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IPALCO CALLS ON CINCINNATI G&E/PSI TO FILE A COMPLETE REGULATORY PLAN

 INDIANAPOLIS, June 10 /PRNewswire/ -- In a meeting with securities analysts in Indianapolis today, IPALCO Enterprises (NYSE: IPL) Chairman, Chief Executive Officer and President John R. Hodowal called on PSI Resources and Cincinnati Gas & Electric to make their regulatory filing, scheduled for June 16, full and complete.
 "On March 15, we made public our detailed proposal to purchase PSI. By contrast, PSI Resources and Cincinnati G&E, which announced their planned merger nearly six months ago, have yet to produce their regulatory plan. We have no idea how they propose to divide their projected cost savings between shareholders and customers, or how they plan to allocate customer savings among Ohio, Kentucky and Indiana," Hodowal said. "That is why we are looking forward to next week and to seeing the regulatory plan the PSI and Cincinnati G&E will submit to Indiana, Ohio and Kentucky regulators.
 "Our proposal would create an Indiana-headquartered company which, based upon the perfect fit between PSI and IPALCO, will achieve an estimated $1.6 billion in cost savings in the first ten years alone, to be shared between customers and shareholders. Our plans to achieve savings are realistic and readily achievable. We fully expect acceptable regulatory treatment -- certainly faster than the three-state approval process that the proposed Cincinnati G&E/PSI combination would require. Low-cost energy is crucial to the economic development of the 69 counties in Indiana that will be served by the two companies, and our proposal is intended to achieve that objective."
 Also participating in the analyst meeting were Dr. Karl O'Lessker, former commissioner with the Indiana Utility Regulatory Commission (IURC), and Paul Gioia, former chairman of the New York State Public Service Commission. Gioia noted that Cincinnati G&E proposes to pay a substantial premium of $670 million over the book value of PSI to effect the combination. He said that even if it is not in the form of an acquisition premium, if Cincinnati G&E shareholders are not compensated for this premium in some manner, they will suffer dilution in earnings per share and ultimately suffer a reduction in the value of their shares. Dr. O'Lessker summarized "the premium above book value in the Cincinnati G&E/PSI transaction will not be paid by the tooth fairy."
 In a statement, Mr. Gioia also said: "The IPALCO plan directly recognizes the underlying economic realities of the proposed IPALCO/PSI merger and directly deals with those realities. Furthermore, the plan employs a regulatory approach that is consistent with both sound regulatory principles and well-established regulatory practices in the State of Indiana."
 Hodowal commented: "PSI has criticized for months the acquisition adjustment associated with our proposal to purchase PSI. Messrs. Gioia and O'Lessker's insightful analyses provide welcome and important clarification to an issue that has been consistently mischaracterized by PSI. The undeniable fact is that the proposed Cincinnati G&E/PSI combination would also involve a sizable premium of $670 million which they must deal with. We have outlined a plan for the premium we would pay that is sound, realistic and has a clear precedent in Indiana. Cincinnati G&E and PSI have not made public any such plan. We are eagerly awaiting next week's regulatory filings by those two companies.
 STATEMENTS BY DR. KARL O'LESSKER, FORMER MEMBER OF THE INDIANA UTILITY REGULATORY COMMISSION & MR. PAUL L. GIOIA FORMER
 CHAIRMAN OF THE NEW YORK STATE PUBLIC SERVICE COMMISSION
 A Brief Discussion of the IPALCO Merger Plan
 From A Regulatory Perspective
 There has been a great deal of discussion with respect to the acquisition adjustment proposed by IPALCO as part of its plan to merge with PSI Resources. The acquisition adjustment has been criticized on the grounds that it requires customers to fund the IPALCO acquisition of PSI and consequently, could never be approved by Indiana regulators. A ca2eful analysis of the IPALCO plan, however, will demonstrate that these criticisms are not valid.
 First, it should be noted that the value of a utility's assets and, ultim tely, its common stock is determined by the income stream those assets can produce for shareholders. If a utility pays a substantial premium over book value to acquire the shares of another utility, an additional stream of income must be developed to support that investment or the company's earning and/or cash flow per share will be diluted and the value of its shares reduced.
 Both the CINergy and the IPALCO proposals involve the payment of a substantial premium over book value for the shares of PSI. In the case of the CINergy plan the premium is0estimated at approximately $670 million and under the IPALCO plan at approximately $912 million. As previously noted, unless an additional income stream is developed to support such a substantial investment, the earnings and/or cash flow per share and market value of the surviving company would be impaired.
 Both the proponents of the CINergy plan and IPALCO have stated clearly that the investment made to complete the merger would not be funded through rate increases but by retention by the company of a portion of the cost savings that would result from the merger. It should be noted, however, that under standard ratemaking procedures all cost savings that would result from the merger. It should be noted, however, that under standard ratemaking procedures all cost savings resulting from a merger would flow to customers in the form of lower rates. Thus, in either case a regulatory mechanism is needed to allow a portion of the cost savings to be retained by the utility.
 The IPALCO plan would use the purchase method of accounting under which the capital necessary to fund the premium paid to current PSI shareholders is expressly stated on the liability side of the company's books. A corresponding regulatory asset would be created, the acquisition adjustment would be amortized over a 40 year period funded entirely by cost savings generated by the merger. To the extent justified by the savings, the company would request recovery of a reasonable return on the amortized balance. Recognition of the acquisition adjustment by the Indiana Commission would provide the regulatory mechanism to allow a substantial portion of the cost savings actually achieved by the merger to reduce rates with the balance to be retained by the company to support the investment that was necessary to complete the merger.
 It should be noted that the Indiana Commission has well established criteria for allowing the recovery of merger related investments to encourage efficient utility combinations. Moreover, the Indiana Commission has authorized the use of an acquisition adjustment, provided that the utility can demonstrate that the merger will produce benefits to the public in the form of lower costs, better service or both. Thus, the IPALCO plan directly recognizes the underlying economic realities of the proposed merger and directly deals with those realities. Furthermore, the plan employs a regulatory approach that is consistent with both sound regulatory principles and well established regulatory practices in the State of Indiana.
 The CINergy proposal, on the other hand, involves the use of the pooling method of accounting which does not require the explicit recognition on the company's books of the substantial premium being paid to current PSI shareholders. The absence of such an accounting adjustment, of course, would not alter the economic reality that a new income stream would have to be developed or the value of CINergy shares would be reduced and the premium purportedly paid to PSI shareholders diminished.
 The proponents of the CINergy plan have indicated that they would seek regulatory approval for retention by the company of some portion of the projected merger related savings. While they have stated that they would not seek an acquisition adjustment, the nature of the regulatory approval to be sought under the CINergy proposal has not yet been clearly defined. It is possible that regulatory approval could be sought in the form of an extraordinary return on equity or in the guise of an "incentive" plan. Any such approach could raise significant legal issues related to the statutory cap on utility earnings in Indiana and the recent decision by the Indiana Court of Appeals which overturned and remanded back to the Commission a previously approved PSI incentive plan. Aside from possible legal issues, any such proposal would be recognized as an indirect method of allowing shareholders to retain a portion of the merger related savings. It is reasonable to assume that any such proposal would receive careful scrutiny by the Commission and other interested parties to determine how much in cost savings would be achieved by the merger, how much would be retained by the company, how much would be flowed through to customers and how future cost savings would be allocated.
 Should CINergy request a sharing of savings for only a limited period of time, both regulators and investors would have to carefully consider whether future requests for further cost sharing were contemplated and the ground rules for considering any such future requests. Investors would have to carefully consider how much of the merger investment would be recovered during the limited time period, the likelihood of regulatory approval of future cost sharing requests, and the ability of the company to maintain the value of its common shares over the long term in the absence of a well defined regulatory plan.
 When considering the need for regulatory approval, it should be noted that the IPALCO plan would require approval of only the Indiana Commission; while it is my understanding that the CINergy transaction would require the approval of the Indiana, Ohio and Kentucky Commissions, in addition to other issues, they would have to review and pass upon the sharing of cost savings among the customers of their respective jurisdictions.
 Thus, the CINergy and IPALCO plans have fundamental similarities. Both plans involve the payment of a substantial premium to current PSI shareholders, and both plans will likely contemplate retention by the company of a portion of the projected merger related savings to support that investment. The use of different accounting methods and regulatory approaches should not obscure these underlying economic and regulatory realities.
 It is reasonable to conclude that, ultimately, investors and regulators will judge these proposals on their underlying merits and not on the basis of accounting methodologies or the labels placed on the regulatory mechanism used to support the substantial investment required to complete the merger. The real issue of investors and customers is value. Which plan creates the greatest economic value and which plan offers the greatest certainty that sufficient additional income will be produced through savings to support the financial value of the shares issued to effect the merger.
 Similarly, regulators will not get hung up on accounting terminology but will focus on the real issue: the public interest. Which plan provides the greater benefits to the public, the higher level of cost saving, the better quality of service and the financially stronger utility better able to assure safe and reliable service.
 The interests of all parties would be served if the focus of the debate on the merger proposals shifted to their merits, and the economic value and benefits to the public they would produce.
 -0- 6/10/93
 /CONTACT: Tom Davies, investor, 317-261-8219, or Susan Hanafee, media, 317-261-8763, both of IPALCO Enterprises, Inc./
 (IPL)


CO: IPALCO Enterprises, Inc. ST: Indiana IN: UTI SU:

TM-LD -- NY083 -- 0887 06/10/93 19:00 EST
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Date:Jun 10, 1993
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