditures.UnlesstheCompanymeetscertainearningsorcoveragetests,additionallong-termdebtorpre-ferredstockcannotbeissued.Inordertoissuelong-termdebtwithoutrefundinganequalamountofexistingdebt,pre-taxearningsmustbeequaltoatleasttwiceannualinterestchargesonlong-termdebtaftergivingeffecttothenewdebt.Toissueadditionalpreferredstock,after-taxgrossincomemustbeatleastequaltooneandone-halftimesannualinterestandpreferredstockdividendre-quirementsaftergivingeffecttothenewpreferredstock.TheCompanypresentlyexceedstheseminimumcoveragerequirements.AtDecember31,1993,long-termdebtandpreferredstockcoverageratioswere4.59and2.48,respectively.
Recentlyamajorcreditratingagencyreevaluat-edthecreditworthinessofcompaniesintheelectricutilityindustrybasedonperceivedriskfromderegulation,increasedcompetition,reducedloadgrowth,escalatingnuclearplantcostsandenviron-mentalconcerns.Theagencylowereditsratingsoutlookforapproximatelyone-thirdofthecom-paniesbutnotforIndianaMichiganPowerwhichwasregardedbytheagencyasbeingrelativelywellpositionedtomeetfuturecompetitivechallenges.CompetitionINDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIESAlthoughmanagementmayhaveopportunitiestoimproveshareholdervaluethroughincreasedcompetitionasaresultofopentransmissionaccessandotherprovisionsoftheEnergyPolicyActof1992,thereisriskanduncertainty,especiallyforretailratepayersandshareholders,regardingreli-abilityoffuturetransmissionserviceandfaircompensationforuseoftheCompany'sextensivehighvoltagetransmissionfacilities.Management'sgoalistoensurethat,totheextenttheCompany'sfacilitiesareusedbyothers,thereisfairandappropriatecompensation.Since1990,theshort-termwholesaleenergymarkethasbeenextremelycompetitive.WiththepassageoftheEnergyPolicyActof1992,whichprovidesforgreatereaseoftransmissionaccessandreducescertainregulatoryrestrictionsforindependentpowerproducers(IPPs),competitionisexpectedtoincreaseinthelong-termwholesalemarketandintheconstructionofnewgeneratingcapacity.Forexample,IPPsarenolongerrequiredtofindanindustrialhosttoutilizethesteamby-productfromthegenerationofelectricitytobuildageneratingunitandavoidregulationunderthePublicUtilityHoldingCompanyActof1935(1935Act).TheEnergyPolicyActalsoexemptsIPPsfromrequirementsunderthe1935Actwhich,amongotherthings,permitIPPstousegreateramountsoflowercostdebtwhichmayreduceoverallcostofcapital.ThusIPPsmayhaveacompetitiveadvantage.AlthoughtheEnergyPolicyActspecificallyprohibitstheFederalEnergyRegula-toryCommissionfromorderingretailtransmissionaccess,thestatescandosoandmanybelievethatthenextlogicalstepwillbetheextensionofcom-petitionforexistingindustrialcustomerswhichwillpresentbothopportunitiesandchallengesfortheCompany.AlthoughmanagementbelievesthattheCompa-nyiswellpositionedtocompeteinthisevolvingcompetitivemarketbecauseofitstechnicalskillsandexpertiseanditspositionasalowcostproduc-er,weintendtocontinuetoexaminewaystoim-provetheCompany'scompetitiveposition.Effortstoimproveoperationsandreducecostswillcontin-ue,inordertomaintainandenhanceourpositionasalowcostproducer.EnvironmentalConcernsandCostPressuresCleanAlrActTheCleanAirActAmendmentsof1990(CAAA)require,amongotherthings,substantialreductionsinsulfurdioxideandnitrogenoxidesemittedfromelectricgeneratingplants,TwooftheCompany'sgeneratingunits,Tan-nersCreekUnit4andtheBreedPlant,areaffectedbythefirstphaseoftheCAAA.TannersCreekUnit4willcomplybyfuelswitchingatminimalcapitalcost.Managementdecidedearlyin1994toclosethe325megawatt(mw)BreedPlantasofMarch31,1994,duetoitsdesignandage(com-mercialoperationbeganin1960)aswellastheadditionalcostofcomplyingwiththeCAAA.TheclosingoftheBreedPlantisnotexpectedtoadverselyaffectresultsofoperationsorfinancialconditionexceptasitimpactsongoingPowerPoolcreditsandcharges.Theongoingearningseffe'ctofclosingtheBreedPlantwillbethattheCompanywillreceivelesscapacitycreditsforbeinganetsuppliertothePowerPool,partiallyoffsetbyareductioninoperation,maintenanceanddepreciationexpenses.AsofDecember31,1993theunfavorableeffectonearningsisexpectedtobe$10millionannually.TheCompanywillseekrecoveryofthisadditionalcostinfutureratecases,PhaseIIoftheCAAA,effectiveintheyear2000,willrequirefurtheractionstocomply.AdditionalcostswillbeincurredandrecoveryfromcustomerswillbesoughtforallCAAAcosts.
GlobalWarmingConcernaboutglobalclimatechange,or"thegreenhouseeffect"hasbeenthefocusofintensivedebatewithintheUnitedStatesandaroundtheworld.Muchoftheuncertaintyaboutwhateffectsgreenhousegasconcentrationswillhaveontheglobalclimateresultsfromamyriadoffactorsthataffectclimate.Basedonthetermsofa1992UnitedNationstreatythatpledgedtheUnitedStatestoreducegreenhousegasemissions,theClintonAdministrationdevelopedavoluntaryplantoreducebytheyear2000greenhousegasemis-sionsto1990levels.TheAEPSystemsupportstheplanandwillworkwiththeU.S.DepartmentofEnergy(DOE)andotherelectricutilitycompaniestoformulateacosteffectiveframeworkforlimitingfuturegreenhousegasemissions.TheAEPSystemstronglysupportsapolicyofproactiveenvironmentalstewardship,wherebyactionsaretakenthatmakeeconomicandenviron-mentalsenseontheirownmerits,irrespectiveoftheuncertainthreatofglobalclimatechange.Toreduceemissions,wesupportenergyconservationprograms,developmentofmoreefficientgenerationandend-usetechnologies,andforestmanagementactivitiesbecausetheyarecosteffectiveandbringlong-termbenefitstoourservicearea.Shouldsignificantnewmeasurestocontroltheburningofcoalbeenacted,theycouldaffecttheCompany'scompetitivenessand,ifnotrecoveredfromcustom-ers,adverselyimpactresultsofoperationsandfinancialcondition.Thepotentialforelectricandmagneticfields(EMF)fromtransmissionanddistributionfacilitiestoadverselyaffectthepublichealthisbeingexten-sivelyresearched.TheAEPSystemcontinuestosupportEMFresearchtohelpdeterminetheextent,ifany,towhichEMFmayadverselyimpactpublichealth.OurconcernisthatnewlawsimposingEMFlimitsmaybepassedornewregulationspromulgatedwithoutsufficientscientificstudyandevidencetosupportthem.AslongasthereisuncertaintyaboutEMF,wewillhavedifficultyfindingacceptablesitesforourtransmissionfacil-ities,whichcouldhampereconomicgrowthwithinourservicearea.IfthepresentenergydeliverysystemmustbechangedbecauseofEMFcon-cerns,orifthecourtsconcludethatEMFexposureharmsindividualsandthatutilitiesareliablefordamages,thenresultsofoperationsandfinancialconditioncouldbeadverselyaffected,unlessthecostscanberecoveredfromcustomers.HazardousMaterialBy-productsfromthegenerationofelectricityincludematerialssuchasash,slag,sludge,lowlevelradioactivewasteandspentnuclearfuel.Inaddition,generatingplantsandtransmissionanddistributionfacilitieshaveusedasbestos,polychlorinatedbiphenyls(PCBs)andotherhazard-ousandnon-hazardousmaterials.Substantialcoststostoreanddisposeofhazardousandnon-hazardousmaterialshavebeenandwillcontinuetobeincurred.Significantadditionalcostscouldbeincurredtocomplywithnewlawsandregulationsifenactedandtocleanupdisposalsitesunderexistinglegislation.TheSuperfundcreatedbytheComprehensiveEnvironmentalResponseCompensationandLiabilityActaddressescleanupofhazardoussubstancedisposalsitesandauthorizestheUnitedStatesEnvironmentalProtectionAgency(FederalEPA)toadministerthecleanupprograms.TheCompanyhasbeennamedbytheFederalEPAasa"potential-lyresponsibleparty"(PRP)forsevensitesandhasreceivedinformationrequestsforthreeothersites.FortwoofthePRPsites,liabilityhasbeensettledwithlittleimpactonresultsofoperations.I%MalsohasbeennamedaPRPatoneIllinoissiteandhasreceivedaninformationrequestforoneIndianasiteunderanalogousstatecleanuplaws.Althoughthepotentialliabilityassociatedwitheachsitemustbeevaluatedindividually,severalgeneralstate-mentscanbemaderegardingsuchpotentialliabili-INDIANAMICHlGANPOWERCOMPANYANDSUBSIDIARIESWhethertheCompanydisposedofhazardoussubstancesataparticularsiteisoftenunsubstan-tiated;thequantityofmaterialdisposedofatasitewasgenerallysmall;andthenatureofthematerialgenerallydisposedofwasnon-hazardous,Typical-ly,theCompanyisoneofmanypartiesnamedPRPsforasiteand,althoughliabilityisjointandseveral,atleastsomeoftheotherpartiesarefinanciallysoundenterprises.Therefore,presentestimatesdonotanticipatematerialcleanupcostsforidentifieddisposalsites.However,ifforun-knownreasons,significantcostsareincurredforcleanup,resultsofoperationsandpossiblyfinancialconditionwouldbeadverselyaffectedunlessthecostscanbyrecoveredfrominsuranceproceedsand/orcustomers.NuclearOperatingCostOperationandmaintenancecostsoftheComp-any'stwo-unit2,110mwDonaldC.CookNuclearPlantaredirectlyimpactedbyincreasingNuclearRegulatoryCommissionrequirementsandincreas-ingmaintenancerequirementsrelatedtotheagingoftheunits(Unit1begancommercialoperationin1975andUnit2in1978).Whilenuclearfuelcosthasdeclined,theestimatedcosttodecommissiontheplanthasincreasedtoarangeof$588millionto$1.1billion.TheincreaseintherangefrompreviousestimatesisattributabletouncertaintyregardingfuturedelaysintheDOE'smandatorySpentNuclearFuel(SNF)disposalprogram.DelaysinfindingapermanentrepositoryforSNFhavein-creasedcostsreflectinganeedtostoreSNFattheplantsiteforanextendedtimeaftertheplantceasesoperations.Managementintendstocontin-uetoseekrecoveryofincreasingdecommissioningcostsovertheremainingplantlife.Wecontinuetoexamineouroperationsforbetterwaystooperateandmaintainourtwonuclearunitstocontrolthegrowthinoperation,maintenanceanddecommis-sioningcosts.Managementrecentlyrestructureditsnuclearoperationsandstafftoaddresstheseconcerns.Effortsarecontinuingtoshortenrefuel-ingandmaintenanceoutages,toreducetheircostandtominimizethecostofreplacementenergyduringtheoutageperiods.Shouldthenuclearunitsberetiredearlyforanyreasonorcostsofmaintain-ing,operatinganddecommissioningtheplantanddisposingofitsspentnuclearfuelnotberecoveredthroughrates,resultsofoperationsandfinancialconditionwouldbeadverselyaffected.LitigationTheCompanyisinvolvedinanumberoflegalproceedingsandclaims.Whileweareunabletopredicttheoutcomeofsuchlitigation,itisnotexpectedthattheresolutionofthesematterswillhaveamaterialadverseeffectonfinancialcondi-tion.NewAccountingStandardsTwonewaccountingstandardswereissuedin1993thatwereadoptedin1994.Theimplementa-tionofthesenewstandardswillnothaveasignifi-canteffectonresultsofoperationsorfinancialcondition.EffectsofinflationInflationaffectsthecostofreplacingutilityplantandthecostofoperatingandmaintainingsuchplant.Therate-makingprocessgenerallylimitsrecoverytothehistoricalcostofassetsresultingineconomiclosseswheninflationeffectsarenotrecoveredfromcustomersonatimelybasis.However,economicgainsthatresultfromtherepaymentoflong-termdebtwithinflateddollarspartlyoffsetsuchlosses.
INDEPENDENTAUDITORS'EPORTTotheShareownersandBoardofDirectorsofIndianaMichiganPowerCompany:WehaveauditedtheaccompanyingconsolidatedbalancesheetsofIndianaMichiganPowerCompanyanditssubsidiariesasofDecember31,1993and1992,andtherelatedconsolidatedstatementsofincome,retainedearnings,andcashflowsforeachofthethreeyearsintheperiodendedDecember31,1993.ThesefinancialstatementsaretheresponsibilityoftheCompany'smanagement.Ourresponsibilityistoexpressanopiniononthesefinancialstatementsbasedonouraudits.Weconductedourauditsinaccordancewithgenerallyacceptedauditingstandards.Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreeofmaterialmisstatement.Anauditincludesexamining,onatestbasis,evidencesupportingtheamountsanddisclosuresinthefinancialstatements.Anauditalsoincludesassessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,aswellasevaluatingtheoverallfinancialstatementpresentation.Webelievethatourauditsprovideareasonablebasisforouropinion.Inouropinion,suchconsolidatedfinancialstatementspresentfairly,inallmaterialrespects,thefinancialpositionofIndianaMichiganPowerCompanyanditssubsidiariesasofDecember31,1993and1992,andtheresultsoftheiroperationsandtheircashflowsforeachofthethreeyearsintheperiodendedDecember31,1993inconformitywithgenerallyacceptedaccountingprinciples.AsdiscussedinNotes1and6inNotestoConsolidatedFinancialStatements,effectiveJanuary1,1993,theCompanychangeditsmethodofaccountingforincometaxestoconformwithStatementofFinancialAccountingStandardsNo.109"AccountingforIncomeTaxes,"anditsmethodofaccountingforpostretirementbenefitsotherthanpensionstoconformwithStatementofFinancialAccountingStandardsNo.106"Employers'ccountingforPostretirementBenefitsOtherThanPensions."win~DELOITTE5TOUCHEColumbus,OhioFebruary22,1994 ConsolidatedStatementsofIncomeINDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIESYrEDmr~12(inthousands)OPERATINGREVENUESOPERATINGEXPENSES:FuelPurchasedPowerOtherOperationMaintenanceDepreciationandAmortizationAmortizationofRockportPlantUnit1Phase-inPlanDeferralsTaxesOtherThanFederalIncomeTaxesFederalIncomeTaxesTotalOperatingExpenses220,206108,274264,543142,637138,794193,830180,365251,897137,787133,365251,325122,573246,935119,242132,28516,96162,783~447416,30362,1892!~415,64467,918~477~2~72~1~2~~7~12~24~11L77~1~22'jJ+7OPERATINGINCOMENONOPERATINGINCOME(LOSS)INCOMEBEFOREINTERESTCHARGESINTERESTCHARGESNETINCOMEPREFERREDSTOCKDIVIDENDREQUIREMENTSEARNINGSAPPLICABLETOCOMMONSTOCK209,920195,520227,289209,686209,635223,568~MiGZ~MQ5.129,313123,948136,932~1422~1411'~~115088~108531~12151~21~411~21SeeNotestoConsolidatedFinancielStatements.11 ConsolidatedBalanceSheetsASSETSmr1~1~12(inthousands)ELECTRICUTILITYPLANT:ProductionTransmissionDistributionGeneral(includingnuclearfuel)ConstructionWorkinProgressTotalElectricUtilityPlantAccumulatedDepreciationandAmortizationNETELECTRICUTILITYPLANT$2,559,905829,507576,309182,414~11402,602,527839,198608,752152,4704,290,957~7~424,266,480~~4~27~12~2;~~42OTHERPROPERTYANDINVESTMENTS~4~24CURRENTASSETS:CashandCashEquivalentsAccountsReceivable:CustomersAffiliatedCompaniesMiscellaneousAllowanceforUncollectibleAccountsFuel-ataveragecostMaterialsandSupplies-ataveragecostAccruedUtilityRevenuesPrepaymentsTOTALCURRENTASSETS3,7527,45967,24624,50730,087(504)34,47657,80034,642~12462,32541,13931,536(562)53,21054,00478,555~111~2~44~QUUL22.REGULATORYASSETS:AmountsDueFromCustomersForFutureFederalIncomeTaxesOtherTOTALREGULATORYASSETS286,948~2~74~422~2LRKTOTALSeelvotestoConsolidetedRnenoielStetements.3765458~384579812 INDNAMICHIGANPOWERCOMPANYANDSUBSIDIARIESCAPITALIZATIONANDLIABILITIESmr~1(inthousands)CAPITALIZATION:CommonStock-NoParValue:Authorized-2,500,000SharesOutstanding-1,400,000SharesPaid-inCapitalRetainedEarningsTotalCommonShareowner'sEquityCumulativePreferredStock:NotSubjecttoMandatoryRedemptionSubjecttoMandatoryRedemptionLong-termDebtTOTALCAPITALIZATION56,584726,157171~S56,584734,93317~7954,050'969,155197,000~11~7287,000100,000~17~14~222~$~21!~71OTHERNONCURRENTLIABILITIESCURRENTLIABILITIES:Long-termDebtDueWithinOneYearShort-termDebt-CommercialPaperAccountsPayable:GeneralAffiliatedCompaniesTaxesAccruedInterestAccruedObligationsUnderCapitalLeasesOtherTOTALCURRENTLIABILITIESDEFERREDFEDERALINCOMETAXESDEFERREDINVESTMENTTAXCREDITSDEFERREDGAINONSALEANDLEASEBACK-ROCKPORTPLANTUNIT2DEFERREDCREDITSCOMMITMENTSANDCONTINGENCIES(Note3)~217~27~50,07540,43717,48154,47318,89420,5857,'~742,90244,20037,21412,47115,82922,75932,745~1LQ32~1'MM421144~2'~41242177~2112~2I~11TOTAL$3765458364579 ConsolidatedStatementsofCashFlowsOPERATINGACTIVITIES:NetIncomeAdjustmentsforNoncashItems:DepreciationandAmortizationAmortizationofRockportPlantUnit1Phase-inPlanDeferralsAmortization(Deferral)ofIncrementalNuclearRefuelingOutageExpenses(net)DeferredFederalIncomeTaxesDeferredInvestmentTaxCreditsChangesinCertainCurrentAssetsandLiabilities:AccountsReceivable(net)Fuel,MaterialsandSuppliesAccruedUtilityRevenuesAccountsPayableTaxesAccruedOther(net)NetCashFlowsFromOperatingActivitiesINVESTINGACTIVITIES:ConstructionExpendituresProceedsfromSalesofPropertyandOtherNetCashFlowsUsedForInvestingActivities93S129,313148,27015,64433,827(49,905)(8,543)13,10214,93843,9138,23338,644~17~4~7~72(108,867)~i2Li~1'~42)rEnDm1992(inthousands)0123,948141,45316,303(47,200)29,897(9,673)(7,432)1,018(41,068)(15,088)4,514~1I~44~122M2(125,908)J1%$2$S136,932141,81316,961(21,877)(9,188)(4,389)(14,520)3,816(15,222)9,937~444~24~7(122,597)~24~LADFINANCINGACTIVITIES:CapitalContributionsfromParentCompanyIssuanceofCumulativePreferredStockIssuanceofLong-termDebtRetirementofCumulativePreferredStockRetirementofLong-termDebtChangeinShort-termDebt(net)DividendsPaidonCommonStockDividendsPaidonCumulativePreferredStockNetCashFlowsUsedForFinancingActivitiesNetIncrease(Decrease)inCashandCashEquivalentsCashandCashEquivalentsJanuary1CashandCashEquivalentsDecember31SeeNotestoConsolidatedRnanoIolStatements.10,00098,776243,426(112,300)(392,093)5,875(108,696)~1~7~271,722(203,185)(6,750)(106,465)~141778,634(92,623)12,055(102,680)~1417(3,707)~743752(4,876)12~74599,327~hQQR~27)~7~I~)~2~39114
.~ConsolidatedStatementsofRetainedEarningstINDIANAMICHIGANPOWERCOMPANYANDSU8SIDIARIESYrEnDm1~12(inthousands)RetainedEarningsJanuary1NetIncomeDeductions:CashDividendsDeclared:CommonStockCumulativePreferredStock:4-1/8%Series4.56%Series4.12%Series5.90%Series6-1/4%Series6-7/8%Series7.08%Series7.76%Series8,68%Series$2.15Series$2.25SeriesTotalCashDividendsDeclaredOtherTotalDeductionsRetainedEarningsDecember310171,309~121~1~01~22108,6964952731653741611,7992,1242,7162,5173,001122,9211224~177638$169,243~12l~4~2I~11106,4654952731652,1242,7162,6043,440~l~121,882~121217130$150,408~i~2~27~4102,6804952731652,1242,7162,6043,440~)~118,09711~!L7~I6924SeeNotestoConsolidotedRnancialStatements.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS1.SIGNIFICANTACCOUNTINGPOLICIES:OrganizationIndianaMichiganPowerCompany(theCompanyorI@M)isawholly-ownedsubsidiaryofAmericanElectricPowerCompany,Inc.(AEPCo.,Inc.),apublicutilityholdingcompany.TheCompanyisengagedinthegeneration,purchase,transmissionanddistributionofelectricpowerinnorthernandeasternIndianaandaportionofsouthwesternMichigan.AsamemberoftheAmericanElectricPower(AEP)SystemPowerPool(PowerPool)andasignatorycompanytotheAEPTransmissionEqualizationAgreement,itsfacilitiesareoperatedinconjunctionwiththefacilitiesofcertainotherAEPCo.,Inc.ownedutilitiesasanintegratedutilitysystem.therecognitionofrevenuesandexpensesindiffer-enttimeperiodsthanenterprisesthatarenotrateregulated.InaccordancewithStatementofFinan-cialAccountingStandards(SFAS)No.71,Ac-countingfortheEffectsofCertainTypesofRegula-tion(SFAS71),regulatoryassetsandliabilitiesarerecordedtodeferexpensesorrevenuesreflectingsuchrate-makingdifferences.UtilityPlantElectricutilityplantisstatedatoriginalcostandisgenerallysubjecttofirstmortgageliens.Addi-tions,majorreplacementsandbettermentsareaddedtotheplantaccounts.Retirementsfromtheplantaccountsandassociatedremovalcosts,netofsalvage,aredeductedfromaccumulateddepreci-ation.TheCompanyhastwowholly-ownedsubsidiar-ies,BlackhawkCoalCompanyandPriceRiverCoalCompany,thatwereformerlyengagedincoal-miningoperations.BlackhawkCoalCompanycur-rentlyleasesandsubleasesportionsofitsUtahcoalrights,landandrelatedminingequipmenttounaffil-iatedcompanies.PriceRiverCoalCompany,whichownsnolandormineralrights,isinactive.RegulationAsamemberoftheAEPSystem,IRMissubjecttoregulationbytheSecuritiesandExchangeCom-mission(SEC)underthePublicUtilityHoldingCom-panyActof1935(1935Act).RetailratesareregulatedbytheIndianaUtilityRegulatoryCommis-sion(IURC)andtheMichiganPublicServiceCom-mission(MPSC).TheFederalEnergyRegulatoryCommission(FERC)regulateswholesalerates.PrinciplesofConsolidationTheconsolidatedfinancialstatementsincludeISManditswholly-ownedsubsidiaries.Significantintercompanyitemswereeliminatedinconsolida-tion.BasisofAccountingAsarate-regulatedentity,I@M'sfinancialstate-mentsreflecttheactionsofregulatorsthatresultinThecostsoflabor,materialsandoverheadsincurredtooperateandmaintainutilityplantareincludedinoperatingexpenses.AllowanceforFundsUsedDuringConstruction/AFUDCJAFUDCisanoncashincomeitemthatisrecov-eredovertheservicelifeofutilityplantthroughdepreciationandrepresentstheestimatedcostofborrowedandequityfundsusedtofinancecon-structionprojects.TheaverageratesusedtoaccrueAFUDCwere8.75%in1993and9.25%in1992and1991andtheamountsofAFUDCac-cruedwere$1.7million,$3.8millionandS2.1millionin1993,1992and1991,respectively.DepreciationandAmortizationDepreciationisprovidedonastraight-linebasisovertheestimatedusefullivesofutilityplantandiscalculatedlargelythroughtheuseofcompositeratesbyfunctionalclass(i.e.,production,transmis-sion,distribution,etc.).Amountstobeusedfordemolitionofnon-nuclearplantarepresentlyrecoveredthroughdepreciationchargesincludedinrates.Theaccountingandrate-makingtreatmentaffordednucleardecommissioningcostsandnuclearfueldisposalcostsarediscussedinNote3.16
.~tINDIANAMICHIGANPOVYERCOMPANYANDSUBSIDIARIESRockportPlantIncomeTexesRockportPlantconsistsoftwo1,300megawatt(mw)coal-firedunits.ILMandAEPGeneratingCompany(AEGCo),anaffiliate,eachowns50%ofoneunit(Rockport1)andeachleasesa50%interestintheotherunit(Rockport2)fromunaffili-atedlessorsunderanoperatinglease.ThegainonthesaleandleasebackofRockport2wasdeferredandisbeingamortized,withrelatedtaxes,overtheinitialleasetermwhichexpiresin2022.Ratephase-inplansprovidefortherecoveryandstraight-lineamortizationthrough1997ofprior-yeardeferralsofRockport1costs.Deferredamountsunderthephase-inplanswere$59millionand$75millionatDecember31,1993and1992,respectively.CashandCashEquivalentsCashandcashequivalentsincludetemporarycashinvestmentswithoriginalmaturitiesofthreemonthsorless.OperetingRevenuesRevenuesincludeanaccrualforelectricitycon-sumedbutunbilledatmonth-endaswellasbilledrevenues,FuelCostsFuelcostsarematchedwithrevenuesinaccor-dancewithratecommissionorders.RevenuesareaccruedrelatedtounrecoveredfuelinbothretailjurisdictionsandforreplacementpowercostsintheMichiganjurisdictionuntilapprovedforbilling.Wholesalejurisdictionalfuelcostchangesareexpensedandbilledasincurred.LevelizationofNuclearRefuelingOutageCostsIncreme'ntaloperationandmaintenancecostsassociatedwithrefuelingoutagesattheDonaldC.CookNuclearPlant(CookPlant)aredeferredwiththeapprovalofregulatorsforamortizationovertheperiod(generallyeighteenmonths)beginningwiththecommencementofanoutageuntilthebegin-ningofthenextoutage.Deferredamountswere$13.4millionand$47.2millionatDecember31,1993,and1992,respectively.EffectiveJanuary1,1993,theCompanyadoptedtheliabilitymethodofaccountingforincometaxesasprescribedbySFAS109,AccountingforIncomeTexes.Underthisstandarddeferredfederalincometaxesareprovidedforalltemporarydifferencesbetweenthebookcostandtaxbasisofassetsandliabilitieswhichwillresultinafuturetaxconse-quence.Inprioryearsdeferredfederalincometaxeswereprovidedfortimingdifferencesbetweenbookandtaxableincomeexceptwhereflow-throughaccountingforcertaindifferenceswasreflectedinrates.Flow-throughaccountingisamethodwherebyfederalincometaxexpenseforaparticularitemisthesameforaccountingandrate-makingasinthefederalincometaxreturn.AsaresultoftheadoptionofSFAS109significantadditionaldeferredtaxliabilitieswererecordedforitemsaffordedflow-throughtreatmentinrates.InaccordancewithSFAS71significantcorrespondingregulatoryassetswerealsorecordedtoreflectthefuturerecoveryofadditionaltaxesduewhenthetemporarydifferencesreverse.AsaresultofthischangeinaccountingeffectiveJanuary1,1993,deferredfederalincometaxliabilitiesincreasedby$259.6millionandregulatoryassetsby$254.3million,andnetincomewasreducedby$5.3million.Investmenttaxcreditsutilizedinprioryears'ederalincometaxreturnsweredeferredandarebeingamortizedoverthelifeoftherelatedplantinvestmentinaccordancewithrate-makingtreat-ment.DebtandPreferredStockGainsandlossesonreacquireddebtaredeferredandamortizedoverthetermofthereacquireddebt.Ifthedebtisrefinancedthereacquisitioncostsaredeferredandamortizedoverthetermofthere-placementdebt.Debtdiscountorpremiumanddebtissuanceexpensesareamortizedoverthetermoftherelateddebt,withtheamortizationincludedininterestcharges.17 Redemptionpremiumspaidtoreacquirepreferredstockaredeferredandamortizedinaccordancewithrate-makingtreatment.Theexcessofparvalueovercostsofpreferredstockreacquiredtomeetsinkingfundrequirementsiscreditedtopaid-incapital.OtherPropertyand/nvestmentsOtherpropertyandinvestmentsaregenerallystatedatcost.ReclassificationsCertainprior-periodamountswerereclassifiedtoconformwithcurrent-periodpresentation.operationfromtheCompanyin1986andaffiliatedcoaltransportationcharges.InDecember1993thewholesalecustomerappealedtheFERCordertotheU.S.CourtofAppeals.3.COMMITMENTSANDCONTINGENCIES:ConstructionandOtherCommitmentsSubstantialconstructioncommitmentshavebeenmadealthoughnonewgeneratingcapacityisexpectedtobeconstructeduntilthenextcentury.Theaggregateconstructionprogramexpendituresfor1994-1996areestimatedtobe0410millionandincludethecapitalcostofcompliancewiththeCleanAirActAmendmentsof1990(CAAA).2.RATEMATTERS:RateActivityInNovember1993theIURCgranteda$34.7millionannualrateincreaseinresponsetotheCompany'srequestfora$44.8millionincreasefiledinApril1992.Thenewratesinclude,amongotherthings,recoveryoftheongoingamountsbeingaccruedforpostretirementbenefitsotherthanpensions(OPEB),anincreaseintheprovisionfornuclearplantdecommissioningcostsandtheamortizationofdeferredincrementalnuclearplantrefuelingoutagecosts.InOctober1993theMPSCapprovedasettle-mentagreementthatprovidesforathree-stepincreaseinrecoveryofnucleardecommissioningcostsfortheCookPlant.Thefirststepincreaseof$1.2millionannuallywaseffectiveinNovember1993.Thesecondandthirdstepsprovideforrecoveriestobeincreasedby$1millionannuallyinMay1994andanadditional$1millionannuallyinNovember1994.TheMPSCalsoorderedthatanewdecommissioningstudybefiledbeforeDecem-ber1994.UnaffjliatedCoalandAffiliatedTransportationCostRecoveryInOctober1993theFERCdeniedarequestbyawholesalecustomerseekingrehearingofaFebruary1993order.TheFebruary1993orderreverseda1990administrativelawjudge'sinitialdecisionanddismissedthewholesalecustomer'scomplaintconcerningthereasonablenessofcoalcostsfromanunaffiliatedsupplierwholeasedaUtahminingLong-termfuelsupplycontractscontainclausesforperiodicadjustments.Theretailjurisdictionshavefuelclausemechanismsthatprovidewiththeregulators'eviewandapprovalfordeferredrecov-eryofchangesinthecostoffuel.Thecontractsareforvariousterms,thelongestofwhichextendto2014,andcontainvariousclausesthatwouldreleasetheCompanyfromitsobligationundercertainforcemajeureconditions.UnitPowerAgreementsTheCompanyiscommittedunderunitpoweragreementstopurchase70%ofAEGCo'sRockportPlantcapacityunlessitissoldtounaffiliatedutilities.AEGCohasonelong-termcontractwithanunaffiliatedutilitythatexpiresin1999for455mwofRockportPlantcapacity.TheCompanysellsundercontractupto250mwofRockportPlantcapacitytoCarolinaPowerandLightCompany,anunaffiliatedutility.Thecontractexpiresin2009.LitigationAnappealtotheIndianaCourtofAppealsbyalocaldistributionutilityofa1992DeKalbCountyCircuitCourtofIndianadecisionispending,ThecircuitcourtdismissedthecasefiledunderaprovisionofIndianalawthatallowsthelocaldistri-butionutilitytoseekdamagesequaltothegrossrevenuesreceivedbytheCompanyforrenderingserviceinthedesignatedserviceterritoryofthelocaldistributionutility.TheCompanyhadre-ceivedapproximately$29millioningrossrevenuesfromamajorindustrialcustomerinthelocaldistri-18
.~INDIANAMICHIGANPOWERCOMPANy'NDSUBSIDIARIESbutionutility'sserviceterritory.ThecaseresultedfromaSupremeCourtofIndianadecisionwhichoverruledanappealscourtandvoidedanIURCorderwhichassignedthemajorindustrialcustomertotheCompany.TheCompanyisinvolvedinotherlegalproceed-ingsandclaims.Whilemanagementisunabletopredicttheoutcomeoflitigation,itisnotexpectedthattheresolutionoftheseothermatterswillhaveamaterialadverseeffectonfinancialcondition.CleanAI'rTheCAAArequiresignificantreductionsinsulfurdioxideandnitrogenoxidesemittedfromvariousAEPSystemgeneratingplants.Thelawestab-lishedadeadlineof1995forthefirstphaseofreductionsinsulfurdioxideemissions(PhaseI)andtheyear2000forthesecondphase(PhaseII)aswellasapermanentnationwidecaponsulfurdioxideemissionsafter1999.couldbeincurredinthefuturetomeettherequire-mentsofnewlawsandregulations,ifenacted,andtocleanupdisposalsitesunderexistinglegislation.TheSuperfundcreatedbytheComprehensiveEnvironmentalResponseCompensationandLiabilityActaddressescleanupofhazardoussubstancedisposalsitesandauthorizestheUnitedStatesEnvironmentalProtectionAgency(FederalEPA)toadministerthecleanupprograms.TheCompanyhasbeennamedbytheFederalEPAasa"potential-lyresponsibleparty"(PRP)forsevensitesandhasreceivedinformationrequestsforthreeothersites.FortwoofthePRPsites,liabilityhasbeensettledwithlittleimpactonresultsofoperations.I&MalsohasbeennamedaPRPatoneIllinoissiteandhasreceivedaninformationrequestforoneIndianasiteunderanalogousstatecleanuplaws.Althoughthepotentialliabilityassociatedwitheachsitemustbeevaluatedindividually,severalgeneralstate-mentscanbemaderegardingsuchpotentialliabili-TheAEPSystemwidecomplianceplancallsforfuelswitchingtomedium-sulfurcoalatI&M'sTannersCreekUnit4withminimalcapitalcost.TheBreedunitwhichisaPhaseIaffectedunitisscheduledtocloseonMarch31,1994.TheCompany'sothergeneratingunitsarenotaffectedinPhaseI.TheCompanywillincuradditionalcoststocomplywithPhaseIIrequirementsatitsgeneratingplants.Inaddition,aportionofthecostsofcom-pliancefortheAEPSystemmaybeincurredthroughthePowerPool(whichisdescribedinNote5).IfI&Misunabletorecovercompliancecostsfromitscustomers,resultsofoperationsandfinancialconditionwouldb'eadverselyimpacted.WhethertheCompanydisposedofhazardoussubstancesataparticularsiteisoftenunsubstanti-ated;thequantityofmaterialdisposedofatasitewasgenerallysmall;andthenatureofthematerialgenerallydisposedofwasnon-hazardous.Typical-ly,theCompanyisoneofmanypartiesnamedPRPsforasiteand,althoughliabilityisjointandseveral,atleastsomeoftheotherpartiesaregenerallyfinanciallysoundenterprises.Therefore,presentestimatesdonotanticipatematerialclean-upcostsforidentifieddisposalsites.However,ifforunknownreasons,significantcostsareincurredforcleanup,resultsofoperationsandpossiblyfinancialconditionwouldbeadverselyaffectedunlessthecostscanbyrecoveredfrominsuranceproceedsand/orcustomers,OtherFnvironmentalMattersNuclearPlantTheCompanyanditssubsidiariesareregulatedbyfederal,stateandlocalauthoritieswithrespecttoairandwaterqualityandotherenvironmentalmatters.Thegenerationofelectricityproducesnon-haz-ardousandhazardousby-products.Asbestos,polychlorinatedbiphenyls(PCBs)andotherhazard-ousmaterialshavebeenusedinthegeneratingplantsandtransmission/distributionfacilities.Substantialcoststostoreanddisposeofhazardousandnon-hazardousmaterialshavebeenincurredandwillbeincurred.Significantadditionalcostsl&Mownsandoperatesthetwo-unit2,110mwCookPlantunderlicensesgrantedbyregulatoryauthorities,Theoperationofanuclearfacilityinvolvesspecialrisks,potentialliabilities,andspecificregulatoryandsafetyrequirements.ShouldanuclearincidentoccuratanyfacilityintheUnitedStatesliabilitycouldbesubstantial.Shouldnuclearlossesorliabilitiesbeunderinsuredorexceedaccumulatedfunds,orshouldraterecoverybedenied,resultsofoperationsandfinancialconditionwouldbenegativelyaffected,Specificinformationaboutriskmanagementandpotentialliabilitiesisdiscussedbelow.19 NuclearInsurancePublicliabilityislimitedbylawto$9.4billionshouldanincidentoccuratanylicensedreactorintheUnitedStates.Commerciallyavailableinsur-anceprovides$200millionofthiscoverage.IntheeventofanuclearincidentatanynuclearplantintheUnitedStatestheremainderoftheliabilitywouldbeprovidedbyadeferredpremiumassess-mentof$79.3milliononeachlicensedreactorpayableinannualinstallmentsof$10million.Asaresult,IRMcouldbeassessed$158.6millionpernuclearincidentpayableinannualinstallmentsof$20million.Thenumberofincidentsforwhichpaymentscouldberequiredisnotlimited.Nuclearinsurancepoolsandotherinsurancepoliciesprovide$2.75billionofpropertydamage,decommissioninganddecontaminationcoverageforCookPlant.Additionalinsuranceprovidescover-ageforextracostsresultingfromaprolongedaccidentalCookPlantoutage.Someofthepolicieshavedeferredpremiumprovisionswhichcouldbetriggeredbylossesinexcessoftheinsurer'sresources.ThelossescouldresultfromclaimsattheCookPlantorcertainothernuclearunits.TheCompanycouldbeassessedupto$24millionunderthesepolicies.SpentNuclearFue/DisposalFederallawprovidesforgovernmentresponsibili-tyforpermanentspentnuclearfueldisposalandassessesnuclearplantownersfeesforspentfueldisposal.ThefeeofonemillperkilowatthourforfuelconsumedafterApril6,1983isbeingcollect-edfromcustomersandremittedtotheU.S.Trea-sury.Feesandrelatedinterestof$148millionforfuelconsumedpriortoApril7,1983havebeenrecordedaslong-termdebtandaregulatoryasset.Theregulatoryassetisbeingamortizedasraterecoveryoccurs.I%Mhasnotpaidthegovernmentthepre-April1983feesduetovariousfactorsincludingcontinueddelaysanduncertaintiesrelatedtothefederaldisposalprogram.AtDecember31,1993,fundscollectedfromcustomerstodisposeofnuclearfuelandrelatedearningstotalling$133millionwereheldinexternalfundsincludedinthefinancialstatementsasotherpropertyandinvest-ments.Decommissioningoperatethetwonuclearunitsexpirein2014and2017.Afterexpirationofthelicensestheplantisexpectedtobedecommissionedthroughdisman-tling.Estimateddecommissioningcostsrangefrom$588millionto$1.1billionin1991dollars.Thewiderangeiscausedbyvariablesintheestimatedlengthoftimespentnuclearfuelmustbestoredattheplantsubsequenttoceasingoperationswhichdependsonfuturedevelopmentsinthefederalgovernment'sspentnuclearfueldisposalprogram.Decommissioningcostsarebeingrecoveredbasedonatleastthelowerendoftherangeinthecur-rentandpriorstudies.I@Mrecordsdecommission-ingcostsinotheroperationexpenseandrecordsanoncurrentdecommissioningliabilityequaltotheraterecoverywhichwas$13millionin1993,$12millionin1992and$11millionin1991.Decom-missioningamountsrecoveredfromcustomersaredepositedinexternaltrusts.Trustfundearningsincreasethefundassetsandtherecordedliability.Trustfundearningsdecreasetheamounttoberecoveredfromratepayers.AtDecember31,1993,thedecommissioningtrustfundbalanceandtheaccumulatedprovisionfordecommissioningwere$170million.Inrecentrateincreases,whicharediscussedinNote2,theCompanyreceivedadditionalannualamountsforthedecommissioningoftheCookPlantof$10millioninitsIndianajurisdictionand03.2millionphased-ininitsMichiganjurisdiction.4.COMMONSHAREOWNER'SEQUITY:Mortgageindentures,debentures,charterprovi-sionsandordersofregulatoryauthoritiesplacevariousrestrictionsontheuseofretainedearningsforthepaymentofcashdividendsoncommonstock,AtDecember31,1993,$5.9millionofretainedearningswererestricted.Regulatoryapprovalisrequiredtopaydividendsoutofpaid-incapital.In1993,I%M'sparentmadeacashcapitalcontributionof$10million.Alsoin1993S1.2million,representingtheissuancecostsforthreeseriesofcumulativepreferredstock,waschargedtopaid-incapital,Therewerenoothertransactionsaffectingthecommonstockorpaid-incapitalaccountsin1993,1992or1991.DecommissioningcostsareaccruedovertheservicelifeoftheCookPlant.Thelicensesto20 tINDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES5.RELATEDPARTYTRANSACTIONS:BenefitsandcostsoftheSystem'sgeneratingplantsaresharedbymembersofthePowerPool.UnderthetermsoftheSystemInterconnectionAgreement,capacitychargesandcreditsaredesignedtoallocatethecostoftheSystem'scapacityamongthePowerPoolmembersbasedontheirrelativepeakdemandsandgeneratingre-serves.PowerPoolmembersarecompensatedfortheout-of-pocketcostsofenergydeliveredtothePowerPoolandchargedforenergyreceivedfromthePowerPool.Operatingrevenuesinclude$204.6millionin1993,$154.1millionin1992and$204.8millionin1991forsupplyingenergyandcapacitytothePowerPool.Purchasedpowerexpenseincludeschargesof$20.9millionin1993,$82.6millionin1992and$24.6millionin1991forenergyre-ceivedfromthePowerPool.PowerPoolmembersshareinwholesalesalestounaffiliatedutilitiesmadebythePowerPool.TheCompany'ssharewasincludedinoperatingreve-nuesintheamountof$57millionin1993,$45.8millionin1992and$65.5millionin1991.recordedinotheroperationexpensefortransmis-sionservicesin1993,1992and1991,respective-ly.Revenuesfromprovidingbargingserviceswererecordedinnonoperatingincomeasfollows:YearEndedOecembr~993~9~9(inthousands)AffiliatedCompanies$25,372$24,753$23,863UnafflllatedCempanlea171739644641Total~27089~28717~28604AmericanElectricPowerServiceCorporation(AEPSC)providescertainmanagerialandprofes-sionalservicestoAEPSystemcompanies.ThecostsoftheservicesaredeterminedbyAEPSConadirect-chargebasistotheextentpracticableandonreasonablebasesofprorationforindirectcosts.Thechargesforservicesaremadeatcostandincludenocompensationfortheuseofequitycapital,whichisfurnishedtoAEPSCbyAEPCoInc.BillingsfromAEPSCarecapitalizedorexpenseddependingonthenatureoftheservicesrendered.AEPSCanditsbillingsaresubjecttotheregulationoftheSECunderthe1935Act.Inaddition,thePowerPoolpurchasespowerfromunaffiliatedcompaniesforimmediateresaletootherunaffiliatedutilities.TheCompany'sshareofthesepurchaseswasincludedinpurchasedpowerexpenseandtotaled$5.1millionin1993,$6.5millionin1992and$13.7millionin1991.Reve-nuesfromthesetransactionsareincludedintheabovePowerPoolwholesalesales.ThecostofpowerpurchasedfromAEGCo,anaffiliatedcompanythatisnotamemberofthePowerPool,wasincludedinpurchasedpowerexpenseintheamountsof$78.9million,$88millionand$83millionin1993,1992and1991,respectively.TheCompanyoperatestheRockportPlantandbillsAEGCoforitsshareofoperatingcosts.AEPSystemcompaniesparticipateinatransmis-sionequalizationagreement.ThisagreementcombinescertainAEPSystemcompanies'nvest-mentsintransmissionfacilitiesandsharesthecostsofownershipinproportiontotheSystemcompanies'espectivepeakdemands.Pursuanttothetermsoftheagreement,creditsof$47.4million,$48.2millionand$46.2millionwere6.BENEFITPLANS:TheCompanyanditssubsidiariesparticipateintheAEPSystempensionplan,atrusteed,noncon-tributorydefinedbenefitplancoveringallemploy-eesmeetingeligibilityrequirements,Benefitsarebasedonserviceyearsandcompensationlevels.EffectiveJanuary1,1992employeesmayretirewithoutreductionofbenefitsatage62andwithreducedbenefitsasearlyasage55.PensioncostsareallocatedbyfirstchargingeachSystemcompa-nywithitsservicecostandthenallocatingtheremainingpensioncostinproportiontoitsshareoftheprojectedbenefitobligation.Thefundingpolicyistomakeannualtrustfundcontributionsequaltothenetperiodicpensioncostuptothemaximumamountdeductibleforfederalincometaxes,butnotlessthantheminimumcontributionrequiredbylaw.NetpensioncostsfortheyearsendedDecember31,1993,1992and1991were$4.7million,$5.6millionand$2.3million,respectively.21 2~)~Anemployeesavingsplanisofferedwhichallowsparticipantstocontributeupto16%oftheirsalariesintothreeinvestmentalternatives,includingAEPCo.,Inc.commonstock.TheCompanycontributesanamountequaltoone-halfofthefirst6%oftheemployees'ontribution.TheCompany'scontributionisinvestedinAEPCo.,Inc.commonstockandtotaled83.5millionin1993,83.3millionin1992and$3.1millionin1991.TheAEPSystemprovidescertainotherbenefitsforretiredemployeesunderanAEPSystemotherpostretirementbenefitplan.Substantiallyallemployeesareeligibleforhealthcareandlifeinsurancebenefitsiftheyhaveatleast10serviceyearsand,effectiveJanuary1,1992,areage55atretirement.Priorto1993,netcostsofthesebenefitswererecognizedasanexpensewhenpaidandtotaled82.7millionand82.6millionin1992and1991,respectively.SFAS106,Employers'ccountingforPostretirementBenefitsOtherThanPensions,wasadoptedinJanuary1993.SFAS106requirestheaccrualofthepresentvalueliabilityforthecostofpostretirementbenefitsotherthanpensions(OPEB)duringtheemployee'sserviceyears.Priorservicecostsarebeingrecognizedasatransitionobligationover20yearsinaccordancewithSFAS106.OPEBcostsarebasedonactuarially-determinedstandalonecostsforeachSystemcompany.Thefundingpolicyistocontributeincrementalamountsrecoveredthroughratesandcashgeneratedbythecorporateownedlifeinsurance(COLI)program.Theannualaccruedcostsfor1993requiredbySFAS106foremployeesandretirees,whichincludestherecognitionofone-twentiethofthepriorservicetransitionobligation,was$12.4million.TheCompanyreceivedapprovalfromtheIURCtorecovertheincreasedOPEBcosts.IntheMichiganandwholesalejurisdictions,theCompanyreceivedauthoritytodefertheincreasedOPEBcostswhicharenotbeingcurrentlyrecoveredinrates.FuturerecoveryofthedeferralsandtheannualongoingOPEBcostswillbesoughtinthenextbaseratefilings.AtDecember31,1993,86.2millionofincrementalOPEBcostsweredeferred.7.SUPPLEMENTARYINFORMATION:YearEndedDecember31~993~99~9(inthousands)Taxesotherthanfederalincometaxesinclude:RealandPersonalPropertyStateGrossReceipts,Excise,FranchiseandHiscellaneousStateandLocalPayrollStateIncomeTotal$35683$359818$33926515,17915,9028,9118,075~28~554~62189~6278315,0089,001~826~67978Cashwaspaidfor:Interest(netofcapitalizedamounts)$82,509IncomeTaxes68,303$84,69115,285$84,58173,694Noncashacquisitionsundercapitalleaseswere15,46747,90525,624ToreducetheimpactofadoptingSFAS106,managementtookseveralmeasures.First,aVoluntaryEmployeesBeneficiaryAssociation(VEBA)trustfundforOPEBbenefitswasestab-lished.A84.3millionadvancecontributionwasmadetothetrustfundin1990,themaximumamountdeductibleforfederalincometaxpurposes.In1993,a$700,000contributionwasmadetotheVESAtrustfundfromamountsrecoveredfromratepayers.Inaddition,tohelpfundandreducethefuturecostsofOPEBbenefits,aCOLIprogramwasimplemented,exceptwhererestrictedbystateIaw.Theinsurancepolicieshaveasubstantialcashsurrendervaluewhichisrecorded,netofequallysubstantialpolicyloans,asotherpropertyandinvestments.Thepoliciesgeneratedcashof8600,000in1993,$1,700,000in1992and$700,000in1991inclusiveofrelatedtaxbenefitswhichwascontributedtotheVEBAtrustfund.In1997thepremiumwillbefullypaidandthecashgeneratedbythepoliciesshouldincreasesignifi-cantly.22 INDIANAMICHIGANPOWERCOhrPANYANDSUBSIDIARIES8.FEDERALINCOMETAXES:Thedetailsoffederalincometaxesasreportedareasfollows:Charged(Credited)toOperatingExpenses(net):CurrentDeferredDeferredInvestmentTaxCreditsTotalCharged(Credited)toNonoperatingIncome(net):CurrentDeferredDeferredInvestmentTaxCreditsTotalTotalFederalIncomeTaxesasReported1993$93,974(50,959)~0308)347076,0261,054~235)6045~4755YearEndedDecember31~199(inthousands)$9,12225,405~9020)254991,5694,492~645)5416~30915~99$73,702(18,793)~0435)464743,348(3,084)~753)~409)~45905Thefollowingisareconciliationofthedifferencebetweentheamountoffederalincometaxescomputedbymultiplyingbookincomebeforefederalincometaxesbythestatutorytaxrate,andtheamountoffederalincometaxesreported.NetIncomeFederalIncomeTaxesPre-taxBookIncomeFederalIncomeTaxonPre-taxBookIncomeatStatutoryRate(35Kin1993and34Kin1992and1991)Increase(Decrease)inFederalIncomeTaxResultingFromtheFollowingItems:RemovalCostsAdoptionofSFAS109InvestmentTaxCredits(net)CorporateOwnedLifeInsuranceOtherTotalFederalIncomeTaxesasReportedEffectiveFederalIncomeTaxRate1993$129,31341552~770065$59,803(2,632)5,271(8,543)(4,697)~7650)~4155224.3XYearEndedDecember31~199(inthousands)$123,9483D915~754063$52,653(3,042)(9,011)(4,402)~5203)~3091520.0X~99$136,93245985~702917$62,192(2,259)(9,087)(3,044)~)0)7)~4590525.IX23 Thefollowingaretheprincipalcomponentsoffederalincometaxesasreported:YearndedDecember31Current:FederalIncomeTaxesInvestmentTaxCreditsTotalCurrentFederalIncomeTaxesDeferred:DepreciationUnrecoveredandLevelizedFuelNuclearFuelDeferredReturn-RockportPlantUnit1DeferredNetGain-RockportPlantUnit2LevelizedNuclearRefuelingCostsAccruedInterestIncomeAdoptionofSFAS109OtherTotalDeferredFederalIncomeTaxesTotalDeferredInvestmentTaxCreditsTotalFederalIncomeTaxesasReported1993$100,000100000(12,167)(13,795)(3,271)(2,644)3,922(11,488)(3,854)5,271~))079)~49905)~0543)~4)552~199(inthousands)$10,029~6610691(8,356)11,7295,410(2,772)4,23016,0483,854~246)29097~9673)~30915~99$76,949~077050(6,969)(670)(6,484)(2,864)3,098~7900)~2)077)~9108)~45965TheCompanyanditssubsidiariesjoininthefilingofaconsolidatedfederalincometaxreturnwiththeiraffiliatesintheAEPSystem.TheallocationoftheAEPSystem'scurrentconsolidatedfederalincometaxtotheSystemcompaniesisinaccor-dancewithSECrulesunderthe1935Act.TheserulespermittheallocationofthebenefitofcurrenttaxlossesandinvestmenttaxcreditsutilizedtotheSystemcompaniesgivingrisetothemindetermin-ingtheircurrenttaxexpense.ThetaxlossoftheSystemparentcompany,AEPCo48Inc48isallocatedtoitssubsidiarieswithtaxableincome.Withtheexceptionofthelossoftheparentcompany,themethodofallocationapproximatesaseparatereturnresultforeachcompanyintheconsolidatedgroup.DeferredTaxAsset(Liability)(inthousands)PropertyRelatedTemporaryDifferencesAmountsOueFromCustomersForFutureFederalIncomeTaxesDeferredNetGain-RockportPlantUnit2AllOther(net)TotalNetDeferredTaxLiability$(494,966)(100,432)62,761~21203)~553920)Thenetdeferredtaxliabilityof$553.9millionatDecember31,1993iscomposedofdeferredtaxassetsof$233.4millionanddeferredtaxliabilitiesof$787.3million.Thesignificanttemporarydifferencesgivingrisetothenetdeferredtaxliabilityare:TheAEPSystemsettledwiththeInternalReve-nueService(IRS)allissuesfromtheauditsoftheconsolidatedfederalincometaxreturnsfortheyearspriorto1988.Returnsfortheyears1988through1990arepresentlybeingauditedbytheIRS.Intheopinionofmanagement,thefinalsettlementofopenyearswillnothaveamaterialeffectonresultsofoperations.24 48INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES9.LEASES:Leasesofproperty,plantandequipmentareforperiodsupto35yearsandrequirepaymentsofrelatedpropertytaxes,maintenanceandoperatingcosts.Themajorityoftheleaseshavepurchaseorrenewaloptionsandwillberenewedorreplacedbyotherleases.OperatingLeasesAmortizationofCapitalLeasesInterestonCapitalLeasesTotalRentalPayments(inthousands)$103,884$109,466$101,01346,06324,12454,528887374739907~750020~747063~765440Leaserentalsaregenerallychargedtooperatingexpenseinaccordancewithrate-makingtreatment.Thecomponentsofrentalsareasfollows:YearEndedDecember31PropertiesunderoperatingleasesandrelatedobligationsarenotincludedintheConsolidatedBalanceSheets.Hon-CancelableCapitalOperating~eases~eases(inthousands)19941995199619971998LaterYears$9,3808,5747,6016,8896,25730303$98,66798,20397,88596,02991,118~2070TotalFutureHinimumLeasePayments77,084(al~2493603LessEstimatedInterestElnnent~2399FutureminimumleaserentalsconsistedofthefollowingatDecember31,1993:Propertiesundercapitalleasesandrelatedobli-gationsrecordedontheConsolidatedBalanceSheetsareasfollows:Oecember3119931992(inthousands)EstimatedPresentValueofFutureMinimumLeasePaymentsUnamortizedNuclearFuelTotal53,09245661~90753ElectricUtilityPlant:ProductionOistribut,ionGeneral:NuclearFuel(netofamortization)OtherTotalElectricUtilityPlantAccumulatedAmortizationHetElectricUtilityPlantOtherPropertyAccumulatedAmortizationHetOtherPropertyHetPropertiesunderCapitalLeaseObligationsunderCapitalLeasesLessPortionOueMithinOneYearNoncurrentLiability$8,03314,71745,66140410116,829273598947011,2691906~90398753$98,75320505~70160$11,40714,70284,20846494156,811306306812,3271819500126689$126,68932745~93944(a)Hinimumleaserentalsdonotincludenuclearfuelrentals.Therentalpaymentsarebasedontheheatproducedpluscarryingchargesontheunamortizednuclearfuelbalance.25 10.CUMULATIVEPREFERREDSTOCK:AtDecember31,1993,authorizedsharesofcumulativepreferredstockwereasfollows:ParValue$10025SharesAuthorized2,250,00011,200,000Thecumulativepreferredstockiscallableatthepriceindicatedplusaccrueddividends.Theinvoluntaryliquidationpreferenceisparvalue.Unissuedsharesofthecumulativepreferredstockmayormaynotpossessmandatoryredemptioncharacteristicsuponissuance.TheCompanyissued350,000sharesof6.30%CumulativePreferredStockSubjecttoMandatoryRedemption,parvalue$100,onFebruary8,1994andredeemed350,000sharesof7.76%CumulativePreferredStockNotSubjecttoMandatoryRedemption,parvalue$100,onFebruary14,1994.A.CumulativePreferredStockNotSubjecttoMandatoryRedemption:SeriesCallPriceDecember31,1993ParValueNumberofSharesRedeemedYearEndedDecember31SharesOutstandingDecember311993AmountDecember311993~1991991(inthousands)4-1/8X4.56K4.12K7.08K7.76K8.68K$2.15$2.25$106.125102102.728101.85102.28$100100100100100300,0001,600,0001,600,000120,00060,00040,000300,000350,000$12,0006,0004,00030,00035,000~87000$12,0006,0004,00030,00035,000,30,00040,00040000~197000B.CumulativePreferredStockSubjecttoMandatoryRedemption:Series(a)5.90X(b)6-1/4X(c)6-7/8X(d)ParValue$100100100SharesOutstandingDecember311993400,000300,000300,000AmountDecember3119931992(inthousands)$40,00030,00030ODD100000ia)Notcallableuntilafter2002.Therearonoaggregatesinkingfundprovisionsthrough2002.lb)SharesissuedNovember1993.Commencingin2004andcontinuingthroughthoyear2008,asinkingfundfortho5.90%cumulativepreferredstockwillrequiretheredemptionof20,000shareseachyearandtheredemptionoftheremainingsharesoutstandingonJanuary1,2009,ineachcaseatS100pershare.lc)SharosissuedNovember1993.Commencingin2004andcontinuingthroughtheyear2008,asinkingfundforthe8-1/4%cumulativepreferredstockwillrequiretheredemptionof15,000shareseachyearandthoredemptionoftheremainingsharesoutstandingonApril1,2009,ineachcaseatS100porshare.ld)SharesissuedFebruary1993.Commencingin2003andcontinuingthroughtheyear2007,asinkingfundforthe6-7/8%cumulativepreferredstockwillrequirethoredemptionof15,000shareseachyearandtheredemptionoftheremainingsharesoutstandingonApril1,2008,ineachcaseatSlooporshare.26 INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES11.LONG-TERMDEBTANDLINESOFCREDIT:Long-termdebtbymajorcategorywasout-standingasfollows:Decenber31Certainindenturesrelatingtothefirstmortgagebondscontainimprovement,maintenanceandre-placementprovisionsrequiringthedepositofcashorbondswiththetrustee,orinlieuthereof,certifi-cationofunfundedpropertyadditions.FirstMortgageBondsInstallmentPurchaseContractsOtherLong.termDebt(a)NotesPayabletoBanksSinkingFundDebentures307,823147,81040,0006053308,333143,32140,00060531993~199(inthousands)$571,468$713,916Installmentpurchasecontractshavebeenenteredintoinconnectionwiththeissuanceofpollutioncontrolrevenuebondsbygovernmentalauthoritiesasfollows:December311993~99{inthousands)1,073,1541,211,623LossPortionDueWithinOnoYear4290Total~)073154~))60721(a)NuclearFuelDisposalCostsincludinginterestaccrued.SeeNote3.oRate4-3/87-7/89-1/877.308-7/87.607.706.806.556.108-3/89-1/28-3/49.509.509.508.758.507.807.357.20unamorDue1993.August11997-February11997-July11998-May11999-December152000-April12002-November12002-December152003-July12003~October12003~November12003-December12008-March12017-February12021-May1202'I-May12021-May12022-May12022-December152023-July12023-October12024-February1tizedDiscount(net)LessPortionDueWithinOneYear$35,00035,00050,00040,00020,00020,00030,000100,00010,00010,00020,00050,00075,00020,00020,00040,000~353)571,468$42,90250,00075,00035,00035,00050,00050,00040,00040,00034,034100,00010,00010,00020,00050,00075,000~300)713,91642902Total571468~67)014Firstmortgagebondsoutstandingwereasfol-lows:December3119931992{inthousands)~RateDueCityofLawrenceburg,Indians:7200B-May1B-7/82006-May172015-Apnl15.92019-November1CityofRockport,Indiana:9-1/42014-August1B-3/4(a)2014-August1(b)2014-August17.6201B-March1CityofSullivan,Indiana:7-3/82004-May16-7/82006-May17-1/22009-May15.952009-May1unamortizedDiscount25,00052,00050,00050,00050,00040,00045,000~4177)$40,00012,00025,00050,00050,00050,00040,0007,00025,00013,000~3667)Total~307023~308333(a)TheadjustableinterestratechangedonAugust1,1990andwillchangeeveryfiveyearsthereafter.(b)Thevariableinterestrateisdeterminedweekly.Theaverageweightedintorestwas3.0%in1993and3.7%for1992.Underthetermsofcertaininstallmentpurchasecontracts,theCompanyisrequiredtopayamountssufficienttoenablethecitiestopayinterestonandtheprincipal(atstatedmaturitiesanduponmandatoryredemption)ofrelatedpollutioncontrolrevenuebondsissuedtofinancetheconstructionofpollutioncontrolfacilitiesatcertaingeneratingplants.Oncertainseriestheprincipalispayableatstatedmaturitiesoronthedemandofthebond-holdersatperiodicinterestadjustmentdates.Accordingly,theinstallmentpurchasecontractshavebeenclassifiedforrepaymentpurposesbasedontheirnextinterestrateadjustmentdate.Certainseriesaresupportedbybanklettersofcreditwhichexpirein1995.27 A$40millionunsecuredpromissorynotepayabletoabankisdueNovember19,1995atanannualinterestrateof9.07%.AtDecember31,1993,annuallong-termdebtpayments,excludingpremiumordiscount,areasfollows:PrincialAmount(inthousands)19941995199619971998LaterYearsTotal$140,00041,0538998101080863ThesinkingfunddebenturesaredueMay1,1998ataninterestrateof7-1/4%.PriortoDecember31,1993,sufficientprincipalamountsofdebentureshadbeenreacquiredinanticipationofallfuturesinkingfundrequirements.Additionaldebenturesofupto$300,000maybecalledannually.December31,1993and1992fairvaluesforexternaltrustfundswere$321millionand$270millionandcarryingvalueswere$303millionand$262million,respectively.Fairvaluesforlong-termdebtwere$1.1billionand$1.2billionatDecember31,1993and1992,respectively.FairvalueatDecember31,1993forpreferredstockssubjecttomandatoryredemption,whichwereissuedin1993,was$99million.Fairvaluesarebasedonquotedmarketpricesforthesameorsimilarissuesandthecurrentdividendorinterestratesofferedforinstrumentsofthesameremainingmaturities.Externaltrustfundsareusedtoaccu-mulatefundscollectedfromcustomersforfuturenuclearliabilitiesandarereportedonthebalancesheetasotherpropertyandinvestments.Thecarryingamountofthepre-April1983spentnucle-arfueldisposalliabilityapproximatestheCompany'sbestestimateofitsfairvalue.13.UNAUDITEDQUARTERLYFINANCIALINFOR-IVIATION:Short-termdebtborrowingsarelimitedbyprovi-sionsofthe1935Actto$200millionandfurtherlimitedbycharterprovisionsto$127million.LinesofcreditaresharedwithAEPSystemcompaniesandatDecember31,1993and1992wereavail-ableintheamountsof$537millionand$521million,respectively.Commitmentfeesofapproximately3/16of1%ayeararepaidtothebankstomaintainthelinesofcredit.12.FAIRVALUEOFFINANCIALINSTRUMENTS:quarterlyPeriodsEnded1993Harch31June30September30Oecember311992Harch31June30September30Oecember31301,134280,421311,080304,12054,02235,03543,53524,84445,32324,38452,64039,685OperatingOperatingNetRevenuesIncomeIncome(inthousands)$302,968$53,269$28,522278,10040,72221,397320,40952,89833,658301,16663,03145,736Thecarryingamountsofcashandcashequiva-lents,accountsreceivable,short-termdebt,andaccountspayableapproximatefairvaluebecauseoftheshort-termmaturityoftheseinstruments.AtFourthquarter1992netincomeincludes$13millioncomprisedofinterestonprioryears'ederalincometaxrefundsandcostreductionsduetofavorablebenefitplansexperience.28 INDIAAIAMICHIGANPOWERCOMPANYANDSUBSIDIARIESOPERATINGSTATISTICS199319921991990~989OPERATIN6REVENUES(inthousands):Retail:Residential:'WithoutElectricHeatin9WithElectricHeatingTotalResidentialCo()n)ercialindustrialMiscellaneousTotalRetailWholesale(salesforresale)TotalRevenuesfromEnergySalesProvisionforRefundsofRevenuesCollectedinPriorYearsTotalNetofProvisionforRefundsOtherTotalOperatingRevenues$205,31597560302,883220,938250,9395593780,353404910$209,68290553308,235228,285267,64311012815,175369379$206,25793209299,546216,303241,85812120769,827436003$192,82200710281,540205,025244,773ll799743,1375100001,185,2631,184,5541,205,9101,261,2171,184,508101351,180,516162391,211,086147011,256,0411547312026431196755~l2258671271514~755)~4038)5176~5176)$195,50495987291,491205,918251,27912021760,7093619621,122,6711,122,671~)135507SOURCESANOSALESOFENER6Y(inmillionsofkilowatt-hours):Sources:NetGenerated:FossilFuelNuclearFuelHydroelectricTotalNetGeneratedPurchasedandPowerPoolTotalSourcesLess:Losses,CompanyUse,Etc.NetSourcesSales:Retail:Residential:WithoutElectricHeatingWithElectricHeatingTotalResidentialComercialIndustrialMiscellaneousTotalRetailWholesale(salesforresale)TotalSales12,23616,31310628,655~487933,534~1349~321853,178~17064,8843,9776,0258314,969~17216~3218511,5976,41810018,115~934227,457~1466~259913,001~16334,6343,7475,68519414,260~11731~2599112,10915,52410927,742~523732,979~454~315253,166~16254,7913,7265,38223314,132~17393~3152514,45111,115~1725,693~798333,676~1633~320432,955~15254,4803,5365,45222913,697~18346~3204310,63412,094~0822,836~763030,466~1647~288192,975~16274,6023,5195,51223613,869~14950~2881929 OPERATINGSTATISTICS(Concluded)AVERAGECOSTOFFUELCONSUMED(incents):PerMillionBtu:CoalNuclearOverallPerKilowatt-hourGenerated:CoalNuclearOverall199313036721.27.40.77992136541031.34.611.08~9914148841.39.53.911990145581051.42.641.08164611061.62.671.11RESIDENTIALSERVICE-AVERAGES:AnnualKwhUseperCustomer:TotalWithElectricHeatingAnnualElectricBill:TotalWithElectricHeatingPriceperKwh(incents):TotalWithElectricHeating10,56417,989$655.07$1,028.826.205.7210,10717,513$672.31$1,056.916.656.0410,53917,703$659.01$1,016.246.255.749,94416,897$624.95$983.286.285.8210,30318,337$652.64$1,081.786.335.90NUMBEROFCUSTOMERS:Year-End:Retail:Residential:WithoutElectricHeatingWithElectricHeatingTotalResidentialCo2nnercialIndustrialMiscellaneousTotalRetailWholesale(salesforresale)TotalCustomers369,38595795465,18053,0815,1571783525,20156~525257366,83594175461,01052,5425,0001751520,30353~520356364,15492657456,81151,4914,8472226515.37553~575428362,64591179453,82450,9944,8012160511,77955511834360,04089881449.92150,0434,7922168506,924~550697530 DIVIDENDSANDPRICERANGESOFCUMULATIVEPREFERREDSTOCKByQuarters(1993and1992)CUMULATIVEPREFERREOSTOCK1st1993-uarters2nd3rd4th1st1992-uartershand3rd4th($100ParValue)4-1/BXSeriesOividendsPaidPerShareHarketPrice-$PerShare(MSE)-High-Low$1.03125$1.03125$1.03125$1.03125$1.03125$1.03125$1.03125$1.031254.56KSeriesOividendsPaidPerShareMarketPrice-$PerShare(OTC)Ask(high/low)Bid(high/low)4.12KSeriesOividendsPaidPerShareMarketPrice-$PerShare(OTC)Ask-High-LowBid-High-Low5.90KSeries(a)DividendsPaidPerShareMarketPrice-$PerShare(OTC)Ask(high/low)Bid(high/low)6-1/4X,Series(a)OividendsPaidPerShareHarketPrice-$PerShare(OTC)Ask(high/low)Bid(high/low)$1.03$1.03$1.03$1.03514851-1/24855-1/45158-1/254-3/4$0.9342$0.5382$1.14$1.14$1.14$1.14$1.03$1.03$1.03$1.03474739-1/24748475048$1.14$1.14$1.14$1.146-7/BXSeries(b)OividendsPaidPerShareMarketPrice-$PerShare(OTC)Ask(high/low)Bid(high/low)$.84$1.71875$1.71785$1.718757.08KSeriesOividendsPaidPerShareMarketPrice-$PerShare(NZSE)-High-Low9289-1/4969199-5/896-3/8100-1/895$1.77$1.77$1.77$1.7788-1/283-1/488-1/284-1/29285-1/2$1.77$1.77$1.77$1.7792897.76KSeries(c)OividendsPaidPerShareMarketPrice-$PerShare(MYSE)-High-Low102-1/495-3/410298104100102-3/498-1/2$1.94$1.94$1.94$1.9495-3/490-1/296-1/892-1/498-3/493-1/298-1/493$1.94$1.94$1.94$1.9431 DIVIDENDSANDPRICERANGESOFCUMULATIVEPREFERRED'TOCKByQuarters(1993and1992)(Concluded)CUHUATIVPRFERR0STOCK1st1993-uarters3rd4th2nd1992-uartersgnd~rd4th($100ParValue)8.6NSeries(d)DividendsPaidPerShareMarketPrice-$PerShare(NYSE)-High-Low$2.17$2.17$2.17$1.8807103103-1/2104103100101101101-1/4$2.17102-1/498-1/2$2.17$2.17$2.1710210310399100-1/4100($25ParValue)$2.15Series(e)DividendsPaidPerShareMarketPrice-$PerShare(NYSE)-High-Low27-1/227-1/427-3/82626-1/425-3/426-1/225-5/82625262527-1/42725-3/825-1/2$0.5375$0.5375$0.5375$0.2628$0.5375$0.5375$0.5375$0.5375$2.25Series(f)DividendsPaidPerShareMarketPrice-$PerShare(NYSE)-High-Low$0.37526-3/425-1/2$0.5625$0.5625$0.5625$0.562527-1/427-1/427-1/227-1/42625-7/82625-3/4HSE-HldwestStockExchangeOTC-Over-the-CounterNYSE-NewYorkStockExchangeNote-TheabovebidandaskedquotationsrepresentpricesbetweendealersHarketquotationsprovidedbyNationalOuotationBureau,Inc.Dashindicatedquotationnotavailable.(a)IssuedNovember1993(b)IssuedFebruary1993(c)CalledforredemptionandrefinancedinFebruary1994(d)RedeemedDecember1993(e)RedeemedNovember1993(f)RedeemedMarch1993anddonotrepresentactualtransactions.32
.0NDIANAMICHIGANPOWERCOMPANYSECURITYOWNERINQUIRIESSecurityownersshoulddirecttheirinquiriestotheSecurityOwnerRelationsDivisionusingthetollfreenumber:1-800-AEP-COMP(1-800-237-2667)orbywritingto:BetteJoRozsaSecurityOwnerRelationsDivisionAmericanElectricPowerServiceCorporation28thFloor1RiversidePlazaColumbus,OH43215FORM10-KANNUALREPORTTheAnnualReport(Form10-K)totheSecuritiesandExchangeCommissionwillbeavailableinApril1994atnocosttoshareowners.Pleaseaddresssuchrequeststo:GeoffreyC.DeanAmericanElectricPowerServiceCorporation27thFloor1RiversidePlazaColumbus,OH43215TRANSFERAGENTANDREGISTRAROFCUMULATIVEPREFERREDSTOCKFirstChicagoTrustCompanyofNewYorkP.O.Box2534Suite4692JerseyCity,NJ07303-253433 IndianaMichiganPowerServiceAreaandtheAmericanElectricPowerSystemLAKEMICHIGANMICHIGANLAKEERIEOHIOINDIANAWESTVIRGINIAKENTUCKYVIRGINIAIndianaMichiganPowerCo.areaOtherAEPoperatingcompanies'reasMajorpowerplantTENNESSEEIB+priniedonrecycledpaper ENCLOSURE2TOAEP:NRC:0909JINDIANAMICHIGANPOWERCOMPANY'SPROJECTEDCASHFLOW IndianaMichiganPowerCo.1994ForecastedSourcesandUsesofFundsBasedonForecastedCase9450$MillionsProjected1994NetIncomeAfterTaxesLessDividendsPaid138.4118.3RetainedEarningsAdjustments:DepreciationAndAmortizationDeferredOperatingCostsDeferredFederalIncomeTaxesandInvestmentTaxCreditsAFUDCOther20.1162.0(23.1)(28.4)(2.3)(7.7)TotalAdjustments100.5InternalCashFlow120.6AverageQuarterlyCashFlow30.2AverageCashBalancesandShort-TermInvestments1.9Total32.1