ITEM 1. BUSINESS
Organization
In October 1994, PSI Energy, Inc. (Energy), previously PSI Resources, Inc.'s (Resources) utility subsidiary, became a subsidiary of CINergy Corp. (CINergy) as a result of the merger of The Cincinnati Gas & Electric Company (CG&E) and Resources. CINergy is a registered holding company under the Public Utility Holding Company Act of 1935 (PUHCA).
The Company
Energy, an Indiana corporation, is engaged in the production, transmission, distribution, and sale of electric energy in north central, central, and southern Indiana. It serves an estimated population of 1.9 million people located in 69 of the state's 92 counties including the cities of Bloomington, Columbus, Kokomo, Lafayette, New Albany, and Terre Haute.
PSI Energy Argentina, Inc. (PSI Energy Argentina), a wholly-owned subsidiary of Energy and an Indiana corporation, was formed to invest in foreign utility companies. PSI Energy Argentina is a member of a multinational consortium which has controlling ownership of Edesur, S.A. (Edesur). Edesur is an electricity-distribution network serving the southern half of Buenos Aires, Argentina. Edesur provides distribution services to 1.8 million customers. PSI Energy Argentina owns a small equity interest in this project and provides operating and consulting services.
South Construction Company, Inc. (South), another wholly-owned subsidiary of Energy and an Indiana corporation, has been used solely to hold legal title to real estate and interests in real estate which are either not used and useful in the conduct of Energy's business (such as undeveloped real estate of Energy abutting an Energy office building) or which has some defect in title which is unacceptable to Energy. Most of the real estate to which South acquires title relates to Energy's utility business.
Customer, Sales, and Revenue Data
Approximately 98% of Energy's operating revenues are derived from the sale of electricity. The area served by Energy is a residential, agricultural, and widely diversified industrial territory. As of December 31, 1994, Energy supplied electric service to over 636,000 customers. Energy's service territory includes approximately 710 cities, towns, unincorporated communities, and adjacent rural areas, including municipal utilities and rural electric cooperatives. No one customer accounts for more than 5% of electric operating revenues. Sales of electricity are affected by seasonal weather patterns, and, therefore, operating revenues and associated operating expenses are not distributed evenly during the year.
Regulation
As direct and indirect subsidiaries of CINergy, Energy and South, respectively, are subject to regulation by the Securities and Exchange Commission (SEC) under the PUHCA with respect to, among other things, issuances and sales of securities, acquisitions and sales of certain utility properties, acquisitions and retentions of interests in non-utility businesses, intrasystem sales of certain goods and services, the method of keeping accounts, and access to books and records.
Energy is subject to regulation by the Federal Energy Regulatory Commission (FERC) under the Federal Power Act with respect to the classification of accounts, rates for wholesale sales of electricity, interconnection agreements, and acquisitions and sales of certain utility properties.
Energy, as a public utility under the laws of Indiana, is also regulated by the Indiana Utility Regulatory Commission (IURC) as to its retail rates, services, accounts, depreciation, issuance of securities, acquisitions and sales of certain utility properties, and in other respects as provided by Indiana law. Prior to the construction, purchase, or lease of a facility used for the generation of electricity, a public utility in Indiana must obtain from the IURC a certificate of public convenience and necessity.
Rate Matters
Refer to the information appearing under the caption "Regulatory Matters" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations".
Power Supply
Energy and 28 other electric utilities in an eight-state area are participating in the East Central Area Reliability Coordination Agreement for the purpose of coordinating the planning and operation of generating and transmission facilities to provide for maximum reliability of regional bulk power supply.
Energy's electric system, which is operated by CINergy Services, Inc., the service company which provides a variety of administrative, management, and support services to the CINergy system, is interconnected with the electric systems of CG&E, Central Illinois Public Service Company, East Kentucky Power Cooperative, Inc., Hoosier Energy R.E.C., Inc., Indiana Michigan Power Company, Indianapolis Power and Light Company, Kentucky Utilities Company, Louisville Gas and Electric Company, Northern Indiana Public Service Company, and Southern Indiana Gas and Electric Company.
In addition, Energy has a power supply relationship with Wabash Valley Power Association, Inc. (WVPA) and Indiana Municipal Power Agency (IMPA) through power coordination agreements. WVPA and IMPA are also parties with Energy to a joint transmission and local facilities agreement.
Fuel Supply
A major portion of the coal required by Energy is obtained through both long- and short-term coal supply agreements, with the remaining requirements purchased on the spot market. The prices to be paid under most of these contracts are subject to adjustment to reflect suppliers' costs and certain other factors. In addition, some of these agreements include extension options and termination provisions pertaining to coal quality. The coal delivered under these contracts is primarily from mines located in Illinois and Indiana.
Energy monitors alternative sources to assure a continuing availability of economical fuel supplies. Energy intends to continue purchasing a portion of its coal requirements on the spot market and, at the present time, is investigating the use of low-sulfur coal in connection with its plans to comply with the Clean Air Act Amendments of 1990 (see the information appearing under the caption "Environmental Issues" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations").
Energy believes it will be able to obtain sufficient coal to meet future generating requirements. However, Energy is unable to predict the extent to which coal availability and price may ultimately be affected by future environmental requirements. Presently, Energy expects the cost of coal to rise in the long run as the supply of more accessible and higher-grade coal diminishes and as mining, transportation, and other related costs continue an upward trend.
Competition
Refer to the information appearing under the caption "Competitive Pressures" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations".
Capital Requirements
Refer to the information appearing under the caption "Capital Requirements" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations".
Environmental Matters
Energy's 1995 construction expenditures for environmental compliance are forecasted to be $10 million. In addition, refer to the information appearing in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations".
Employees
The number of employees of Energy at December 31, 1994, was 4,025, of whom 1,747 were represented by the International Brotherhood of Electrical Workers (IBEW) union.
Energy's collective bargaining agreement with the IBEW will expire at the end of April 1996.
ITEM 2.

ITEM 2. PROPERTIES
Substantially all utility plant is subject to the lien of Energy's first mortgage bond indenture.
In addition to the information further discussed herein, refer to the information appearing under the caption "New Generation" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 14 of the "Notes to Consolidated Financial Statements" in "Item 8. Financial Statements and Supplementary Data".
Energy operates six steam electric generating stations, one hydroelectric generating station, and 16 rapid-start internal combustion generating units, all within the state of Indiana. Energy owns all of the above, except for 49.95% of Gibson Generating Station Unit 5 which is jointly owned by WVPA (25%) and IMPA (24.95%). Energy-owned system generating capability as of December 31, 1994, was 5,800 megawatts (mw).
Energy's 1994 summer peak load, which occurred on June 20, was 4,869 mw, and its 1994 winter peak load, which occurred on January 18, was 4,644 mw, exclusive of off-system transactions. For the period 1995 through 2004, summer and winter peak load and kilowatt-hour (kwh) sales are each forecasted to have annual growth rates of 2%. These forecasts reflect Energy's assessment of demand-side management programs, load growth, alternative fuel choices, population growth, and housing starts. These forecasts exclude non- firm power transactions and any potential off-system, long-term firm power sales.
As of December 31, 1994, Energy's transmission system consisted of 719 circuit miles of 345,000 volt line, 656 circuit miles of 230,000 volt line, 1,594 circuit miles of 138,000 volt line, and 2,426 circuit miles of 69,000 volt line, all within the state of Indiana. In addition, as of December 31, 1994, Energy's distribution system consisted of 19,012 circuit miles, all within the state of Indiana. As of the same date, Energy's transmission substations had a combined capacity of 21,450,755 kilovolt-amperes, and the distribution substations had a combined capacity of 6,051,420 kilovolt-amperes.
For the year ended December 31, 1994, 99% and 1% of Energy's kwh production were obtained from coal-fired generation and hydroelectric generation, respectively.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
Merger Litigation
The original merger agreement between CG&E and Resources was amended in response to a June 1993 ruling by the IURC, which dismissed a petition by Energy for approval of the transfer of its license or property to CINergy Corp., an Ohio corporation. The IURC held that such transfer could not be made to a corporation incorporated outside of Indiana. The original structure provided that Resources, Energy, and CG&E would be merged into CINergy Corp. Under this structure, Energy and CG&E would have become operating divisions of CINergy Corp., ceasing to exist as separate corporations, and CINergy Corp. would not have been required to register as a public utility holding company under the PUHCA. Energy appealed the IURC's decision, and in October 1994, the Indiana Court of Appeals reversed the IURC's decision. This decision by the Indiana Court of Appeals did not alter the consummation of the merger establishing CINergy as a registered holding company.
Shareholder Litigation
In March 1993, in conjunction with a proposed tender offer for Resources, IPALCO Enterprises, Inc. filed suit in the United States District Court for the Southern District of Indiana, Indianapolis Division (District Court), against Resources, CINergy, James E. Rogers, Energy, and CG&E (IPALCO Action). The IPALCO Action was subsequently dismissed in November 1993. In March 1993 and in the weeks following, six suits with claims similar to the IPALCO Action were filed by purported shareholders of Resources (Shareholder Litigation). Four of the suits were filed in the District Court, and two were filed in state courts, although one of those two was subsequently consolidated with the four in the District Court.
In January 1994, the parties to the Shareholder Litigation executed a Stipulation and Agreement of Dismissal (Stipulation) settling and dismissing with prejudice all of the parties' claims except for plaintiffs' petitions for fees and expenses and defendants' right to object thereto. An agreement in principle has been reached in the Shareholder Litigation which contemplates that counsel for all plaintiffs will receive from Energy a portion of the fees and expenses claimed. The parties have agreed to provide notice to affected shareholders of a hearing during which the order on the fees and expenses will be considered by the District Court. Pending such order, the agreed upon fees and expenses will be deposited into an interest-bearing escrow account.
Fuel Litigation
(a) Amax Coal Company Energy has initiated several arbitration proceedings to resolve disputes, including disputes related to price and coal quality, which have arisen under long-term coal supply agreements between Amax Coal Company (Amax) and Energy. In October 1994, Energy and Amax entered into an interim agreement, effective through 1996, which provides, in part, that the price pursuant to the 3.6 million ton per year Wabash Mine long-term contract will remain fixed through 1995. During 1996, the price may be reduced as a result of arbitration, but it may not be increased. In addition, the parties agreed to waive all rights to recover damages or other amounts based upon the parties' claims against each other for past periods. Accordingly, the interim agreement eliminated any liability on the part of Energy to Amax's claims through 1995. The interim agreement also provides that the parties will arbitrate any remaining disputes during 1995. Such arbitration decisions will serve to establish various rights and obligations of the parties, and the price beginning in 1996.
(b) Exxon Corporation Energy was involved in litigation with Exxon Coal USA, Inc. and Exxon Corporation (Exxon) regarding the price for coal delivered under a coal supply contract. In June 1994, the United States Supreme Court denied Energy's request for review of a ruling by the United States Court of Appeals for the Seventh Circuit, which established the contract price at $30 per ton and reversed the trial court's decision holding that the price should be $23.266 per ton. The IURC has authorized Energy to recover the additional cost through the fuel adjustment clause process. In addition, in August 1994, Energy announced that it had resolved the two remaining lawsuits with Exxon related to coal quality, price and price components, and Exxon's claims against Energy for Energy's failure to take coal after Energy terminated its contract pursuant to a December 1992 court decision. This August 1994 settlement concluded all outstanding litigation between Energy and Exxon with no significant effect on Energy's financial condition.
In addition to the above litigation, see Notes 2 and 13(b) and 13(c) of the "Notes to Consolidated Financial Statements" in "Item 8. Financial Statements and Supplementary Data".
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT (at February 28, 1995)
Age at Dec. 31, Name 1994 Office & Date Elected or in Job
Jackson H. Randolph 64 Chairman and Chief Executive Officer of CINergy, CG&E, and Energy - 1994 Chairman, President and Chief Executive Officer of CG&E - 1993 President and Chief Executive Officer of CG&E - 1986
James E. Rogers 47 Vice Chairman, President, and Chief Operating Officer of CINergy - 1994 Vice Chairman and Chief Operating Officer of CG&E and Energy - 1994 Chairman and Chief Executive Officer of Resources - 1993 Chairman, President and Chief Executive Officer of Energy - 1990 Chairman, President and Chief Executive Officer of Resources - 1988 Chairman and Chief Executive Officer of Energy - 1988
Cheryl M. Foley 47 Vice President, General Counsel and Corporate Secretary of CG&E - 1995 Vice President, General Counsel and Corporate Secretary of CINergy - 1994 Vice President, General Counsel and Secretary of Resources and Energy - 1991 Vice President and General Counsel of Resources - 1990 Vice President and General Counsel of Energy - 1989
J. Wayne Leonard 44 Group Vice President and Chief Financial Officer of CG&E - 1995 Group Vice President and Chief Financial Officer of CINergy - 1994 Senior Vice President and Chief Financial Officer of Resources and Energy - 1992 Vice President and Chief Financial Officer of Resources and Energy - 1989
EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
Age at Dec. 31, Name 1994 Office & Date Elected or in Job
John M. Mutz 1/ 59 Vice President of CINergy - 1995 2/ President of Energy - 1994 President of Resources - 1993 President - Lilly Endowment, Inc. 3/ - 1989
William L. Sheafer 51 Treasurer of CINergy and Energy - 1994 Treasurer of CG&E - 1987
Larry E. Thomas 49 Group Vice President, Reengineering and Operations Services of CG&E - 1995 Group Vice President, Reengineering and Operations Services of CINergy - 1994 Senior Vice President and Chief Operations Officer of Energy - 1992 Senior Vice President and Chief Operating Officer, Customer Operations of Energy - Senior Vice President, Customer Operations of Energy - 1986
Charles J. Winger 49 Comptroller of CG&E - 1995 Comptroller of CINergy - 1994 Comptroller of Resources - 1988 Comptroller of Energy - 1984
Under the Amended and Restated Agreement and Plan of Reorganization (the Merger Agreement) by and among CG&E, Resources, Energy, and CINergy, a Delaware corporation, dated as of December 11, 1992, as amended on July 2, 1993, and as of September 10, 1993, Jackson H. Randolph will be entitled to serve as Chairman and Chief Executive Officer (CEO) of CINergy until November 30, 1995, and Chairman of CINergy until November 30, 2000. James E. Rogers will be entitled to serve as Vice Chairman, President and Chief Operating Officer of CINergy until November 30, 1995, at which time he will be entitled to serve as Vice Chairman, President and CEO.
None of the officers are related in any manner. Executive officers of Energy are elected to the offices set opposite their respective names until the next annual meeting of the Board of Directors and until their successors shall have been duly elected and shall have been qualified.
1/ Prior to becoming President of Resources, Mr. Mutz was president of Lilly Endowment, Inc., a private philanthropic foundation located in Indianapolis, Indiana, and also served two terms as lieutenant governor of Indiana.
2/ Mr. Mutz was elected Vice President of CINergy effective March 3, 1995.
3/ Non-affiliate of CINergy.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All Energy common stock is held by CINergy; therefore, there is no public trading market for Energy common stock.
The following table shows Energy's common stock dividends declared for the past two years (all dividends were paid to Resources, previously Energy's parent company):
Dividends (in thousands) Quarter 1994 1993 4th $10 376 $17 898 3rd 16 174 13 868 2nd 16 622 15 375 1st 15 970 15 050
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
See "Item 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MERGER CONSUMMATION
CINergy Corp. (CINergy) was created for the October 1994 merger of PSI Resources, Inc. (Resources) and The Cincinnati Gas & Electric Company (CG&E) and is a registered holding company under the Public Utility Holding Company Act of 1935 (PUHCA). The business combination was accounted for as a pooling of interests. Each outstanding share of common stock of Resources and CG&E was exchanged for 1.023 shares and one share, respectively, of CINergy common stock. Following the merger, CINergy became the parent holding company of CG&E and PSI Energy, Inc. (Energy or Company), previously Resources' utility subsidiary. The outstanding preferred stock and debt securities of Energy were not affected by the merger. Following the merger, CG&E and Energy (the Operating Companies) began jointly dispatching their generating units.
FINANCIAL CONDITION
Competitive Pressures
Electric Utility Industry
Introduction The primary factor influencing the future profitability of CINergy and its utility subsidiaries is the changing competitive environment for energy services and the related commoditization of electric power markets. Changes in the industry include more competition in wholesale power markets and the imminent likelihood of "customer choice" by large industrial customers and, ultimately, by all retail customers. For an electric utility to be successful in this competitive environment, it is critical that regulatory reform keep pace with the competitive realities facing electric utilities and their customers. Strict adherence to traditional, cost-based rate of return regulation will significantly disadvantage a utility's ability to successfully compete to supply customer needs. For example, performance-based regulation (e.g., price caps) would likely add substantial flexibility for the franchise utility in the transition to a fully competitive environment.
Although the Operating Companies provide service in separate retail regulatory jurisdictions, as a result of the merger, strategies and opportunities for success in a more competitive environment are most appropriately discussed for CINergy as a whole. Consequently, the discussion that follows addresses issues for CINergy as a whole while recognizing that regulatory response to competitive pressures may vary between regulatory jurisdictions.
Pressures for "Customer Choice" The granting of choice to end-user customers, commonly referred to as retail wheeling, would allow a customer within a particular utility's service territory to buy power directly from another source using the power lines of the local utility for delivery. The regulatory and legislative reform to facilitate this result is primarily driven by large industrial energy users' needs for low-cost power to remain competitive in the global marketplace. These industrial customers are intensifying their efforts to change the regulatory process that currently denies them access to lower-cost power. The current restrictions on access to low-cost power are exacerbated by cost-of-service regulation which has produced average industrial rates to customers that vary substantially across the United States (from approximately 3 cents per kilowatt-hour [kwh] to 10 cents per kwh).
Federal Law, the New Competitors, and the Commoditization of Electric Power Markets The Energy Policy Act of 1992 (Energy Act), the most comprehensive energy legislation enacted since the late 1970s, has essentially provided for open competition at the wholesale level. The Energy Act created a new class of wholesale power providers, exempt wholesale generators (EWGs), that are not subject to the restrictive requirements of the PUHCA nor the ownership restrictions of the Public Utility Regulatory Policies Act of 1978. However, due to excess capacity in the industry, EWGs have not yet significantly affected competition in the wholesale power market. To date, the primary impetus for increased wholesale competition has been the provision of the Energy Act that granted the Federal Energy Regulatory Commission (FERC) the authority to order wholesale transmission access. This provision, combined with the excess capacity in the bulk-power markets, has resulted in the emergence of power marketers and brokers.
Brokers are intermediaries between buyers and sellers (i.e., they do not take title to the power). Power marketers are entities licensed by the FERC to conduct bulk power trades at market-based prices. They manage portfolios of power contracts (which they have title to) and owned generation and package energy products for customers of bulk power, including price risk management contracts such as options on fixed price energy or guaranteed fixed price contracts.
As regulatory issues such as transmission pricing are resolved, power marketers and brokers will become more significant factors in wholesale power markets and, ultimately, the retail markets. With respect to transmission pricing, the FERC recently issued a policy statement indicating its intent to allow flexibility in pricing, permitting parties to submit either traditional, cost-based plans or pricing schemes based on non-traditional designs. The transmission pricing policy enumerates five principles that the FERC will consider in approving future proposals, including cost-based rates, adherence to the FERC's comparability standard, economic efficiency, fairness, and practicality.
States' Role in Customer Choice (Retail Wheeling) As discussed above, the Energy Act allows real competition in the wholesale power market; however, it prohibits the FERC from ordering utilities to provide transmission access to retail customers (retail wheeling) and is silent with respect to the states' role and authority in this issue.
Several states are currently reviewing retail wheeling proposals. In particular, the California Public Utilities Commission proposed a plan in 1994 that would allow all customers to choose their electric supplier by the year 2002. However, it is currently anticipated that implementation of this proposal could be substantially delayed due to the complex issues involved (e.g., exclusive use of a power pool run by an impartial third party vs. bilateral contract arrangements). In addition to California, Michigan regulators have proposed a limited retail wheeling experiment, and Wisconsin regulators are reviewing numerous proposals for restructuring that state's electric supply and related services. Connecticut regulators, on the other hand, recently decided to delay consideration of retail wheeling until new capacity is needed in the state (approximately the year 2007).
A significant issue for states and utilities to resolve with respect to retail wheeling is the regulatory treatment of any stranded investments, or costs without a customer. California's proposal and a recent proposal by the FERC contain mechanisms for recovery by the franchise utility of certain sunk costs or investments "stranded" by the loss of the monopoly franchise; however, there are numerous arguments being advanced against the collection of stranded costs. For example, there are concerns that an efficient competitive market cannot exist if regulators allow recovery in the future of all uncollected past costs. Given that the most severe electric competition is expected to be in the commodity sector, stranded costs are usually considered uneconomical generating property. In addition, stranded costs could include assets created by the actions of regulators (i.e., regulatory assets) under the provisions of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (Statement 71), or operating costs such as fuel supply contracts. The substantial accounting implications from the loss of franchise territory and related regulatory protections are discussed further herein.
CINergy's Response to the Changing Competitive Environment CINergy and its utility subsidiaries support increased competition in the electric utility industry. In fact, the foresight that competition was about to substantially increase and that retail wheeling was inevitable was a catalyst for the merger (which was announced in 1992). CINergy possesses certain competitive advantages (e.g., low-cost generation) that could be substantially eroded by restrictive regulations that lag the development of a competitive market and limit CINergy's ability to preempt the competition in responding to customer needs. As such, CINergy has chosen to initiate the retail wheeling debate and be a leader in establishing the "ground rules" in its franchise area.
Energy recently announced its plans to offer its larger industrial customers some form of retail wheeling in Indiana. Energy plans to submit a proposal that would permit certain customers to choose their electric supplier. In return, Energy would require some form of reciprocal arrangement (i.e., the opportunity to similarly compete for customers of the selected supplier). Under this proposal, Energy would be free to negotiate specific contracts with customers who choose to give up the protection of the franchise obligation to serve. Energy intends for these contractual relationships to satisfy customer needs, while at the same time provide an appropriate risk-return relationship for investors. In addition to the above proposal, Energy, along with other Indiana utilities, proposed legislation in 1995 that would allow the Indiana Utility Regulatory Commission (IURC) to adopt alternative regulatory schemes such as performance-based regulation and the use of more flexible pricing mechanisms. Energy is also participating in a series of informal conferences sponsored by the IURC to discuss the consequences of competition and appropriate responses thereto.
With respect to Ohio, a retail wheeling bill was introduced in early 1994 that would have given customers the ability to purchase power from their provider of choice and would have required utilities to provide access to their transmission lines for delivery of the electric service. No action was taken on the bill in 1994; however, similar legislation may be introduced in 1995. CG&E is also participating in roundtable discussions being held by the Public Utilities Commission of Ohio (PUCO) to more fully consider the emerging competitive environment.
CINergy will continue to aggressively pursue any legislative or regulatory reforms necessary to provide the opportunity for its success in a competitive environment.
CINergy's Competitive Position As stand-alone companies, CG&E and Energy were well positioned to succeed in a more competitive environment -- as a combined organization, CINergy believes it is even better positioned to compete in such an environment. The merger (1) combines two low-cost providers, resulting in savings in nominal dollars of approximately $1.5 billion over the first 10 years; (2) enhances the companies' transmission capabilities; (3) diversifies the customer base; and (4) creates a financially stronger company -- all of which improve an already competitively strong position. CINergy's strategy will be to aggressively build on its cost advantage by continually focusing on flexible strategies that are directed toward reducing the cost structure and shifting the cost mix from fixed to variable. CG&E and Energy have industrial rates that are below the national average (based on 1993 data) and own generating plants that are consistently ranked among the most efficient in the country.
CINergy believes its low-cost position and strategic initiatives will allow it to maintain, and perhaps expand, its wholesale market share and its current base of industrial customers. Recent successes in these markets include Energy's 10-year agreement to serve the power needs of Blue Ridge Power Agency, a group of municipal utilities organized in Virginia, and CG&E's 14- year agreement to provide power to a municipal utility serving a portion of Cleveland, Ohio. Also, CG&E's and Energy's low industrial rates have produced regional leadership over the last five years (1989 through 1993) with respect to growth in industrial kwh sales.
In addition, CINergy intends to aggressively pursue the substantial opportunities that exist in the electricity markets for power marketing and brokering. These opportunities are being created by the increasing commoditization of electricity. CINergy believes that the ability to identify and manage various business risks and innovative packaging of power supply services and products based upon superior acquisition and analysis of information will be key factors that will ensure successful participation in these markets. CINergy's strategy for success in this business is to leverage its understanding of customer needs and the intricacies of operating in power markets with new skills and expertise of operating in commodity markets that are being developed and selectively acquired from outside the industry.
Outsiders' View of CINergy's Competitive Position Major credit rating agencies have issued reports recognizing the increased risk in the electric utility industry due to competition. Specifically, in conjunction with fundamentally changing the way it evaluates the credit quality of electric utilities, Standard & Poor's has categorized each electric utility's business position in one of seven categories ranging from "Above Average" to "Below Average". As a result, Standard & Poor's placed Energy in the second highest category, "Somewhat Above Average", and CG&E in the third highest category, "High Average". In addition, Moody's recently issued a credit report stating its belief that Energy is well positioned to compete in a more competitive environment. At the same time, certain sell-side equity analysts have placed CINergy near the top of their lists of those best equipped to handle increasing competitive pressures. CINergy believes these actions support its position that its competitive strategy will be successful.
With respect to accessing financial markets for capital needs, U.S. utilities must compete for capital in world markets where some forecasts indicate that as much as $250 billion will be needed by the year 2000 for state-owned electricity privatization. These forecasts enforce CINergy's belief that regulatory reform establishing a market structure for utilities similar to that already existing in other countries is critical in order to successfully compete for not only customers, but also capital.
Despite the numerous published reports discussing the increased business risk that investors face from deregulation of the electric utility industry, the 1994 decline in electric utility stocks, taken as a whole, can be substantially attributed to historical relationships of common stock prices to changes in interest rates. Therefore, electric utility stocks could see additional pressures to reflect the increased fundamental business risk as markets become more workably competitive, particularly, without regulatory recognition through higher allowed returns and increased flexibility (e.g., price caps) in order to compete. On the other hand, there is an increasingly large disparity between the fundamental valuation measures (e.g., yield, market-to-book ratio) of low-cost producers, like CINergy, and high-cost producers. For example, it should be noted that the merger of Resources and CG&E combined two utilities whose common stocks have outperformed the industry average for the five-year period 1990 through 1994.
Substantial Accounting Implications
A potential outcome of the changing competitive environment could be the inability of regulated utilities to continue application of Statement 71, the linchpin of regulated industry accounting, which allows the deferral of costs (i.e., regulatory assets) to future periods based on assurances of a regulator as to the recoverability of the costs in rates charged to customers. In connection with assessing the financial exposure related to stranded costs, regulatory assets would have to be evaluated to determine the portion for which deferral could be continued based on the existence of the necessary regulatory assurances.
Although CINergy's current regulatory orders and regulatory environment fully support the recognition of its regulatory assets, the ultimate outcome of the changing competitive environment could result in CINergy discontinuing application of Statement 71 for all or part of its business. Such an event would require the write-off of the portion of any regulatory asset for which no regulatory assurance of recovery continues to exist. No evidence currently exists that would support a write-off of any portion of CINergy's regulatory assets. CINergy intends to pursue competitive strategies that would mitigate the impact of this issue on the financial condition of CINergy or its utility subsidiaries (see Note 1(c) of the "Notes to Consolidated Financial Statements" in "Item 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of PSI Energy, Inc.:
We have audited the consolidated balance sheets and schedules of cumulative preferred stock and long-term debt of PSI Energy, Inc. (an Indiana Corporation and a wholly owned subsidiary of CINergy Corp.) and subsidiary as of December 31, 1994 and 1993, and the related consolidated statements of income, changes in common stock equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PSI Energy, Inc. and subsidiary as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
As explained in Notes 8 and 12 to the consolidated financial statements, PSI Energy, Inc. changed its methods of accounting for postretirement health care benefits and income taxes effective January 1, 1993.
As more fully discussed in Note 13 to the consolidated financial statements, Wabash Valley Power Association, Inc. (WVPA) filed suit in 1984 against PSI Energy, Inc. for $478 million plus interest and other damages to recover its share of Marble Hill Nuclear Project costs. PSI Energy, Inc. and its officers reached a settlement with WVPA in 1989 that is subject to approval of judicial and regulatory authorities and has recorded an estimated loss related to the litigation. The eventual outcome of this litigation cannot presently be determined.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules listed in Item 14 are presented for purposes of complying with the Securities and Exchange Commission's Rules and Regulations under the Securities Exchange Act of 1934 and are not a required part of the basic financial statements. The supplemental schedules have been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP Indianapolis, Indiana, January 23, 1995.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
(a) Merger On October 24, 1994, PSI Resources, Inc. (Resources), previously PSI Energy, Inc.'s (Energy or Company) parent holding company, was merged with and into CINergy Corp. (CINergy), and a subsidiary of CINergy was merged with and into The Cincinnati Gas & Electric Company (CG&E). Each outstanding share of common stock of Resources and CG&E was exchanged for 1.023 shares and one share, respectively, of CINergy common stock, resulting in the issuance of approximately 148 million shares of CINergy common stock, par value $.01 per share. The outstanding preferred stock and debt securities of Energy were not affected by the merger. Following the merger, CINergy became the parent holding company of Energy and CG&E. The merger was accounted for as a pooling of interests. Due to immateriality, no adjustments were made to conform the accounting policies of the two companies.
(b) Consolidation Policy The accompanying Consolidated Financial Statements include the accounts of Energy and its subsidiary, PSI Energy Argentina, Inc., after elimination of significant intercompany transactions and balances.
(c) Regulation Energy is subject to regulation by the Securities and Exchange Commission (SEC) under the Public Utility Holding Company Act of 1935 (PUHCA). Energy is also subject to regulation by the Federal Energy Regulatory Commission (FERC) and the Indiana Utility Regulatory Commission (IURC). Energy's accounting policies conform to the accounting requirements and ratemaking practices of these regulatory authorities and to generally accepted accounting principles, including the provisions of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (Statement 71).
Regulatory assets represent probable future revenue to Energy associated with deferred costs to be recovered from customers through the ratemaking process. The following regulatory assets of Energy are reflected in the Consolidated Balance Sheets as of December 31: 1994 1993 (in millions) Post-in-service carrying costs and deferred depreciation . . . . . . . . . . . $ 30 $ 11 Deferred demand-side management (DSM) costs. . . . . . . . . . . 94 53 Amounts due from customers - income taxes . . 27 18 Deferred merger costs . . . . . . . . . . . . 38 15 Costs of reacquiring debt . . . . . . . . . . 37 40 Postretirement benefit costs. . . . . . . . . 21 10 Other . . . . . . . . . . . . . . . . . . . . 9 11
Total . . . . . . . . . . . . . . . . . . . $256 $158
In February 1995, the IURC issued an order (February 1995 Order) which approved a rate settlement agreement among Energy and certain intervenors (see Note 2(b)). This order, together with previous regulatory orders, provides for recovery of $153 million of Energy's regulatory assets as of December 31, 1994. In addition, testimony to be filed in 1995 in connection with Energy's July 1994 retail rate petition will include a request for additional recovery of regulatory assets, including approximately $100 million of the balance at December 31, 1994 (see Note 2(c)).
See Note 1(g), (h), (i), and (k) for additional information regarding post-in- service carrying costs and deferred depreciation, deferred DSM costs, amounts due from customers - income taxes, and costs of reacquiring debt, respectively. For additional information regarding deferred merger costs and postretirement benefit costs, see Notes 2(b), 8, and 9.
Although Energy's current regulatory orders and regulatory environment fully support the recognition of these regulatory assets, the ultimate outcome of the changing competitive environment discussed in the "Competitive Pressures" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" could result in Energy discontinuing application of Statement 71 for all or part of its business. Such an event would require the write-off of the portion of any regulatory asset for which no regulatory assurance of recovery continues to exist. No evidence currently exists that would support a write-off of any portion of Energy's regulatory assets. Energy intends to pursue competitive strategies that would mitigate the impact of this issue on the financial condition of the Company.
(d) Electric Utility Plant Electric utility plant is stated at the original cost of construction, which includes an allowance for funds used during construction (AFUDC) and a proportionate share of overhead costs. Construction overhead costs include salaries, payroll taxes, fringe benefits, and other expenses.
Substantially all electric utility plant is subject to the lien of Energy's first mortgage bond indenture.
(e) AFUDC Energy capitalizes AFUDC, a non-cash income item, which is defined in the regulatory system of accounts prescribed by the FERC as including "the net cost for the period of construction of borrowed funds used for construction purposes and a reasonable rate on other funds when so used". The AFUDC accrual rate was 6.4% in 1994, 9.5% in 1993, and 8.5% in 1992, and is compounded semi-annually.
(f) Depreciation and Maintenance Energy's provision for depreciation is determined by using the straight-line method applied to the cost of depreciable plant in service. The rate is based on periodic studies of the estimated service lives and net cost of removal of the properties. The depreciation rate for electric utility plant was 3.8% for each of the years 1992 through 1994. In accordance with the IURC's February 1995 Order discussed further herein, Energy's annual depreciation expense will decrease by approximately $30 million.
Maintenance and repairs of property units and replacements of minor items of property are charged to maintenance expense. The costs of replacements of property units are capitalized. The original cost of the property retired and the related costs of removal, less salvage recovered, are charged to accumulated depreciation.
(g) Post-in-service Carrying Costs and Deferred Depreciation In January 1993, Energy received authority from the IURC to continue accrual of the debt component of AFUDC and to defer depreciation expense on the combustion turbine generating unit constructed at its Cayuga Generating Station and major environmental compliance projects from the date the projects are placed in service until the effective date of an order in a general retail rate proceeding. The February 1995 Order authorizes Energy to begin recovering amounts deferred as of May 31, 1994 ($9 million), for AFUDC continuation and July 31, 1993 ($1 million), for depreciation expense over the remaining lives of the related electric utility plant. Additionally, the February 1995 Order authorizes Energy to continue deferral of the applicable AFUDC and depreciation recorded after the above cut-off dates through February 1995, for subsequent recovery in an IURC order associated with Energy's July 1994 retail rate petition which is currently pending before the IURC. The February 1995 Order also authorizes Energy to continue the accrual of the debt component of AFUDC and to defer depreciation expense on two major environmental projects from the date the projects are placed in service until the projects' costs are reflected in retail electric rates.
(h) DSM Costs Energy is authorized by the February 1995 Order to amortize and recover DSM expenditures deferred through July 1993 ($35 million), together with carrying costs, over a five-year period. Deferred DSM expenditures as of February 1995, which are not included for recovery in the February 1995 Order, will continue to be deferred, with carrying costs, for recovery in subsequent rate proceedings. In addition, base rates will include recovery of $23 million of DSM expenditures on an annual basis. Future deferral of DSM expenditures will be the amount by which actual annual expenditures exceed the base level of $23 million. If DSM expenditures in any calendar year are less than the $23 million in base rates, the unamortized balance of deferred DSM expenditures would be reduced by such difference.
(i) Federal and State Income Taxes Deferred tax assets and liabilities are recognized for the expected future tax consequences of existing differences between the financial reporting and tax reporting bases of assets and liabilities. Investment tax credits utilized to reduce Federal income taxes payable have been deferred for financial reporting purposes and are being amortized over the useful lives of the property which gave rise to such credits.
Income tax provisions reflected in customer rates are regulated by the various regulatory commissions overseeing the regulated business operations of Energy. To the extent deferred income taxes are not reflected in rates charged to customers, income taxes payable in future years are recoverable from customers as paid. These amounts are reflected in the accompanying Consolidated Financial Statements as a regulatory asset on the basis of their probable recovery in future periods.
(j) Operating Revenues and Fuel Costs Energy recognizes revenues for electric service rendered during the month, which includes revenues for sales unbilled at the end of each month. Revenues reflect fuel cost charges based on the actual costs of fuel. Fuel cost charges applicable to all of Energy's metered kilowatt-hour sales are included in customer billings based on the estimated costs of fuel. Customer bills are adjusted in subsequent months to reflect the difference between actual and estimated costs of fuel. Indiana law subjects the recovery of fuel costs to a determination that such recovery will not result in earning a return in excess of that allowed by the IURC in its last general rate order.
(k) Debt Discount, Premium, and Issuance Expense and Costs of Reacquiring Debt Debt discount, premium, and issuance expense on Energy's outstanding long-term debt are amortized over the lives of the respective issues.
In accordance with established ratemaking practices, Energy is deferring costs (principally call premiums) from the reacquisition of long-term debt and is amortizing such amounts over periods ranging from four years to 18 years.
(l) Consolidated Statements of Cash Flows All temporary cash investments with maturities of three months or less, when acquired, are reported as cash equivalents. Energy had no material non-cash investing or financing transactions during the years 1992 through 1994.
(m) Reclassification Certain amounts in the 1992 and 1993 Consolidated Financial Statements have been reclassified to conform to the 1994 presentation.
2. Rates
(a) Settlement Agreement - IURC's June 1987 and April 1990 Orders In December 1993, the IURC issued an order (December 1993 Order) approving a settlement agreement entered into by Energy, the appellants, and certain other intervenors which resolved the outstanding issues related to the appeals of the IURC's April 1990 retail rate order (April 1990 Order) and the IURC's June 1987 tax order (June 1987 Order). The December 1993 Order provided for Energy to refund $150 million to its retail customers ($119 million applicable to the June 1987 Order and $31 million applicable to the April 1990 Order). The December 1993 Order further provided for Energy to reduce its retail rates by 1.5% (approximately $13.5 million on an annual basis) to reflect a return on common equity of 14.25%. The refunds and rate reduction commenced in December 1993.
Energy had previously recognized a loss of $139 million for the June 1987 Order. The difference between the $139 million and the $119 million portion of the refund applicable to the June 1987 Order is reflected in the Consolidated Statement of Income for the year ended December 31, 1993, as a reduction of the loss. The $31 million portion of the refund applicable to the April 1990 Order is reflected in the Consolidated Statement of Income for the same period as a reduction in operating revenues.
(b) February 1995 Order - Retail Rate Proceeding and Merger Savings Allocation Plan The IURC issued the February 1995 Order approving a settlement agreement entered into by Energy, the Office of the Utility Consumer Counselor, Citizens Action Coalition of Indiana, Inc., and the PSI- Industrial Group concerning Energy's petition for a $93 million retail rate increase ($103 million including carrying costs attributable to certain environmental expenditures not included in Energy's base retail electric rates) and Energy's previously filed plan for the allocation of its portion of merger savings between Energy's customers and CINergy's shareholders.
The February 1995 Order authorizes Energy to increase annual retail rates $33.6 million, effective February 1995. The increase excludes reductions for customer credits for non-fuel operation and maintenance expense merger savings (Non-fuel Merger Savings) and increases for carrying costs attributable to certain environmental expenditures not included in Energy's base retail electric rates, both of which are further discussed herein. The increase includes the recovery of the costs of postretirement benefits other than pensions on an accrual basis, the recovery of DSM expenditures, the recovery of a portion of amounts deferred for AFUDC continuation and depreciation expense, and the adoption of lower depreciation rates, which will reduce annual depreciation expense by approximately $30 million. This rate increase reflects an 11.9% return on common equity with an 8.25% overall rate of return on net original cost rate base.
Additionally, the February 1995 Order provides a mechanism to allocate Energy's share of net Non-fuel Merger Savings through December 31, 1997, between Energy's customers and CINergy's shareholders. CINergy currently anticipates that the estimated nominal merger savings of $1.5 billion will be apportioned approximately equally between CG&E and Energy. In essence, the mechanism guarantees Energy's customers 50% of Energy's portion of the projected net Non-fuel Merger Savings. Energy's customers will receive these merger savings via credits to base rates of $4.4 million in 1995, an additional $2.2 million in 1996, and an additional $2.4 million in 1997. After 1997, the accumulated credits will continue until the effective date of an order in an Energy general retail rate proceeding. Energy will have to achieve these levels of merger savings in order to realize the 11.9% return on equity. This arrangement for sharing of merger savings allows Energy to recover its portion of transaction costs (currently estimated at $27 million) and costs to achieve merger savings (currently estimated at $21 million) over a 10-year period.
The February 1995 Order also provides Energy with a financial incentive to achieve, or exceed, merger savings projections and enhance operating efficiencies by allowing Energy to earn up to a 13.25% return on common equity until the effective date of an order in connection with Energy's July 1994 retail rate petition, which is currently pending before the IURC. Energy expects an order in this proceeding in the second quarter of 1996. Upon the effective date of an order relating to the July 1994 retail rate petition, the February 1995 Order provides Energy an opportunity to earn an additional 100 basis points above the common equity return to be granted by the IURC in such rate proceeding until December 31, 1997. In order to be eligible for such additional earnings, Energy must meet certain service-related conditions. Any mechanism for sharing of merger savings after December 31, 1997, will be determined in subsequent regulatory proceedings.
Finally, the February 1995 Order includes ratemaking and accounting mechanisms to address regulatory lag. The February 1995 Order approves Energy's proposal for current recovery of carrying costs associated with environmental compliance projects and the applicable portion of the Wabash River Clean Coal Project (Clean Coal Project) not included in Energy's base retail electric rates. The Clean Coal Project, which is located at the Wabash River Generating Station, is a 262-megawatt clean coal power generating facility planned to be placed in service during the third quarter of 1995. The February 1995 Order also includes provisions for the deferral of certain operating costs associated with the Clean Coal Project, together with the debt component of carrying costs thereon, and continued accrual of the debt component of carrying costs (to the extent not reflected in rates currently) and deferral of depreciation expense on the Clean Coal Project and a scrubber at Gibson Generating Station (Gibson) until the projects' costs are fully reflected in retail electric rates.
(c) July 1994 Retail Rate Petition In addition to the rate petition addressed in the February 1995 Order, Energy filed a petition in July 1994 with the IURC for a retail rate increase to recover, among other things, the costs of the Clean Coal Project and the scrubber at Gibson which was placed in service in September 1994. These two projects were previously approved by the IURC. Energy initially estimated a rate increase of 8%. Energy is currently evaluating how the rate settlement and the ability to earn a cash return during construction on certain projects, as previously discussed, will affect the estimated rate increase. Energy intends to file testimony supporting its rate increase request in May 1995 and, as previously discussed, anticipates an order in this proceeding in the second quarter of 1996. Energy cannot predict what action the IURC may take with respect to this proposed rate increase.
3. Common Stock
All of Energy's common stock is held by CINergy. No common dividends can be paid by Energy if dividends are in arrears on its preferred stock.
4. Preferred Stock
Changes in preferred stock outstanding during 1994, 1993, and 1992, were as follows:
Shares Issued Par (Retired) Value (dollars in thousands) Cumulative preferred stock Not subject to mandatory redemption Par value $100 per share 3 1/2% Series. . . . . . . . . . . . (598) $ (60)
Cumulative preferred stock Not subject to mandatory redemption Par value $25 per share 7.44 % Series. . . . . . . . . . . . 4 000 000 100 000 Par value $100 per share 3 1/2% Series. . . . . . . . . . . . (237) (24) 8.52 % Series. . . . . . . . . . . . (211 190) (21 119) 8.38 % Series. . . . . . . . . . . . (162 520) (16 252) 8.96 % Series. . . . . . . . . . . . (216 900) (21 690) 6 7/8% Series. . . . . . . . . . . . 600 000 60 000
Cumulative preferred stock Not subject to mandatory redemption Par value $100 per share 3 1/2% Series. . . . . . . . . . . . (10) (1) Subject to mandatory redemption Par value $100 per share 13.25% Series. . . . . . . . . . . . (255 000) (25 500)
Currently, Energy can sell up to an additional $40 million of preferred stock under an effective shelf registration statement and IURC authority.
5. Long-term Debt
Long-term debt maturities, excluding sinking fund requirements, for the next five years are $60 million in 1995, $50 million in 1996, $10 million in 1997, $35 million in 1998, and $6 million in 1999.
6. Sale of Accounts Receivable and Interest Rate Swap
Energy has an agreement through January 1996 to sell, with limited recourse, an undivided percentage interest in certain of its accounts receivable from customers up to a maximum of $90 million. As of December 31, 1994, Energy's obligation under the limited recourse provision is $20 million. The refund provided for by the December 1993 Order, as previously discussed (see Note 2(a)), reduced accounts receivable available for sale at December 31, 1993, to $40 million. Accounts receivable on the Consolidated Balance Sheets are net of the $87 million and $40 million interest sold at December 31, 1994, and December 31, 1993, respectively. The excess of $90 million over the accounts receivable available for sale at December 31, 1993, is reflected in the Consolidated Balance Sheet as "Advance under accounts receivable purchase agreement".
As a hedge against floating rate conditions, effective February 1, 1991, Energy entered into an interest rate swap agreement which effectively changed Energy's variable interest rate exposure on its $90 million (the notional principal amount) sale of accounts receivable to a fixed rate of 8.19%. Costs associated with the interest rate swap agreement are included in "Other - net" in the Consolidated Statements of Income. The interest rate swap agreement matures January 31, 1996. In the event of nonperformance by the other parties to the interest rate swap agreement, Energy would be exposed to floating rate conditions.
7. Pension Plan
Energy's defined benefit pension plan covers substantially all employees meeting certain minimum age and service requirements. Plan benefits are determined under a final average pay formula with consideration of years of participation, age at retirement, and the applicable average Social Security wage base.
Energy's funding policy is to contribute annually to the plan an amount which is not less than the minimum amount required by the Employee Retirement Income Security Act of 1974 and not more than the maximum amount deductible for income tax purposes. Contributions for the 1994, 1993, and 1992 plan years were $3.5 million, $8.2 million, and $7.4 million, respectively. The plan's assets consist of investments in equity and fixed income securities.
Pension cost for 1994, 1993, and 1992 included the following components:
1994 1993 1992 (in millions)
Benefits earned during the period . . . . . . . $ 8.7 $ 7.7 $ 7.1 Interest accrued on projected benefit obligation . . . . . . . . . . . . . 19.8 19.4 18.3 Actual (return) loss on plan's assets . . . . . 2.4 (38.5) (24.1) Net amortization and deferral . . . . . . . . . (23.1) 20.1 7.4
Net periodic pension cost . . . . . . . . . . . $ 7.8 $ 8.7 $ 8.7
1994 1993 1992 Actuarial Assumptions: For determination of projected benefit obligation Discount rate . . . . . . . . . . . . . . . 8.5% 7.5% 8.5% Rate of increase in future compensation . . 5.5 4.5 5.5
For determination of pension cost Rate of return on plan's assets . . . . . . . 9.0 9.0 9.0
The following table reconciles the plan's funded status with amounts recorded in the Consolidated Financial Statements. Under the provisions of Statement of Financial Accounting Standards No. 87, Employers' Accounting for Pensions (Statement 87), certain assets and obligations of the plan are deferred and recognized in the Consolidated Financial Statements in subsequent periods.
1994 1993 (in millions) Actuarial present value of benefits Vested benefits . . . . . . . . . . $(197.5) $(206.1) Non-vested benefits . . . . . . . . (8.0) (8.5)
Accumulated benefit obligation. . (205.5) (214.6)
Effect of future compensation increases . . . . . . . . . . . . (67.3) (55.4)
Projected benefit obligation. . . (272.8) (270.0)
Plan's assets at fair value . . . . . 256.3 266.0
Projected benefit obligation in excess of plan's assets . . . . . . (16.5) (4.0)
Remaining balance of plan's net assets existing at date of initial application of Statement 87 to be recognized as a reduction of pension cost in future periods. . . (5.7) (6.4)
Unrecognized net (gain) loss resulting from experience different from that assumed and effects of changes in assumptions. . . . . . . 5.7 (.9)
Prior service cost not yet recognized in net periodic pension cost. . . . 17.2 14.9
Prepaid pension cost at December 31 . $ .7 $ 3.6
8. Other Postretirement Benefits
Energy provides certain health care and life insurance benefits to retired employees and their eligible dependents. The health care benefits include medical and dental coverage and prescription drugs. Prior to 1993, the cost of retiree health care was charged to expense as claims were paid, and the cost of life insurance benefits was charged to expense at retirement. Energy, in connection with the settlement which resulted in the February 1995 Order, agreed to begin funding its obligation for these postretirement benefits.
Effective with the first quarter of 1993, Energy implemented the provisions of Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions (Statement 106). Under the provisions of Statement 106, the costs of health care and life insurance benefits provided to retirees are recognized for accounting purposes during periods of employee service (accrual basis). The unrecognized and unfunded Accumulated Postretirement Benefit Obligation (APBO) existing at the date of initial application of Statement 106 (i.e., the transition obligation) of $107.6 million is being amortized over a 20-year period.
Postretirement benefit cost for 1994 and 1993 included the following components: 1994 1993 (in millions)
Benefits earned during the period. . . . . . $ 4.4 $ 3.4 Interest accrued on APBO . . . . . . . . . . 10.1 9.3 Net amortization and deferral. . . . . . . . .1 - Amortization of transition obligation. . . . 5.4 5.4
Net periodic postretirement benefit cost . . $20.0 $18.1
The following table reconciles the APBO of the health care and life insurance plans with amounts recorded in the Consolidated Financial Statements. Under the provisions of Statement 106, certain obligations of the plan are deferred and recognized in the Consolidated Financial Statements in subsequent periods.
1994 1993 (in millions) Actuarial present value of benefits Fully eligible active plan participants. . $ (9.3) $ (11.7) Other active plan participants . . . . . . (58.5) (63.7) Retirees and beneficiaries . . . . . . . . (68.6) (61.5) Projected APBO . . . . . . . . . . . . . (136.4) (136.9) Unamortized transition obligation. . . . . . 96.8 102.2 Unrecognized net loss resulting from experience different from that assumed and effects of changes in assumptions. . . 7.5 17.0 Accrued postretirement benefit obligation at December 31 . . . . . . . . . . . . . . $ (32.1) $ (17.7)
The following assumptions were used to determine the APBO:
1994 1993 1992
Discount rate. . . . . . . . . . 8.5% 7.5% 8.5%
Health care cost trend rate, gradually declining to 5%. . . 8.0-12.0% 8.0-12.0% 8.0-12.0%
Year ultimate trend rates achieved . . . . . . . . . . . 2007 2007 2007
Increasing the health care cost trend rate by one percentage point in each year would increase the APBO by approximately $17 million and $19 million for 1994 and 1993, respectively, and the aggregate of the service and interest cost components of the postretirement benefit cost for 1994 and 1993 by approximately $2.5 million and $2 million, respectively.
In accordance with the February 1995 Order, Energy will recover the cost of postretirement benefits other than pensions on an accrual basis commencing February 1995. Prior to the recovery of these costs in customers' rates on an accrual basis, the difference between postretirement benefit costs determined in accordance with the provisions of Statement 106 and the costs determined in accordance with Energy's previous accounting practice was deferred for future recovery. Energy's deferrals totaled $21 million as of December 31, 1994. Commencing February 1995, approximately $6 million of costs deferred for the period January 1, 1993, to July 31, 1993, will be recovered over a five-year period. Recovery over a five-year period of the remaining deferrals is being requested in Energy's July 1994 retail rate petition.
9. Voluntary Workforce Reduction
In an effort to begin to realize merger savings, Energy completed a voluntary workforce reduction program in 1994. Under the program, 169 employees elected to terminate their employment with Energy, resulting in a pre-tax cost of approximately $11.3 million. This cost was deferred as a cost to achieve merger savings. In accordance with the February 1995 Order, Energy began amortization of costs to achieve merger savings October 1, 1994.
10. Notes Payable
Energy had authority to borrow up to $330 million as of December 31, 1994. In connection with this authority, Energy has established unsecured lines of credit (Committed Lines) which currently permit borrowings of up to $230 million, of which $110 million remained unused. Energy also issues commercial paper from time to time. All outstanding commercial paper is supported by Energy's Committed Lines. Additionally, this authority allows Energy to arrange for additional short-term borrowings with various banks on an "as offered" basis (Uncommitted Lines). All Uncommitted Lines provide for maturities of up to 365 days with various interest rate options.
Amounts outstanding under the Committed Lines would become immediately due upon an event of default which includes non-payment, default under other agreements governing company indebtedness, bankruptcy, or insolvency. Certain of the Uncommitted Lines have similar default provisions. The Committed Lines are maintained by commitment fees, which were immaterial during the 1992 through 1994 period.
For the years 1994, 1993, and 1992, Energy's short-term borrowings outstanding at various times were as follows: Weighted Weighted Maximum Average Average Average Amount Amount Interest Balance Interest Outstanding Outstanding Rate at Rate at at Any During the During Dec. 31 Dec. 31 Month-end Year the Year (dollars in millions) Bank loans. . . . . . $139.4 6.19% $298.9 $246.6 4.73% Commercial paper. . . - - 7.9 1.0 4.22 Note payable to CINergy . . . . . . 54.2 5.76 54.2 54.0 5.39
Bank loans. . . . . . 126.7 3.38 126.7 69.8 3.41 Commercial paper. . . - - 24.8 6.4 3.29
Bank loans. . . . . . 120.8 3.91 120.8 77.3 4.02 Commercial paper. . . - - 30.7 8.2 3.82
11. Fair Values of Financial Instruments
The estimated fair values of financial instruments were as follows (this information does not purport to be a valuation of Energy as a whole):
December 31 December 31 1994 1993 Carrying Fair Carrying Fair Financial Instrument Amount Value Amount Value (in millions)
Long-term debt (includes amounts due within one year) First mortgage bonds. . . $315 $326 $265 $314 Other long-term debt. . . 623 586 551 580
The following methods and assumptions were used to estimate the fair values of each major class of financial instrument:
Cash and temporary cash investments, restricted deposits, and notes payable Due to the short period to maturity, the carrying amounts reflected on the Consolidated Balance Sheets approximate fair values.
Long-term debt The fair values of long-term debt issues were estimated based on the latest quoted market prices or, if not listed on the New York Stock Exchange, on the present value of future cash flows. The discount rates used approximate the incremental borrowing costs for similar instruments.
12. Income Taxes
Effective with the first quarter of 1993, Energy implemented the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (Statement 109). Statement 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of existing differences between the financial reporting and tax reporting bases of assets and liabilities. Net-of-tax accounting and reporting is prohibited. Energy adopted this new accounting standard as the cumulative effect of a change in accounting principle with no restatement of prior periods. The adoption of Statement 109 had no material effect on Energy's earnings.
In August 1993, Congress enacted the Omnibus Budget Reconciliation Act of 1993, which included a provision to increase the Federal corporate income tax rate from 34% to 35%, retroactive to January 1, 1993. In accordance with the provisions of Statement 109, the income tax rate increase resulted in an increase in the net deferred income tax liability and recognition of a regulatory asset to reflect expected future recovery of the increased liability through rates charged to customers.
The significant components of Energy's net deferred income tax liability at December 31, 1994, and 1993, are as follows:
1994 1993 (in millions) Deferred Income Tax Liabilities Electric utility plant. . . . . . . . . . . . $308.0 $305.4 Unamortized costs of reacquiring debt . . . . 15.8 15.0 Deferred operating expenses and accrued carrying costs. . . . . . . . . 11.4 4.2 Deferred demand-side management costs . . . . 37.2 21.2 Other . . . . . . . . . . . . . . . . . . . . 13.7 13.1 Total deferred income tax liabilities . . . 386.1 358.9
Deferred Income Tax Assets Unamortized investment tax credits. . . . . . 22.9 24.5 Litigation settlement . . . . . . . . . . . . 29.8 29.8 Accrued pension and other benefit costs . . . 6.1 5.4 Other . . . . . . . . . . . . . . . . . . . . 2.6 17.8 Total deferred income tax assets. . . . . . 61.4 77.5
Net Deferred Income Tax Liability . . . . . . . $324.7 $281.4
A summary of Federal and state income taxes charged (credited) to income and the allocation of such amounts is as follows:
1994 1993 1992 (in millions)
Current Income Taxes Federal . . . . . . . . . . . . . . . . . . . $22.0 $ .6 $47.3 State . . . . . . . . . . . . . . . . . . . . 5.5 .4 7.4 Total current income taxes. . . . . . . . . 27.5 1.0 54.7
Deferred Income Taxes Federal Depreciation and other electric utility plant-related items . . . . . . . . . . . 19.2 9.6 7.5 Loss related to settlement of the IURC's June 1987 and April 1990 Orders (Note 2). (5.2) 45.9 - Property taxes. . . . . . . . . . . . . . . (2.0) 2.0 - Demand-side management costs. . . . . . . . 12.6 10.6 5.3 Other items - net . . . . . . . . . . . . . 1.7 (2.7) (.8) Total deferred Federal income taxes . . . 26.3 65.4 12.0
State . . . . . . . . . . . . . . . . . . . . 2.2 7.0 1.3 Total deferred income taxes . . . . . . . 28.5 72.4 13.3
Investment Tax Credits - Net. . . . . . . . . . (4.3) (4.2) (4.4)
Total Income Taxes. . . . . . . . . . . . $51.7 $69.2 $63.6
Allocated to: Operating income. . . . . . . . . . . . . . . $50.4 $64.9 $66.4 Other income and expenses - net . . . . . . . 1.3 4.3 (2.8) $51.7 $69.2 $63.6
As a result of the merger, Resources will file its final consolidated Federal and state income tax returns for the period January 1, 1994, through October 24, 1994. This return will include Energy to the extent its activities are allocable to that period. For the remainder of Energy's taxable income and tax liability, Energy will participate in the filing of a consolidated Federal income tax return with its parent, CINergy, and other affiliated companies for the year ended December 31, 1994. The current tax liability is allocated among the members of the group pursuant to a tax sharing agreement consistent with Rule 45(c) of the PUHCA.
Federal income taxes, computed by applying the statutory Federal income tax rate to book income before Federal income tax, are reconciled to Federal income tax expense reported in the Consolidated Statements of Income as follows:
1994 1993 1992 (in millions)
Statutory Federal income tax provision. . . . . $44.2 $65.3 $55.0 Increases (Reductions) in taxes resulting from: Amortization of investment tax credits. . . . (4.3) (4.2) (4.4) Depreciation and other electric utility plant-related differences . . . . . . . . . 1.8 4.1 4.2 AFUDC equity. . . . . . . . . . . . . . . . . (1.5) (3.9) (1.6) Other - net . . . . . . . . . . . . . . . . . 3.8 .5 1.7 Federal income tax expense. . . . . . . . . . . $44.0 $61.8 $54.9
13. Commitments and Contingencies
(a) Construction Energy will have substantial commitments in connection with its construction program. Aggregate expenditures for Energy's construction program for the 1995 through 1999 period are currently estimated to be approximately $1 billion.
In connection with Energy's Clean Coal Project, Energy has a 25-year contractual agreement with Destec Energy, Inc. (Destec) which requires Energy to pay Destec a fixed monthly fee plus certain monthly operating expenses once the facility is operational. Over the next five years (1995 through 1999), the fixed fee will be $56 million, and the variable fee is estimated at $95 million. As previously discussed, Energy received authorization in the February 1995 Order to defer these costs for subsequent recovery in an IURC order associated with Energy's July 1994 retail rate petition.
(b) Manufactured Gas Plants Coal tar residues and other substances associated with manufactured gas plant (MGP) sites have been found at former MGP sites in Indiana, including, but not limited to, sites in Shelbyville and Lafayette, two sites previously owned by Energy. Energy has identified at least 21 MGP sites which it previously owned, including 19 it sold in 1945 to Indiana Gas and Water Company, Inc. (now Indiana Gas Company [IGC]), including the Shelbyville and Lafayette sites.
The Shelbyville site has been the subject of an investigation and cleanup enforcement action by the Indiana Department of Environmental Management (IDEM) against IGC and Energy. Without admitting liability, Energy and IGC have conducted an investigation and remedial activities at the Shelbyville site. Energy and IGC are sharing equally in the costs of investigation and cleanup of this site.
In 1992, the IDEM issued an order to IGC, naming IGC as a potentially responsible party (PRP) as defined by the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), which requires investigation and remediation of the Lafayette MGP site. IGC entered into an agreed order with the IDEM for the removal of MGP contamination at the site.
In April 1993, IGC filed testimony with the IURC seeking recovery of costs incurred in complying with Federal, state, and local environmental regulations related to MGP sites in which it has an interest, including sites acquired from Energy. In its testimony, IGC stated that it would also seek to recover a portion of these costs from other PRPs, including previous owners. IGC has informed Energy of the basis for IGC's position that Energy, as a PRP under CERCLA, should contribute to IGC's response costs related to investigating and remediating contamination at MGP sites which Energy sold to IGC. The IURC has not ruled on IGC's petition. In its July 1994 retail rate petition, Energy is seeking approval to defer, and subsequently recover through rates, any costs it incurs for investigation and remediation of previously owned MGP sites.
Except for the Shelbyville site, Energy has not assumed any responsibility to reimburse IGC for its costs for investigating and cleaning up MGP sites. With respect to the Shelbyville site, based upon environmental investigations completed to date, Energy believes that any further required investigation and remediation will not have a material adverse effect on its financial condition or results of operations. At this time, it is premature for Energy to predict the nature, extent, and costs of, or Energy's responsibility for, any environmental investigations and remediations which may be required at other MGP sites owned, or previously owned, by Energy.
(c) Wabash Valley Power Association, Inc. (WVPA) Litigation In February 1984, WVPA discontinued payments to Energy for its 17% share of Marble Hill, a nuclear project jointly owned by Energy and WVPA which was cancelled by Energy in 1984, and filed suit against Energy in the United States District Court for the Southern District of Indiana (Indiana District Court), seeking $478 million plus interest and other damages to recover its Marble Hill costs. The suit was amended to include as defendants several officers of Energy along with certain contractors and their officers involved in the Marble Hill project, and to allege claims against all defendants under the Racketeer Influenced and Corrupt Organizations Act (RICO). Claims proven and damages allowed under RICO may be trebled and attorneys' fees assessed against the defendants. The suit was further amended to add claims of common law fraud, constructive fraud and deceit, and negligent misrepresentation against Energy and the other defendants.
In 1985, Energy and WVPA entered into an agreement under which Energy agreed to place in escrow 17% of all salvage proceeds received from the sales of Marble Hill equipment, materials, and nuclear fuel after May 23, 1985, as a result of WVPA's filing for protection under Chapter 11 of the Federal Bankruptcy Code.
In 1989, Energy and its officers reached a settlement with WVPA which, if approved by judicial and regulatory authorities, will settle the suit filed by WVPA. The settlement is also contingent on the resolution of the WVPA bankruptcy proceeding.
The principal terms of the settlement are:
- Energy, on behalf of itself and its officers, will pay $80 million on behalf of WVPA to Rural Utility Services (RUS), previously called the Rural Electrification Administration, and the National Rural Utilities Cooperative Finance Corporation (CFC). The $80 million obligation, net of insurance proceeds, other credits, and applicable income tax effects, was charged to income in 1988 and 1989.
- WVPA will transfer its 17% ownership interest in the site to Energy, and Energy will assume responsibility for all future costs associated with the site, excluding WVPA's 17% share of future salvage program expenses. Additionally, RUS and CFC will receive the balance in the salvage escrow account and 17% of future salvage proceeds, net of related salvage program expenses.
- Energy will enter into a 35-year take-or-pay power supply agreement for the sale of 70 megawatts of firm power to WVPA. This power will be supplied from Gibson Unit 1 and will be priced at Energy's firm power rates for service to WVPA. The difference between the revenues received from WVPA and the costs of operating Gibson Unit 1 (the Margin) will be remitted annually by Energy, on behalf of itself and its officers, to RUS and CFC to discharge a $90 million obligation, plus accrued interest. If, at the end of the term of the power supply agreement, the $90 million obligation plus accrued interest has not been fully discharged, Energy must do so within 60 days. The settlement provides that in the event Energy is party to a merger or acquisition, Energy and WVPA will use their best efforts to obtain regulatory approval to price the power sale exclusive of the effects of the merger or acquisition.
Certain aspects of the settlement are subject to approval by the FERC and potentially by the IURC and the Michigan Public Service Commission. At such time as the necessary approvals from these regulatory authorities are received, Energy will record a $90 million regulatory asset. Concurrently, a $90 million obligation to RUS and CFC will be recorded as a long-term commitment. Recognition of the asset is based, in part, on projections which indicate that the Margin will be sufficient to discharge the $90 million obligation to RUS and CFC, plus accrued interest, within the 35-year term of the power supply agreement. If, in some future period, projections indicate the Margin would not be sufficient to discharge the obligation plus accrued interest within the 35-year term, the deficiency would be recognized as a loss.
RUS has proposed a plan of reorganization which, similar to WVPA's plan, incorporates the settlement agreement. However, RUS's plan provides for full recovery of principal and interest on WVPA's debt to RUS, which is substantially in excess of the amount to be recovered under WVPA's proposed plan. In 1991, the United States Bankruptcy Court for the Southern District of Indiana (Bankruptcy Court) confirmed WVPA's plan of reorganization and denied confirmation of RUS's opposing plan. The Bankruptcy Court's approval of WVPA's reorganization plan is contingent upon WVPA's receipt of regulatory approval to change its rates. RUS appealed the Bankruptcy Court's decision to the Indiana District Court. In June 1994, the Indiana District Court ruled in favor of WVPA's plan. RUS subsequently appealed this decision. Energy cannot predict the outcome of this appeal, nor is it known whether WVPA can obtain regulatory approval to change its rates. If reasonable progress is not made in satisfying conditions to the settlement by February 1, 1996, either party may terminate the settlement agreement.
14. Jointly Owned Plant
Energy is a joint owner of Gibson Unit 5 with WVPA and the Indiana Municipal Power Agency (IMPA). Additionally, Energy is a co-owner with WVPA and IMPA of certain transmission property and local facilities. These facilities constitute part of the integrated transmission and distribution systems which are operated and maintained by Energy. The Consolidated Statements of Income reflect Energy's portion of all operating costs associated with the commonly owned facilities.
Energy's investment in jointly owned plant is as follows:
15. Quarterly Financial Data (unaudited)
Operating Operating Net Quarter Ended Revenues Income Income (in millions)
March 31 . . . . . . . . . . . $ 301 $ 48 $ 35 June 30. . . . . . . . . . . . 280 37 19 September 30 . . . . . . . . . 281 38 20 December 31. . . . . . . . . . 265 29 (a) 8 (a) Total. . . . . . . . . . . . $1 127 $152 $ 82
March 31 . . . . . . . . . . . $ 286 $ 51 $ 35 June 30. . . . . . . . . . . . 221 17 16 September 30 . . . . . . . . . 293 49 36 December 31. . . . . . . . . . 278 48 38 Total. . . . . . . . . . . . $1 078 $165 $125
(a) In the fourth quarter of 1994, Energy recognized a charge to earnings of approximately $10 million ($6.5 million, net of taxes) for severance benefits to former officers of Energy which the Company does not expect to recover from customers due to a rate settlement related to securing support for the merger. The total $10 million charge is reflected in "OPERATING EXPENSES - Other operation".
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Board of Directors
Reference is made to PSI Energy, Inc.'s (Energy) 1995 Information Statement with respect to identification of directors and their current principal occupations. In addition, reference is made to Energy's 1995 Information Statement regarding compliance with Section 16 of the Securities Exchange Act of 1934.
Executive Officers
The information included in Part I of this report on pages 9 through 11 under the caption "Executive Officers of the Registrant" is referenced in reliance upon General Instruction G to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
Reference is made to Energy's 1995 Information Statement with respect to executive compensation.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to Energy's 1995 Information Statement with respect to security ownership of certain beneficial owners, security ownership of management, and changes in control.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to Energy's 1995 Information Statement concerning certain relationships and related transactions.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules.
Refer to the page captioned "Index to Financial Statements and Financial Statement Schedules", page 30 of this report, for an index of the financial statements and financial statement schedules included in this report.
(b) Reports on Form 8-K.
The following report on Form 8-K was filed during the last quarter of 1994:
Date of Report Items Filed
December 9, 1994 Item 5. Other Events Item 7. Financial Statements and Exhibits
(c) Exhibits.
Copies of the documents listed below which are identified with an asterisk (*) have heretofore been filed with the Securities and Exchange Commission and are incorporated herein by reference and made a part hereof. Exhibits not so identified are filed herewith.
Exhibit Designation Nature of Exhibit
3-a *Amended Articles of Consolidation, as amended to May 11, 1994. (Exhibit to PSI Energy, Inc.'s (Energy) September 30, 1994, Form 10-Q in File No. 1-3543.)
3-b By-laws, as amended March 3, 1995.
4-a *Original Indenture (First Mortgage Bonds) dated September 1, 1939, between Energy and The First National Bank of Chicago, as Trustee (Exhibit A-Part 3 in File No. 70-258), and LaSalle National Bank as Successor Trustee (Supplemental Indenture dated March 30, 1984).
4-b *Nineteenth Supplemental Indenture between Energy and The First National Bank of Chicago dated January 1, 1972. (Exhibit to File No. 2-42545.)
4-c *Twenty-third Supplemental Indenture between Energy and The First National Bank of Chicago dated January 1, 1977. (Exhibit to File No. 2-57828.)
4-d *Twenty-fifth Supplemental Indenture between Energy and The First National Bank of Chicago dated September 1, 1978. (Exhibit to File No. 2-62543.)
4-e *Twenty-seventh Supplemental Indenture between Energy and The First National Bank of Chicago dated March 1, 1979. (Exhibit to File No. 2-63753.)
Exhibit Designation Nature of Exhibit
4-f *Thirty-fifth Supplemental Indenture between Energy and The First National Bank of Chicago dated March 30, 1984. (Exhibit to Energy's 1984 Form 10-K in File No. 1-3543.)
4-g *Thirty-ninth Supplemental Indenture between Energy and The First National Bank of Chicago dated March 15, 1987. (Exhibit to Energy's 1987 Form 10-K in File No. 1-3543.)
4-h *Forty-first Supplemental Indenture between Energy and The First National Bank of Chicago dated June 15, 1988. (Exhibit to Energy's 1988 Form 10-K in File No. 1-3543.)
4-i *Forty-second Supplemental Indenture between Energy and The First National Bank of Chicago dated August 1, 1988. (Exhibit to Energy's 1988 Form 10-K in File No. 1-3543.)
4-j *Forty-fourth Supplemental Indenture between Energy and The First National Bank of Chicago dated March 15, 1990. (Exhibit to Energy's 1990 Form 10-K in File No. 1-3543.)
4-k *Forty-fifth Supplemental Indenture between Energy and The First National Bank of Chicago dated March 15, 1990. (Exhibit to Energy's 1990 Form 10-K in File No. 1-3543.)
4-l *Forty-sixth Supplemental Indenture between Energy and The First National Bank of Chicago dated June 1, 1990. (Exhibit to Energy's 1991 Form 10-K in File No. 1-3543.)
4-m *Forty-seventh Supplemental Indenture between Energy and The First National Bank of Chicago dated July 15, 1991. (Exhibit to Energy's 1991 Form 10-K in File No. 1-3543.)
4-n *Forty-eighth Supplemental Indenture between Energy and The First National Bank of Chicago dated July 15, 1992. (Exhibit to Energy's 1992 Form 10-K in File No. 1-3543.)
4-o *Forty-ninth Supplemental Indenture between Energy and The First National Bank of Chicago dated February 15, 1993. (Exhibit to Energy's 1992 Form 10-K in File No. 1- 3543.)
Exhibit Designation Nature of Exhibit
4-p *Fiftieth Supplemental Indenture between Energy and The First National Bank of Chicago dated February 15, 1993. (Exhibit to Energy's 1992 Form 10-K in File No. 1- 3543.)
4-q *Fifty-first Supplemental Indenture between Energy and The First National Bank of Chicago dated February 1, 1994. (Exhibit to Energy's 1993 Form 10-K in File No. 1-3543.)
4-r *Indenture (Secured Medium-term Notes, Series A), dated July 15, 1991, between Energy and The First National Bank of Chicago, as Trustee. (Exhibit to Energy's Form 10-K/A in File No. 1-3543, Amendment No. 2, dated July 15, 1993.)
4-s *Indenture (Secured Medium-term Notes, Series B), dated July 15, 1992, between Energy and The First National Bank of Chicago, as Trustee. (Exhibit to Energy's Form 10-K/A in File No. 1-3543, Amendment No. 2, dated July 15, 1993.)
10-a *+Energy Supplemental Retirement Plan amended and restated December 16, 1992, retroactively effective January 1, 1989. (Exhibit to Energy's 1992 Form 10-K in File No. 1-3543.)
10-b *+Energy Excess Benefit Plan, formerly named the Supplemental Pension Plan, amended and restated December 16, 1992, retroactively effective January 1, 1989. (Exhibit to Energy's 1992 Form 10-K in File No. 1-3543.)
10-c *+Employment Agreement dated October 4, 1993, among CINergy Corp. (CINergy), Energy, and John M. Mutz. (Exhibit to Energy's September 30, 1993, Form 10-Q in File No. 1-3543.)
Exhibit Designation Nature of Exhibit
10-d *Text of Settlement Agreement dated October 27, 1993, by and among PSI Resources, Inc., Energy, The Cincinnati Gas & Electric Company (CG&E), CINergy, IPALCO Enterprises, Inc., Indianapolis Power & Light Company, James E. Rogers, John R. Hodowal, and Ramon L. Humke (together with the exhibits and schedules thereto). (Exhibit to Energy's Form 8-K in File No. 1-3543, dated October 27, 1993.)
10-e *+Amended and Restated Employment Agreement dated July 2, 1993, among PSI Resources, Inc., Energy, CG&E, CINergy, CINergy Sub, Inc., and James E. Rogers, Jr. (Exhibit to CINergy's Amendment No. 3 to Form S-4, filed October 8, 1993.)
10-f *+Amended and Restated Employment Agreement dated October 24, 1994, among CG&E, CINergy Corp. (an Ohio corporation), CINergy (a Delaware corporation), PSI Resources, Inc., Energy, and Jackson H. Randolph. (Exhibit to CINergy's 1994 Form 10-K in File No. 1-11377.)
10-g *+Employment Agreement dated January 1, 1995, among CINergy, CG&E, CINergy Services, Inc., CINergy Investments, Inc., Energy, and William J. Grealis. (Exhibit to CINergy's 1994 Form 10-K in File No. 1-11377.)
21 Not Applicable.
23 Consent of Independent Public Accountants.
24 Power of Attorney.
27 Financial Data Schedule (included in electronic submission only).
____________________
+ Management contract, compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PSI ENERGY, INC. Registrant
Dated: March 28, 1995
By Jackson H. Randolph Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date James K. Baker Director Hugh A. Barker Director Michael G. Browning Director Kenneth M. Duberstein Director John A. Hillenbrand, II Director Emerson Kampen Director John M. Mutz President and Director Melvin Perelman, Ph.D. Director Van P. Smith Director
James E. Rogers Vice Chairman, Chief Operating March 28, 1995 Attorney-in-fact for all Officer and Director the foregoing persons
J. Wayne Leonard Senior Vice President, Chief March 28, 1995 Financial Officer and Director (Principal Financial Officer)
Jackson H. Randolph Chairman, Chief Executive March 28, 1995 Officer and Director (Principal Executive Officer)
Charles J. Winger Comptroller March 28, 1995 (Principal Accounting Officer)