ML17331B339

Indiana Michigan Power Company 1993 Annual Rept. W/Projected Cash Flow for 1994 & 940406 Ltr

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

.ACCELERATED D.TRIBUTION DEMONSTPWTION SYSTEM~~"iREGULATORY INFORMATION DISTRIBUTION SYSTEM(RIDS)ACCESSION NBR:9404130143 DOC.DATE:

/~+53.NOTARIZED:

NODOCKETFACIL:50-315 DonaldC.CookNuclearPowerPlant,Unit1,IndianaM0500031550-316DonaldC.CookNuclearPowerPlant,Unit2,IndianaM05000316AUTH.NAMEAUTHORAFFILIATION FITZPATRICK,E.

IndianaMichiganPowerCo.(formerly Indiana&MichiganEleRECIP.NAME RECIPIENT AFFILIATION

SUBJECT:

"IndianaMichiganPowerCompany1993AnnualRept."W~B4040ltrDISTRIBUTION CODEM004DCOPIESRECEIVED:LTR ENCLSIZE:TITLE:50.71(b)AnnualFinancial ReportNOTES:DRECIPIENT IDCODE/NAME PD3-1LAHICKMAN,J INTERNAL:

AEOD/DOAEXTERNAL:

NRCPDRCOPIESLTTRENCL111111RECIPIENT IDCODE/NAME PD3-1PD01COPIESLTTRENCL1111DRDDNOTETOALL"RIDS"RECIPIENTS PLEASEHELPUSTOREDUCEWASTE!CONTACTTHEDOCUMENTCONTROLDESK,ROOMPl-37(EXT.20079)TOELIMINATE YOURNAMEFROMDISTRIBUTION LIFfSFORDOCUMENTS YOUDON'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-74FINANCIAL INFORMATION FORINDIANAMICHIGANPOWERCOMPANYU.S.NuclearRegulatory Commission DocumentControlDeskWashington, D.C.20555Attn:W.T.RussellApril6,1994

DearMr.Russell:

Enclosure 1containstheIndianaMichiganPowerCompany's

'(I&M)annualreportfor1993.Enclosure 2containsacopyofI&M'sprojected cashflowfor1994.Thesereportsaresubmitted pursuantto10CFR50.71(b)and10CFR140.21(e).

Sincerely, E.E.Fitzpatrick

~~VicePresident drEnclosures cc:A.A.BlindG.CharnoffJ.B.Martin-RegionIIINRCResidentInspector NFEMSectionChiefJ.R.Padgett9404130143 931231PDRADOCK05000315' I('.'PDR.',,

e-r.I~

ENCLOSURE 1TOAEP:NRC:0909J INDIANAMICHIGANPOWERCOMPANY'1993ANNUALREPORT 01993AnnualReport CONTENTS0~~Background

...~0~~~0~~~~~~~~~~~1Directors andOfficers~~~~~~~\~~~~~~~~~~~~~~~2SelectedConsolidated Financial Data~~\~~~~~~~~~~~~~~~~~~~3~~~~~~~~~~Management's Discussion andAnalysisofResultsofOperations andFinancial Condition..........

4-9Independent Auditors'eport....

~~~~~~~~~~~~~~~~~~~~~~~~o10Consolidated Statements ofIncome~~~~~~~~~~~~11Consolidated BalanceSheets..~~~~~~~~~~~~~~~~~1213Consolidated Statements ofCashFlows14Consolidated Statements ofRetainedEarnings.....15NotestoConsolidated Financial Statements

.........,.........................

16-28Operating Statistics

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Dividends andPriceRangesofCumulative Preferred Stock~~~~~~~3132 tINDIANAMICHIGANPOWERCOMPANYAIVDSUBSIDIARIES OneSummitSquare,p.O.Box60,FortWayne,indiana46801BACKGROUND INDIANAMICHIGANPOWERCOMPANY(theCompany)isengagedinthegeneration,

purchase, transmission anddistribution ofelectricpowerservingapproximately 525,000retailcustomers innorthernandeasternIndianaandaportionofsouthwestern Michiganandsupplying wholesale electricpowertootherelectricutilities, municipalities andelectriccooperatives.

Approximately 83o%%doftheCompany's retailsalesareinIndianaand17o%%dinMichigan.

Theprincipal industries servedaretransportation equipment, primarymetals,fabricated metalproducts, electrical andelectronic machinery, rubberandmiscellaneous plasticproductsandchemicals andalliedproducts.

TheCompanyisasubsidiary ofAmericanElectricPowerCompany,Inc.,andhasitsprincipal executive officesinFortWayne,Indiana.IndianaMichiganPowerCompanywasorganized underthelawsofIndianaonFebruary21,1925,andisalsoauthorized totransactbusinessinMichiganandWestVirginia.

TheCompany's twowholly-owned subsidiaries, Blackhawk CoalCompanyandPriceRiverCoalCompany,wereformerlyengagedincoal-mining operations inUtah.Blackhawk CoalCompanycurrently leasesorsubleases portionsofitscoalrights,landandrelatedminingequipment tounaffiliated companies.

Inaddition, theCompanyhasarivertransportation division(RTD)thatbargescoalontheOhioandKanawhaRiverstoAEPSystemgenerating plants.TheRTDalsoprovidessomebargingservicestounaffiliated companies.

Thegenerating plantsandtransmission facilities oftheCompanyandcertainotheraffiliated AEPSystemutilitysubsidiaries areoperatedasanintegrated systemwiththeircostsandbenefitssharedthroughtheAEPSystemPowerPoolandAEPTransmission Agreement.

Wholesale energysalesmadebythePowerPoolareallocated tothePoolmembers.TheotherAEPSystemPoolmembersare:Appalachian PowerCompany,ColumbusSouthernPowerCompany,KentuckyPowerCompanyandOhioPowerCompany.TheCompanyisalsointerconnected withitsaffiliate, AEPGenerating Company,andthefollowing unaffiliated entities:

CentralIllinoisPublicServiceCompany,TheCincinnati Gas&,ElectricCompany,Commonwealth EdisonCompany,Consumers PowerCompany,IllinoisPowerCompany,Indianapolis Power5LightCompany,Louisville GasandElectricCompany,NorthernIndianaPublicServiceCompany,PSIEnergyInc.andRichmondPowerandLightCompany,aswellasIndiana-Kentucky ElectricCorporation (asubsidiary ofOhioValleyElectricCorporation, anaffiliate thatisnotamemberoftheAEPSystem).Inaddition, theCompanyisinterconnected throughtheAEPSystemwithtwootheraffiliated companies, Kingsport PowerCompanyandWheelingPowerCompany.

DIRECTORS MarkA.BaileyPeterJ.DeMariaRichardE.Disbrow(a)WilliamN.D'Onofrio A.JosephDowd(b)E.LinnDraper,Jr.AllenR.Glassburn (c)OFFICERSWilliamJ.LhotaGeraldP.MaloneyRichardC.MengeRonaldE.Prater(d)DavidB.Synowiec(d)DaleM.Trenary(c)WilliamE.WaltersRichardE.Disbrow(a)ChairmanoftheBoardandChiefExecutive OfficerGeraldP.MaloneyVicePresident E.LinnDraper,Jr.(b)ChairmanoftheBoardandChiefExecutive OfficerJamesJ.Markowsky (f)VicePresident RichardC.MengePresident andChiefOperating OfficerJohnF.DiLorenzo, Jr.Secretary MarkA.BaileyVicePresident ElioBafileAssistant Secretary andAssistant Treasurer PeterJ.DeMariaVicePresident andTreasurer JeffreyD.CrossAssistant Secretary WilliamN.D'Onofrio VicePresident CarlJ.MoosAssistant Secretary A.JosephDowdVicePresident JohnB.ShinnockAssistant Secretary EugeneE.Fitzpatrick VicePresident LeonardV.AssanteAssistant Treasurer RichardF.Hering(e)VicePresident BruceM.BarberAssistant Treasurer WilliamJ.LhotaVicePresident GeraldR.KnorrAssistant Treasurer AsofJanuary1,1994thecurrentdirectors andoff(carsofIndianaMichiganPowerCompanywereemployees ofAmericanE/ectr(cRowerServiceCorporation witheightexceptions:

Messrs.Bafile,Bailey,D'Onofno, Mange,Moos,Proter,SynowiecandWe(ters,whowereemployees ofIndianaMt'eh(Pan PowerCompany.(elResignedApn728,1993(blE(ectedApn728,1993(clRee'gnedApn727.1993(dlElectedApnt27,1993(elRex'gnedJuty1,1993(/1ElectedJuty1,1993 tINDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES SelectedConsolidated Financial DataINCOMESTATEMENTS DATA:rEnDm~1(inthousands)

Operating RevenuesOperating ExpensesOperating IncomeNonoperating Income(Loss)IncomeBeforeInterestChargesInterestChargesNetIncomePreferred StockDividendRequirements EarningsApplicable toCommonStock$1,202,643

~99272209,920~24i209,686~8037129,313~14224115088$1,196,755

~1Q)~12195,520~ts11209,635tL5687123,948~1417~108531S1,225,867 227,289~721223,568~636136,932~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)

ElectricUtilityPlantAccumulated Depreciation andAmortization NetElectricUtilityPlant$4,290,957

$4,266,480 04,135,820 S4,066,227 03,969,602 1714l72~1'1~14[~12~14~l4212~F8,~7~2576'12842635042~2614471~2644942~266053Regulatory Assets(a)S492822~42688120406024075428076TotalAssets43765458~3645798~348178~350192~412553CommonStockandPaid-inCapitalRetainedEarningsTotalCommonShareowner's Equity791,517S782,7410782,7410782,7410782,741177tftt17~1~1~241'i~4[~122149691554954050495198449331494944954Cumulative Preferred Stock:NotSubjecttoMandatory Redemption S87,000SubjecttoMandatory Redemption (b)1~9'otalCumulative Preferred Stock~187000$197,000~197000197,000~197000197,000~19700197,000M1LQK~21503Long-term Debt(b)10731541211621130709113383153273Obligations UnderCapitalLeaseslbl49875341266894102985133447123361TotalCapitalization andLiabilities 4376545843645798434818783501925~4125534lalEffective January1,1993onawaccounting standardStatement ofRnancielAccounting Standards No.109,Accounting forIncomeTaxes,wasadoptedresulting inonIncreaseInregulatory assets.(SeeIVota1ofNotestoConsolidated RnanclalStotemontsl.

fbIIncluding portionduewithinonayear.

MANAGEMENT'S DISCUSSION ANDANALYSISOFRESULTSOFOPERATIONS ANDFINANCIAL CONDITION NetIncomeIncreases Netincomeincreased 4.3%in1993andde-creased9.6%in1992.Thescheduled refueling ofthetwonucleargenerating unitsandanunsched-uledoutageatoneoftheunitsin1992requiredthepurchaseofmoreexpensive replacement powerfromtheAEPSystemPowerPool(PowerPool)andreducedwholesale salestothePowerPoolreduc-ingnetincomein1992.Thereturntoserviceofthenuclearunitsalongwiththeretirement andtherefinancing ofdebtatlowerinterestrateswasresponsible fortheincreaseinnetincomein1993.OutlookTheelectricutilityindustryisexpectedtoundergosignificant changesfortheremainder ofthedecadebecauseofincreasing competition inthegeneration andsaleofelectricity andincreasing energyflowsresulting fromopentransmission access.Althoughmanagement believesthattheCompanyiswellpositioned, asalowcostproduc-er,tocompete,effortswillcontinuetofurtherreducecostsandincreaseeffectiveness.

TheCompanyfacesadditional challenges fromcompliance withtheCleanAirActAmendments of1990,otherenvironmental concernsandcosts,thecostofoperating, maintaining andeventually decommissioning thetwonucleargenerating unitsandthedisposaloftheirspentnuclearfuelthatcouldaffectfinancial performance andpossiblytheabilitytomeetfinancial obligations andcommit-ments.Whilemanagement believestheCompanyisequippedtomeetthesechallenges, futurefinan-cialperformance isheavilydependent ontheabilitytoobtainfavorable rate-making treatment torecov-ercostsofserviceonatimelybasis.Futureresultsofoperations willbeaffectedbyseveralfactors,including thecontinued economichealthofourserviceterritory, theweather,compe-titionforwholesale sales,newenvironmental lawsandregulations andtherate-making policiesoftheCompany's regulators.

Manyofthesefactorsarenotgenerally withinmanagement's directcontrolyeteveryeffortwillbemadetoworkwithregula-tors,government officials, andcurrentandpro-spectivecustomers topositively influence thesecriticalfactorsandtotakeadvantage oftheoppor-tunitiesincreased competition willbring.Operating RevenuesandEnergySalesOperating revenuesincreased

$6millionin1993following adeclineof$29millionin1992.The1993increaseandthe1992decreasewereattrib-utabletotheDonaldC.CookNuclearPlant(CookPlant)generating unitsbeingoutofserviceforscheduled refueling andmaintenance andanun-scheduled outagein1992whichreducedtheamountofenergytheCompanyhadavailable forsaletothePowerPool.Retail:PricevarianceVolumevariance$(75.1)$42.3~3~34.6)(4.3)4535.9Wholesale:

PricevarianceVolumevariance(137.2)172.7,35.5OthevOpevetln9 Revenues5.2Total~5.975.2~(41)9.6~66.7)(15.3)

~7.7)0.5~29.()(2.4)Theunfavorable retailandwholesale pricevariances in1993reflecttheoperation offuelandpowersupplycostrecoverymechanisms duetotheavailability oftheCookPlantandloweraveragecostgeneration.

Undertheretailjurisdictional fuelclauses,revenueswereaccruedin1992forfuturerecoveryofhighercostreplacement powerduringthenuclearoutages.Theincreasein1993retailsalesvolumere-flectscontinuing improvement inindustrial sales,areturntonormalweatherandmoderategrowthinresidential andcommercial customerclasses.Theincreaseinwholesale salesvolumein1993result-edfromtheincreased availability ofenergyfordeliverytothePowerPoolduetoavailability oftheCookPlantaswellasincreased salesbythePowerPooltounaffiliated utilities whichtheCompanysharesasamemberofthePool.Thechangesinrevenuescanbeanalyzedasfollows:Increase(Decrease)

FromPreviousYear~dollarsinmillions19931992~unt~~un tINDIANAMICHIGANPOWERCOMPANVANDSUPSIDIARIES Operating ExpensesDeclineChangesinthecomponents ofoperating ex-penseswereasfollows:Increase(Oecrease)

FromPreviousYeardollarsinmillions19931992~unt~~unt$(57.5)(22.9)57.847.15.02.018.515.6$26.413.6(72.0)(40.0) 12.65.04.93.5FuelPurchased PowerOtherOperation Maintenance Depreciation andAmortization 5.44.1Amortization ofRockportPlantUnitIPhase-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)~2.70.31.10.8Fuelexpenseincreased in1993duetothesignificant increaseinnucleargeneration anda6%increaseinfossilgeneration, partially offsetbyadecreaseintheaveragecostoffuel.Thereduction infuelexpensein1992resultedlargelyfromreducedgeneration duetooutagesatthetwonuclearunitsaswellasloweraveragefossilfuelcosts.Thesubstantial retailandwholesale pricevari-ancein1992resultedfromrecoveryofhigherfossilfuelgeneration costsandpowerpoolpur-chaseswhichwereincurredduringtheCookPlantoutages.Thereduction in1992wholesale salesvolumereflectsadecreaseinsalestothePowerPoolbecauseoftheCookPlantoutagesandre-ducedwholesale salesbythePowerPool,Effortstoimproveshort-term wholesale salesareaffectedbythehighlycompetitive natureoftheshort-term energymarketandotherfactorssuchasunaffiliat-edgenerating plantavailability, theweatherandtheeconomy,thatarenotgenerally withinmanagement's control~Futureresultsofoperations willbeaffectedbytheabilitytomakecost-effec-tivewholesale salesor,ifsuchsalesarereduced,theabilitytotimelyraiseretailrates.Thedeclineinpurchased powerexpensein1993reflectsareducedlevelofenergyreceiptsfromthePowerPoolbecauseoftheincreased availability ofthenuclearunitsandreducedpowerpurchases fromAEPGenerating CompanyasaresultofRockportPlantmaintenance outages.Theincreaseinpurchased powerexpensein1992wastheresultofanincreased levelofenergyreceiptsfromthePowerPoolduringthenuclearoutages.Certainotheroperation andmaintenance proce-durescanbeperformed onlywhenanuclearunitisoutofservice.Therefore, duringthe1992nuclearrefueling outages,significant otheroperation andmaintenance expenseswereincurred.

However,theimpacton1992earningsfromrefueling outag-eswasmitigated throughtheimplementation oflevelized accounting in1992.Levelized accounting spreadstheincremental costofrefueling outagessothatthecostofanaveragenumberofrefuelings arereflected ineachyear'sexpenses.

TheCompa-nyreceivedregulatory approvaltodeferincremen-talnuclearrefueling outagecostsandtoamortizethemfromthestartofanoutageuntilthebegin-ningofthenextoutage.Asaresult,1993operat-ingexpensesincludetheamortization of$35.2millionofincremental nuclearrefueling outageexpensesthatweredeferredin1992.Taxesotherthanfederalincometaxesin-creasedin1993primarily duetoasubstantial increaseinIndianasupplemental netincometaxbecausethenuclearrefueling outagecostsincurredin1992weretaxdeductible inthatyear.Therewerenorefueling outagesin1993.Federalincometaxesattributable tooperations increased in1993duetoanincreaseinpre-taxoperating incomeandareduction ininterestcharges.Thedeclineinfederalincometaxesattributable tooperations in1992reflectsadecreaseinpre-taxoperating

income, Nonoperating IncomeandFinancing CostsDeclineConstruction SpendingNonoperating incomedeclinedin1993duetotheimplementation ofStatement ofFinancial Accounting Standards No.109,Accounting forIncomeTexes,therecordation in1992ofinterestincomeonfederalincometaxrefundsinconnection withthesettlement ofauditsofprioryears'axreturnsandthereversalofaprovision in1992asaresultofthesuccessful settlement ofacoalroyaltydisputewiththestateofUtah.Interestexpensedeclinedin1993duetotheretirement of$142millionoflong-term debtandtherefinancing of$150millionoflong-term debtand$97millionofinstallment purchasecontracts (IPC)atlowerinterestrates.Thedeclinein1992waslargelyattributable totherefinancing of$25millionofIPCsandaloweraverageinterestrateonavariablerateIPC.AccruedUtilityRevenuesandTaxesAccruedAtDecember31,1992underretailfuelandpowersupplycostrecoverymechanisms,

$38millionoffuelrevenueswereaccruedrelatedtofuelandreplacement powercostsincurredduringthenuclearunitoutages.Bothretailjurisdictions approvedrecovery.

Recoverywascompleted intheIndianajurisdiction andsubstantially completed intheMichiganjurisdiction in1993reducingtheaccruedutilityrevenuesbalanceatDecember31,1993.Theremaining balanceintheMichiganjurisdiction willberecovered in1994.Taxesaccruedincreased in1993reflecting theeffectsoffederalincometaxreturnauditsettle-mentsrecordedin1992.Asignificant refundresulting fromtheauditcausedareduction inthe1992balance.Regulatory AssetsandDeferredTaxLiabilities IncreaseTheCompanyprospectively adoptedanewaccounting standardforincometaxesonJanuary1,1993.Thenewstandardrequired, amongotherthings,thatregulated entitiesrecorddeferredtaxliabilities ontemporary differences previously flowed-through forrate-making andbookaccount-ing.Whererate-making providesforflow-through treatment, corresponding regulatory assetswererecordedresulting inanincreaseintotalassetsandliabilities.

Grossplantandpropertyadditions were$125millionin1993and$176millionin1992.Manage-mentestimates construction expenditures forthenextthreeyearstobe$410million.Thefundsforconstruction ofnewfacilities andimprovement ofexistingfacilities comefromacombination ofinternally generated funds,short-term andlong-termborrowings andinvestments incommonequitybytheCompany's parent,AmericanElectricPowerCompany,Inc.(AEPCo.,Inc.).Approximately 92%oftheconstruction expendi-turesforthenextthreeyearswillbefinancedinternally withtheremainder financedexternally.

CapitalResources TheCompanygenerally issuesshort-term debttoprovideforinterimfinancing ofcapitalexpendi-turesthatexceedinternally generated funds.AtDecember31,1993,unusedshort-term linesofcreditof$537millionsharedwithotherAEPSystemcompanies wereavailable, Short-term borrowings increased by$5.9millionin1993.Acharterprovision limitsshort-term borrowings to$127million.Periodicreductions ofoutstanding short-term debtaremadethroughissuanceoflong-termdebtandpreferred stockandthroughequitycapitalcontributions bytheparentcompany.TheCompanyreceivedorhasrequested regula-toryapprovaltoissueupto$185millionoflong-termdebtandpreferred stock.Management expectstousetheproceedstoretireshort-term debt,refinance highercostandmaturinglong-term debt,refundcumulative preferred stockandfundconstruction expenditures.

UnlesstheCompanymeetscertainearningsorcoveragetests,additional long-term debtorpre-ferredstockcannotbeissued.Inordertoissuelong-term debtwithoutrefunding anequalamountofexistingdebt,pre-taxearningsmustbeequaltoatleasttwiceannualinterestchargesonlong-term debtaftergivingeffecttothenewdebt.Toissueadditional preferred stock,after-tax grossincomemustbeatleastequaltooneandone-halftimesannualinterestandpreferred stockdividendre-quirements aftergivingeffecttothenewpreferred stock.TheCompanypresently exceedstheseminimumcoveragerequirements.

AtDecember31,1993,long-term debtandpreferred stockcoverageratioswere4.59and2.48,respectively.

Recentlyamajorcreditratingagencyreevaluat-edthecreditworthiness ofcompanies intheelectricutilityindustrybasedonperceived riskfromderegulation, increased competition, reducedloadgrowth,escalating nuclearplantcostsandenviron-mentalconcerns.

Theagencylowereditsratingsoutlookforapproximately one-third ofthecom-paniesbutnotforIndianaMichiganPowerwhichwasregardedbytheagencyasbeingrelatively wellpositioned tomeetfuturecompetitive challenges.

Competition INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES Althoughmanagement mayhaveopportunities toimproveshareholder valuethroughincreased competition asaresultofopentransmission accessandotherprovisions oftheEnergyPolicyActof1992,thereisriskanduncertainty, especially forretailratepayers andshareholders, regarding reli-abilityoffuturetransmission serviceandfaircompensation foruseoftheCompany's extensive highvoltagetransmission facilities.

Management's goalistoensurethat,totheextenttheCompany's facilities areusedbyothers,thereisfairandappropriate compensation.

Since1990,theshort-term wholesale energymarkethasbeenextremely competitive.

WiththepassageoftheEnergyPolicyActof1992,whichprovidesforgreatereaseoftransmission accessandreducescertainregulatory restrictions forindependent powerproducers (IPPs),competition isexpectedtoincreaseinthelong-term wholesale marketandintheconstruction ofnewgenerating capacity.

Forexample,IPPsarenolongerrequiredtofindanindustrial hosttoutilizethesteamby-productfromthegeneration ofelectricity tobuildagenerating unitandavoidregulation underthePublicUtilityHoldingCompanyActof1935(1935Act).TheEnergyPolicyActalsoexemptsIPPsfromrequirements underthe1935Actwhich,amongotherthings,permitIPPstousegreateramountsoflowercostdebtwhichmayreduceoverallcostofcapital.ThusIPPsmayhaveacompetitive advantage.

AlthoughtheEnergyPolicyActspecifically prohibits theFederalEnergyRegula-toryCommission fromorderingretailtransmission access,thestatescandosoandmanybelievethatthenextlogicalstepwillbetheextension ofcom-petitionforexistingindustrial customers whichwillpresentbothopportunities andchallenges fortheCompany.Althoughmanagement believesthattheCompa-nyiswellpositioned tocompeteinthisevolvingcompetitive marketbecauseofitstechnical skillsandexpertise anditspositionasalowcostproduc-er,weintendtocontinuetoexaminewaystoim-provetheCompany's competitive position.

Effortstoimproveoperations andreducecostswillcontin-ue,inordertomaintainandenhanceourpositionasalowcostproducer.

Environmental ConcernsandCostPressures CleanAlrActTheCleanAirActAmendments of1990(CAAA)require,amongotherthings,substantial reductions insulfurdioxideandnitrogenoxidesemittedfromelectricgenerating plants,TwooftheCompany's generating units,Tan-nersCreekUnit4andtheBreedPlant,areaffectedbythefirstphaseoftheCAAA.TannersCreekUnit4willcomplybyfuelswitching atminimalcapitalcost.Management decidedearlyin1994toclosethe325megawatt(mw)BreedPlantasofMarch31,1994,duetoitsdesignandage(com-mercialoperation beganin1960)aswellastheadditional costofcomplying withtheCAAA.TheclosingoftheBreedPlantisnotexpectedtoadversely affectresultsofoperations orfinancial condition exceptasitimpactsongoingPowerPoolcreditsandcharges.Theongoingearningseffe'ctofclosingtheBreedPlantwillbethattheCompanywillreceivelesscapacitycreditsforbeinganetsuppliertothePowerPool,partially offsetbyareduction inoperation, maintenance anddepreciation expenses.

AsofDecember31,1993theunfavorable effectonearningsisexpectedtobe$10millionannually.

TheCompanywillseekrecoveryofthisadditional costinfutureratecases,PhaseIIoftheCAAA,effective intheyear2000,willrequirefurtheractionstocomply.Additional costswillbeincurredandrecoveryfromcustomers willbesoughtforallCAAAcosts.

GlobalWarmingConcernaboutglobalclimatechange,or"thegreenhouse effect"hasbeenthefocusofintensive debatewithintheUnitedStatesandaroundtheworld.Muchoftheuncertainty aboutwhateffectsgreenhouse gasconcentrations willhaveontheglobalclimateresultsfromamyriadoffactorsthataffectclimate.Basedonthetermsofa1992UnitedNationstreatythatpledgedtheUnitedStatestoreducegreenhouse gasemissions, theClintonAdministration developed avoluntary plantoreducebytheyear2000greenhouse gasemis-sionsto1990levels.TheAEPSystemsupportstheplanandwillworkwiththeU.S.Department ofEnergy(DOE)andotherelectricutilitycompanies toformulate acosteffective framework forlimitingfuturegreenhouse gasemissions.

TheAEPSystemstronglysupportsapolicyofproactive environmental stewardship, wherebyactionsaretakenthatmakeeconomicandenviron-mentalsenseontheirownmerits,irrespective oftheuncertain threatofglobalclimatechange.Toreduceemissions, wesupportenergyconservation

programs, development ofmoreefficient generation andend-usetechnologies, andforestmanagement activities becausetheyarecosteffective andbringlong-term benefitstoourservicearea.Shouldsignificant newmeasurestocontroltheburningofcoalbeenacted,theycouldaffecttheCompany's competitiveness and,ifnotrecovered fromcustom-ers,adversely impactresultsofoperations andfinancial condition.

Thepotential forelectricandmagneticfields(EMF)fromtransmission anddistribution facilities toadversely affectthepublichealthisbeingexten-sivelyresearched.

TheAEPSystemcontinues tosupportEMFresearchtohelpdetermine theextent,ifany,towhichEMFmayadversely impactpublichealth.OurconcernisthatnewlawsimposingEMFlimitsmaybepassedornewregulations promulgated withoutsufficient scientific studyandevidencetosupportthem.Aslongasthereisuncertainty aboutEMF,wewillhavedifficulty findingacceptable sitesforourtransmission facil-ities,whichcouldhampereconomicgrowthwithinourservicearea.IfthepresentenergydeliverysystemmustbechangedbecauseofEMFcon-cerns,orifthecourtsconcludethatEMFexposureharmsindividuals andthatutilities areliablefordamages,thenresultsofoperations andfinancial condition couldbeadversely

affected, unlessthecostscanberecovered fromcustomers.

Hazardous MaterialBy-products fromthegeneration ofelectricity includematerials suchasash,slag,sludge,lowlevelradioactive wasteandspentnuclearfuel.Inaddition, generating plantsandtransmission anddistribution facilities haveusedasbestos, polychlorinated biphenyls (PCBs)andotherhazard-ousandnon-hazardous materials.

Substantial coststostoreanddisposeofhazardous andnon-hazardous materials havebeenandwillcontinuetobeincurred.

Significant additional costscouldbeincurredtocomplywithnewlawsandregulations ifenactedandtocleanupdisposalsitesunderexistinglegislation.

TheSuperfund createdbytheComprehensive Environmental ResponseCompensation andLiability Actaddresses cleanupofhazardous substance disposalsitesandauthorizes theUnitedStatesEnvironmental Protection Agency(FederalEPA)toadminister thecleanupprograms.

TheCompanyhasbeennamedbytheFederalEPAasa"potential-lyresponsible party"(PRP)forsevensitesandhasreceivedinformation requestsforthreeothersites.FortwoofthePRPsites,liability hasbeensettledwithlittleimpactonresultsofoperations.

I%MalsohasbeennamedaPRPatoneIllinoissiteandhasreceivedaninformation requestforoneIndianasiteunderanalogous statecleanuplaws.Althoughthepotential liability associated witheachsitemustbeevaluated individually, severalgeneralstate-mentscanbemaderegarding suchpotential liabili-INDIANAMICHlGANPOWERCOMPANYANDSUBSIDIARIES WhethertheCompanydisposedofhazardous substances ataparticular siteisoftenunsubstan-tiated;thequantityofmaterialdisposedofatasitewasgenerally small;andthenatureofthematerialgenerally disposedofwasnon-hazardous, Typical-ly,theCompanyisoneofmanypartiesnamedPRPsforasiteand,althoughliability isjointandseveral,atleastsomeoftheotherpartiesarefinancially soundenterprises.

Therefore, presentestimates donotanticipate materialcleanupcostsforidentified disposalsites.However,ifforun-knownreasons,significant costsareincurredforcleanup,resultsofoperations andpossiblyfinancial condition wouldbeadversely affectedunlessthecostscanbyrecovered frominsurance proceedsand/orcustomers.

NuclearOperating CostOperation andmaintenance costsoftheComp-any'stwo-unit2,110mwDonaldC.CookNuclearPlantaredirectlyimpactedbyincreasing NuclearRegulatory Commission requirements andincreas-ingmaintenance requirements relatedtotheagingoftheunits(Unit1begancommercial operation in1975andUnit2in1978).Whilenuclearfuelcosthasdeclined, theestimated costtodecommission theplanthasincreased toarangeof$588millionto$1.1billion.Theincreaseintherangefrompreviousestimates isattributable touncertainty regarding futuredelaysintheDOE'smandatory SpentNuclearFuel(SNF)disposalprogram.Delaysinfindingapermanent repository forSNFhavein-creasedcostsreflecting aneedtostoreSNFattheplantsiteforanextendedtimeaftertheplantceasesoperations.

Management intendstocontin-uetoseekrecoveryofincreasing decommissioning costsovertheremaining plantlife.Wecontinuetoexamineouroperations forbetterwaystooperateandmaintainourtwonuclearunitstocontrolthegrowthinoperation, maintenance anddecommis-sioningcosts.Management recentlyrestructured itsnuclearoperations andstafftoaddresstheseconcerns.

Effortsarecontinuing toshortenrefuel-ingandmaintenance outages,toreducetheircostandtominimizethecostofreplacement energyduringtheoutageperiods.Shouldthenuclearunitsberetiredearlyforanyreasonorcostsofmaintain-ing,operating anddecommissioning theplantanddisposing ofitsspentnuclearfuelnotberecovered throughrates,resultsofoperations andfinancial condition wouldbeadversely affected.

Litigation TheCompanyisinvolvedinanumberoflegalproceedings andclaims.Whileweareunabletopredicttheoutcomeofsuchlitigation, itisnotexpectedthattheresolution ofthesematterswillhaveamaterialadverseeffectonfinancial condi-tion.NewAccounting Standards Twonewaccounting standards wereissuedin1993thatwereadoptedin1994.Theimplementa-tionofthesenewstandards willnothaveasignifi-canteffectonresultsofoperations orfinancial condition.

Effectsofinflation Inflation affectsthecostofreplacing utilityplantandthecostofoperating andmaintaining suchplant.Therate-making processgenerally limitsrecoverytothehistorical costofassetsresulting ineconomiclosseswheninflation effectsarenotrecovered fromcustomers onatimelybasis.However,economicgainsthatresultfromtherepayment oflong-term debtwithinflateddollarspartlyoffsetsuchlosses.

INDEPENDENT AUDITORS'EPORT TotheShareowners andBoardofDirectors ofIndianaMichiganPowerCompany:Wehaveauditedtheaccompanying consolidated balancesheetsofIndianaMichiganPowerCompanyanditssubsidiaries asofDecember31,1993and1992,andtherelatedconsolidated statements ofincome,retainedearnings, andcashflowsforeachofthethreeyearsintheperiodendedDecember31,1993.Thesefinancial statements aretheresponsibility oftheCompany's management.

Ourresponsibility istoexpressanopiniononthesefinancial statements basedonouraudits.Weconducted ourauditsinaccordance withgenerally acceptedauditingstandards.

Thosestandards requirethatweplanandperformtheaudittoobtainreasonable assurance aboutwhetherthefinancial statements arefreeofmaterialmisstatement.

Anauditincludesexamining, onatestbasis,evidencesupporting theamountsanddisclosures inthefinancial statements.

Anauditalsoincludesassessing theaccounting principles usedandsignificant estimates madebymanagement, aswellasevaluating theoverallfinancial statement presentation.

Webelievethatourauditsprovideareasonable basisforouropinion.Inouropinion,suchconsolidated financial statements presentfairly,inallmaterialrespects, thefinancial positionofIndianaMichiganPowerCompanyanditssubsidiaries asofDecember31,1993and1992,andtheresultsoftheiroperations andtheircashflowsforeachofthethreeyearsintheperiodendedDecember31,1993inconformity withgenerally acceptedaccounting principles.

Asdiscussed inNotes1and6inNotestoConsolidated Financial Statements, effective January1,1993,theCompanychangeditsmethodofaccounting forincometaxestoconformwithStatement ofFinancial Accounting Standards No.109"Accounting forIncomeTaxes,"anditsmethodofaccounting forpostretirement benefitsotherthanpensionstoconformwithStatement ofFinancial Accounting Standards No.106"Employers'ccounting forPostretirement BenefitsOtherThanPensions."

win~DELOITTE5TOUCHEColumbus, OhioFebruary22,1994 Consolidated Statements ofIncomeINDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES YrEDmr~12(inthousands)

OPERATING REVENUESOPERATING EXPENSES:

FuelPurchased PowerOtherOperation Maintenance Depreciation andAmortization Amortization ofRockportPlantUnit1Phase-inPlanDeferrals TaxesOtherThanFederalIncomeTaxesFederalIncomeTaxesTotalOperating Expenses220,206108,274264,543142,637138,794193,830180,365251,897137,787133,365251,325122,573246,935119,242132,28516,96162,783~447416,30362,1892!~415,64467,918~477~2~72~1~2~~7~12~24~11L77~1~22'jJ+7 OPERATING INCOMENONOPERATING INCOME(LOSS)INCOMEBEFOREINTERESTCHARGESINTERESTCHARGESNETINCOMEPREFERRED STOCKDIVIDENDREQUIREMENTS EARNINGSAPPLICABLE TOCOMMONSTOCK209,920195,520227,289209,686209,635223,568~MiGZ~MQ5.129,313123,948136,932~1422~1411'~~115088~108531~12151~21~411~21SeeNotestoConsolidated Financiel Statements.

11 Consolidated BalanceSheetsASSETSmr1~1~12(inthousands)

ELECTRICUTILITYPLANT:Production Transmission Distribution General(including nuclearfuel)Construction WorkinProgressTotalElectricUtilityPlantAccumulated Depreciation andAmortization NETELECTRICUTILITYPLANT$2,559,905 829,507576,309182,414~11402,602,527 839,198608,752152,4704,290,957

~7~424,266,480

~~4~27~12~2;~~42OTHERPROPERTYANDINVESTMENTS

~4~24CURRENTASSETS:CashandCashEquivalents AccountsReceivable:

Customers Affiliated Companies Miscellaneous Allowance forUncollectible AccountsFuel-ataveragecostMaterials andSupplies-ataveragecostAccruedUtilityRevenuesPrepayments TOTALCURRENTASSETS3,7527,45967,24624,50730,087(504)34,47657,80034,642~12462,32541,13931,536(562)53,21054,00478,555~111~2~44~QUUL22.REGULATORY ASSETS:AmountsDueFromCustomers ForFutureFederalIncomeTaxesOtherTOTALREGULATORY ASSETS286,948~2~74~422~2LRKTOTALSeelvotestoConsolideted RnenoielStetements.

3765458~384579812 INDNAMICHIGANPOWERCOMPANYANDSUBSIDIARIES CAPITALIZATION ANDLIABILITIES mr~1(inthousands)

CAPITALIZATION:

CommonStock-NoParValue:Authorized

-2,500,000 SharesOutstanding

-1,400,000 SharesPaid-inCapitalRetainedEarningsTotalCommonShareowner's EquityCumulative Preferred Stock:NotSubjecttoMandatory Redemption SubjecttoMandatory Redemption Long-term DebtTOTALCAPITALIZATION 56,584726,157171~S56,584734,93317~7954,050'969,155197,000~11~7287,000100,000~17~14~222~$~21!~71OTHERNONCURRENT LIABILITIES CURRENTLIABILITIES:

Long-term DebtDueWithinOneYearShort-term Debt-Commercial PaperAccountsPayable:GeneralAffiliated Companies TaxesAccruedInterestAccruedObligations UnderCapitalLeasesOtherTOTALCURRENTLIABILITIES DEFERREDFEDERALINCOMETAXESDEFERREDINVESTMENT TAXCREDITSDEFERREDGAINONSALEANDLEASEBACK-ROCKPORTPLANTUNIT2DEFERREDCREDITSCOMMITMENTS ANDCONTINGENCIES (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 Consolidated Statements ofCashFlowsOPERATING ACTIVITIES:

NetIncomeAdjustments forNoncashItems:Depreciation andAmortization Amortization ofRockportPlantUnit1Phase-inPlanDeferrals Amortization (Deferral) ofIncremental NuclearRefueling OutageExpenses(net)DeferredFederalIncomeTaxesDeferredInvestment TaxCreditsChangesinCertainCurrentAssetsandLiabilities:

AccountsReceivable (net)Fuel,Materials andSuppliesAccruedUtilityRevenuesAccountsPayableTaxesAccruedOther(net)NetCashFlowsFromOperating Activities INVESTING ACTIVITIES:

Construction Expenditures ProceedsfromSalesofPropertyandOtherNetCashFlowsUsedForInvesting Activities 93S129,313148,27015,64433,827(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~LADFINANCING ACTIVITIES:

CapitalContributions fromParentCompanyIssuanceofCumulative Preferred StockIssuanceofLong-term DebtRetirement ofCumulative Preferred StockRetirement ofLong-term DebtChangeinShort-term Debt(net)Dividends PaidonCommonStockDividends PaidonCumulative Preferred StockNetCashFlowsUsedForFinancing Activities NetIncrease(Decrease) inCashandCashEquivalents CashandCashEquivalents January1CashandCashEquivalents December31SeeNotestoConsolidated RnanoIolStatements.

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

.~Consolidated Statements ofRetainedEarningstINDIANAMICHIGANPOWERCOMPANYANDSU8SIDIARIES YrEnDm1~12(inthousands)

RetainedEarningsJanuary1NetIncomeDeductions:

CashDividends Declared:

CommonStockCumulative Preferred Stock:4-1/8%Series4.56%Series4.12%Series5.90%Series6-1/4%Series6-7/8%Series7.08%Series7.76%Series8,68%Series$2.15Series$2.25SeriesTotalCashDividends DeclaredOtherTotalDeductions RetainedEarningsDecember310171,309~121~1~01~22108,6964952731653741611,7992,1242,7162,5173,001122,9211224~177638$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~I6924SeeNotestoConsolidoted RnancialStatements.

NOTESTOCONSOLIDATED FINANCIAL STATEMENTS 1.SIGNIFICANT ACCOUNTING POLICIES:

Organization IndianaMichiganPowerCompany(theCompanyorI@M)isawholly-owned subsidiary ofAmericanElectricPowerCompany,Inc.(AEPCo.,Inc.),apublicutilityholdingcompany.TheCompanyisengagedinthegeneration,

purchase, transmission anddistribution ofelectricpowerinnorthernandeasternIndianaandaportionofsouthwestern Michigan.

AsamemberoftheAmericanElectricPower(AEP)SystemPowerPool(PowerPool)andasignatory companytotheAEPTransmission Equalization Agreement, itsfacilities areoperatedinconjunction withthefacilities ofcertainotherAEPCo.,Inc.ownedutilities asanintegrated utilitysystem.therecognition ofrevenuesandexpensesindiffer-enttimeperiodsthanenterprises thatarenotrateregulated.

Inaccordance withStatement ofFinan-cialAccounting Standards (SFAS)No.71,Ac-countingfortheEffectsofCertainTypesofRegula-tion(SFAS71),regulatory assetsandliabilities arerecordedtodeferexpensesorrevenuesreflecting suchrate-making differences.

UtilityPlantElectricutilityplantisstatedatoriginalcostandisgenerally subjecttofirstmortgageliens.Addi-tions,majorreplacements andbetterments areaddedtotheplantaccounts.

Retirements fromtheplantaccountsandassociated removalcosts,netofsalvage,aredeductedfromaccumulated depreci-ation.TheCompanyhastwowholly-owned subsidiar-ies,Blackhawk CoalCompanyandPriceRiverCoalCompany,thatwereformerlyengagedincoal-miningoperations.

Blackhawk CoalCompanycur-rentlyleasesandsubleases portionsofitsUtahcoalrights,landandrelatedminingequipment tounaffil-iatedcompanies.

PriceRiverCoalCompany,whichownsnolandormineralrights,isinactive.

Regulation AsamemberoftheAEPSystem,IRMissubjecttoregulation bytheSecurities andExchangeCom-mission(SEC)underthePublicUtilityHoldingCom-panyActof1935(1935Act).Retailratesareregulated bytheIndianaUtilityRegulatory Commis-sion(IURC)andtheMichiganPublicServiceCom-mission(MPSC).TheFederalEnergyRegulatory Commission (FERC)regulates wholesale rates.Principles ofConsolidation Theconsolidated financial statements includeISManditswholly-owned subsidiaries.

Significant intercompany itemswereeliminated inconsolida-tion.BasisofAccounting Asarate-regulated entity,I@M'sfinancial state-mentsreflecttheactionsofregulators thatresultinThecostsoflabor,materials andoverheads incurredtooperateandmaintainutilityplantareincludedinoperating expenses.

Allowance forFundsUsedDuringConstruction

/AFUDCJAFUDCisanoncashincomeitemthatisrecov-eredovertheservicelifeofutilityplantthroughdepreciation andrepresents theestimated costofborrowedandequityfundsusedtofinancecon-struction projects.

TheaverageratesusedtoaccrueAFUDCwere8.75%in1993and9.25%in1992and1991andtheamountsofAFUDCac-cruedwere$1.7million,$3.8millionandS2.1millionin1993,1992and1991,respectively.

Depreciation andAmortization Depreciation isprovidedonastraight-line basisovertheestimated usefullivesofutilityplantandiscalculated largelythroughtheuseofcomposite ratesbyfunctional class(i.e.,production, transmis-sion,distribution, etc.).Amountstobeusedfordemolition ofnon-nuclear plantarepresently recovered throughdepreciation chargesincludedinrates.Theaccounting andrate-making treatment affordednucleardecommissioning costsandnuclearfueldisposalcostsarediscussed inNote3.16

.~tINDIANAMICHIGANPOVYERCOMPANYANDSUBSIDIARIES RockportPlantIncomeTexesRockportPlantconsistsoftwo1,300megawatt(mw)coal-fired units.ILMandAEPGenerating Company(AEGCo),anaffiliate, eachowns50%ofoneunit(Rockport 1)andeachleasesa50%interestintheotherunit(Rockport 2)fromunaffili-atedlessorsunderanoperating lease.Thegainonthesaleandleaseback ofRockport2wasdeferredandisbeingamortized, withrelatedtaxes,overtheinitialleasetermwhichexpiresin2022.Ratephase-inplansprovidefortherecoveryandstraight-line amortization through1997ofprior-yeardeferrals ofRockport1costs.Deferredamountsunderthephase-inplanswere$59millionand$75millionatDecember31,1993and1992,respectively.

CashandCashEquivalents Cashandcashequivalents includetemporary cashinvestments withoriginalmaturities ofthreemonthsorless.OperetingRevenuesRevenuesincludeanaccrualforelectricity con-sumedbutunbilledatmonth-end aswellasbilledrevenues, FuelCostsFuelcostsarematchedwithrevenuesinaccor-dancewithratecommission orders.Revenuesareaccruedrelatedtounrecovered fuelinbothretailjurisdictions andforreplacement powercostsintheMichiganjurisdiction untilapprovedforbilling.Wholesale jurisdictional fuelcostchangesareexpensedandbilledasincurred.

Levelization ofNuclearRefueling OutageCostsIncreme'ntal operation andmaintenance costsassociated withrefueling outagesattheDonaldC.CookNuclearPlant(CookPlant)aredeferredwiththeapprovalofregulators foramortization overtheperiod(generally eighteenmonths)beginning withthecommencement ofanoutageuntilthebegin-ningofthenextoutage.Deferredamountswere$13.4millionand$47.2millionatDecember31,1993,and1992,respectively.

Effective January1,1993,theCompanyadoptedtheliability methodofaccounting forincometaxesasprescribed bySFAS109,Accounting forIncomeTexes.Underthisstandarddeferredfederalincometaxesareprovidedforalltemporary differences betweenthebookcostandtaxbasisofassetsandliabilities whichwillresultinafuturetaxconse-quence.Inprioryearsdeferredfederalincometaxeswereprovidedfortimingdifferences betweenbookandtaxableincomeexceptwhereflow-throughaccounting forcertaindifferences wasreflected inrates.Flow-through accounting isamethodwherebyfederalincometaxexpenseforaparticular itemisthesameforaccounting andrate-makingasinthefederalincometaxreturn.AsaresultoftheadoptionofSFAS109significant additional deferredtaxliabilities wererecordedforitemsaffordedflow-through treatment inrates.Inaccordance withSFAS71significant corresponding regulatory assetswerealsorecordedtoreflectthefuturerecoveryofadditional taxesduewhenthetemporary differences reverse.Asaresultofthischangeinaccounting effective January1,1993,deferredfederalincometaxliabilities increased by$259.6millionandregulatory assetsby$254.3million,andnetincomewasreducedby$5.3million.Investment taxcreditsutilizedinprioryears'ederal incometaxreturnsweredeferredandarebeingamortized overthelifeoftherelatedplantinvestment inaccordance withrate-making treat-ment.DebtandPreferred StockGainsandlossesonreacquired debtaredeferredandamortized overthetermofthereacquired debt.Ifthedebtisrefinanced thereacquisition costsaredeferredandamortized overthetermofthere-placement debt.Debtdiscountorpremiumanddebtissuanceexpensesareamortized overthetermoftherelateddebt,withtheamortization includedininterestcharges.17 Redemption premiumspaidtoreacquire preferred stockaredeferredandamortized inaccordance withrate-making treatment.

Theexcessofparvalueovercostsofpreferred stockreacquired tomeetsinkingfundrequirements iscreditedtopaid-incapital.OtherPropertyand/nvestments Otherpropertyandinvestments aregenerally statedatcost.Reclassifications Certainprior-period amountswerereclassified toconformwithcurrent-period presentation.

operation fromtheCompanyin1986andaffiliated coaltransportation charges.InDecember1993thewholesale customerappealedtheFERCordertotheU.S.CourtofAppeals.3.COMMITMENTS ANDCONTINGENCIES:

Construction andOtherCommitments Substantial construction commitments havebeenmadealthoughnonewgenerating capacityisexpectedtobeconstructed untilthenextcentury.Theaggregate construction programexpenditures for1994-1996 areestimated tobe0410millionandincludethecapitalcostofcompliance withtheCleanAirActAmendments of1990(CAAA).2.RATEMATTERS:RateActivityInNovember1993theIURCgranteda$34.7millionannualrateincreaseinresponsetotheCompany's requestfora$44.8millionincreasefiledinApril1992.Thenewratesinclude,amongotherthings,recoveryoftheongoingamountsbeingaccruedforpostretirement benefitsotherthanpensions(OPEB),anincreaseintheprovision fornuclearplantdecommissioning costsandtheamortization ofdeferredincremental nuclearplantrefueling outagecosts.InOctober1993theMPSCapprovedasettle-mentagreement thatprovidesforathree-step increaseinrecoveryofnucleardecommissioning costsfortheCookPlant.Thefirststepincreaseof$1.2millionannuallywaseffective inNovember1993.Thesecondandthirdstepsprovideforrecoveries tobeincreased by$1millionannuallyinMay1994andanadditional

$1millionannuallyinNovember1994.TheMPSCalsoorderedthatanewdecommissioning studybefiledbeforeDecem-ber1994.Unaffjliated CoalandAffiliated Transportation CostRecoveryInOctober1993theFERCdeniedarequestbyawholesale customerseekingrehearing ofaFebruary1993order.TheFebruary1993orderreverseda1990administrative lawjudge'sinitialdecisionanddismissed thewholesale customer's complaint concerning thereasonableness ofcoalcostsfromanunaffiliated supplierwholeasedaUtahminingLong-term fuelsupplycontracts containclausesforperiodicadjustments.

Theretailjurisdictions havefuelclausemechanisms thatprovidewiththeregulators'eview andapprovalfordeferredrecov-eryofchangesinthecostoffuel.Thecontracts areforvariousterms,thelongestofwhichextendto2014,andcontainvariousclausesthatwouldreleasetheCompanyfromitsobligation undercertainforcemajeureconditions.

UnitPowerAgreements TheCompanyiscommitted underunitpoweragreements topurchase70%ofAEGCo'sRockportPlantcapacityunlessitissoldtounaffiliated utilities.

AEGCohasonelong-term contractwithanunaffiliated utilitythatexpiresin1999for455mwofRockportPlantcapacity.

TheCompanysellsundercontractupto250mwofRockportPlantcapacitytoCarolinaPowerandLightCompany,anunaffiliated utility.Thecontractexpiresin2009.Litigation AnappealtotheIndianaCourtofAppealsbyalocaldistribution utilityofa1992DeKalbCountyCircuitCourtofIndianadecisionispending,Thecircuitcourtdismissed thecasefiledunderaprovision ofIndianalawthatallowsthelocaldistri-butionutilitytoseekdamagesequaltothegrossrevenuesreceivedbytheCompanyforrendering serviceinthedesignated serviceterritory ofthelocaldistribution utility.TheCompanyhadre-ceivedapproximately

$29millioningrossrevenuesfromamajorindustrial customerinthelocaldistri-18

.~INDIANAMICHIGANPOWERCOMPANy'ND SUBSIDIARIES butionutility's serviceterritory.

ThecaseresultedfromaSupremeCourtofIndianadecisionwhichoverruled anappealscourtandvoidedanIURCorderwhichassignedthemajorindustrial customertotheCompany.TheCompanyisinvolvedinotherlegalproceed-ingsandclaims.Whilemanagement isunabletopredicttheoutcomeoflitigation, itisnotexpectedthattheresolution oftheseothermatterswillhaveamaterialadverseeffectonfinancial condition.

CleanAI'rTheCAAArequiresignificant reductions insulfurdioxideandnitrogenoxidesemittedfromvariousAEPSystemgenerating plants.Thelawestab-lishedadeadlineof1995forthefirstphaseofreductions insulfurdioxideemissions (PhaseI)andtheyear2000forthesecondphase(PhaseII)aswellasapermanent nationwide caponsulfurdioxideemissions after1999.couldbeincurredinthefuturetomeettherequire-mentsofnewlawsandregulations, ifenacted,andtocleanupdisposalsitesunderexistinglegislation.

TheSuperfund createdbytheComprehensive Environmental ResponseCompensation andLiability Actaddresses cleanupofhazardous substance disposalsitesandauthorizes theUnitedStatesEnvironmental Protection Agency(FederalEPA)toadminister thecleanupprograms.

TheCompanyhasbeennamedbytheFederalEPAasa"potential-lyresponsible party"(PRP)forsevensitesandhasreceivedinformation requestsforthreeothersites.FortwoofthePRPsites,liability hasbeensettledwithlittleimpactonresultsofoperations.

I&MalsohasbeennamedaPRPatoneIllinoissiteandhasreceivedaninformation requestforoneIndianasiteunderanalogous statecleanuplaws.Althoughthepotential liability associated witheachsitemustbeevaluated individually, severalgeneralstate-mentscanbemaderegarding suchpotential liabili-TheAEPSystemwide compliance plancallsforfuelswitching tomedium-sulfur coalatI&M'sTannersCreekUnit4withminimalcapitalcost.TheBreedunitwhichisaPhaseIaffectedunitisscheduled tocloseonMarch31,1994.TheCompany's othergenerating unitsarenotaffectedinPhaseI.TheCompanywillincuradditional coststocomplywithPhaseIIrequirements atitsgenerating plants.Inaddition, aportionofthecostsofcom-pliancefortheAEPSystemmaybeincurredthroughthePowerPool(whichisdescribed inNote5).IfI&Misunabletorecovercompliance costsfromitscustomers, resultsofoperations andfinancial condition wouldb'eadversely impacted.

WhethertheCompanydisposedofhazardous substances ataparticular siteisoftenunsubstanti-ated;thequantityofmaterialdisposedofatasitewasgenerally small;andthenatureofthematerialgenerally disposedofwasnon-hazardous.

Typical-ly,theCompanyisoneofmanypartiesnamedPRPsforasiteand,althoughliability isjointandseveral,atleastsomeoftheotherpartiesaregenerally financially soundenterprises.

Therefore, presentestimates donotanticipate materialclean-upcostsforidentified disposalsites.However,ifforunknownreasons,significant costsareincurredforcleanup,resultsofoperations andpossiblyfinancial condition wouldbeadversely affectedunlessthecostscanbyrecovered frominsurance proceedsand/orcustomers, OtherFnvironmental MattersNuclearPlantTheCompanyanditssubsidiaries areregulated byfederal,stateandlocalauthorities withrespecttoairandwaterqualityandotherenvironmental matters.Thegeneration ofelectricity producesnon-haz-ardousandhazardous by-products.

Asbestos, polychlorinated biphenyls (PCBs)andotherhazard-ousmaterials havebeenusedinthegenerating plantsandtransmission/distribution facilities.

Substantial coststostoreanddisposeofhazardous andnon-hazardous materials havebeenincurredandwillbeincurred.

Significant additional costsl&Mownsandoperatesthetwo-unit2,110mwCookPlantunderlicensesgrantedbyregulatory authorities, Theoperation ofanuclearfacilityinvolvesspecialrisks,potential liabilities, andspecificregulatory andsafetyrequirements.

ShouldanuclearincidentoccuratanyfacilityintheUnitedStatesliability couldbesubstantial.

Shouldnuclearlossesorliabilities beunderinsured orexceedaccumulated funds,orshouldraterecoverybedenied,resultsofoperations andfinancial condition wouldbenegatively

affected, Specificinformation aboutriskmanagement andpotential liabilities isdiscussed below.19 NuclearInsurance Publicliability islimitedbylawto$9.4billionshouldanincidentoccuratanylicensedreactorintheUnitedStates.Commercially available insur-anceprovides$200millionofthiscoverage.

IntheeventofanuclearincidentatanynuclearplantintheUnitedStatestheremainder oftheliability wouldbeprovidedbyadeferredpremiumassess-mentof$79.3milliononeachlicensedreactorpayableinannualinstallments of$10million.Asaresult,IRMcouldbeassessed$158.6millionpernuclearincidentpayableinannualinstallments of$20million.Thenumberofincidents forwhichpaymentscouldberequiredisnotlimited.Nuclearinsurance poolsandotherinsurance policiesprovide$2.75billionofpropertydamage,decommissioning anddecontamination coverageforCookPlant.Additional insurance providescover-ageforextracostsresulting fromaprolonged accidental CookPlantoutage.Someofthepolicieshavedeferredpremiumprovisions whichcouldbetriggered bylossesinexcessoftheinsurer's resources.

ThelossescouldresultfromclaimsattheCookPlantorcertainothernuclearunits.TheCompanycouldbeassessedupto$24millionunderthesepolicies.

SpentNuclearFue/DisposalFederallawprovidesforgovernment responsibili-tyforpermanent spentnuclearfueldisposalandassessesnuclearplantownersfeesforspentfueldisposal.

Thefeeofonemillperkilowatthour forfuelconsumedafterApril6,1983isbeingcollect-edfromcustomers andremittedtotheU.S.Trea-sury.Feesandrelatedinterestof$148millionforfuelconsumedpriortoApril7,1983havebeenrecordedaslong-term debtandaregulatory asset.Theregulatory assetisbeingamortized asraterecoveryoccurs.I%Mhasnotpaidthegovernment thepre-April 1983feesduetovariousfactorsincluding continued delaysanduncertainties relatedtothefederaldisposalprogram.AtDecember31,1993,fundscollected fromcustomers todisposeofnuclearfuelandrelatedearningstotalling

$133millionwereheldinexternalfundsincludedinthefinancial statements asotherpropertyandinvest-ments.Decommissioning operatethetwonuclearunitsexpirein2014and2017.Afterexpiration ofthelicensestheplantisexpectedtobedecommissioned throughdisman-tling.Estimated decommissioning costsrangefrom$588millionto$1.1billionin1991dollars.Thewiderangeiscausedbyvariables intheestimated lengthoftimespentnuclearfuelmustbestoredattheplantsubsequent toceasingoperations whichdependsonfuturedevelopments inthefederalgovernment's spentnuclearfueldisposalprogram.Decommissioning costsarebeingrecovered basedonatleastthelowerendoftherangeinthecur-rentandpriorstudies.I@Mrecordsdecommission-ingcostsinotheroperation expenseandrecordsanoncurrent decommissioning liability equaltotheraterecoverywhichwas$13millionin1993,$12millionin1992and$11millionin1991.Decom-missioning amountsrecovered fromcustomers aredeposited inexternaltrusts.Trustfundearningsincreasethefundassetsandtherecordedliability.

Trustfundearningsdecreasetheamounttoberecovered fromratepayers.

AtDecember31,1993,thedecommissioning trustfundbalanceandtheaccumulated provision fordecommissioning were$170million.Inrecentrateincreases, whicharediscussed inNote2,theCompanyreceivedadditional annualamountsforthedecommissioning oftheCookPlantof$10millioninitsIndianajurisdiction and03.2millionphased-in initsMichiganjurisdiction.

4.COMMONSHAREOWNER'S EQUITY:Mortgageindentures, debentures, charterprovi-sionsandordersofregulatory authorities placevariousrestrictions ontheuseofretainedearningsforthepaymentofcashdividends oncommonstock,AtDecember31,1993,$5.9millionofretainedearningswererestricted.

Regulatory approvalisrequiredtopaydividends outofpaid-incapital.In1993,I%M'sparentmadeacashcapitalcontribution of$10million.Alsoin1993S1.2million,representing theissuancecostsforthreeseriesofcumulative preferred stock,waschargedtopaid-incapital,Therewerenoothertransactions affecting thecommonstockorpaid-incapitalaccountsin1993,1992or1991.Decommissioning costsareaccruedovertheservicelifeoftheCookPlant.Thelicensesto20 tINDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES 5.RELATEDPARTYTRANSACTIONS:

BenefitsandcostsoftheSystem'sgenerating plantsaresharedbymembersofthePowerPool.UnderthetermsoftheSystemInterconnection Agreement, capacitychargesandcreditsaredesignedtoallocatethecostoftheSystem'scapacityamongthePowerPoolmembersbasedontheirrelativepeakdemandsandgenerating re-serves.PowerPoolmembersarecompensated fortheout-of-pocket costsofenergydelivered tothePowerPoolandchargedforenergyreceivedfromthePowerPool.Operating revenuesinclude$204.6millionin1993,$154.1millionin1992and$204.8millionin1991forsupplying energyandcapacitytothePowerPool.Purchased powerexpenseincludeschargesof$20.9millionin1993,$82.6millionin1992and$24.6millionin1991forenergyre-ceivedfromthePowerPool.PowerPoolmembersshareinwholesale salestounaffiliated utilities madebythePowerPool.TheCompany's sharewasincludedinoperating reve-nuesintheamountof$57millionin1993,$45.8millionin1992and$65.5millionin1991.recordedinotheroperation expensefortransmis-sionservicesin1993,1992and1991,respective-ly.Revenuesfromproviding bargingserviceswererecordedinnonoperating incomeasfollows:YearEndedOecembr~993~9~9(inthousands)

Affiliated Companies

$25,372$24,753$23,863Unafflllated Cempanlea 171739644641Total~27089~28717~28604AmericanElectricPowerServiceCorporation (AEPSC)providescertainmanagerial andprofes-sionalservicestoAEPSystemcompanies.

Thecostsoftheservicesaredetermined byAEPSConadirect-charge basistotheextentpracticable andonreasonable basesofproration forindirectcosts.Thechargesforservicesaremadeatcostandincludenocompensation fortheuseofequitycapital,whichisfurnished toAEPSCbyAEPCoInc.BillingsfromAEPSCarecapitalized orexpenseddepending onthenatureoftheservicesrendered.

AEPSCanditsbillingsaresubjecttotheregulation oftheSECunderthe1935Act.Inaddition, thePowerPoolpurchases powerfromunaffiliated companies forimmediate resaletootherunaffiliated utilities.

TheCompany's shareofthesepurchases wasincludedinpurchased powerexpenseandtotaled$5.1millionin1993,$6.5millionin1992and$13.7millionin1991.Reve-nuesfromthesetransactions areincludedintheabovePowerPoolwholesale sales.Thecostofpowerpurchased fromAEGCo,anaffiliated companythatisnotamemberofthePowerPool,wasincludedinpurchased powerexpenseintheamountsof$78.9million,$88millionand$83millionin1993,1992and1991,respectively.

TheCompanyoperatestheRockportPlantandbillsAEGCoforitsshareofoperating costs.AEPSystemcompanies participate inatransmis-sionequalization agreement.

Thisagreement combinescertainAEPSystemcompanies'nvest-mentsintransmission facilities andsharesthecostsofownership inproportion totheSystemcompanies'espective peakdemands.Pursuanttothetermsoftheagreement, creditsof$47.4million,$48.2millionand$46.2millionwere6.BENEFITPLANS:TheCompanyanditssubsidiaries participate intheAEPSystempensionplan,atrusteed, noncon-tributory definedbenefitplancoveringallemploy-eesmeetingeligibility requirements, Benefitsarebasedonserviceyearsandcompensation levels.Effective January1,1992employees mayretirewithoutreduction ofbenefitsatage62andwithreducedbenefitsasearlyasage55.Pensioncostsareallocated byfirstchargingeachSystemcompa-nywithitsservicecostandthenallocating theremaining pensioncostinproportion toitsshareoftheprojected benefitobligation.

Thefundingpolicyistomakeannualtrustfundcontributions equaltothenetperiodicpensioncostuptothemaximumamountdeductible forfederalincometaxes,butnotlessthantheminimumcontribution requiredbylaw.NetpensioncostsfortheyearsendedDecember31,1993,1992and1991were$4.7million,$5.6millionand$2.3million,respectively.

21 2~)~Anemployeesavingsplanisofferedwhichallowsparticipants tocontribute upto16%oftheirsalariesintothreeinvestment alternatives, including AEPCo.,Inc.commonstock.TheCompanycontributes anamountequaltoone-halfofthefirst6%oftheemployees'ontribution.

TheCompany's contribution isinvestedinAEPCo.,Inc.commonstockandtotaled83.5millionin1993,83.3millionin1992and$3.1millionin1991.TheAEPSystemprovidescertainotherbenefitsforretiredemployees underanAEPSystemotherpostretirement benefitplan.Substantially allemployees areeligibleforhealthcareandlifeinsurance benefitsiftheyhaveatleast10serviceyearsand,effective January1,1992,areage55atretirement.

Priorto1993,netcostsofthesebenefitswererecognized asanexpensewhenpaidandtotaled82.7millionand82.6millionin1992and1991,respectively.

SFAS106,Employers'ccounting forPostretirement BenefitsOtherThanPensions, wasadoptedinJanuary1993.SFAS106requirestheaccrualofthepresentvalueliability forthecostofpostretirement benefitsotherthanpensions(OPEB)duringtheemployee's serviceyears.Priorservicecostsarebeingrecognized asatransition obligation over20yearsinaccordance withSFAS106.OPEBcostsarebasedonactuarially-determined standalonecostsforeachSystemcompany.Thefundingpolicyistocontribute incremental amountsrecovered throughratesandcashgenerated bythecorporate ownedlifeinsurance (COLI)program.Theannualaccruedcostsfor1993requiredbySFAS106foremployees andretirees, whichincludestherecognition ofone-twentieth ofthepriorservicetransition obligation, was$12.4million.TheCompanyreceivedapprovalfromtheIURCtorecovertheincreased OPEBcosts.IntheMichiganandwholesale jurisdictions, theCompanyreceivedauthority todefertheincreased OPEBcostswhicharenotbeingcurrently recovered inrates.Futurerecoveryofthedeferrals andtheannualongoingOPEBcostswillbesoughtinthenextbaseratefilings.AtDecember31,1993,86.2millionofincremental OPEBcostsweredeferred.

7.SUPPLEMENTARY INFORMATION:

YearEndedDecember31~993~99~9(inthousands)

Taxesotherthanfederalincometaxesinclude:RealandPersonalPropertyStateGrossReceipts, Excise,Franchise andHiscellaneous StateandLocalPayrollStateIncomeTotal$35683$359818$33926515,17915,9028,9118,075~28~554~62189~6278315,0089,001~826~67978Cashwaspaidfor:Interest(netofcapitalized amounts)$82,509IncomeTaxes68,303$84,69115,285$84,58173,694Noncashacquisitions undercapitalleaseswere15,46747,90525,624ToreducetheimpactofadoptingSFAS106,management tookseveralmeasures.

First,aVoluntary Employees Beneficiary Association (VEBA)trustfundforOPEBbenefitswasestab-lished.A84.3millionadvancecontribution wasmadetothetrustfundin1990,themaximumamountdeductible forfederalincometaxpurposes.

In1993,a$700,000contribution wasmadetotheVESAtrustfundfromamountsrecovered fromratepayers.

Inaddition, tohelpfundandreducethefuturecostsofOPEBbenefits, aCOLIprogramwasimplemented, exceptwhererestricted bystateIaw.Theinsurance policieshaveasubstantial cashsurrender valuewhichisrecorded, netofequallysubstantial policyloans,asotherpropertyandinvestments.

Thepoliciesgenerated cashof8600,000in1993,$1,700,000 in1992and$700,000in1991inclusive ofrelatedtaxbenefitswhichwascontributed totheVEBAtrustfund.In1997thepremiumwillbefullypaidandthecashgenerated bythepoliciesshouldincreasesignifi-cantly.22 INDIANAMICHIGANPOWERCOhrPANYANDSUBSIDIARIES 8.FEDERALINCOMETAXES:Thedetailsoffederalincometaxesasreportedareasfollows:Charged(Credited) toOperating Expenses(net):CurrentDeferredDeferredInvestment TaxCreditsTotalCharged(Credited) toNonoperating Income(net):CurrentDeferredDeferredInvestment TaxCreditsTotalTotalFederalIncomeTaxesasReported1993$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)~45905Thefollowing isareconciliation ofthedifference betweentheamountoffederalincometaxescomputedbymultiplying bookincomebeforefederalincometaxesbythestatutory taxrate,andtheamountoffederalincometaxesreported.

NetIncomeFederalIncomeTaxesPre-taxBookIncomeFederalIncomeTaxonPre-taxBookIncomeatStatutory Rate(35Kin1993and34Kin1992and1991)Increase(Decrease) inFederalIncomeTaxResulting FromtheFollowing Items:RemovalCostsAdoptionofSFAS109Investment TaxCredits(net)Corporate OwnedLifeInsurance OtherTotalFederalIncomeTaxesasReportedEffective FederalIncomeTaxRate1993$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 Thefollowing aretheprincipal components offederalincometaxesasreported:

YearndedDecember31Current:FederalIncomeTaxesInvestment TaxCreditsTotalCurrentFederalIncomeTaxesDeferred:

Depreciation Unrecovered andLevelized FuelNuclearFuelDeferredReturn-RockportPlantUnit1DeferredNetGain-RockportPlantUnit2Levelized NuclearRefueling CostsAccruedInterestIncomeAdoptionofSFAS109OtherTotalDeferredFederalIncomeTaxesTotalDeferredInvestment TaxCreditsTotalFederalIncomeTaxesasReported1993$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)~45965TheCompanyanditssubsidiaries joininthefilingofaconsolidated federalincometaxreturnwiththeiraffiliates intheAEPSystem.Theallocation oftheAEPSystem'scurrentconsolidated federalincometaxtotheSystemcompanies isinaccor-dancewithSECrulesunderthe1935Act.Theserulespermittheallocation ofthebenefitofcurrenttaxlossesandinvestment taxcreditsutilizedtotheSystemcompanies givingrisetothemindetermin-ingtheircurrenttaxexpense.ThetaxlossoftheSystemparentcompany,AEPCo48Inc48isallocated toitssubsidiaries withtaxableincome.Withtheexception ofthelossoftheparentcompany,themethodofallocation approximates aseparatereturnresultforeachcompanyintheconsolidated group.DeferredTaxAsset(Liability)

(inthousands)

PropertyRelatedTemporary Differences AmountsOueFromCustomers ForFutureFederalIncomeTaxesDeferredNetGain-RockportPlantUnit2AllOther(net)TotalNetDeferredTaxLiability

$(494,966)

(100,432) 62,761~21203)~553920)Thenetdeferredtaxliability of$553.9millionatDecember31,1993iscomposedofdeferredtaxassetsof$233.4millionanddeferredtaxliabilities of$787.3million.Thesignificant temporary differences givingrisetothenetdeferredtaxliability are:TheAEPSystemsettledwiththeInternalReve-nueService(IRS)allissuesfromtheauditsoftheconsolidated federalincometaxreturnsfortheyearspriorto1988.Returnsfortheyears1988through1990arepresently beingauditedbytheIRS.Intheopinionofmanagement, thefinalsettlement ofopenyearswillnothaveamaterialeffectonresultsofoperations.

24 48INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES 9.LEASES:Leasesofproperty, plantandequipment areforperiodsupto35yearsandrequirepaymentsofrelatedpropertytaxes,maintenance andoperating costs.Themajorityoftheleaseshavepurchaseorrenewaloptionsandwillberenewedorreplacedbyotherleases.Operating LeasesAmortization ofCapitalLeasesInterestonCapitalLeasesTotalRentalPayments(inthousands)

$103,884$109,466$101,01346,06324,12454,528887374739907~750020~747063~765440Leaserentalsaregenerally chargedtooperating expenseinaccordance withrate-making treatment.

Thecomponents ofrentalsareasfollows:YearEndedDecember31Properties underoperating leasesandrelatedobligations arenotincludedintheConsolidated BalanceSheets.Hon-Cancelable CapitalOperating

~eases~eases(inthousands) 19941995199619971998LaterYears$9,3808,5747,6016,8896,25730303$98,66798,20397,88596,02991,118~2070TotalFutureHinimumLeasePayments77,084(al

~2493603LessEstimated InterestElnnent~2399Futureminimumleaserentalsconsisted ofthefollowing atDecember31,1993:Properties undercapitalleasesandrelatedobli-gationsrecordedontheConsolidated BalanceSheetsareasfollows:Oecember3119931992(inthousands)

Estimated PresentValueofFutureMinimumLeasePaymentsUnamortized NuclearFuelTotal53,09245661~90753ElectricUtilityPlant:Production Oistribut,ion General:NuclearFuel(netofamortization)

OtherTotalElectricUtilityPlantAccumulated Amortization HetElectricUtilityPlantOtherPropertyAccumulated Amortization HetOtherPropertyHetProperties underCapitalLeaseObligations underCapitalLeasesLessPortionOueMithinOneYearNoncurrent Liability

$8,03314,71745,66140410116,829273598947011,2691906~90398753$98,75320505~70160$11,40714,70284,20846494156,811306306812,3271819500126689$126,68932745~93944(a)Hinimumleaserentalsdonotincludenuclearfuelrentals.Therentalpaymentsarebasedontheheatproducedpluscarryingchargesontheunamortized nuclearfuelbalance.25 10.CUMULATIVE PREFERRED STOCK:AtDecember31,1993,authorized sharesofcumulative preferred stockwereasfollows:ParValue$10025SharesAuthorized 2,250,000 11,200,000 Thecumulative preferred stockiscallableatthepriceindicated plusaccrueddividends.

Theinvoluntary liquidation preference isparvalue.Unissuedsharesofthecumulative preferred stockmayormaynotpossessmandatory redemption characteristics uponissuance.

TheCompanyissued350,000sharesof6.30%Cumulative Preferred StockSubjecttoMandatory Redemption, parvalue$100,onFebruary8,1994andredeemed350,000sharesof7.76%Cumulative Preferred StockNotSubjecttoMandatory Redemption, parvalue$100,onFebruary14,1994.A.Cumulative Preferred StockNotSubjecttoMandatory Redemption:

SeriesCallPriceDecember31,1993ParValueNumberofSharesRedeemedYearEndedDecember31SharesOutstanding December311993AmountDecember311993~1991991(inthousands) 4-1/8X4.56K4.12K7.08K7.76K8.68K$2.15$2.25$106.125102102.728101.85102.28$100100100100100300,0001,600,000 1,600,000 120,00060,00040,000300,000350,000$12,0006,0004,00030,00035,000~87000$12,0006,0004,00030,00035,000,30,00040,00040000~197000B.Cumulative Preferred StockSubjecttoMandatory Redemption:

Series(a) 5.90X(b)6-1/4X(c) 6-7/8X(d)

ParValue$100100100SharesOutstanding December311993400,000300,000300,000AmountDecember3119931992(inthousands)

$40,00030,00030ODD100000ia)Notcallableuntilafter2002.Therearonoaggregate sinkingfundprovisions through2002.lb)SharesissuedNovember1993.Commencing in2004andcontinuing throughthoyear2008,asinkingfundfortho5.90%cumulative preferred stockwillrequiretheredemption of20,000shareseachyearandtheredemption oftheremaining sharesoutstanding onJanuary1,2009,ineachcaseatS100pershare.lc)SharosissuedNovember1993.Commencing in2004andcontinuing throughtheyear2008,asinkingfundforthe8-1/4%cumulative preferred stockwillrequiretheredemption of15,000shareseachyearandthoredemption oftheremaining sharesoutstanding onApril1,2009,ineachcaseatS100porshare.ld)SharesissuedFebruary1993.Commencing in2003andcontinuing throughtheyear2007,asinkingfundforthe6-7/8%cumulative preferred stockwillrequirethoredemption of15,000shareseachyearandtheredemption oftheremaining sharesoutstanding onApril1,2008,ineachcaseatSlooporshare.26 INDIANAMICHIGANPOWERCOMPANYANDSUBSIDIARIES 11.LONG-TERM DEBTANDLINESOFCREDIT:Long-term debtbymajorcategorywasout-standingasfollows:Decenber31Certainindentures relatingtothefirstmortgagebondscontainimprovement, maintenance andre-placement provisions requiring thedepositofcashorbondswiththetrustee,orinlieuthereof,certifi-cationofunfundedpropertyadditions.

FirstMortgageBondsInstallment PurchaseContracts OtherLong.termDebt(a)NotesPayabletoBanksSinkingFundDebentures 307,823147,81040,0006053308,333143,32140,00060531993~199(inthousands)

$571,468$713,916Installment purchasecontracts havebeenenteredintoinconnection withtheissuanceofpollution controlrevenuebondsbygovernmental authorities asfollows:December311993~99{inthousands) 1,073,154 1,211,623 LossPortionDueWithinOnoYear4290Total~)073154~))60721(a)NuclearFuelDisposalCostsincluding interestaccrued.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)014Firstmortgagebondsoutstanding wereasfol-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-May1unamortized Discount25,00052,00050,00050,00050,00040,00045,000~4177)$40,00012,00025,00050,00050,00050,00040,0007,00025,00013,000~3667)Total~307023~308333(a)Theadjustable interestratechangedonAugust1,1990andwillchangeeveryfiveyearsthereafter.

(b)Thevariableinterestrateisdetermined weekly.Theaverageweightedintorestwas3.0%in1993and3.7%for1992.Underthetermsofcertaininstallment purchasecontracts, theCompanyisrequiredtopayamountssufficient toenablethecitiestopayinterestonandtheprincipal (atstatedmaturities anduponmandatory redemption) ofrelatedpollution controlrevenuebondsissuedtofinancetheconstruction ofpollution controlfacilities atcertaingenerating plants.Oncertainseriestheprincipal ispayableatstatedmaturities oronthedemandofthebond-holdersatperiodicinterestadjustment dates.Accordingly, theinstallment purchasecontracts havebeenclassified forrepayment purposesbasedontheirnextinterestrateadjustment date.Certainseriesaresupported bybanklettersofcreditwhichexpirein1995.27 A$40millionunsecured promissory notepayabletoabankisdueNovember19,1995atanannualinterestrateof9.07%.AtDecember31,1993,annuallong-term debtpayments, excluding premiumordiscount, areasfollows:PrincialAmount(inthousands) 19941995199619971998LaterYearsTotal$140,00041,0538998101080863Thesinkingfunddebentures aredueMay1,1998ataninterestrateof7-1/4%.PriortoDecember31,1993,sufficient principal amountsofdebentures hadbeenreacquired inanticipation ofallfuturesinkingfundrequirements.

Additional debentures ofupto$300,000maybecalledannually.

December31,1993and1992fairvaluesforexternaltrustfundswere$321millionand$270millionandcarryingvalueswere$303millionand$262million,respectively.

Fairvaluesforlong-termdebtwere$1.1billionand$1.2billionatDecember31,1993and1992,respectively.

FairvalueatDecember31,1993forpreferred stockssubjecttomandatory redemption, whichwereissuedin1993,was$99million.Fairvaluesarebasedonquotedmarketpricesforthesameorsimilarissuesandthecurrentdividendorinterestratesofferedforinstruments ofthesameremaining maturities.

Externaltrustfundsareusedtoaccu-mulatefundscollected fromcustomers forfuturenuclearliabilities andarereportedonthebalancesheetasotherpropertyandinvestments.

Thecarryingamountofthepre-April 1983spentnucle-arfueldisposalliability approximates theCompany's bestestimateofitsfairvalue.13.UNAUDITED QUARTERLY FINANCIAL INFOR-IVIATION:

Short-term debtborrowings arelimitedbyprovi-sionsofthe1935Actto$200millionandfurtherlimitedbycharterprovisions to$127million.LinesofcreditaresharedwithAEPSystemcompanies andatDecember31,1993and1992wereavail-ableintheamountsof$537millionand$521million,respectively.

Commitment feesofapproximately 3/16of1%ayeararepaidtothebankstomaintainthelinesofcredit.12.FAIRVALUEOFFINANCIAL INSTRUMENTS:

quarterly PeriodsEnded1993Harch31June30September 30Oecember311992Harch31June30September 30Oecember31301,134280,421311,080304,12054,02235,03543,53524,84445,32324,38452,64039,685Operating Operating NetRevenuesIncomeIncome(inthousands)

$302,968$53,269$28,522278,10040,72221,397320,40952,89833,658301,16663,03145,736Thecarryingamountsofcashandcashequiva-lents,accountsreceivable, short-term debt,andaccountspayableapproximate fairvaluebecauseoftheshort-term maturityoftheseinstruments.

AtFourthquarter1992netincomeincludes$13millioncomprised ofinterestonprioryears'ederal incometaxrefundsandcostreductions duetofavorable benefitplansexperience.

28 INDIAAIAMICHIGANPOWERCOMPANYANDSUBSIDIARIES OPERATING STATISTICS 199319921991990~989OPERATIN6 REVENUES(inthousands):

Retail:Residential:

'WithoutElectricHeatin9WithElectricHeatingTotalResidential Co()n)ercial industrial Miscellaneous TotalRetailWholesale (salesforresale)TotalRevenuesfromEnergySalesProvision forRefundsofRevenuesCollected inPriorYearsTotalNetofProvision forRefundsOtherTotalOperating Revenues$205,31597560302,883220,938250,9395593780,353404910$209,68290553308,235228,285267,64311012815,175369379$206,25793209299,546216,303241,85812120769,827436003$192,82200710281,540205,025244,773ll799743,1375100001,185,263 1,184,554 1,205,910 1,261,217 1,184,508 101351,180,516 162391,211,086 147011,256,041 1547312026431196755~l2258671271514~755)~4038)5176~5176)$195,50495987291,491205,918251,27912021760,7093619621,122,671 1,122,671

~)135507SOURCESANOSALESOFENER6Y(inmillionsofkilowatt-hours):

Sources:NetGenerated:

FossilFuelNuclearFuelHydroelectric TotalNetGenerated Purchased andPowerPoolTotalSourcesLess:Losses,CompanyUse,Etc.NetSourcesSales:Retail:Residential:

WithoutElectricHeatingWithElectricHeatingTotalResidential Comercial Industrial Miscellaneous TotalRetailWholesale (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 OPERATING STATISTICS (Concluded)

AVERAGECOSTOFFUELCONSUMED(incents):PerMillionBtu:CoalNuclearOverallPerKilowatt-hour Generated:

CoalNuclearOverall199313036721.27.40.77992136541031.34.611.08~9914148841.39.53.911990145581051.42.641.08164611061.62.671.11RESIDENTIAL SERVICE-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:

WithoutElectricHeatingWithElectricHeatingTotalResidential Co2nnercial Industrial Miscellaneous TotalRetailWholesale (salesforresale)TotalCustomers 369,38595795465,18053,0815,1571783525,20156~525257366,83594175461,01052,5425,0001751520,30353~520356364,15492657456,81151,4914,8472226515.37553~575428362,64591179453,82450,9944,8012160511,77955511834360,04089881449.92150,0434,7922168506,924~550697530 DIVIDENDS ANDPRICERANGESOFCUMULATIVE PREFERRED STOCKByQuarters(1993and1992)CUMULATIVE PREFERREO STOCK1st1993-uarters2nd3rd4th1st1992-uartershand3rd4th($100ParValue)4-1/BXSeriesOividends PaidPerShareHarketPrice-$PerShare(MSE)-High-Low$1.03125$1.03125$1.03125$1.03125$1.03125$1.03125$1.03125$1.031254.56KSeriesOividends PaidPerShareMarketPrice-$PerShare(OTC)Ask(high/low)

Bid(high/low) 4.12KSeriesOividends PaidPerShareMarketPrice-$PerShare(OTC)Ask-High-LowBid-High-Low5.90KSeries(a)Dividends PaidPerShareMarketPrice-$PerShare(OTC)Ask(high/low)

Bid(high/low) 6-1/4X,Series(a)Oividends PaidPerShareHarketPrice-$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$1.146-7/BXSeries(b)Oividends PaidPerShareMarketPrice-$PerShare(OTC)Ask(high/low)

Bid(high/low)

$.84$1.71875$1.71785$1.718757.08KSeriesOividends PaidPerShareMarketPrice-$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$1.7792897.76KSeries(c)Oividends PaidPerShareMarketPrice-$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 DIVIDENDS ANDPRICERANGESOFCUMULATIVE PREFERRED'TOCK ByQuarters(1993and1992)(Concluded)

CUHUATIVPRFERR0STOCK1st1993-uarters3rd4th2nd1992-uartersgnd~rd4th($100ParValue)8.6NSeries(d)Dividends PaidPerShareMarketPrice-$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)$2.15Series(e)Dividends PaidPerShareMarketPrice-$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$2.25Series(f)Dividends PaidPerShareMarketPrice-$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-Counter NYSE-NewYorkStockExchangeNote-Theabovebidandaskedquotations represent pricesbetweendealersHarketquotations providedbyNationalOuotation Bureau,Inc.Dashindicated quotation notavailable.

(a)IssuedNovember1993(b)IssuedFebruary1993(c)Calledforredemption andrefinanced inFebruary1994(d)RedeemedDecember1993(e)RedeemedNovember1993(f)RedeemedMarch1993anddonotrepresent actualtransactions.

32

.0NDIANAMICHIGANPOWERCOMPANYSECURITYOWNERINQUIRIES Securityownersshoulddirecttheirinquiries totheSecurityOwnerRelations Divisionusingthetollfreenumber:1-800-AEP-COMP (1-800-237-2667) orbywritingto:BetteJoRozsaSecurityOwnerRelations DivisionAmericanElectricPowerServiceCorporation 28thFloor1Riverside PlazaColumbus, OH43215FORM10-KANNUALREPORTTheAnnualReport(Form10-K)totheSecurities andExchangeCommission willbeavailable inApril1994atnocosttoshareowners.

Pleaseaddresssuchrequeststo:GeoffreyC.DeanAmericanElectricPowerServiceCorporation 27thFloor1Riverside PlazaColumbus, OH43215TRANSFERAGENTANDREGISTRAR OFCUMULATIVE PREFERRED STOCKFirstChicagoTrustCompanyofNewYorkP.O.Box2534Suite4692JerseyCity,NJ07303-2534 33 IndianaMichiganPowerServiceAreaandtheAmericanElectricPowerSystemLAKEMICHIGANMICHIGANLAKEERIEOHIOINDIANAWESTVIRGINIAKENTUCKYVIRGINIAIndianaMichiganPowerCo.areaOtherAEPoperating companies'reas MajorpowerplantTENNESSEE IB+priniedonrecycledpaper ENCLOSURE 2TOAEP:NRC:0909J INDIANAMICHIGANPOWERCOMPANY'S PROJECTED CASHFLOW IndianaMichiganPowerCo.1994Forecasted SourcesandUsesofFundsBasedonForecasted Case9450$MillionsProjected 1994NetIncomeAfterTaxesLessDividends Paid138.4118.3RetainedEarningsAdjustments:

Depreciation AndAmortization DeferredOperating CostsDeferredFederalIncomeTaxesandInvestment TaxCreditsAFUDCOther20.1162.0(23.1)(28.4)(2.3)(7.7)TotalAdjustments 100.5InternalCashFlow120.6AverageQuarterly CashFlow30.2AverageCashBalancesandShort-TermInvestments 1.9Total32.1