ML17305A292
| ML17305A292 | |
| Person / Time | |
|---|---|
| Site: | Palo Verde  |
| Issue date: | 12/31/1988 |
| From: | Wall E EL PASO ELECTRIC CO. |
| To: | |
| Shared Package | |
| ML17305A289 | List: |
| References | |
| NUDOCS 8910190234 | |
| Download: ML17305A292 (69) | |
Text
El Paso Electric Your Energy Service Company Wo 8+X/W5(5 re& gg/Oi5O~J
/D/Sw(+5'NOTICE-THE ATTACHED FILES ARE OFFICIAL RE-CORDS OF THE RECORDS 8 REPORTS MANAGEMENT BRANCH. THEY HAVE BEEN CHARGED TO YOU FOR A LIMITED TIME PERIOD AND MUST BE RETURNED TO THE RECORDS & ARCHIVES SERVICES SECTION P1-122 WHITE FLINT. PLEASE DO NOT SEND DOCUMENTS CHARGED OUT THROUGH THE MAIL. REMOVAL OF ANY IL~+ ~+4 CO PAGE(S) FROM DOCUMENT FOR REPRO-DUCTION MUST BE REFERRED TO FILE PERSONNEL.
-NOTICE-1988 Annual Report S9i0i90234 SgiOii PDR ADOCK 0500052S I PDC
On the coven H Paso Refining Company, LtL, one of H Paso Hectric's major customers, is planning extensive future expansion. The items produced are gasohne, diesel, aviation fuel and other petroleum fueb.
ANNUALMEETING OF SHAREHOLDERS All shareholders are invited to attend the Annual Meeting of Shareholders on Monday, May 15, 1989, at 10 a.m. El Paso time in the Westin Paso del Norte, 101 South El Paso Street in El Paso, Texas.
Proxies for the meeting will be solicited by the board of directors in a communication to be mailed in early April. This Annual Report is not a part of such proxy solicitation and is not intended to be used as such.
Photography by Vallarie S. Arturo Enriquez, Vantage Point 1989
A MESSAGE the other Southwestern utilities FROM THE CHAIRMAN participating in the Arizona Nuclear Power Project. Fifteen years ago, El Paso Electric faced two critical needs, one being the March 1, 1989 need to diversify its fuel mix thereby reducing its dependence
on natural gas, and the other being a need to provide El Paso Electric achieved two additional electricity to a growing very important accomplishments service area. Palo Verde now has in 1988. Palo Verde Unit 3, the enabled El Paso Electric to meet third and final unit at the Palo those needs.
Verde Nuclear Generating During the past 15 years, the Pictured here are Company and its shareholders Evern R. Wali, chairman of the board have experienced difficult periods iieft), and David H. of inconsistent and negative rate Wiggt, Jr., president and chief egecutive regulation. During this time, the officer. Company has taken a number of innovative steps to supply the needed energy to the service area and to lessen the impact on customers of placing Palo Verde into the rate base and yet protect the investment of our shareholders.
After a series of negative rate orders, the Public Utility .
Commission of Texas in March 1988 issued an order which settled most of the prudence issues related to Palo Verde. The Commission also established a 10-year phase-in of rate increases to recover most of the Station, successfully completed Company's investment in Palo the transition from the Verde Units 1 and 2. The construction stage to the Commission's order, along with commercial operation stage. And the New Mexico plan, allows the in the regulatory area, the Company to recover over time Company received an order from most of its investment in the the Public Utility Commission of units without the "rate would have occurred if spike,'hich Texas that implemented a rate moderation plan for Texas the units had been placed totally customers similar to the New into the rate base. The plans Mexico rate moderation plan provide EPE and its customers ordered in 1987. with long-term rate continuity.
The Company currently expects On January 11, 1988, Palo Verde to seek Texas rate treatment of Unit 3 started commercial Palo Verde Unit 3 in 1990.
operation. This important date marks a major milestone in the In 1988, I was pleased to history of El Paso Electric and announce the election of
David H. Wiggs, Jr., as the knowledge and expertise Company's president and chief concerning the Company and operating oScer. This the electric utility industry as a announcement was made with whole.
the understanding that David would be my eventual successor. I want to emphasize that I am This year the second step in that proud of the active role EPE has transition was completed, when had in supporting our service the board of directors accepted territory. Largely because of our my recommendation that David diversification program, other be named the Company's chief public and private money is execuhve oflicer effective being used to fund March 1, 1989. redevelopment projects in downtown El Paso, and the Powerhouse supertisor Frank Company has been successful in Ortega at ASARCO bringing many jobs to the Incorporated monitors po the control panel at El Paso/Las Cruces region.
the copper smeker Through its subsidiary activities, which used more than 88 million El Paso Electric has helped to kaountt-hours of stimulate the regional economy, electricity in 1988.
including electric sales, and remains an active parhcipant in the growth and life of the communities which we serve.
The Company f4 is featuring photos of some of the largest customers in its service territory t
I in this report. The future success I) of these and other customers is very important to the economic development of the region. The Company also will continue to do everything it can to assist in economic development efforts in the communities it serves including offering the most Although I am retiring from my competitive electric rates feasible.
duties as CEO, I will remain as the chairman of the board of There have been many exciting directors and active as an adviser changes at El Paso Electric since I to David and the board. started with the Company in 1954 as a part-time night service The board of directors and I clerk while completing my have been very pleased with engineering degree at New David's performance as president Mexico State University. Then, and believe that under his El Paso Electric served less than leadership the Company will 90,000 customers and had only a continue to progress. Before his single gas-fired power station election as president last year, located near El Paso. Now, our David was the Company's chief fuel mix includes coal and regulatory attorney from 1976 to nuclear which are needed to 1987, a position which allowed serve more than 230,000 him to acquire a great deal of customers.
At the start of my career, the A MESSAGE Company's total system peak FROM THE PRESIDENT load was less than 200 megawatts. In 1988, for the first time ever, the Company March 31, 1989 recorded a total system peak load over 1,000 megawatts. In 1954,
total kilowatt-hour sales were less than 1 billion. In 1988, the El Paso Electric is in a transition Company sold more than 5.5 period. Having completed a billion kilowatt-hours of 12-year, $ 1.6 billion construction electricity. And I expect our program related to Palo Verde, region will continue to grow and the Company has begun a prosper. long-term period of phasing that investment into rates. Our A l is KV objective has been and will transmission line from Anthony Substation continue to be to work with tvas completed in regulators and other parties to December to serve the ttvo arc furnaces at recover our investment in Palo Border Steel Miib, I o Verde and a return on that lnc. A 20 MVA electric arc furnace is t
f investment while avoiding the pictured here. adverse consequences of a "rate spike" on our customer base, all within the parameters of maintaining the financial integrity of the Company. One significant consequence of this phase-in period is that the Company is converting from a construction financing program to a financing program designed<
to meet the cash requirements created by phasing our Palo Verde investment into rates.
I am grateful for the support I This transition period involves have received over the past 35 complex issues, the solutions to years from our directors, which will require both time and employees and shareholders. We effective long-term planning. We have been through both good are reviewing all aspects of our and challenging times, and I am financial planning operations.
confident that with your This review will include, among continued support for the board other things, an analysis of the of directors of the Company, and rate moderation plans, allocation David Wiggs and his methods, rate design and management team, El Paso wholesale contracts, as well as Electric's future will be positive. our budgeting and forecasting methods and computer systems.
Sincerely, Outside consultants are assisting in this review. Our goal is to improve our financial planning systems to more closely correlate with the complex environment Evern R. Wall in which El Paso Electric operates Chairman of the Board today.
<<j 1988 saw the successful the same level of cash relief as completion and commercial traditional ratemaking would operation of Palo Verde Unit 3 have provided.
and the adoption of a rate moderation plan in our Texas Our 1988 results were also service area for Palo Verde affected by the one-time after-tax Units 1 and 2. In addition, the provision for loss of Company continued to approximately $ 36 million, experience good growth in recorded in the fourth quarter, electric sales and new customers which reflects our decision to in its service area. Notwithstanding discontinue the real estate these positives, financial results operations of our Franklin Land for the year were not good. S. Resources, Inc., subsidiary.
The provision for loss includes Income from continuing expected losses on the sale of the operations, after preferred stock Westin Paso del Norte hotel and dividend requirements, was $ 1.Q The Cortez office building, both per share. Comparable results for in downtown El Paso, as well as 1987 were $ 2.03 per share. a provision of approximately $ 7.6 Increases in our utility operating million, net of tax, for expected revenues, resulhng primarily operating losses during the from increased kilowatt-hour phaseout period of those sales and rate increases in our properties.
Texas and New Mexico service areas, were offset by increases in The Westin and The Cortez operating and maintenance have accomplished their primary expenses due to increased objective, which was to promote expensing, as compared to revitalization of downtown deferring, of Palo Verde costs. El Paso and stimulate economic and industrial development and As our Palo Verde units have electric power consumption in come on-line, that portion of our our service area. Although we income represented by noncash believe that these properties have AFUDC earnings has decreased good long-term potential, they accordingly. The regulatory operate at a loss and have a environment in which we have detrimental effect on earnings operated over the last several and cash flow.
years has made it impossible to translate the full amount of Additionally, the Company, accrued non~h AFUDC through its PasoTex Corporation earnings into cash immediately. subsidiary, has completed the acquisition phase of our Rate moderation was at the time non-utility diversification the various Palo Verde units program. PasoTex will now came on-line and continues today concentrate primarily on to be the most realistic form of managing the existing portfolio rate relief available to electric of investments, with the objective utilities which have been engaged being to enhance the value of in major construction programs. and return on those investments.
Rate moderation has involved, as We are presently reviewing our far as El Paso Electric is non-utility operations and may, concerned, a relatively small to improve cash flow or realize disallowance of our Palo Verde the value of our investment, investment, but, unfortunately, determine to sell certain of those rate moderation does not provide operations or their related assets.
Sales to other utilities increased megawatts was a 2.4 percent from 1,087,H4 megawatt- increase from the previous record hours in 1987 to 1,271,366 of 820 megawatts set'n 1987.
megawatt-hours in 1988 or 16.9 percent. Sales in the Palo Verde continues to perform Company's service territory also well. Unit 3 completed its increased. Native system sales transition from the construction increased from 3,992,310 phase to the fullwperation stage megawatt-hours of electricity in in 1988 and went on to set many 1987 to 4,249,990 megawatt-American and world nuclear hours of electricity in 1988.
power plant records. More details Total system sales increased about the operations of Palo 8.7 percent in 1988 compared Verde are provided elsewhere in with 1987, and native system this report.
One of El Paso s netvest manufacturers, The Hoover In declaring our first quarter Company, came on. line in November 1989 dividend of $ .38 per share, of l988 to make items we cautioned that the level of such as injection future dividend payment was plastic molding for vacuum cleaners. uncertain and would depend on Manuel Dejgado, shift earnings, cash flow and other foreman (foreground),
arul Kenny Hoskins, ~ Rd I
factors. Our present expectations setup man, oversee are that 1989 income from production on the injection plastic continuing operations will be moldi ng machine. significantly lower than that reported in 1988, primarily due to anticipated reductions in investment income resulting from the use of invested cash and additional interest expense anticipated from short-term borrowing requirements. In general, we anticipate that future results of operations will be significantly affected by the timing and method of inclusion sales increased 6.5 percent from in our Texas rates of our 1987 levels. investment in Palo Verde Unit 3 and that such results may Customers were added to the continue to be significantly system at an annual rate of affected by reductions in approximately 3 percent in both regulatory earning assets, 1987 and 1988. The Company resulting from the sale of plant in also continues to achieve record our Palo Verde sales and peak demands. For the first time leasebacks; the regulatory in our history, we recorded a treatment afforded to those lease total system peak above 1,000 payments; the Texas megawatts. On August 22, 1988, jurisdictional disallowance which the Company's total system peak we recorded in 1987 as part of was 1,002 megawatts, a 2.8 the adoption of the rate percent increase over 1987's moderation plan for Units 1 record peak of 975 megawatts. and 2; and the deregulation of The Company's 1988 native our New Mexico jurisdictional system peak demand of 8N investment in Unit 3, which
formed the basis for our New In closing, I want to express our Mexico rate moderation plan. Company's deep gratitude to Evern Wall for his 35 years of We are currently reevaluating service. As CEO, Evern guided our dividend policy, including the Company through a very consideration of the possible difficult period a period during reduction or omission of the which the Company successfully dividend, in light of the financed and constructed one of anticipated lower income for the best nuclear power projects 1989, our assessment of future in the country. The Company results of operations, the also began its diversification Company's existing liquidity program which has provided jobs needs and restrictions on and stimulated economic financing, and regulatory development and electrical sales uncertainties surrounding Texas in the service territory. In 1986 rate treatment of our investment and 1987, the Company in Unit 3. The decision we completed the sale and leaseback ultimately reach on the dividend of almost half of its interest in will not be made in isolation or Palo Verde, which enabled the in the context of any one Company to levelize its capital particular fact or condition. costs associated with this portion Rather, the decision will be made of the plant and to provide for as an integral part of a cash requirements during the comprehensive program to assure final stages of the Palo Verde the financial integrity of El Paso construction program. Finally, Electric. under Evern's leadership, the Company negotiated rate As the factors affecting future moderation plans for its Texas, earnings and cash flow develop, New Mexico and Federal Energy and we incorporate the results of Regulatory Commission our financial review currently jurisdictions.
underway, we will formulate and implement plans and strategies We face complex and demanding designed to address the economic challenges in this transition realities of this complex and period. I am confident that demanding transition period through the dedication of all of with the least adverse impact on us at El Paso Electric, we will our shareholders, ratepayers and successfully meet these challenges.
employees. In the long-term, the I am committed to the future of way in which we manage this our Company and look forward transition period will provide the to working on your behalf.
basis for our Company to achieve its primary goal to provide safe, reliable, efiicient electric service to our customers at a Sincerely, price which results in a fair return on shareholder investment.
Further details concerning our financial results are provided in the "Management's Discussion David H. Wiggs, Jr.
and Analysis of Financial President and Condition and Results of Chief Executive Officer Operations" section of the Form 10-K, attached to this report.
RATE AND REGULATORY consideration of lower fuel costs),
MATTERS for the first 12 months of the rate moderation plan. The Texas Company also will receive annual cash increases for the The Public UtilityCommission next three 12-month periods of of Texas'arch 1988 order the plan. After the fourth provided for a phased-in increase increase, the plan contemplates in Texas retail base revenues of that base rates related to the approximately P6 million, and Company's investments in Palo allowed the Company to recover Verde Units 1 and 2 will remain expenses related to Palo Verde constant while allowing the Units 1 and 2. The order Company to recoup all expenses resolved most issues related to previously deferred under the terms of the plan. However, after L'eggs, Inc., is the the fourth year, additional base number one pri cate employer in Southern ("s rate increases will be requested, if New Mexico where necessary, to fully recover all employees make the IP tttt.
nationally known deferrals.
brand o/ pantyhose. s Pauline Lopez, AGT opcnuor, loads Although the plan establishes a stockings onto the rate path, the Company still has automatic gusset slee machine which sews to file traditional rate increase the two legs together requests each year in order to and closes the toes on the pantyhose. establish the cost necessary to serve its customers. In October, the Company filed a $ 39.2 million rate increase request, the second case under the Texas rate moderation plan. The Commission is expected to order a $ 7.3 million base revenue increase, effective May 1989, and also order expenses approved for recovery above the increase to be deferred. The Company plans to file its third rate case under the the prudence of the decision by terms of the plan in the third or the Company to participate in fourth quarter of 1989.
Palo Verde and to the prudence of the construction process. In order to settle those issues, the Company agreed to an after-tax New Mexico regulatory disallowance of approximately $ 243 million of its investment in Palo Verde (which The New Mexico Public Service is less than 2 percent of that Commission approved a rate investment). Only prudence moderation plan for the issues related to the Company's Company's New Mexico continued investment in Unit 3 customers in 1987. The order after 1979 remain open. allowed the Company inclusion into rate base of the costs of Palo The Company received a cash Verde Units 1 and 2. In increase of approximately $ 21 negotiating the plan, the million ($ 8.6 million after Company agreed not to seek any
costs associated with Palo Verde December 1988 Unit 3 Unit 3 for inclusion into rate generated approximately 10.8 base in New Mexico. million gross megawatt-hours of electricity, more than any other The Company received its second nuclear unit in the world in 1988.
base rate increase under the New Mexico rate moderation plan in November 1988. The New The standardization of the units Mexico Commission ordered a was recognized as the main base rate increase of $ 1.5 million. reason behind Unit 3's Plans are to file for the third remarkable performance. Because increase under the New Mexico all three units are identical, plan early in 1989. procedures and processes used in one can be applied to the other One of the Company's goals is to two. With Unit 3, Palo Verde is keep its rates as competitive as now the largest nuclear power feasible, and management believes plant in the United States, and its rates under the rate produces enough electricity to moderation plans will remain serve more than 4 million people.
competitive with other utilities in the region.
For several reasons, Americans are taking a second look at the advantages of the nuclear power PALO VERDE option. The record hot and dry summer of 1988 caused Upon completion of heightened concerns about the regulatory-mandated testing, Palo "Greenhouse Effect" and the Verde Unit 3 was declared by possible harm to the environment EPE to be in commercial service caused by the burning of fossil as of January 11, 1988. The unit fuels. Acid rain also continues to went on to set the following U.S. be a problem, and many expect and world nuclear power records: the federal government to issue strict new regulations on the use January 1988 After receiving of coal to generate electricity.
its full power license in 1987, Unit 3 completed all required systems testing in 43 days, a new Americans are concerned about U.S. nuclear power record. these issues and see the need for nuclear energy. A 1988 March 1988 Unit 3 led the Cambridge Reports survey showed nation in generation by a single that more than 80 percent of nuclear unit in a one-month Americans agree that nuclear period, producing 995,400 gross energy is going to be important megawatt-hours of electricity. in meeting the future electrical needs of the country.
July 1988 Unit 3 set a world record for the continuous run of El Paso Electric is secure in the a nuclear unit in its first year of fact that its investment in Palo operation 214 days. The Verde will allow it to continue to record surpassed both the provide for the electrical needs of previous world record of 181 its service area.
days and the U.S. record of 151 days.
ECONOMIC DEVELOPMENT added" to such products before AND ENERGY MARKEI1NG importation. Typically, Mexican plants are involved in assembly, El Paso and Las Cruces remain with the less labor intensive among the fastest growing operations of the maquila located communities in the country. on the U.S. side. There are now Southern New Mexico led the about 230 plants in the Juarez state in growth in 1988. area that employ more than Population estimates from Texas 100,000 workers.
ASM University show that El Paso was one of only four El Paso recently has lost many of metropolitan areas in Texas the labor intensive jobs in the whose population grew by more garment industry which were an than 10,000 in 198&7. While important part of the local economy, but it has more than Quality control is a made up for those lost jobs in necessary part o/ the 24 hour2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> openuion at other areas. Occupations such as Continental Sprayers, plastic injection molders, robotics inc., where the final product ls plastic operators and computerized
'%%%a trigger sprayers. Yang machine operators are replacing Millerinspects for quality assumnce those lost in the garment be/ore the parts enter industry. Plastic injection the automated assembly equi pment. molding itself has grown from two plants with 150 employees in 1981 to 13 plants that employ over 1,200 people in 1988. In 1988, over 1,000 new jobs were
]/r,) (5%
created in El Paso as a result of the maquila industry, and that figure is expected to continue to grow.
The El Paso/Juarez area is now home to several foreign companies which have joined their American counterparts in for the first time since the 1960s, taking advantage of the maquila more than half of the counties in concept. Eight Japanesewwned Texas lost population in 191@87, maquilas, two German maquilas, El Paso County's population and one each from Sweden, grew by 13,4$ . The Texas France, Finland and Great A6dvf study cited three factors Britain currently are operating in for the increase: El Paso's diverse the area.
economy, proximity to the border and mild climate.
The defense industry which The maquila or "twin plant" includes two of the Company's industry continues to prosper largest customers, the Fort Bliss and is an important part of the U.S. Army Air Defense Center regional economy. Maquilas take and the White Sands Missile advantage of U.S. customs law Range, also continues to be a provisions which limit the major economic contributor to customs duty on Mexican twin the region. Operations at both plant products to the "value facilities continue to expand.
Construction has begun on a that $ 75 million could be spent ground-based electron-laser in the regional economy as a project at Orogrande, New result of the project being located Mexico, near White Sands. The at White Sands. The storage project is part of the Strategic facility could also attract more Defense Initiative (SDg program high-tech projects to the region.
and could be a major new electrical customer. The Company wants to take advantage of and encourage Because of the SDI project, continuation of this growth in its White Sands is a possible service area.
candidate for an experimental electrical storage facility project The Company expects to help planned by the U.S. Defense promote local economic development and growth, A Border Steel Milb, inc., employee checks primarily by strengthening ties metal balb for defects. with commercial and industrial J +t customers. El Paso Electric will
)J 1 be able to provide more information about a variety of energy matters for customers to help them use energy efficiently.
The Company also will work closely through its Rate and Regulation Department in designing rates that will benefit both the Company and its customers. The Company hopes to further promote off-peak sales through the possible use of incentive rates. Offpeak sales not only increase the Company's total kilowatt-hour sales, but also shave peak demands, allowing the Company to delay the building of future power plants.
Nuclear Agency. The facility will use new superconductivity technology to see if large amounts of electricity can be stored, similar to a large battery.
Ifsuccessful, the storage facility may be used to service the SDI project, which is anticipated to need huge, intermittent amounts of electricity. A site will be selected next year and construction could begin in 1991.
El Paso Electric is working with the Rio Grande Council of Governments in funding site studies and providing information to bring the project to White Sands. Estimates are
CORPORATE between its members and utility INFORMATION management. All persons who hold securities in a Texas utility are eligible for membership, Figures appearing in this report regardless of whether or not they are presented as general live in Texas. For more information and not in information contact Hoyd R.
connection with any sales or Smith, 21 Cheska Drive, offer to sell or solicitation of any Beaumont', Texas 77706.
offer to buy any securities nor, are they intended as a representation by the Company of the value of its securities. Common Stock Shareholders PasoTex Corporatio>>, The Common Stock of the a subsidiary of El Paso Electric, has brought Company is held in every state ncw industry to the and the District of Columbia, area, such as Westwood Lighting some U.S. territories and many Group, Inc., a twin foreign countries. The number of phtnt facility which employs worhers on shareholders on December 31, both sides of the 1988, was 43,836. Our records U.S:Mexico border.
Employee Alfred Diaz indicate that about 55 percent of inspects one of the the Company's shareholders own factory's beauti ful lamps. fewer than 500 shares each.
Toll-Free Telephone ry Ju The Company maintains a coll-free telephone system for the convenience of shareholders who may have questions or inquiries concerning their accounts. If you are calling from within Texas, the number is 14%.592-1634.
Elsewhere in the U.S., the number is 1400-351-1621.
Shareholder Organization El Paso Electric shareholders are Transfer Agent eligible to join Utility Shareholders of Texas, an organization which has been The Bank of New York, 90 chartered to represent Texas Washington St., New York, N.Y.
utility shareholders'nterest 10015 (Common and Preferred before state and federal agencies Stock).
and administrative bodies, to inform shareholders of issues MTrust Corp., N.A., Post Office affecting their investments and to Box 1072, El Paso, Texas 79958 help maintain good relations (Common Stock Only).
OFFICERS OF THE Gordon M. Heggem, COMPANY Controller (9)
David H. Wiggs, Jr., President Eduardo A. Rodriguez, Secretary and Chief Executive OIAcer (1) and General Counsel (7)
Charles Mais, Senior Vice George A. Clifford, Assistant President (34) Vice President (31)
Ignacio R. Troncoso, Senior Vice Robert W. Waugh, Assistant President (19) Vice President (21)
William J. Johnson, Senior Vice Frederic E. Mattson, Assistant President (1 1) Vice President (19)
Robert N. Hackett, Assistant Bright omnge boule Vice President (17) caps for trigger spmyers are produced at a mte of 5,000 per Frank Bates, Assistant'ice hour on each of the J.
three machines that President (16) make this particular item at Continental Sprayer, lnc. John T. Wacker, Assistant Vice President C. R. Becker, Assistant Treasurer (11)
Years of Service ( )
P William W. Royer, Senior Vice President (8)
Joseph E. Wasiak, Senior Vice President (11)
Lawrence M. Downum, Jr., Vice President (28)
James P. Maloney, Vice President (3)
Gary R. Hedrick, Treasurer and Assistant Secretary (11)
Or~
DIRECTORS OF THE Leonard A. Goodman, Jr.,
COMPANY Chartered Life Underwriter/General Agent, John Hancock Financial Evern R. Wall, Chairman of the Services (10)
Board (14)
Ben L. Ivey, Farming (19)
David H. Wiggs, Jr., President and Chief Executive Officer (1) Josefina A. Salas.Porras, Secretary-Treasurer, Sunland Wilfred E. Binns, Contractor, Motor Sports, Inc. (10)
Binns Construction and Realty (6) Tom C. Simpson, President, Simpson Farms, Inc.; President, Robert H. Cutler, Chairman of Simpson Cattle and Feed the Board, Cutler Company (6)
Corporation (19)
Tad R. Smith, Vice Chairman of H. M. Daugherty, Jr., Chairman the Board; Attorney, Kemp, of the Board and Chief Executive Smith, Duncan and Hammond; Officer, MBank El Paso, N.A., (6) Counsel for the Company (28)
Years Of Service ( )
A complete copy of the Company's 1988 Form 10.K report, filed with the Securities and Exchange Commission, including Pinancial Statements and Pinancial Statement schedules, willbe provided to shareholders without charge upon written request to: Eduardo A. Rodriguez, Secretary, El Paso Electric
$ ,r Company, Post Office Box 982, El Paso, Texas 79960.
r El Paso Electric Company's board o/directors. Seated le/t to right: Tom C. Simpson, Robert H. Cntler Jose/ina A. Saks Porras, David H. Wiggs, Jr., Chairman Evern lL Walt Standing: Vice Chairman Tad R Smith, H.M.
Dattgherty, Jr., Leonard A. Goodman, Jr., Wi l/red E Binns, Ben L h~.
SERVICE AREA COMPANY LINES MAJOR DISTRIBUTION STATIONS Zh GENERATING STATIONS To Albuquerque Four Corners, N.M.
400 Miles Holloman A.F.B.
Rio G,
+see Hatch To Springerville,AZ.
(Under Construction) White Sands Amrad Missile Range Eddy County Interchange PALO 125 Miles VERDE 450 Miles LAS GROCERS Luna McGregor Range Anthony NEW MEXICO NEW MEXICO MEXICO Rio Grande
~ P Calle nte To Dell City EL PASO Ciu dad Juarez Fabens North
+lo Sierra Blanca
+~
<orred /Per Van Horn 4ij'Ig
+<CO.
to
'; Service Rio Grande Electric Co-op
Cnrrenl projecllons place Ihe popnlallon ol Los Angeles al around 3.7 million by the year 2000, a scant 12 years from now. Eight years into the 21st Century, 20 years hence, the population will be over 4 million an increose of 15 percent above today.
These new arrivals will differ in many ways-culturally, economically and socially-but they will all have one thing in common. They will need sofe, reliable supplies of water and electricity at prices they can afford. And the Department of Water and Power must be ready to serve them.
We must do this in a way that responds to our customers'oncerns about growth and the quality of life in our com-munity, while dealing with the dollar-and-cents realities that face the utility industry today.
This year's DWP Annual Report provides an insight into the current thinking of DWP management as it faces the future. Token together, it provides a roadmap for this, the nation's largest publicly owned utility, as it prepares for the next century.
12 Water Revenao Dollar in Cents 1 Other 2 Fire hydrant centals 5 Governmental 37 Residental 37 55 55 Commercial and Industrial Water fspenditare Dollar in Cents 22 5 Payments to the City 9 Retirement Plan costs related to operations
)2 Capital improvements 12 16 Debt service costs 1 7 Purchased wotec and energy 19 19 Othec operating expenses 16 22 Operating salaries and woges 17
" Power Revenae Dollorin Cents 2 Street lighting ff 2 Other 16 Industrial 53 27 Residential 53 Commercial 27 Power fspenditare Dollar in Cents 4 Payments to the City 30 5 Retirement Plan costs related to operations 9 Capital improvements 10 Debt service costs 13 Operoting salaries and wages 14 Other operoting expenses 13 15 15 Fuel 14 30 Purchosed energy trwp
Water I988 1987 % inoease 1988 1987 % Inatase Year erxbt rane 30 (aeoense) (Deoease)
Service Irons et Wrens Sales 203.6 210.1 (3.lo/o) 21.1 205 29%
Customers-average number (thousands) 637.8 632.3 0.9% 1,304.6 1,275.9 2.3%
Financial Intake In aorotnS Revenue 259.7 5 252.9 2.7% 51,588.1 51 423.2 11.6%
- 172.4 151.9 13.5% 191.7 031.6 15.5%
Operating costs* 1 1 Net income 34 4 44 6 (22 9%) 175.6 186.8 (6.0%)
Payments to City of los Angeles 12.4 11.3 9.7% 70.2 67.9 3.4%
Capital expenditures 104.8 99.1 5.8% 334 5 321 2 4 1o/o Net utility plant 1 114.7 1 046.1 6.6% 3 324.9 3 133.5 6.1%
Capitalization-equity and fong4erm debt 1,172.5 1,054.1 11.2% 3,444.7 3,180.6 8.3%
Inrlvdes other income-ner
'Exrlvding depreciorion expense
I en Approsimetety 3.4 million residenis in the notion's second largest city receive water and electricity from the Los Angeles Department of Water and Power. As the largest municipally-owned utility in the nation, OWP has more than 11,000 employees serving the needs of residents, businesses and industry in a 465-square mile area.
The City of Los Angeles began municipal distribution of water in 1902 and electricity in 1916.
The DWP, as a proprietary agency of the Los Angeles City government, receives no tax support. Its operations are financed entirely by the sale of water and electricity.
Revenue bonds are the main source of external financing.
The DWP is administered by the Board of Water and Power Commissioners, whose five members are appointed by the Mayor and confirmed by the City Council for terms of five years. The Boord establishes water and electric rates, subject to approval by the City Council.
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Board of Water and Power Commissioners Generol Manager and Chief Engineer Assistant General Manager-Water Divisions of the iVoter Systems Aqueduct Water Operating Water Engineering Design Woter Quality General Senrices Assistant General Manager-Power Divisions of the Pwer System:
Power Operating and Nlaintenance Power Design and Construction System Development Power System Services Power Distribution Real Estate Assistant General Manager-External and Organizational Services Divisions of Externol and Orgonizatr'anal Services:
Commercial Customer Services Government Affairs Human Resources Management Services Public Affairs Chief Financial Officer Divisions of Finance and Accounting:
Accounting Internal Audit Financial Planning Chief Assistant City Attorney for Water and Power
It is with great pleasure that we present ihe 87th annual report which reviews the accomplishments of the Department of Water and Power during the 1987-88 fiscal year.
We are continuing to meet the challenge of providing water and electric service to a dynamic metropolis while planning for expansion as the city grows into the next century. This is being accomplished in conjunction with our pro-grams for water conservation and energy efficiency.
As the second largest city in the nation with 3.4 million people, los Angeles is dependent on water and electricity for its vitality and growth. It is the Department's responsibility to ensure that these vital resources are available to residents, business and industry. We live up to this responsibility every day and are committed to doing so in the future.
Our success as a utility could not have been achieved without the help of the Mayor and the City Council. We also appreciate the efforts of other elected city officials and city departments.
It would be impossible to attain our goals without our greatest resource-management and personnel whose continued dedication and service have made this utility efficient and responsive to its customers.
Rick J. Caruso iiesident ewp
Board of Water and Power Commissioners Ri<k J. @ruse )ock W. leeoey Piesrdenr Vice President Angel M. hlrerorria Walter A. Mrrroa
drives our economy and water that sustains life.
As the nation's largest publicly owned utility, OWP accepts responsi-bility for leading the way in shaping Since formation oi the City's first peh- the future of this industry-which lic utility nearly 90 years ago, the means finding innovative yet practi-Department of Water and Power's cal ways to deal with changing primary responsibility has been to economic, social and regulatory serve the public's interest. This is conditions. This requires us to be carried out through service to our more businesslike, more adaptable, customers, maintaining the financial more sensitive to external concerns strength of the Department, protect- and more proactive in meeting ing current supplies of water and challenges.
power and securing future supplies to For this we look to our partners in meet the needs of our City. public service, the men and women The Board of Woter and Power who run the water and power sys-Commissioners holds lead responsi- tems. Their dedication will continue bility for seeing that this mandate is to meet the challenges facing us.
carried out. With my fellow commis- On this 75th anniversary of the sioners, we represent the interests of Los Angeles Aqueduct, the Board over 3,400,000 residents of the City thanks everyone associated with the through their elected representatives, DWP. Our special thanks to General the City Council and Mayor. Manager Paul H. Lane, who is retir-Our judgment must always be ing after 40 years of dedicated serv-guided by the fact that DWP provides ice to the Department.
not a luxury, but vital necessities:
electricity that serves our homes and
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Colleges are becoming more aware of the need for people with human relations skills, and have responded by developing nev courses. At the Oepartment, we hove a constant The growth of Los Angeles from a tiny need for these skills and are prepar-pueblo to the premier city of the ing our employees to deal with the Pacific Rim makes a great story. complex people issues that confront Development of the water and power us today. This process includes inter-systems to supply this growth is even nal training classes, university grad-more fascinating. uate programs, an employee It all started quite simply during speakers bureau, and more effective the early years, with the challenges inteiaction with consumer and being technical, engineering, physi- environmental groups, the media cal and financial. When you needed and elected officials.
more water or electricity you The importance of the products designed and constructed the most we serve to our customers puts us reliable and lowest-cost systems. directly and irrevocably into the peo-Today's public utilities are faced ple business in addition to the utility with new challenges requiring new business. We will continue to solve skills in addition to the traditional the complex technical and engineer-ones of engineering design and con- ing problems involved in maintaining struction. This new environment adequate supplies of water and elec-involves increosed interaction with tricity to our City while meeting the public officials, legislative and regu- increasing number of new demands lative bodies and the media; negoti- in the arena of human relations.
ating labor contracts; and responding more effectively to consumer concerns.
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water in a megalopolis like los Angelesisa tough job. The system-from underground water mains to above-ground reservoirs-requires constant attention. We must con-Delivering high. quality drinking water tinue to pursue new technologies, to a thirsty city hos been a commit- such as those at our new Aqueduct ment of the Depa~tment of Water Filtration Plant, to give us an edge in and Power over all 86 years of our the battle against water degradation.
history. Today, even as water quality The public, our customers, deserve to standards become more stringent, know these facts.
your DWP remains on top of the situ- They also need to know that we ation, consistently providing a prod- are winning. By measures both uct that meets or exceeds all objective and personal, today's Ios requirements. Angeles tap water is purer, better Yet public concerns remain, fueled tasting than ever. And thanks to by reports of proliferating contami- ongoing efforts of the Department's nants in our environment. A signifi- employees, it continues to improve.
cant percentage of our customers- Making these facts dear to a dis-reacting to such reports- have cerning public is also one of our most turned to alternate drinking water important jobs. It is our responsibil-supplies, paying a high price for a ity not only to safeguard but to accu-margin of safety that is largely illu- rately inform the public we serve.
sory. How can we, as stewards of the public trust, respond constructively to such concerns?
First of all, we must recognize that maintaining high quality drinking
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were also mailed to customers along with their bills os part of a manda-tory retrofit ordinance approved by the City Council.
The drought has also forced the Coping with the second consecoliee Department to sharply increase water dry year in the Eastern Sierra Nevada purchoses from the Metropolitan was a major priority of the Water Water District, at a significant cost System during 1987-88. This region, premium over DWP sources. In nor-300 miles north of Los Angeles, is mal periods, MWD supplies around normally the source of 75 percent of 10 percent of the city's water needs, the city's water supply, but last year but this year purchases will be its share fell to only 60 percent. around 30 percent.
As a result, conservation efforts Improvement of water quality were intensified, including activation remains a major activity of the Water of Phase I of the city's Water Conser- System. Work continued on a vation ordinance, calling tor volun- S2.5 million aeration tower in North tary 10 percent cuts in water use by Hollyvdood for treatment of a portion consumers. In addition, the DWP of Son Fernando Valley groundwater.
extended its conservation advertising Completion is scheduled in late 1988.
and promotional campaign, which As a leader in water quality, the featured 12 Los Angeles TV weather- DWP is involved in innovative casters. Offers of free low-flow shower heads and water saving kits
Twehre los Angeles television weother-costers helped the DIP corryits conser-vation message to the pubfic lost year.
Front mw, from left%dy Jumudd, ECOP; Mocfcnno Pere', ECBS; Cristino Aceves, KMFKt Johnny Mountain, KABCI middle rowr Eiistr'e yIfrlde EFIV; Andrew Amador KHJ; Morio lorio, NQt Dr George Fischbeck, KABC.
Jonn Carl, KllA; top rows Steve Rambo, KCBS; Dallas Raines, KABC Kevin O'onnell ECBS.
Research ond planning were completed in 1988 on o 2,000.gallon-pei-minute groundwater treatment demonstration plontinvolving new ozonelhydrogen peroxide technology developed jointlyby IICIAand the DNP. The SI million foci%
ity, which wi%lemrno volatile organic chemicals /DC's), willbe builtin Iloith Ifolywood under contract with a piivote engineering firm. Completionis sched.
uledin late I989 In oider to help customeis comply with los Angeles'Emergency Water Conser-vation Ordinance, the DH'P distiibuted to reriuesting residential customers fice wotei conseNation kits. The kitsinclude o low-flowsfeverheod os well os other devices to help save water in the home.
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Efforts were pressed to upgrade the water distribution system through replacement and cement lining of older moins and covering of small reservoirs.
research on an advanced oxidation Mono Basin litigation continued, with process in partnership with UCLA. the Department defending challenges One groundwater treatment effort to its iong-held water rights in that that looks promising utilizes ozone area. A 16-month extension of the and hydrogen peroxide. Los Angeles-Inyo Agreement was The (os Angeles Aqueduct Filtration approved, allowing for completion of Plant compfeted its first full year of 0 cooperative environmentai impact operations with 0 high degree of reli- report and groundwater management ability, producing exceptionally high plan for the Owens Valley ground-water quality. water bosin.
Water System Facts in Brief Year ended tune 30 1988 1987 Use of Water Average los Angeles populotion served 3,388,000 3,338,000 Average daily use per capita (gallons) 180.8 188.6 Viater sales for fiscal yeor, (billion gallons) 203.6 210.1 Maximum doily demand, (million gallons) 84'1.0 873.0 Water Supply (in cu. ft. per second-c.l.s.)
local supply 166.9 137.0 Dytp Aqueduct 573.6 661.4 Metropolitan Water District (California Aqueduct and Colorado River Aqueduct) 207.7 '177.1 Gross supply 948.2 975.5 Diversion from (to) local storage (0.3) (1.7) ttet supply to distribution systems 947.9 973.8
System has developed a Strategic Plan that addresses 11 important areas of our electric business, rang-ing from financial responsibility to employee relations.
like niher segments el Ame risen To keep our competitive edge, we industry, the electric utility business have chosen two areos for spe(ial is experiencing drastic changes. The emphosis: price and service to our prospect of deregulation, increased customers. We plan to maintain competition, (hanges in the tax laws rates at 1985 levels, adjusted only and constantly evolving world eco- for inflation. This means future elec-nomic conditions provide us with tric rate increases must not ex(eed many new challenges. this region's Consumer Price Index-Unlike the monopolistic environ- an ambitious goal, but one we must ment of the post, competition in the meet to stay competitive. Increosed electric utility industry today is very emphasis on customer service will real. Other energy forms now com- also help us compete in the new pete with electricity. Some customers environment.
generate their own power, selling off We build upon a record of success what they don't need. Entrepreneurs and innovation, a tradition we must are willing to build power plants and (arry on as we move into the future.
sell the output to electric utilities or The Strategic Pion points the way to groups of former utility customers. into the 21st Century.
Legal and regulatory uncertainty and the prospect of changes in tax policies make planning for the future difficult. To assist us, the Power
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of this output (around 368 megawatts) represents approxi-mately 7 percent of the city's current electrical needs.
Drought conditions across the west The Power System tool a major stride have reduced water volumes in the forward in 1988 with completion of Colorado, Columbia and Owens Rivers its first Strategic Plan, designed to by as much as 40 percent this year, guide management through the curtailing production at all hydro-uncertain environment facing electric electric stations supplying the DWP.
utilities over the rest of the century. As a result, the Power System has The plan, reflecting the ideas and made greater use of power from the energies of hundreds of DWP Intermountain Power Project in Utah employees and several outside and the Palo Verde station in Arizona, experts, will be a valuable tool in as well as generating more electricity helping the system remain financially in its los Angeles Bosin steam gener-and operationally strong and respon- ating stations during 1987-88.
Angeles'hore sive to its approximately 1,300,000 To help its customers use electricity customers. more wisely, the DWP has expanded The third and final unit of the Palo its energy efficiency program, which Verde Nuclear Generating Station in includes offering free energy audits, Arizona, in which the DWP holds a incentives for retrofitting more effi-9.7 percent interest, went on line cient equipment, including rebates to early in 1988, raising the station's output to its design capacity of 3,810 megawatts. Ios
The DWP willbe prepored to occept 50 percent more power from the Poci%
Northwest storting next yeor, when workis completed on this STYLI million exponsion ofits Pocific intertie converter stotr'on in Sylmon Shavnis the volve boll of the new focility, where power is converted from DC (direct current), used for long.distonce tronsmission, to AC (oltemoting current), the formin which the paver reoches customers of Ihe DWP.
Sofety iemoins o high piiority foi the DtAIP, which hos reduced total on. the-jobinjuiies by 32 percent among a!I employeesin the last three years, ond by 40 percent since 1980 omong empkyeesin hozordousjobs. Here o Power Systeminstiuctoi gives safety pointers to a trainee.
Aesthetics ond function willblendin this D>VP e!ectiicol distributing station, one of obout I20 such focilitiesin the City of los Angeles. In designing new sto-tions and reconditioning old ones, the Power System hos emphasized compatibility with the sunounding enviionment.
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Angeles basin. These facilities, which are used with the objective of mini-mizing air quality impacts, continue to provide an important increment of power for Los Angeles.
customers who install low-energy With gasoline engines accounting lighting systems. for most of the basin's air pollution, Meanwhile, the Power System con- the DWP has stepped up efforts to tinues to improve plant efficiencies encourage development and use of through its ongoing reliability/ electric vehicles in this area. One availability improvement program. DWP test vehicle began operating in In 1988 the DWP spent more than the last 12 months, and contracts 59 million in retubing boilers and have been let for six more electric reconditioning generators and tur- vans in the next two years.
bines at its steam plants in the Los Power System Facts in Brief Yeor ended teiDe 30 1988 1987 Power Use Domestic customers 1,116,806 1,092,912 Commercial customers 165,229 160,239 Industrial customers ) 9,740 20,006 All others 2,828 2,763 Total customers-all classes 1,304,603 1,275,920 Soles to ultimote consumers- kitivatt.hours 20,936,158,000 20,162,537,000 Soles to other utilities- kilovrat t-hours 169,800,000 377,876,000 Average annual kitrtrvott-hours per domestic customer 5,029 5,004 Status of System Utility plant (less accumulated provision for depreciation) 53,324,924,000 53,133,454,000 Generating Stations Met dependable copability, kilowatts 8,800,000
" 0.584.000
'Inrfvded pvnhosed toporityt does not dedvtt short. term soles ol excess ropotity.
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v v I re becoming more sensitized to cus-tomer needs. Involving employees in this way is oitical to our success in a newly competitive environment, so management must cultivate a spirit Service is the new chniien ge inr the of participation and commitment American marketplace, and nowhere throughout the ranks that makes are the demands more evident than service second nature.
in the public utility field, which has But while the breadth of service undergone significant change in expands, accessibility must become recent years. Delivery of a product- more focused. It is no longer accept-in our case high quality water and able for customers to make several reliable, affordable electric power- phone calls, or abide endless delays is only the starting point in our while the right service person is service responsibilities toward sought.
our customers. Single contact problem solving Both large industrial users and must be a characteristic of utility individual homeowners, as well as service. Today's customers want and all the customer classes in between, deserve more access to the Depart-now look to us for such support ment and more control over their from conservation tips to large-scale consumption of water and electricity.
analysis of cost and reliability fac- Our job, now and in the future, is to tors. To meet these new demands, respond successfully.
thousands of our employees are being made more aware that the customer owns the company, and 24 pwp
~ I I re exceeded 50 percent of the employee populotion. DWP's professional work force is also 50 percent minorities and women. Hispanics in the service maintenance areo Exrernei and Organize sian ai Services achieved population parity.
(EOS) is responsible for DWP's A strategic study of information human resources, public affairs, systems was launched last year, management systems, customer and aimed at focusing computer technol-commercial services and government ogy on the important business needs relations. of the Department, particularly pro-Major improvement was achieved ductivity and efficiency, resource in customer service, with a new management and customer service.
phone system that has sharply Public Affairs played an important reduced response times on incoming role in broadening awareness on a calls. The People Difference and number of DWP issues and concerns Investment in Excellence Programs fast year, including the Power Sys-for service employees has helped tem's strategic plan. A second year them in dealing with customer prob- of drought spurred new efforts to lems, and new uniforms and vehicle drive home the conseNation message markings hove increosed DWP's for water customers, and several image in the community. Greater innovative media and community emphasis on risk and account man- outreach efforts signaled a more pro-agement has resulted in major reduc- active posture for the Department.
tions in write-offs and service disconnects.
The DWP passed an affirmative action milestone when minorities
Responding toincreasr'ng numbers of wr6ng porentsinits ranks, Ihe DN'P hos fed the woy among los Angeles city ogencies providing core for employees'hildren.
The Deportment also estab-lished o Parent's Resource Center and sponsors classes on various aspects of reoring children.
The DWPin 19BBintroduced bright new uniforms forits service employees and more eye-catching vehicfeidenti%otions designed to heighten its visibdrtyin the community. In the photo, o meter reader uses a new hand.held computer thot makes customer billing more occu-rote ond timely.
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But there is great uncertainty today over the future status of tax-exempt bonds. Certain federal legis-lators have called for an end to the exemption, as well as for other To do its job most ejjettteely, the changes that raise significant issues Department of Water and Power for the DWP. Without the exemption, must maintain a sound footing that for example, rates on future bonds provides the financial resources for would have to be increased to make current operations and future expan- them competitive on a taxable basis, sion. To help assure this, the Depart- and that would mean higher costs to ment must plan carefully, remain the DWP and its customers. This efficient and structure its rates and could have far-reaching effects on borrowing to support its financial the future financiol health of all pub-objectives. licly owned utilities.
Borrowing through the issuance of There are a number of other uncer-tax-exempt revenue bonds is one vray tainties rippling through the public the DWP provides for future growth. utility industry today- from the To date, the Department has borrowed long-term effects of deregulation to more than S2 billion. Investors are the impacts of more stringent envi-willing to purchase these bonds ronmental regulation- but nothing because (1) the DWP has a strong is more critical to our future than credit rating, (2) the bonds pay an maintaining a solid financial posi-attractive rate of interest and (3) tion. This is a top priority for all of there is currently no federal income us at the DWP.
tax on the interest they earn.
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Operations for iisrai year 1987-88 The operating revenue of the Outstanding bonds, notes and rev-resulte4 in an increase of 2.9 per- Power System increased by 11.9 per- enue certificates at lane 30, 1988, cent in sales of electric energy and a cent from 1986-87, to a total of totaled 51.70 billion for the Power 3.1 percent decrease in water sales. 51.57 billion. Net income amounted System and 5373 million for the Operating revenues of the Depart- to 5176 million, or 6 percent below Water System. Both systems met ment's Water and P(nver Systems the 5186.8 million in the previous their matucing payments on bonds totaled more than 51.83 billion, a fiscal year, due to higher operating and notes.
gain of 5175 million over the pce- expenses.
vious fis(al year. The Powec System The Power System invested 5335 Costs and Transfers accounted foc 5166 million of the million in capital <onstcuction for the In accordance with its bosic fiscal pol-increase, primarily due to higher year. Major expenditures were addi- icy, the Deportment pays all (osts of energy costs bille4 to customers and tions and modifications to the electri- operation, debt sentice and part of the increase in sales mentioned cal distribution and transmission the cost of capitol improvements above. The Water System added facilities. from current cevenues. The remainder 59 million to the total, mostly from Total assets of the Department at of the cost of capital improvements is higher energy and purchased water luna 30, 1988, were approximately met through sales of revenue bonds costs billed to customers and the 55.21 billion. Of this amount, or notes and from contributions in effect of the November 1987 revenue 53.90 billion was ce(orded in the aid of construction.
'ncrease of 5.3 percent. Power System and the remainder in Besi4es meeting all costs of op-Higher Water System opecating the Water System. eration from current revenues, the revenues, offset by incceases in oper- Department paidmore than ating and debt expenses, resulted in finanang Activities 582 million into the Reserve Fund net income of 534 million, down During the year, the Power System of the city in support of general 23 percent from 1986-87's total sold 5200 million in revenue bonds city government.
of S44.6 million. consisting of tw issues of 5100 mil- Approximately 85 percent of that A total of 5105 million was spent lion each, at interest rates ovecaging amount came from the Pacvec Reve-by the Water System on capital con. 7.67 percent. The Wotec System sold nue Fund. Operations of the Water stra(tion, most of whi(h went 585 million in revenue bon4s, con- and Povcer Systems ore entirely self-towards the improvement of the sisting of hvo issues for 535 million supporting andno financial obliga-water distribution an4 supply and 550 million, at the same aver- tion or tax burden is placed on the system, as well os water quolity age interest rate. citizens of los Angeles.
programs.
3c City olios Aortefet itefsortmeot ol tyoter oorfPower
(In Thovsonds) Yeot ended lone Jit T988 l98P T986 Operating Revenues Residentiol S 94,525 5 92,436 S 84,147 Commercial ond industrial 142,456 135,163 122,917 Other 20,051 20,775 18,955 Total operating revenues 257,032 248,374 226,019 Operating Expenses Purchosed water 31,072 26,765 17,192 Purchased energy 11,613 8,806 8,050 Purchosed water and energy costs 42,685 35,571 25,242 Other operation 92,709 84,843 78,715 Maintenance 34,243 28,691 27,145 Oepreciation 30,584 26,586 22,983 Taxes on property outside the City 2,734 2,791 2,572 Total operating expenses 202,955 178,482 156,657 Operating Income 54,077 69,892 69,362 Other income-net 2,685 4,524 8,176 Loss on Abondonment of Chatsworth Reservoir (10,675)
Income before debt expenses 56,762 63,741 77,538 Debt Expenses Interest on debt 23,749 22,039 23,239 Allowance for borrowed funds used during const~action (1,380) (2,939) (7,545)
Total debt expenses 22,369 19,100 15,694 Het Income S 34,393 S 44,641 5 61,844 (In T~) rent~i~88 f988 l981 l986 Balance at beginning of year 5442,526 5409,186 5357,757 Ifet income for the year 34,393 44,641 61,844 476,919 453,827 419,601 Less-Payments to the reserve fund of the City 12,419 11,301 10,415 Balance at end of year S464,500 5442,526 5409,186 The otromponying notes ote onintegtol post of these finonciof stotements.
&rofles Angeies ftepottment ol Wotet ond power
(In thooson7fs) Jane 3rt jt88 IP81 Assets UtilityPlant, at originol cost Source of water supply S 236,592 5 230,343 Pumping 48,969 48,203 Purification 132,699 129,874 Distribution 1,022,138 964,205 Genecal 110,029 94,309 1,550,427 1,466,934 Less-Accumulated depreciation 510,225 480,483 1,040,202 986,451 Construction work in progress 74,526 59,697 Net utility plont 1,114,728 1,046,148 Current Assets Deposits with City Treasurer 84,329 37,136 Customer and other accounts receivable, less S400 and S600 allowance for losses 54,772 45,520 Accrued unbilled revenue 21,671 25,654 Materials and supplies, at average cost 15,489 14,490 Prepayments and other cunent assets 14,906 14,841 Totol current assets 191,167 137,641 Total assets 5 1,305,095 5 1,103,709 Capitalization and liabilities Capitalization Equity Retained income reinvested in the business S 464,500 S 442,526 Contributions in aid of construction 357,829 325,951 822,329 768,477 Long. term debt 350,188 285,599 Total capitalization 1,172,517 1,054,076 Current liabilities Long.term debt due within one year 20,270 19,560 Acoued interest 7,752 6,465 Accounts payable and accrued expense's 69,544 69,447 Customer deposits 35,812 34,241 Totol cunent liabilities 133,378 129,713 Commitments and Contingencies Totol capitalization and liabilities 5 1,305,095 51,183,709 the ocrompanrting notes ote an integtol patt of these financial statements.
&rotlos trngetes ttepottmentof Ytotet an7t po374tt
(In fhoreebi Yeor end'04t!640e 3O I988 rgep r986 Cash Flows from Operating Activities:
Het income 5 34,393 5 44,641 5 61,844 Adjustments to reconcile net income to net cosh provided by operating activities:
Depreciotion 36,188 31,112 26,291 Loss on Abandonment of Chatswocth Reservoir 10,675 Allowance for bonowed funds used during construction (1,380) (2,939) (7,545)
Chonges in cunent assets and liabilities:
Customer and other accounts receivable (9,252) (10,511) (2,778)
Accrued unbilled revenue 3,983 (7,764) (2,073)
Materials and supplies (999) (1,067) (119)
Prepayments and other current assets (65) 1,026 (10,910)
Acoued interest 1,287 (281) 520 Accounts payable and accrued expenses 97 2,574 5,592 Customer deposits 1,571 6,414 3,111 Het cash provided by operating activities 65,823 73,880 73,933 Cash Flows from Financing Activities:
Sale of revenue bonds 84,626 Sale of advance refunding bonds 65,928 Amount received from escrow account 13,025 Contributions in aid of constcuction 31,878 23,005 18,062 Reduction of long-term debt (19,327) (19,248) (19,636)
Amount deposited in escrow account and offset agoinst advance refunding bonds (65,928)
Long-term debt redeemed, including call premium (13,025)
Payments to the reserve fund of the City (12,419) (11,301) (10,415)
Het cash provided by (used in) financing activities 84,758 (7,544) (11,989)
Cash Flows from Investing Activities:
Expenditures for plant and equipment (103,388) (96,199) (105,296)
Deposits with City Treasurerc Het increase (decrease) 47,193 (29,863) (43,352)
Beginning of year 37,136 66,999 110,351 End of year 3 84,329 5 37,136 6 66,999 Supplemental disclosure of cash flowinformation:
Cash paid during the year for interest 3 28,820 5 28,233 6 26,011 ihe orcomponying notes ore on integrol pmr of these linonciol stoiemenrs.
34r (Icy el los Angeies eepo2rment ol Worer on4t po2w
Note A-Summary of Significant Accounting Policies Contributions in aid of (onstru(tion-Undec the provisions of the The Department-The Department of Woter ond Povrer of the City (ity Charter, amounts received from (ustomers and olhers for con-of los Angeles exists under and by virtue of the City Charter enacted structing utility plant are combined with retained in(ome reinvested in in 1925 as a separate proprietary agency of the City. The Water the business to represent equity for purposes of computing the Water System is responsible for the quolity and distribution of venter for System's borrowing limits. Accordingly, (ontcibutions in aid of con-sale in the (ity. struction are shown in the a((ompanying balan(e sheet as an equity account and are not offset against utility plant.,Depreciation for lhe Financial statemeat presentation-The financial statements of reloted utility plant is expensed.
the Water System are presented in conformity with generally accepted accounting principles, and substantially in (onformity with ac(ounting Revenues-Revenues consist of billings to customers for water con-principles prescribed by the California Public Utilities Commission sumption and include amounts resulting from a pur(hosed watec and except for the method of accounting for contributions in aid of con- energy cost adjustment formula designed to permit the full recovery of struction described below. The Department is not subject to regulotions pur(hosed water and energy costs. The Departmenl projects these of such <ommission. costs to estoblish the cost recovery component of customer billings and any difference between billed and actual costs, resulting in over- or Uti%ty plant-The costs of additions to utility plant and repla(e- under. recovery of purchased water and energy (osts, is adjusted in ments of retired units of property are capitalized. (osts include labor, subsequent billings.
materials ond allocated indirect charges such as engineering, supervi- The Viater System recognizes purchased wotec and enecgy costs in sion, transportation and construction equipment, retirement plan con- the period incurred and a((rues for estimated unbilled revenues for tributions, and (ectain administrative and general expenses. Repairs water sold but not billed at the end of a fiscal year.
andminor replacements are charged to maintenance expense. The The Water System's rates are established by rate ordinance original cost of pcopecty retired, plus removal cost, less salvage, is appcoved by the City (ouncil. The Water System sells woter to other charged to accumulated depreciation. Departments of the City at regular rates provided in the ordinance.
Allowance for funds used during construction (AFl/DC) Shared operating expenses-The Vioter System shores certoin AFUDC represents the cost of borrowed funds used for the construction administrative functions with lhe Department's Power System. Gener-of new feei!ilies. AFUDC is capitalized as port of the cost of utility ally, the costs of these functions are allocated on the basis of benefits plant and is (redited to income as a reduction of debt expenses, provided to the Systems.
but does not represent cash comings. The ave~age AFUDC rates were 8.4%, 9.4% and 9.4% for fiscal years 1988, 1987 and Debt expenses-Debt premium, discount and issue expenses ace 1986, respectively. deferred and amortized to income over the lives of the relatedissues.
Depreciation-Depreciation expense is computed by the stcaighl- Statement of Cash Ffows-During the year ended June 30, line method bosed on estimated secvice lives. Depreciation provision as 1988, the Department implemented Statement of financial A((ounting a peccentage of average depreciable plant was 2.4%, 2.4% and Standards Ho. 95, "Statement of Cash Flows" .Ac(ordingly, fiscal 2.3% for fiscal years 1988, 1987 and 1986, respectively. years 1987 and 1986 amounts have been restated to conform with the fiscal year 1988 presentation.
Deposits with City Treasurer-Deposits with lhe (ity Treasurer included 583 million and S31 miHion at June 30, 1988 and 1987 whi(h were invested in short.teem securities undec the Gty Treasurer's Note B-loss on Abandonment of Chatsworth Reservoir poofed investment pcogrom, cvhereby availoble funds of the City and From 1969 to 1972, the Water System incurred (osts totalling S10.7 its independent operating departments are invested on a combined million to enlarge and improve the (hatsworth Reservoic. Following the basis. These investments are valued at cost, which approximates 1971 earthquake in the Los Angeles area, the State of California market.
3$ city ol roc Ange'les &portment ol cvore ond poiiiii
enacted more stringent safety standards for earth filled dams which Note E-Employee Benefits vrauld hove required the repla<ement of the (hatsworth Reservoir The Department has a funded contributory retirement, disability and Dams al significant additional costs prior to refilling. During 1987, the death benefit insurance plan covering substantially all of its employees.
Water System completed various studies and concluded that the addi- Plan benefits are generolly based on years of service, age at retirement tional costs of upgrading the doms and complying with increased and the employees'ighest 12 consecutive months of salary before water quality standards precluded refilling the resenroir. Therefore, the retirement. The Department funds retirement plan costs on a level pre-project was formally abandoned, resulting in a utility plant write ofE of mium actuorial method as determined by the plan's independent actuary.
S10.7 million as oE June 30, 1987. For funding purposes, prior servi<e <osts relating to the plan are amor-tized generally over a 30.year period ending June 30, 2003.
The Water System wos allocated approximately 24olo of the plan's Note C-kg-term Debt total costs for fiscal year 1987, and 26'lo for fiscal year 1986 amount-Long-term debt outstanding at June 30, 1988, consisted of revenue ing to S33 million and S32 million, respectively. As of June 30, 1987, bonds and notes due serially in varying annual amounts through the actuarially computed present volue of ac<umuloted retirement plan 2028. Interest rates, which vary among individual maturities, aver- benefits attributable to the Water System aggregated S494 rnillon, aged approximately 74'lo and 7.2'lo at June 30, 1988 and 1987. discounted at 8o/o, of which substantially all were vested.
The revenue bonds generally are callable ten years after issuance. , In fiscal year 1988, the Deportment adopted the pravisions of State-Scheduled onnual principal moturities during the five years succeed. ment of Financial Accounting Standards tto. 87, "Employers'ccounting ing June 30, 1988 are S20 million, S20 million, S12 million, for Pensions".The adoption of this statement did not materially affect
'he S12 million and S12 million, respectively. Department's results of operations. As required by the new standard, In fiscal years 1986 and 1985, the Viater System sold advance retirement cost is determined using the projected unit credit actuarial refunding bonds totaling S85 million. Until the bonds to be refunded cost method. Total benefit plan costs for fiscal year 1988 for the Water are <oiled, interest on the advance refunding bonds is payable from System include the foiloviing (amounts in millions):
interest earned on securities of the United States government pur-Service cost S 11 chased out of the proceeds oE the sales cnd held in escrow accounts interest cost on projected benefit obligation 38 with Citibank, tI.A., tlew York. At June 30, 1988, S85 million oE Actual return on pkrn assets (10) these escrow accounts have been offset against the advance refunding Net amcitizoricn ond deferral (1 1) bonds in the a<<omponying balance sheet (during fiscal year 1988 Net retirement plan cost 28 there were no refunded bonds redeemed). After the monies in the Disability and death benefit plan costs ond cdmiriisrrcrive expenses 4 escrow accounts are applied to redeem the bonds to be called, princi-Total Benefit Ptcn Costs S32 pally through 1994, interest on the advance refunding bonds will be payable from Vioter System revenues. The plan's funded stotus at June 30, 1988 allocated to the Vioter System is as follows (amounts in millions):
Actuarial present valve of benefit obfigcricns:
Note D-Shared Operating Expenses Vested benefits S 411 Operoting expenses shared with the Parrer System were S256 million, tlcn vested benefits 2 S235 mdlion and S216 million for fiscal years 1988, 1987 and 1986, kcvmvtcred benefit obligation 413 of which S89 million, S82 million and S74 miillion were allocated to the Prc(ected future compensation levels 72 Water System.
Picjected benefit obfigcricn 485 Plan ossets ct fair value 367 Pio)<ted benefit obhgcrion in excess of ptcn assets 118 Unrecognized ner goin cnd effects of chcriges in ossumpticns 8 Uncnorized net cbfigcticn ot adoption of FAS 87 (101) keel pension licMry S 25 Gtj'olios Aogeks rroporreoozor rrozoi and pew
The projected benefit obligation at June 30, 1988 was detecmined using Note F- Commitments and Contingencies a discount rote of 8.25% and an assumed rote of increase in future Payments ta tire reserve fund af the City- Under the provisions of compensation of 6%. The 1988 pension cost was determined using the City Charter, the Viater System transfers funds at its discretion to the a long. term rate of return on p'lon assets of 8%. Plan assets consist reserve fund of the Gty. Such payments are not in lieu of taxes and primarily of corporate ond government bonds, common stocks, are recorded as distributions of retained income. The Department expects mortgage-backed securities'and short.terminvestments. to make payments of S13 million in fiscai year 1989 from the Water In addition to the retirement plan, the Department provides ca~tain System to the reserve fund o( the City.
health care benefits to active and retired employees. Health care costs are expensed as paid under a self-insured plan. The cost of providing litigation- A number of claims and suits are pen4ing against the such benefits to retired employees, net of employee contcibutions, Department for alleged damages to persons and property and for other amounted to S3 million, S2 million and 52 million for fiscal years olleged liabilities arising out of its operations. In the opinion of manage-1988, 1987 ond 1986, respectively. ment, the uninsured liability under these actions would not materially affect the Viater System's financial position as of June 30, 1988.
August 31, 1988 To the Boord of Water and Powec Commissioners Department of Woter and Parer City of Los Angeles In our opinion, the accompanying balance sheet and the relate4 statements of income and retained income reinvestedin the business and of cash flcnvs present fairly, in all mate~ial respects, the finoncial position of the Yiater System of the Depactment of Vlotec and Pcnvec of the City of los Angeles at June 30, 1988 and 1987, and the results of its opecations and its cosh flows for each of the three years in the period ended June 30, 1988, in conformity with generolly accepted accounting principles.
These financial statements are the responsibility of the Department's management; our responsibility is to express an opinion on these finoncial statements based on our audits. We conducted our audits of these statements in accordance with generolly accepte4 ouditing standards which require that we plan and perform the audit to obtain reasonable ossurance about vchether the financial statements are free of material misstatement. An audit includes examining, on o test basis, evidence support-ing the amounts an4 disclosures in the finonciol statements, assessing the accounting principles used and significant estimates mode by monogement, and evaluating the overall linanciol statement presentation. We believe that our audits provide a reasonob'le basis for the opinion expressed above.
31
(In Ihcesae&) Year en6t049/402e 30 I988 1989 I986 Operating Revenues Residential 5 430,696 5 388,730 5 379,488 (ommerciol and industrial 1,085,557 963,151 932,187 Other 53,775 51,560 46,459 Total operating revenues 1,570,028 1,403,441 1,358,134 Operating Expenses Fuel for generation 228,499 219,944 348,069 Purchased power 470,957 355,975 203,116 Energy costs 699,456 575,919 551,185 Other operation 326,876 299,408 288,954 Maintenance 153,062 147,673 142,461 Depreciation 124,004 115,629 107,419 Taxes on property outside the (ity 12,343 8,552 8,660 Total operating expenses 1,315,741 1,147,181 1,098,679 Operating Income 254,287 256,260 259,455 Other income-net 18,037 19,754 27,984 Income before debt expenses 272,324 276,014 287,439 Debt Expenses Interest on debt 102,437 96,926 97,464 Allowance for borrowed funds used during construction (5,674) (7,759) (3,610)
Total debt expenses 96,763 89,167 93,854 Net Income 5 175,561 5 106,047 5 193,505 QMzt8k5'~Nzmv Mz55 (IDdMXftZO (In Ihorrsnngs) Year endrgi4rne 38 I988 I9879 Balance at beginning ol year 51,680,322 51,561,388 51,432,156 Ifet income for the yeor 175,561 1&6,847 193,585 1,855,883 1,748,235 1,625,741 less-Payments to the reserve fund of the (ity 70,182 67,913 64,353 Balance at end of year 51,705,70 1 51,680,322 51,561,388 The otromponying notes ore on integtol post ot these (7'nnntiol statements.
38 Citroilos Angetes geportnrent ol Woter oncf power
(In te77son4h) /470e3rr l988 I981 Assets Uti%ty Plant, at original cost Pcoduction 51,749,777 51,539,610 Transmission 561,178 545,821 Distcibution 1,845,703 1,704,800 General 284,625 256,124 4,441,283 4,046,355 Less- Accumulated depieciation 1,356,344 1,252,336 3,084,939 2,794,019 Construction work in progress 215,435 311,640 Nudear fuel, at amoitized cost 24,550 27,795 Net utility plant 3,324,924 3,133,454 Current Assets Deposits with City Treosurer 179,170 174,430 Customer and other accounts receivable, less 52,500 and 53,900 ollowance foc losses 143,310 140,287 Accrued unbilled revenue 88,782 84,535 Materials and supplies, at average cost 74,663 63,009 Fuel for generation 56,123 65,897 Deferred energy costs 8,928 Prepayments and other current assets 37,776 30,267 Total current assets 579,824 567,353 Total assets 33,904,748 83,700.807 Capitalization and liabi%ties Capitalization Equity Retained income reinvested in the business 51,785,701 51,680,322 Contributions in aid of construction 104,825 91,352 1,890,526 1,771,674 Long. term debt 1,554,170 1,408,914 Total capitalization 3,444,696 3,180,588 Current liabi%ties Long term debt due within one year 53,545 67,916 Revenue certificates payable. 90,000 90,000 Acoued intecest 30,648 26,457 Accounts payoble and accrued expenses 212,380 242,973 Over-recovered energy costs 57,552 73,196 Extension and other deposits 15,927 19,677 Total current liabilities 460,052 520,219 Commitments and Contingencies Total capitalization and liabilities 33,904,740 33,700,007 lhe ortomponying notes ote onintegrol port ol these linontiolstotements.
City olios Angeles (tepottn70nt ol Wotet ond po70et
(/n T~sl rear ended Jene 3tr l988 T981 l988 Cash Flows from Operating Activitios:
Het income 5 175,561 5 186,847 5 193,585 Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 135,558 125,734 115,599 Amortization of nudear fuel 7,516 5,936 925 Allowance for borrowed funds used during construction (5,674) (7,759) (3,610)
(hanges in current assets and liabilities:
(ustomel and other accounts receivable (3,023) (244) 8,709 Accrued unbiiled revenue (4,247) (806) (26,246)
Materials and supplies (11,654) (1,189) (4,671)
Fuel for generation 9,774 (4,078) 22,032 Deferred energy costs 8,928 17,856 13,753 Prepayments and other current assets (7,509) (18,659) 1,301 Accrued intetest 4,191 (47) 2,758 Accounts payable and accrued expenses (30,593) (72,546) 105,585 Over-recovered energy costs (15,644) 3,935 56,159 Extension and other deposits (3,750) 2,228 10,485 Het cash provided by operating activities 259,434 237,208 496,364 Cash Flows from Financing Activities:
Sale of revenue bonds 198,108 98,566 Sale of advance refunding bonds 47,312 Amount received from escrow account 72,920 Contributions in aid of construction 13,473 6,644 5,083 Reduction of long-term debt (67,223) (60,835) (86,101)
Amount deposited in escrcnv account and offset against advance refunding bonds (47,312) long-term debt redeemed, including call premium (72,920)
Payments to the reserve fund of the Gty (70,182) (67,913) (64,353)
Het cash provided by (used in) financing activities 74,176 (122,104) (46,805)
Cash Flows from Investing Activities:
Expenditures for plant and equipment (328,870) (313,465) (400,758)
Deposits with City Treasurer:
Het increase (decrease) 4,740 (198,361) 48,801 Beginning of year 174,430 372,791 323,990 End of year 5 179,170 5 174.430 5 372,791 Supplemental disclosure of cash flow information:
(ash paid during the year for interest 5 100,435 5 98,358 5 103.533 The occomponring notes are onintegrol port ol Ihese financial statements.
Cyof tos srrgetes trepartrrrerrtof troter o04IPower
Note A-Summary oF Significant Accounting Policies Nuclear fuel- Nuclear fuel is amor tize4 and charged to Fuel tor The Department-The Deportment of Water and Power of the Gty Generation in the Statement of Income on the basis of octuol thermol of Los Angeles exists under and by virtue of the Gty Charter enacted energy produced celative to totol thermal energy expected to be pro-in 1925 as a seporate proprietary agency of the Gty. The Power duced over the life of the fuel. Under the provisions of the Nuclear System is responsible foc the geneiation, transmission and distribution of Vlaste Policy Act of 1982, the Deportment is charged one mill per electric power toc sa'Ie in the Gty. kilocvott-hour on its share of electricity produced by the Palo Verde Nucleac Generating Station. The Deportment records this charge as a Financial statement presentation-The finoncial statements of current year expense.
the Power System are presented in conformity with generally accepted accounting principles, and substantially in conformity with accounting Nuclear decommissioning-Decommissioning of the Palo Verde principles prescribed by the Fade~el Energy Regulatory (ommission and Nuclear Genecating Station, in which the Power System has an cnvnec-the California Public Utilities Commission except for the method of ship interest, is projected to start sometime after 2027. The Power accovnting for contributions in aid of construction described below. The System is providing for its shore of the estimated future decommis-Department is not subject to regulations of such commissions. sioning costs over the life of the nuclear power plant through annual charges to expense.
Vti%typlant-The costs of additions to utility plont and replace- A Nuclear Decommissioning Fund has been established. The semi-ments of retired units of propeity are capitalized. (osts include labor, annual deposits to the fund pIus the intecest earnings on the fund bal-materials and allocate4 indirect charges such as engineering, supervi- ance are expected to be sufficient to poy the Department's shore of sion, transpoitotion and construction equipment, retirement plan con- decommissioning costs.
tributions, and cectain administcative and general expenses. Repairs and minor replacements are charged to maintenance expense. The Deposits with City Treasurer-Deposits with the Gty Treasurer original cost of property retired, plus removal cost, less salvage, is included $ 167 million and 5150 million at June 30, 1988 and 1987 charged to accumulated depreciotion. which were invested in short-teem securities under the Gty Treasurer's poole4 investment progcam, whereby available funds of the (ity and Allowance for Funds used during construction (AFVDC) its independent opecating departments are invested on a combined AFUDC represents the cost of borrowed funds used for the constcuction basis. These investments are valued at cost, which approximates of new facilities. AFUDC is capitalized as port of the cost of utility maiket.
plont and is oedited to income as a reduction of debt expenses, but does not represent cash earnings. The average AFUDC rates Fue/For generation-Cool inventories are stated at average were 7.9%, 8.8% and 9.1% for fiscal years 1988, 1987 and cost. Fuel oil inventories are stated at cost, using the last-in, 1986, respectively. first-out method.
Depreciation-Depreciation expense is computed by the straight- Contributions in aid of construction- Under the provisions of the line metho4 for all major projects completed after July 1, 1973 and for City (barter, amounts received fcom customers and others foc con-all office and shop structures, related furniture and equipment, and structing utility plant are combined with retoined income reinvested in transportation and construction equipment. Depreciation for facilities the business to represent equity for purposes of computing the Power completed prior to this date is pcovided by the 5% sinking fund System's borrowing limits. Accordingly, contcibutions in aid of con-method based on estimote4 service lives. Depreciation pcovision as a struction are shown in the accompanying bolance sheet as an equity percentage of average depceciable plant was 3.2'lo, 3.2% and 3.3% account and are not offset against utility plant. Depreciation for the for fiscal years 1988, 1987 and 1986, respectively. related utility plant is expense4.
citr olios Attcnctc kpcrtttttttt o/rtrtttittttttcIbw
Revenues- Revenues consist of billings to customers for consumption Statement oF Cash Flows- During the year ended June 30, of electric energy and include amounts resulting from an enecgy (ost 1988, the Department implemented Statement of Financial Accounting adjustment formula designed to permit the full recovery of energy Standards Ho. 95, "Statement of Cash flows" .Accordingly, fiscal costs. The Deportment projects these costs to establish the energy (ost years 1987 and 1986 amounts have been restated to conform with recovery component of customer billings and any difference between the fiscal year 1988 presentation.
billed and actual energy costs, resulting in over- or under.recovery of energy costs, is adjusted in subsequent billings.
The Power System recognizes energy costs in the period incurred Note B- Revenue Certificates and accrues for estimoted unbilled revenues foc energy sold but not At June 30, 1988 and 1987, the average interest rate of revenue billed at the end of a fiscal year. certificates payable was 4.9% and 4.6% with various maturities The Power System's rates are established by rate ordinance of up to 242 and 152 days, respectively. The Department has an approved by the City Council. The Pmver System sells electric energy unsecvced standby line of (redit of 590 million which may be used to other Departments of the City at regular cates provided in the if the certificates cannot be refinanced as they mature.
ordinance.
Shared operating expenses- The Power System shares (et tain Note C- Jointly-owned Uti%ty Plant administrative functions with the Deportment's Vlater System. Genec- The Patter Systemhas an undivided interest in several electri(al generating olly, the costs of these functions ace alhxated on the basis of benefits stations and transmission systems which are jointly.cnvned with other utili-provided to the Systems. ties. Each project par ticipont hos provided its pocten of the total con-struction financing. The Pcmer System's pcoportionate share of construc-Debt expenses- Debt premium, discount and issue expenses are tion and improvement costs is induded in its balance sheet at June 30, deferred and amortized to income over the lives of the related issues. 1988 as follows (dollar amounts in millions):
eeptnttnent Slate of Itotnln Consttortot 0nnetsIIP Coooctx Setvne 4aonnsotett Worl In Intetest (mego notts) Cost kpttsiotot Ptorress Palo Verde Hudear Generating Station (Hate G) 5.7% 209 5490 5 19 HcMjo Steam Generating Station 21 2o/o 477 179 66 5 3 h'behave Coal Generating Station 20.0% 316 75 21 8 744 106 11 Pacific Intertie DC Transmission System 40.0% 800 99 12 34 Othec tronsmission systems Various 69 14 1 168 26 35 5912 5132 546 42 ol Wotet otnI Penes Ctttt olios Angus ItePottment
The Power System will incur certoin minimum operating costs on the Note F- Employee Bene/its jointly.owned facilities, regardless of the amount of energy generated or The Department hos a funded contributory retirement, disability and the ability to toke delivery of its shore of energy generated. The propor- death benefit insurance plan covering substantially all of its employees.
tionote share of these expenses is included in the appropriate categocies Pfan benefits ore generally bosed on years of service, age at retirement of operating expenses. and the employees'ighest 12 consecutive months of salary before retirement. The Department funds retirement p'lan costs on 0 level pre-mium actuarial method as determined by the plan's independent actuary.
Note D-long-term Debt For funding pucposes, prior service costs relating to the plan are amor-long. term debt outstanding at June 30, 1988, consisted of revenue tized genecally over a 30-year period ending June 30, 2003.
bonds and notes due secially in varying annual amounts through The Power System was allocated approximately 76% of the plan's 2028. Interest rates, which vary among individual maturities, avec- total costs for fiscal year 1987, and 74% for fiscol year 1986 amount-aged approximately 6.7% and 6.5% at June 30, 1988 and 1987. ing to 5102 million and 591 mlilion, respectively. As of June 30, 1987, The revenue bonds generolly are calfabfe ten years after issuance. the actuarially computed present value of accumufoted retirement plan Scheduled annuol principal maturities during the five years succeed- benefits attributaMe to the Power System aggregated S1,233 million, ing June 30, 1988 are 554 million, 552 million, 553 million, discounted at 8%, of which substantially all were vested.
555 million ond 556 milhon, respectively. In fiscal year 1988, The Department adopted the provisions of State-In fiscal year 1987 the Power System sold advance refunding bonds ment of Financial Accounting Standards Ho. 87, "Employers'ccounting totaling 548 million. Until the bonds to be refunded are called, interest for Pensions".The adoption of this statement did not materially affect on the advance refunding bonds is payable from interest corned on secu- the Department's results of operations. As required by lhe new standard, rities of the United States government purchosed out of the proceeds of retirement cost is determined using the projected unit credit actuoriol the sales and held in escrow a<counts with Gtibank, W.A., Hew York. At cost method. Total benefit plan costs for fiscal yeoc 1988 for the Power June 30, 1988, 548 million of these escrow accounts have been offset System include the follerirng (amounts in millions):
against the advance refunding bonds in the accomponying balance sheet Service cost 5 35 (during fiscal year 1988 there were no refunded bonds redeemed). After Interest <ost on praje<ted benefit obligation 120 the monies in the escrow accounts are applied to redeem the bonds to Actuol return on pfan assets (31) be coiled, principolly through 1994, interest on the advance refunding ttet amortization and deferral (37) bonds will be payable from Power System revenues. 87 lier retirement plan <ost Disobility and death benefit plan costs and administrative expenses 12 Note E-Shored Operating Expenses Total Benefit Plan (asts 5 99 Operating expenses shared viith the Water System were 5256 million, 5235 million and '5216 million for fiscal yeors 1988, 1987 and 1986, of which 5167 million, 5153 million and 5142 million were allocated to the Power System.
The pion's funded status at June 30, 1988 allocated to the Power long-term purchased power nnd transmission contracts-The System is as follows (amounts in millions): Depactment has entered into a number of energy and transmission serv-i<e contracts which involve substantial commitments. These include an Actuarial present value of benefit obligations:
agreement mth the Intermountoin Powec Agency, a Utah State Agency, Vested benefits 51,300 Hon-vested benefits 5 for purchase of enecgy from the Intermountoin Power Project (IPP) for which the Power System has served as the project monagec and operat-Accumulated benefit obtigorion 1,305 future compensation levels ing agent. The Department's total interest in IPP indudes a 44.6o/o Projje<ted 227 "take or pay" obligation and an excess power contract for 18.2e/o foc Projected benefit obrratoc ),532 a total of 62.8'lo. The Deportment also has two agreements with the Plan assets ot lob votue 1,163 Southern California Public Power Authority (SCPPA), a California Joint Projected benefit obligation in excess of pIon assets Powers Agency, Eor 67'/o of SCPPA's 5.9'lo entitlement (representing a 369 Unrecognized net goin ond effects of <honges in assumptions net 4'lo participation) to the energy generated at Polo Verde Hudear 25 Unomorctzednet obbgocian at adoption of FAS 87 (322) Generating Station and foc 59.5'lo in the capacity of the Southern Transmission System, whkh transmits energy from IPP in Utah to Accrued pension IioMiry 5 72 Southern California. Signifi<ant data related to these agreements, which are scheduled to expire Erom 2022 to 2027, at June 30, The projected benefit obligation at June 30, 1988 was determined using 1988 are as follows:
a discount rate of 8.25'lo and an assumed rate of inoease in future rororrtmecs 56eeeof compensation of 6'lo. The 1988 pension cost was determined using <ceocemcocr Coeocer (mi%os) (meyrwoe) a long-term rate of return on plan assets of 8'/o. Plan assets consist primarily of cocporate and government bonds, common stocks, Polo Verde Hu<ieor Generating Station mortgage.backed securities and short-term investments. (rhrough SCPPA) S1,042 '145 In addition to the retirement pion, the Department provides cectoin Intermovntoio Amer Project 4,926 1,004 Southern Trorenission System health care benefits to active and retired employees. Health care costs ace expensed os paid under a self-insured plan. The cost oE providing (for IPP power through SCPPA) 1,000 1,142 such beneEits to retired employees, net of employee <ontributions, All these agreements require the Power System to make certain min-amounted to S9 million, S7 million and 56 million for fiscal years imum payments, which are based upon debt service requirements. While 1988, 1987 and 1986, respectively.
these payments are fixed charges (of appcoximately 5330 million in each of the next five years), the Deportment is also required to pay additional amovnts (of approximately 5120 million in each of the next Note G- Commitments nnd Contingencies five years) for operating and maintenonce costs related to actual deliv-Payments tn the reserve fund of the City- Under the provisions eries of energy under these agreements. Total payments undec these of the Gty Charter, the Power System transfers funds at its discretion to contcacts were approximately 5320 million, 5260 million and S20 mil-the reserve fund of the Gty. Such payments are not in lieu of taxes and lion in fiscal years 1988, 1987 and 1986, respectively. These aggre-are recorded as distributions of retained income. The Department expects gate purchased power costs are recovered through the energy cost to moke payments of S78 million in fiscal year 1989 fcom the Power recovery component of customer billings.
System to the ceserve fund of the Gty.
The Department also has a contcoct through 2017 with the U.S.
Department of Energy for the purchase of available energy generated at the Hoover Power Plant. The Department's share of <<opacity at Hoover approximates 500 megawatts.
&relies Angeres peporcmeoc el Croree ond peeve
Nudeor insurance-As a portYiipant in the Palo Ye~de Nuclear Gener- Hoto H-Suirsoquent Event ating Station, the Deportment could be subject to assessment of retro- As of July 1, 1988, an amendment to an Intermountoin Power Agency spective insurance premium adjustments in the event of a nuclear bond resolution provides Eor the use of surplus construction funds from incident at Palo Verde or at any other licensed reactor in the United the Intermountoin Power Project. As a member portiapant of this States. project, the Department expects to receive S110 miIon during the next three to four years representing its shore of such surplus funds.
litigation- A number of claims ond suits are pending agoinst the The funds viill be used to reduce the Deportment's future purchased Department for alleged damages to persons and property and for other power expense.
alleged liabilities arising out of its operations. In the opinion of manage-ment, the uninsured liobility under these actions would not materially affect the Power System's finoncial position as of June 30, 1988.
August 31, 1988 To the Board of Water and Pcnvec Commissioners Department of Yioter and Power Gty of los Angeles In our opinion, the accompanying balance sheet ond the related statements of income and retained income reinvested in the business ond of cash flows present fairly, in ollmoteriol respects, the finoncial position of the Power System of the Deportment oE Yioter ond Pavre of the City oE Los Angeles at June 30, 1988 ond 1987, and the results of its operations and its cosh flows foc each oE the three years in the period ended June 30, 1988, in conformity with generally accepted principles. These financial statements are the responsibility of the Deportment's monogement; our responsibility is to express an opinion on these 'ccounting financial statements based on ouc audits. We conducted our audits of these statements in accocdance with generally accepted auditing standards which require that we plan and perform the audit to obtain reosonoble assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test bosis, evidence supporting the amounts ond disclosures in the financial statements, ossessing the accounting principles used and significant estimotes made by management, and evaluating the ovecoll financial statement presentation. We believe that our audits pcovide a reasonable basis for the opinion expressed above.
~CC.
(5 ttitgons) 1988 1981 1988 198$ 1981 Statement of Income Operating revenues Residential 5 94.5 5 92.4 5 84.2 5 79.0 72.8 5
Commerical and industrial 142.4 135.2 122.9 111.1 96.9 Governmental and other 14.3 14.8 13.4 13.0 11.1 Fice hydrants 4.1 4.1 4.0 4.0 3.9 Miscellaneous 1.7 1.9 1.5 1.2 1.0 Total revenues 5 257.0 5 248.4 5 226.0 5 208.3 185.7 5
Operating income 54.1 69.9 69.4 67.8 54.6 As % of revenues 21.1'Yo 28.1'Yo 30.7% 32.6% 29.4'Yo Net income 5 34.4 5 44( 5 61.8 5 63.3 58.4 5
Balance Sheet
)let utility plant 51,114.7 51,046.1 5 988.8 5 902.2 5 826.6 Capital expenditures 104.8 99.1 112.8 101.5 90.8 Capitalization Equity 822.3 768.5 712.1 642.6 570.3 (ong4erm debt 350.2 285.6 305.0 324,6 309:I 1,172.5 1,054.1 1,017.1 967.2 879.4 Debt as% of net utility plant 30.24/o 25.3% 28.0'Yo 32.1% 37.4%
Interest on debt 23.7 22.0 23.2 23.3 18.3 Payments to City of LA. 12.4 11.3 10.4 9.9 7.8 Operations Gallons sold (billions) 203.6 210.1 204.3 203.4 190.0 Customers-average number (thousands) 637.8 632.3 630.1 630.4 631.4 Average revenue per hundred cu. ft. sold (in cents)
Residential 92.8 87.2 81.8 75.7 72.0 Commercial and industriol 93.6 87.5 81.7 75.8 72.4 Water supply (in cu. ft. per second-c.f.s.)
Coral supply 166.9 137.0 144.5 164.8 159.5 DWP Aqueduct 573.6 661.4 671.8 709.3 732.5 Metropolitan Water District 207.7 177.1 123.9 64.8 39.5 Gross supply 948.2 975.5 940.2 938.9 931.5 Diversion from (to) local storage (0.3) (1.7) (6.6) (6.4) (33.0)
Net supply to distribution systems 947.9 973.8 933.6 932.5 898.5 brtvdes tevenve notes ond odvonre tefvnding tevenve bonds.
Carol los kgetes rtetvvttneot ol Wottn nod rower
average tvemtter vreref sepplit of (estomers la(v. It. pe Q<H or~
~ INOI soppitt
~ OWP Aqvebtt 525
~ MettopoLtoo Wet'ittti(t
I s ~ ~
(5btdtoosi I988 7981 I988 I98$ I984 Statement af Income Operating revenues Residential 5 430.7 5 388.7 5 379.5 5 373.0 5 331.7 Commerical and industrial 1,085.5 963.1 932.2 859.2 797.7 Street lighting and other 39.7 38.2 37.9 48.5 41.6 miscellaneous 14.I 13.4 8.5 73 6.5 Total revenues 51,570.0 51,403.4 51,358.1 51,288.0 51,177.5 Operating income 254.3 256.3 259.5 274.5 241.4 As% of revenues 16.2% 18.3% 19.1% 21.3o/o 20.5'/o Net income 5 175.6 5 186.8 5 193.6 5 213.6 5 165.5 Balance Sheet Net utility plant 53,324.9 53,133.5 52,943.9 52,656.1 52,591.7 Capital expenditures 334.5 321.2 404.4 177.7 150.9 Capitalization Equity 1,890.5 1,771.7 1,646.1 1,511.8 1,341,5 long4erm debt 1,554.2 1,408.9 1,476.1 1,440.2 1,476.1 3,444.7 3,180.6 3,122.2 2,952.0 2,817.'6 Debt os% of net utility 46.7% 44.5% 49.3% 52.0'/o 53.5%
plant'nterest on debt 102.4 96.9 97.5 96.1 98.5 Payments to City of l.A. 70.2 67.9 64.4 58,9 55.3 Operations Kilowatt hours sold (billions) 21.1 20.5 20.3 19.9 20.2 Customers-average number (thousands) 1,304.6 1,275.9 1,262.0 1,251.2 1,243.1 Average revenue per kwh sold (in cents)
Residential 7.7 7.'I 6.9 6.7 6.0 Commerciol and industrial 7.3 6.8 6.6 6.3 5.7 Energy production (billion kwh)
Hydro 1.8 2.9 3.8 4.9 6.2 Thermal 20.1 15.9 13.3 12.3 10.3 Total generation 21.9 18.8 17.1 17.2 16.5 Purchoses 2.6 4.3 5.8 6.5 7.1 Totol production 24.5 23.1 22.9 23.7 23.6 Net system capability (thousand megavtatts)
Hydro 1.9 1.9 1.9 1.9 1.9 Oil and gos owned 3.1 33 33 32 32 5.0 5.2 5.2 5.1 5.1 lointly owned 1.1 1.1 1.0 1.1 1.1 Firm purchases 1.2 1.3 I. I 0.3 0.5 7.3 7.6 7.3 6.5 6.7 Fsctudes revenue notes ond odronte refunding tevenve bonds.
48 0tttolros Bnteles Benotttnent ol trotet ond9ottet
Upeearrrrg rreverrrresr rrrrrrrNrrtr woo r$ w15 5 Irr Mkons rrr heerrr I Rodential
~ (ommer(iol end Industrial
~ Street Ughting ond Other l200
~ NMioneorrr
Water Power There are 105 tanks and reservoirs in the. DWP's Water The OWP'receives firm p'ower from generatmg stations System. They range froma capacity of 10,000 gallons located in California, Arizona, Nevada, and Utah..
to 60 billion gallons.
DWP customers received about 30 percent of their electricity Crowley lake, 300 miles north of Los Angeles, is the from the Intermountain Power Project in Utah during the reservoir in the OWP system. It holds 60 billion 'argest fiscal year.. =
gallons of water.
The DWP's Pacific Intertie is the longest DC transmission The Los-'Angeles Owens River Aqeduct is about 338 miles line'in the world.
long and has been in service for 75 years.
There ate more than 289,000 wooden power)ales either The Second Los Angeles Aque'duct wos completed in 1970 owned, or jointly owned by the DWP.
and is about177 miles long.
has more than 2,200 miles of underground'
'os'Angeles Los Angeles has more than 7,000 miles of water pipeline. distribution cable.
The average per capita consumption of water in Los Angeles Over the Inst*50 years the cost of living has gorie up is 181 gallons per day. more than three times as much as the rates for electricity
'he in Los Angeles.
annual precipitation in the Los Angeles basin is-15.05 inches.'
A drip from a water faucet can waste 1,500 gallons of water every month.
There are more)ban 53,000 fire hydrants in Los Angeles
$0 Citrot los Anrteres Department o/rtrotet onrt parent
Generating facilities in other western states are playing larger roles in the CeHo K-AC city's power supply. Water, Converter Station also imported from hun-dreds of miles away, is brought to L.A. by aque- Oregon duct to serve the needs of the 3.4 million population.
--- Water System Power Supply Pa(ifi( HYX intertie iansrnission One Caiiiornia Interrrorntain Power Proto(t Nevada Utah Owens Aqoedrr(t y Srrtenr~
Owens Gorge Hrrroto
'\ At(Cu go(rgb
. Power Honts GeAeratiAg CALfornia % Swit(hing Station Stotr(n State Water>< Strhrgr Converter lg C
>~
)li Staten CI Ahead Swit(hing Station RRe ~ tt OO((ado Sob-Station Arizona has Area:
Angem
+ Gegr ating t2 k Yateti Go(eating Station iL A 5(otto(go(d Gene(ann+to(or Hopes Generating Stat%A Harbot Go(eating Stat Pob Verde Generating Station 51
City of los Angeles Board of Water and Power Commissioners Los Angeles Department of Water and Power General Office Building ill Horth Hope Street los Angeles, California 90012 Telephone 213 481 4211 for oddirionol copies conrocr:
hht'c Aiioirs Oivision Room 1514, RO. Box 111 los Angeles, Gt, 90051 Tetephone (2)3) 481 6414 tgrnllt.SS