ANNUAL REPORT — 2009

OHIO VALLEY ELECTRIC CORPORATION

and subsidiary

INDIANA-KENTUCKY ELECTRIC CORPORATION
1

Ohio Valley Electric Corporation

GENERAL OFFICES, 3932 U.S. Route 23, Piketon, Ohio 45661

Ohio Valley Electric Corporation (OVEC) and its wholly 

owned subsidiary, Indiana-Kentucky Electric 

Corporation (IKEC), collectively, the Companies, were 

organized on October 1, 1952. The Companies were 

formed by investor-owned utilities furnishing electric 

service in the Ohio River Valley area and their parent 

holding companies for the purpose of providing the large 

electric power requirements projected for the uranium 

enrichment facilities then under construction by the 

Atomic Energy Commission (AEC) near Portsmouth, 

Ohio.

OVEC, AEC and OVEC’s owners or their utilitycompany affiliates (called Sponsoring Companies) 

entered into power agreements to ensure the availability 

of the AEC’s substantial power requirements. On 

October 15, 1952, OVEC and AEC executed a 25-year 

agreement, which was later extended through 

December 31, 2005 (DOE Power Agreement). On 

September 29, 2000, the DOE gave OVEC notice of 

cancellation of the DOE Power Agreement. On April 30, 

2003, the DOE Power Agreement terminated in 

accordance with the notice of cancellation.

OVEC and the Sponsoring Companies signed an 

Inter-Company Power Agreement (ICPA) on July 10, 

1953, to support the DOE Power Agreement and provide 

for excess energy sales to the Sponsoring Companies of 

power not utilized by the DOE or its predecessors. Since 

the termination of the DOE Power Agreement on 

April 30, 2003, OVEC’s entire generating capacity has 

been available to the Sponsoring Companies under the 

terms of the ICPA. In 2004, the Sponsoring Companies 

and OVEC entered into an Amended and Restated ICPA, 

which extends its term from March 13, 2006 to 

March 13, 2026.

OVEC’s Kyger Creek Plant at Cheshire, Ohio, and 

IKEC’s Clifty Creek Plant at Madison, Indiana, have 

nameplate generating capacities of 1,086,300 and 

1,303,560 kilowatts, respectively. These two generating 

stations, both of which began operation in 1955, are 

connected by a network of 776 circuit miles of 345,000-

volt transmission lines. These lines also interconnect 

with the major power transmission networks of several 

of the utilities serving the area.

The current Shareholders and their respective 

percentages of equity in OVEC are:

Allegheny Energy, Inc. ...................................... 3.50

American Electric Power Company, Inc.* .......... 39.17

Buckeye Power Generating, LLC1...................... 18.00

Columbus Southern Power Company**

2

............ 4.30

The Dayton Power and Light Company3............. 4.90

Duke Energy Ohio, Inc.***4............................... 9.00

Kentucky Utilities Company5............................. 2.50

Louisville Gas and Electric Company5................ 5.63

Ohio Edison Company6...................................... 7.50

Southern Indiana Gas and Electric Company7..... 1.50

The Toledo Edison Company6............................ 4.00

 100.00

These investor-owned utilities comprise the 

Sponsoring Companies and currently share the OVEC 

power participation benefits and requirements in the 

following percentages:

Allegheny Energy Supply Company LLC8........... 3.01

Appalachian Power Company2............................. 15.69

Buckeye Power Generating, LLC1........................ 18.00

Columbus Southern Power Company2.................. 4.44

The Dayton Power and Light Company3............... 4.90

Duke Energy Ohio, Inc.4...................................... 9.00

FirstEnergy Generation Corp.6............................. 11.50

Indiana Michigan Power Company2..................... 7.85

Kentucky Utilities Company5............................... 2.50

Louisville Gas and Electric Company5.................. 5.63

Monongahela Power Company8........................... 0.49

Ohio Power Company2......................................... 15.49

Southern Indiana Gas and Electric Company7....... 1.50

100.00

Some of the Common Stock issued in the name of: 

*American Gas & Electric Company

**Columbus and Southern Ohio Electric Company

***The Cincinnati Gas & Electric Company 

Subsidiary of:

 

1Buckeye Power, Inc.

 

2American Electric Power Company, Inc.

 

3DPL Inc.

 

4Duke Energy Corporation

 

5E.ON U.S. LLC

 

6

FirstEnergy Corp.

 

7Vectren Corporation

 

8Allegheny Energy, Inc.

 
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

2

A Message from the President

Ohio Valley Electric Corporation (OVEC) and 

Indiana-Kentucky Electric Corporation (IKEC) sold

to their customers, the Sponsoring Companies, 

more than 96 percent of their available generation 

during 2009, when the nationwide demand for 

electricity was low due to a slowly recovering 

economy. The Companies, recognizing the need to 

reduce costs in this difficult power market, 

implemented several cost-saving measures in 2009 

to produce power more competitively. In all 

aspects of our operations, we look forward to the 

challenge of remaining a safe and environmentally 

responsible provider of economical power.

FLUE GAS DESULFURIZATION (FGD)

PROJECTS

Although construction activities had been 

suspended for more than a year, we have completed 

a redesign and replacement of certain components 

and plan to commence construction in the near 

term. Until construction is complete, we will 

continue to meet sulfur dioxide emission 

requirements through a combination of low-sulfur 

fuel purchases and emission allowance purchases.

POWER COSTS

In 2009, OVEC’s average power cost to the 

Sponsoring Companies was $41.97 per MWh 

compared with $40.29 per MWh in 2008. The 

increase was primarily due to increased operation 

and maintenance costs and additional debt service 

costs to fund the FGD construction projects. 

OVEC’s average power cost is projected to increase 

to $47.64 per MWh in 2010 due to increased fuel

costs and major maintenance costs. 

ENERGY SALES

OVEC’s use factor — the ratio of power 

scheduled by the Sponsoring Companies to power 

available — for the combined on- and off-peak 

periods averaged 96.3 percent in 2009 compared 

with 96.4 percent in 2008. The on-peak use factor 

averaged 99.8 percent in 2009 compared with 

99.9 percent in 2008. The off-peak use factor 

averaged 91.7 percent in 2009 and 91.9 percent in 

2008. 

In 2009, OVEC delivered 15.07 million MWh 

to the Sponsoring Companies compared with 

15.03 million MWh in 2008. In 2010, OVEC 

expects to generate and deliver 15.2 million MWh 

to the Sponsoring Companies. 

AVAILABILITY

In 2009, the combined availability of the five 

generating units at Kyger Creek and the six units at 

Clifty Creek was 85.8 percent compared with 

85.2 percent in 2008. The availability improvement 

was the result of reducing the forced outage factor 

from 5.6 percent in 2008 to 4.2 percent in 2009.

The combined equivalent availability of the 

Kyger Creek and Clifty Creek units was 

81.7 percent in 2009 compared with 80.5 percent in 

2008. In addition to fewer forced outages, the 

improved equivalent availability reflects a reduction 

in the unit derating factor from 3.36 percent in 2008 

to 2.91 percent in 2009. 

DOE ARRANGEMENTS WITH OVEC

In 2009, OVEC purchased 264,664 MWh of 

power and energy from other electricity suppliers 

for delivery and use by the Department of Energy 

(DOE) for its Portsmouth facility. At the request of 

the DOE, OVEC makes these limited purchases of 

power and energy under the terms and conditions of 

an Arranged Power Agreement with DOE.
3

TRANSMISSION SYSTEM CHANGES

The DOE load previously was served from 

two 345-kV substations owned, operated and 

maintained by the DOE. Each DOE substation was

integrated with the OVEC system by two doublecircuit tower 345-kV lines and with neighboring 

systems by one single-circuit 345-kV line. With the 

deactivation and permanent shutdown of the DOE’s

X533 substation in 2008, OVEC is in the process of 

reconfiguring the circuits that were previously tied 

to that substation. The circuit reconfiguration is 

scheduled to be completed in 2010.

ENVIRONMENTAL COMPLIANCE 

OVEC and IKEC place great emphasis on 

complying with federal, state and local 

requirements relating to protection of the 

environment. During 2009, the Kyger Creek and 

Clifty Creek plants operated in compliance with 

their respective emission limits and environmental 

regulations, and the Companies received no notices 

of violation from any of the environmental 

agencies. 

$200 MILLION TAX-EXEMPT DEBT ISSUED

In 2009, OVEC, in conjunction with the Ohio 

Air Quality Development Authority, issued

$200 million of tax-exempt Air Quality Revenue 

Bonds. The proceeds were used to finance a 

portion of the Clifty Creek and Kyger Creek FGD 

projects. Of the $200 million of bonds issued, 

$100 million was issued with a fixed interest rate of 

5.625 percent and will mature October 1, 2019. 

The remaining $100 million of credit-enhanced 

bonds were issued at floating interest rates and will 

mature February 1, 2026. The total long-term debt 

currently outstanding is $1.3 billion.

REVOLVING CREDIT FACILITY

In June 2010, OVEC extended its Revolving 

Credit Facility for three years in the amount of 

$225 million. The Revolving Credit Facility 

provides short-term financing for inventories, 

capital improvements and liquidity for general 

obligations.

SAFETY

Safety is at the forefront of the Companies’ 

stated values and is a priority in all facets of our 

operations. OVEC and IKEC employees realize the 

importance of safety and take an active role in 

assuring a safe workplace environment. In 2009, 

we achieved a 30 percent reduction in the number 

of OSHA recordable accidents, and 2010 is off to a 

very positive start. It is imperative to continue to 

strive for safety and health excellence in the work

environment. 

MANAGEMENT AND BOARD OF DIRECTORS

CHANGES

In July 2010, Scott N. Smith was elected vice 

president and assistant to the president of both

OVEC and IKEC, effective August 1, 2010. On 

July 31, 2010, David L. Hart will retire as vice 

president and assistant to the president of both 

Companies. In October 2009, G. Annette Hope was 

named plant manager at the Kyger Creek plant,

succeeding Ralph E. Amburgey, who retired from 

OVEC. In November 2009, Steven M. Smith 

accepted the position of plant manager at the Clifty 

Creek plant, replacing M. Ray Wilson, who retired

from IKEC. These managers bring with them a 

fresh perspective and a diverse array of business, 

engineering and management skills to effectively 

lead the Companies in the future. 

In October 2009, Charles E. Zebula, senior 

vice president and treasurer of American Electric 

Power Service Corporation, was elected assistant 

secretary and assistant treasurer of OVEC and 

IKEC. 

In October 2009, Nicholas K. Akins, 

executive vice president – generation of American

Electric Power, was elected to serve as an OVEC 

director following the resignation of Holly K. 

Koeppel. Ms. Koeppel had served on the OVEC 

board since 2002. In May 2010, JoAnn M.

Grevenow resigned as a director of IKEC. 

Ms. Grevenow had served on the IKEC board since 

2008. 

On behalf of my fellow directors and officers, 

I congratulate the employees of both Companies for 

two consecutive years of substantial improvements 

in safety performance — a 40 percent reduction in 
the number of OSHA recordable accidents in 2008 

and a 30 percent reduction in 2009. Furthermore, 

the employees achieved a 0.8 percent increase in 

equivalent availability in 2008, followed by an 

additional 1.2 percent increase in 2009. Clearly, 

these performance measures demonstrate the 

increased focus and dedicated efforts of all 

employees toward performing their jobs in the 

safest manner possible and operating and 

maintaining the production facilities more 

effectively. Although difficult challenges lie ahead, 

including the competitive pressures to keep 

production costs as low as possible and the 

uncertainties we face regarding additional 

environmental restrictions, I am certain that the 

employees will respond in a manner confirming that 

OVEC and IKEC will remain competitive energy 

producers for many years to come. 

Michael G. Morris 

President 

July 14,20 10 
5

OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2009 AND 2008

2009 2008

ASSETS

ELECTRIC PLANT:

 At original cost $1,260,793,337 $1,237,629,673

 Less — accumulated provisions for depreciation 949,382,858 907,307,285

 311,410,479 330,322,388

 Construction in progress 967,123,450 767,848,855

 Total electric plant 1,278,533,929 1,098,171,243

CURRENT ASSETS: 

 Cash and cash equivalents 14,709,175 45,176,266

 Accounts receivable 42,441,385 35,586,985

 Fuel in storage — at average cost 81,102,751 52,220,614

 Materials and supplies — at average cost 21,984,752 19,223,210

 Property taxes applicable to future years 2,364,600 2,348,400

 Emission allowances 5,215,651 2,244,126

 Deferred tax assets 10,372,692 10,982,423

 Regulatory assets 378,717 1,034,148

 Prepaid expenses and other 1,976,234 1,937,142

 Total current assets 180,545,957 170,753,314

REGULATORY ASSETS:

 Asset retirement costs 6,520,890 14,642,782

 Unrecognized postemployment benefits 3,211,580 2,236,997

 Deferred depreciation 10,149,660 27,047,875

 Pension benefits 7,831,705 27,261,510

 Total regulatory assets 27,713,835 71,189,164

DEFERRED CHARGES AND OTHER: 

 Unamortized debt expense 12,108,055 9,549,916

 Deferred tax assets 53,327,361 37,524,839

 Long-term investments 82,432,063 53,609,545

 Special deposits — restricted 13,513,206 - 

 Other 39,135 141,090

 Total deferred charges and other 161,419,820 100,825,390

TOTAL $1,648,213,541 $1,440,939,111

(Continued)
6

OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2009 AND 2008

2009 2008

CAPITALIZATION AND LIABILITIES

CAPITALIZATION:

 Common stock, $100 par value — authorized, 300,000 shares;

 outstanding, 100,000 shares in 2009 and 2008 $ 10,000,000 $ 10,000,000

 Long-term debt 1,272,222,726 1,009,864,781

 Line of credit borrowings - 50,000,000

 Retained earnings 2,242,366 2,506,811

 Total capitalization 1,284,465,092 1,072,371,592

CURRENT LIABILITIES:

 Current portion of long-term debt 37,642,056 35,453,528

 Line of credit borrowings 65,000,000 - 

 Accounts payable 49,395,340 99,405,252

 Deferred revenue — advances for construction 22,034,078 26,670,003

 Accrued other taxes 7,063,321 9,822,786

 Regulatory liabilities 2,630,963 4,230,400

 Accrued interest and other 22,976,026 20,837,485

 Total current liabilities 206,741,784 196,419,454

COMMITMENTS AND CONTINGENCIES (Note 13)

REGULATORY LIABILITIES:

 Postretirement benefits 31,275,265 13,670,062

 Investment tax credits 3,393,146 3,393,146

 Net antitrust settlement 1,823,929 1,823,929

 Income taxes refundable to customers 48,593,284 47,070,877

 Total regulatory liabilities 85,085,624 65,958,014

OTHER LIABILITIES:

 Pension liability 7,831,705 27,261,510

 Asset retirement obligations 29,439,057 34,162,393

 Postretirement benefits obligation 31,438,699 42,529,151

 Postemployment benefits obligation 3,211,580 2,236,997

 Total other liabilities 71,921,041 106,190,051

TOTAL $1,648,213,541 $1,440,939,111

See notes to consolidated financial statements. (Concluded)
7

OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

2009 2008

OPERATING REVENUES — Sales of electric energy to:

 Department of Energy $ 11,450,964 $ 18,539,153

 Sponsoring companies 637,142,180 603,273,999

 Total operating revenues 648,593,144 621,813,152

OPERATING EXPENSES:

 Fuel and emission allowances consumed in operation 329,448,104 340,212,739

 Purchased power 10,683,963 17,903,608

 Other operation 80,118,637 69,414,118

 Maintenance 84,292,246 71,513,450

 Depreciation 68,039,793 56,946,744

 Taxes — other than income taxes 9,877,156 9,784,455

 Income taxes 2,421,167 1,023,381

 Total operating expenses 584,881,066 566,798,495

OPERATING INCOME 63,712,078 55,014,657

OTHER INCOME 7,207,538 4,714,761

INCOME BEFORE INTEREST CHARGES 70,919,616 59,729,418

INTEREST CHARGES:

 Amortization of debt expense 1,021,186 532,119

 Interest expense 67,012,875 54,106,130

 

 Total interest charges 68,034,061 54,638,249

NET INCOME 2,885,555 5,091,169

RETAINED EARNINGS — Beginning of year 2,506,811 2,915,642

CASH DIVIDENDS ON COMMON STOCK (3,150,000) (5,500,000)

RETAINED EARNINGS — End of year $ 2,242,366 $ 2,506,811

See notes to consolidated financial statements.
8

OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

2009 2008

OPERATING ACTIVITIES:

 Net income $ 2,885,555 $ 5,091,169

 Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 Depreciation 68,039,793 56,946,744

 Amortization of debt expense 1,021,186 532,119

 Deferred taxes (13,670,384) 364,509

 Gain on disposal of assets - (300,000)

 Gain on marketable securities (4,632,659) (638,007)

 Changes in assets and liabilities:

 Accounts receivable (6,854,400) (6,607,947)

 Fuel in storage (28,882,137) 11,692,717

 Materials and supplies (2,761,542) (2,359,883)

 Property taxes applicable to subsequent years (16,200) (120,480)

 Emission allowances (2,971,525) 9,543,838

 Refundable state income taxes - 849,123

 Prepaid expenses and other (39,092) (232,007)

 Other assets (501,194) 15,532,270

 Regulatory assets 28,218,008 (27,835,827)

 Accounts payable 8,407,294 (22,535,520)

 Deferred revenue (4,635,925) 2,080,981

 Accrued taxes (2,759,465) 2,143,148

 Accrued interest and other 2,138,541 4,054,237

 Regulatory liabilities 15,020,303 (21,226,286)

 Other liabilities (34,269,010) 34,969,007

 Net cash provided by operat ing act ivit ies 23,737,147 61,943,905

INVESTING ACTIVITIES:

 Electric plant additions (289,921,469) (435,783,038)

 Proceeds from sale of marketable securities 62,416,930 24,286,124

 Purchases of marketable securities (99,516,847) (76,871,172)

 Proceeds from sale of transformers - 300,000

 Net cash used in invest ing act ivit ies (327,021,386) (488,068,086)

FINANCING ACTIVITIES:

 Issuance of Senior 2009 Bonds 200,000,000 - 

 Issuance of Senior 2009 Notes 100,000,000 - 

 Issuance of Senior 2008 Notes - 350,000,000

 Loan origination costs (3,579,325) (3,250,954)

 Repayment of Senior 2006 Notes (14,130,741) (13,345,479)

 Repayment of Senior 2007 Notes (10,033,212) (9,463,928)

 Repayment of Senior 2008 Notes (11,289,574) (4,833,687)

 Proceeds from line of credit 255,000,000 100,000,000

 Payments on line of credit (240,000,000) (50,000,000)

 Dividends on common stock (3,150,000) (5,500,000)

 Net cash provided by financing act ivit ies 272,817,148 363,605,952

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (30,467,091) (62,518,229)

CASH AND CASH EQUIVALENTS — Beginning of year 45,176,266 107,694,495

CASH AND CASH EQUIVALENTS — End of year $ 14,709,175 $ 45,176,266

SUPPLEMENTAL DISCLOSURES:

 Interest paid $ 65,698,244 $ 49,379,342

 Income taxes paid (received) — net $ 17,757,000 $ (710,829)

 Non-cash electric plant additions included in accounts payable at December 31 $ 4,807,848 $ 63,225,054

See notes to consolidated financial statements.
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

9

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Consolidated Financial Statements — The consolidated financial statements include the accounts of 

Ohio Valley Electric Corporation (OVEC) and its wholly owned subsidiary, Indiana-Kentucky Electric 

Corporation (IKEC), collectively, the ―Companies.‖ All intercompany transactions have been eliminated 

in consolidation.

Organization — The Companies own two generating stations located in Ohio and Indiana with a 

combined electric production capability of approximately 2,256 megawatts. OVEC is owned by several 

investor-owned utilities or utility holding companies and an affiliate of a generation and transmission rural 

electric cooperative. These entities and their affiliates comprise the Sponsoring Companies. The 

Sponsoring Companies purchase power from OVEC according to the terms of the Inter-Company Power 

Agreement (ICPA), which in 2004 was extended for an additional 20 years from March 13, 2006 to 

March 13, 2026. Approximately 30% of the Companies’ employees are covered by a collective bargaining 

agreement that expires August 31, 2011.

Rate Regulation — The proceeds from the sale of power to the Sponsoring Companies are designed to be 

sufficient for OVEC to meet its operating expenses and fixed costs, as well as earn a return on equity 

before federal income taxes. In addition, the proceeds from power sales are designed to cover debt 

amortization and interest expense associated with financings. The Companies have continued and expect 

to continue to operate pursuant to the cost plus rate of return recovery provisions at least to March 13, 

2026, the date of termination of the ICPA.

The accounting guidance for ―Regulated Operations,‖ provides that rate-regulated utilities account for and 

report assets and liabilities consistent with the economic effect of the way in which rates are established, if 

the rates established are designed to recover the costs of providing the regulated service and it is probable 

that such rates can be charged and collected. The Companies follow the accounting and reporting 

requirements in accordance with the guidance for ―Regulated Operations.‖ Certain expenses and credits 

subject to utility regulation or rate determination normally reflected in income are deferred on the 

accompanying consolidated balance sheets and are recognized in income as the related amounts are 

included in service rates and recovered from or refunded to customers.
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

10

The Companies’ regulatory assets, liabilities, and amounts authorized for recovery through Sponsor 

billings at December 31, 2009 and 2008, were as follows:

2009 2008

Regulatory assets:

 Current assets:

 Income taxes billable to customers $ - $ 1,034,148

 Deferred debt costs 378,717 - 

Total 378,717 1,034,148

 Other assets:

 Asset retirement costs 6,520,890 14,642,782

 Unrecognized postemployment benefits 3,211,580 2,236,997

 Deferred depreciation 10,149,660 27,047,875

 Pension benefits 7,831,705 27,261,510

 Total 27,713,835 71,189,164

Total regulatory assets $28,092,552 $72,223,312

Regulatory liabilities:

 Current liabilities:

 Deferred credit — EPA emission allowance proceeds $ - $ 1,577,431

 Advance collection of interest 2,630,963 2,652,969

 Total 2,630,963 4,230,400

 Other liabilities:

 Postretirement benefits 31,275,265 13,670,062

 Investment tax credits 3,393,146 3,393,146

 Net antitrust settlement 1,823,929 1,823,929

 Income taxes refundable to customers 48,593,284 47,070,877

 Total 85,085,624 65,958,014

Total regulatory liabilities $87,716,587 $70,188,414

Regulatory Assets — Regulatory assets consist primarily of deferred depreciation, asset retirement costs, 

and pension benefits. Deferred depreciation is recovered over the life of the debt that was used to fund the 

related plant additions. The Companies follow the sinking fund depreciation method for ratemaking 

purposes, and the difference between straight-line depreciation and the debt principal payments billed to 

customers is recorded as deferred depreciation. With the exception of deferred debt costs, which will be 

recovered during 2010, other regulatory assets are being recovered on a long-term basis.
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

11

Regulatory Liabilities — The regulatory liabilities classified as current in the accompanying 

consolidated balance sheet as of December 31, 2009, represents interest expense collected from customers 

in advance of expense recognition. These amounts outstanding will be credited to customer bills during

2010. Other regulatory liabilities consist primarily of income taxes refundable to customers and 

postretirement benefits. Income taxes refundable to customers are credited to customer bills in the period 

when the related deferred tax assets are realized. The Companies’ current ratemaking policy recovers 

postretirement benefits in an amount equal to estimated service cost. As a result, related regulatory 

liabilities are being credited to customer bills on a long-term basis. The remaining regulatory liabilities are 

awaiting credit to customer bills in a future period that is yet to be determined.

Cash and Cash Equivalents — For purposes of these statements, the Companies consider temporary 

cash investments to be cash equivalents since they are readily convertible into cash and have original 

maturities of less than three months.

Electric Plant — Property additions and replacements are charged to utility plant accounts. Depreciation 

expense is recorded at the time property additions and replacements are billed to customers or at the date 

the property is placed in service if the in-service date occurs subsequent to the customer billing. Customer 

billings for construction in progress are recorded as deferred revenue-advances for construction. These 

amounts are closed to revenue at the time the related property is placed in service. Deferred depreciation, 

depreciation expense, and accumulated depreciation are recorded when financed property additions and 

replacements are recovered over a period of years through customer debt retirement billing. All 

depreciable property will be fully billed and depreciated prior to the expiration of the ICPA. Repairs of 

property are charged to maintenance expense.

Fuel in Storage, Emission Allowances, and Materials and Supplies — The Companies maintain coal, 

reagent, and oil inventories for use in the generation of electricity and emission allowance inventories for 

regulatory compliance purposes due to the generation of electricity. These inventories are valued at 

average cost. Materials and supplies consist primarily of replacement parts necessary to maintain the 

generating facilities and are valued at average cost.

Long-Term Investments — Long-term investments consist of marketable securities that are held for the 

purpose of funding postretirement benefits and decommissioning and demolition costs. These securities 

have been classified as trading securities in accordance with the provisions of ―Investments — Debt and 

Equity Securities‖ accounting guidance. Trading securities reflected in Long-Term Investments are carried 

at fair value with the unrealized gain or loss, reported in Other Income. The cost of securities sold is based 

on the specific identification cost method. The fair value of most investment securities is determined by 

reference to currently available market prices. Where quoted market prices are not available, we use the 

market price of similar types of securities that are traded in the market to estimate fair value. See ―Fair 

Value Measurements‖ in Note 11. Due to tax limitations, the amounts held in the postretirement benefits 

portfolio have not yet been transferred to the Voluntary Employee Beneficiary Association (VEBA) trusts 

(see Note 9). Long-term investments primarily consist of municipal bonds, money market mutual fund 

investments, and mutual funds. Net unrealized gains recognized during 2009 and 2008 on securities still 

held at the balance sheet date were $4,632,659 and $638,007, respectively.

Special Deposits — Special deposits consist of money market mutual funds held by trustees primarily 

restricted for use in specific construction projects.
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

12

Money market mutual funds reflected in special deposits are carried at fair value with the related 

investment income, reported in Other Income. The cost of securities sold is based on the specific 

identification method. The fair value of money market mutual funds is determined by reference to 

currently available market prices. There were no unrealized gains or losses recognized on this portfolio 

during 2009.

Fair Value Measurements of Assets and Liabilities — The accounting guidance for ―Fair Value 

Measurements and Disclosures‖ establishes a fair value hierarchy that prioritizes the inputs used to 

measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets 

for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs 

(Level 3 measurements). Where observable inputs are available, pricing may be completed using 

comparable securities, dealer values and general market conditions to determine fair value. Valuation 

models utilize various inputs that include quoted prices for similar assets or liabilities in active markets, 

quoted prices for identical or similar assets or liabilities in inactive markets and other observable inputs 

for the asset or liability.

OVEC utilizes its trustee’s external pricing service in its estimate of the fair value of the underlying 

investments held in the benefit plan trusts and investment portfolios. The Companies’ management 

reviews and validates the prices utilized by the trustee to determine fair value. Equities are classified as 

Level 1 holdings if they are actively traded on exchanges. Fixed income securities do not trade on an 

exchange and do not have an official closing price. Pricing vendors calculate bond valuations using 

financial models and matrices. Fixed income securities are typically classified as Level 2 holdings because 

their valuation inputs are based on observable market date. Observable inputs used for valuing fixed 

income securities are benchmark yields, reported trades, broker/dealer quotes, issuer spreads, bids, offers, 

and economic events. Other securities with model-derived valuation inputs that are observable are also 

classified as Level 2 investments. Investments with unobservable valuation inputs are classified as Level 3 

investments. OVEC’s only level 3 investment is the John Hancock Group Annuity Contract held in the 

Pension Trust (Note 9). The fair value of the insurance contract is calculated based on estimated 

redemption value of the policy.

Unamortized Debt Expense — Unamortized debt expense relates to loan origination costs incurred to 

secure financing. These costs are being amortized using the effective yield method over the life of the 

related loans.

Asset Retirement Obligations and Asset Retirement Costs — The Companies recognize the fair value 

of legal obligations associated with the retirement or removal of long-lived assets at the time the 

obligations are incurred and can be reasonably estimated. The initial recognition of this liability is 

accompanied by a corresponding increase in depreciable electric plant. Subsequent to the initial 

recognition, the liability is adjusted for any revisions to the expected value of the retirement obligation 

(with corresponding adjustments to electric plant) and for accretion of the liability due to the passage of 

time.
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

13

These asset retirement obligations are primarily related to obligations associated with future asbestos 

abatement at certain generating stations and certain plant closure costs. As of December 31, 2009 and 

2008, the Companies had a regulatory asset of $6.5 million and $14.6 million, respectively, related to 

asset retirement obligations.

Balance — December 31, 2007 $32,223,528

 Accretion 1,938,865

Balance — December 31, 2008 34,162,393

 Accretion 2,049,744

 Liabilities settled (3,264,559)

 Revision in cash flow estimates (3,508,521)

Balance — December 31, 2009 $29,439,057

During 2009 the Companies completed an updated study to estimate the asset retirement costs described 

above. The revised estimated costs are recorded in the accompanying balance sheets.

The Companies do not recognize liabilities for asset retirement obligations for which the fair value cannot 

be reasonably estimated. The Companies have asset retirement obligations associated with transmission 

assets at certain generating stations. However, the retirement date for these assets cannot be determined; 

therefore, the fair value of the associated liability currently cannot be estimated and no amounts are 

recognized in the consolidated financial statements herein.

Income Taxes — The Companies use the liability method of accounting for income taxes. Under the 

liability method, the Companies provide deferred income taxes for all temporary differences between the 

book and tax basis of assets and liabilities which will result in a future tax consequence.

The Companies account for uncertain tax positions in accordance with the accounting guidance for 

―Income Taxes.‖

Use of Estimates — The preparation of consolidated financial statements in conformity with accounting 

principles generally accepted in the United States of America requires management to make estimates and 

assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets 

and liabilities at the date of the consolidated financial statements and the reported amounts of revenues 

and expenses during the reporting period. Actual results could differ from those estimates.

Subsequent Events — In preparing the accompanying financial statements and disclosures, the 

Companies reviewed subsequent events through April 14, 2010.

2. RELATED-PARTY TRANSACTIONS

Transactions with the Sponsoring Companies during 2009 and 2008 included the sale of all generated 

power to them, the purchase of Arranged Power from them and other utility systems in order to meet the 
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

14

Department of Energy’s power requirements, contract barging services, railcar services, and minor 

transactions for services and materials. The Companies have Power Agreements with Louisville Gas and 

Electric Company, Duke Energy Ohio, Inc., The Dayton Power and Light Company, Kentucky Utilities 

Company, Ohio Edison Company, and American Electric Power Service Corporation as agent for the 

American Electric Power System Companies; and Transmission Service Agreements with Louisville Gas 

and Electric Company, Duke Energy Ohio, Inc., The Dayton Power and Light Company, The Toledo 

Edison Company, Ohio Edison Company, Kentucky Utilities Company, and American Electric Power 

Service Corporation as agent for the American Electric Power System Companies.

In September 2006, the Companies sold two transformers and associated equipment to Duke Energy 

Ohio, Inc. for a total maximum purchase price of $3 million, which, subject to the terms of the asset 

purchase agreement, was contingently payable in equal annual installments over ten years. The annual 

purchase price payment obligation was contingent on the performance of the transformers, and as such, no 

receivable was recognized for future anticipated payment obligations. In 2008, the Companies were 

informed that one of the transformers failed, and as such, no further sales proceeds are anticipated.

At December 31, 2009 and 2008, balances due from or to the Sponsoring Companies are as follows:

2009 2008

Accounts receivable $35,699,802 $31,668,608

American Electric Power Company, Inc. and subsidiary company owned 43.47% of the common stock of 

OVEC as of December 31, 2009. The following is a summary of the principal services received from the 

American Electric Power Service Corporation as authorized by the Companies’ Boards of Directors:

2009 2008

General services $ 2,762,461 $ 2,198,238

Specific projects 11,973,067 21,274,966

Total $14,735,528 $23,473,204

General services consist of regular recurring operation and maintenance services. Specific projects 

primarily represent nonrecurring plant construction projects and engineering studies, which are approved 

by the Companies’ Boards of Directors. The services are provided in accordance with the service 

agreement dated December 15, 1956, between the Companies and the American Electric Power Service 

Corporation.

3. COAL SUPPLY

The Companies have coal supply agreements with certain nonaffiliated companies that expire at various 

dates from the year 2010 through 2017. Pricing for coal under these contracts is subject to contract 

provisions and adjustments. The Companies currently have approximately 90% of their 2010 coal 

requirements under long-term agreements of one year or greater.
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

15

4. INVENTORIES

Inventories — Net of reserves, at December 31, 2009 and 2008, consist of the following:

2009 2008

Fuel in storage — at average cost $ 81,102,751 $52,220,614

Materials and supplies — at average cost 21,984,752 19,223,210

Emission allowances 5,215,651 2,244,126

Total inventories $108,303,154 $73,687,950

5. ELECTRIC PLANT

Electric plant at December 31, 2009 and 2008, consists of the following:

2009 2008

Intangible $ 26,564 $ 26,564

Steam production plant 1,174,766,135 1,152,457,582

Transmission plant 73,709,826 60,191,487

General plant 12,290,812 24,954,040

1,260,793,337 1,237,629,673

Less accumulated depreciation 949,382,858 907,307,285

 311,410,479 330,322,388

Construction in progress 967,123,450 767,848,855

Total electric plant $1,278,533,929 $1,098,171,243

6. BORROWING ARRANGEMENTS AND NOTES

OVEC has an unsecured bank revolving line of credit agreement with a borrowing limit of $200 million 

as of December 31, 2009. The $200 million line of credit has an expiration date of August 4, 2010. At 

December 31, 2009 and 2008, OVEC had borrowed $65 million and $50 million, respectively, under this 

line of credit. Interest expense related to line of credit borrowings was $1,138,063 in 2009 and $255,699 

in 2008. During 2009 and 2008, OVEC incurred annual commitment fees of $220,622 and $343,729, 

respectively, based on the borrowing limits of the line of credit.
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

16

7. LONG-TERM DEBT

The following amounts were outstanding at December 31, 2009 and 2008:

Interest

Rate 2009 2008

Senior 2006 Notes due February 15, 2026 5.80 % $ 398,883,135 $ 413,013,876

Senior 2007 Notes: 

 Tranche A due February 15, 2026 5.90 184,039,494 190,703,342

 Tranche B due February 15, 2026 5.90 46,349,039 48,027,572

 Tranche C due February 15, 2026 5.90 46,716,375 48,407,206

Senior 2008 Notes: 

 Tranche A due February 15, 2026 5.92 47,078,351 48,780,045

 Tranche B due February 15, 2026 6.71 142,330,117 147,157,899

 Tranche C due February 15, 2026 6.71 144,468,271 149,228,369

Series 2009 Notes and Bonds:

 2009A due February 15, 2013 2.034 100,000,000 - 

 2009A due February 1, 2026 0.22 25,000,000 - 

 2009B due February 1,2026 0.30 25,000,000 - 

 2009C due February 1, 2026 0.25 25,000,000 - 

 2009D due February 1, 2026 0.30 25,000,000 - 

 2009E due October 1, 2019 5.625 100,000,000 - 

 Total debt 1,309,864,782 1,045,318,309

Current portion of long-term debt 37,642,056 35,453,528

Total long-term debt $1,272,222,726 $1,009,864,781

During 2008, OVEC issued $350 million unsecured senior notes (Senior 2008 Notes) in private 

placements in three tranches. The $50 million Tranche A notes were issued in March 2008, the 

$150 million Tranche B notes were issued in June 2008, and the $150 million Tranche C notes were

issued in August 2008.

During 2009, OVEC issued $100 million variable rate unsecured senior notes (2009A Notes) in private 

placement, a series of four variable rate tax exempt pollution control bonds (2009A, B, C, and D Bonds), 

and fixed rate tax exempt pollution control bonds (2009E Bonds). The 2009A, B, C, and D Bonds, in the 

amount of $25 million each, were issued in August 2009. In October 2009, the non-amortizing 2009E 

Bonds were issued in the amount of $100 million. The 2009A Notes and 2009A, B, C, and D Bonds are 

non-amortizing issues and pay interest at variable rates. The rates listed above reflect the interest rate in 

effect at December 31, 2009.

All of the OVEC amortizing senior notes have maturities scheduled for February 15, 2026. The 

$100 million non-amortizing senior notes will mature on February 1, 2013 with the principal amount due 

on that date. The tax exempt variable rate bonds all mature on February 15, 2026, with the aggregate 
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

17

$100 million principal amount due on that date. The tax exempt fixed rate bonds mature on October 1, 

2019 with an amount of $100 million principal due on that date. The annual maturities of long-term debt 

as of December 31, 2009, are as follows:

2010 $ 37,642,056

2011 39,966,242

2012 42,434,535

2013 145,055,904

2014 47,839,885

2015–2026 996,926,160

Total $1,309,864,782

8. INCOME TAXES

OVEC and IKEC file a consolidated federal income tax return. The effective tax rate varied from the 

statutory federal income tax rate due to differences between the book and tax treatment of various 

transactions as follows:

2009 2008

Income tax expense at 35% statutory rate $1,857,353 $ 2,140,093

State income taxes net of federal benefit 817,024 66,042

Temporary differences flowed through to customer bills (267,941) (1,218,762)

Permanent differences 14,731 36,008

 

Income tax provision $2,421,167 $ 1,023,381

Effective tax rate 45.6 % 16.7 %

Components of the income tax provision were as follows:

2009 2008

Current income tax expense $ 15,678,705 $ 977,761

Deferred income tax expense (13,257,538) 45,620

 

Total income tax provision $ 2,421,167 $1,023,381

OVEC and IKEC record deferred tax assets and liabilities based on differences between book and tax 

basis of assets and liabilities measured using the enacted tax rates and laws that will be in effect when the 

differences are expected to reverse. Deferred tax assets and liabilities are adjusted for changes in tax rates. 

The deferred tax assets recorded in the accompanying consolidated balance sheets consist primarily of the 

net deferred taxes on depreciation, postretirement benefits obligation, net operating loss carryforwards, 

asset retirement obligations, regulatory assets and regulatory liabilities.
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

18

To the extent that the Companies have not reflected credits in customer billings for deferred tax assets, 

they have recorded a regulatory liability representing income taxes refundable to customers under the 

applicable agreements among the parties. The liability was $48,593,284 at December 31, 2009, and 

$47,070,877 at December 31, 2008.

Deferred income tax assets (liabilities) consisted of the following at December 31, 2009 and 2008:

2009 2008

Deferred tax assets:

 Deferred revenue — advances for construction $ 7,888,820 $ 9,619,159

 Federal net operating loss carryforwards - 4,456,189

 State net operating loss carryforwards - 39,212

 AMT credit carryforwards - 2,532,919

 Postretirement benefit obligation 15,914,071 20,445,933

 Pension liability 2,803,971 9,832,499

 Postemployment benefit obligation 1,149,836 806,825

 Asset retirement obligations 10,648,464 12,321,464

 Miscellaneous accruals 2,784,832 2,649,351

 Regulatory liability — postretirement benefits 11,197,425 4,930,427

 Regulatory liability — investment tax credits 1,214,842 1,223,817

 Regulatory liability — net antitrust settlement 653,018 657,843

 Regulatory liability — income taxes refundable to customers 17,660,365 16,977,211

 Total deferred tax assets 71,915,644 86,492,849

Deferred tax liabilities:

 Regulatory asset — income taxes billable to customers - (361,952)

 Prepaid expenses (613,978) (582,702)

 Electric plant (1,204,691) (21,120,348)

 Regulatory asset — pension benefits (2,803,971) (9,832,499)

 Regulatory asset — unrecognized postemployment benefits (1,149,836) (806,825)

 Regulatory asset — asset retirement costs (2,443,115) (5,281,261)

 Total deferred tax liabilities (8,215,591) (37,985,587)

Deferred income tax assets (liabilities) $63,700,053 $ 48,507,262

The accounting guidance for ―Income Taxes‖ addresses the determination of whether the tax benefits 

claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under 

this guidance, the Companies may recognize the tax benefit from an uncertain tax position only if it is 

more likely than not that the tax position will be sustained on examination by the taxing authorities, based 

on the technical merits of the position. The tax benefits recognized in the financial statements from such a 

position are measured based on the largest benefit that has a greater than fifty percent likelihood of being 

realized upon ultimate settlement. The Companies have not identified any uncertain tax positions as of 

December 31, 2009 and 2008 and accordingly, no liabilities for uncertain tax positions have been 

recognized. 
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

19

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (the 

PPAC Act). The PPAC Act is a comprehensive health care reform bill that includes revenue-raising 

provisions for nearly $400 billion over 10 years through tax increases on high-income individuals, excise 

taxes on high-cost group health plans and new fees on selected health-care-related industries. In addition, 

on March 30, 2010, President Obama signed into law the reconciliation measure, which modifies certain 

provisions of the PPAC Act. 

An employer offering retiree prescription drug coverage that is at least as valuable as Medicare Part D 

coverage is currently entitled to a federal retiree drug subsidy. Employers can claim a deduction for the 

entire cost of providing the prescription drug coverage even though a portion of the cost is offset by the 

subsidy they receive. The PPAC Act repeals the current rule permitting deduction of the portion of the 

drug coverage expense that is offset by the Medicare Part D subsidy. This provision of the PPAC Act as 

modified by the reconciliation measure is effective for taxable years beginning after December 31, 2012.

As OVEC & IKEC currently receive a Medicare Part D subsidy the passage of the PPAC Act will result in 

an estimated reduction of the postemployment benefits deferred tax asset of approximately $6 million and 

a reduction to the related regulatory liability (income taxes refundable to customer) of approximately 

$6 million. 

The Companies file income tax returns with the Internal Revenue Service, the states of Ohio, Indiana and 

the Commonwealth of Kentucky. The Companies are no longer subject to federal tax examinations for tax 

years 2005 and earlier. The Companies are no longer subject to states of Ohio and Indiana tax 

examinations for tax years 2005 and earlier. The Companies are no longer subject to the Commonwealth 

of Kentucky examinations for tax years 2004 and earlier.

9. PENSION PLAN, OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS

The Companies have a noncontributory qualified defined benefit pension plan (the Pension Plan) covering 

substantially all of their employees. The benefits are based on years of service and each employee’s 

highest consecutive 36-month compensation period. Employees are vested in the Pension Plan after five 

years of service with the Companies.

Funding for the Pension Plan is based on actuarially determined contributions, the maximum of which is 

generally the amount deductible for income tax purposes and the minimum being that required by the 

Employee Retirement Income Security Act of 1974 (ERISA), as amended. The full cost of the pension 

benefits and related obligations has been allocated to OVEC and IKEC in the accompanying consolidated 

financial statements. The allocated amounts represent approximately a 54% and 46% split for OVEC and 

IKEC, respectively, as of December 31, 2009 and 2008. The Pension Plan’s assets consist of an insurance 

contract and investments in equity and debt securities. In the following disclosures, the insurance contract 

is treated as a debt security because its long-term yield is tied to the debt markets.

In addition to the Pension Plan, the Companies provide certain health care and life insurance benefits 

(Other Postretirement Benefits) for retired employees. Substantially all of the Companies’ employees 

become eligible for these benefits if they reach retirement age while working for the Companies. These 

and similar benefits for active employees are provided through employer funding and insurance policies. 
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

20

In December 2004, the Companies established Voluntary Employee Beneficiary Association (VEBA) 

trusts.

All of the trust funds’ investments for the pension and postemployment benefit plans are diversified and 

managed in compliance with all laws and regulations. Management regularly reviews the actual asset 

allocation and periodically rebalances the investments to targeted allocation when appropriate. The 

investments are reported at fair value under the ―Fair Value Measurements and Disclosures‖ accounting 

guidance.

All benefit plan assets are invested in accordance with each plan’s investment policy. The investment 

policy outlines the investment objectives, strategies and target asset allocations by plan. Benefit plan 

assets are reviewed on a formal basis each quarter by the OVEC/IKEC Qualified Plan Trust Committee.

The investment philosophies for the benefit plans support the allocation of assets to minimize risks and 

optimize net returns.

Investment strategies include: 

Maintaining a long-term investment horizon.

Diversifying assets to help control volatility of returns at acceptable levels.

Managing fees, transaction costs and tax liabilities to maximize investment earnings.

Using active management of investments where appropriate risk/return opportunities exist.

Keeping portfolio structure style-neutral to limit volatility compared to applicable benchmarks.

The target asset allocation for each portfolio is as follows:

Pension Plan Assets Target

Domestic equity 15.0 %

International and global equity 15.0

Guaranteed annuity contract 70.0

VEBA Plan Assets Target

Domestic equity 20.0 %

International and global equity 20.0

Fixed income 57.0

Cash 3.0

Each benefit plan contains various investment limitations. These limitations are described in the 

investment policy statement and detailed in customized investment guidelines or documented by mutual 

fund prospectus. These investment guidelines require appropriate portfolio diversification and define 

security concentration limits. Each investment manager's portfolio is compared to an appropriate 

diversified benchmark index.
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

21

Equity investment limitations:

No security in excess of 5% of all equities.

Cash equivalents must be less than 10% of each investment manager's equity portfolio.

Individual securities must be less than 15% of each manager's equity portfolio.

No investment in excess of 5% of an outstanding class of any company.

No securities may be bought or sold on margin or other use of leverage.

As otherwise defined by fund prospectus.

Fixed income limitations:

The Pension Plan fixed income allocation consists of a Guaranteed Annuity Contract issued by the John 

Hancock Life Insurance Company. The VEBA benefit plans’ fixed income allocation is comprised of a 

variety of fixed income mutual funds. Investment limitations for these fixed income funds are defined by 

manager prospectus. 

Cash limitations:

Cash and cash equivalents are held in each trust to provide liquidity and meet short-term cash needs. Cash 

equivalent funds are used to provide diversification and preserve principal. The underlying holdings in the 

cash funds are investment grade money market instruments including money market mutual funds, 

certificates of deposit, treasury bills and other types of investment grade short-term debt securities. The 

cash funds are valued each business day and provide daily liquidity. 
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

22

Projected Pension Plan and Other Postretirement Benefits obligations and funded status as of 

December 31, 2009 and 2008:

2009 2008 2009 2008

Change in projected benefit obligation:

 Projected benefit obligation — beginning

 of year $168,926,587 $153,972,014 $104,956,170 $ 97,431,448

 Service cost 4,309,555 3,899,052 3,135,170 2,781,098

 Interest cost 10,215,241 9,799,772 6,030,604 6,173,680

 Plan participants’ contributions - - 670,264 613,383

 Benefits paid (8,385,160) (7,755,609) (4,166,111) (3,286,320)

 Net actuarial (gain) loss 7,453,646 9,056,558 2,214,103 1,242,881

 Medicare subsidy - - 492,641 - 

 Expenses paid from assets (55,301) (45,200) - - 

 Projected benefit obligation — end

 of year 182,464,568 168,926,587 113,332,841 104,956,170

Change in fair value of plan assets:

 Fair value of plan assets — beginning

 of year 141,665,077 170,022,263 62,427,019 60,656,532

 Actual return on plan assets 35,708,247 (26,056,377) 18,567,123 (728,513)

 Expenses paid from assets (55,301) (45,200) - - 

 Employer contributions 5,700,000 5,500,000 3,903,206 5,171,937

 Plan participants’ contributions - - 670,264 613,383

 Medicare subsidy - - 492,641 - 

 Benefits paid (8,385,160) (7,755,609) (4,166,111) (3,286,320)

 Fair value of plan assets — end

 of year 174,632,863 141,665,077 81,894,142 62,427,019

Funded (underfunded) status — end of year $ (7,831,705) $ (27,261,510) $ (31,438,699) $ (42,529,151)

Pension Plan

Other Postretirement

Benefits

On December 8, 2003, the President of the United States of America signed into law the Medicare 

Prescription Drug, Improvement and Modernization Act of 2003 (the Act). The Act introduced a 

prescription drug benefit to retirees as well as a federal subsidy to sponsors of retiree health care benefit 

plans that provide a prescription drug benefit that is actuarially equivalent to the benefit provided by 

Medicare. The Companies believe that the coverage for prescription drugs is at least actuarially equivalent 

to the benefits provided by Medicare for most current retirees because the benefits for that group 

substantially exceed the benefits provided by Medicare, thereby allowing the Companies to qualify for the 

subsidy. The Companies’ employer contributions for Other Postretirement Benefits in the above table are 

net of subsidies received of $492,641 and $0 for 2009 and 2008, respectively. The Companies have 

accounted for the subsidy as a reduction of the benefit obligation detailed in the above table. The benefit 

obligation was reduced by approximately $13 million and $14.2 million as of December 31, 2009 and 

2008. Refer to the Income Taxes footnote (Note 8) for changes in the tax law surrounding the new health 

care bill.
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

23

The accumulated benefit obligation for the Pension Plan was $156,891,866 and $144,698,788 at 

December 31, 2009 and 2008, respectively.

Components of Net Periodic Benefit Cost — The Companies record the expected cost of Other 

Postretirement Benefits over the service period during which such benefits are earned.

Pension expense is recognized as amounts are contributed to the Pension Plan and billed to customers. The 

accumulated difference between recorded pension expense and the yearly net periodic pension expense as 

calculated under the accounting guidance for ―Compensation — Retirement Benefits,‖ is billable as a cost 

of operations under the ICPA when contributed to the pension fund. This accumulated difference has been 

recorded as a regulatory asset in the accompanying consolidated balance sheets.

2009 2008 2009 2008

Service cost $ 4,309,555 $ 3,899,052 $ 3,135,170 $ 2,781,098

Interest cost 10,215,241 9,799,772 6,030,604 6,173,680

Expected return on plan assets (8,374,411) (11,049,029) (3,585,115) (2,880,712)

Amortization of prior service cost 329,437 531,437 (379,000) (379,000)

Recognized actuarial loss 1,318,607 - (94,810) (263,945)

Net periodic benefit cost $ 7,798,429 $ 3,181,232 $ 5,106,849 $ 5,431,121

Pension and Other Postretirement Benefits

 expense recognized in the consolidated

 statement of income and retained earnings and

 billed to sponsoring companies under the ICPA $ 5,700,000 $ 5,500,000 $ 3,260,000 $ 3,260,000

Pension Plan

Other Postretirement

Benefits

The following table presents the classification of Pension Plan assets within the fair value hierarchy at 

December 31, 2009:

Quoted Prices Significant

in Active Other Significant

for Market Observable Unobservable

Identical Assets Inputs Inputs

2009 (Level 1) (Level 2) (Level 3)

Domestic equity $41,331,372 $ - $ - 

International and global equity $ 8,366,973 $ - $ - 

Cash and cash equivalents $ 863,051 $ - $ - 

Group Annuity Contract — John Hancock $ - $ - $123,998,162

Fair Value Measurements at

Reporting Date Using
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

24

See rollforward for the Group Annuity Contract with John Hancock below:

Balance — January 1, 2009 $107,810,562

Redemptions (9,219,040)

Realized/unrealized gains 25,406,640

Balance — December 31, 2009 $123,998,162

The following table presents the classification of Pension Plan assets within the fair value hierarchy at 

December 31, 2009:

Quoted Prices Significant

in Active Other Significant

for Market Observable Unobservable

Identical Assets Inputs Inputs

2009 (Level 1) (Level 2) (Level 3)

Domestic equity $34,393,753 $ - $ - 

International and global equity $10,136,800 $ - $ - 

Fixed income $33,902,168 $ - $ - 

Cash and cash equivalents $ 3,338,776 $ - $ - 

Fair Value Measurements at

Reporting Date Using

Pension Plan and Other Postretirement Benefit Assumptions — Actuarial assumptions used to 

determine benefit obligations at December 31, 2009 and 2008, were as follows:

2009 2008 2009 2008

Discount rate 5.90 % 6.10 % 6.00 % 5.90 %

Rate of compensation increase 4.00 4.00 4.00 4.00

Pension

Plan Benefits

Postretirement

Other
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

25

Actuarial assumptions used to determine net periodic benefit cost for the years ended December 31, 2009 

and 2008, were as follows:

2009 2008 2009 2008

Discount rate 6.10 % 6.50 % 5.90 % 6.50 %

Expected long-term return on plan assets 6.00 6.50 5.60 4.70

Rate of compensation increase 4.00 4.00 4.00 4.00

Pension

Plan Benefits

Postretirement

Other

In selecting the expected long-term rate of return on assets, the Companies considered the average rate of 

earnings expected on the funds invested or to be invested to provide for plan benefits. This included 

considering the Pension Plan and VEBA trusts’ asset allocation, as well as the target asset allocations for 

the future, and the expected returns likely to be earned over the life of the Pension Plan and the VEBAs.

Assumed health care cost trend rates at December 31, 2009 and 2008, were as follows:

2009 2008

Health care trend rate assumed for next year — participants under 65 9.50 % 8.00 %

Health care trend rate assumed for next year — participants over 65 9.50 9.50

Rate to which the cost trend rate is assumed to decline (the ultimate trend 

 rate) — participants under 65 5.00 5.00

Rate to which the cost trend rate is assumed to decline (the ultimate trend 

 rate) — participants over 65 5.00 5.00

Year that the rate reaches the ultimate trend rate 2015 2015

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care 

plans. A one-percentage-point change in assumed health care cost trend rates would have the following 

effects:

One-Percentage One-Percentage

Point Increase Point Decrease

Effect on total service and interest cost $ 1,719,802 $ (1,348,696)

Effect on postretirement benefit obligation 17,371,743 (13,915,748)
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

26

Pension Plan and Other Postretirement Benefit Assets — The asset allocation for the Pension Plan and 

VEBA trusts at December 31, 2009 and 2008, by asset category was as follows:

2009 2008 2009 2008

Asset category:

 Equity securities 29 % 24 % 40 % 24 %

 Debt securities 71 76 60 76

Pension Plan VEBA Trusts

The target asset allocation for the Pension Plan is 30% equity securities and 70% debt securities and for 

the VEBA trust is 40% equity securities and 60% debt securities.

Pension Plan and Other Postretirement Benefit Contributions — The Companies expect to contribute 

$5,700,000 to their Pension Plan and $7,500,000 to their Other Postretirement Benefits plan in 2010.

Estimated Future Benefit Payments — The following benefit payments, which reflect expected future 

service, as appropriate, are expected to be paid:

With Without

Years Ending Pension Medicare Medicare

December 31 Plan Subsidy Subsidy

2010 $ 8,846,797 $ 4,297,419 $ 4,611,468

2011 9,055,395 4,667,862 5,013,600

2012 9,446,150 5,077,960 5,461,505

2013 9,829,262 5,443,102 5,865,104

2014 10,278,614 5,919,263 6,376,655

Five years thereafter 61,096,710 37,684,162 40,634,280

Other Postretirement Benefits

Postemployment Benefits — The Companies follow the accounting guidance in ―Compensation — NonRetirement Postemployment Benefits,‖ and accrue the estimated cost of benefits provided to former or 

inactive employees after employment but before retirement. Such benefits include, but are not limited to, 

salary continuations, supplemental unemployment, severance, disability (including workers’ 

compensation), job training, counseling, and continuation of benefits, such as health care and life 

insurance coverage. The cost of such benefits and related obligations has been allocated to OVEC and 

IKEC in the accompanying consolidated financial statements. The allocated amounts represent 

approximately a 34% and 66% split between OVEC and IKEC, respectively, as of December 31, 2009, 

and approximately a 42% and 58% split between OVEC and IKEC, respectively, as of December 31, 

2008. The liability is offset with a corresponding regulatory asset and represents unrecognized 

postemployment benefits billable in the future to customers. The accrued cost of such benefits was 

$3,211,580 and $2,236,997 at December 31, 2009 and 2008, respectively.

Defined Contribution Plan — The Companies have a trustee-defined contribution supplemental pension 

and savings plan that includes 401(k) features and is available to employees who have met eligibility

requirements. The Companies’ contributions to the savings plan equal 100% of the first 1% and 50% of 
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

27

the next 5% of employee-participants’ contributions based upon total compensation. Benefits to 

participating employees are based solely upon amounts contributed to the participants’ accounts and 

investment earnings. By its nature, the plan is fully funded at all times. The employer contributions for 

2009 and 2008 were $1,712,262 and $1,634,334, respectively.

10. ENVIRONMENTAL MATTERS

Title IV of the 1990 Clean Air Act Amendments (CAAAs) required the Companies to reduce sulfur 

dioxide (SO2) emissions in two phases: Phase I in 1995 and Phase II in 2000. The Companies selected a 

fuel switching strategy to comply with the emission reduction requirements. The Companies also 

purchased additional SO2 allowances. The cost of these purchased allowances has been inventoried and 

included on an average cost basis in the cost of fuel consumed when used. The cost of unused allowances 

at December 31, 2009 and 2008 was $5,215,651 and $2,244,126, respectively.

Title IV of the 1990 CAAAs also required the Companies to comply with a nitrogen oxides (NOx) 

emission rate limit of 0.84 lb/mmBtu in 2000. The Companies installed overfire air systems on all eleven 

units at the plants to comply with this limit. The total capital cost of the eleven overfire air systems was 

approximately $8.2 million.

During 2002 and 2003, Ohio and Indiana finalized respective NOx State Implementation Plan (SIP) Call 

regulations that required further significant NOx emission reductions for coal-burning power plants during 

the ozone control period. The Companies installed selective catalytic reduction (SCR) systems on ten of 

their eleven units to comply with these rules. The total capital cost of the ten SCR systems was 

approximately $355 million.

On March 10, 2005, the U.S. EPA issued the Clean Air Interstate Rule (CAIR) that required further 

significant reductions of SO2 and NOx emissions from coal-burning power plants. On March 15, 2005, 

the U.S. EPA also issued the Clean Air Mercury Rule (CAMR) that required significant mercury emission 

reductions for coal-burning power plants. These emission reductions were required in two phases: 2009 

and 2015 for NOx; 2010 and 2015 for SO2; and 2010 and 2018 for mercury. Ohio and Indiana 

subsequently finalized their respective versions of CAIR and CAMR. In response, the Companies 

determined that it would be necessary to install flue gas desulfurization (FGD) systems at both plants to 

comply with these new rules. Following completion of the necessary engineering and permitting, 

construction was started on the new FGD systems.

In February 2008, the D.C. Circuit Court of Appeals issued a decision which vacated the federal CAMR 

and remanded the rule to the U.S. EPA with a determination that the rule be rewritten under the maximum 

achievable control technologies (MACT) provision of Section 112(d) of the Clean Air Act. A group of 

electric utilities and the U.S. EPA requested a rehearing of the decision, which was denied by the court. 

Following those denials, both the group of electric utilities and the U.S. EPA requested that the 

U.S. Supreme Court hear the case. However, in February 2009, the U.S. EPA withdrew its request and the 

group of utilities’ request was denied. These actions left the original court decision in place, which 

vacated the federal CAMR and remanded the rule to the U.S. EPA with a determination that the rule be 

rewritten under the MACT provision of Section 112(d) of the Clean Air Act.
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

28

In July 2008, the D.C. Circuit Court of Appeals issued a decision that vacated the federal CAIR and 

remanded the rule to the U.S. EPA. In September 2008, the U.S. EPA, a group of electric utilities and 

other parties filed petitions for rehearing. In December 2008, the D.C. Circuit Court of Appeals granted 

the U.S. EPA’s petition and remanded the rule to the U.S. EPA without vacatur, allowing the federal 

CAIR to remain in effect while a new rule was developed and promulgated. Since that time, U.S. EPA has 

been working on the CAIR replacement rule and is expected to issue a draft of the new rule for comment 

in the near future.

In December 2008, the Boards of Directors of the Companies authorized a delay in construction of the 

FGD at the Clifty Creek plant of at least 18 months due to economic uncertainty in the capital markets. 

In March 2009, the Boards of Directors also authorized a delay in the tie-in of the FGD systems of all five 

generating units at the Kyger Creek plant pending an investigation into the structural integrity of the 

internal components of two newly constructed jet bubbling reactors (JBRs), which are major components 

of the FGD system. Since that time, extensive studies have been conducted relating to this design issue, 

which affects the FGD construction projects at both the Kyger Creek and Clifty Creek plants, and the 

Board of Directors have authorized a complete redesign and replacement of the JBR internal components 

to resolve this structural integrity issue. A schedule for completing the Kyger Creek and Clifty Creek FGD 

construction projects is currently under review. 

Additional SO2 allowances will be purchased to operate the Clifty Creek and Kyger Creek generating 

units to comply with the current environmental emission rules during the delays. 

The total cost to complete the new Kyger Creek and Clifty Creek FGD systems and the associated 

landfills is currently estimated not to exceed $1.4 billion, including the amounts expended to date and 

included in construction in progress in the accompanying balance sheets.

On November 6, 2009, the Companies received a Section 114 Information Request from the U.S. EPA. 

The stated purpose of the information request was for the U.S. EPA to obtain the necessary information to 

determine if the Kyger Creek and Clifty Creek plants have been operating in compliance with the Federal 

Clean Air Act. Attorneys for the Companies subsequently contacted the U.S. EPA and established a 

schedule for submission of the requested information. Based on this schedule, all requested information 

was submitted to the U.S. EPA by March 8, 2010.

11. FAIR VALUE MEASUREMENTS

The accounting guidance for ―Financial Instruments,‖ requires disclosure of the fair value of certain 

financial instruments. The estimates of fair value under this guidance require the application of broad 

assumptions and estimates. Accordingly, any actual exchange of such financial instruments could occur at 

values significantly different from the amounts disclosed. As cash and cash equivalents, current 

receivables, current payables, and line of credit borrowings are all short term in nature, their carrying 

amounts approximate fair value.

As of December 31, 2009, the Companies held certain assets that are required to be measured at fair value 

on a recurring basis. These consist of investments recorded within special deposits and long-term 

investments. The investments consist of money market mutual funds and municipal securities. Changes in 
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

29

the observed trading prices and liquidity of money market funds are monitored as additional support for 

determining fair value, and unrealized gains and losses are recorded in earnings.

The methods described above may produce a fair value calculation that may not be indicative of net 

realizable value or reflective of future fair values. Furthermore, while the Companies believe their 

valuation methods are appropriate and consistent with other market participants, the use of different 

methodologies or assumptions to determine the fair value of certain financial instruments could result in a 

different fair value measurement at the reporting date.

Special Deposits and Long-Term Investments — Assets measured at fair value on a recurring basis at 

December 31, 2009 and 2008, were as follows:

Quoted Prices Significant

in Active Other Significant

for Market Observable Unobservable

Identical Assets Inputs Inputs

(Level 1) (Level 2) (Level 3)

2009

Cash equivalents $14,630,118 $ - $ - 

Marketable securities $ - $82,432,063 $ - 

Money market mutual funds $13,511,206 $ - $ - 

2008

Cash equivalents $ - $45,118,305 $ - 

Marketable securities $ - $53,609,545 $ - 

Fair Value Measurements at

Reporting Date Using

Long-Term Debt — The fair values of the senior notes and fixed rate bonds were estimated using 

discounted cash flow analyses based on current incremental borrowing rates for similar types of 

borrowing arrangements. These fair values are not reflected in the balance sheet.
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

30

The fair values and recorded values of the senior notes, fixed and variable rate bonds as of December 31, 

2009 and 2008, are as follows:

Fair Value Recorded Value Fair Value Recorded Value

Senior 2006 Notes $ 417,418,759 $ 398,883,135 $365,930,295 $ 413,013,876

Senior 2007 Notes 291,985,441 277,104,908 256,988,617 287,138,120

Senior 2008 Notes 368,508,300 333,876,739 324,385,533 345,166,313

Senior 2009A Notes 98,560,000 100,000,000 - - 

2009A Bonds 25,000,000 25,000,000 - - 

2009B Bonds 25,000,000 25,000,000 - - 

2009C Bonds 25,000,000 25,000,000 - - 

2009D Bonds 25,000,000 25,000,000 - - 

2009E Bonds 102,000,000 100,000,000 - - 

Total $1,378,472,500 $1,309,864,782 $947,304,445 $1,045,318,309

2009 2008

12. LEASES

OVEC has entered into operating leases to secure railcars for the transportation of coal in connection with 

the fuel switching modifications at the OVEC and the IKEC generating stations. OVEC has railcar lease 

agreements that extend to as long as December 31, 2025, with options to exit the leases under certain 

conditions. The amount in property under capital leases is $76,931 with accumulated depreciation of 

$8,614 as of December 31, 2009. There were no capital leases as of December 31, 2008. OVEC also has 

various other operating leases with other property and equipment. 

Future minimum lease payments for capital and operating leases at December 31, 2009, are as follows:

Years Ending

December 31 Operating Capital

2010 $ 4,782,390 $19,600

2011 3,395,658 19,600

2012 3,284,021 18,638

2013 3,215,364 11,813

2014 3,280,104 3,442

Thereafter 22,194,510 - 

Total future minimum lease payments $40,152,047 73,093

Less estimated interest element (4,776)

Estimated present value of future minimum lease payments $68,317
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

31

The annual operating lease cost incurred was $4,749,821 and $4,761,224 for 2009 and 2008, respectively 

and the annual capital lease cost incurred was $9,335 and $0 for 2009 and 2008, respectively.

13. COMMITMENTS AND CONTINGENCIES

The Companies are party to or may be affected by various matters under litigation. Management believes 

that the ultimate outcome of these matters will not have a significant adverse effect on either the 

Companies’ future results of operation or financial position.

* * * * * *
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

32

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors of

Ohio Valley Electric Corporation:

We have audited the accompanying consolidated balance sheets of Ohio Valley Electric Corporation and 

subsidiary company (the ―Companies‖), as of December 31, 2009 and 2008, and the related consolidated 

statements of income and retained earnings and cash flows for the years then ended. These consolidated 

financial statements are the responsibility of the Companies’ management. Our responsibility is to express an 

opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of 

America. Those standards require that we plan and perform the audit to obtain reasonable assurance about 

whether the consolidated financial statements are free of material misstatement. An audit includes consideration 

of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the 

circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companies’ internal 

control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on 

a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, 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, such consolidated financial statements present fairly, in all material respects, the financial 

position of the Companies as of December 31, 2009 and 2008, and the results of their operations and their cash 

flows for the years then ended in conformity with accounting principles generally accepted in the United States 

of America.

Deloitte & Touche LLP

Cincinnati, Ohio

April 14, 2010
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

33

OVEC PERFORMANCE—A 5-YEAR COMPARISON

2009 2008 2007 2006 2005 

Net Generation (MWh) 15,260,922 15,260,029 15,109,836 16,468,342 16,638,497

Energy Sales (MWh) to:

 DOE 264,664 270,369 256,613 246,371 251,375

 Sponsors 15,069,699 15,026,497 14,918,727 16,226,777 16,254,716

Maximum Demand (MW) by:

 DOE 39 42 41 37 45

 Sponsors 2,212 2,216 2,233 2,300 2,291

Weighted Average

 Demand (MW):

 DOE Operating Level 34 31 29 28 29

Power Costs to:

 DOE $11,450,965 $18,539,154 $14,605,000 $15,445,000 $14,520,000

 Sponsors $632,506,255 $605,354,979 $527,516,000 $509,024,000 $458,345,000

Average Price (MWh):

 DOE $43.266 $68.570 $56.915 $62.689 $57.764

 Sponsors $41.972 $40.286 $35.359 $31.369 $28.198

Operating Revenues $648,593,000 $621,813,000 $531,362,000 $523,927,000 $468,546,000

Operating Expenses $584,881,000 $566,798,000 $494,808,000 $494,893,000 $442,420,000

Cost of Fuel Consumed $329,448,000 $340,213,000 $300,666,000 $318,762,000 $287,093,000

Taxes (federal, state, and local) $12,298,000 $10,808,000 $9,898,000 $9,457,000 $7,735,000

Payroll $56,589,000 $53,694,000 $49,977,000 $47,561,000 $46,447,000

Fuel Burned (tons) 7,900,894 7,891,440 7,647,397 7,820,516 7,632,857

Heat Rate (Btu per kWh, 

 net generation) 10,299 10,236 10,180 10,053 9,978

Unit Cost of Fuel Burned

 (per mmBtu) $2.10 $2.18 $1.95 $1.95 $1.73

Unit Availability (percent) 85.8 85.2 85.0 88.8 88.0

Power Use Factor (percent) 96.29 96.39 96.92 98.06 99.54

Employees (year-end) 809 817 747 748 749
OHIO VALLEY ELECTRIC CORPORATION

AND SUBSIDIARY COMPANY

34

DIRECTORS

Ohio Valley Electric Corporation

*ANTHONY J. AHERN, Columbus, Ohio

President and Chief Executive Officer

Buckeye Power Generating, LLC

NICHOLAS K. AKINS, Columbus, Ohio

Executive Vice President – Generation

American Electric Power 

CURTIS H. DAVIS, Greensburg, Pennsylvania

Chief Operating Officer – Generation 

Allegheny Energy, Inc.

WILLIAM S. DOTY, Evansville, Indiana

Executive Vice President – Utility Operations

Vectren Corporation

CARL L. ENGLISH, Columbus, Ohio 

Chief Operating Officer

American Electric Power Service Corporation

GARY R. LEIDICH, Akron, Ohio

Executive Vice President

FirstEnergy Corp.

*MICHAEL G. MORRIS, Columbus, Ohio

Chairman, President and Chief Executive Officer

American Electric Power Company, Inc.

STEVEN K. NELSON, Columbus, Ohio

Chairman

Buckeye Power, Inc.

PATRICK W. O’LOUGHLIN, Columbus, Ohio

Vice President and Chief Operating Officer

Buckeye Power Generating, LLC

GARY G. STEPHENSON, Dayton, Ohio

Executive Vice President, Operations

DPL Inc.

*STANLEY F. SZWED, Akron, Ohio

Vice President – FERC Policy and Chief 

 FERC Compliance Officer

FirstEnergy Service Company

PAUL W. THOMPSON, Louisville, Kentucky

Senior Vice President, Energy Services

E.ON U.S. LLC 

*JOHN N. VOYLES, Louisville, Kentucky

Vice President, Transmission and Generation Services

E.ON U.S. LLC

*CHARLES WHITLOCK, Cincinnati, Ohio

President, Commercial Asset Management

Duke Energy Corporation

Indiana-Kentucky Electric Corporation 

*CURTIS H. DAVIS, Greensburg, Pennsylvania

Chief Operating Officer – Generation 

Allegheny Energy, Inc.

WILLIAM S. DOTY, Evansville, Indiana

Executive Vice President – Utility Operations

Vectren Corporation

RONALD G. JOCHUM, Evansville, Indiana

Vice President – Power Supply

Vectren Corporation

MARC E. LEWIS, Fort Wayne, Indiana

Vice President – External Relations 

Indiana Michigan Power Company

*MICHAEL G. MORRIS, Columbus, Ohio

Chairman, President and Chief Executive Officer

American Electric Power Company, Inc.

*STANLEY F. SZWED, Akron, Ohio

Vice President – FERC Policy and Chief 

 FERC Compliance Officer

FirstEnergy Service Company 

OFFICERS—OVEC AND IKEC

MICHAEL G. MORRIS

 President

SCOTT N. SMITH

 Vice President and

 Assistant to the President

DAVID E. JONES

 Vice President-Operations

*Member of Executive Committee.

JOHN D. BRODT

 Secretary and Treasurer

RONALD D. COOK

 Assistant Secretary and

 Assistant Treasurer

CHARLES E. ZEBULA

 Assistant Secretary and

 Assistant Treasurer
35

OUR VISION: We will continue to base our business operations and longterm relationships with stakeholders upon principles consistent with our values, 

environmental stewardship, operational excellence, and the ethical conduct of our 

employees. We strive to be the most cost-competitive electricity producer in our 

class with first-quartile performance in equivalent availability, zero accidents, and 

full environmental compliance. We will attain our goals through highly trained, 

skilled, motivated, and engaged talent.

OUR MISSION: To provide our 

Sponsor Companies with reliable, 

cost-competitive electricity.

Safety – Make safety a priority in all facets of our business.

Respect – Treat others the way we want to be treated and value each person’s talents, perspectives and experience. 

Caring – Be kind and deal peacefully with others. Be compassionate and handle disagreements without being disagreeable.

Citizenship – Protect our environment. Do our share to make our communities a better place to live and prosper. 

Integrity – Do the right thing at the right time, every time. 

Trustworthiness – Cultivate a reputation of honesty and straightforwardness as we strive to achieve corporate goals. 

Responsibility – Accept personal accountability for our actions and live up to high ethical expectations. 

Innovation – Encourage forward thinking and strive to find creative solutions. 

Excellence – Commit to perfection and demand high performance.

OUR VALUES: We believe in people!