SECURITIES AND EXCHANGE COMMISSION

(Release No. 35-27717; 70-9803)

Cinergy Corp., et al

Supplemental Order Releasing Jurisdiction Over Investment in Energy Related Assets up to One Billion Dollars; and Reserving Jurisdiction

August 29, 2003

Cinergy Corp. ("Cinergy"), a registered holding company, Cinergy Investments, Inc., Cinergy Capital & Trading, Inc., and Cinergy Marketing & Trading, LP, each direct or indirect wholly owned nonutility subsidiaries ("Nonutility Subsidiaries") of Cinergy (together, "Applicants"), Cincinnati, Ohio, have filed with the Securities and Exchange Commission ("Commission") a post-effective amendment ("Amendment") to an application-declaration previously filed under sections 6(a), 7, 9(a), 10, and 12(c) of the Public Utility Holding Company Act of 1935, as amended ("Act"), and rules 42 and 54 under the Act. The Commission issued a notice of the filing on March 9, 2001 (HCAR No. 27353).

By orders dated March 21, 2002, (HCAR No. 27506) and May 4, 2001 (HCAR No. 27393) ("Prior Orders"), the Commission authorized Applicants to engage in, among other things, the business of brokering and marketing electricity, natural gas and other energy commodities ("Commodities Business") in the United States, Canada and Mexico ("Approved Region"). The Commission also authorized Cinergy to change the terms of, or otherwise adjust, the equity securities of wholly owned utility and Nonutility Subsidiaries. The Commission reserved jurisdiction over Cinergy's proposals for the Nonutility Subsidiaries to engage in the Commodities Business outside the Approved Region, investment by Cinergy and the Nonutility Subsidiaries of up to $1 billion in ancillary nonutility energy related assets ("Energy Related Assets") and adjustments to the equity securities of non-wholly owned subsidiaries, pending completion of the record.

Applicants now request that the Commission release jurisdiction over the request to invest up to $1 billion dollars ("Aggregate Investment") from time to time through August 30, 2006 ("Authorization Period") in developing, constructing, acquiring, owning and operating Energy Related Assets or the equity securities of companies substantially all of whose physical assets comprise Energy Related Assets located in the Approved Region. Applicants state that the Aggregate Investment represents all amounts invested, or committed to be invested, in Energy Related Assets for which there is recourse, directly or indirectly, to Cinergy, and excludes any amounts that could be invested by Cinergy in Energy Related Assets under rule 58 under the Act.

Energy Related Assets would include, without limitation, natural gas exploration, development, production, gathering, processing, storage and transportation facilities and equipment, liquid oil reserves and storage facilities, and associated assets, facilities and equipment, but would expressly exclude (i) any assets, facilities or equipment that would cause the owner or operator thereof to be deemed a "public utility company," as defined in the Act and (ii) investments in or the assets held by in exempt wholesale generators ("EWGs") and foreign utility companies ("FUCOs") as defined in sections 32 and 33 of the Act, respectively.

Applicants state that the consideration for assets acquired from third parties would consist of cash or common stock of Cinergy or other forms of consideration mutually acceptable to the parties, such as nonutility assets. If the consideration consists in whole or in part of Cinergy common stock, the market value of the common stock will be determined by reference to the applicable provisions in the transaction agreements and counted against the Aggregate Investment limit. Applicants state that the principal or stated amount of any other securities used as consideration will also be counted toward the Aggregate Investment.

Applicants state that to the extent acquisitions of Energy Related Assets are financed with cash raised through the issuance and sale of securities (or through issuing any securities directly to the seller of Energy Related Assets in full or partial consideration of the purchase price), these securities issuances would be subject to the Commission's order dated June 23, 2000 (HCAR No. 27190) ("Financing Order"). Under the Financing Order, the Commission authorized Cinergy to increase its capitalization at December 31, 1999 by $5 billion, through the issuance of debt and equity securities from time to time through June 23, 2005, subject to various terms and conditions. The Financing Order prohibits Cinergy from issuing additional securities at any time common equity is, or as a result of the securities issuance would be, less than 30% of Cinergy's consolidated capitalization.

Applicants further state that they will not acquire any Energy Related Asset without a reasonable expectation that the investment would be accretive to Cinergy's earnings over a reasonable period of time. Applicants state that Cinergy would not seek recovery through higher rates to the customers of its utility subsidiaries¹ for any losses Cinergy might sustain, or inadequate returns it might realize, on investments in Energy Related Assets.

Applicants further state that: (i) no Operating Company will issue any security, including the assumption of any obligation or liability as guarantor, endorser, surety or otherwise, or pledge or encumber any part of its utility assets, for the purpose of financing, or in connection with, the acquisition, ownership or operation of any Energy Related Asset and (ii) the Operating Companies would be further insulated from any direct impact of the proposed transactions, since no Operating Company would acquire or hold a direct or indirect ownership or other interest in any Energy Related Assets or Nonutility Subsidiary. Applicants state that Energy Related Assets and Nonutility Subsidiaries would be separated, structurally and legally, from the Operating Companies, by being held solely by one or more Nonutility Subsidiaries or directly by Cinergy itself.

Pending completion of the record, Cinergy requests that the Commission continue to reserve jurisdiction over Cinergy's proposals to allow (i) Nonutility Subsidiaries to conduct their Commodities Business outside the Approved Region, (ii) acquisitions of nonutility Energy Related Assets located outside the Approved Region, and (iii) alterations of the terms of outstanding equity securities in the case of subsidiaries which are less than 50% owned. In addition, with reference to section 10(f) of the Act, while Applicants do not anticipate that any state commission has jurisdiction over the proposed transactions, Applicants cannot provide definitive assurance that no state commission would have jurisdiction over the proposed transactions. Accordingly, with a view to potential circumstances where a state commission may have jurisdiction over a proposed acquisition of Energy Related Assets ("State-Jurisdictional Acquisitions"), Applicants request that the Commission reserve jurisdiction over the proposed transactions solely in respect of any such State-Jurisdictional Acquisition, pending in each case the receipt of the required state commission authorization and filing of a copy as a supplement to the record in this proceeding and the issuance of a supplemental order of the Commission authorizing the State-Jurisdictional Acquisition.

Applicants state that Cinergy currently does not meet the conditions of rule 53(a). At June 30, 2003, Applicants state that Cinergy's "aggregate investment," as defined in rule 53(a)(1) in EWGs and FUCOs, was approximately $919 million. At June 30, 2003, Applicants state that Cinergy's "consolidated retained earnings," as defined in rule 53(a)(1) were approximately $1,444 million and that Cinergy's aggregate investment in EWGs and FUCOs as a percentage of its consolidated earnings exceeded the 50%"safe harbor" limitation contained in rule 53(a).

Applicants state that by order dated May 18, 2001 (HCAR No. 27400) ("May 2001 Order"), the Commission authorized Cinergy to increase its aggregate investment to an amount equal to the sum of 100% of consolidated retained earnings plus $2,000,000,000.² Applicants state that as of June 30, 2003 Cinergy's aggregate investment limit was $3,444 million. Applicants state that although Cinergy's aggregate investment exceeded the 50% "safe harbor" limitation of rule 53, it is within the higher investment level granted by the May 2001 Order.

Applicants state that with respect to Cinergy's capitalization, there has been no material adverse impact on Cinergy's consolidated capitalization resulting from its investments in EWGs and FUCOs. Applicants state that as of December 31, 2000, the most recent period for which financial statement information was evaluated in the May 2001 Order, Cinergy's consolidated capitalization consisted of 40.4% equity and 59.6% debt. As of June 30, 2003, Cinergy's consolidated capitalization consisted of 45.5% equity and 54.5% debt. Applicants state that at December 31, 2002, Cinergy's senior unsecured debt was rated "investment grade" by all the major rating agencies. Applicants state that Cinergy satisfies all of the other conditions of paragraphs (a) and (b) of rule 53 and that none of the circumstances enumerated in rule 53(b)(1), (2) and (3) have occurred.

Applicants state that they will submit the following information to the Commission in certificates filed under rule 24 under the Act, on a semi-annual basis, for the six-month periods ended June 30 and December 31 of each year (such reports to be submitted within 60 days after the end of the preceding semi-annual period, commencing with the first full semi-annual period following the issuance of the Commission's order in this file): (i) a brief narrative with respect to any transactions entered into or consummated during the preceding semi-annual period in which any Applicant acquired or agreed to acquire any Energy Related Assets (including if the acquisition did not require state commission authorization, a statement confirming that fact) and (ii) the amount of the Aggregate Investment in Energy Related Assets as of the end of the preceding semi-annual period.

Cinergy states that estimates total fees and expenses of approximately $15,000, consisting of outside counsel fees and expenses, in connection with the preparation and filing of the Amendment. As discussed above, to the extent any state has jurisdiction over the proposed acquisitions under section 10(f), this Commission will reserve jurisdiction over the acquisition pending completion of the record. The record states that in the event that an acquisition of Energy Related Assets would require authorization from the Federal Energy Regulatory Commission under the Natural Gas Act (i.e., if structured as an asset purchase rather than a stock or equity purchase), Applicants would not proceed with any such acquisition in the absence of any such required authorization or without complying with the terms and conditions thereof.

Due notice of the filing of this Amendment, as amended, has been given in the manner prescribed in rule 23 under the Act, and no hearing has been requested of, or ordered by, the Commission. On the basis of the facts in the record, it is found that, except as to those matters over which jurisdiction has been reserved, the applicable standards of the Act and rules under the Act are satisfied, and that no adverse findings are necessary.

IT IS ORDERED, under the applicable provisions of the Act and rules under the Act, that, except as to those matters over which jurisdiction has been reserved, the Amendment, as amended, be granted and permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act.

IT IS FURTHER ORDERED, that jurisdiction continue to be reserved over Cinergy's proposals to allow (i) Nonutility Subsidiaries to conduct their Commodities Business outside the Approved Region, (ii) acquisitions of nonutility Energy related Assets located outside the Approved Region, and (iii) alterations of the terms of the outstanding equity securities of subsidiaries which are less than 50% owned, and (iv) the proposed transactions in respect of any section 10(f) State-Jurisdictional Acquisition, pending in each case the receipt of the required state commission authorization and filing of a copy as a supplement to the record in this proceeding and the issuance of a supplemental order of the Commission authorizing the State-Jurisdictional Acquisition.

For the Commission, by the Division of Investment Management, under delegated authority.

¹ Cinergy's utility subsidiaries are PSI Energy, Inc. ("PSI") and The Cincinnati Gas & Electric Company ("CG&E") which owns utility subsidiaries, (together with PSI, "Operating Companies").

² Applicants state that the aggregate limit in the May 2001 Order excludes investments which are subject to a Restructuring Limit, defined in the May 2001 Order.

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