Text

Amend 6 to Application for Ol,Describing Business & Organization of Applicants.Sec Forms S-16 & 10-K,financial Info & Annual Financial Rept 1978 Encl
	ML19260B176
Person / Time
Site:	South Texas
Issue date:	12/05/1979
From:	Eric Turner; HOUSTON LIGHTING & POWER CO.
To:	;
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ML19260B173	List: ML19260B172; ML19260B176; ML19260B177;
References
	NUDOCS 7912070370
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INSTRUCTIONS FOR AMENDING SOUTH TEXAS PROJECT APPLICATION Please follow these instructions for page removal and insertions to incorporate Amendment 6 to this Application.

Remove: Insert:

Page 2 Page 2 3 3 4 4 4a 4a 5 5 6 6 7 7 8 8 9 9 10 10 12 12 12a 12a 13 13 14 14 15 15 15a 15a 16 16 17 17 18 18 19 19 19a 19a 21 21 21a 21a Exhibit III-1 Exhibit III-1 III-2 III-2 III-3 III-3 III-4 III-4 III-5 III-5 III-6 III-6 III-7 III-7 III-8 III-8 III-9 III-10 IV-5 IV-5 V-1 -

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ill Annual Report-1978 Ill Form S-16 10/16/79 llLGP Form 10K-12/31/78 ilLGP Prospectus 1/30/79 CPS Official Statement 6/6/79 CPGL Annual Report-1978 COA Notice of Bond Sale-9/13/79 151528Y

2. Address of Owners Mailing Address Street Addrt- _

Houston Lighting & Power Company P. O. Box 1700 611 Walker Avenue Houston, Texas 77001 Houston, Texag 77002 City of San Antonio City Public Service Board P. O. Box 1771 Navarro at Villita San Antonio, Texas 78296 San Antonio, Texas 78205 Central Power and Light Company P. O. Box 2121 120 N. Chaparral St.

Corpus Christi, Texas 78403 Corpus Christi, Texas 78403 City-of_ Austin Electric Utility Department P. O. Box 1088 3rd and West / ce.

Austin, Texas 78767 Austin, Texas 18767 3 Description of Business and Organization of Applicants 5

The Applicants, Houston, San Antonio, Central, and Austin are each engaged in the production, transmission, distribution, and sale of electric energy for lighting, heating, cooling, and power purposes to residential, commercial and industrial customers in the southern portion of the State of Texas. The latest annual report for each Applicant is attached as a part of Exhibit II and includes certain l5 characteristics of each individual area served which are summarized as follows:

15 Houston is a corporation duly incorporated and existing under I the laws of the State of Texas. Customers served by Houston are situated in the Houston Gulf Coast Area in the State of Texas.

The manicipalities of Houston, Galveston, Freeport, Baytown, and Pasadena are five of the larger cities served by Houston.

Housten also provides wholesale power to the South East Division of the Community Public Service Company which in turn distri-butes this energy at retail in 11 cities and towns. As of December 31, 1978, Houston's gross utility plant before depre-ciation and including work in progress was $3,316,468,000 and operating revenues for the year of 1978 were $1,303,604,000. 6 Construction work in progress as of December 31, 1978, totaled

$621,175,000.

San Antonio is a municipal corporation and political subdivision of the State of Texas which owns and, through the City Public Service Board of San Antonio, a municipal board, operates the San Antonio public utility electric system. The City Public Service Board of San Antonio has full authority for the management and operation of the electric system which serves the City of San Antonio and the surrounding area. San Antonio also 1515 281L December 5, 1979 2 Amendment 6

provides electric power to the municipally-owned distribution systems in Floresville, Castroville and Hondo, Texas for the purpose of resale, and to two co-ops. As of January 31, 1979, San Antonio's gross electric utility plant before depreciation and ificluding work in progress was $1,137,239,000. Work in 6 progress as of January 31, 1979, totaled $289,612,000, and gross revenues for the sale of electricity for the year ending January 31, 1979 vere $257,675,000.

Central is a corporation duly incorporated and existing under the laws of the State of Texas. As of December 31, 1978, l6 Central provided wholesale power to six distri.ution co-ops and one generation and transmission co-op, and two municipal I electric systems. As of December 31, 1978, Central served [6 approximately 16 percent of the geographic area of Texas. Corpus Christi, Laredo, Victoria, Harlingen, and McAllen are the largest cities served by Central. As of December 31, 1978, Central's gross utility plant before depreciation and including work in progress was $1,2hl,935,000.

6 Work in progress as of December 31, 1978, totaled,$409,177,000.

Revenues for the year of 1978 vere $487,495,000.

Austin is a municipal corporation and political subdivision of the State of Texas which owns and operates the public utility electric system. Austin has full authority for the management of the public utility electric system in the production, transmission , distribution, and sale of electric energy in the City of Austin and the surrounding area. Austin does not provide electric service to any wholesale customer. The gross operating utility plant before depreciation was valued at

$599,958,056, including construction in progress for the year ending September 30, 1978. Construction work in progress as of September 30, 1978, totaled $268,413,592. Gross revenues for the year ending September 30, 1978, totaled $150,807,742. 6 Characteristics of each individual area served are listed as follows:

Houston San Antonio Central Austin (as of (as of (as of (as of Dec. 31, Jan. 31, Dec. 31, Dec~. 31, 1978) 1979) 1978) 1978) l6 Approximate Area Served (square miles ) 5,000 1,566 hh,188 415 l5 Approximate Population Served (x 1,000 ) 2,960 985 1,222 396 6 Customers 891,509 307,638 406,477 147,154 b

1515 281 December 5, 1979 3 Amendment 6

Houston San Antonio Central Austin (as of (as of (as of (ar., of r ec. 31, Jan. 31, Dec. 31, Dec. 31, 978) 1979) 1978) 1978) l6 Distribution of Sales (percent)

Residential 22 34 25 38 Commercial 17 15 21 57***

I'. dust rial 55 45 hk Other 6 6 10 5 6

Communities Served at Retail

158 25 213 9 Net Gene ating Capability (megawatts) 11,193 3,034** 2,976 1,h00 1986 Estimated Net Capability (megawatts ) 14,985 3,734 4,126 2,270 Incorporated and unincorporated

- 0i1 fired rating. This amount includes 80 W which are available for 5 emergency use only.

- - Includes Commercial and Industrial l5 None of the Applicants are owned, controlled or dominated by an l5 alien, a foreign corporation or a foreign government. Houston is acting herein solely as Project Manager for the Applicants and not for any l5 other entity.

On January 14, 1977, pursuant to a merger and corporate restructuring plan approved by the shareholders of HL&P, Houston Industries Incorporated (HI) became the owner of all of HL&P's outstanding common stock and all of the outstanding stock of HL&P's tw 4

former subsidiaries, Primary Fuels, Inc. and Utility Fuels, Inc. In the merder and restructuring, each share of outstanding common utock of HL&P became one share of common stock of HI. In addition, HL&P's outstanding convertible debentures became convertible into the common stock of HI rather than into HL&P common stock. None of the other outst u ding securities of HL&P, including its cumulative preferred stock and first nortgage bonds, were affected. HI is a holding company as defined in the Public Utility Holding Company Act. It is exempt from regulation as 5

a "regi':tered holding company" under that Act except with respect to the acquisition of securities of other public utility companies. Such exemption is based upon ..le intrastate character of the operations of 1515 299 December 5, 1979 4 Amendment 6

HI's public utility subsidiary, HL&P, and the filing with the SEC of an 5 annual exemption statement pursuant to its Rule U-2. The latest annual report of HI is also attached as part of Exhibit II.

As of December 31, 1978, records indicate that foreign stockholders 6 held less than .26 percent of the common and preferred stock outstanding for either Houston or HI.

All of Central's common stock is owned by Central and South West Corporation. Central snd South West Corporation's stock transfer agent hus certified that as of the close of business on May 31, 1979, Central and South West Corporation's foreign stockholders held 230,233 shares of 6 common stock. Central and South West Corporation's foreign stockholders constituted 0.80 percent of the total common shareholders and foreign held stock constituted 0 35 percent of total common shares outstanding.

December 5, 1979 1515 2N-4a An.'ndment 6

San Antonio and Austin are municipal corporations and political subdivisions of the State of Texas and have no stockholders.

The names and addresses of the Applicants' directors and principal officers, all of whom are citizens of the United States, are as follows:

HOUSTON LIGHTING & POWER COMPANY Directors Address l6 Searcy Bracewell, Jr. 2900 Southwest Tower, Pennzoil Place l Houston, Texas 77002 Wm. R. Brown 3000 One Shell Plaza Houston, Texas 77002 l5 H. H. Dean 611 Walker Houston, Texas 77002 5 John C. Echols P. O. Box 150 Baytown, Texas 77520 Howard W. Horne The Horne Company 3200 One Shell Plaza 5 Houston, Texas 77002 D. D. Jordan 611 Walker Houston, Texas 77002 Ben F. Love P. O. Box 2558 6 Houston, Texas 77001 G. W. Oorea, J r. 611 Walker Houston, Texas 77002 l1 Stewart Orton P. O. Box 1971 6 Houston, Texas 77001 Willard E. Walbridge 330 Two Greenway Plaza, East 5 Houston, Texas 77046 Joe C. Wessendorff 611 Morton Street 6

Richmond, Texas 77469 Houston's Officers 5

D. D. Jordan 4 President and Chief Executive Officer G. W. Oprea, Jr. 1 Executive Vice President 1515 2E December 5, 1979 5 Amendment 6

a T. A. Standish Senior Vice President J. D. Cowart 5 Group Vice President - Administrative H. R. Dean Group Vice President - Accounting and Finance K. R. Hinckley' 4 Group Vice President - External Relations A. R. Beavers 5 Vice President - Purchasing and Services R. L. Evans , Jr.

Vice President - Operations 4 R. M. McCuistion Vice President - Engineering C. L. McNeese Vice President - Federal Relations 5 6

D. E. Simmons 4 Vice President - Corporate Planning D. D. Sykora Vice President - Customer Relations l0 E. A. Turner 5

Vice President - Power Plant Construction & Technical Services J. R. Johnston Secretary & Treasurer

[6 R. S. Letbetter Comptroller J. S. Brian Assistant Secretary & Assistant Treasurer 6 Wm. R. Brown 5

General Counsel, Houston Industries Incorporated Addresses of all the above Houston officers:

Mailing: Street:

P. O. Box 1700 611 Walker Avenue Houston, Texas 77001 Houston, Texas 77002 g

1515 2 M December 5, 1979 6 Amendment 6

CITY OF SAN ANTONIO Board of Trustees Address l5 Eloy Center.a, Chairman 1802 West Commerce Street 5 San Antonio, Texas 78207 Glenn Biggs, Vice Chairman P. O. Box 2479 5 San Antonio, Texas 78207 l4 Ruben Escobedo 6061 Northwest Expressway 5 San Antonio, Texas 78201 Earl Hill 2404 Tower Life Bldg.,

San Antonio, Texas 73205 Lila Cockrell, Mayor P. O. Box 9066 5 (Ex-Officio Member) San Antonio, Texas 78285 San Antonio's Management Staff J. K. Spruce General Manager H. L. Freeman , J r. 4 Assistant General Manager for Finance and Administration / Secretary Treasurer J. B. Poston Assistant General Manager for Operations L. E. Boulden Customer Services J. M. Costello 6 Personnel W. F. Dreiss Construction LeRoy Eck 4 Industrial Development

-?. K. Harz 6

!!nancial Services / Assistant Treasurer M. M. Hormuth 6

Power Plant Operations k

1515 2R December 5, 1979 7 Amendment 6

t R. C. Mecke System Operations 6

C. H. Oswald Data Processing Services

0. E. Park 4

Special Assistant for Research J. W. Pettinos, Jr.

6 Engineering P. S. Schooler Legal Services / Assistant Secretary L. J. Spengler 6 Public Relations D. S. Thomas Rates and Regulatory Matters A. Von Rosenberg 4 Planning and nevelopment Addresses of the above San Antonio Management Staff:

Mailing: Street:

P. O. Box 1771 Navarro at Villita San Antonio, Texas 78296 San Antonio, Texas 78205 The names and addresses of Central's directors and principal officers, all of whom are citizens of the United States, are as follows:

CENTRAL POWER AND LIGHT COMPANY Directors Address S. B. Phillips , J r. CSR Services, Inc.

2700 One Main Place Dallas, Texas 75250 6 Roff W. Hardy 4 Trafalgar Square 6 Abilene, Texas 79605 Durwood Chalker 120 N. Chapparral Street 6 Corpus Christi, Texas 78403 6

F 1515 291i December 5, 1979 8 Amendment 6

6 R. L. Range 120 N. Chaparral Street Corpus Christi, Texas 78403 Aaron E. Autry 120 N. Chaparral St.

Corpus Christi, Texas 78403 W. C. Price 120 N. Chaparral St.

Corpus Christi, Texas 78h03 5

W. P. Smith, Jr. 120 N. Chaparral St.

1 Corpus Christi, Texas 78403 Vannie E. Cook, Jr. P. O. Box 1060 McAllen, Texas 78501 John W. Crutchfield B&T 247 Corpus Christi, Texas 78477 l5 4

S. B. Den +,on 120 N. Chaparral St.

Corpus Christi, Texas 78403 l4

!ierbert C. Petry, Jr. P. O. Box 218 Carrizo Springs, Texas 78834 4 P. K. Stubblefield P. O. Box 1698 Victoria, Texas 77901 Lucien Flournoy P. O. Box 491 Alice, Texas 78332 Central's 6 ficers 6

Aaron E. Autry Chief Operating Officer 6 M. L. Borchelt 6

Executive Vice President and Chief Engineering Officer l6 R. L. Range Executive Vice President and Chief Fir. ncial Officer 6 9

1515 29k December 5, 1979 9 Amendment 6

S. B. Denton 1 Vice President W. C. Price Vice President l6 W. P. Smith, Jr.

!4 Vice President l6 W. F. Ross Controller W. A. Cockburn Secretary-Treasurer 6

J. J. !4atula Assistant Treasurer i6 Florine Gupton Assistant Secretary Addresses of all the above Central officers:

f4 ailing: Street:

P. O. Box 2121 120 N. Chaparral St.

Corpus Christi, Texas 78403 Corpus Christi, Texas 78403 The names and addresses of the City Council of the City of Austin, the City f4anag7r, the Finance Administrator, the City Attorney, the Director of the D ectric Utility Department, and principal members of the Electric Utility Department, all of whom are citizens of the United States, are as follows:

CITY OF AUSTIN City Council 4

Carole Keeton !!cClellan, flayor Ron ftullen, Council tiember l6 4

Lee Cooke, Council !! ember Richard Goodman, Council !4 ember 14 15i5291 December 5, 1979 10 Amendment 6

consisting of two (2) generating units utilizing pressurized water reactors. Each reactor will have an initial nuclear output of 3800

!Gt (an additional 17 !Nt originates from non-nuclear sources ), and each associated turbine generator will have an estimated gross electrical output of 1312 !Ne. The facility will include associated transformers, switchyard, support buildings, and additional auxiliary systems as required. The Containment and Engineered Safety Features are designed and evaluated for operation at a power level of h100 IWt. The turbine generator, balance of 5 plant and the related facilities are designed to accommodate a Nuclear Steam Supply System output of 3879 !Gt which corresponds to an estimated gross electrical output of 1330 twe.

'I e South Texas Project site is located approximately fiftaen (15 )

miles Southwest of Bay City on the west side of the Colorado River 2 in Matagorda County. The site consists of a nominal 12,300 acres.

About 7,300 acres are required for a cooling reservoir; 7,000 acres of which will be the effective cooling area, and 300 acres are required for the embankment surrounding the reservoir. The restricted area vill include 1,146 acres on land and 850 acres on 2 water for a total of 1,996 acres. Some 200 acres of the restricted area will be utilized for the plant itself. Anot' er 100 acres will be required for railroad spurs, parking areas and the switchyard.

The detailed site plan, safety and environmental considerations and sracifications are contained in the Final Safety Analysis Report (FSAR) and the Environmental Report--Operating License Stage (ER/0L Stage), both of which constitute a part of this application. These 5 documents were tendered May 10, 1978. Additional information vill be found in the Preliminary Safety Analysis Report (PSAR) and in the Environmental Report-Construction Permit Stage (ER/CP Stage )

already a part of this docket.

The South Texas Project facilities will be utilized for the genera-tion of electric energy for transmission and sale by the individual An '.icants. The proposed facility is a necessary addition to the 5 system of each Applicant to provide for increasing customer electrical demand and to replace fossil generating capac1'.y.

Exhibit III-A includes a plot of the past and forecasted generating 6

capability for each Applicant from 196h to 1988. Exhibit III-B presents the past and forecasted annual pesk demands, interruptible demands, firm purchases and sales and energy consumption for each l5 of the Applicants from 1964 and projected to 1988. l6

6. Financial Qualifications The latest annual report for each Applicant is attached as a part of Exhibit II. A prospectus or official statement and supporting information in connection with the sale of securities for each Applicant is included as part of Exhibit II dated as follows:

5 6

1515 2n December 5, 1979 12 Amendment 6

Houston Prospectus, January 30, 1979 6 San Antonio Official Statement, June 6, 1979 Cent ~al Prospectus, September 28, 1977; and l5 Aust in Official Statement, September 13, 1979 ]6 The Applicants will p - the entire cost of the South Texas Project 5 in proportion to the percent interest therein of each Applicant as specified in Item 1 above. Funds vill be available from normal and "In addition, Houston's SEC Form 10K of December 31, 1978 HI's SEC FORM 6

10K of December 31, 1978 and HI's SEC FORM S-16, of October 16, 1979 are included as a part of Exhibit II.

1515 291 December 5, 1979 12a Amendment 6

regular sources for construction of additions to each Applicant's 5 property. Funds include: (1) funds on hand; (2) funds available from internal sources, primarily retained revenues and provisions for depreciation; (3) short-term bank loans and commercial paper; and (4) the sale of securities as required.

4 Data concerning project financing by the sale of securities for l5 each Applicant is listed below.

Estimate of .

Percent of Applicants, l5 Recent Bond Portion of Project Applicant Rating Rated by Cost to be financed l5 from Sale of Securities 1

Houston Aa Moody's Investor Service, Inc.

AA Standard & Poor's Corp. 60 - 65 l5 San Antonio Aa Moody's Investor Service, Inc.

AA Standard & Poor's Corp. 70 - 80 l6 Central Aa Moody's Investor Service, Inc.

AA Standard & Poor's Corp. 55 - 65 Austin Al Moody's Investor Service, Inc.

A+ Standard & Poor's Corp. 90 - 100 4 The appropriate property and liability insurance will be obtained.

Yearly escalated cost requirements for engineering, construction, insurance, fees, and site improvements necessary for production are shown below:

through May 1979 $ 886,h14,000 1979 $ 282,992,000*

1980 $ 341,834,000 1981 $ 259,528,000 1982 $ 258,178,000 6 1983 $ 219,066,000 1984 $ 129,459,000 1985 $ 62,268,000 1986 $ 1,645,000 TOTAL $2,441,384,000 Projected expenditures from June,1979 through December,1979 1515 M L December 5, 1979 13 Amendment 6

The estimated budget for the South Texas Project is as follows:

Direct Costs: $1,053,765,000 Indirect Costs: 889,461,000 Participants 6 Costs: 498,158,000

$2,441,384,000 The above estimate is in escalated dollars using a rate of 7 l5 percent per year and excludes fuel, interest during construction, i taxes and contingencies. The amount of interest capitalized by l6 each Applicant will be recorded on its records and will vary among the Applicants based upon individual cost experience and internal policies. The initial fuel core cost is $95,446,000 in escalated 6 dollars, but exclusive of interest during construction.

The above total does not include the cost of transmission l5 facilities. Each Applicant will bear the cost of the transmission facilities necessary to connect its system to the South Texas Project switchyard. Houston vill construct and maintain transmission facilities within the South Texas Project plant site to the extent required by the Nuclear Regulatory Commission. The estimated transmission right-of-way and construction cost for each Applicant including escalation and interest during construction le j5 listed below:

Owner i

Houston $ 22,626,000 San Antonio $ 32,184,000 .

$ 27,769,000 6 Central Austin $ 9,828,000 TOTAL $ 92,407,000 The costs of decommissioning the South Texas Project, including security, are estimated to be $30,400,000. The estimated operating l5 costs for the five year period from 1984 through 1988 excluding l6 fuel are $41,158,000. All of the above estimates represent current dollar values. The annual reportc, prospectuses and official 4 statements of the Applicants included in Exhibit II show that they have reasonable assurance of obtaining funds necessary to cover estinated costs of operation for the first five years of operation of the Plant, and the cost of decommissioning the Plant and maintaining it in a safe condition.

1515 3 %

99 December 5, 1979 14 Amendment 6

7 Completion Dates The earliest construction conpletion dates for Units 1 and 2 are estimated to be March,1983 and March,1985, respectively. The latest completion dates are estimated to be September, 1985 and September, 1987, respectively. Commercial operation for Units 1 6 and 2 is scheduled for February,1984 and February,1986, respectively.

6. Regulatory Agencies By order of July 21, 1976, in Docket No. E-9558, the Federal Power Commission ruled that Houston was not subject to its jurisdiction.

In April,1978, the United States Circuit Court of Appeals for the District of Columbia ruled that The Federal Power Commission order 5 of July 21, 1976, was not based on sufficient findings of fact and remanded the matter to the Federal Energy Regulatory Commission, successor to the Federal Power Commission, for further consideration.

Most municipalities in Texas have primary jurisdiction to regulate rates and to prescribe rules and regulations under which service is rendered by investor owned electric utilities operating within their boundaries. Lists of the municipalities from which Houston and Central have franchises are provided as Exhibit IV-A and Exhibit IV-B, respectively. The San Antonio and Austin City Councils have established the present rates for their respective systems. San Antonio and Austin City Councils have the following addresses:

City Council City of San Antonio P. O. Box 9066 San Antonio, Texas 78285 City Council City of Austin P. O. Box 1088 Austin, Texas 78767 With respect to the investor owned electric systems, the Texas Public Utility Commission has primary jurisdiction as to rates, rules and regulations under which service is rendered outside the boundaries of those municipalities having regulatory authority and 4 appellate jurisdiction over rates, rules and regulations estab-lished by those municipalities having regulatory authority. The address of the Texas Public Utility Commission is:

l6 Public Utility Comuission of Texas 7800 Shoal Creek Boulevard, Suite 450N 4 Austin, Texas 78757 1515 3ttil v\

December 5, 1979 15 Amendment 6

Q 6

9 Trade and News Publications

!!ajor trade and news publications which circulate in and around the South Texas Project site area and areas served by each Applicant l5 are listed below. The publications listed are considered appropriate to give reasonable notice of the application to those municipalities, private utilities, public bodies, and cooperatives, which might have a potential interest in the South Texas Project.

A. Trade Publications

1. Atomic Industrial Forum, Inc. 2. Electric Light and Power 4101 Wisconsin Avenue 221 Columbus Avenue i nshington, D.C. 20014 Boston, thssachusetts 02116 6

O 1515 305-December 5, 1979 15a Amendment 6

3 Electric World 1221 Avenue of the Americas New York, New York 10020

h. Nuclear News American Nuclear Society 2h'-A 4 East Ogden Avenue Hindsale, Illinois 60521 5 Power Engineering Technical Publishing Co.

1301 South Grove Avenue Barrington, Illinois 60010 B. News Publications Circulated in Site Area

1. Angleton Times 10. The Houston Chronicle P. O. Box 936 801 Texas Angleton, Texas 77515 Houston, Texas 77002

2. Bay City Daily Tribune 11. The Houston Post P. O. Box 1551 4747 Southwest Freeway Bay City, Texas 77414 Heuston, Texas 77001 3 Brazoria County News 12. Palacios Beacon 645 S. 17th P. O. Box 817 West Columbia, Texas 77486 Palacios, Texas 77465

4. Brazorian News 13 Wall Street Journal P. O. Box 936 Southwest Edition Angleton, Texas 77515 1233 Regal Row Dallas, Texas 75247 5 Brazosport Facts P.O. Box 1055 14. Wharton Jc:.cnal-Spectator 6 Freeport, Texas 77541 115 W. Burleson Wharton, Texas 77488

6. El Campo Citizen P. O. Box 907 El Campo, Texas 77h37 7 El Campo Leader News P. O. Box 1180 El Campo, Texas 77437

8. Ganado Tribune P. O. Drawer B Edna, Texas 77957 9 Gulf Coast Tribune P. O. Box 88 Needville, Texas 77h61 i

1515 30%s December 5, 1979 16 Amendment 6

9 C. News Publications Circulated in Applicant Areas Served (In addition t 5 the nevs publications listed in Part 9B)

1. Alamo News P.O. Box 668 5

Alamo, Texas 78516 14. Corpus Christi Caller Corpus Christi Times

2. Alice Echo-News P.O. Box 9136 P.O. Box 1610 Corpus Christi, Texas 78408 Alice, Texas 78332 15 Carrizo Springs Javelin 2a. Alvin Sun P.O. Box 188 P. O. Draver h31 6 Carrizo Springs, Texas 78834 Alvin, Texas 77571 15a. Castroville News Bulletin The American Statesman P.O. Drawer D 4 3

P.O. Box 670 Castroville, Texas 78009 Austin, Texas 78767

16. Colorado County Citizen 4

h. Aransas Pass Prog. P.O. Box 548 P.O. Drawer EEE Columbus, Texas 78934 Aransas Pass, Texas 78336 17 Commercial Recorder 5 The Austin Citizen h1h Dolorosa P.O. Box 9749 San Antonio, Texas 78204 Austin, Texas 78766

18. Cotulla Record P.O. Drawer C l Cotulla, Texas 78014

6. Bee Picayune P.O. Box 10 19 6 Beeville, Texas 78102 7 Bellville Times Bellville, Texas 77418 20. Del Rio News Herald P.O. Drawer C

8. Border Eagle Del Rio, Texas 788h0 4

P.O. Drawer C Del Rio, Texas 78840 21. Devine News P.O. Box 608 6 9 Brookshire Times Devine, Texas 78016 806 Avenue C Esty, Texas 77h50 22. Dewitt County View 4

P.O. Box 275

10. Brownsville Herald Yorktown, Texas 7816h 1135 L. Van Buren Erownsville, Texas 78520 23 Dilley Herald P.O. Drawer E

11. Brownsville Times Dilley, Texas 78017 4 Brownsville, Texas 78520

24. Eagle Lake Headlight

12. P.O. Box 67 Eagle Lake, Texas 77h3h 6

13 25 Eagle Pass News Guide P.O. Box 764 Eagle Pass, Texas 78852 December 5, 1979 17 Amendment 6

37 Hempstead News Hempstead, Texas 77445 25a. East Bernard Tribune 6 P.O. Box 427 38.

Halletsville, Texas 77964 6

26. Edinburg Daily Review 215 E. University Drive 38a. Hondo Anvil Herald 4 Edinburg, Texas 78539 P.O. box 400 Hondo, Texas 78861 27 Edna Herald 4 P.O. Drawer B 39 Edna, Texas 77957 6 28.

40. Ingleside Index P.O. Box EEE 4 Aransas Pass, Texas W%

6 29

41. Jim Hogg County Enterprise 4

30. El Progresso P.O. Box 1042 P.O. Box 3249 Hebbronville, Texas 78361 Corpus Christi, Texas 78h0h

42. Karnes City Citation

31. San Antonio Express 5 P.O. Box 99 San Antonio News Karnes City, Texas 78118 P.O. Box 2171 San Antonio, Texas 78297 h3 Karnes County News P.O. Box 219 0

32. Falfurrias Fa :'.s Karnes City, Texas 78118 P.O. Box 619 Falfurrias, Texas 78355 44. Kenedy Advance P.O. Box 89 32a. Floresville Chrenicle Journal Kenedy, Texas 78119 P.O. Box 820 Floresville, Texas 7811h 45 Kenedy Times P. O . Box 276 33 Fort Bend Mirror Kenedy, Texas 78119 B. E. Landrum Stafford, Texas 77417 h6. The Kinney Cavalryman P.O. Box 735 4 3h. 6 Brackettville, Texas 78832 h7 Kingsville-Bishop Record News 35 Goliad Advance Guard P.O. Box 951 P.O. Box 630 n ngsville, Texas 78363 Goliad, Texas 77963 h8. La Feria News

36. P.O. Box 308 La Feria, Texas 78559 h

December 5, 1979 18 Amendment 6

49 Laredo Citizen 60. Pearsall Leader P.O. Box 598 P.O. Box L Laredo, Texas 78040 Pearsall, Texas 78061

50. Laredo Times 61. Pharr Press P.O. Box 29 P.O. Box T10 Laredo, Texas 780h0 Pharr, Texas 78577 50a. Laredo News 62. Pleasanton Express 6

P.O. Box 1928 P.O. Drawer 130 Laredo, Texas 78040 Pleasanton, Texas 78064

51. La Verdad 63 Port Isabel-Sauth Padre Island 910 Francisca P.O. Box 308 Corpus Christi, Texas 78405 Port Isabel, Texas 78578

52. Mathis News 64.

P.O. Box 38 6 Mathis, Texas 78368 53 Mid-Valley Town Crier 65 Portland News 6 931 W. Hwy. 83 4 P.O. Box 8 Weslaco, Texas 78596 Taft, Texas 78390 5b. Mercedes Enterprise 66. Port Lavaca Wave P.O. Box 657 P.O. Drawer EE Mercedes, Texas 78570 Port Lavaca, Texas 77979 55 The Monitor 67 P.O. Box 790 4 6 McAllen, Texas 78501

56. The Atascosa County Citizen News 68. Progress P.O. Drawer T 6 P.O. Box 848 Pleasanton, Texas 78064 Three Rivers, Texas 78071 57 Nixon News 69 Raymondville Chronicle-News P.O. Box 159 376 W. Kimble Ave.

Nixon, Texas 78140 Raymondville, Texas 78580

58. Oden - Edroy Times 70. Refugio County Press P.O. Box 8 P.O. Lraver 200 Taft, Texas 78390 Refugio, Texas 78377 59' 6 Il*

6 59a. Pearland Journal 6 P.O. Box 81 P.O. Box 452 Friendswood, Texas 775h6 Rio Grande City, Texas 78582 59b. Pearland News 73. Robstown Record P.O. Box 770 6 10h N. 5th 4 Friendsvood, Texas 775h6 Robstown, Texas 78380 December 5. 1979 m n 6

74. Rockport Pilot 87 Toast of the Coast Herald P.O. Box 608 Box 14h8 Rockport, Texas 78382 Rockport, Texas 78382 75 Rosenberg Herald-Coaster 88. Upper Valley Progress P.O. Box 1088 P.O. Box 353 Rosenberg, Texas 7Th71 Mission, Texas 78572

76. Sabinal Times 88a. San Juan Advance 6 1601 Ave. K 6 P.O. Box 61 Hondo, Texas 78861 San Juan, Texas 78589 89 Uvalde Leader-News P.O. Box 758 Uvalde, Texas 78801 77 San Antonio Light P.O. Box 161 90. Valley Citizen 6 San Antonio, Texas 78291 P.O. Box 2247 Harlingen, Texas 78550

78. San Benito News P.O. Drawer 1741 91. Valley Morning Star San Benito, Texas 78586 1310 So. Commerce St.

Harlingen, Texas '(8550 79 San Pat Cty. News P.O. Drawer B 92. Victoria Advocate Sinton, Texas 78387 P.O. Box 1518 Victoria, Texas 77901

80. Sealy News P.O. Box 488 93 6 Sealy, Texas 77h7h 81.

94. Weslaco Mid-Valley News 6 529 S. Tex. Blvd.

Weslaco, Texas 78596 82.

95 The Western Star 10514-C Leopard St.

83 South Jetty 6 Stonewall Mall 4 P.O. Box 1116 Corpus Christi, Texas 78410 Port Aransas, Texts 78373 96.

84. The South Texas Reporter 6 P.O. Drawer 1005 4 Roma, Texas 78584 97 The Yorktown News 4 85 Taft Tribune P.O. Box 398 P.O. Box 8 Yorktown, Texas 7816h Taft , Texas 78390

98. Zavala County Sentinel

86. Texas Mohair Ueekly P.O. Drawer G P.O. Box 287 Crystal City, Texas 78839 Rocksprings, Texas 78880 f

D December 5, 1979 19a } h kAmendment6}}

Copies should be provided to: Mr. D. 'i. Barker Manager, South Texas Project 6 Houston Lighting & Power Company P. O. Box 1700 Houston, Texas 77001 Mr. J. R. Geurts !'0 Br vn & Root, Inc. P. O. Box Three 4 Houston, Texas Mr. A. T. Parker Manager, Texas Projects l6 Westinghouse Electric Corporation P. O. Box 355 Pittsburgh, PA 15230 Mr. M. L. Borchelt l4 Central Power and Light Company P. O. Box 2121 Corpus Christi, Texas 78403 Mr. R. L. Hancock City of Austin Electric Utility Department P. O. Box 1088 Austin, Texas 78767 Mr. J. B. Poston l4 City of San Antonio City Public Cervice Board P. O. Box 1771 San Antonio, Texas 78296 Jack R. Newman, Esq. Lovenstei.n, Newman, Reis, Axelrad & Toll l6 1025 Connecticut Avenue, N.W. Washington, D. C. 20036 R. Gordon Goouh, Esq. Baker & Botts 1701 Pennsylvania Ave., N.W. Washington, D. C. 20006 h December 5, 1979 21 Amend" cat 6 1

and 14 Melbert Schwarz, Jr. , Esq. I Baker & nntts One Shell t'laza liouston, Texas '(7002 IIOUSTON LIGilTIrlG & POWER COMPAfiY By Cb E A. Turner 6 Vice President - Power Plant Construction & Technical Servic-es 1)ecember 5, 1979 21a , 6 3i S 15 3 N- Anen.iment

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EXHIBIT III-B PAST AND FORECASTED ANNUAL PEAK DEMANDS, INTERRUPTIBLE DEMANDS, FIPJ1 PURCHASES AND SALES AND ENERGY CONSUMPTION Firm Peak Interruptible Purchases (+) Annual Demand (2) Demand (3) Sales (-) Consump-Year Utility (1) (Mv) (Mv) (fN ) tion (GWh) 1964 Austin 238 0 0 955 Houston 2,778 0 0 14,368 San Antonio 625 0 -30 2,614 Central 870 11 52 5,120 1965 Austin 257 0 0 ' 1,039 Houston 3,039 0 0 16,328 San Antonio 664 0 -30 2,80L l6 Central 904 10 52 5,021 1966 Austin 283 0 0 1,139 Houston 3,338 0 0 18,258 San Antonio 759 0 -30 3,091 Central 1,062 12 52 5,714 1967 Austin 320 0 0 1,293 Houston 3,752 14h 0 20,h27 l6 San Antonio 840 0 -30 3,476 Central 1,147 20 52 6,200 1968 Austin 346 0 0 1,450 Houston h,076 184 0 22,966 San Antonio 941 0 -30 3,909 central 1,225 l6 83 52 6,938 1969 Austin 438 0 0 1,723 Houston 4,697 224 0 25,921 San Antonio 1,107 0 -30 h,505 Central 1,412 61 7,846 l6 52 4 1515 31% December 5, 1979 III-5 Amendment 6

EXHIBIT III-B (CONT'D) PAST AND FORECASTED ANNUAL PEAK DEMANDS, INTERRUPTIBLE DEMANDS, FIR'4 PURCHASFS AND SALES AND ENERGY CONSUMPTION Firm Peak Interruptible Purchases (+) Annual Demand (2) Demand (3) Sales (-) Consump-Year Utility (1) (Mw) (Mv) (Mv) tion (Gwh) 1970 Austin 469 0 0 1,943 Houston 5,067 162 0 27,7h1 San Antonio 1,144 0 30 h,798 l6 Central 1,410 88 52 8,169 1971 Austin 541 0 0 2,243 Houston 5,308 222 0 30,888 San Antonio 1,274 0 -30 5,308 l6 central 1,514 140 32 8,982 1972 Austin 602 0 0 2,517 Houston 6,010 228 0 34,h68 San Antonio 1,364 0 -30 5,853 l6 central 1,641 1h3 37 9,791 1973 Austin 632 0 0 2,609 Houston 6,h84 224 0 36,694 San Antonio 1,415 0 0 5,801 l6 central 1,694 160 -19 10,02h 1974 Austin 660 0 0 2,629 Houston 6,930 220 0 38,191 San Antonio 1,412 0 0 5,775 Central 1,764 1ho -28 10,166 1975 Austin 681 0 0 2,73h Houston 7,252 213 0 40,276 l4 San Antonio 1,493 0 0 6,050 l 6 central 1,791 79 h3 9,T63 5 15i5 31% December 5. 1979 III-6 Amendment 6

EXHIBIT III-B (CONT'D) PAST AND FORECASTED ANNUAL PEAK DEMANDS, INTERRUPTIBLE DEMANDS, FIR'1 PURCHASES AND, SALES AND EilERGY CONSUMPTION Firm Annual Peak Interruptible Purchases (+) Consump-Demand (2) Demand (3) Sales (-) tion (h) Year Utility (1) (Mw) (Mw) (Mw) (GWh) 1976 Austin 711 0 0 2,321 4 Houston 8,019 200 0 43,355 San Antonio 1,560 0 0 6,180 l6 Central 1,891 65 -58 10,330 l4 1977 Austin 774 0 0 3,076 l5 Houston 8,445 200 0 48,53h 6 San Antonio 1,641 0 0 6,673 Central 2,210 37 -66 12,106 1973 Austin 763 0 0 3,2h6 Houston 9,114 248 0 53,323 6 San Antonio 1,688 0 0 7,223 Central 2,174 88 -69 12,776 1979 Austin 790 0 0 3,269 Houston 9,336 266 0 55,863 6 San Antonio 1,834 0 0 8,326 Central 2,263 127 -33 13,065 1980 Austin 817 0 -500 3,33h Houston 10,150 280 +500 58,379 San Antonio 1,963 0 0 8,942 6 central 2,450 123 -50 14,097 1981 Austin 862 0 -500 3,5h3 Houston 10,575 280 +500 61,351 6 San Antonio 2,124 0 0 8,722 Central 2,574 115 -82 14,641

                                                                          .-    .l 151b     all December 5, 1979                       III-7                         Anendment 6

EXHIBIT III - B (CONT'D) PAST AND FORECASTED ANNUAL PEhK DEMANDS, INTERRUPTIBLE DEMANDS, FIRM PURCHASES AND SALES AND ENERGY CONSUMPTION Firm Innual Peak Interruptible Pu rchases (+ ) Consump-Demand (2) Demand (3) Sales (-) tion (4) Year Utility (1) (Mw) (Mw) (Mw) (Gwh) 1982 Austin 907 0 -500(5) 3,802 Houston 10,950 280 +500(5) 63,499 6 San Anto;io 2,270 0 0 9,315 Central 2,826 122 -141 16,179 1983 Austin 960 0 -500(5) 4,ogo Houston 11,375 280 66,021 6

                                                 +500(5)

San Antonio 2,409 0 0 9,880 Central 2,934 122 -165 17,013 1984 Austin 1,016 0 h,h16 Houston 11,925 280 -500((5)

                                                 +500 5)         69,084 6

San Antonio 2,543 0 0 10,455 Central 3,05h 122 -257 17,500 1985 Austin 1,091 0 -500(5) 4,772 Houston 12,h25 280 +500(5) 71,850 San Antonio 2,693 0 0 11,035 central 3,202 122 -193 18,251 6 1986 Austin 1, .' 75 0 0 5,1h7 Houston 12,'300 280 0 74,531 San Antonio 2,841 0 0 11,639 Central 3,352 122 -235 18,955 1987 Austin 1,265 0 0 5,555 Houston 13,325 280 0 77,123 San Antonio 3,000 0 0 12,285 Central 3,503 122 -108 19,613 ( 1515 31& December 5, 1979 III-8 Amendment 6

EXHIBIT III - B (CONT'D) PAST AND FORECASTED ANNUAL PEAK DEFANDS, INTERRUPTIBLE DEMANDS, FIRM PURCHASES AND SALES AND ENERGY CONSUMPTION Firm Annual Peak Interruptible Purchases (+) Consump-De:::and(2 ) Demand (3) Sales (-) tion (4) Year Utility (l) (Mv) (Mv) (Mv) (Gvh) 1988 Austin 1,353 0 0 5,953 Houston 13,775 280 0 79,755 San Antonio 3,1d8 0 0 13,086 3,659 20,306 6 Central 122 -119 (1) Austin - City of Austin Houston - Houston Lighting & Powe* Company Scn Antonio - City Public Service Board of San Antonio Central - Central Power and Light Company (2) Peak demand values do not include interr2ptible demand. For CPL, also excludes Medina-STEC/ PUB (consist <nt with TIS CDR 4/5/76). (3) Houston Figures shown as interruptib]e represent a single contract interruptible during a litrited number of hours. (4) San Antonio historical consumption (1963-1978) fcr 12 months ending Dec. 31. Forecasts of consunption (1979-1984) for fiscal period Feb. 1 - Jan. 31. Firm power sales to STEC/MEC vere included in the 1979 and 1980 estimates of annual consumption for 6 CP&L. Figures show7. are consistent with FPC form 12E, and are termed " Net Energy for Load." (5) Pending final execution of contract for sale of 500 MW. b 1515 alk December 5, 1979 III-9 Amendment 6

PAGES III-10 TifROUGli III-21 ILWE BEEN DELETED 11 1515 3M December 5, 1979 III-IO Amendment 6

EXHIBIT IV - B INCORPORATED CITIES SERVED BY CENTRAL

1. City of Agua Dulce 15 City of Camp Wood Agua Dulce, Texas 78330 Camp Wood, Texas 78833

2. City of Alamo 16. City of Carrizo Springs Alamo , Texas 78516 Carrizo Springs, Texas 7883h 3 City of Alice 17 City of Charlotte Alice, Texas 78332 Charlotte , Texas 78011 3a. ~ City of Alton 18. City of Christine Route 2, Box 69AC 6 Christine, Texas 78012 Mission, Texas 78572

4. City of Aransas Pass 19 City of Columbus Aransas Pass, Texas 78336 Columbus, Texas 78934 5 City of Asherton 20. City of Combes Asherton, Texas 78827 Combes, Texas 78535

6. City of Austvell 21. City of vorpus Christi Austvell, Texas 77950 Corpus Christi, Texas 78408 7 City of Bay City 22. City of Cotulla Bay City, Texas 77414 Cotulla, Texas 78014 Ta. City of Bayside 6 23 City of Crystal City Bayside, Texas 783h0 Crystal City, Texas 78839

8. City of Bayview 24. City of Del Rio Bayview, Texas 78566 Del Rio, Texas 788h0 9 City of Beeville 25 City of Devine Beeville, Texas 78102 Devine, Texas 78016 4

10. City of Benavides 26. City of Dilley Benavides, Texas 78341 Dilley, Texas 78017

11. City of Big Wells 27 City of Donna Big Wells, Texas 78830 Donna, Texas 78537

12. City of Bishop 28. City of Driscoll Bishop, Texas 78343 Driscoll, Texas 78351 13 City of Brackettville 29 City of Eagle Lake Brackettville, Texas 78832 Eagle Lake, Texas 77434

14. 30. City of Eagle Pass 4

Eagle Pass, Texas 778852 Ib 1515 334. December 5, 1979 IV-5 Amendment 6

As filed with the Securities and Exchange Cornmission on October 16,1979 Registration No. 2-65525 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 29549 AMENDMENT NO.1 TO FORM S-16 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Houston Industries Incorporated (Exact name of registraat as specified in its charter) Texas 74-1885573 (State or other jurisdiction of (I.R.S. Emplos er incorporation or organization ) Identification No.) 611 Walker Avenue llouston, Texas 77002 ( Address of Principal Executise Offices) (Zip Code) Registrant's telephone number, including area code: (713) 228-2474 II. R. DEAN, Vice President & Treasurer llouston Industries Incorporated 611 Walker Asenue llouston, Texas 77002 (Name and address of agent for sersice) 1515 3M

IlOUSTON INDUSTRIES INCORPORAl El. 2,500,000 shares of Common Stock, without par value EXPLANATORY NOTE The form of Prospectus filed in this Registration Statement has two cover pages. The first provides for presenting the actual initial public orTering price of the shares, and the second describer the formula by which the maximum initial public offering price will be determined. All preliminary Prospectuses distributed will bear the second form of cover page. After the Registration Statement becomes effective, all Prospectuses distributed will bear the first form of cover page appropriate:y completed. Ten copies of the Prospectus in the exact form to be used after effectiveness will be filed with the Securities and Exchange Commission pursuant to Rule 424(b). o 151532%

PROSPECTUS 2,500,000 Shares Houston Industries Incorporated Common Stock (without par value) The outstanding shares of Common Stock are, and the sharet offered hereby will be, listed on the New York and hiidwest Stock Exchanges. The reported last sale price of the Common Stocx on the New York Stock Exchange on October 16,1979 was $ per share. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COhfMISSION NOR HAS THE COhfMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS ANY REPRESENTATION TO THE CONTRARYIS A CRIMINAL OFFENSE. Underwriting Price to Discounts and Proceeds to Public CommissionspJ Company (2) Per Share S $ $ Total $ $ $ (1) The Company has agreed to indemnify the several Underwriters against certain civil liabilities, including liabilities under the Securities Act of 1933. (2) Before deduction of expenses payable by the Company estimated at $100.000. The Common Stock is offered by the severa! Underwriters named herein when, as and if received and accepted by them, subject to their right to reject orders in whole or in part and subject to certain other conditions. It is expected that delivery of the shares will be made in New York City on or about October 23,1979. Dean MGiterReynoldsInc. Kidder; Peabody & Co. Incorporated i Octcht 16,1979

2,500,000 Shares Houston Industries Incorporated Ccamnon Stock (willnut par value) The outstanding shares of Common Stock are, and the shares offered hereby will be, listed as she New York and hiidwest Stock Exchanges. The reported last sale price of the Common Stock on the New York Stock Exchange on October 15, 1979 was $27% per share. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COAISHSSION NOR HAS THE COA 1AflSSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARYIS A CRIAHNAL OFFENSE. PRICE TO PUBLIC-The initial public offering price of the Common Stock offered hereby will be a fxxed price, determined by agreement between the Representatives of the Undenvriters and the Company, not higher than the reported last sale price [ regular s ay) or the reported last asked price of Common Stock of the Company on the New York Stock Exchange immediately prior to such determination, whichever is higher, plus $.50 per share. UNDERWRITING DISCOUNTS AND COhihilSSIONS-The underwriting discount will be an amount per share not exceeding 3.50% of the initial public offe. ring price. The Company has agreed to indemnify the several Underwriters against certain civil liabilities, including liabilities under the Securities Act of 1933. PROCEEDS TO COh1PANY-The net proceeds to the Company from the sale of the Common Stock offered hereby will be the initial public offering price, determined as set forth above, less the undenvriting discount and less expenses (estimated at $100.000) payable by the Company. The Common Stock is offered by the several Underwriters named herein when, as and if received and accepted by them, subject to their right to reject orders in whole or in part and subject to certain other conditions. It is expected that delivery of the shares will be made in New York City on or about October 23,1979. Dean WitterReynoldsInc. Kidde1; Peabody & Co. Incorporated October 16,1979 1515321

INCORPORATION OF CERTAIN DOCUA1ENTS HY REFERENCE AND ADDITIONAL INFORh1ATION The Company is subject to the information requirements of the Securities Exchange Act of 1934 (Exchange Act) and, in accordance therewith, files reports and other information with the Securities and Exchange Commission. Information as of p;rticular dates concerning directors and officers, their remuneration, the principal holders of securities of the Company and any material interest of such persons in transactions with the Company or its subsidiaries is disclosed in reports of the Company fded with the Commission and in proxy statements distributed to stockholders of the Company and filed with the Commission. The following documents, which have been filed by the Company with the Commission pursuant to the Exchange Act ( File No. I-7629), are incorporated by reference in this Prospectus and shall be deemed to be a part hereof: (l) The Company's Annual Report on Form 10-K for the year ended December 31,1978. (2) The Company's Proxy Statement dated March 19,1979 relating to its 1979 Annual Meeting of Shareholders. (3) The Company's Quarterly Reports on Form 10-Q for thc quarters ended March 31,1979 and June 30,1979. (4) The Company's Current Reports on Form 8-K dated April 20, May 21, July 2 and August 27, 1979. All documents filed by the Company with the Commission pursuant to Section 13,14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering made by this Prospectus sha!! be deemed to be incorporated herein by reference and to be a part hereof. Such reports, proxy statements and other information may be inspected and copied at the offices of the Commission at Room 6101,1100 L Street, N.W., Washington, D.C.; Room 1228, Everett McKinley Dirksen Building,219 South

Dearborn Street,

Chicago, Illinois; Room i100, Federal Building,26 Federal Plaza, New York, New York and Suite 1710 Tishman Building,10960 Wilshire Boulevard, Los Angeles, California. Copies of such material may also be obtained from the Public Reference Section of the Commission in Washington, D.C. 20549 at prescribed rates. In addition, reports, proxy material and other information concerning the Company may be inspected at the offices of the New York Stock Exchange and the Midwest Stock Exchange on which the Common Stock of the Company is listed. The Compaay hereby undertakes to proside without charge to each person to whom a copy of this Prospectus has been delivered on the request of any such person, a copy of any or all of the documents referred to abose which have been or may be lacorporated in this Prospectus by reference, other than exhibits to such documents. Written requests for such copies should be directed to Air. J. R. Johnston, Secretary, llouston Industries Incorporated,61I Walker Asenue, llouston, Texas 77002. No person has been authorized to gise any information or to make any representations other than as contained herein, and, if given or made, such information or representations must not be relied upon as hasing been authorized. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. The delisery of this Prospectus at any time does not imply that the information set forth or incorporated by reference herein is correct as of any time subsequent to the date hereof. IN CONNECTION WITil TIIIS OFFERING, TIIE UNDERWRITERS alAY OVER-ALLOT OR EFFECF TRANSACTIONS WIIICII STABILIZE OR 51AINTAIN TIIE AIARKET PRICE OF Tile CON 1510N STOCK OF TIIE COh1PANY AT A LEVEL ABOVE TIIAT WillCII h11GIIT OTIIER-WISE PREVAIL IN Tile OPEN A1ARKET. SUCII TRANSACTIONS N1AY llE EFFECTED ON TIIE NEW YORK AND hilDWEST STOCK EXCIIANGES, IN TIIE OVER-TIIE-COUNTER AIARKET OR OTIIERWISE. SUCil STABILIZING, IF CONIMENCED, A1AY llE DIS-CONTINUED AT ANY TIME. 2 s 1515 32%

SIsMMARY INFORMATION The following summary inftm:arion is quahfed in its entirety by, and should be read in conjunction with, the informataa appearing elsewhere in this Prospectus and in the documents and information incorporated in this Prospectus by reference. TIIE OFFERING Issuer.. Ifouston Industries Incorporated Securities Offered. -2,500,000 shares of Common Stock Listed . ..New York and Midwest Stock Exchanges (Symbol: 110U) Price Range During 1979.. - $31 Y -$26% Indicated Current Annual Dividend Rate.. - $2.36 Dook Value Per Share at June 30,1979. -.333.63 TIIE COMPANY AND ITS SUBSIDIARIES Business of the Company.. Owns all of the common stock of flouston Lighting & Power Company (IIL&P), Primary Fuels, Inc. (PFI), and Utility Fuels, Inc. ( UFI) Resenue Sources (Twelve Months Ended June 30, 1979).. IIL&P-94.0%; PFI-2.1%; UFI-3.9% Business and Service Area ofIIL&P. Electric utility serving approximately 5,000 square miles of the Texas Gulf Coast Region, including Houston Fuel for Electric Generation by liL&P (Twelve Months Ended June 30,1979).. Gas-93%; Coal-6%; Oil-l% Twebe Months Ended June 30.1979 December 31, Decernber 31, Consolidated Income Summary-( Amounts in Thousands except Per Share Data) Operating Revenues . $ 1,591,181 $1,349,438 $1,095,561 Net Income For Common Stock. $ 147,331 $ 128,657 $ 125,636 Average Shares Outstanding.. 31,787 30,590 28,479 Earnings Per Share. $4.63 $4.21 $4.41 Dividends Declared Per Share.. $2.24 $2.12 $ 1.86 For the twelve months ended August 31,1979, the Company's unaudited consolidated operating revenues were $1,685,263,000, net income for common stock was $155,865,000 and earnings per share were $4.84. The amounts for the twelve months ended June 30 and August 31,1979 include, in the Company's opinion, all adjustments (consisting only of normal rec urcing adjustments) necessary for a fair presentation. Percent of June 30.1979 Adjusted Capitalization Summary: (Thousands of Dollars) Long-Term Debt of Subsidiaries . $ 1,376,155 $ 1,376,155 48.4% Convertible Debentures . . 39,927 39,927 1.4% Preferred Stock of Subsidiary . 243,518 243,518 8.6% Common Stock Equity.. 1,114,800 1,182,300 41.6% Total Capitalization . $2,774,400 $2,841,900 100.0 %

Adjusted to give effect to the issuance of the additional shares of Common Stock offered hereby (assuming net proceeds of $67,500,000 or $27.00 per share).

3 151532Y

TIIE COh1PANY AND ITS SUBSIDIARIES liouston Industries Incorporated (the Company) is a Texas corporation which was - ganized in October 1976 by flouston Lighting & Power Compsny (IIL&P). In January 1977, pursuant to a merger and corporate restructuring plan approved by the sbanholders ofIIL&P, the Company became the owner of all of 11L&P's outstanding common stock and all of the outstanding stock of filAP's two former subsidiaries, Primary Fuels, Inc. and Utility Fuels, Inc. The Company is a holding company and, at the present time, it conducts no business and owns no propeties other than the common stocks ofits three subsidiary companies. The Company is exempt from regulation as a " registered" holding company under the Public Utility llolding Company Act of 1935 except with respect to the acquisition of securities ofother public utility companies. The address of the principal executive offices of the Company is 611 Walker Avenue, liouston, Texas 77002. The telephone number is (713) 228-2474. limp is engaged in the generation, transmission, distribution and sale of electric energy, serving an area of the Texas Gulf Coast Region, estimated at approximately 5,000 square miles, in which are located flouston (the largest city in Texas) and 153 smaller cities, villages and communities. For the twelve months ended August 31, 1979, the operations of IIMP accounted for approximately 92% of the Company's consolidated net income. Primary Fuels participates in joint ventures that engage in oil and gas exploration, development and production activities on offshore leases from the State of Texas and onshore leases within the continental United States. Utility Fuels provides coal supply services to IIIAP. APPLICATION OF PROCEEDS AND CONSTRUCTION PROGRAh! The net proceeds to be received by the Company from the sale of the additional shares of Common Stock oiTered hereby will be invested in the common stock of11L&P and used by liL&P to repay a portion of its outstanding short-term indebtedness incurred in connection with its construction program. Itis estimated that such short-term indebtedness will aggregate approximately $76,000,000 at the time of issuance of the additional shares of Common Stock. At the beginning of 1979, the estimated cost of IIL&P's construction program for the 1979-1981 period totaled apprcaimately $2,343,144,000. In July 1979, liL&P announced the site for a previously scheduled 750-megawatt lignite-fueled generating unit and the plans for a second 750-megawatt unit at that location, with scheduled completion dates of 1985 and 1986, respectively. In August 1979, HLAP and the other participants in the South Texas nuclear project received preliminary results of a study which was initiated for purposes of developing more precise estimates of the scheduling and cost for the remaining phases of the project. The original scheduled in-service dates for the two units in the project were 1980 and 1982, respectively. In September 1978, it was determined that such dates would have to be moved back to 1982 and 1983, respectively. Based on the preliminary conclusions reached in the study, the scheduled in-service dates for the two South Texas nuclear units are now 1984 and 1986, respectively. lilAP has also determined that the scheduled compluion date for its proposed Allens Creek nuclear plant will have to be changed from 1986 to 1987 because of continuing delays in the processing by the Nuclear Regulatory Commission (NRC) ofIIL&P's application for a construction permit. Such delays have been attribu able, for the most part, to the activities of certain citizens and environmental groups that have intervened in opposition to the granting of a construction permit for the Allens Creek plant. Principally as a result of these developments,it is now estimated that liL&P's construction program during the 1979-1981 period will cost approximately $2,396,724,000, with approximately $638,793,000 to be spent in 1979 (cf which $222,313,000 had been spent through June 30, 1979), approximately

 $765,802,000 in 1980 and approximately $992,129,000 in 1981. The revised estimates of expenditures during the three-year period reflect the addition of the proposed coal-fired unit referred to in Note (a) to the table below and the longer construction period now considered realistic for the South Texas nuclear project. In addition, the total capital expenditures that will be required after 1981 to complete the units originally planned have substantially increased. Approximately 75% of the revised total estimated 6

1515 32K

construction expenditures for the 1979-1981 period is expected to be spent on additions and improvements to generating facilities, approximately 5% for transmission facilities, approximately 15% for disiribution facilities and the balance for general plant facilities. The revised 1979-1981 construction budget contemplates expenditures for eight generating units as follows: Thousands of Dollars l'stimated Esti-Estimated Cost mated Unit &heduled included in Fstimated Cost Capacity In-Service 1979 1981 Completed per Plant and laation (County ) (MW) Fuel Date Program Cost MW W. A. Pansh No. 7 ( I-ort Bend ) . 600 Coat 1980 $l 34.336 $249.401 $ 416 600 Coal 1983 308.858 40 R.000 680 W. A. Pansh No. 8 ( Fort Bend ) .. 60s 750 Coal 1984 252.676 456.868 Forest Grove ( Henderson)( a ).. South Texas No.1 ( Matagorda).. 385 Nuclear 1984} 349,373 g3;jm i,ogo South Texas No. 2 ( Matagorda ).. 385 Nudear 1986 J Limestone No.1 ( Limestone ).. 750 Ligmte 1985 l ,76.021

                                                                                '           1.393.990           09 Limestone No. 2 ( Limestone )..                 750     Lign.te     1986[

Nudear 1987 356.945 1,4u7,711 1,173 Allens Creek ( Austin ) . l.200 (a) The scheduled in-service date and costs for this unit are based on a proposal currently being considered by illAP for the acquisition from another electric utility system of a generating facility that is already in the early stages of construction. The estimated costs do not include expenditures expected to be required after 1981 for railroad cars to deliver coal to the unit. The foregoing amounts do not include estimates of the allowance for funds used during construcuan or nuclear fuel expenditures. HI2P expects to spend $73,235,000 during the 1979-1981 period for uranium concentrate and nuclear fuel processing services. Additional r.uclear fuel expenditures, which could include substantial sums for long-term storage of spent nuclear fuel, will be required after 1981. Utdity Fuels expects to spend approximately $54,165,000 during the 1979-1981 period for additional railroad cars and coal handling facilities in order to be able to meet the coal delivery requirements of the two new units being constructed by HIAP at its W. A. Parish plant. Actual construction expenditures will vary from the above estimates as a result of numerous factors, including changes in equipment delivery schedules, construction delays, availability of fuel, environmental protection expenditures, licensing delays, additional changes in the construction program, legislative changes and changes in customer demand and business conditions. The capacity and expenditures presented in the table for the South Texas nuclear units represent lilAP's 30.8% share of a 2,500 megawatt project which isjointly owned with the Cities of Austin and San Antonio and Central Power and Light Company. When the project was originally announced, lilAP's share cf the total completed cost was estimated to be approximately $351,000,000 or $456,000 per megawatt. The revised in-service dates and substantial increases in projected total expenditures are attributable to, among other factors, increased costs associated with construction delays, complexity of project design and regulatory requirements. In addition, assumptions relating to labor productivity and materials requirements have been substar.tially revised in light of actual construction experience. Increases in the estimated cost of the Allens Creek project are based principally on an assumed inflationary effect resulting from the delay in the NRC proceedings relating to the construction permit. lilAP is currently reviewing the safety systems, planned procedures and equipment for the South Texas and Allens Creek facilities in light of information developed from the investigation by the NRC of the March 1979 accident at the Three Mile Island nuclear plant in Pennsylvania. Although none of the information developed to date has indicated that further significant changes will be required in the estimated costs and scheduled in-service dates presented above, such changes will have to be made if, following completion of the NRC and other related investigations, major modificatir as are required in the design and construction of nuclear power plants. Any such further changes in estimated costs and scheduled in-service dates could also involve substantial changes in the nature of IllAP's planned projects. Even assuming IIIAP will be able to meet the in-service dates for its current construction projects in accordance with the revised schedules shown above,it will be required to purchase up to 800 megawatts of capacity from third parties during the 1982-1985 period in order to maintain a reserve margin at or above 15 1 In addition, should IllAP choose not to acquire the generating facility referred to in Note (a) u 1515 321

above,its requirements for purchased power in each of the years 1984 and 1985 would increase to as much as 1,250 megawatts. lilAP currently has no contracts with respect to purchases of supplemental power during such periods and no assurances can be given that such contracts can be obtained or that, if obtained, they will be upon terms favorable to filAP. filAP's ability to continue with its construction program as presently proposed will be substantially dependent upon the availability of adequate and timely rate relief. In November 1978, following a request by llLAP for a rate increase of approximately 12.6% for an adjusted test year ended March 31,1978, the Public Utility Commission of Texas (Utility Commission) granted an increase of approximately 7% for such period. The increase was placed into effect substantially on a system-wide basis in December 1978. In July 1979, IllAP filed applications fcr new rates which, if approved, would increase lilAP's operating revenues for an adjusted test year ended March 31, 1979 by approximately $179,400,000 or 10.5%. Ilearings on the application filed with the Utility Commission commenced on September 27,1979 and have not yet been concluded. No prediction can be made as to what rate relief,if any, IllAP will obtain. Assuming adequate rate relief can be obtained as a result of the pending applications for rate increases, as well as applications expected to be filed in the future, it is estimated that from 40% to 45% of the estimated construction expenditures for the 1979-1981 period can be financed from internal sources. The balance will have to be fmanced from the proceeds of short-term borrowings and sales oflong. term debt and equity securities, including Common Stock of the Company. Such sales are expected to occur during periods of high capital costs when other major users of capital will also be seeking substantial external funds. It is contemplated that up to $125,000,000 principal amount of additional first mortgage bonds will be offered for sale by filAP in December 1979. The types and amounts of securities to be ofrered for sale after 1979, and the timing of such offerings, have not been determined. COMMON STOCK DIVIDENDS AND PRICE RANGE The Company and its predecessor, filAP, have paid cash dividends on the Common Stock in each year since 1922. On October 3,1979, the Board of Directors of the Company declared a quarterly cash dividend of 59c per share, payable on December 10,1979 to holders of Common Stock of the Company of record on November 16,1979. The helders on the record date of the additional shares of Common Stock offered hereby will be entitled to such dividend. Future dividen.ls will depend upon future carnings, the financial condition of the Company and other factors. The Company has adopted a dividend reinvestment plan in which all holders of Common Stock of the Company may participate. The plan provides shareholders an opportunity to reinvest quarterly divid' ds automatically in authorized and unissued shares of Common Stock of the Company at current market pnces without payment of any brokerage commission or service charge. Participants in the plan may also purchase such sht es with supplemental cash contributions (of not less than $50 nor more than $3,000 in any calendar quarter) and may pin or withdraw at any time. The following table indicates the high and low sales prices of the Common Stock on the composite tape during the periods indicated, as reported by The WallStreet Journal, and dividends declared ihr the periods indicated. Disidends Declared liigh im Per Share 1976.. $32% $20% $1.61 1977.. 36% 29% 1.86 1978 First Quarter . 31% 28 .53 Second Quarter., 31% 28 .53 Third Quarter.. 33% 30 .53 Fourth Quarter.. 33 26% .53 1919 First Quarter . 30% 27% .59 Second Quarter - 31% 28% .59 Third Quarter.. 31% 28% .59 Fourth Quarter (through October 15). 29 26% .59 6

                                                                                         }}}}        b

The last reported sale price for the Company's Common Stock on October 15,1979 on the New York Stock Exchange was $27%. The book value of the Company's Common Stock at June 30,1979 was $33.63 per share. DESCRIPTION OF COMMON STOCK The authorized capital stock of the Company consists of 10,000,000 shares of Preference Stock, without par value, none of which is outstanding; and 50,000,000 shares of Common Stock, without par value, 33,411,744 of which shares were issued and outstanding at October 5,1979. The authorized Preference Stock is issuable in series having such designations, dividend rates, general voting rights, liquidation prices, redemption prices, sinking fund provisions and other terms as may be es'iblished from time to time by the Company's Board of Directors. The holders of the Common Stock are entitled to receive such dividends as may be declared by the Board of Directors, subject to the prior rights of the holders of any outstanding series of Preference Stock to receive cumulative dividends at the rate fixed for each such series and to have contributions made to any sinking fund which may be established for any such series. There are no limitations in any indentures on the payment of dividends on the Common Stock of the Company or on the common stocks of the Company's subsidiaries. The cumulative preferred stock of HL&P, however, ranks senior to any capital stock of the Company with respect to dividends provided by HL&P funds. Subject to the rights of the holders of any outstanding Preference Stock ti ele-t two members of the Board of Directors whenever dividends on any outstanding Preference Stock a e in arrears in an amount equal to six or more quarterly dividends thereon, holders of Common Stock of ths Company are entitled to one vote for each share held at all meetings of shareholders. In the event of any liquidation, dissolution or winding up of the Company, or any reduction or decrease ofits capital stock resulting in a distribution of assets to the holders ofits Common Stock, the holders of the Common Stock are entitled to receive pro rata all assets of the Company distributable to shareholders, but only after payment to the holders of any outstanding Preference Stock of the full preferential amounts fixed for each series thereof. The Common Stock has no pre-emptive or cumulative voting rights, and there are no redemption, sinking fund or conversion provisions with respect to such stock. The outstanding Common Stock of the Company is, and the additional shares of Common Stock offered hereby will be when issued, fully paid and nonassessable. The Transfer Agent for the Common Stock is Texas Commerce Bank National Association, Houston, Texas. The Registrar is First City National Bank of Houston. EXPERTS The consolidated balance sheets and statements of subsidiarie.,' preferred stock and long-term dcbt of the Company and subsidiaries as of December 31,1978 and 1977 and the related statements of consolidated ince.. , icined earnings, and , anges in financial position for each of the five years in the period ended theember 31,1978 and the supporting schedules included in the Company's Annual Report on Form 10-K for the year ended December 31,1978 ( 1978 10-K), which is incorporated in this Prospectus by reference, have been examined by Deloitte Haskins & Sells, Independent Certified Public Accountants, as stated in their opinion appearing therein. Such financial statements and supporting schedules are incorporated by reference in this Prospectus in reliance upon such opinion, given upon the authority of that firm as experts in accounting and auditing. The summary of the report on natural gr and condensate reserves made to Primary Fuels, Inc. by Miller and Lents, Ltd. set forth in the Com,,any's 197810-K under the caption " Businesses of Other Subsidiaries-Primary Fuels, Inc.", has been so included on the authority of such firm as experts. For purposes of estimating the replacement cost of property, plant and equipment set forth in Note 10 of the Notes to Consolidated Financial Statements included in the Company's 197810-K, the Company used indexes developed by Whitman, Requardt and Associate (Engineers & Consultants) in reliance upon such firm as experts. 7 ph 1515 DL

LEGAL OPINIONS Certain legal matters in connection with the Common Stock otTered hereby are being passed upon for the Company by Baker & Botts, Houston, Texas, and for the Underwriters by Cahill Gordon & Reindel, New York, New York. Cahill Gordon & Reindel are not passing upon the incorporation of the Company or its subsidiaries or franchise matters and are relying as to matters covered by their opinion governed by Texas law upon the opinion of Baker & Botts. William R. Brown, Esq., a member of Baker & Botts, is a director of the Company and of HL&P. UNDERWRITING The Underwriters named below, for whom Dean Witter Reyno!ds Inc. and Kidder, Peabody & Co, Incorporated are acting as Representatives, have severally agreed, subject to the terms and conditions of the Underwriting Agreement (a copy of which is filed as an exhibit to the Registration Statement), to purchase from the Company the respective number of shares of Common Stock set opposite their names in the table below: Name of Number Name of Number l'nderwriter of Shares t?nderw riter of Shares Dean Witter Reynolds Inc. 406.000 D. A. Davidson & Co. Incorporated . 2,000 Kidder Peabody & Co. Incorporated . 406.000 Cavis, Skaggs & Co., Inc. 3JWO ABD Secunties Corporation . 12JO) R. G. Dakinson & Co. 3,000 Advest, Inc. 12JK10 Dillon, Read & Co. Inc. 40.000 Amencan Secunnes Corporation . 12,000 Dott & Co., Inc. 6.0(C A. E. Ames & Co Incorporated . 3Jm Dominion Securitics Inc. 3.000 Anderson & Strudwick, Incorporated . Donaldson, Lutlin & Jenrette Secunties 6fMN) Arnhold & S Bleichroeder,Inc. Corporation . 4010) 12JM) Drexel Burnham Lambert Incorporated . 40.000 Atlantic Capital Corporation . 20foo F.1.bentadt & Co., Inc. I2Jo1 Bache lialse) Stuart Shields Ir.corporated . 40Jn) A. G. Edw ards & Sons, Inc. 20S00 Bacon. Whipple & Co. 12,000 Eldon-Emmer & Co., Inc. 2,000 Robert W. Baird & Co. Incorporated . 12.000 Elkins, Stroud. Suplee & Co 6.000 Baker, Watts & Co. 3Jn) E ppler, Guerin & Turner, Inc. 20,000 Basle Secunnes Corporation . 20,000 Equitable Secunties Corporation . 3 000 Bateman Eichler,11:11 Richards Incorporated . 12 000 Evans & Co. Incorporated . 2JU) George K. Baum & Company,Inc. 2,000 Faherty & Faherty,Inc. 3 JAM Bear, Stearns & Co. 40fW) Fahnestock & Co 6 000 Sanford C. Bernstein & Ca., Inc. 12,000 Ferris & Company, Incorporated . 6 000 Ihrr, Wilson & Co , Inc. . 6,000 First Albany Corporation . 2,000 D. II. Blair & Co., Inc. 2,000 First Equity Corporation of Flond 2,000 Wilham Blair & Company . 12Jm First If arlem Securines Corporation . 2,000 Blunt Ellis & leewi incorporated . 12,000 First Nianhattan Co. 3,000 Blyth Eastman Dillon & Co. Incorporated . 40JM) First of Niichigan Corporanon . 12.000 Boettcher & Company . First Southwest Company . 6,000 12/ 0 ) J. C. Bradford & Co., incorporated . 12,000 Robert Fleming incorporated . 12J)00 Alet Brown & Sons . 20 000 Folger Nolan Ileming Douglas Incorporated . 6JC0 Foster & Nianhali Inc. 6,000 Burgess & Leith Incorporated . 3,000 ee g 2,W Butcher & Singer Inc. 6.000 Buvs.NiacGregor, NiacNaughton-Greenawalt & Co. 2J00 Gradison & C mpany Incorporated . 2J00 Cardinal Investment Company, Inc. 2,0i,0 Gruntal & Co. 6.000 llamershlag, Kempner& Co. 3.000 The Chicago Corporation . 6.000 B. C. Christopher & Co. ma Hero o., Inc. 2M 2J)00 1 , 11 st n ,0( floward, Weil, Labouisse, Fnednchs Cowen & Co. 12,000 Incorporated . 6,000 Crangie lncorporated . 6fXiG llowe, Barnes & Johnson,Inc. 2,000 Crowell, Weedon & Co. I2,000 E. F. Hutton & Company Inc. . 40,000 Dain Bosworth incorporated . 12,000 The Ilhnois Company incorporated . 6,000 Damels & Bell, Inc. 2,000 Interstate Securities Corporanon . 6J00 8 r>s~

\5

Name of Number Name of Number Underwriter of Shares Underwriter of Shares investment Corporation of Virginia . 6,000 Rauscher Pierce Refsnes, Inc. 20,000 Janney Montgomery Scott Inc. 12,000 W.11. Reaves & Co., Inc. 6,000 Jesup & Lamont Secunties Co , Inc. 2,000 Robertson, Colman, Stephens d Woodman . 12,000 Johnson, Lane, Space. Smith & Co , Inc. 6,000 De Robinson.liumphrey Cr npany,Inc. . 12.000 Johnston, Lemon & Co. Incorporated . 6,000 Rodman & Renshaw,Inc. 6,000 Edward D. Jones & Co. 3,000 Ross Stebbins Inc. 2,000 Josephthal & Co incorporated . 6.000 Rotan Mosle Inc. 40,000 Kirkpainck, Pettis Smith, Polian Inc. 2,000 L. F. Rothschild, Unterberg, Tow Di . 40,000 12,000 R. Rowland & Co., Incorporated . 3,000 Kleinwort, Benson Incorporated .. 12,000 Salomon Brothers , 40,000 I adenburg, Thalrr ann & Co. Inc. Scandinavian Secunties Corporation . 12,000 Laidlaw Adams & Peck Inc. 3,000 Scherck, Stein & Franc, Inc. 2,000 Cyrus J. Lawrence Incorporated 6,000 Schneider, Bernet & liickman, Inc. 6,000 Lazard I reres & Co. 40,000 Scott & Stnngfellow,Inc. 2,000 Legg Mason Wood Walker, Incorporated . 12,000 Shearson liayden Stone Inc. 40,000 Lehman Brothers Kuhn lech Incorporated . 40.000 Shuman, Agnew & Co.,Inc. 12,000 Manley, Bennett, Mc[)onald & Co. 3,000

1. M. Simon & Co. 2,000 A. E. Masten & Co. Incorporated . 2,000 12,000 Smith Barney, llarris Upham & Co.

Mcdonald & Company . Incorporated., 40,000 Meurow & Company . 2,000 3,000 SM % & A bgM . W lhe Milwaukee Company . S Moo &C 1000 Montgomery Secunties . 12f)00 Stephens Inc. 6,000 Moore & Schley, Cameron & Co. 6,000 Stern Brothers & Co. 3,000 Morgan, Keegan & Company,Inc. 2,000 Stifel, Nicolaus & Company Incorporated . 6/)00 Morgan,Olmstead, Kennedy & Gardner Stix & Co. Inc. 2,000 Incorporated . 3 000 20,000

                                                              ""          '"""'**~

Moseley,llallgarten Estabrook & Weeden Inc. 2,M n , Inmwate .

Mullaney, Well6 & Company 20,000 Thomson McKinnon Secunties Inc. Divnion of Olde & Co incorporated . 2f)00 Traub and Company, Inc. 2,000 Neuberger & Berman . 6,000 Trubee, Collins & Co. 2,000 Ne* Court Secuniacs Corporation . 20AX) Tucker, Anthony & R. L. Day,Inc. 2M)00 Newhard, Cook & Co. Incorporated . 3.000 Underwood. Nc uhaus & Co. Incorporated . 20 U)0 The Ohio Company .. 12/)00 Bunon J. Vincent Chesley & Co. 2,000 Oppenheimer & Co., Inc. 20,000 wa A. nu & ,Inc. 2. M Paine, Webbc r, Jackwn & Curtis incorporated . 40,000

                                                               #E# # #'           "I' ' "#'                0' #

Parker /lianter incorporated . 6,000 a urg a as e er Inmrprated . 40,000 Phihrs, Appel & Walden,Inc. 3JW R) Piper, Jatt ray & liopwood Incorporated . 12 A W) Prescott, Ball & Turhen . 12fgo Quinn & Co., Inc. 2 A W) Total .. 2,500 9 10 Ra!Tensperger,liughes & Co.,Inc. 2JWx) The nature of the Underwriters' obligation is such that they must purchase all of the shares of Common Stock offered hereby if any are purchased. The Representatives of the Underwriters have advised the Company that the Underwriters propose to otter the shares of Common Stock to the public initially at the otTering price set forth on the cover page of this Prospectus and to certain dealers at that price less a concession of not more than $.65 per share, of which $,40 per share may be reallowed to other dealers. After the initial public otTering, the public orTering price and the selling terms mcy be varied by the Representatives. 9 b i515 331.

Houston Industries Incorporated 2,500,000 Shares Common Stock (without par value) PROSPECTUS Dean Witter Reynolds Inc. Kidder, Peabody & Co. Incorporated October 16,1979

1515 331

PART II Item 9. Other Expenses of issuance and Distribution. Securities and Exchange Commission Filing Fee.. $ 15,000 NASD filing fee . 5,100

Fees of Registrars ani Transfer Agents.. 5,000
Fees of Company's Counsel . 20,000
Auditor's fees . 5,000
Printing, including Form S-16, prospectuses, exhibits, etc. 25,000
Printing and engraving securities. 5,000 Listing fees.. 8,750
Miscellaneous expense.. I 1,I 50
Total Expenses.. $100,000
Estimated.

Item 10. Relationship with Registrant of Experts Named in Registration Statement. None. Item ii. Treatment of Proceeds From Stock to be Registered. Upon issuance of the Common Stock the proceeds thereof will be credited to the appropriate capital stock account. Item 12. Documents Relating to Trustees. Not applicable. Item 13. List of Exhibits.

         *1            -Proposed form of Agreement Among Underwriters with form of Underwriting Agreement attached.

t2(a) -Articles ofIncorporation of the Company ( Exhibit 2(a), File No. 2-58113). t2(b) -Specimen of Common Stock certificate of the Company (Exhibit 2(b), File No. 2-58113 ). 3 -Opinicn of Baker & Botts. t5 -Computation of Earnings per Common Share (Exhibit 1,1978 Report on Form 10-K, File No.1-7629).

Previously filed and not re-filed pursuant to Rule 472(d).

t Incorporated herein by reference as indicated. 9-

"~'

1515 335

UNDERTAKING PURSUANT TO RULE 460 Article 2.02A(16) of the Texas Business Corporation Act empowers a Texas corporation to indemnify its directors and omcers (and other persons who serve at the request of such corporation as directors or omccrs of other corporations in which such corporation owns stock or of which it is a creditor) against all expenses actually and necessarily incurred in connection with the defense of lawsuits or proceedings in which they may be made a party by reason of having been directors or omcers except in relation to matters as to which such omeer or director shall be adjudged in such lawsuits or proceedings to be liable for negligence or misconduct in performance of duty. It also provides that such indemnification shall not be deemed exclusive of any other rights to which such omcer or director may be entitled under any by-law, agreement, vote of shareholders or otherwise. The Company's Bylaws p; ovide for indemnification of omcers and directors as a matter of right against all costs and expenses necessarily incurred, and all amounts paid ir settlements or in satisfaction of judgments,in any action in which they may become involved by reason of being a director or omcer,if the Company receives an opinion of independent legal counsel that the omcer or director who is to be indemnified acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and in respect of any criminal action, reasonably believed that his conduct was lawful. It further provides that termination of any action by judgment, order, settlement, conviction, or upon a plea of nolo contendere shall not, ofitself, crcate a presumption that the person did not meet such standard of conduct. The Bylaws also provide that no person shall be entitled to indemnification in relation to any matter as to which indemnification shall not be permitted by law. In so far as indemnification for liability arising under the Securities Act of 1933 may be permitted to omeers and directors of the Company pursuant to the above stated provisions of the Texas Business Corporation Act, the Company's Bylaws, or otherwise, the Company understanus that it is the opinion of the Securities and Exchange Commission that such indemnification is against public policy as expressed in said Act and is, therefore, unenforceable. In the event that a claim for such indemnification (except in so far as it provides for the payment by the Company of expenses incurred or paid by a director or omcer in the successful defense of any action, suit or proceeding) is asserted by a director or omcer and the Securities and Exchange Commission is still of the same opinion, the Company will, unless in the opinion of counsel the matter has been settled by control _ ling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in said Act and will be governed by the final adjudication of such issue. 9 1515 3R 11-2

SIGNATURES Pursuant to the requirements af the Securities Act of 1933, the registrant has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Ilouston and State of Texas, on the 15th day of October,1979. l'OUSTON INDUSTRIES INCORPORATED D. D. JORDAN (D. D. Jordan, President and Principal Esecutine Officer) Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the fo!!owing persons in the capacities and on the date indicated. Signature Title Date Principal Executive D. D. JORDAN Officer and Director ( D. D. Jordan. Presider.:) Principal Financial and Accounting Otticer

11. R. DI AN and Director (11. R. Dean, Vice President and Treasurer) > October 15,1979 SI ARCY IlR ACI WII.I., W M. R. BROWN, BIN F.

LOvi., G. W. OPRL A, JR., Sil.W ART ORTON, Wii.l.ARD E. WAi.aRIDor, JOr. C. WI.sst NDORFF C jectors By 11. R. DI AN_ (ll. R. Dean, Attorney-in-Fact ) , Director (Jahn C. Echols) Director (llonard W. Ilorne) 11-3 1515 d

CONSENT OF INDEPENDENT CERTIFIED PUBLIC k"COUNTANTS IIOUSTON INDt;$JRIES INCORPORATED: We hereby casent to the incorporation by reference in this Registration Statement on Form S-16 of our opinion dated February 12,1979 appearing in the Company's Annual Report on Form 10-K for the year ended December 31,1978. We also consent e i the reference '.o us under the heading " Experts"in the Prospectus constituting a part of this Registration Statement on Form S-16. del.OrrrE HASKINS & SELLS liouston, Texas September 20,1979 CONSENTS OF OTIIER PERSONS NAMED IN Tile REGISTRATION STATEMENT The consent of Baker & Botts is included in their opinion filed as an Exhibit to the Registration Statement. The consents of Miller and Lents, Ltd., independent oh and gas consultants, and of Whitman, Requardt and Associates Engineers & Consultants, have been separately filed with the Registration Statement. G 1515 33'k

SECURITIES AND EXCIIANGE COMMISSION WASIi1NGTON, D. C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION I3 OR 15(d) OF TIIE SECURITIES EXCIIANGE ACT OF 1934 FOR TIIE FISCAL YEAR ENDED DECEhfBER 31, 1978. COhih!ISSION FILE NO.1-3187II-1. HOUSTON LIGHTING & POWER COMPANY (Exact name of registrant ss speciSed in its charter) Texas 74-0694415 (State or other jurisdiction of (I.R.S. Employer incorporation or organizatino) Identification No.) 611 Walker Avenue 77002 Ilouston, Texas (zip code) ( Address of principal executive ofEces) Registrant's telephone number, including area code (713) 228-9211. Securities registered pursut.nt to Section 12(b) of the Act: Name of each exchange on Title of each class which registered 5%% Convertible Debentures due 1985 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Preferred Stock, cumulative, no par:

         $4 Series, $6.72 Series, $7.52 Series, $9.52 Series, $9.08 Serier, $8.12 Series and $9.04 Series *

(Title of class)

The $9.04 Cumulative Preferred Stock was issued in February 1979.

Indicate by check mark whether the registrant (1) has ided all reports required to be fded by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes / No . As of December 31,1978,31,314,996 shares of the registrant'. Comme,.. Stock, without par value, were issued and outstanding and privately held, beneficially and of record, by IIouston Industries Incorporated. 7 151,b ul-

PART I Item I. Business.

'Ihe Company llouston Lighting & Power Company (IIL&P) is engaged in the generation, transmission, distribu-tion and sale of electric energy, serving an area in the Texas Gulf Coast Region, estimated at approxi-mately 5,000 square miles, in which are located IIouston (the largest city in Texas) and 153 smaller cities, villages and communities. The address of the Company's principal executive offices is 611 Walker Avenue, IIouston, Tcxas 77002 (telephone number 713-228-9211).

IIL&P is a subsidiary of Ilouston Industries Incorporated (Ilouston Industries) which owns all of IIL&P's outstanding conunon stock. IIouston Industries is a holding company as defined in the Public Utility IIolding Company Act, but is exempt from regulation as a " registered" holding mmpany under that Act except with respect to the acquisition of securities of other public utility com-panies. The other subsidiaries of Ilouston Indu.stries are Primary Fuels, Inc. and Utility Fuels, Inc. Primary Fuels participates in joint ventures that engage in oil and gas exploration, development and productioa activities on offshore leases from the State of Texas and onshore leases within the Continental United States. Such ventures am not presently regarded as potential sources of fuels for III AP's utility operations. Utility Fuels provides coal supply services to IIL&P. See " Fuel-Coal and Lignite Supply". Certain Factors Affec*ing Electric Utilhies IIL&P, in mmmon with electric utilities in gcneral, has experienced problems in a number of areas, including diiliculty in securing adequate rate An ases when required, increased cost of fuel, substantial increases in construction and operating coas, prospective reliance on fuels other than natural mts, increased expenditures due to pollution control and environmental considerations, uncertainties and delays respecting the construction and fueling of nuclear and fossil fueled generating units, high msts in raising large amounts of capital in competition with other major users of capital and an unpredictable rate of growth of energy sales due to uncertain economic conditions and energy conservation measures by customers. As discussed herein, certain of these problems have had and are expected to have an impact on IIL&P's operation <. See " Construction Program", " Financing of Construction Program" and Item 2, "hfanagement's Discussion and Analysis of Statements of Income" In November 1978, federal energy legislation was enacted which was designed to achieve, through various regulatory provisions, the coaservation of energy and the development and use of more plentiful domestic fuels. The new legislation provides for, among other things, the establish-ment of non-binding federal electric rate design standards, federal authority to order interconnections and wheeling of power tmder specified circumstances and restrictions against the use of oil or gas as fuel in certain industrial and utility facilitics. Ilecause of its complexity and uncertainties in its inter-pretation and implementation, the eifect of the National Energy Act upon IIL&P cannot be predicted. During 1977, federal legislation was enacted which provides for regulation of, among other tnings, the extraction of coal and reclamation of land subjected to surface or strip-mining operations, construc-tion resulting in new sources of emission in clean air attainment areas, the installation of control technologies for the removal and limitation of plant emis sions, the p.omulgation of standards for presently unregula .d pollutants, the designation of local or regionally available coal sources by the President if necessary to prevent or minimize local economic %ruption, and the imposition of penalties commensurate with the economic value of non-mmpliance. It is anticipated that implementation of the legislation will merease IIL&P's construction and operating costs and could adversely affect the rate of industrial expansion in IIL&P's service area. See " Regulatory and Environmental Af atters - Air and Water Quality". 1 1515 m

Construction Program IIL&P has a continuing program of major construction to provide facilities to meet increased customer amands and utilize more plentiful domestic fuels. The program is currently estimated to cost approximately $2,343,144,000 for the three-year period 1979-1981, with approximately $624,G17,000 to be spent in 1979, $800,810,000 to be spent in 19S0 and 5917,6S7,000 to be spent in 1981. The three-year program (exclusive of a}!owance for funds used during construction and nuclear fuel payments) consists of the following principal items: Amount 1 Fossil-fueled generating facilities $ 830,686,000 3696 Nuclear-fueled generating facilities 939,977,000 40 Transmission facilities 122,458,000 5 Distribution facilities 352,319,000 15 General plant facilities 97,654,000 4 Total .$2,313,144,000 10096 At December 31,1978, IIL&P owned and operated generating facilities with an aggregate name-plate capacity of 11,050 megawatts. The 1979-1981 construction orogram includes expenditures in connection with the following major generating projects aggregating 3,920 megawatts of capacity: Thousands of Dollars (l) Estimated Esti-Estimated Cost mated Unit Scheduled Included in Estimated Cost Capacity In-Service 1979-1981 Completed per Plant and Location (County) (htW) Fuel Date Program Cost t A_iW W. A. Parish (Fort Bend)(2) 000 Coal 1980 $129,864 $ 219,401 $ 416 South Texas ( Alatagorda)(3) 383 Nuclear 1982{ 321,m 618,2U 803 South Texas (Statagorda)(3) 385 Nuclear 1983 ) W. A. Parish (Fort Bend)(2)(4) 600 Coal 1983 309,330 408,096 080 To be determined (4) 750 Lignite 1985 289,744 728,539 971 Allens Creek ( Austin)(5) 1,200 Nuclear 1986 618,252 1,297,362 1,081 (1) Does not include allowance for funds used during construction or nuclear fuel expenditures. (2) The estimated costs do not include any expenditures by IIIAP for railroad cars and coal handling equipment Coal o y services for the W. A. Parish plant are provided by Utility Fuels, Inc., a subsidiary of Ilouston Industries. It is estimated that expenditures by Utility Fuels for such facilities during the 1979-19S1 period will be approximately $51,165,000. See

          " Fuel-Coal and Lignite Supp'/'

(3) The capacity and expenditures presented represent IIIAP's 30.8% share of a 2,500 megawatt project to be jointly owned with the Cities of San Antonio and Austin and Central Power and Light Company, a subsidiary of Central and South West Corporation. See " Regulatory and Environmental h!atters - Nuclear Licensing" and " Controversy with Central and South West Corporation". %e estimated costs do not include estimated expenditures which IIL&P expects to make for its share of the uranium concentrate and nuclear fuel processing services to be purchased for the South Texas facilities, including approximately $69,916,000 during the 1979-1981 period. IIL&P expects to expend an additional $42,972,000 after 1981 until start-up of the second unit under existing nuclear fuel contracts relating to the South Texas facilities. See " Fuel- Nuclear Fuel Supply" (4) See " Regulatory and Environmentai Matters - Air and Water Quality" Selection of the site for the lignite unit is dependent on IIL&P's ability to obtain a long-term fuel supply. (5) The scheduled in-service date reflects the results of a study, completed on 51 arch 15,1979, which indicates that the previously estimated in-senvice date of 1985 cannot be met. The estimated costs reflect adjustments to previously reported estimates based so'cly on an (Notes continued on following page) 1515 3M

assumed inflationary effect resulting from the delay. Such estimated costs are subject to further adjustments pending completion by IIL&P of a thorough evaluation of the study. The estimated costs do not include estimated expenditures which IIL&P expects to make for uranium concentrate and nuclear fuel processing senices for the Allens Creek unit, including approximately $3,320,000 during the 1979-1981 period. An additional $46,105,000 is expected to be spent after 19S1 until start-up of the unit imder HL&P's existing nuclear fuel contracts. See Note 5 of the Notes to Financial Statements. See also " Fuel-Nuclear Fuel Supply" and "R(gulatory and Environmental Matters -Nuclear Licensing". Actual wnstruction expenditures for 1979-1981 and thereafter will vs.ry from the present esti-mates due to a number of factors, including changes in equipment delivery schedules, construction delays, availability of fuels, environmental matters, additional changes in the construction program, delays in regulatory action, legislative changes and changes in customer demand and business umdi-tions. IIL&P and the other participants in the South Text.s nuclear project, together with inde-pendent engineering and consulting firms, are currently engaged in an in-depth study of the scheduling and costs for all remaining phases of the project. It is anticipated that the study will be completed by June 1979, at which time further chrnges may be required in the estimated completion dates and estLnated total cost of cempletion. Three groups and one individual have petitioned to intervene in opposition to the granting of operating licenses for the units. The Nuclear Regulatory Commission (NRC) has not yet ruled on these petitions. The estimated costs and in-service date for the planned lignite unit are based on the assumption that fuel supply contracts and all required umstruction permits and environmer.tal licenses will be obtained by September 1981. The rewntly revised esti-mated costs and in-service date for the Allens Creek nue!m plant are based on the assumption that a construction permit will be obtained from the NRC by September 1979. The NRC has not yet set a date for a hearing on the application for a construction permit. In February 1979, it granted the applications of an environmental group and others to intervene in opposition to the granting of a constructian [xrmit. No prediction can be made as to whether the various petitions in opposition to IIL&P's nuclear projects will be successful. If such petitions are successful, however, or if further delays are experinced in the completion of IIL&P's planned generating units, IIL&P would be required to substantially revise its planned construction program as well as its plans respecting power purchases from third parties. It is presently estimated that HL&P's compound growth rate in peak demand for the five-year period 1979-1983 will be approximately 4Tc to 5Tc. The current estimate is derived from a receat survey of ina trial customers and generally reflects reduced expectations for power consumption, a reassess-ment of the effect of additional residential customers on peak demands, and the prospect of more intensive energy conservation measures by all classes of customers following more frequent rate increases than had previously been anticipated. With its current construction program, IIL&P expects to maintain a minimum reserve margin of approximately 15% in excess of its current estimate of peak-load requirements at least through 1981. Even assuming it is able to meet the presently scheduled in-service dates in its current construction projects, IIL&P will be required to supplement its generating capability during the 1982-19S3 per.od with purchased power in order to maintain a reserve margin at or above 159. See " Peak Loads and Capability". Federal and state action to protect the environment may cause the current estimates of future construction expenditures to be exceeded by substantial amounts. See "Certain Factors Affecting Electric Utilities" and " Regulatory and Environmental Matters- Air and Water Quality" Expendi-tures for environmental protection facilities for the five years ended December 31, 1978 aggregated approximately $79,632,000, including expenditures of approximately $13,MS,000 and $31,684,000 in 1977 and 1978, respectively. Environmentel protection expenditures for 1979-19S1 are estimated to be approximately $M,781,000, of which approximately $26,073.000 is expected to be expended during 1979 and approximately $2S,349,000 is expected to be expended during 1980. Because of uncertainties surrounding the disposal or long-term storage of spent nuclear fuel (see " Fuel-Nuclear Fuel Sup-ply"), fuel costs associated with the continuing operation of nuclear units could be substantial. 3 1515 3 E M

Total gross additions to the plant account of IllAP during the five years ended December 31, 1978 amounted to $1,881,393,000 and during the same period retirements from the plant account amounted to $82,782,000. Gross additions during the period amounted to approximately 56% of total utility plant at December 31,1978. Financing of Construction Program IIIAP proposes to finance its construc* ion program through the use of internally generated funds and the proceeds received from the issuance of securities, including short-term debt. The portion of the total cost to be obtained through the issuance of securit;es cannot be accurately forecast, and the types, amounts and time of issuance of such securities in the future have not yet been detennined. IIIAP's ability to continue with its presently proposed construction program will be dependent in part upon its ability to obtain adequate and timely rate relief. It has been IIIAP's practice to finance construction expenditures in excess of internally generated funds on an interim basis through short-term borrowings which are repaid through the issuance of long-term debt and equity securities. IILAP has bank !ines of credit aggregating $200,000,000 which limit its total short-term borrowings. See Note 4 of the Notes to Financial Statements. Sales of additional securities by lilAP and its parent, IIouston Industries, to finance IIIAP's construction program are expected to occur at times when other major users of capital may also be seeking large amounts of capital. If such additional pennanent financing cannot be obtained at the times and in the amorits required, IIIAP will be required to concider, among other things, alterna-tive sources of financicg or curtailment or deferral of certain of its proposed construction expenditures. Service Area and Franchises IIL&P's service area is a major producer of oil, gas, sulphur, refined products, chemicals, petro-chemicals, steel, oil tools and related manufacturing, processing and servicing activitics. It is characterized by a favorable year-round climate and ready access to air, land and water transportation. Electronics, paper, cement, building materials, cotton, rice, catt'a, salt, magnesium and other minerals are also important products of the service area. Expansion of industrial activity in IIL&P's service area has been accompanied by a corresponding increase in the construction of industrial structures and mmplexes and construction activity in many other fields, which has iricluded construction of multi-block office building complexes, apartment buildings, sing'c and multi-fami.y dwellings, hotels and motels, hospitals and other commercial structures. IIL&P operates in the City of IIouston under a franchise which expires in October 2007. In all other incorporated municipalities its franchises expire in 2007 or in later years. Peak Loads and Capability The following table sets forth information with respect to the installed net capability of IIL&P at the time of peak demand, the net maximum hourly demand on the system (including demand by customers served on an interruptible basis), and the reserve margin at the time of its system net maximum hourly demand: Net Af aximum Ilourly Demand Installed % Increase Net Capability Over Bescive Year (hfegawatts) Date Niegawatts Prior Year 5fargin ( % ) 1974 8,760 August 20 7,150 6.67c 22.5 % 1975 9,510 July 28 7,465 4.4 27.4 1976 9,810 August 9 8,219 10.1 19.4 1977 10,170 July 25 8,615 5.2 17.6 1978 10,828 July 18 9,362 8.3 15.7 4 Q 1515 341

The net capability and reserve margins presented above do not rdect additional capability available through interconnections with other utility systems. Although historically such interconnec-tions were maintained principally for the purpose of meeting emergency corvlitions, they are now also used for economy exchanges of power. IIL&P has contracted with the City of Austin, Texas (Austin) to purchase 500 megawatts of Austin's generating capacity during 19S0 and 1981. Performance of the contract is subject to, among other things, fuel limitations that may be imposed on Austin or its fuel suppliers and the ability of IIL&P to obtain satisfactory arrangements for any transmission services that may be required from third. party electric utilities. In the event of fuel limitations, IIL&P will be entitled to arrange for delivery of natural gas from its own supplies for use by Austin in providing such capacity. IIIAP is cunrently evaluating methods for obtaining additional power during the 1982-19S5 period to supplement its planned generating capacity. Such methods include modifications of existing generating units to increase their c:.pacity, as well as purchases of power from third parties. Such additional power is not expected to exceed 6% of its estimated maximum generating requirements for those years. Fuel General. Approximately 97% of IllAP's generating fuel requirements during 1978 was met with natural gas,2% was met with coal and the balance was met with oil. Prior to 1978 substantially all of such requirements were met with natural gas. Approximately 49% of the Company's present generating capacity is provided by plants that can burn oil on a continuous basis, approximately 14% by plants that can burn oil for varying periods of time to meet emergency ecmditions, and approximately 127c by two new units at IIIAP's W. A. Parish plant that have the capability of using coal as well as gas. Use of coal in these units began in July 1978 and Jamury 1979, respectively. IIIAP expects to use gas, oil, coal and lignite, and mmlear in the future in the following relative proportions:

                                                               % of Generatins: Requirements Fuel                                         1979             1950            1981        1990 Gas                                             C0%             77 %             03 %       11 %

Oil 1 0 18 31 Ccal and lignite 9 17 19 43 Nuclear - - - 15 Total 100% 100 % 100% 100 % The foregoing percentages are based upon the expiration in 1981 of one of IIIAP's long-term natural gas contracts (see " Natural Gas Supply" below) and upon numerous estimates and assumptions relating to, among other things, environmental protection requirements, load growth, the cost and availability of fuels, scheduled in-service dates of planned generating facilities and regulatory imple-mentation of the National Energy Act. Such estimates are also based upon a continuation of existing regidatory restrictions on the use of gas as a boiler fuel and upon IIIAP's ability to acquire and burn substantial quantities of oil in units capable of burning oil on an interim basis only. See " Oil Supply" below. Accordingly. IIIAP's actual fuel mix in future years could vary substantially from such estimates. Natural Gas Supply. IIIAP pu: chases natural gas from Exxon Company, U.S.A. (Exxon) and United Texas Transmission Company (United) under separate long-term contracts. The Exxon con-tract expires after delivery of a specified quantity of gas, but in no event later than December 31,1990. The contract with United provides for delivery of a specified quantity of gas through 10M. Deliveries under these contracts are expected to provide all of the natural gas that IIIAP would be permitted to burn under existing regulations restricting the use of gas as a boiler fuel. Substantially all of IIIz:P's historical costs referred to under " Cost of Fuel ~ below have been for natural gas purchased under the Exxon and United Contracts. The Railroad Commission of Texas (Railroad commission) has issued an order which generally prohibits gas suppliers subject to its jurisdictior. f rom selling natural gas as a boiler fuel except pur-suant to agreements concluded prior to Dramber 1975. As to any such prior agreements (including 5

1515 342k

both of IIIAP's long-term contracts), the order requires specified reductions in gas deliveries in 1981 ar.d 1955. Because of the expiration dates and delivery schedules contained in IIIAP's contracts, it is not anticipated that the order will significantly affect IIIAP's ability to obtain the gas that has been committed to it under such contracts. %e Railroad Commission has conducted hearings on whether it should repeal the order or relax certain of its provisions in view of current federal energy policies and gas-use practices in other states which appear to conflict with the objectives of the order. No prediction can be made as to what action, if any, the Railroad Commission will take as a result of such hearings. IIIAP has not experienced anv significant curtailment of gas deliveries since 1974. Based on representations of its suppliers regarding their present sourecs of gas, it does not anticipate significant curtailments of gas deliveries for the foreseeable future resulting from the inability of such suppliers to meet their contract commitments. Under the priorities contained in a gas curteilment program approved by the Railroad Commission, deliveries by jurisdictional suppliers to customers such as lilAP must be curtailed before any curtailment of deliveries to other contract customers, exclusive of those served on an interruptible basis. Gas deliveries by Exxon are being made from its reserves which have been dedicated to meet the requiremeus of IIIAP during the term of the Exxon contract, while deliveries by United consist principally of gas purchased from unafIlliated suppliers. The amount and duration of any future curtailments of HIAP will be dependent upon, among other things, the ability of United and those from whom it has contracted to purchase gas to obtain new sources of natural gas. All of the natural gas being delivered to IllAP is intrastate gas. The Natural Gas Policy Act of 1978 raises federal price ceilings on natural gas and extends federal price controls to intrastate gas, at least until 19S5. Such pricing provisions are not applicable to gas being sold under contracts (including IIIAP's existing long-term contracts) concluded prior to April 1977. The Act also author-izes federal allocation of intrastate natural gas to interstate pipelines to alleviate emegency shortages. It is not believed that such measures will adversely affect IIIAP's present supply or cost of natural gas. Oil Supply. As indicated above, llIAP expects to rely on oil in meeting a significant portion of its future generating fuel requirements, llIAP has storage facilities for approximately 6,700,000 barrels of oil and has installed an oil pipeline system linking most of its major power plants to provide for rapid and economical distribution of all oil capable of being utilized by the system. There is suffi-cient oil presently on hand to permit the exclusive use of oil for approximately 20 days in those units that are capable if burning oil on a continuous basis. tilAP has entered into a contract with Exxon under which it will be entitled to purchase sufIicient qt mtities of oil to satisfy substantially all of its anticipated oil requirements during 1pSo and 1981 and an average of approximately S8% and 40% of such requirements for the periods 19S2 through 19M and 19S5 through 19S9, respectively. The con-tract is for an initial tenn of ten years commencing in 1950, but may be re-opened once at any time after January 1,19S1 at the election of either party. If agreement on new terms cannot be reached after such a re-opening, the contract may be cancelled at the election of either party. The contract is also mbiect to re-negotiation and cancellation in the event of material changes in existing laws and regulations affecting inel oil. Ntaximum sulphur content of the oilis to be 0.7% by weight. Deliveries will be made through an Exxon pipeline from its Baytown, Texas refinery directly to fil AP's oil pipe-line facilities. III AP is currently meeting its requirements for oil through spot purchases and other short-tenn arrangemects. IIIAP is evaluating other long-term arrangements for deliveries of addi-tional quantities of oil for use beginning in 19S2. When oilinsteed of gas is burned in generating equipment that has the capability of using either fuel, such equipment's generating capacity is reduced by appmximately 3%. In order to meet antici-pated demands of the system in the mid-199fs, IllhP is currently planning to burn substantial quantnies of oil in generating equipment that is capable of using oil only on an intermittent basis, in which tase additional reductions in both generating capacity and reliaility may be expected. It is anti ~ipated that increased costs will be incurred for repair and maintenance, as well as for operation in a marmer that insures compliance with applicable air quality control reqce-nts. xhen oil instead of gas is used as boiler fuel. See "Itegulatory and Environmental .Sf atters- Air and Water Quality' below. 6 p lalb u . c - ,

Coal and Lignite Supply. It is estimated that the two coal-fired generating units now in operation at IIL&P's W. A. Parish plant and the two additional coal-fired units being constructed at that location (see " Construction Program") will require an aggregate of approximately 200 million tons of low-sulphur Western coal for the first 25 years of operation of each unit. The actual amount of coal used will depend on, among other things, its heat content. IIL&P has contracted to purchase from another subsidiary of IIouston Industries, Utility Fuels, a total of 165 million tons of low-sulphur Western coal for consumption at its W. A. Parish plant through June 2003. Utility Fuels is presently purchasing coal to meet its contract commitments to IIIAP from Kerr-AlcGee Coal Corporation (Kerr-hicCee) under an agreement that expires in 1950. The coal is being surface-mined by Kerr-AlcGee from properties located in Wyoming approximately 1,600 railroad miles from IIouston. Beginning in July 1950, Utility Fuels will purchase coal in sufficient quantities to meet its continuing commitments to IIIAP under a 25-year contract with Spring Creek Coal Company (Spring Creek), a subsidiary of Pacific Power & Light Company. Such coalis to be surface-mined by Spring Creek from properties in Afontana which are approximately 1,700 railroad miles from IIouston. The Kerr-AfcGee and Spring Creek contracts provide for deliveries of coal having an average sulphur content that will enable IIL&P to comply with applicable stack-gas emission regulations. See " Regulatory and Ensiron-mental Atatters- Air and Water Quality" The cost of the coal under both contracts is governed by fonnulas containing various escalation provisions relating to changes in specified costs and cost indices. A major component of the delivered cost is the railroad charge for transporting the coal. The Interstate Commerce Commission (ICC) currently authorizes a railroad charge for the Wyoming coal of $17.11 per ton which IIL&P regards as excessive. An appeal by IIL&P of the ICC tariff is pend-ing before a federal appellate court. The average turn-around time for one of Utility Fuels' unit trains from the Kerr-htcGee mine was approximately eleven days for the year 1978. Turn-around time had been expected to be approxi-mately eight days. Delays were mainly due to congestion and outage of track sections for track and bed maintenance. A short railroad strike, derailments, and winter blizzards also contributed to the delays. At the end of 1978, Utility Fuels owned 1,147 coal cars for use in ten unit trains. Utility Fuels expects to purchase and place in ser ice an additional 220 cars (for two unit trains) in the second quarter of 1979. IIL&P believes that such additional cars will enable Utility Fuels te make coal deliveries without any disruptions caused by the longer turn-around times. Both IIL&P and Utility Fuels are seeking long-term commitments for additional coal and for lignite. Tim recent federal legislation relating to surface mining and mine safety could adversely affect the availability of coal and lignite. The legislation has not affected, and is not expected to affect, the availability of coal under the Kerr-htcGee and Spring Creek contracts, but m ty result in substantial increases in the cost of such coal. %e operating, repair and maintenance expenses for coal and lignite-fired units are substantially higher than those for IIL&P's gas-fired units. Nuclear Fuel Supply Generally, the supply of fuel for nuclear generating facilities involves the acquisition of uranium concentrate, its conversion to uranium hexafluoride, enrichment of gaseous uranium hexafluoride, and fabrication of nuclear fuel assemblies. Following use of the nucicar fuel assemblies, they must either be disposed of or shipped and reprocessed for reuse. IIL&P, in its capacity as manager of the South Texas nuclear project, is one of several electric utility companies that filed suits against Westinghouse Electric Corporation to compel performance of prior agreements by Westinghouse to furnish uranium concentrate for nuclear generating plants. As the principal supplier of equipment for the South Texas project, Westinghouse was to have furnished uranium concentrate and fuel conversion and fabrication services for the initial core and ten years af fuel reloads for each of the two nuclear generating units. In September 1975, Westinghouse notified IIL&P, as well as other electric utilities, that performance of its uranium concentrate supply obligations would be " commercially impracticable". In October 1978, Westinghouse and IIL&P concluded a court-approved settlement of IIL&P's suit. Pursuant to the settlement, Westinghouse will provide the South Texas units with up to 9,377,0(O potmds of uranium concentrate which, together with a minimum of 15i5 4

5,600,000 pounds to be provided by another supplier, is expected to satisfy the fuel requirements of both units through 1992. The price for the first 2.377,000 pounds to be delivered by Westinghouse (the amount required for the initial core for each of the two units) will be the price originally quoted by Westinghouse as adjusted by escalation provisions (currently approximately $14.80 per pound, as com-pared with a recent spot market price in excess of $40.00 per pound). The price to be paid for the remaining concentrate to be delivered by Westinghouse is expected to be in excess of the original quoted price (as adjusted) but less than the then-pievailing market price. As additional consideration for the settlement, Westinghouse will furnish without charge fuel fabrication senices for the initial core and 10 years of reloads for each unit. and will furnish at prices which are below prevailing market prices fabrication services for an additional six years of reloads for each unit, certain addi-tional senices and equipment, and additional concentrate subject to the development of additional urardum reserves. Contracts with Westinghouse and others provide for coaversion savices for the South Texas units through 1988 and for enrichment services for a period of 30 years Contracts have been concluded for IIIAP's Allens Creek nuclear plant (presently scheduled for completion in 19S6) which provide for uranium concentrate in sufficient quantities to supply the initial core, for conversion services for the initial core, for enrichment services for a period of 30 years, and for fabrication of the miclear fuel assemblies to be used in the initial core and one year of fuel reloads. A uranium exploration project in New hiexico, which was conducted by a major oil company and financed by IIIAP, was previously regarded as a source of additional uranium for the Allens Creek plant. In October 1978, IIL&P terminated its financial support of the uranium project following a study and evaluation which indicated that further participation would not be in IIIAP's best interests. See Note 5 of the Notes to Financial Statements. IIIAP is currently seeking other long-term arrangements for the uranium concentrate that was expected to be provided by the New hfexico project and for the additional nuclear fuel components and services that will be required for the Allens Creek facilities. There can be no assurance, however, that such arrangements can be obtained or that the prices involved may not be significantly higher than thoso applicable to fossil fuels. As part of a federal energy policy proposed by President Carter, reprocessing of spent nuclear hiel has been indefinitely deferred. If the spent fuel discharged from the South Texas and Allens Creek units cannot be reprocessed, it must eventually be placed into long-term off-site storage. The Depart-ment of Energy has announced plans for the federal government to provide, for an unspecified fee, off-site storage for nuclear fuel from domestic nuclear reactors, but whether or when such off-site storage facilities may become available is unknown. The South Texas and Allens Creek plants are being designed with on-site storage facilities having the capacity to store approximately On years of spent fuel discharged from each unit. IIL&P cannot predict the extent to which the unavailability of reprocessing facilities discussed above will increase the cost of and demand for uranium concen-trate. Cost of Fuel. The cost of fuel to llIAP has increased substantially over the past three years. See " Operating Statistics' and hem 2," Summary of Operations - Statements of Income." The average cost of fuel used during December 1978 was 129.3 cents per million Bru. IIL&P is unable to estimate its future cea of fuel, but expects that it will continue to increase. Increases in costs for fuel are presently covered by the fuel adjustment clauses referred to under " Regulatory and Environmental hf atters - Rates and Services". Regulatory and Environmental Afatters Rates and Services. IIIAP's general rate levels have historically been based on ordinances of the City of Houston, and the other incorporated municipalities in IIL&P's senice area. Such ordi-nances permitted IIL&P to increase its rates by approximately 11.4r/c in December 1975. From Decen ber 1975 until December 1978, they also permitted IIL&P to recover increased fuel costs on a current basis and +o make montidy cost-of-service adjustments for changes in labor costs, depreciation, interest, and dividend requirements on preferred stock. Cost-of-service adjustments accounted for

 $16,499,000 of IIL&P's operating revenues for the twelve mouths ended December 31,1978.

8 15153d

In September 1976, pursuant to the Texas Public Utility Regulatory Act passed in June 1975, the Public Utility Commission of Texas (Utility Corrmission) assumed original jurisdiction over electric rates and sen' ices in unincorporated areas of the State (which accounted for approximately 46% of HL&P's operating revenues and 53% of KWH sales for the twelve months ended December 31,1978) and appellate jurisdiction over electric rates and services within incorporated municipalities. In July 1978, HL&P filed applications for a gsneral rate increase with the Utility Commission and with the 81 incorpora*ed municipalities in its service area. The filing with the Utility Commission represented the first such filing by HL&P. rhe applications were designed to increase IIL&P's base operatmg revenues for an adjusted test year ended March 31, 1978 by approximately $175,000,000 plus an additional $54,000,000 for costs that would othenvise have been recovered through cost-of-senice adjustments. IIL&P also asked for retention of its existing fuel adjustment and cost-of-senice adjust-ment clauses. On November 20,1978, the Utility Commission issued an order granting HL&P a rate increase which, on a system-wide basis, was designed to increase its base operating revenues for the adjusted tev year in an amount totaling approximatelf $9S,000,000. The order prohibits HL&P from making cost-of-senice adjustments in the future. Adjustments on a current basis for increased fuel costs, however, are still permitted. Since December 1978, HL&P has been collecting the rates authorized by the Utility Commission's November 20 crder substantially on a system-wide basis. The City of Houston and certain other incorporated municipalities within HL&P's senice area attempted to grant rate increases wh:ch were lower than the increases authorized by the Utility Commission. Following appeals from the municipal rate orders, the Utility Commission permitted HL&P, pending final disposition of such appeals, to set rates in the incorporated areas on an interim basis at the same level permitted for unincorporated areas. Regardless of the final outcome of the pending appeals, HL&P expects to seek another g,neral rate increase prior to the end of 1979 and may be required to seek general rate relief in the futur on a more frequent basis than it has been in the past. In October 1978, President Carttr outlined a voluntary anti-inflation program which includes standards for wages and prices, the observance of which is being monitored by the council on Wage

.md Price Stability. Because no specific guidelines for regulated utilities have been finalized, no pre-dictions can be made as to the effect of the program on HL&P's operations or its future requests for rate relief.

Air and Water Quality. HL&P is subject to regulation with respect to air, water quality and other environmental matters by various federal, state and locsl authorities. Environmental controls are in the process of development and require, in many instances, balancing the need for additional quantities of energy in future years with the need to protect the environment. As a result, the precise effect of existing and potential regulations and legislation upon existing and proposed facilities and operations cannot presently be determined. However, developments in these and other areas of regula-tion have in the past required HL&P to modify, supplement or replace equipment and ficilities and may in the future delay or impede construction and operation of new facilities at costs which could be substantial. The Tc as Air Control Board (Air Board) has jurisdiction and enforcement power to determine the level of air contaminants emitted in the State of Texas. HL&P is of the opinion that its generating facilities currently in operation are in compliance with the Texas Clean Air Act and with the current rules and regulations adopted thereunder by the Air Board. HL&P is also of the opmion that units under ennstruction will, when operational, comply with the current requirements of the Texas Clean Air Act. The standards established by such Act and the rules of the Air Board are subject to modifica-tion by standards promulgated by the federa! Environmental Protection Agency. Although HL&P believes that its existing facilities and the facilities under construction will comply or can be modified to comply with such standards, there can be no assurance that such will be the case without substantial expense. Present emission standards applicable to HL&P's generating units prohibit the emission of more than 0.8 pounds of sulphur dioxide per million Btu of heat input for oil-burning uni' and 1.2 9 1515 M

pounds of sulphur dioxide per millior. Etu of heat input for coal-burning units. The oil which IIL&P has { contracted to purchase from Exxon, when burned, is expected to emit an average of approximately 0.75 pounds of sulphur dioxide per million Btu of heat input. See " Fuel-Oil Supply" The coal which is the subject of the long-term contracts with Kerr-McGee and Spring Creek, when burned, is expected to emit, respectively, an average of approximately 1.13 pounds and 0.61 pounds of sulphur dioxide per million Btu of heat input. See "Fue' -Coal and Lignite Supply" No assurance can be given that IIL&P will be able to find other sources of comparable low-sulphur oil and coal to meet its future requirements. A substantial portion of the cost to be incurred in constructing coal and lignite-fired generating units (see " Construction Program") is the cost of sulphur dioxide and particulate control devices. In September 1978, the Environmental Protection Agency issued for public comment proposed clean-air ru!es which would, among other things, require minimum percentage reductions in emissions from new coal fired power plants without any regard for the relative level of contaminants in the coal being used. Such rules would not apply to IIL&P's existing coal-fired generating units or to the unit scheduled for completion in 19S0. Estimated costs for compliance with the proposed rules for the coal and lignite-fired units scheduled for completion in 1953 and 19S5 have been included in the cost estimates set forth in the table under " Construction Program". The proposed rules would also increase the cost of coal-fired plants to be built in later years by amounts which (annot presently be determined but which are expected to be substantial. The Texas Department of Water Resources has jurisdiction over all water discharges in the State of Texas and is empowered to set water quality standards and issue permits required for water discharges which might affect the quality of Texas water. The Environmental Protection Agency is authorized to set such standards and issue permits in respect of discharges into navigable streams. IIL&P has obtained permits from both the Water Board and the Environmental Protection Agency for all of its generating facilities currently in operation which require such permits. Applications for permits with respect to the facilities included in IIL&P's construction program are being submitted as required. Nuclear Licensing. IIL&P is subject to licensing and regulation by the Nuclear Regulatory Commission (NRC) with respect to environmental, public health and safety aspects of the construction and operation of nuclear power plants. In its capacity as manager of the South Texas nuclear project, HI &P has commenced construction of the two nuclear generating units pursuant to construction permits issued by the NRC in December 1975. HL&P has submitted an application for an operating license for both South Texas units. An operating license is not issuable by the NRC until con-struction is substantially complete. An application for a construction permit for the Allens Creek unit is pending before the NRC. See footnotes 3 and 5 to the second table under " Construction Program" above and "Contioversy with Central and South West Corporation" bdow. The NRC is currently engaged in a reasses ment of its prior policies with respect to the environmental impact of repmcessing and disposal of radioactive wastes. As a result of this reassessment, the NRC has adopted an interim rule pending adoption of a final rule which will govem any operating licenses or constmetion permits issued by the NRC in the future. The effect that such rules may ultimately have upon the construction or cost of IIL&P's proposed nuclear facilities cannot be predicted at this time. Contrevarsy With Central and South West Corporation In January 1976, the Securities and Exchange Commission (SEC) initiated proceedings under the Public Utility IIolding Company Act for purposes of considering whether Central and South West Corporation (CSW), a registered holding company, constitutes or can become a single integrated and coordinated system as required by that Act. CSW's principal operating subsidiaries are Central Power and Light Company (CPL), West Texas Utilities Corrpany (WTU), Public Service Company of Oklahoma and Southwestern Electric Power Company. CPL and WTU, as members of the Electric

                                                        '                                             b 1515 3 6

Reliability Council of Texas (ERCOT), have historically conducted their respective utility operations in a manner so that, whenever interconnected directly or indirectly with IIL&P and other ERCOT members, they would not transmit electric energy across any state lines. In the prceeedings before the SEC, CSW submitted various proposals regarding the future operation of its system, including proposals that would require HL&P and other members of ERCOT to become interconnected directly or indirectly, with CSW's non-Texas subsidiaries. Upon examination of the engineering studies and testimony submitted by CSW in support of these proposals, IIL&P concluded, and so communicated to CSW and the SEC, that the proposed interconnections requiring the participation of IIL&P would have a substantial detrimental effect on its cost of operation and reliability of service. As a result of opposition to CSW's interstate interconnection proposals, on hiay 3,1976 CPL and WTU filed suit in the United States District Court in Dallas against IIL&P and another member of ERCOT seeking a determinaton that an attempt by the defendants to avoid interstate transmission of electric power would violate the federal antitrust laws. In the pre-dawn hours of hiay 4,1976, while still interconnected with other ERCOT members but without giving them any prior notice, WTU commenced transmitting electricity over a small radial tie from Texas to Oklahoma. Later on the some day, all of CSW's operating subsidiaries instituted proceedings before the Federal Power Commission (FPC) seeking, among other things, a determination that, as a result of WTU's transmission of elec-tric power to Oklahoma while still interconnected with ERCOT, IIL&P and other ERCOT members had become "public utilities" subject to regulation under the Federal Power Act. Shortly thereafter, such ERCOT members took steps to disconnect all direct and indirect electrical ties with CPL and WTU. In June 1976, CPL, which is a participant with HL&P in the South Texas nuclear project (see " Construction Program"), filed a petition with the NRC requesting an amendment to the con-struction permits for the project to prohibit each participant from terminating its interconnections with any other participant because of the transnission or receipt of powei in interstate commerce. In July 19f76, the FPC issued an order stating, in effect, that IIL&P and other affected members of ERCOT did not become "public utilities" within the meaning of the Federal Power Act as a result of the events of Afay 4,1976. In April 1978, a federal appellate court remanded the FPC order to the IE ral Energy Regulatory Commission (FERC) (as successor to the FPC) for further clarification. In Afay 1977, based upon the finding, among others, that WTU's radial tie from Texas into Oklahoma did not serve any interest except the corporate interest of CSW, the Utility Commission ordered CPL and WTU to disv.nect such tie and to re-establish their previous interconnections with other ERCOT members. CPL and WTU then filed appeals of such order in both the federal and state district courts in Austin, Texas. In hf ay 1978, the federal district court dismissed the appeal and CSW has appes'ed the dismissal to a federal appellate court. Pending the outcome of such appeals and of the various other regulatory and judicial proceedings on this matter, the Texas interconnected system has been restored to, and continues to operate on, an intrastate basis. On February 27, 1979, the United States District Court in Dallas issued a final order in which it was held that HL&P and the other affected ERCOT member had not violated the federal anti-trust laws in seeking to confine their respective facilities and operations to a single state and thereby avoid regulation under the Federal Power Act. The Court found that the pre-dawn wiring by WTU on Afay 4,1976 "was done without any legitimate business purpose" and that CSW, by virtue of its attempts to compel HL&P and other ERCOT members to become intercon-nected in interstate commerce, has caused CPL to breach the agreement governing its participation in the South Texas nuclear project. The Court thus enjoined CPL from permitting power it receives from the South Texas project to enter interstate commerce as long as it chooses to remain a partici-pant in the project and as long as the applicable provisions of the participation agreement remain in effect. It is anticipated that CPL and WTU will appeal the Court's order. Rulings on the substantive issues raised in the proceedings instituted before the SEC and NRC are still pending. The NRC has declined to re-open the construction permits for the South Texas nuclear project and has ruled that the issues raised by CPL must be decided at the operating license stage. At the request of the Antitrust Division of the U.S. Department of Justice, the NRC has ordered 11 C 1515 3 %

that a hearing be conducted to determine whether the activities of IIL&P in resisting the CSW inter- { state interconnection proposals constitute a significant change in the circumstances under which the construction permit was issued so as to warrant the imposition of restrictions in the operating license against avoidance by IIL&P of interstate interconnections. On February 9,1979, CPL, WTU and other operating subsidiaries of CSW filed an application with the FERC seeking relief from the Afay 1977 order of the Public Utility Commission of Texas and an order which would compel IIL&P and other ERCOT members to become inter-connected on an interstate basis with the applicants, all pursuant to the Public Utility Regulatory Policies Act of 1978 (which constitutes a part of the new National Energy Act referred to under "Certain Factors Affecting Electric Utilities"). Such legislation authorizes the FERC to order an electric utility to interconnect with or to wheel power for other electric utilities, regard-less of whether the utility operates on an interstate or intrastate basis, if it is determined that such action is in the public interest, would encourage the overall conservation of energy or capital, optimize the overall efIlciency of use of facilities and resources or improve reliability. If such an order requires an otherwise intrastate utility to become interconnected, directly or indirectly, with utilities in other states, the intrastate utility would not thereby become subject to regulation under the Federal Power Act with respect to matters not related to the order. In the order disposing of the anti-trust suit brought by CPL and WTU, the United States District Court in Dallas made specific findings to the effect that to force the defendants to interconnect in interstate commerce with the subsidiaries of CSW would not be in the public interest, would not encourage the overall conservation of energy or capital, would not optimize the overall efIlciency of the use of facilities and resources, would not improve the reliability of any electric utility, and would, in fact, decrease the reliability of the defend-ants

systems. No prediction can be made as to whether such findings will ultimately be binding upon or adopted by the FERC.

Although no precise estimates can be made, IIL&P believes that major expenditures would be required for it to operate synchronously with CPL and WTU while they in turn are in synchronous operation ~with CSW's non-Texas subsidiaries and the interstate Southwest Power Pool. It also believes that even if such expenditures are made and synchronous operation is achieved, the reliability of its electric service would be substantially reduced. In addition, such method of operation could subject it to regulation under the Federal Power Act. IIL&P intends to continue to oppose the CSW interconnection proposals, as well as all attempts by CSW directly or indirectly to force it to participate in an interconnected system that includes CSW's non-Texas subsidiaries, as being detrimental to its interests and the interests of its customers and security holders. No prediction can be made, however, as to the duration or ultimate outcome of the various proceedings that are pending on this matter. Executive Oflicers Officer Business Experience Name g Since(1) 1974-1978 Position (s) Terms D. D. Jordan 46 1971 President and Chief Executive Officer 1977-and DirectorQ)(3) President and Director 1974-1977 Group Vice Piesident-Administrative 1974 and Director G. W. Oprea, Jr. 52 1971 Executive Vice President and 1974-Director (3) Group Vice President-Operations 1G74 T. A. Standish 65 1971 Senior Vice President 1977-Senior Vice President-Primary Fuels 1974-1977 Supply & Rate and Economic Research (Continued on following page) 12 , . ,

                                                                                        )h\D t

Officer Business Experience Name Age Since(1) 1974-1978 Position (s) Terms J. D. Cowart 53 1975 Group Vice President-Administrative 1978-Vice President-Administrative 1975-1978 General Afanager-Beal Estate and 1974-1975 Building Operations H. R. Dean 52 1966 Group Vice President-Accounting 1978-and Finance and Director (3) Group Vice President and Comptroller 1977-1978 and Director Group Vice President and Comptroller 1974-1977 K. R. Hinckley 57 1972 Group Vice President - External 191 7-Relations Group Vice President 1974-1977 Vice President-Customer Services 1974 and Data Processing A. R. Beavers 55 1978 Vice President-Purchasing and 1978-Services General 51anager--Purchasing and 1974-1978 Stores R. L. Evans, Jr. 63 1971 Vice President-Operations 1975-Vice President-Transmission and 1974-1975 Distribution R. 51. NicCuistion 62 1971 Vice President-Engineering 1974-C. L. AfcNeese 65 1975 Vice President-Federal Relations 1978-Vice President-Public Affairs 1975-1978 General Alanager-Public Affairs 1974-1975 J. Af. AfcHeynolds 61 1966 Vice President-Engineering 1974-Consultant D. E. Simmons 53 1972 Vice President--Corporate Planning 1975-Vice President-Environmental and 1974-1975 Inter-Utility Affairs D. D. Sykora 48 1977 Vice President-Customer Re'ations 1978-Vice President-Commercial 1977-1978 General Afanager-Alarketing 1974-1977 Afanager-Sales 1974 E. A. Turner 51 1978 Vice President-Power Plant Con- 1978-struction and Tecimical Services General 51anager-Transmission and 1976-1978 Distribution General h!anager-Power Plant 1974-1976 Engineering and Construction J. 51. Dugdale 61 1965 Secretary and Treasurer 1974-R. S. Letbetter 30 1978 Comptroller 1978 Assistant Comptroller 1977-1978 Assistant Secretary and Assistant 1974-1977 Treasurer (1) Executive office r were elected April 26,1978 to serve for one year and until their successors are duly elected and qualified. (2) hfember of the Executive Committee. (3) Afember of the Finance Committee. 1515 352 q 13

Operating Stati< tics Year Ended December 31, 1974 1975 1976 1977 1978 Electric Energy Generated and Purchased (hikv h): Generated-Net Station Output . SS,189,9S4 40,276,090 43,353,203 48,534,625 53,101,474 Purchased 973 599 MO 325 222,670 Total 38,l'J0,957 40,276,6S9 43,353,843 48,531,950 53,324,144 Company Use, Lost and Unaccounted for 2,18S,631 1,955,857 2,309,34S 2,465,481 2,857,928 Other 195,044 174,2S4 185,795 IS3,744 190,449 Energy Sold 35,507,2S2 38,146,MS 40,S5S,700 45,SS5,725 50,275,767 Electric Sales (hikwh): Residential 7,S92,790 8,427,429 S,529,177 9,759,137 10,956,914 Commercial 6,921,336 7,316,187 7,491,637 8,012,512 8,56S,636 Industrial 1S,834,033 20,124,216 22,M3,925 25,370,150 97.508,895 Street Lighting-Government and htimicipal S2,633 S9,884 91,797 96,943 103,049 Total 33,730,M2 35,9S7,716 38,356,536 43,238,742 47,437,4M Other Electric Utilities 2,076,440 2,158,832 2,502,1M 2,646,9S3 2,83S,273 Total 35,507,2S2 38,146,MS 40,858,700 45,855,725 50,275,767 Number of Customers (End of Period): Residential 613,356 633,S32 663,095 706,269 778,850 Commercial S6,7SO 90,242 94,556 102,007 111,050 Industrial 1,139 1,235 1,353 1,461 1,522 Street Lighting-Government and Alunicipal 71 72 75 77 81 Total 701,346 725,381 759,079 509,814 S91,503 Other Electric Utilities 6 6 6 6 6 Total 701i,352 725,3S7 759,085 809,820 S91,509 Operating Revenue (Thousands of Dollars): Residential $163,630 $200,516 $241,583 $ 301,824 $ 367,730 Commercial 121,849 152,616 197,0S3 233,234 274,0S1 Industrial 175,765 246,778 359,100 474,668 593,251 Street Lighting-Government and hfunicipal 2,521 2,723 2,940 3,157 3,60S Other Electric Utilities 17,267 25,0SS 36,462 47,696 57,359 Total 4S1,032 627,726 837,168 1,060,579 1,296,029 Aliscellaneous Electric Revenues 5,805 6,427 4,448 9,207 7,575 Total $4S6,837 $634,153 $841,616 $1,069,756 $1,303,604 Installed Generating Capacity (Kw) (End of Period) 0,079,891 9,428,891 9,791,231 10,427,292 11,056,353 Cost of Fuel (Cents per Millian Btu) 37,0 59.8 81.7 105.5 126.2 14 1515 35X

Item 2. Summary of Operations. STATEAIENTS OF INCOME Twelve Afonths Ended December 31, 1974 1975 1976 1977 1978 Thousands of Dollars Operating Revenues $486,837 $634,153 $S41,616 $1,069,786 $1,303,604 Operating Expere: Operation 73,083 83,555 96,225 115,374 141,588 Fuel (a) 139,323 239,947 353,651 517,870 6S2,261 Afaintenance(a) 31,217 36,455 33,344 43,719 53M4 Depreciation (a) 45,148 51,093 57,419 63,811 73,280 Federalincome taxes (a): Current 29,237 19,455 37,601 19,141 10,229 Deferred: Liberalized depreciation 16,809 19,529 21,572 27,367 33,061 Investment tax credit - current 7,4S6 13,041 27,500 47,0S8 49,514 Amortization of investment tax credit (751) (967) (1,305) (2,144) (2,889) Other-net (536) 419 3,210 3,512 4,767 Other taxes (a) 36,777 42,622 47,364 51,435 60,172 Total 377,793 505,149 676,211 887,226 1,107,370 Operating Income 109,614 129,004 165,405 182,560 196,214 Other Income: Allowance for funds used during construction (b) 8,228 8,567 16,384 Allowance for other funds used during construction (b) 14,0S8 17,029 Other-net (a) SS7 9S5 1,332 1,747 3,992 Total 9,115 9,552 17,716 15,835 21,021 Income Before Interest Charges 118,159 138,556 183,121 198,395 217,255 Interest Charges: Interest on long-term debt (a) 40,022 56,914 61,098 71,799 81,307 Other interest 8,259 11,257 6,867 2,293 5,20S Alicwance for borrowed funds used during construction (b) (9,821) (11,639) Total 48,281 68,171 67,965 G4,271 77,876 Net Income (a) 69,878 70,3S5 115,156 111,124 139,379 Dividends on Preferred Stock 5,830 6,475 12.362 13,711 17,330 Income After Preferred Dividends $ 61,018 $ 63,910 $102,741 $ 120,413 $ 122,019 Ratio of Earnings to Fixed Charges (c) 3.51 2.77 3.97 4.08 3.61 Ratio of Earnings to Fixed Charges and Preferred Dividend Requirements (c) 2.90 2.38 3.01 3.10 2.72 (a) See Notes 1,5,6,7 and 8 of the Notes to Financial Statements. (b) The applicable uniform system of accounts defines " allowance for funds used during construc-tion" (AFC) as " based upon the net cost for the period of construction of borrowed funds e,ed for construction purposes and a reasonable rate upon other funds when so used." AFC 6 a non-cash item which does not represent operating income. The accrual rate of 6%7o for each period (Notes continued on following page) 15

515 M

was determined on the basis of, but was less than, the cost of incremental capital employed to finance IIL&P's construction program. Assuming that the source of construction funds used was in the same ratio as the capitalization ratios at the end of the respective periods, the portion of AFC (before taxes as to interest on debt) attributable to funds provided by common stock equity, expressed as a percentage of income after preferred dividends, would be approximately 1.2%,2.3% and 3.5% for 1974,1975 and 1976, respectively. (c) For the purpose of computing these ratios, earnings represent the aggregate of net income, federal income taxes, and fixed charges. Fixed charges represent interest, related amortiza-tion and the estimated interest component of rentals charged to operations. Preferred divi-dend requirements on a pre-income tax basis are comptued at the effective federal income tax rate for the applicable period. (d) The following unaudited quarterly financial ir formation includes, in IIL&P's opinion, all adjust-ments (consisting only of normal recurring accruals) necessary for a fair presentation: Income After Operating Operating Net Preferred Revenues Income Income Dividends (Thousands of Dollars) Quarter Ended: NIarch 31,1977 $208,9M $34,967 $22,S58 $19,M1 June 30,1977 260,917 42.434 30,233 26,916 September 30, 1977 M2,124 61,067 48,964 45,647 December 31,1977 257,781 44,092 32,069 28,309 Afarch 31, 1978 257,341 36,636 22,476 18,144 June 30,1978 321,351 45,464 30,747 26,415 September 30,1978 410,508 67,325 53,039 4S,707 December 31,1978 314,404 46,809 33,117 28783 Effective January 1,1979, the AFC accrual rate was increased to 7%C/c. AFC is not being applied to that portion of construction work in progress included in rate base by the Public Utility Commission of Texas. AfANAGEAIENT'S DISCUSSION AND ANALYSIS OF STATEAIENTS OF INCOAIE Operating Rerenues. Increases in IIL&P's operating revenues for the two most recent periods presented in the Statements of Income have been attributable to (i) recoveries of increased fuel costs, (ii) rate increases, and (iii) increased KWil sales, in the following relative proportions:

                                                                      "c ofIncrease Attributable to Recovery of Increased          Rate          Increased Comparative Periods                                   Fuel Costs       Increases      KWII Sales 1977 v.1976                                           74 %             3%             23 %

1978 v.1977 73 % 5% 22 % Increases in recoveries of fuel costs resulted from the higher costs of fuel and increased generation. The only general rate increase that affected operating revenues during the five years 1974-1978 was in December 1975. KWII sales during 1976 were adversely affected by unseasonably mild weather. See Item 1," Operating Statistics". Fuel. These costs have risen as a result of increased KWII generation and the sharp increases in the cost of fuel. See Item I, " Business- Fuel-Cost of Fuel" and " Operating Statistics", The rapid 16 151g;

                                                                                                        'L[]&

escalation in fuel costs in recent years has been the principal cause of the decline in the ratio of operating income to operating revenues. Operation and Maintenance. These expenses increased because of general inflationary pressures, increases in the number of customers and the amount of electricity generated, and the perform =ce of scheduled mainteaance. During 1976, maintenance expenses decreased because of less scheduled maintenance and a three-month strike. Depreciation. Depreciation expense was approximately 3.3% of average depreciable plant M service in 1976 and 1977, and 3.2% in 1978. The increases in depreciation expense are due to the additions to depreciable plant. Federal Income Taxes. Changes in federal income taxes are generally related to changes in income exchiding income taxes and the allowance for funds used during construction. See Notes 1 and 6 of the Notes to Financial Statements. The increases in the investment tax credit-current resulted primarily from changes in federal income tax regulations which in 1975 increased the investment credit rate from 4% to 10% and allowed the credit to be taken while construction expenditures are being made instead of when property is placed in service. Other Taxes. These taxes have increased primarily as a result of increased revenues, increased valuations and additions to property. See Note 7 of the Notes to Financial Statements. Other Income. Variations in amounts for the allowance for funds used during construction during the periods correspond with changes in the average balance of qualified projects included in construc-tion work in progress. See Note (b) to the Statements of Income. Interest Charges and Dicidends on Preferred Stock. Significant increases in IIIAP's annual construction expenditures have retplired substantial external financing through the issuance of debt and preferred stock during periods of high capital costs. Such financings have resulted in a significant increase in both interest expense and preferred dividend requirements. Other interest charges decreased in 1976 and 1977 as a result of smaller average balances of short-term debt outstanding during those periods. Other interest charges increased in 1978 as a result of increases in short-term interest rates and a higher average halance of short.tenn debt outstanding. See Statements of Capitalization and Statements of Changes in Financial Position. General. In the absence m adequate and timely rate relief, future earnings will be adversely affected by continued increases in the costs discussed above. See Item I, " Business-Hegulatory and Environmental Alatters-Hates and Services 7 See Note 5 of the Notes to Financial Statements for information concerning a possible write-off of expenditures incurred in connection with a terminated uranium exploration project. Item 3. Properties All of the eketric generating stations and all other operating property of IIIAP are located in the State of Texas. IIIAP c<msiders this property to be well maintained and in good operating condition. Electric Generating Stations. IIL&P has eleven electric generating plants (78 generating units) with an installed capacity of 11,056,333 Kw. Substations. As of December 31, 1978, IIL&P owned 166 major substations having a total installed rated transformer capacity of 31,462.219 Kva (exclusive of spare transfonners). Electric Lines. As of December 31, 1978, IIL&P operated 21,693 miles of transmission and distribution lines, including 1,265 miles operated at 138,000 volts and 373 miles operated at 345,003 volts. 17 ,e l],),) )3

General Prope-ties. IIL&P owns various properties which include a 27-story headquarters office { building, division ofBees, service centers and other facilities used for general purposes. Titles. The electric generating plants and other important units of property of IIL&P are situated on lands owned in fee by IIL&P. Transmission lines and distributicn systems have been constructed in part on or across privately owned land pursuant to easements or on streets and highways and across waterways pursuant to authority granted by municipal ar.d county permits and by permits issued by state and federal government authorities. Under the laws of the State of Texas, IIL&P has the right of eminent domain, whereby it may secure or perfect rights-of-way over private property, if necessary. The major properties of IIL&P are subject to the lien of a hlortgage and Deed of Trust which, as supplemented, secures its outstanding First hfortgage Bonds, and titles to some of its properties are subject to minor encumbrances and defects, none of which impair the use of the property in the operation of the business of IIL&P. Item 4. Parents and Subsidiaries. Parent IIouston Industries Incorporated Registrant (wholly owned) IIouston Lighting & Power Company Subsidiaries None Item 5. Pending LegalProceedings. Reference is made to " Regulatory and Environmental hfatters - Rates and Services" and " Con-troversy with Central and South West Corporation" under item 1. Item 6. Increases and Decreases in Outstanding Securities and indebtedness. (Thousands of Dollars) Balance Balance December 31, Issuance of December 31, Title of Class 1977 Securities 1978 Common stock, no par $ 391,534 $ 65,224f $ 456,758 Long-term debt $1,113,000 $241,926' $1,351,926 i All of the common stock bued by IIL&P during 1978 was issued to its parent, IIouston Indus-tries Incorporated, in consideration of cash payments and equivalent compensah 'otaling

        $65,224,000. Such funds were used to defray the cost of IIL&P's construction pr . r.-          nd for other corporate purposes.

In June 1978, the Gulf Coast Waste Disposal Authority sold to Texas Commerce Bank National Association $19,200,000 principal amount of 4.78% Pollution Control Revenue Bonds which are guaranteed as to principal and interest by IIL&P. ($2,274,000 of the proceeds from such sale was held by the trustee at December 31, 1978). The f ill proceeds (after expenses) from the sale of the bonds will be applied to the construction and installation of ceitain pollution control facilities at IIL&P's power plants.

In September 1978, IIL&P sold on a competitive bid basis $125,000,000 principal amount of 8%% First Afortgage Bonds at a public offering price of 100.007c. The estimated net aggre-gate cash proceeds from the sale were approximately $124,323,750 after deduction of estimated expenses payable by IIL&P. The principal underwriters for the offering were hierrill Lynch White Weld Capital h!arkets Group, Blyth Eastman Dillon & Co. Incorporated, Dillon, Read & Co. Inc., The First Boston Corporation, Lehman Brothers Kuhn Loeb Incorporated, Salomon Brothers and Donaldson, Lufkin & Jenrette Securities Corporation. The net proceeds from the sale were used to defray the cost of IIL&P's construction program and for other corporate 18 151535Y

purposes. The offering was registered under the Securities Act of 1933 on Form S-7, Regis-tration No. 2-62291. In December 1978, IIL&P sold on a competitive bid basis $100,000,000 principal amount of 9%% First h!ortgage Bonds at a public offering price of 99.50%. The estimated net aggre-gate cash proceeds from the sale were approximately $93,909,000 after deduction of estimated expenses payable by IIL&P. The principal underwriters for the offering were Salomon Broth-ers, Blyth Eastman Dillon & Co. Incorporated, 'lle First Boston Corporation, Lehman Brothers Kuhn Loeb Incorporated, hierrill Lynch White Weld Capital hfarkets Group and Donaldson, Lufkin & Jemette Securities Corporation. The net proceeds from the sale were used to defray the cost of IIIAP's construction program and for other corporate purposes. The offering was registered under the Securities Act of 1933 on Form S-7, Registration No. 2-62879. Item 7. Changes in Securities arul Changes in Security for Registered Securities. None. Item 8. Defaults Upon Senior Securities. None. Item 9. Approximate Number of Equity Security Hot 'ers. Number of Record Ifolders Title of Class December 31,1978 Common Stock, no par (owned by parent) 1 Preferred Stock, cumulative, no par-$4 series, $6.72 series, $7.52 series, $9.52 series,

  $9.0S series and $S.12 series                                                           3,660 5%% Convertible Debentures due 19S5 (convertible into common stock of IIouston Industries Incorporated)                                                                1,054 Item 10. Submission of Matters to a Vote of Security Holders.

None. Item I1. Indemnification of Directors and Oficers. Pursuant to Instruction F to Form 10-K, the response in item 12 of IIL&P's Annual Report on Form 10-K for its fiscal year ended December 31,1977 is incorporated herein by reference. IIL&P has purchased insurance which purports to insure it against certain costs of indemnification which may be incurred by it pursuant to its Bylaws, and to insure the ofIlcers and directors of IIIAP against certain liabilities incurred by them in the discharge of their function as such officers and directors except for liabilities resulting from their own malfeasance.

5 1515 35R If

Item 12. Financial Statements, Exhibits Filed, and Reports on Form 8-K. (a)1. Financialstatements: Page Reference Statem. ats of Income for each of the five years in the period ended Decem-ber 31,1978 (included under Item 2-Summary el Operations) 15 Balance Sheets, December 31,1977 and 1978 24 Statements of Capitalization, December 31,1977 and 1978 26 Statements of Retained Earnings for each of the five years in the period ended December 31, 1978 27 Statements of Changes in Financial Position for each of the five years in the period ended December 31,1978 28 Notes to Financial Statements 29 Schedules for the two years ended December 31,1978: V - Electric Plant, at Original Cost M VI- Accumulated Provision for Depreciation of Electric Pl. int 35 XII- Reserves 36 The fcllowing schedules are oraitted because of the absence of the conditions under which they are required or because the required information is included in the financial statements. I, II, III, IV, VII, VIII, IX, X, XI, XIII, XIV, XV, XVI, XVII, XVIII and XIX.

2. Exhibits:

1 -Twenty-Third Supplemental Indenture, dated as of December 1,1978, between the Company and Texas Commerce Bank National Association, as Trustee. (b) Reports on Form 8-K. None. (o

                                                       ,                           1515 351
                                                                                                  ,me

P ART II ITImiS OhiITTED The information called for by Items 13 through 15, to the extent not set forth under Item 1, " Business-Executive OfBeers",is set forth in the definitive proxy statement relating to the 1979 Annual hieeting of Shareholders of Ilouston Industries Incorporated (parent of the registrant), which has been filed with the Commission (or will be filed within 120 days following the close of the fiscal year of the registrant ended December 31,1978) pursuant to the Commission's Regulation 14A (File No. 1-7629). Such definitive proxy statement relates to a meeting of shareholders involving the election of directors and is incorporated herein by reference pursuant to Instructions F and II to Form 10-K. The Board of Directors of the registrant is composed of the same individuals as the Board of Directors of IIouston Industries Incorporated. The principal executive ofBeers of Ilouston Industries Incorpo-rated serve in substantially identical capacities with the registrant. For the fiscal year ended Decem-ber 31,1978, the aggregate direct remuneration paid by IIIAP to all of its directors and ofBeers as a group (25 persons) amounte.d to $1,423,629. 67 21 1515 3M

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ITEM 12(a)1 FINANCIAL STATEMENTS AND SCIIEDULES AND Aln.'ITORS' OPINION ANNEXED TO ANNUAL REPORT FOR FISCAL YE1R ENDED DECEMBER 31, 1978 OF IIOUSTON LIGIITING & POWER COMPANY 23 1516 001

IIOUSTON LIGIITING & POWER COMPANY BAIANCE SIIEETS (Thousands of Dollars) ASSETS December 31, December 31, 1977 1978 PROeERTY, PLANT AND EqueurNT (Notes 3 and 8) Electric plant, et original cost-Production $1,296,211 $1,551,962 Transmission 273,381 D0,951 Distribution 616,936 GS3,425 General J'K),127 165,7S9 Construction work in progress 538,109 621,175 Nuclear fuel in process 61,291 69,995 Ele . plant acquisition adjustments, at cost 3,166 3,166 Total 2,949,221 3,386,463 Less accumulated depreciation and amortization 450,946 512.004 Property, plant and equipment-net 2,493,275 2,873.859 CURHENT Assias: Cash in banks 11,563 10,051 Temporary cash investments, at c sst 6S,664 Working funds and special deposits 3,953 4,644 Accounts receivable: Customers (less accumulated provision for uncollectible accounts) 41,561 5S,239 Afliliated companies 373 290 Others 20,674 27,2S3 Inventory, at average mst: Fuel oil 51,405 49,367 Materials and supplies 18,034 21,578 Prepayments 2.727 2,192 Total 150,293 242,30S DEFERHED DENTS 19.695 24.662 Total $2,668,263 $3,140,S29 See Notes to Financial Statements. 24 1516 002

HOUSTON LIGHTING & POWER COMPANY BALANCE SIIEETS (Thousands of Dollars) LIABILITIES December 31, December 31, 1977 1978 CAPTTALTZATION (statement on folloWing page): Common stock equity $ 888,613 $1,009,971 Cumulative preferred stock 214,000 213,945 Long-term debt 1,113,000 1,3M,926 Total 2.215,613 2.57a,M2 CtmRrxr LIABILITIES: Notes payable (Note 4) M,829 2,197 Accounts payable 78,872 108,339 Accounts payable to afIlliated companies (Note 8) 938 7,050 Taxes accrued M,430 33,571 Interest accrued 22,309 26,844 Accrued liabilities to municipalities 23,695 27,972 Dividends declared 3,759 4,332 Other 10,541 11,662 Total 189,373 221,967 DEFERRED CREDrrS: Accumulated deferred federalincome taxes 126,940 163,818 Unamortized investment tax credit 106,5S9 145,452 Other 21,748 22,250 Total 255,277 331,520 PRorERTT INsrRANcE REF::tw. 8,000 8,500 CostxrInfENTS AND CONTINGENCIES (Note 5) Total $2,668,263 $3,140,829 See Notes to Financial Statements, 25 1516 003

IIOUSTON LIGHTING & POWER COMPANY STATEMENTS OF CAPITALIZATION (Thousands of Dollars) December 31, December 31, 1977 1978 COMMON STOCK EQUITY: Common stock, no par; authorized, 50,000,000 shares; outstanding 29,004,642 shares at December 31,1977 and 31,314,996 shares at December 31,1978 $ 391,534 $ 456,758 Retained earnings 497,079 553,213 Total common stock equity SSS,613 1,009,971 CUMULATIVE PREFERRED STOCK (Note 2)-no par; authorized, 10,000,000 shares; outstanding (entitled t.pon involuntary liquidation to $100 a share):

        $4 series, 97,397 shares                                              9,740         9,740
        $6.72 series, 250,000 shares                                        25,115        25,115
        $7.52 series, 500,000 shares                                        50,225        50,225
        $9.52 series, 400,000 shares                                        39,372        39,372
        $9.08 series, 400,000 shares                                        39,395        39,395
        $8.12 series, 500,000 shares                                        50,153        50,098 Total cumulative preferred stock                              214,000       213 315 LONG-TERM DEBT:

First mortgage bonds (Note 3): Series 3%7c, due 1981 20,000 20,000 Series 2%7'c, due 19S5 30,000 30,000 Series 3%7c, due 1956 30,000 30,000 Series 4%7c, due 19S7 40,000 40,000 Series 3%, due 1959 30,000 30,000 Series 4%7c, due 19S9 25,000 25,000 Series 4%%, due 1992 25,000 25,000 Series 5%7c, due 1996 40,000 40,000 Series 5%7c, due 1997 40,000 40,000 Series 6%7c, due 1997 35,000 35,000 Series 6%%, due 1998 35,000 35,000 Series 7%7c, due 1999 30,000 30,000 Series 7%9c, due 2001 50,000 50,000 Series 7%7c, due 2001 50,000 50,000 Series 8%%, due 2004 100,000 100,000 Series 10%7c, due 200i 100,000 100,000 Series 8%7c, due 2005 125,000 125,000 Series 8%7c, due 2006 125,000 125,000 Series 8%7c, due 2007 125,000 125,000 Series 8%7c, due 2008 125,000 Series 9%7c, due 2008 100,000 Total first mortgage bonds 1,055,000 1,280,000 5%% debenture, due 19S5 (Note 8) 40,000 40,000 7%7c water polluti i control revenue bonds, due 2004 18,000 18,000 4.7S7c water pollut.on control revenue bonds, due 199S (net of

      $2,274 of proceeds held by trustee)                                                   16,926 Total long-term debt                                        1,113,000     1,354,926 Total Capitalization                                $2,215,613    $2,578,842 See Notes to Financial Statements.

26 1516 004

IIOUSTON LIGIITING & POWER COMPANY STATE 5fENTS OF RETAINED EARNINGS (Thousands of Dollars) Twelve Afonths Ended December 31, 1974 1975 1976 1977 _ 1978 BALANCE AT BEGINNING OF PERIOD . $308,039 $339,459 $368,656 $429,550 $497,079 ADD-NET INCOME 69,878 70,3S5 115,156 134,124 139,379 Total 377,917 409,844 483,812 563,674 636,458 DEDUCT-CASil DIVIDENDS: Preferred:

      $4 Series                                     390            390         390         390      390
      $6.72 Series                                1,6SO          1,6SO       1,6SO       1,6SO    1,680
      $7.52 Series                                3,760          3,760       3,760       3,760    3,760
      $9.52 Series (annual rate of $9.52 a share from October 30, 1975)                              M5        3,S08       3,808    3,808
      $9.0S Series (annual rate of $9.0S a share from April 1,1976)                                            2,724       3,632    3,632
      $8.12 Series (annual rate of SS.12 a share from November 22,1977)                                                      441    4,060 Common:

1974, $1.50; 1975, $1.56; 1976, $1.61; 1977, $1.S6; 1978, $2.12 (a share) (Note 8) 32,628 M,713 41,900 52,SS4 65,915 Total 38,45S 41,188 M,262 66,595 S3,245 BALANCE AT END OF PERIOD $339,459 $368,656 $429,550 $497,079 $553,213 See Notes to Financial Statements. 27 1516 00 4

IIOUSTON LIGIITING & POWER COMPANY STATEh!ENTS OF CIIANGES IN FINANCIAL I'OSITION (Thousands of Dollars) Twelve Afonths Ended December 31, 1974 1975 1976 1977 1978 Source of funds: Operations: Net income $ 69,878 $ 70,385 $115,156 $134,124 $139,379 Items not requiring curr- > Mlay of working capital: Depreciation 45,703 51,824 57,896 64,821 74,361 Deferred federal income taxes-net 16,929 19,948 24,782 30,879 37,831 Investment tax credit deferred-net 6,703 11,274 23,866 38,809 40,782 Allowance for funds used during con-struction (8,22S) (8,567) (16,3S4) (23,909) (28,663) Total 130,9S5 144,861 205,316 244,724 263,685 Financing and other: Sale of common stock 40,701 65,406 67,440 65,224 Sale of pollution control bonds 18,000 Sale of 400,000 shares of $9.52 Series preferred stock 39,402 Sale of 400,000 shares of $9.08 Series Ineferred stock 39,365 Sale of 500,000 shares of $8.12 Series preferred stock 50,153 Sale of first mortgage bonds 200,000 125,000 125,000 125,000 225,000 Sale of pollution control bonds (net of proceeds held by trustee) 16,926 Sale of coal handling facilities to affiliate 35,424 Other-net (4,558) 10,6 3 17,815 (2,793) (1,154) Total 344,427 360/.i10 452,902 4S4,524 605,105 Application of funds: Construction and nuclear fuel expenditures (net of allowance for funds used during construction) 250,674 329,694 309,775 441,566 462,439 Dividends declared 38,458 41,188 54,262 66,594 83,245 Total 295,032 370,8S2 3G4,037 50s,160 515,684 Increase (decrease) in working capital $ 49,395 $(10,272) $ 88,865 $(23,636) $ 59.421 Changes in components of working capital: Increase (decrease) in current assets: Cash in banks S (6,000) $ 6,238 $ (2,709) $ 1,568 $ (1,512) Temporary cash investments 68,661 Customer accounts receivable ( 2,614 ) 9,547 4,279 6,404 16,675 Accounts receivable from affiliated companies 2,969 (3,424) 6,082 (8,360) (83) Inventory 55,557 2,897 (6,855) (7,704) 1,506 Other 3,503 890 !3,460 2,4&t 6,765 Total 53,355 16,148 14,257 (5,608) 92,015 Increase (decrease) in current liabilities: Current maturity of long-term debt (30,000) Notes payable 12,162 6,503 (125,562) 18,525 (22,632) Accounts payable 10,243 (171) 31,345 9,787 29,467 Aemunts payable to affiliated companies 246 787 406 (701) 6,112 Taxes accrued (1,027) 12,146 10,879 (18,609) 9,141 Interest accrued 8,707 2,155 1,625 1,752 4,535 Other 3,659 5,000 6,699 7,334 5,971 Total . 3,990 26,420 (74,608) 18,028 32,591 Increase (decrease) in working capital $ 49,395 $(10,272) $ 88,S65 $(23,636) $ 59,421 See Notes to Financial Statements 28 1516 00c<

HOUSTON LIGHTING & POWER COMPANY NOTES TO FINANCIAL STATEMENTS Fct the Five Years Ended December 31,1970 (1) The following summarizes the more signiScant accounting policies of HL&P. The accounting records of HL&P are maintained in accordance with the Uniform System of Accounts pre-scribed by the Public Utility Comnussion of Texas. Electric h.

The cost, reduce i by contributica in aid of construction, of additions to electric plant, better-ments to existing property, and replacements of units of property retired is capitalized. Cost includes the original cost of cotitracted services, direct labor and material, indirect charges for engineering supervision and similar overhead items, and an allowance for funds used during construction. The allowance for funds used during construction, 6.5% on projects estimated to cost in excess of $50,000 and estimated to require more than 90 days to construct, represents the cost of borrowed funds used for construction and a reasonable rate on other funds so used.

Ma:ntenance of property and replacements and renewals of items determined to be less than units of property are charged to operating expenses-maintenance. The actual or average book cost of units of property replaced or renewed, plus removal cost, less salvage, is charged to accumulated depreciation. Depreciation HL&P computes depreciation using the straight-line method. The provisions for the years 1974 through 1978 were about 3%, 3.2%, 3.3%, 3.3% and 3.2%, respectively, of the depreciable cost of electric plant. Operating Revenues Revenues are recognized from the sale of electricity as bills are rendered to customers. Rate schedules include fuel adjustment clauses which permit recovery of fuel expenses in the month incurred. Federalincome Taxes Houston Industries and its subsidiaries file a consolidated income tax return. HL&P records as its current income tax expense an amount equal to the tax it would have to pay if it filed a separate income tax return. HL&P follows the policy of comprehensive interperiod income tax allocation, except that deferred income taxes were not provided on interest which is deducted currently for federal income tax purposes but capitalized for accounting purposes, and additions to the property insurance reserve which are expensed currently for accounting purposes but not allowed as a deduction for tax purposes until a loss is incurred. The investment tax credit applied as a reduction of federal income taxes has been deferred and is being amortized over the estimated lives of the related property. Property insurance Reserve The costs of replacing major uninsured plant losses, less related tax effects, are charged to the reserve when incurred. Retirement Plan HL&P has a noncontributory retirement plan covering eligible employees. The cost of the plan for the years 1974 through 1978 was about $1,120,000, $2,235,000, $3,9N,000, $3,925,000 and $4,773,000, respectively. Unfunded prior service costs of $20,863,000 are being amortized over a 40-year period. The policy of HL&P is to fund pension costs accrued. The actuarially computed value of vested benefits does not exceed the fund's assets. 29

                                                                                  )}}f ))[

NOTES TO FINANCIAL STATEMENTS-(Continued) (2) Any part or all of the preferred stock may be redeemed at the option of IIL&P at the following per share prices, plus any unpaid accrued dividends to date of redemption:

           $4 Series-$105.00. $6.72 Series: through July 31,19S3-$103.51; thereafter-$102.51. $7.52 Series: through October 31,1982-$105.35; thereafter-$103.35 to $102.35. $9.52 Series:

through September 30,19S5-$109.52; thereafter-4105.00 to $101.00. $9.08 Series: through March 31,1981-$109.0S; thereafter-$105.00 to $101.00. $8.12 Series: through November 30,1982-$109.37; thereafter-$106.25 to $102.25. On January 30,1979, IIIAP sold 300,000 shares of $9.04 cumulative preferred stock at a price of

        $100 per share. The net proceeds from the sale will be used to defray the cost of IIL&P's construction program.

(3) At December 31, 1978, sinking or improvement fund requirements of IIL&P's first mortgage bonds outstanding will be $22,100,000 for the year 1979, $23,350,000 for the year 19SO,

        $25,600,000 for the year 1981, and $25,200,000 for the years 1982 and 19S3. Of such require-ments, $12,800,000 for each of the years 1979 through 1931 and $12,000,000 for ech of the years 1982 and 1983 may be satisfied by certification of property additions at 100% of the requirements and the remainder by certif: cation of such property additions at 166%% of the requirements. Sinking or improvement fund requirements for 1978 and prior years have been satisfied by certification of property additions.

The issuable amount of first mortgage bonds is unlimited as to authorization, but limited by property, earnings, and other provisions of the mortgage and deed of trust and the supple-mental indentures thereto. All of IIL&P's plant is subject to lien securing its long term debt. (4) The interim financing requirements of IIL&P are met through short-term bank loans and the issuance of commercial paper. IIL&P has bank lines of credit aggregating $200,000,000 (as compared with $216,000,000 during 1977) which limit its total short-term borrowings and provide for interest at the prime rate. No compensating balances are required by the lines of credit. Additional information with respect to short-term borrowings is as follows: 1977 1978 At December 31: Bornwings outstanding: Bank Loans $ 24,000,000 $ 1,000,000 Weighted average interest rate on borrowings otJstanding 7.75 % 11.75 % For the year ended December 31: Weighted averare aggrega'e borrowings outstanding $ 27,160,000 $ 51,703,000 Weighted average interest rate on aggregate borrowings outstand!ng 6.62 % 8.29 % Maximmn aggregate borrowings outstanding at any month end $100,100,000 $110,000,000 (5) Significant commitments have been incurred in connection with IIL&P's construction program and for nuclear fuel purchases. See Item 1, " Business - Construction Program". Commitments in connection with the construction program, principally for generating plants and related facilities, are generally revocable by IIL&P subject to reimbursement of manufacturers for expenditures incurred or other cancellation penalties.

      'tL&P has no material lease commitments.

30 1516 008

NOTES TO FINANCIAL STATEAIENTS-(Continued) IIIAP is presently negotiating certain vendor claims resulting from cancellation in 1976 of one of two units of if ' Allens Creek nuclear project. Recovery over a five-year period of claims settled through Afarch 31,1978 has been authorized by the regulatory authority. As remaining claims are settled and rate applications are pending, requests will be made for recovery. If the requests are denied, the costs will be charged to income in the period such denial is made. Such charge, if any, is not expected to have a significant effect on future operating results. In October 1978, IIL&P terminated its financial support of a uranium exploration project in which it had invested $8,958,000 as of December 31, 1978. IIL&P will request rate relief sufIlcient to amortize such costs over a reasonable period. If the request is denied, these costs will also be charged to income in the period such denial is made. (6) Effective federal income tax rates are lower than statutory corporate rates for each year as follows: Twelve Afonths Ended December 31, 1974 _1975 1976 1977 1978 Thousands of Dollars Federal income taxes at statutory corporate rate $5S.619 $58,4M $97,792 $109,9S8 $112,365 Reduction in taxes resulting from: Allowance for funds used during construction 3,949 4,112 7,864 11,476 13,761 Other-net 2,425 2,905 1,350 1,495 3,8S9 Total 6,374 7,017 9.214 14,971 17,650 Federal income taxes $52,245 $51,477 $SS,578 $ 95,017 8 94,715 Effective rate 42.8?e 42.2 7o 43.57c 41.5 % 40.5Tc (7) Supplementary Information: Twelve Afonths Ended December 31, 1974 1975 1976 1977 1978 Thousands of Dollars Taxes, other than income taxes, were charged to operating Expenses as follows: Ad valorem $21,300 $24,833 $28,428 $33,253 $38,131 State gross receipts 5,873 6,713 8,S52 10,747 12,6S6 Payroll 2,84S 3,303 3,067 3,766 4,897

       > fiscellaneous                              6,756       7,773        7,017         3,669     4,.;58 Total taxes, other than income taxes                              $36,777     $42,622      $47,364        $51,435  $60,172 Research and development costs charged to Operating Expenses              _$ 9,319    $ 8,069      $ 8,530        $ 9,752  $_8,775 hiaintenance, depreciation, amortization, rents, royalties and advertising other than amounts set out separately in the Statements of Income are not significant.

(8) The following describes the principal transactions between IIIAP, its parent and other related companies: Pursuant to the corporate restructuring plan, Ilouston Industries assumed joint and several liabil-ity with lilAP for payment of principal and interest on the $40,000,000 of 5%To Convertible 31 n n'

NOTES TO FINANCIAL STATEMENTS-(Continued) Debentures issued by HL&P. In consideration thereof, HL&P issued IIouston Industries a

   $40,000,000, 5%% debenture. Included in " Interest on long-term debt" in the accompanying Statements of Income for the years ended December 31,1977 and 1978 is $2,200,000 related to this debenture.

HL&P issued 2,252,515 shares in 1977 and 2,310,351 shares in 1978 of common stock to Houston Industries for a total consideration of $67,440,000 in 1977 and $65,224,000 in 1978 and plans to issue approxir ately 2,000,000 additional shares of common stock to Houston Industries in February 1979. Commo ;tock dividends paid to Houston Industries by HL&P amounted to $52,884,000 in 1977 and $65,916,000 in 1978.

   " Nuclear fuel in process" in the accompanying Palance Sheets includes $5,224,000 in 1977 and
   $5,218,000 in 1978 of uranium loaned to Utility Fuels, Inc., another subsidiary of Houston Indus-tries. Interest on this loan is calculated on the br. sis of the prime rate at each month end.

In May 1978, HL&P sold at cost its coal handling facilities to Utility Fuels.

   " Operating Expenses- Fuel" in the accompanying Statement of Income for the year ended December 31,1978 includes $20,823,000 of coal purchased from Utility Fuels.

(9) Unaudited Replacement Cost Infor nation: The following tabulations compare the original cost of HL&P's investment in electric plant at December 31,1978 and 1977 with an estimated cost of replacing such electric plant at that date. The tabulations also compare accumulated depreciation and amortization and such expense based upon original cost and replacement cost. December 31,1978 _ Original Replacement Cost Cost Difference Thousands of Dollars Investment in electric plant: Subject to replacement cost computation $2,591,003 $4,603,871 $2,009,868 Origmal cost 792,460 792,460 Total 3,386,463 5,396,331 2,009,868 Less accumulated depreciation and amortization 512,604 913,187 400,583 Electric plant - net $2,873,859 $4,483,144 $1,609,285 Depreciation and amortization-Year Ended $ 74,361 $ 124,319 $ 49,958 December 31,1977 Original Replacement Cost Cost Difference Thousands of Dollars Investment in electric plant: Subject to replacement cost computation $2,294,639 $3,826,492 $1,531,853 Original cost 654,582 654,582 Total 2,919,221 4,481,074 1,531,853 Less accumulated depreciation and amortization 450,946 763,596 312,650 Electric plant-net $2,498,275 $3,717,478 $1,219,203 Depreciation and amortization-Year Ended $ 64,821 $ 103,912 $ 39,091 32 1516 010

NOTES TO FINANCIAL STATEMENTS-(Continued) The estimated replacement cost of electric plant has been calculated by using indexes developed for IllAP by Whitman, Requardt and Associates (Engineers & Consultants) based upon actual construction experience and trends in costs of labor and material used in IIIAP's construction projects. These indexes translate original construction costs recorded in the property recorc's to current costs based on historic inflation. They reflect technology changes in the substi.ution of new materials for those actually used and for changes in construction methods aml the use of construction labor. The estimated replacement cost is based upon the electric plant currently used in providing service. In the event that plant directly associated with the geneution of electricity is scheduled for retirement during the next three years, the current construction cost per KWII, based on the size and type of plant scheduled to replace the retired plant, will be applied to the capacity to be retired. Accordingly, the replacement cost information does not reflect economies of scale which might be experienced by increasing the size of generating plants, nor does it refleet costs relating to the use of different fuels and costs which were not originally incurred for such items as changes in work rules, additional overheads, requirements of the Occupational Safety and IIealth Administration, environmental requirements, and other governmental requirements. Land, construction work in progress, nuclear fuel payments and electric plant acquisition adjustments have been included at original cost. Accumulated depreciation related to replacement costs has been determined by calculating the ratio of original cost to accumulated depreciation fir each plant account and applying such ratio to the estimated replacement costs for that accourn Depreciation expense related to replacement cost has been computed by multiplying the average of the begimiing and ending year balances of such cost by the current depreciation rate for each plant account. IIL&P cautions that the above information represents only a compilation of data on a piecemeal basis to indicate a possible effect of inflation on the results of operation. Replacement of the various components of electric plant will take place over many years and the actual replacement costs will be afIected by, among ocher factors, changes in technological developments, the rate of inflation, emironmental requirements, and national energy poli,cy. Additionally, replacement of existing plant could result in changes in operating and maintenance expense. Because of these factors, as well as others, which cannot presently be foreseen, the Company is unable to estimate the effect that the cost of replacing existing electric plant will have upon its future operating results. IIIAP also cautions that replacement cost is not the current value of existing plant, but only an estimate of the cost of replacing such assets at December 31,1978 and 1977. The difference between original cost and replacement cost does not represent additional book value but might be indicative of funds (the excen over accumulated book depreciation) that may be required to replace existing electric plant. uch funds, if required, would first be provide'l by depreciation, reinvested earaings and probable ongoing deferred income tax provisions resulting from accelerated de- sciation and investment tax credit. Any additional funds required would be provided from short-term borrowings which are repaid through the issuance of additional securities. It is the current policy of IIIAP to maintain a capitalization consisting of approxi-mately 40To common equity,10% preferred stock and 50% long-term debt. IIIAP believes that the difference between depreciation expense based on original cost and depreciation expense based on replacement cost, which difference is not deductible in determin-ing income tax expense, is not truly an additional amount of depreciation expense. Rather, it is a measure of the extent that rates for electric service would have to be increased in the future when such assets are replaced, assuming na growth in demand for such service, no further inflation in ecsts, and no change in the current return on investment allowed by regulatory authorities. If such increased rates are not permitted by regulatory authorities or otherwise not achieved, then this differential amount will have to be furnished by investment of additional funds provided from issuance of additional securities. IIL&P would be entitled to earn a return on this additionalinvestment equal to the cost of such additional funds. 33 1516 011

SCIIEDULE V-ELECTRIC PLANT, AT ORIGINAL COST For the Two Years aded December 31,1978 (Thousands of Dollars) == Col. A Col. B Col. C Col. D Col. E Col. F Other Balance at Changes Balance Beginning Additions Add at End ClassiBeation of Period at Cost Retirements (Deduct) of Period Year Ended Dee Nr 31,1978: Electric plant m .rvice: Production $1,296,211 $257,147 $ 1,396 $1,551,962 Transmission 273,351 19,321 1,751 290,951 Distribution 616,936 80,133 13,M4 6S3,425 160,127 7,311 1,649 165,789 General _ Total 2,346,655 003,912 18,440 2,692,127 Construction work in progress 538,109 $83,066 621,175 Nuclear fuel in process 61,291 8,7 N 69,995 Total $2 W 6,055 $372,616 $18,440 $83,066 $3,3S3,297 Year Ended December 31,1977: Electric plant in service: Production $ 9S7,9e1 $30s,523 $ 273 $1,296,211 Transmission 257,675 16,692 986 273,3S1 Distribution 561,528 63,256 7,MS 616,936 General 119,567 42,419 1,S59 160,1.07 Total 1,926,731 430,890 10,966 2,M 6.655 Construction work in progress 532,706 $ 5,403 538,109 Nuclear fuel in process 32,109 29,182 61,291 Total $2,491,M6 H60,072 $10,966 $ 5,403 $2,946,055 34 1516 012

SCIIEDULE VI- ACCU 51ULATED PROVISION FOR DEPRECIATION OF ELECTRIC PLANT For the Two Years Ended December 31,1978 (Thousands of Dollars) Col. A Col. B Col. C Col. D Col. E Additions Deductions from Resene Retirements, Balance at Charged Charged Renewals, Balance Beginning to to Other and at Close Description of Perid Income Accounts Replacements Other of Period Year Ended December 31, 1978 - Depreciation of electric plant $450S16 $74,361 $12,703 $512,004 Year Ended December 31, 1977 - Depreciation of electric plant $396,417 $64,821 $53 $10,345 $450,946 35 1516 013

SCIIEDULE XII-RESERVES

                             . sr the Two Years Ended December 31,1978 (TLousands of Dollars)

Col. A Col. B Col. C Col. D Col. E Additions Deductions Balance at Charged Charged from Balance Beginning to to Other Reserves at Close Description of Period Income Accounts (Note 1) of Period Year Ended December 31,1978: Accumulated provisions, dedu ed from relatcd assets on balar sheet: Uncollectible accounts $ 453 $3,653 $3,856 $ 250 Inventory adjustments (Note 2) 689 49 $2M 247 785 Reserves other than those deducted from assets on balance sheet: Property insurance 8,000 500 8,500 Injuries and damages 353 450 395 408 Year Ended December 31,1977: Accumulated provisions, deducted from related assets on balance sheet: Uncollectible accounts S 476 $2,262 $2,285 $ 453 Inventory adjustments (Note 2) 558 46 $223 138 6S9 Reserves other than those deducted from assets on balance sheet: Property insurance 7,500 500 8,000 Injuries and damages 243 450 340 353 Norrs: (1) Deductions from reservu represent losses or expenses for which the respective reserves were created. In the case of uncollectible accounts reseive, such deductions are reduced by recoveria. of amounts previously written off. (2) Reserve provided by charges to various accounts on basis of materials issued. 36 1516 014

AUDITORS' OPINION Houston Lighting & Power Company: We have examined the balance sheets and the statements of capitalization of Houston Lighting & Power Company as of December 31,1977 and 1978 and the relatM statements of income, retained earnings and changes in financial position for each of the five years in the period ended December 31, 1978. Our ex:aninations we.e made in accordance with generally accepted auditing standards and, accordingly, iacluded such tests of the accounting records and such other auditing procedures as we considered necessary ir. the circumstances. In our opinion, the above-mentioned financial statements present fairly the financial position of HL&P at December 31,1977 and 1978 and the results of its operations and the changes in its finan-cial position for each of the five years in the period ended December 31, 1978, in conformity with generally accepted accounting principles applied on a consistent basis. Our examinations also comprehended schedules V, VI and XII for the two years ended Decein. ber 31,1978, and in our opinion, such schedules, when considered in relation to the basic financial statements, present fairly in all material respects the information shown therein. DEIhrrrE IIAsKINS & SFI.I.S Houston, Texas February 12,1979 1516 013 37

SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigrni, thereunto duly authorized. IIOUsTON b1GImNc & Powrn Co5tPANY (Registrant) By II. R. DEAN II. R. DEAN Chief FinancialOficer Date: March 21,1979 r as 1516 C16

PROSPECTUS 300,000 Shares Houston Lig11 ting & Power Conipany

                   $9.04 CUMULATIVE PREFERRED STOCK (without par value) 1:edeemable on at least 20 days' notic

at any time,at the option of the Company, as a whole or in part, at $109.04 per share if redeemed prior to February 1,1984, at $10.5.00 per share if redeemed on or after February 1,1984 and prior to February 1,1999, at $103.00 per share if redeemed on or after February 1,1989 and prior to r ebruary 1,1994, and thereafter at $101.00 per share, plus in each case an amount equal to dividends accrued to the redemptiorn data; provided, however, that no redemption may be made prior to February 1, 1981 through certain refunding operations. See

                                       " Description of New Preferred Stock" TilESE SECURITIES IIAVE NOT BEEN APPROVED OR DISAPPROVED BY Tile SECURITIES AND EXCHANGE CO31311SSION NOR HAS THE CO313tlSS10N PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CR1311NAL OFFENSE.

PRICE $100 A SIIARE Price to Underwriting Proceeds to Public(1) Commissions (2) Company (!)(3) Per Sha re . $100.00 S1.10 $98.90 Total. S30,000,000 S330,000 S29,670,000 (1) Plus accrued dia idends, if any, from the date of issuance. (2) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Secu ~ities .let of 1933. (3) Before deduction of expenses payable by the Company estimated at S95,000. The New Preferred Stock is offered by the several finderwriters named herein, subject to prior tale, when, as and if accepted by the Underwriters. It is expected that delivery of such New Prefevred Stock will be made on or about February 6,1979 at the offlee of .1[ organ Stanley & Co. Incorporated,55 Water Street, New York, N. Y., against payment therefor in New York funds. MORGAN STANLEY & CO. Incorporated DEAN WITTER REYNOLDS INC. KIDDER, Inco.poretedPEABODY & CO. January 30,1979 1516 017

IN CONNECTION WITil T!Ils OFFERING, Tile UNDERWRITERS NIAY OVER-ALLOT OR EFFECT TRANSACTIONS WillCil STABILIZE OR MAINTAIN Tile MARKET PRICE OF Tile NEW PREFERRED STOCK AND ANY OTilER PREFERRED STOCK OF Tile CON 1PANY AT LEVELS AHOVE TIIOSE WillCII MIGIIT OTilERWISE PREVAIL IN TIIE OPEN MARKET. SUCil STAHILIZING, IF COMMENCED, MAY HE D!NCONTINUED AT ANY TIME. No perton bas been authorized to gise any information or to make any representations other than as contained herein, and, if gisen or made, such information or representations must not he relied upon as hasing been authorized. This Prospectus does not constitute an offer to sell or a solicitarb of an offer to huy any of the securities offered hereby in any jurisdiction to any person to whom it is e nlawful to make such offer or solicitation in such jurisdiction. AVAILAlli.E INFOlM ATION The Company is subject to the information ret.aucments of the Securities Exchange Act of 1934 and, in accordance with such Act, files reports and other infi>rmation with the Securities and Exchange Commission. Inflirmation as of particular dates concerning directors and oRicers, their remuneration, the principal holders of securities and any material interest of such persons in transactions with the Company is disclosed in such reports of the Company and tiled with the Commission. Such repe:ts and other infi)rmation filed with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at Room 6101, i100 L Street, N.W. Washington, D.C.; Room 1228, Everett NicKinley Dirksen Building, 219 South

Dearborn Street,

Chicago, Illinois: Room i100, Federal Building, 26 Federal Plaza, New York, New York; and Suite 1710. Tishman Building,10960 Wilshire Boulevard, Los Ange!cs, Califi>rnia. Copies of such material can also be obtained it prescribed rates from the Public Reference Section of the Commission at its principal onice at 500 North Capitol Street, N.W., Washington, D.C. 20549. INCORPORATION OF CERTAIN DOCUMENTS IlY REFERENCE There are hereby incorporated in t his Prospectus by reference the liillowing documents and information heretollire filed with the Securities and Exchange Commission: ( I) The Company's Prospectus dated December 6,1978, relating to $100,000,000 principal amount ofits First Nfortgage Bonds. tiled pursuant to Rule 424( b) under the Securities Act of 1933. Such Prospectus includes,in addition to the most recent audited financial statements of the Company, recent infiirmation respecting the Company. (2 ) The Company's Current Reports on Form 8-K fiir the months of May, June and July 1978 and fi)r September 21,1978, all filed pursuant to the Securities Exchange Act of 1934 ( Exchange Act ). (3) The Company's Quarterly Reports on Form 10-Q for the quarters ended March 31. June 30 and September 30,1978, filed pursuant to the Exchange Act. All documents filed by the Company pursuant to Sections 13,14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering of the shares of New Preferred Stock shall be deemed to be incorporated in this Prospectus by reference and to be a part hereof on the dare of filing of such documents. 2

                                                                                           \b\6 U\0

The Company hereby undertakes to proside without chars,e to each person to whom a copy of this Prospectus has been delisered, on the request of any such person, a copy of any or all of the documents referred to above which hase been or ma) he incorporated in this Prospectus by reference, other than exhibits to such documents. Written requests for such copies should he directed to Mr. J. M. Dugdale, Secretary, llouston Lighting & Power Company,611 Walker Asenue, llouston, Texas 77002. TIIE COMPANY llouston Lighting & Power Company (Company) is engaged in the generation, transmission, distribution and sale of electric energy, serving an area in the Texas Gulf Coa" Regw, estimated at approximately 5,000 quare miles, in which are located flouston (the largest city in Texas) and 153 smaller cities, villages and communities. The address of the Company's principal executive otlices is 61I Walker Avenue Houston, Texas 77002 (telephone ni aner 713-228-9211). The Company is a subsidiary of Houston Industries incorporated (Houston Industries) which owns all of the Company's outstanding common stock. Houston Industries is a holding company as defined in the Public Utility Holding Company Act, but is exempt from regulation as a " registered" holding company under that Act except with respect to the acquisition of securities of other public utility companies. The other subsidiaries of Houston Industries are Primary Fuels, Inc. and Utility Fuels, Inc. The principal asset of Primary Fuels is a 50% interest in a venture that engages in oil and gas exploration and production in otTshore Texas waters. Such venture is not regarded as a potential source of fuels for the Company's utility operations. Utility Fuels provides coal supply services to the Company. APPIICATION OF PROCEEDS AND CONSTRUCTION PR-) GRAM The Company proposes to otter the 300,000 shares of Cumulative Preferred Stock otTered hereby (New Preferred Stock) on or about January 30, 1979 Houston Industries has filed a Registration Statement covering 2,000,000 additional shares ofits Common Stock which it proposes to otter on or about February 7,1979, subject to market conditions. The otrering and sale of the New Preferred Stock of the Company and of the additional shares of Common Stock of Houston Industries are being made by separate prospectuses, are separate and unrelated transactions, and are not contingent one upon the other. The net proceeds to be receised by the Company from the sale of the New Preferred Stock and all but approxin ately $2,000,000 of the proceeds to be received by Houston Industries from the sale of additional shares of its Common Stock, will be used to defray the cost of the Company's construction program, including the repayment of short-term debt incurred in connection with such program ( presently estimated to be $24,000,000 at the time ofissuance of the New Preferred Stock). To the extent tl'at such proceeds are not immediately so used, they will be temporarily invested in short-term interest bearing obligations. The Company's cor.struction program (exclusive of allowance for funds used during construction and nuclear fuel expenditures) is estimated to cost approximately $624,647,000 in 1979, $800,810,000 in 1980 and $917.687,000 in 1981. Of the $2,343,144,000 total estimated construction expenditures Ihr the 1979-1981 period, approximately 76% is expected to be expended on additions and improvements to generating facilities, approximately 5% for transmission facilities, approximately 15% for distribution facdities and the balance for general plant facilities. The 1979-1981 construction budget contemplates expenditures fc six new generating units as follows: litirna ted l' nit Scheduled 1%:imated Capacity in-Senice hpenditures I/ucl Date in 1979-19N1 I'lant and location Kount)) tMW) 600 Coal 1980 $ 129,864,000 W. A. Parish No. 7 ( Fort Hend ) . South Texas No.1 ( Matagorda ) . 385 Nuclear 1982}> 321,745'000 South Texas No. 2 ( Matagorda) . 385 Nuclear 1983J 600 Coal 1983 309,330,000 W. A. Parish No. 8 ( Fort Hend ) . 750 Lignite 1985 289,744,000 To be determined. 1,200 Nuclear 1985 618,252,000 Allens Creck ( Austin) . 1516 019

An additional $73,235,000 is expected to be expended by the Company during the 1979-1981 period fiir uranium concentrate and nuclear fuel processing services. Additional nuclear fuel expenditures, which could include substantial sums ti>r long-term storage of spent nuclear fuel, will be required after 1981. Actual construction expenditures by the Company for the 1979-1981 period wil! vary from the above estimates as a result of numerous factors, inch ding changes in equipment delivery schedules, construction delays, availab ~ fuel, environmental protection expenditures, licensing delays, changes in the construction program, legislative changes and changes in customer demand and business conditions. The capacity and expenditures presented n the tabic for the South Texas nuclear units represent the Compam's 30.8% share of a 2,500 megawatt project to bejomtly owned with the Cities of Austin and San Antonio and Central Power and Light Company. On January 20, 1979, voters in the City of Austin rejected a referendum which would have authorized that City to setk to reduce its participation in the project. In order to rmintain its present share of the project, however, the City of Austin is expected to seek soter wthorization for the issuance of bonds in an aggregate amount that substantially ecceds the amount presently authorized fbr such share. No prediction can be made as to whether sue meer authc riza' ion will be obtained or, if it is not obtained, how the shares of the participants ( and their respectise construction programs) might be atrected. The f'ompany's ability to continue with i st construction program as presently proposed will be substantially dependent upon the availability of adequate and timely rate relief. Assuming such rate relief can be obtained, it is estimated that from 409 to 45% of the estimated construction expenditures for the 1979-1981 period can be financed from int anal sources while the balance will be financed from the pr ceds of short-term borrowings and sale 3 $ nectrities. Based on a November 20,1978 order of the Public Utility Commission of Texas, the Company is currently placing into effect throughout its system a general rate increase of approximately 7%, which would have increased its operating revenues for the adjusted test year ended March 31,1978 by approximately $48,000,000. A portion of such rate increase is being collected on an interim basis pending the outcome of appeals from tne rate orders of certain municipalities in the Company's service area, including the City of Houston. It is anticipated that the Company will seek another general rate increase prior to the .nd of 1979. SELECTED FINANCIAL INFORMATION Set forth below is a summary of certain information from the statements ofincome of the Company. With respect to the infe mation for the twelve months ended November 30,1978, it is the opmion of the Company that such information includes all adjustments ( which comprise only normal recurring accruals ) necessary fbr a fair presentation of the resu:ts for such period. Inct c Months Fnded i car inded December 31, Nmemher 30 --- 1978 1977 1976 1975 1974 1973 (l'naudited ) ( lhousands of Dollars f scept Ratios) Operating Revenues.. $ 1,283,642 $ 1,069.786 $841,616 $634,153 S486,837 $409.060 Operating Income . 194,3d2 182,560 165,405 129,004 109,044 97,620 Allowance for Borrowed and Other Funds Used During Con-struction ( a ) . 28,182 23.909 16,384 8,367 8,228 8,4$ 2 Net income- 138,119 134.124 115,156 70,385 69,878 71,909 Preferred Stock Dividends.. 17,330 13,711 12,362 6,475 5,830 5,830 Ratio of Earnings to Fixed Charges and Preferred Divi-dends.. 2.73f b) 3.10 3.01 2.38 2.90 3 55 (a ) This is a non-cash item which does not represent operating income and is based upon the net cost for the period of construction of botrowed funds used ihr construction purposes and a reasonable rate 4 16 020

upon other funds when so used. For each period presented the accrual rate was 6%% Effective January 1, 1979, the Company has increased such rate to 7%% (b) The pro forma ratio of earnings to fixed charges and preferred dividend requirements for the twelve mon:hs ended November 30,1978, including the annual interest requirements at a rate of 9%% on $ 100,000,000 principal amount of First h!ortgage Bonds issued in December 1978 and the annual dividend requirements on the New Preferred Stock at an assumed rate of 9%%, would be (i) 2.25, assuming that short-term borrowings outstanding during the period were unchanged and (ii) 2.35, assuming that no short-term borrowings were incurred during the period. The following table summarizes the capitalization of the Company as of November 30,1978 and as adjusted after giving effect to (i) the issuance in December 1978 of $100,000,000 principal amount of First hiortgage Bonds, (ii) the issuance of the New Preferred Stock offered hereby (assuming net proceeds of $30,000,000 ), and (iii) the investment by Houston Industries of $56,000,000 in the common stock of the Company from the proceeds of the proposed sale of 2,000,000 shares of its Common Stock (see " Application of Proceeds and Construction Program"): As of As Adjusted Nmemher 30, 1978 Amount Percent (Thousands of Dollars) Long-Term Debt. $ 1,254.067 $ 1,354,067 50.7% Cumulative Preferred Stock.. 213,945 243,945 9.1 Common Stock . 454,126 510,126 19.1 Retain-d Earnings.. 561,378 561,378 21.1 Total Common Stock Equity.. 1,015,504 1,071,504 40.2 Total Capitalization . $2,483,516 $2,669,516 100.0 % Financial statements for the five years ended December 31,1977 and the twelve months ended June 30,1978 and the related "Alanagement's Discussion and Analysis of Statements of locome" are included in the Company's Prospectus dated December 6, 1978, and unaudited financial statements and information for interim periods of 1978 compared to 1977 are included in the Company's Quarterly Reports on Form 10-Q, all of which documents are incorporated in this Prospectus by reference. DESCRIPTION OF NEW PREFERRED STOCK The information set forth below is summarized from the Restated Articles of Incorporation of the Company, as amended, and from the resolution of the Board of Directors fixing the terms of the New Preferred Stock, which documents are filed as exhibits to the Registration Statement of which this Prospectus is a part. The statements and descriptions hereinafter contained do not purport to be complete, and . e qualified in their entirety by reference to such documents. IssrA I iN Sra:Es P .ferred Stock may be issued in series which may vary as to distinctive serial designations, rates of divide .ds, redemption prices, liquidation prices, liquidation premiums, conversion rights and requirements as to , ny sinking or purchase fund. The Board of Directors may fix such terms of any new series of Prefen d Stock from time to time as it is established. DiventNo Riciais The holders of each series of Preferred Stock, including the New Preferred Stock, shall be entitled to receive, if and when declared by the Board of Directors, cumulative quarterly dividends at the rate:, per annum fixed fbr each series thereof, respectively, payable on January 1, April 1, July I and October 1 in each year (except fbr the $4 Preferred Stock, the dividend payment dates for which are February 1, Alay 1, 5 1C14 n71 1JiV ULl

August I and November 1), before any dividends, other than a dividend payable in Common Stock of the Company, may be paid or set apart for the Common Stock. In the event that more than one series of Preferred Stock is outstanding, and dividends are paid in an amount less than full cumulative dividends in arrears on all Preferred Stock, then the dividends shall be divided between the different series in proportion to the aggregate amounts which would be distributable to the Preferred Stock of each series if full cumulative dividends were declared and paid thereon. The d: idend rate per share per annum of the New Preferred Stock is the rate stated in the title thereof, payable quarterly, cumulative from the date ofissuance which is expected to be February 6,1979 The first dividend on the New Preferred Stock will be payable on April 1,1979. VorNc Riciers No voting rights are conferred on any series of Preferred Stock except as set forth l,etow and under

" Restrictions on Corporate Action"and except as provided by the laws of the State of Texas. The holders of Preferred Stock of any series, in cases where they have a right to vote, are entitled to one vote for each share held.

Whenever dividends on Preferred Stock are in arrears in an amount equal to fbur quarterly dividends, the holders of Preferred Stock of all series shall have the right to elect one-third of the Board of Directors until .,uch arrearages are cured, and whenever such dividends are in arrears in an amount equ,1 to eight quarterly dividends such holders shall have the right to elect a majority of the Board of Directors. Liocin4 Tion Ricnis in the c ent of any Fquidation, dissolution or winding up of the Company, or any reduction or decrease ofits capital stock reselting in a distribution of assets to the holder or holders ofits common stock other than by way of dividends out of the net profits or out of the surplus of the Company, the holders of the Preferred Stock shall be entitled to receive, from the assets of the Company available for distribution to stockholders, the fixed liquidation price established for the respective series plus, in case such liquidation, dissolution, winding up, reduction or decrease shall have been voluntary, the fixed liquidation premium for such series, if any, together in all cases with a sum equal to all accrued and unpaid dividends to the date payment is made available. If the assets distributable among the holders of the Preferred Stock should be insullicient to permit the payment in full of the preferential amounts fixe.1 for all series, then the distribution shall be made amont. the holders of each series ratably in proportion to the full preferential amounts to which they are respectively entitled. The fixed liquidation price of the New Preferred Stock will be $100 per share and the fixed liquidation premium of the New Preferred Stock will be such amount as is equal to the excess over $100 of the fixed redemption price of the New Preferred Stock at the time in effect. REnEMPiloN ann RErunctersE PaovisioNs Subject to restrictions on refunding applicable to the New Preferred Stock and to the Com iny's outstanding $9.52, $9.08 and $8.12 series of Cumulative Preferred Stock, the Company may at any time redeem the whole or any part of the Preferred Stock, or of any series thereof, upon notice mailed to the holders of the stock to be redeemed not less than twenty nor more than fifty days prior to the date fixed for redemption. The price at which the shares shall be redeemed is the fixed redemption price of the series of such shares together with the amount of any dividends accrued or in arrears to the date of redemption. If less than all of any one series of the Preferred Stock is to be redeemed, then the shares to be redeemed are to he selected ratably or by lot. The Company may also renurchase any ofits capital stock of any class so long as it is not in default in the payment of any dividends on the Preferred Stock, and, ifit is so in default, may repurchase Preferred Stock ( but not Common Stock ) only pursuant to an offer made to all preferred stock holders. All shares of Preferred Stock reocemed or repurchased assume the status of authorized but unissued shares. The New Preferred Stock will be redeemable at the following fixed redemption prites, together with dividends accrued thereon to the date of redemption: $109.04 per share if redeemed prior to February 1, 6 1516 022

1984: $105.00 per share if redeemed on or after February 1,1984 and prior to February 1,1989: $ 103.00 per share if redecmed on or after February 1,1989 and prior to February 1,1994; and $101.00 per share if redeemed on or after February 1,1994: provided, however, that the New Prefc ced Stock will not be redeemable prior to February 1,1984 from the proceeds of any refunding, directly or indirectly, of shares of the New Preferred Stock through the incurrMg of debt or through the issuance of Preferred Stock ranking equally with or prior to the New Preferred Stock as to dividends or on liquidation, where such debt has an etrective interest cost or such Preferred Stock has an etTective divuend cost to the Company of less than 9.04% per annum (the etrective dividend rate on the New Preferred Stock based on the initial public otTering price). HEssaictioNs os CoareRATE ACIION The Restated Articles ofincorporation provide that the vote of two-thirds of the outstanding shares of Preferred Stock wil: he required: (a) to create, authorize or issue any additional stock, or securities convertible into stock, ranking prior to the Preferred Stock as to dividends or liquidation rights: ( b ) to alter or amend the Restated Articas of Incorpora. ion i t any manner prejudicial to the Preferred Stock; or (c) to issue additional Preferred Stock or stock of equal rank unless (i) the total fixed liquidation price of all such stock and any stock of prior rar:L to be outstanding shall be equated or exceeded by the capital represented by junior s:ock and (ii) lbr a period of twelve months prior to such issuance the net earnings of the Company available fbr dividends shall be at least 2% times the annual dividend requirements on all such stock to be outstanding after such issuance, and the carnings available for interest, amortization and dividends (after taxes and depreciation) shall be at least 1% times the sum of suci dividend requirements plus the annual interest requirements on all indebtedness of the Company. Un .er the most restrictive of these provisions, the earnings of the Company for the twelve months end:d '4ovember 30,1978 would permit it to issue additional Preferred Stock having an aggregate fixed liquGation price of approximately

 $317,000.000, after giving etTect to (a) the issuance of the New Preferred Stock otTered hereby havin; an
   .sumed annual dividend rate of 9%% and (b) the issuance in December 1978 of $100,000,000 principal amount of 9'We First Mortgage Bonds. There are no charter or mortgage provisions limiting the payment of dividends on the Company's Preferred Stock.

The substantial capital expenditures for the Company's construction program has required, and will continue to require, the issuance of equity securities, including Preferred Stock, during periods of high capital costs w hen other major users of capital may also be seeking large amounts of capital. The annual dividend requirements on the New Preferred Stock will be $2.712,000. Misci a.i.AN Eous None of the Preferred Stock, including the New Preferred Stock, has any pre-emptive or conversion nghts or is entitled to the benefits of any sinking or purchase fund. The New Preferred Stock when issued will be fully paid and nonassessable. TRANsH R AGENIs ann REcisturns The Transfer Agents for the New Preferred Stock will be Bank of the Southwest National Association. Houston, Texas, and the Marine Midland Bank, New York, New York. The Registrars will be First International Bank in Houston, N.A., and Citibank, N.A., New York, New York. 1516 023

UNDERWRITERS Under the terms of an Underwriting Agreement dated January 30,1979, the Underwriters ied below have severally agreed to purchase, and the Company has agreed to sell to them, severe..y the respective numbers of shares of New Preferred Stock set forth below. Number Name of Share $ Number Name of Shares Morgan Stanley & Co. Incorporated., 30.850 J J. Il lisiliard. W. L. I yons. Inc. I AM) Dean Witter Dynolds Inc. 30.825 E F. Ilutton & Company Inc. 6fxx) Kidder. Peabody & Co. Incorporated .. 30.825 'Ihe Ilknon Company Incorporated . 700 ABD Secunties Corporatior.. 1.500 Investment Corpor.iuon of Virginia . 700 Advest. Inc. l.500 Janney Slontgomery Scott Int. 1.000 Amencan Secunnes Corporanon .. 1.500 Johnston. Lemon & Co. Incorporated . 700 A. E. Ames & Co. Incorporated.. 700 Jmephthal & Co. incorporated . 700 Arnhold and S. llleichroeder, Inc. l.500 Kirkpains k. Perus. Smuh. Pob.in lac. 700 Atlantic Capaal Corporath.n .. 2.54 o Ladenburg. T halmann & Co. Inc i,500 Bathe llal cy suart Shields incorporated.. 6JXo Laidlaw Adams & Petk Inc. 700 Bacon. Whipple & Co. l.500 La/ard Freres & Co. 63)ix) Robert W. Baird & Co. Incorporated . 1.500 gg . ason ud Waiker. Incorporated . 1.000 Baker. Wath & Co. 700 Lehm.in Brothers Kuhn Loch incorporated . hjo) llasie Securities (.orporanon . 2.500 Loch Rhoades llornblower& Co . 6'000 Baieman i schler. liill Rahards incorporated . McDon.dJ & Company I'500 1.500 Bear. Stearns & Co. Mernll L) nth. Pierce. Fenner & Smnh 43I00 Incorporated .. 8,in x) Wilham Blair & Company.. l.500 Moore. I conard & Li nth. Incorporated . 700 Blunt Ella & Loewiincorporated.. 1.500 Moore & Sthley Cameron & Co 700 Bl>th Ea iman Ddion & Co. incorporated . 6JWM) M*cle). llJilgJnen & hstJhrook Inc 2.500 J. C. P dford & Co. 1,500 Nomura Secunnes lmernational. Inc. 700 Alex. Brow n & Sons.. 2.500 The Ohio Company . Ijx)O Bruns Nord man. Rea & Co. 793 Oppenheimer & Co . Inc. 2.5t o Butcher & Singer Inc. 700 Paine. Webber. Jad wn & Curtn incorporated . 63100 The Chicago Corporation .. 700 Parker flunter incorporated . 700 Cowen & Company., Piper. JarTray & ilopwood incorporated . l.500 1J)00 Fr.iigie Incorporated .. %.m E. Pollot k & (.o. Inc. 1,500 700 Crowell. Weedon & Co. Prescott. Ball & Turhen 1.500 1000 Dain. Kalman & Quail, incorporated.. Rauuher Pierte Refsnes Inc. 2.500 l.500 The Robinson.llumphrey Company. Inc. l.500 Dillon Read & Co.14c 6J)00 Rodraan & Renshaw. Inc. 700 Doft & Co.. Inc 700 Rotan Mosle int 4fMH) Domimon Secunnes Inc. 700 L. F. Rothschdd.1:nterberg. Tow bin . 43No Donalden. Luthr: & Jenr.tre Setanues Salomon Brothers Corporation .. HJXO 6JHN1 Dresel Burnharr Lambert incorporated . Sthneider. Bernet & lhtkman. Inc 700 6JXx) Shearson llay6cn Stone lac A G. I da ards & Sons. Inc 2.500 4JMo Shuman. Agnew & Co., Inc. I ikins Stroud. Suplee & Co. 1.500 LWO l'ppler. Guenn & Turner. Inc. Smah Barney, llarns Upham & Co. Incorporated . 63Wo l.500 SoGe.>Su ns Internanonal Corporanon . 2.500 Fahnestock & Co. . IJMo Stuart Brothers . The First Boston Corporanon . L500 8Jn) Sutro & Co. Incorporated L500 First of Mithig.in Corporanon . l .5t H ) Thomson Mt Kinnon Sett.rities Inc. 2.500 First Southwest Company . 700 lut ker. Anthony & R. L. Da). Inc 2,500 Freeman Setunnes Company. Inc 700 Underwood. Neuhaus & Co. Intorporated . l.50') Fulton. Reid & Siapies Wertheim & Co., Inc. Div. of Wm. C. Roney & Co. 6500 700 Wheat. First Set unnes Inc l 500 Goldman. Saths & Cc. 8300 W ood Gund) Incorpor.iied . 1300 Gruntal & Co 700 7gg,, 3pg . lierifeld & Stern . 700 q* ~

                                                                                                                 ~ ' =

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1bJh -

The Underwriting Agreement provides that the several obligations of the Underwriters are subject to certain conditions precedent. The nature of the Underwriters' obligations is such that they are committed to take and pay for all of the shares if any are taken. The Underwriters propose to offer part of the shares directly to the public at the public otTering price referred to on the cover page of this Prospectus and part to certain dealers at a price which represents a eencenion not in excess of 62.5 cents a share under the public o!Tering price and any Underwriter may allow and such dealers may reallow a concession, not m excess of 50 cents a share, to other Underwriters or certain other dealers. EXPERTS and the The balance sheet and statement of capitalization of the Company as of December 31,1977 related statements ofincome, retained earnings, and changes in financial position for each of the five 3 ears in the period then ended included in the Company's prospectus dated December 6,1978, which is incorporated in this Prospectus by reference, have been examined by DeloitteSuch Haskins & Sells, fmancial Independent Certified Public Accountants, as stated in their opinion appearing therein. statements are incorporated by reference in this Prospectus in reliance upon such opinion, given upon the authority of that firm as experts in accounting and auditing. For purposes of estimating the replacement cost of property, plant and equipment set Ibrth in Note 9 of the Notes to Financial Statements included in the Company's Prospectus dated December 6,1978, the Company used indexes developed by Whitman, Requardt and Associates ( Engmeers & Consultants) in reliance upon such firm as experts. LEG AL OPINIONS Certain legal matters in connection with the New Preferred Stock are being passed upon fbr the Company by Baker & Botts, Houston, Texas, and for the Underwriters by Cahill Gordon & Reindel, New York, New York. Cahill Gordon & Reindel are not passing upon the incorporation of the Company or franchise matters and are relying as to matters covered by their opinion governed by Texas law upon the opinion of Baker & Botts. The Company has been advised by Baker & Botts that members of such firm who participated in the preparation of this Prospectus own in the aggregate I,743 shares of Common S of Houston Industries, the Company's parent. William R. Brown, E3q., a member of Baker & Botts, is a director of the Company and of Houston Industries. 1516 025 9

l l 1516 D26

OFFICIAL NOTICE OF SALE AND OFFICIAL STATEMENT

         $100,000,000 CITY OF SAN ANTONIO, TEXAS ELECTRIC AND GAS SYSTEMS REVENUE IMPROVEMENT BONDS, NEW SERIES 1979-A h i ki k '        -l                                    ,
                                                   ' =

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' l, l;, .                     <      .

2 City Public Service 1516 027 Bids to be Opened Julv 12.1979, at 11:00 A.M., C.D.T.

y m_ _ ADDENDUM TO OFFICIAL NOTICE OF SALE AND OFFICIAL STATEMENT S100,000,000 CITY OF S AN ANTONIO, TEXAS ELECTRIC AND GAS SYSTEMS REVENUE IMPROVEMENT BONDS , NEW SERIES 1979-A , The following updates information in the Official Notice of Sale and Official Statement at page 34 as follows: On May 21, 1979, the staff of the Nuclear Regulatory Commission (NRC) submitted to the Commission a proposed reorganization and change in priorities in order that it could concentrate on an investigation of the March, 1979, accident at Unit No. 2 of the Three Mile Island nuclear plant in Pennsylvania, operated by Metropolitan Edison Company. Subsequently, on June 13, 1979, the NRC Director of Licensing met with representatives of utilities having construction permit and operating ~icense t applications pending before the Commission. The Director advised these utilities that, subject to future Congressional or other governmental action providing for additional personnel, safety reviews in connection with nine pending applications for operating licenses, including South Texas Project, will be suspended until January 1980 or thereaf ter be :ause of the manpower demands on NRC staf f in connection with the investigation of the incident at Three Mile Island. San Antonio cannot now predict how much, if any delay may be experienced in issuances of operating licenses for the project, or what additional costs, if any, may result from

                                                                                         .---m the NRC's investigation of the incident of Three Mile Island.

Dated June 18, 1979. i516 Onoto

                                          &                        .. a Howard Freeman, Secretary City Public Service Board

CITY OF SAN ANTONIO, TEXAS CITY COUNCIL Mrs. Lila Cockrell, Mayor Joe Alderete, Jr. Frank D. Wing, Mayor Pro-Tem Van Henry Archer Gene Canavan Henry G. Cisneros Mrs. Helen Dutmer Bernardo Eureste John Steen Robert Thompson Joe Webb Thomas E. Maebner - City Manager Carl L. White, Jr. - City Finance Director Garland V. Jackson - Cit; Clerk CITY PUBLIC SERVICE BOARD OF SAN ANTONIO Eloy Centeno, Chairman Glenn Biggs, Vice Chairman Mrs. Lila Cockrell, Mayor Ruben M. Escobedo Earl C. Hill J.K. Spruce - General Manager Howard Freeman - Assistant General Manager for Finance and Administration J.B. Poston - Assistant General Manager for Operations CONSULTANTS Matthews, Nowlin, Macfarlane Peat, Marwick, Mitchell & Co.

  & Barrett                                                                                                  Auditors Legal Advisors Ebasco Services, Incorporated                                                            McCall, Parkhurst & Horton Consulting Engineers                                                                                   Bond Counsel Russ Securities Corporation Municipal Finance Subsidiary of Rotan Mosle Financial Corp.

Financial Consultant The date of this Official Statement is June 6,1979. 1516 029

9

        ,,                                    TABLE OF CONTENTS Page THE BONOS Notice of Sale                                                              i Legal Opinion and Tax Status                                                i Certification of Official Statement                                       ii Description of Bonds                                                      1 Summary Statement                                                         2 Authority and Purpose                                                   2 Net Revenues and Coverage                                               4 Principal and Interest Requirements                                       4 Bond Reserve and Other Func' Balances                                     4 Outstanding Bonds and Safe .ecord                                         5 Revenue Bond indebtedness and Utility Plants                              5 Bond Ordinance Prov!sions                                                 6 Security                                                                  7 Rate Covenant                                                             7 Apphcation of Revenues                                                    8 issuance of Additional Parity Bonds                                      12 SAN ANTONIO ELECTRIC AND GAS SYSTEMS History and Management                                                   19 Administration and Operating versonnel                                   20 Electric and Gas Sales by Customer Category                              21 Description of Physical Property                                         23 Territory Served                                                         28 Thirty Largest Electric and Gas Customers                                28 Statement of Revenues, Expenses, and Net income                          29 Condensed Statements of Assets r2nd Liabilities                          30 Comparative Analysis of Electric and Gas Utility Operations              31 Record of Growth - Production of Electric Power                          32 Five-Year Forecast of Electric and Gas Operating Data                    32 1980 - 1982 Construction Program                                         33 Fuel Supply                                                              37 Texas Railroad Commission Action and Pending Proceedings                 37 Material Litigation                                                      40 Energy Conservation Program                                              44 Rates                                                                    45 Electric Custcmer Statistics                                             48 Typical Gas and Electric Bills of Six Texas Cities                       48 Ten Year Record of City Benefits from Systems                            48 APPENDIX A - City of San Antonio - General Information                    A-1 APPENDIX B - Financial Statements with Accountants' Report                B-1 APPENDIX C - CPSB Interim Financial Statements                            C-1 APPENDlYs D - Text of Certain Indenture Provisions                        D-1 APPENDIX E - CPSB Resolution Approving Bond Ordinance                     E-1 e

1516 03u

OFFICIAL NOTICE OF SALE

                                                          $100,000,000 CITY OF SAN ANTONIO, TEXAS ELECTRIC AND GAS SYSTEMS REVENUE IMPROVEMENT BONDS, NEW SERIES 1979-A Bids to be Opened Thursday, July 12,1979, at 1100 A.M., C.D.T.

PLACE AND TIME OF SALE: Sealed bids will be received by the City Clerk of the City of San Antonio, Texas, at his office in the City Hall until 11:00 A.M., C.D.T., Thursday, July 12,1979, for the above Bonds as described in the OFFICIAL STATEMENT, at which time said bids will be opened, read and tabulated. Award of the Bonds by the City Councilis expected to be made by 1:00 P.M., C.D.T. the same day. ADDRESS OF BIOS: Sealed bids, plainly marked " Bid for Revenue Bonds" and addressed to the Mayor and City Council, City of San Antonio, Texas, must be delivered to the office of the City Clerk, City Hall, San Antonio, Texas 78204 not later than 11:00 A.M., C.D.T., on Thursday, July 12,1979. All bids must be submitted on the Official Bid Form, copies of which are enclosed herewith. TYPtS OF BIOS AND INTEREST RATES:The Bonds will be sold in one block on an "all or none" basis, and no bid of less than par and accrued interest will be considered. Bidders are invited to name the rate or rates of interest to be borne by the Bonds, provided that the rates are stated in multiples of 1/8th or 1/20th of 1%,and that the difference between the lowest and highest interest rates named does not exceed one and one-half per cent (1-1/2%). No limitation will be imposed upon bidders as to the number of coupon rates or coupon changes which may be used; however, bids involving supplemental coupons or split interest rates will nc, be considered, and all Bonds of one matunty must bear the same rate. G000 FAITH DEPOSIT: Bidders shall be required to submit a Cashier's Check payable to the " City of San Antonio, Texas, City Public Service Board" in the amount of $2,000,000. This check will be considered as a good faith deposit, and the check of the successful bidder will be retained uncashed by the City to secure performance of the contract by such bidder. In the event such bidder should fail or refuse to take up and pay for the Bonds in accordance with his bid, then said good faith deposit shall be cashed by the City as full and complete liquidated damages. Otherwise, said good faith deposit will be returned to the successful bidder upon payment for the Bonds. The required Cashier's Check may accompany the Official Bid Form or it may be submitted separately. If submitted separately,it shall be made available to the City prior to the opening of the bids and shall be accompanied by instructions from the bank on which drawn which authorize its use as a good faith deposit by the successful bidder who shall be named in such instructions. No interest will be allowed on the good faith deposit of the successful hidder, and the checks of the unsuccessful bidders will be returned as soon as the best bid is determined. LEGAL OPINION: The City will furnish a transcript of proceedings had incident to the issuance and authorization of the Bonds, including a no-litigation certificate and a certified copy of the unqualified approving opinion of the Attorney General of Texas, as recorded in the Bond Register of the Comptroller of Public Accounts of the State of Texas, stating that the Bonds are valid and binding obligations of the City. The City will furnish the unqualified approving legal opinion of Messrs. McCall, Parkhurst & Horton, Dallas, Texas, Bond Counsel for the City (" Bond Counsel"), to the effect that, based upon an examination of such transcript, the Bonds are valid and binding special revenue obligations of the City and that the interest on the Bonds is exempt from all present federal income taxes under existing statutes, regulations. rulings and court decisions. The legal opinion will be printed on the Bonds. Messrs. McCall, Parkhurst & Horton were not requested to participate and did not take part in the preparation of this Official Notice of Sale or the Of ficial Statement, and such firm has not assumed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein, except that, in its ccpacity as Bond Counsel, such firm has mviewed the information describing the Bonds and the Bond Ordinance in this Official Notice of Sale and the Official Statement to verify that such description conforms to the provisions of the Bond Ordinance. The legal fees to be paid Messrs. McCall, Parkhurst & Horton for services rendered in connection with the issuance of the Bonds are contingent on the sale and delivery of the Bonds. NO-LITIGATION CERTIFICATE: The no-litigation certificate will contain the following language:"That no litigation of any nature has been filed or is now pending which would affect the provision made for their payment or security, or in any raanner question the authority concerning the issuance of said Bonds and interest coupons, and that so faras we knowand believe no such litigation is threatened. That the corporate existence of said issuer is not being contest,ed, and that no authority or proceedings for the issuance of said Bonds and interest coupons have been repealed, revoked or rescinded." 1516 031 i

PRINTED BONOS AND CUSIP: The City will f urnish prinied bonds on lithographed or steel engraved borders to the purchaser. It is anticipated that CUSIP identification numbers will be printed on said Bonds, but neither the f ailure to print such number on any bond nor any error with respect thereto shall constitute cause for a failure or refusal by the purchaser thereof to accept delivery of and pay for said Bonds in accordance with the terms of the purchase contract. The cost of printing the CUSIP numbers on the Bonds shall be paid for by the issuer; provided, however, that the CUSIP Service Bureau charge for the assignment of said number shall be the responsibility of and shall be paid for by the purchaser. CERTIFICATION AS TO OFFICIAL STATEMENT:At the time of payment forand delivery of the Bonds, the City Public Service Board of San Antonio will furnish the successful bidder a certificate, executed by a proper of ficer or of ficers of the Board acting in ineir official capacities, to the effect that to the best of their knowledge and belief: (a) the descriptions and statements of or pertaining to the Board contained in its Official Statement, as supplemented and amended, on the date of such Official Statement, on the date of sale of the Bonds and the acceptance of the best bid therefor, and on the date of the deliveryof the Bonds were and are true and correct in all material respects; (b) insofar as the Board and its affairs, including its financial affairs, are concerned, such Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (c) insofar as the descriptions and statements, including financial data contained in such Official Statement, as supplemented and amended, of or pertaining to entities other than the Board and their activities are concerned, such statements and data have been obtained from sources which the Board believes to be reliable and that the Board has no reason to believe that they are untrue in any material respect. DELIVERY: Delivery of the Bonds will be made at the expense of the City of San Antonio at a bank in Aust n. Texas, provided, however, that the purchaser may arrange with the City for delivery of the Bonds at a bank in another city at the expense of the purchaser. It is anticipated that delivery can be made on or about August 21,1979, and it is understood and agreed that the purchaser will accept delivery and make payment in Federal Funds of the agreed purchase price on or before August 21, 1979, or thereaf ter when the Bonds are tendered for delivery up to and including September 18,1979. The purchaser shall be given at least seven days notice of the time which the City has fixed for delivery. The purchaser shall make proper payment for the Bonds prior to 12.00 noon C.D.T. on the date so fixed for delivery. If for any reason the Cityis unable to tender the Bonds for delivery by September 18,1979, then the City shall immediately contact the successful bidder not later than September 18,1979, to allow said bidder to extend his bid for an additional 30 days. If the successful bidder does not elect to extend his of fer within five days after such notification, then the good faith deposit will be returned, and both the City and the successf ul bidder shall be relieved of further obligation. NOT AN OFFER TO SELL: This Official Notice of Sale does not alone constitute an offer to sell these Bonds but is merely a notice of sale of the Bonds. The offer to sell the Bonds to the underwriter is being made by means of this Official Notice of Sale, the Official Bid Form and the Official Statement. RESPONSIBILITY FOR QUAllFICATION OF BONOS FOR SALE IN RESPECTIVE STATES:The City assumes no responsibility for quahfication of the Bonds under the securities laws of any jurisdiction in which the Bonds may be sold, assigned, pledged, hypothecated or otherwise transferred. This disclaimer of responsibility for qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemptiori from securities registration provisions. ADDITIONAL COPIES OF 0FFICIAL NOTICE OF SALE. OFFICIAL STATEMENT AND OFFICIAL BIO FORM: Additional copies of the Official Statement relating to the Bonds, the Official Notice of Sale and Official Bid Form, and additionalinformation relating to the Bonds and the San Antonio Electric and Gas Systems, may be obtained from Mr. Howard Freeman, Assistant General Manager for Finance and Administration, City Public Service Board, P. O. Box 1771, San Antonio, Texas,78296, or Russ Securities Corporation,100 National Bank of Commerce West, San Antonio, Texas 78205. The City will furnish the successf ul bidder up to S00 copies of the Official Statement at no expense prior to the delivery of the Bonds, upon his request. Arrangements have been made with the printer to supply additional copies,if desired, at the successful bidder's expense. In case of errors in net interest cost calculations, coupons named will govern; however, the City reserves the right to reject any and all bids, and to waive any and all irregularities. GIVEN pursuant to an Ordinance of the City Council of the City of San Antonio, Texas, passed and approved on the 31st day of May,1979. G. V. JACKSON, JR. City Clerk City of San Antonio, Texas ii 1516 032

This Official Statement does not Constitute an offer to sell Bond: in any junsdiction to any perst.n to whom it is unlawful to make such offerin such junsdiction_ No dealer. salesman, or any other person has been authorlZed to give any inforrnation or r9ais any representation, other than those Contained herein,in Connection with the offering of these Bonds, and if given or made. such information or representation must not be relied upon. The information and espressions Of opinion herein are subject to Change without notice except as provided herein and neither the delivery of this Official statement nor any sale made hereunder shall. under any Circumstances. Create any implication that there has been no Charge in the affaws of the City since the date hereof. OFFICIAL STATEMENT NEW ISSUE

                                                                       $100,000,000 CITY OF SAN ANTONIO, TEXAS ELdCTRIC AND GAS SYSTEMS REVENUE IMPROVEMENT BONDS, NEW SERIES 1979-A Dated: August 1,1979                                                                                                             Denomination: $5,000 Principal and semiannual interest (February 1 and August 1) payable at the National Bank of Commerce in San Antonio, Texas, or, at the Chemical Bar;k, New York, New York.

Coupon bearer bonds, not registerable. First interest coupon due February 1,1980. AMOUNTS, MATURITIES, COUPON RATES AND PRICE OR YlELD Due, Coupon Price or Due Coupon Price or Amount Feb.1 Rate Yield Amount Feb.1 Rate Yield

     $1,200,000                1981                                                 $ 2,750,000               1993 1,300,000               1982                                                    2,925,000              1994
       ?,400,000               1983                                                    3,125,000              1995 1,500,000               1984                                                    3,325,000              1996 1,625,0 0               1985                                                    3,550,000              1997 1,750,000               1986                                                    3,775,000              1998 1,875,000               1987                                                    4,025,000              1999 2,025,000               1988                                                    4,275,000              2000 2,150,000               1989                                                    4,575,000              2001 2,300,000               1990                                                    4,850,000              2002 2,450,000               1991                                                   20,000,000              2003 2,575,000               1992                                                   20,675,000              2004 (Accrued Interest to be Added)

RE0EMPTION PiiOVISIONS: Bonds maturing on and after February 1,1991, will be redeemable, as a whole or in part on February 1,1990, or on any interest payment date thereafter, at par and accrued interest, plus the following premium: February 1,1990 and August 1,1990 at 2%%; February 1,1991 and August 1,1991 at 2%; February 1,1992 and August 1,1992 at 1%%; February 1,1993 and August 1,1993 at 1%; FeDruary 1,1994 and August 1,1994 at % of 1%; February 1,1995 and thereafter at 0%. J 6 033 1

SUMMARY

STATEMENT The following material is qualified in its entirety by the more complete information and financial statements contained elsewhere in this Offic!al Statement. THE ISSUER , . ... .. . .. .. City of San Antonio. Texas, a political subdivision of the State of Texas, located in Bexar County. THE BONOS . . ... .. . .. .. .. $100,000,000 Electric and Gas Systems Revenue Improvements Bonds, New Series 1979-A maturing serially in varying amounts in each of the years 1981 through 2004. AUTHORITY FOR ISSUANCE .. .. .. . These New Series 1979-A Bonds will be issued under and in conformity with the Constitution and Laws of Texas, particularly Articles 1111 et seq. and Article 2368a of Vernon's Annotated Texas Civil Statues, and pursuant to a Bond Ordinance to be adopted by the City Council of the City of San Antonio, Texas. PURPOSE OF THIS FINANCING , The proceeds of these New Series 1979-A will be used to pay certain of the costs of a program of improvements to and extensions of the City's electric and gas systems. The overall improvement program includes site development, construction of generating units, distribution and transmission lines, additions and improvements to the gas system and miscellaneous project costs. These improvements, extensions and additions are in accord with long-range development nnd improvement plans which, together with the current improveirent Program, have been reviewed by Ebasco Services. Incorporated, Utility Consultants and Engineers, New York, New York. SECURITY.. ... . . The City of San Antonio currently has outstanding $177,225,000 Electric and Gas Systems Revenue Improvements Bonds, Series 1957, Series 1962. Series 1968, Series 1971. Series 1973 and Series 1974 (hereinafter collectively referred to as the Old Series Bonds"), which are of a senior rank and are secured by a first mortgage against all real property, a security interest in all personal property, and a pledge of all revenues of the City's electric and gas systems. In addition, the City has outstanding $520,750,000 Electric and Gas Systems Revenue Improvements Nnds. New Series 1975, New Series 1976, New Series 1976- A, New SeJes 1977. New Series 1977- A, New Series 1978, New Series 1978 ' and New Series 1979. The

                                                        $100,000,000 New Series 1970-A ssonds offered herein, will constitute special obligations of the City of San Antonio on a parity with the aformentioned $520,750,000 New Series Bonds, payable solely from and secured a lien on and pledge of the net revenues of the City's electric and gas systems subject to the prior lien of the pledge to the Old Series Bonds, a!!as fully set forth in the ordinance authorizing the subject New Series 1979-A Bonds.

ADDITIONAL BONOS. Additional bonds on a parity with the New Series issues may be issued, when among other requirements, Net Revenues of the Electric and Gas Systems during the past year were at least 150% of the maximum annual debt service on all bonds to be outstanding. Said Ne! Revenues may be adjusted to reflect rate changes. The seniorlien of the Old Series Bonds is closed. RATE COVENANT . The City has covenanted to maintain Eleeic and Gas rates and charges sufficient to pay all expenses of maintenance and operation of the Systems, and to pay debt service requirements on all bonds and to establish and maintain the required reserves.

.,A

{i J\G I ] 2

PAYMENT RECORD . .. . . . The City of San Antonio has never defaulted on any of its bonds. LEGALITY . . . . . .. .. . .. .. The Attorney General of Texas and Messrs. McCall. Parkt urst & Horton of Dallas. Texas. DELIVERY . . .. .. . .. . . Anticipated on or about August 21,1979. BOND RATING . ... .. . .. Applications for ratings of the Bonds have been made to Moody's investors Service, Inc. and Standard & Poor's Corporation. An explanation of the significance of such ratings may be obtained upon request from Moody's investors Service, Inc. or Standard & Poor's Corporation. Only the opinions of Moody's investors Service Inc.and Standard & Poor's Corporation are represented by such ratings and the City makes no representation as to (1) the appropriateness of such ratings or (2) its ability or intent to maintain such ratings. No assurance is given by the City that the ratings, once obtained,will be maintained for any specified period of time, or that they will not change or be suspended or withdrawn by Moody's investors Service Inc. or Standard & Poor's Corporation if,in the opinion of the raSng agencies, changes in the circumstances of the City should so warrant. Any such change, suspension or withdrawal of the bond ratings may have an adverse effect on the market price of the Bonds. GENERATING FACILITIES. .. ... . ..... The City's major generating facilities include 12 units which have a dependable combined capability on natural gas or fuel oil of 2.198 MW. In addition, the City has two new 418 MW coal-fie generating units. The first unit was placed in commercial service in July,1977, and the second coal unit was placed in commercial operation in August,1978. CURRENT FUEL SUPPLY.. . .. . .... ... After experiencing varying degrees of curtailment of natural gas deliveries under its contract with its primary supplier, sufficient quantities of natural gas are now being obtained to meet present needs. Fuel oil is also burned when price advar,lages occur and current on-site fust oil inventories are equal to total fuel requirements for about 20 days. Coal is purchased under a long-term contract and present coal on hand in stockpile is in excess of six months' supply. HISTORICAL NET REVENUES AND COVERAGE Fiscal Years Ended 131: 1976 1977 _ 1978 1979 1979

Gross Revenues $247,959.942 $290,664,788 $319,687,764 $343,256,858 $346,500,352 Maintenance &

Operating Expenses 172,412,284 206.354,056 217.083.468 231,685.112 _234,520.773 Net Revenues $ 75.547.658 $ 84,310.732 $102.604.296 $111,571,746 $111,979,579 Maximum Principal and Interest Requirements on all Old Series Bonds ... .............. ... . ... ... . ... .. ... . ...... $16.590,265 in 1980 Maximum Principal and Interest Requirements on all Bonds, including these New Series 1979-A Bonds at 6%% interest . ..... . . ..... .. . $63,518,652 in 1983 COVERAGE OF ABOVE MAXIMUM ANNUAL DEBT SERVICE REQUIREMENTS: Old Series Bonds 4.55x S.08x 6.18x 6.73x 6.75x Total Bonds 1.19x 1.33x 1.62x 1.76x 1.76x 12 months ended March 31,1979. r, -. JJ 3

PRINCIPAL AND INTEREST REQUIREMENTS

The following schedule reflects total principal and interest requirements on all Old Series Bonds and New Series Bonds, including the New Series 1979-A bonds with interest computed at 6%% for purpose of illustration:

New Series Bonds

                                                 $100,000,000 New Series Year           Old                                        1979-A                                  Total                        Total             % of Ending         Series         Presently                               Interest                      New                           All           Principal 2-1:         Bonds       Outstandina         Principal              @ 6%%                       Series                       Bonds             Retired 1980       $16,590,265     $39,377,225                             $3,187,500                 $42,E64,725                $59,154.990 1981        16,576,680       39,355,475     $ 1,200,000             6,375,000                  46,930.475                  63,507,155 1982        16,573,290       39,345,975         1,300,000           6,298,500                  46,944,475                  63,517,765 1983        16,557.677       39,345,350         1,400,000           6.215,625                  46,960,975                  63,518,652 1984        16,531,220       39,349,725         1,500,000           6,126,375                  46,976,100                  63,507,320           10.74 %

1985 16.498,035 39,355,725 1,625,000 6,030,750 47.011.475 63.509,510 1986 16,475,985 39,359.350 1,750,000 5,927,156 47.036,506 63,512.491 1987 16.425,945 39,382,225 1,875,000 5,815,593 47,072,818 63,498,763 1988 16,388,725 39,394,925 2,025,000 5,696,062 47,115,987 63,504.712 1989 16,358,855 39,430,375 2,150,000 5,566.968 47.147,343 63,506.198 25.39 1990 16,312.100 39,467,937 2,300,000 5,429,906 47,197.843 63,509,943 1991 16.281,750 39,499,750 2.450,000 5,283,281 47,233,031 63,514,781 1992 16.219,875 39,573,750 2,575,000 5,127,093 47,275,843 63,495,718 1993 16,156,975 39,634,787 2.750,000 4,962,937 47,347,724 63,504,699 1994 16,109.700 39,674,462 2,925,000 4,787,625 47,387,087 63,496,787 44.95 1995 14,677,500 41,093,825 3,125,000 4,601,156 48,819,981 63,497,481 1996 14,587,500 41,198,012 3,325,000 4,401,937 48,924,949 63,512,449 1997 14,445,000 41,325,500 3,550,000 4,189,968 49,065,468 63,510,468 1998 1999 55,776,867 55.769,62i 3,775.000 4,025,000 3,963,656 3,723,000 63,515,518 63,517,625 63,515,518 63,517,625 71.30 g w 2000 55,763,937 4,275,000 3,466,406 63,505,343 63,505,343 2001 55,746,650 4,575,000 3,193,875 63,515,525 63,515,525 2002 55,751,225 4,850,000 2.902,218 63,503,443 63,5C3,443 2003 30,968,250 20,000,000 2,593,031 53,561,231 53,561,281 2004 20,675,000 1,3184,031 21,993,031 21,993,031 100.00 Cents omitted. FUND BALANCES (At March 31,1979) Net Current Assets . .... .. ... .. .. .. . . . . .. . . $ 41,604,507 Utility Plant (At Cost less Depreciation) ... . .. . . . .... .. . $ 1,074,946,181 Restricted Cash and Securities: Old Series Bonds Reserve Account.. .. . . ... . ... . .. . .. . ... .$ 17. CSS.244 Improvements and Contingencies Fund. .. ..... ... .. ... ..... . $ 27,900,911 New Series Bonds Reserve Amount .. ... .. . . .. . . . $ 15,393,728 PROPERTY ADDITIONS (At March 31,1979) Additions, Improvements and Estensioris to Electric a,1d Gas Systems, 1942-1979.. . . . . . .. . . . . $ 1,331,766,128 Bonds issued to Finance these Prr,perty Additions , . .. . . .. $ 760,000,000 Portion of Property Additions Firianced by issuance of Bonds.. .. . . . 57.1% 1516 036 4

REVENUE BOND INDEBTEDNESS AND UTILITY PLANTS Debt as Date Revenue Bond Electric and Gas Plant Equipment a % of 1-31: Indebtedness At Cost Net (Depreciated) Net Plant 1945 $ 32,425,000 $ 36,120,272 $ 34,325,302 94.5 1950 26,783,000 61,412,456 54,665,803 49.0 1955 31,900,000 108,612,107 94,339,423 33.8 1960 44,145,000 187,026,225 159,317,177 27.7 1965 54,190,000 279,053,625 226,794,522 23.9 1970 71,040,000 420,480,731 335,125,890 21.2 1971 67,910,000 457,741,134 364,108,691 18.7 1972 94,190,000 501,731,982 398,542,240 23.6 1973 90,345,000 546,423,222 437,911,052 20.6 1974 120,860,000 599,315,589 479,155,098 25.2 1975 201.195,000 677,114,390 542,919,717 37,1 1976 245,f95,000 809,025,826 659,773,046 37.2 1977 358,110,000 954,207,395 790,396,043 45.3 1978 484,290,000 1,100,709,068 918,110,351 52.7 1979 622,975,000 1,265,232,510 1,056,105,552 59.0 1979* 697,975,000 1,289,020,024 1,074,946,181 64.9 As of March 31,1979. OUTSTANDING INDEBTEDNESS All revenue bonds of the City c' San Antonio payable from the net revenues of the Electric and Gas Systems of the City and issued prior to 1957 have been retired. The City has outstanding Electric and Gas Systems Revenue improvement Bonds in fourteen series as follows: D Original Effective Interest 20-Bond Yield Index Final Average Rate On Nearest Amount Maturity Life Sale Date Sale Date

Outstandino Old Series Bonds (Prior Lien)

Series 1957 1980 16.9 years 3.356 % 3.03 % $ 2,505,000 Series 1962 1984 16.2 yerrs 3.218 % 3.43 % 13,150,000 Series 1968 1989 15.6 years 4.463 % 4.41 % 23,590,000 Series 1971 1992 14.7 years 5.166% 5.58% 24,780,000 Series 1973 1994 15.8 years 4.763 % 5.03 % 31,500,000 Series 1974 1997 17.3 ycars 6.896 % 6.95% 81,700,000 Subtotal (Old Series Bonds) $177,225,000 New Series Bonds Series 1975 1998 16.0 years 7.390 % 7.48 % 47,/00,000 Series 1976 1999 15.9 years 6.270% 6.98 % 57,050,000 Series 1976-A 1999 16.4 years 6.179 % 6.78 % 58,000,000 Series 1977 2000 18.1 years 5.254 % 5.78 % 59,250,000 Series 1977-A 2002 23.7 years 5.718 % i 64 % 75,000,000 Series 1978 2u02 16.6 years 5.355 % 5.65 % 73,750,000 Series 1978-A 2003 16.5 years 5.978 % 6.12% 75,000,000 Series 1979 2003 16.7 years 6.153 % 6.50% 75,000,000 Series 1979-A 2004 18.3 years 100,000,000 Subtotal (New Series Bonds) $620,750,0]p Total Bonds to Be Outstanding, including Ns.w Series 1979-A Bo7ds $797,975,000 As published by "The Bond Buyer". 1516 037 5

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Coal Handling Equipment at J. T. Deely Power Plant. CERTAIN PROVISIONS OF ORDINANCE AUTHORIZING THESE NEW SERIEE 194-A BONDS SECTION 7: Definitions. Unless the context shall indicate a contrary meaning or intent, the terms below defined, for all purposes of this ordinance or any ordinance amendatory or supplemental thereto, shall be construed, are used and are intended to have meanings as follows: (a) " Additional Parity Bonds"- Bonds or other obligations authorized to be issued under the provisions of Section 18 hereof, including refunding bonds, which are secured by a lien on and pledge of the Net Revenues of the Systems on a parity with Previously Issued Parity Bonds and the New Series 1979-A Bonds. (b) " City" - the City of San Antonio, Texas. (c)" Board of Trustees,"" Board,"" City Public Service Board,""Public Service Board"-The City Public Service Board of San Antonio, Texas, existing and functioning pursuant to the Indenture or, subsequent to defeasance of the Indenture, existing and functioning pursuant to this Ordinance. (d) " Depository"- Such bank or banks at any time selected by the Board of Trustees to serve as depository of the funds hereinafter provided for with relation to the Parity Bonds. (e) " Fiscal Year" - The twelve-month operational period of the Systems commencing on February 1 of each year and ending on the following January 31. (f) " Indenture" - The Trust indenture dated February 1,1951, together with eight supplements thereto dated August 1, 1953, February 1,1957, February 1,1960, August 1,1962, February 1,1968. February 1,1971, February 1,1973and August 1, 1974, given as secunty for the Old Series Bonds. (g) " Maintenance and Operating Expenses"-Those expenses required by the law ( Article 1113, V. A.T.C.S.) to be a first lien on and charge against the income of the Systems, including the cost of insurar.,,e,the purchase and carrying of stores, materials and supplies, the purchase, manufacture and production of gas and electricity for distribution and resale, the payment of salaries and the payment of all other expenses properly incurred in operating and maintaining the Systems and keeping them in good repair and operating condition (classed as a maintenance and operating expense as opposed to a capital expenditure under the Uniform System of Accounts adopted by the National Association of Regulatory Utility Commissioners). Depreciation on the properties of the Systems shall not be considered or included as Maintenance and Operating Expenses in the determination of Net Revenues of the Systems. 1516 03U 6

(h)" Net Hevenues"- Allincome and revenues from the operation of the Systems after the deduction of Maintenance and Operating Expenses. The term " Net Revenues" shall also include any additional and further security for the payment of the Parity Bonds as may be pledged therefor consistent with the then applicable laws of the State of Texas, provided that any such additional and further security is made equally and ratably applicable as security for all outstanding Parity Bonds. (i) "New Series 1979-A Bonds" - The bonds authorized by this Ordinance. (j) "Old Series Bonds"-The presently outstanding San Antonio Electric and Gas Systems Revenue Improvement Bonds, Series 1957, Series 1962, Series 1968, Series 1971 Series 1973 and Series 1974. (k) " Parity Bonds" or "New Series Bonds" - The Previously issued Parity Bonds, the New Series 1979-A Bonds rmd Additional Parity Bonds. (1) " Paying Agent" or " Paying Agents"- The places of payment for the Parity Bonds named in the ordinances authorizing the issuance thereof. (m) "Pr*0usly issued Parity Bonds"-The outstanding and unpaid bonds of the following series, to wit: "CITYOFSAN ANTONIO, us.XAS, ELECTRIC AND GAS SYSTEMS REVENUE IMPROVEMENT BONDS, NEW SERIES 1975," dated August 1,1975, and originally issued in the total principal amount of $50,000,000; " CITY OF SAN ANTONIO, TEXAS, ELECTRIC AND GAS SYSTEMS REVENUE IMPROVEMENT BONDS, NEW SERIES 1976," dated February 1,1976, and originally issued in the total principal amount of $60,000,000; " CITY OF SAN ANTONIO, TEXAS, ELECTRIC AND GAS SYS TEMS REVENUE /MPROVEMEN TBONDS, NEWSERIES 1976-A," dated August 1,1976 and originally issued in the total principal amount of $60,000,000; " CITY OF SAN ANTONIO, TEXAS. ELECTRIC AND GAS SYSTEMS REVENUE

    /MPROVEMENT BONDS, NEW SERIES 1977," dated February 1,1977, and originally issued in the total principal amount of
    $60,000,000, "CI TY OF SA N A NTONIO, TEXAS ELECTRIC AND GAS S YS TEMS REVENUE IMPROVEMENTBONDS, NEW SERIES 1977-A", dated Augusi 1,1977, and originally issued in the total principal amount of $75,000,000; " CITY OF SAN ANTONIO, TEXAS, ELECTRIC AND GAS SYSTEMS REVENUE IMPROVEMENT RONDS, NEW SER!ES 1978", dated February 1,1978, and originally issued in the total principal amount of $75,000 000; " CITY OF SAN ANTONIO, TEXAS, ELECTRIC AND GAS SYSTEMS REVENUE IMPROVEMENT BONDS, NEW SERIES 1978-A", dated Auqust 1,1978, and originally issued in the total principal amount of $75,000,000; and " CITY OF SAN ANTONIO, TEXAS, ELECTRIC AND GAS SYSTEMS REVENUE IMPROVEMENT BONDS, NEW SERIES 1979," dated February 1,1979, and originally issued in the total principal amount of $75,000,000.

(n) " Systems"- The entire electric light and power plants and systems and gas distribution system and all property of every kind appurtenant to and used or acquired in connection with said electric light and power plant and systems and gas distribution system owned by the City and described in and covered by the Indenture,together with all property of every kind now and hereafter owned or acquired by the City as a part of or for use in the operation of the City's electric light and power plants and systems and gas distribution system. SECTION 8: Pledge. The City hereby covenants and agrees with the holde-s of the Parity Bonds that: (a) Until such time as the terms, conditions and provisions of the Indenture become inoperative and the " Trust Estate" conveyed by the indenture reverts to the City free and clear of the encumbrance created thereby, the Parity Bonds shall be and are hereby declared to be payable solely from and equally secured by an irrevocable pledge of and lien on that portion of the Net Revenues of the Systems deposited, and available for deposit in (i) the" Electric and Gas Systems Improven ents and Contingencies Fund" established pursuant to Section 6 of Article V of the Indenture and (ii) the General Fund of the City pursuant to Sections 5 and 6 of Article V cf the Indenture. (b) At such time as the terms, conditions and provisions of the !ndenture become inoperative and the " Trust State" conveyed by the Indenture reverts to the City free and clear of the encumbrance created thereby, the Net Revenues of the Systems shall be and are hereby irrevocably pledged to the payment of principal of and interest on (including the establishment and meinten:nce of a reserve, as provided in Sections 12 and 18 (e) of this ordinance) the Parity Bonds,and it is hereby ordained that ai such time all Parity Bonds and the interest thereon shall constitute a first lion upon the Net Revenues of the Systems. SECTION 9: Rates and Charges. The City hereby agre;s and reaffirms its covenants to the holders of the Parity Bonds that it will at all times maintain rates and charges for the sale of electric energy, gas or other services furnished, provided, and D supplied produce byincome the Systems to thesufficient and revenues City and to all pay:other consumers which shall be reasonable and nondiscriminatory ana n 1516 F 7

(a) All Maintenance and Operating Expenses, depreciation, replacement and betterment expenses and other costs as may be required by law (Article 1113, V.A.T.C.S.). (b) The interest on and principal of all Old Series Bonds, as and when the same shall become due, and maintain the runds and Accounts cicated and established for the payment and security of the Old Series E;nds (c) The interest on and principal of all Parity Bonds, as and when the same shall become due, and provide for the establishment and maintenance of the Funds and Accounts created for the payment and security of the Parity Bonds. (d) Any legal debt or obligation of the Systems as and whe i the same shall become d' SECTION 1J: General Account, The City, hcting through the Board of Trustees, hereby reaff t ms its covenarit to holGers of the Old Series Bonds and hereby covenan's with respect to the holders of the Parity Bonds, that all revenues of every nature received through the operation of the Systems shall be deposited as received in the " CITY OF SAN ANTONIO ELEC TRfC AND GAS SYSTEMS GENERAL ACCOUNT"(hereinafter referred to as " General Account"), which shall be kept separate and apart from all other funds of the City. Revenues received for the General Account shall be denosited from time to time as received in such bank or banks as may be selected by the Board of Trustees in accordance with applicaMe laws re'ating to the selection of City Cpositories. SECTION 11: Flow of Funds. The City, acting through the Board of Trustees, hereby agrees and reaf firms its covenant to the holders of the Parity Bonds that: (a) Until such time as all the terms, conditions and provisiGns of the Indenture shall become inoperative and the " Trust Estate" conveyed b/ the Indenture reverts to the City f ree and clear of the encumbrance created thereby, funds in the General Account shall be pledged and appropriated to the following uses in the order of precedence shown: FIRST: For the payment of operation, maintenance, repairs and extensicas of the Systems provided for in Article 1113. V. A.T.C.S., and Section 3 of Article V of the Indenture. SECONO: To the payment of the principal of and interest on the Old Series Bonds, and to the" San Antonio Electric and Gas Systems Bond Reserve Account" for the benefit of the Old Series Bonds in the manner and to tne extent required in Section 4 of Article 5 of the Indenture. THIRO: To the payment of the annual sum to be deposited in the General Fund of the City in accordance with and to the extent set out in Section 5 of Article V of the Indenture. FOURTH: To the payment of the annual sum (equal to not less than 12S% of the gross revenues of the Systems) to be deposited in the " Electric and Gas Systems improvements and Contingencies Fund" in accordance with Section 6 (as amended) of Article V of the Indenture. FIFTH: To the payment of the annual sum to the General Fund of thq City for reimbursement of gas and electric services of the Systems used by the City for municipal purposes and amounts expendeu for additions to the street and traffic lighting system (such payment, together with the annual sum to be deposited in the General Fund of the City,in accord-ance with Section 5 of Article V of the Indenture, to total an amount equal to 14% of the gross revenues of the Systems for the current Fiscal Year), as provided in Section 6 (as amended) of Article V of the Indenture. SIXTH: To the " Electric and Gas Systems improvements and Contingencies Fund" until there is on deposit therein an amount equal to 20% of the value of fixed capital assets as shown t ithe audited statement as of the end of ar iscalYear, as provided in Section 6 (as amended) of Article V of the Indent . e. SEVENTH: To the " Electric and Gas Systems Surplus Fund" in the manner and to thr extent funds are available, as required by Section 6 (as amended) of Article V of the indenture. In further explanation of said flow of fur.ds as to the payment and security of the Parity Bonds, the Net Revenues of the Systems deposited in the " Electric and Gas Systems improvement and Contingenc;es Fund" shall be first appropriated and pledged to the " City of San Antonio Electric and Gas Systems Parity Bond Retirement Account"(heretofore created for the payment of principal of and interest an Parity Bonds ano reaffirmed in Section 12 of this Ordinance); and to the extent riecessary, all sums payable tG the General Fund of the City from the Net Hevenues of the Systems pursuant to Sections 5 and 6 (as amended) of Article V of the Indenture shall be first appropriated and pledged to said " City of San Aritonio Electric and Gas Systems Parity Bond Retirement Account" 1516 040 8

(Note: The following schedule is not a part of the Bond Ordinance) h ACTUAL APPLICATION OF !!EVENUES UNDER TRUST INDENTURE AND SECTION 11 [a] 0F NEW SERIES BONO ORDINANCE [ Flow of Funds) Fiscal Year Ended January 31: i976 1977 1978 1979 19798 OPERATING REVENUE., Electric $190,179,522 $221,325,327 $246,624,784 $257,675,393 $260,440,300 Gas 53,940.450 65.209.937_ 67,787,701 78.306,226 77,586.519 Total $244,119,972 $286,535,264 $314,412,485 $335,981,619 $338,026,819 OPERt. TING EXPENSES Electric $119,951,358 $138,528,203 $152,542,443 $155,747,265 $158,601,965 Gas 52,431,073 67,731,887 64,488,517 75.872,133 75.850,710 Total $172,382,431 5206,260,090 $217,030,960 $231,619,398 $234,452,675 Net Operating Income $ 71,737,541 $ 80,275,174 $ 97,381,525 $104,362.221 $103,574,144 Non-Operating income (Net) 3,810,117 4.035,558 5.222,771 7.209,525 8,405,436 Net Revenues .$ 75,547.658 $ 84,310,732 $102,604,296_ $111,571,746 $111,979,580 ALLOCATION OF NET REVENUES

1. Operating Funds (To increase working capital) $ 22,000,000* $ 3,000,000 $ 3,000,000 Payment of debt Principal & Interest' $ 16,632,765 $ 16,635,885 $ 16,620,545 $ 16,611,360 $ 16,607,855 Reserve Fund Reqmts.' 4,326.866 55,793 150,248 518,020 499.034 Total Payment of Debt' D Less: Interest Capitalized From

                                           $ 20,959,631     $ 16,691,678        $ 16,770,793   $ 17,129,380   $ 17,106,889 Bondissues                      (5,844,552       (13.127,659)       (13.511.090)   (12.866,866)   (13.326,366)

Net Payment of Debt $ 15,115,078 $ 3,564,019 $ 3,259,703 $ 4,262,514 $ 3,780,523

2. Payments to General Fund of City in lieu of taxes 4,315,990 4,662,516 4,702,586 4,900,8 % 4,904,666

3. To improvements and Contingencies Fund -

Minimum Requirements 30,994,E93 36,333,099 39,960,970 42,907,107 43,312,544

4. Payment to General Fund of City as reimbursement for electric and gas services used by City during year 6,077,484 7,560,557 8,126,363 8,323,265 8,362,559

5. Additional payment to City to bring benefits to 14% of Gross Revenues 17,421,449 19,486,698 23,889,625 26,406.978 eo,i16,000

6. Balance transferred to improvements and Con-tingencies Fund 1,622,664 12,703,843 665,049 21,770.986 21,803,288 Total Allocations p5,547,658 $ 84,310.732 $102,604,296 $111.571,746 $111.979,580 Footnotes:

Old Series Bonds. 8 Annual amounts shown are less than 14% because of voluntary reduction by the City. 8 12 months ending March 31,1979. An additional amount of $9,600,000 was transferred from the Improvements and Contingencies Fund from prior years' allocations. 1516 041 9

SECTION 11: Flow of Funds (Cont'd.) (b) At such time as all the terms, conditions and provisions of the Indenture shall become inoperative and the " Trust Estate" conveyed by the indenture reverts to the City free and clear of the encumbrance created thereby, funds in the General Account shall be pledged and appropriated to the following uses and in the order of precedence shown: FIRST: To the payment of reasonable and proper Maintenance and Operating Expenses of the Systems upon approval by the Board of Trustees. SECCND: To the payment of Parity Bonds, including the establishment and maintenance of the reserve therefor. THIRD: To the payment and security of obligations hereinafter issued which are inferior in lien to the Parity Bonds. FOURTH: To the payment of an annual amount equal to six percent (6%) of the gross revenues of the Systems to be deposited in the Repair and Replacement Fund, hereinafter provided for in Section 10 of this ordinance. FIFTH: To the payment of the annual amount due the General Fund'of the City of San Antonio, as providedin Section 14 of this ordinance; and SIXTH: Any remaining Net Revenues of the Systems in the General Accour,t, to the Repair and Replacement Fund, in accordance with Section 13 of this ordinance. SECTION 12: Parity Bond Retirement Account. For purposes of paying the principal of and interest on the Parity Bonds, when and as the same shall become due, and providing a reserve to prevent a def ault ia the payment of such principal and interest on Parity Bonds, the City, acting through the Board of Trustees, hereby reaffirms the creation and establishment of a special account known as the " CITY OF SAN ANTONIO ELECTRIC AND GAS SYSTEMS PARITY BOND RETIREMENT ACCOUNT"(hereinafter referred to as " Retirement Account"), which account shall continue to be kept separate and apart from all other funds or accounts of the Systems or of the City. The City hereby reaffirms its covenant that the Retirement Account shall t'e established and kept at such Depository as the Board of Trustees shall designate and funds deposited therein shall be used only for the purpose of paying the principal of and interest on the Parity Bonds. From the Net Revenues of the Systems pledged to the payment and security of the Par.ty Bonds (identified in Section 8of this 8 ordinance), the Board of Trustees shall cause to be paid in the Retirement Account such amounts a3 wil! be fully sufficient to (i) promptly pay, when due, all principal of and interest on the Parity Bonds (hereinaf ter sometimes referred to as the" interest and sinking fund portion" of the Retirement Account) and (ii) establish and maintain in the Retirement Account a reserve amount (hereinafter sometimes referred to as the "Re .e Amount" or " reserve fund portion") equal to not less than the average annual principal and interest requirements of all cutstanding Parity Bonds (calculated on a fiscal year basis as of the date the last series of Parity Bonds were authorized). In addition, all sums received from the purchasers of Parity Bonds constituting accrued interest and premium, if any, shall be placed in the interest and sinking fund portion of the Retirement Account. In addition to the deposits required to be made in the interest and sinking fund portion of the Retirement Account to pay the annual debt service requirements of the Previously issued Parity Bonds, the City Public Service Board is hereby directed to deposit in said Account the following amounts to pay the principal of and interest on ;he New Series 1979-A Bonds, to wit: (a) Deposit for payment olinterest - on or before the first 15th day of a month to occur following the date of delivery of the Bonds to the purchasers thereof and on or before the 15th day of each following month through January 15,1980, an equal amount of money with such deposits totalling not less than the amount of the installment of interest coming due on the Bonds on February 1,1980, and beginning on or before February 15,1980 and on or before the 15th day of each following month, until the New Series 1979-A Bonds are no longer outstanding, an amount of money equal to not lese than one-sixth (1/6) of the next semiannual installment of interest to becorr.e due on said Bonds. (b) Depcsits for payment of principal- on or before the first 15th day of a month to occur following le date of delivery of the Bonds to the purchasers thereof and on or before the 15th day of each following month through Junuary 15,1981, an equal amount of money with such deposits totalling not less than the principal payment due on the Bonds on February 1,1981, and beginning on or before the 15th day of February,1981, and on or before the 15th day of each following month, until the New Series 1979-A Bonds are no longer outstanding, an amount of money equal to not less than one-twelfth (1/12) of the next annual principal payment to become due on said Bonds. I 10 1516 00~

In compliance with the provisions of the ordinance authorizing theissuance of the Previously issued Parity Bonds and this ordinance, thJ Board of Trustees shall cause to be accumulated and maintained in the Retirement Account a Reserve Amount equal to not less than the average annual principal and interest requiremerts of the Previously issued Parity Bonds and the New Senes 1979 Bonds, such Reserve Amount to be determined on the basis of cash on deposit and the book value of securities in which moneys in the rese ve fund portion of the Retirement Account are invested, and to be in addition to the amount on deposit in the Retirement Acccunt for purposes of paying the annual debt service requirements of the outstanding Parity Bonds. In addition to the monthly deposits of $553,965 now required to be made to the reserve fund portion of the Retirement Account in accordance with the provisions of the ordinances authorizing the issuance of the Previously issued Parity Bonde, beginning on or before the first 15th day of a month to occur following the date of delivery of the Bonds to the purchascrs thereof, and on or before the 15th day of each month thereafter, to and including the sixty-first (61st) month after the passage of this ordinance, the City Public Service Board shall cause to be deposited therein an equal amount of money with such deposits totalling the additional amount to be accumulated in the reserve fund portion of the Retirement Account by virtue of the issuance of the New Series 1979-A Bonds. After a Reserve Amount equal to not less than the average annual principal and interest requirements of the Previously Issued Parity Bonds and the New Series 1979-A Bonds (calculated on a fiscal year basis as of the date the New Series 1979-A Bonds are authorized) has been accumulated, monthly deposits to the reserve fund portion of the Retirement Account may be terminated; provided, however, whenever the an'ount in the reserve fund portion of the Retirement Account equals less than the total amount required to be on deposit therein in accordance with the previsions of this ordinance monthly deposits in an amount equal to the sum of the monthly deposits required under the provisions of the ordinance authorizing the Previously is ued Parity Bonds and this ordinance shall be resumed and continued to be made on or before the 15th d% o feach month until the total amount required to be on deposit in the reserve fund portion of the Retirement Account has been fully restorf.d. In the event there are insufficient funds available in any month to permit the required monthly deposits in the Retirement Account for purposes of paying the annual debt service requirements on the Parity Bonds and accumulating and maintaining the Reserve Amount, either or both, amounts equivalent to such deficiencies shall be set apart and paid into the said Account from the first available and unallocated Net Revenues pledged to the payment of the Parity Bonds in the next following month or months, and such payments shall be in addition tc the monthly amounts otherwise required to be paid into said Account during such month or months. Accrued interest and premium,if any, received from purchasers of Parity Bonds which is deposited in the interest and sinking fund portion of the Retirement Account and incom ? and profits received from the investment of funds in the Retirement D Account may be taken into consideration and reduce the monthly deposits which would otherwise be required to be placed in the interest and sinking fund portion and reserve fund portion of the Retirement Account from the pledged Net Ravenues of the Systems. SECTION 13: Repair and Replacement Account. At such time as the provisions of the indenture become inoperative,the City reaffirms its covenant with the holders of Parity Bonds that a special fund or account shall be created and established to be known as the " CITY OF SAN ANTONIO ELECTRIC AND GAS SYSTEMS REPAIR AND PEPLACEMENT ACCOUNT"(hereinafter called " Repair and Replacement Account") at sucn Depository as may be designated by the Board of Trustees. Moneys on deposit in the Repair and Replacement Account shall be used for the following purposes, to-wit: (i) providing extensions, additions and improvements to the Systems; (ii) to meet contingencies of any nature in connection with the operations, maintenance, improvement, replacemert or restoration of properties of the Systems; and (iii) the payment of bonds or other obligations for which other funds are not available, or for any or all of such purposes as, from time to time, may be determined by the Board of Trustees. From the Net Revenues remaining in the General Account after payment and provisions for payments and additions to the Retirement Account in accordance with the provisions of Section 12 hereof, there shall be paid into the Repair and Replacement Account an annual sum equal to six percent (6%) of the gross revenues of the Systems for the then current Fiscal Year. This annual payment to the Repair and Replacement Account shall be accumulated each Fiscal Year by monthly installments, such monthly installments to be based on each month's gross revenues to the extent funds in the General Account are available each month; provided, however, should the total annual payment to the Repair and Replacement Account in any Fiscal Year exceed six percent (6%) of the gross revenues of the Systems, as shown by the Systems' audited annual financial statement, proper year-end adjustments shall be made (on or before March 1 c'ter the close of each Fiscal Year) by causing any excess amourr. deposited thercin to be transferred to the General Account. No c'eposit in excess of six percent (6%) of the annual gross revenues of the Systems shall be made to the Repair and Replacement Account (as provided in the preceding paragraph of this Section) unless and untilcomplete and full payments, or provisions for such payments, shall have been paid over or credited to the General Fund of the City in accordance with h Section 14 of this Ordinance. After complete and fuM payments, or provisions forsuch payments, shall have been paid overor 1516 043 11

credited to the General Fund of the City to the full extent required in Section 14 thereof, additional deposits may be made to the Repair and Replacement Fund; and at the close of each Final Year, all Net R(venues of the Systercs remaining in the General Account after full and complete payment to the General Fund of the City has been made (except such amnunti as may be required to meet unpaid acccunts and obligations which have accrued or are payable during the year to instse continued operation of the Systems), shall be deposited in the Repair and Replacement Account. SECTION 14: Payments or Credits to the General Fund of the C;ty. In accordance with the provisions of the ordinance authorizing the issuance of the Previously issued Perity Bonds and at such time as the provisions of the Indenture shall becomeinoperativ6 and af ter the payments to the Retirement Accoum and the Repair and Replacement Account (for purposes of accumule'ing therein an amount equal to six percent (6%) of the annual gross revenues of the Systems) have been made in full in accordance with the provisions of Section 12 and 13 of this oidinance, there shall be paid over or credited to the General Fund of the City (for general purposes of the City), to the extent Net Revenues of the Systems are available in the General Account and in monthly installments, an amount in cash not to exceed :4% of the gross revenues of the Systems for the month next preceding the month in which the ;nonthly deposit is made, less the value of gas and electric services of the Systems used by the City for municipal purposes and the amount expended for additions to the street lighting system for the month for which such payment is being made. The maximum amount in cash to be transfer red or credited to the General Fund of the City from the Net Revenues of the Systems during any Fiscal Year shall not exceed 14% of tt 9 gross revenues of the Systems less the value of gas and Sectric services of the Systems usec by the City for municipal purposes and the amounts expended during the Fiscal Year for additions to the street lighting system. The percentage of gross revenues of the Systems to be paid over or crectited to the General Fund of the City each Fiscal Year shall be determined (within the 14% limitation) by the governing body of the City. SEC110N 15: Investments. In accordance with the provisions of the ordinance authorizing the issuance of the Previously issued Parity Bonds and this Ordinance, tunds on deposit in the Retirement Account and the Repair and Replacement Fund may be, at the option of the Board of Trustees, invested in direct obligations of the United States of America; obligations which in the opinion of the Attorney General of the United States are general obligations of the United States and backea by its full faith and credit; obligations guaranteed by the United States of Americ.a. evidences of indebtedness of the Federal Land Banks. Federal Intermediate Credit Banks, Banks for Cooperatives, Federal Home Loan Banks. Federal National Mortgage Association; Participation Certif, ales in the Federal Assets Financing Trust; and Certificates of Deposit of any bank or trust company which are fully secured in the manner and to the fullest extent required t'y the laws of the State of Texas for the security of public fends. Any obligations, or evidences of owr ership of said obligations,in which funds on deposit in the { aforementioned Accounts are so invested shall be kept ir; escrow in the respective Depository for such Accr unts ad such investments shall be promptly sold when required and the proceeds of the sale ap, . lied to the meLing of payments requited to be made from the Account from which the investment was made whenever such payaents are necessary to be made. All income and profits received from the investment of funds in the Repair and Replacernent Account shall be transferred and credited to the General Account. During the period of time the Recerve Amount in the Retirement Account totals not lass than the total amount required to be on deposit therein, all income and profits received from the investment of such funds shall be transferred to the interest and sinking fund portion of the Retirement Account, thereby reducing the amount required to be deposited therein to meet tho debt service requirements of Parity Bonds; otherwise income and prcfits received from investments of the funds constituting the Reserve Amount shall be retained as a portion of the Reserve Amount. income and profits received from investments of funds on deposit in theinterest and sinking fund portion of the Retirement Account shall be used only for the purposes of paying the principal of and interest on the Parity Bonds, as and when the same shall become due. SECTION 16: Transfer of Funds to the Paying Agent. On or before an interest or principal payment date of any Parity Bondc, the Treasurer of the City Public Service Board shall make transfer of funds on deposit in the Retirement Account to the Paying Agent or Paying Agents in the amounts calculated as fully sufficient to pay and discharge promptly, as due, each installment of interest and principal pertaining to the Parity Bonds then outstanding. In the event Parity Bonds may be called for redemption prior to maturity, the Treasurer of the City Public Service Board shall cause amounts calculated as sufficient to pay and discharge the Parity Bonds (including accrued intorest and premium, if any) so called for redemption to be transferred to the Paying Agent or Paying Agents on or before the date fixed for the redemption of such bonds. SECTION 17: Security of Funds. All moneys on deposit in the special Funds or Accounts for which this Ordinance makes provision (except any portions thereof as may be at any time properly invested) shall be secured in the manner and to the fullest extent required by the laws of the State of Texas for the security of public funds. SECTION 18: Issuance of Additiona! Parity Bonds. In addition to the right to issue obligations of inferior lien, as authorized by the laws of the State of Texas, the City reserves the right to issue additional revenue obligations payable from the same source and equally secured in the same manner as the Previously issued Parity Bonds and the New Series 1979-A Bonds and such additional revenue obligations, the Previously issued Parity Bonds and the New Series 1979-A Bonds shall in all respects be e t' / r

1J10 (J 4 4 12

of equal dignity. The amount of additional reveriue obligations for Systems'improvemente and extensions to beissued from time to time, shall be based upon the difference between the estimated costs of planned extensions and improvements and the total of the funds available and estimated to be available for extensions and improvements to the Systems;and it shall be 8 th3 duty of the Board of Trustees to request the City Council to authorize and provide for the issuance and sale of additional revenue obligations in the amount necessary to meet the cost of such planned extensions and improvements, such request to be evidenced by resolution of the Board of Trustees; and upon receipt af such request,it shall be the dutyof the City Council to review such request and to provide for the issuance and sale of such Additional Parity Bonds as the City Council may deem necessary in order that the planned extensions and improvements may be made. It is hereby covenanted and agreed that no additional revenue bonds or other obligations shall be issued or incurred on a parity with the New Series Bonds unless and until the following conditions can be satisfied and met: (a) Until such time as the Indenture securing payment of the Old Series Bonds shat! have terminated the Board of Trustees by resolution shall hase consented to the issuance of such Additional Parity Bonds and the payment thereof from the Net Revenues of the Systems, and shall have further agreed to comply with all of the terms and provisbns of the ordinance authorizing such Additional Parity Bonds with relation to the operation of the Systems and the disposition of revenues of the Systems. (b) The Treasurer of the City Public Service Board shall have executed a certificate stating that the City is not in default as to any covenant, obligation or undertaking contained in any ordinance or other document relating to the issuance of any obligaiions then outstanding which are payable from and secured by a lien on and pledge of the Net Revenues of the Systems, and that each of the Funds and Accounts created and established for the sole purpose of paying the principalof and interest on such obligations contains the amount then required to be on deposit therein. (c) The Board of Trustees shall have secured from an independent certified public accountant a certificate evidencing his determination that the Net Revenues of the Systems (including earnings from the investment of Systems funds) were, during the last completed Fiscal Year or for any consecutive twelve (12) month period during the last fifteen (15) consecutive months prior to the month of adoption of the ordinance authorizing the issuance of the additional obligations, equal to at least one and one-half times the maximum annual principal and interest requirements on the then outstanding Old Series Bonds and Parity Bonris and the Parity Sonds then proposed to be issued. For the purpose of determining said Net Revenues, the certified public accountant may adjust the Net Revenues to include a proper allowance for revenues arising from any D increase in electric and gas rates which has become effective prior to the issuance of the proposed Additional Parity Bonds, but which during all or any pcrt of the past Fiscal Year or other twelve (12) month period used for determining said Net Revenues was not in effect, in an amount equal to t'le a. aount by which the billings of the Systems to customers for such Fiscal Year or twelve (12) month period would have bean increased if such increase in rates had been in effect during the whole of such Fiscal Year or twelve (12) month period. (d) The Additional Parity Bonds are to mature on February 1 or August 1, or both,in each of the years in which they are scheduled to mature. (e) The ordinance authorizing the issuance of the Additional Parity Bo" J provides that the amount to be accumulated and maintained in the Retirement Account as the Reserve Amount shall be an amount equal to not less than the average annual requirements for the payment of principal of and interest cn all Parity Bonds which will be outstanding after giving effect to the issuance of the Additional Parity Bonds then being issued; and provides that any increase to the Reserve Amount in the Retirement Account shall be accumulated within five (5) years and one (1) month from the date of passage of the ordinance authorizing the issuance of tre Additional Parity Bonds. Provided, however, that Parity Bonds may be issued from time to time (pursuant to any law than available) for purposes of refunding outstanding Old Series Bonds and Parity Bonds upon such terms and conditions as the governing body of the City and the Board o' Trustees may deem to be in the best interest of the City and,if less than all outstanding Parity Bonds are refunded, m if Parity Bonds are issued to refund outstanding Old Series Bonds, the proposed refunding bonds shall be considered as " Additional Parity Bonds" under the provisions of this Section, but the certificate required in paragraph (c) of this Section shall give effect to the issuance of the proposed refunding bonds (and shall not give effect to the bonds being refunded following their cancellation or provision being made for their payment). Parity Bonds and Old Series Bonds shall not be considered to be " outstanding" (under the provisions of this Ordinance) when provision has been made for their payment in the manner a'1d to the extent permitted by the laws of the State of Texas applicable at the time such provision is made. And provided, further, that any obligations hereafter issued which are junior and subordinate in all respects to the Parity Bonds may (without impairment of the obligation of contract of the Parity Bonds) be refunded as Parity Bonds by meeting all D the terms and conditions for the issuance of Additional Parity Bonds; and such juniorlien igations may achieve the status 13

of and become, for all purposes Parity Bonds when the following conditions can be met and upon the happening of the following events, to-wit: (i) the Board of Trustees shall have caused to be filed with the City Clerk of the City a certified written report of an independent certified public accountant demonstrating that the Net Ravenues, during the last completed Fiscal Year or for any twelve (12) consecutive months during the last fifteen (15) months prior to the month of filing such report, were equal to at least one and one-half (1%) times the maximum annual requirements for the payment of p-incipal of and interest on the then outstanding Old Series Bonds, Parity Bonds and for the bonds then proposed to achieve the status of Parity Bonds, (ii) the Yreasurer of the City Public Service Board shall have filed with the City Clerk of the City a certificate stating that the City is not in default as to any covenant, obligation or undertaking contained in any ordinance or other document relating to the issuance of any obligations then outstanding which are payable from and secured by a fien on and pledge of the Net Revenues of the Systems, and that each of the Funds and Accounts created and established for the sole purpose of paying the principal of and interest on such obligation contains the amount then required to be on deposit therein, (iii) the obligations proposed to acnieve the status of Parity Bc ids mature on February 1 or August 1, or both,in each of the years they are scheduled to mature and (iv) the Reserve Amount required to be accumulated or then on deoosit in the Retirement Account equals not less than the average annual requirements for the payment of principal of and interest on all Parity Bonds which will be outstanding after giving effe ;t to the bonds then proposed to achieve the status of Parity Bonds. SECTION 19: No Ob!!gation of Uen Superior to that c! the Parity Bonds. The City will not hereafter issue any additional bonds on a parity with the Old Series Bonds under the terms of the Indenture or create or issue evidences of indebtedness for any purpose possessing a lien on Net Revenues superior to that to be possessed by the Parity Bonds. The City, however, rctains the right to create and issue evidences of indebtedness whose lien on Net Revenues sha!I be subordinate to that pn sessed by the Parity Bonds. SECTION 20 Management of the Systems. In accordance with the provisions of the ordinance authorizing the Previously issued Parity Bonds and this Ordinance, the City hereby agrees, convenants and reaffirms that: (a) Until such time as the terms, conditions and provisions of the Indenture become inoperative and the" Trust Estate" ccnveyed by the Indenture reverts to the City free and clear of the encumbrance created thereby, the management of the Systems and all of its properties and affairs shall be conducted, operated and controlled in the manner and to the same extent as set forth in the Indenture to which reference is here made for a specific description thereof. (b) At such time as the terms, conditions anu provisions of the Indenture become inoperative and the " Trust Estate" conveyed by the Indenture revert to the City free and clear of the encumbrance created thereby and during such time as any Parity Bonds issued hereunder are outstanding and unpaid, the complete management and control of the Systems, pursuant to the authority contained in Article 1115, V.A.T.C.S., shall be vested in a Board of Trustees consisting of five citizens (one of whom shall be the Mayor of the City) of the United States of America permanently residing in Bexar County, Texas, to be known as the " City Public Service Board" of San Antonio, Texas. Those persons serving as appointed members of the Board of Trustees at the time defeasance of the Indenture occurs shall continue in of fice until their respective terms as established under Article VI of the Indenture have expired. The Mayor of the City shall be a votMg member of the Board, shall represent the City Council thereon, and shall be charged with the duty and responsibility of keeping the City Council fully advised and informed at all times of any actions, deliberations and decisions of the Board and its conduct of the management of the Systems. All vacancies in membership on the Board (excluding the Mayor of the City), whether occasioned by failure or refusalof any person previously named to accept appointment or by expiration of term of office or otherwise, shall be filled in the following manner: a nominee to fill such vacancy shall be elected by the majority vote of the remaining members of the Board of Trustees, such majority vote to include the vote of the Mayor. The name of such nominee shall then be submitted by the Mayor to the vote of the City Council, which by a majority vote of the members thereof then in office shall, as( videnced by ordinance or resolution, either confirm or reject such nominee; provided, however, if the City Council fails to act upon such nomination within thirty (30) days after submission to it of such nominee, such failure to do so shall be considered as a rejection of such nominee and another nominee shall be selected by the Board. If a vacancy occurs and the remaining members of the Board (including the Mayor) fail to elect a nominee to fill such vacancy within sixty (60) days after the vacancy occurs (or fail to select another nominee within sixty (60) days af ter rejection of a nominee by the City Council), the City Council, by a majority vote of the members thereof then in office, shall elect a person to fill such vacancy and shall aproint such Trustee by resolution or ordinance. In the eient the City rejects or fails to confirm three (3) consecutive nominees of the Board to fill a vacancy on the Board, the CJy Council shall, within thirty (30) days after the third rejection, appoint a temporary Trustee to fill such vacancy pending the appointment of a permanent Trustee to fill such vacancy. The aopointment of a temporary Trustee by the City Council shall constitute the nomination of such appointee as the permanent Trustee to fill such vacancy. Unless the remaining members of the Board, by a majority vote, reject the nominee selected by the City Council within thirty (30) days after his appointment as a temporary Trustee, the appointment shall become final and 14

the temporary Trustee shall automatically become the permanent Trustee to fill such vacancy. In such vote, the vote of the Mayor shall automatically be cast as a vote in favor of the confirmation of such Trustee, whether cast by the Mayor or not. If the nominee of the City Councilis rejected by a majority vote of the remaining Trustees,the remaining Trustees shallwithin thirty (30) days after such rejection elect another nominee to fill such vacancy. Such nominee shall be considered by the City Council and if approved shall become the permanent Trustee. If such nominee is rejected by a majority vote of the members of the City Council then in of fice, or in the event the City Council fails to act upon such nomination within thirty (30) days after the nomination is presented to the Council, the temporary Trustee theretofore appointed by the Council shall automatically become the permanent Trustee to fill such vacancy. The term of office of each member appointed to the Board shall be five (5) years. A person who has served as an appointed member of the Board for a single five-year term shall be eligible for reappointment for one additional five-year term and one only. A member who is appointed to the Board to serve out an unexpired portion of a retired member's term shall not be considered to have served a" term"unless the unexpired portion of the term so served is three (3) years or more. Permanent removal of residence from Bexar County by any appointed member of the Board shall vacate his cffice as a member of the Board, or any member (other than the Mayor of the City)who shall be continuously absent from all meetings held by the Board for a period of four (4) consecutive months shall, unless he shall have been granted leave of absence by the unanimous vote of the remaining members of the Board, be considered to have vacated his office as a member of the Board. Any member of the Board, other than the Mayorof theCity, nay,by unanimous vote of the remaining members of the Board be removed from office, but only for adequate cause. Notwithstanding any of the foregoing provisions as contained in this Section 20 (b) or in any other section of this ordinance pertaining to the appointment or selection of Trustees to the Board upon the defeasance of the Indenture securing paymen' of the Old Series Bonds, the City Council reserves unto itself the absolute right to at anytime upon passage of an ordinance approved by a majority vote of its members to change the method of selection of and appointment to the Board of Trustees to direct selection by the City Council, with such change of method to direct' selection being at the sole option of the City Council without approval of any persons, party, holder of Parity Bond or Board. Except as otherwise specifically provided in this Ordinance, the Board of Trustees shall have absolute and complete authority and power with reference to the control, management and operation of the Systems and the expenditure and application of the revenues of the Systems subject to the provisions contained in this Ordinance, all of which shall be binding D upon and shall govem the Board of Trustees. In connection with the management and operation of the Systems and the expenditure and apphcation of the revenues therefrom,the Board of Trustees shallbe vested with allof the powers of theCity with respect thereto, including all powers necessary or appropriate for the performance cf all of the covenants, undertakings and agreements of the City contained in this ordinance, and shall have full power and authority to make rules and regulatiens governing the furnishing of electric and gas service to customers and for the payment of the same, and for the discontinuance of such services upon iailure of customers to pay therefor, and, to the extent authorized by law, shall have fullauthoritywith reference to making of extensions, improvements and additions to the Systems and the acquiring by purchase or condemnation of properties of every kind in connection therewith. The Board of Trustees in exercising the management powers granted herein, will ensure that policies adopted affecting research, development and corporate planning will be consistent with council policy, and policies adopted by the Board of Trustees pertaining to such matters will be subject to council review. The Board of Trustees shall elect one of its members as Chairman and one as Vice Chairman of the Board and shall appoint a Secretary and a Treasurer, or a Secretarv-Treasurer, who may, but need not be, a member or members of the Board. If a rr ember of the Board of Trustees is not appointed as Secretary cr Treasurer, or Secretary-Treasurer, then an employee or employees of the Board whose duties in the operation of the Systems require performance of similar duties may beappointed as Secretary or Treasurer or Secretary-Treasurer. The Board of Trustees may follow and adopt such rules for the orderly handling of its affairs as it may see fit and may manage and conduct the aff airs of the Systems with the same freedom and in the same manner ordinarily employed by tt:e Board of Directors of private corporations operating properties of a similar nature. No member of the Board of Trustees, however, shall ever vote by proxy in the exercise of his du:ies as a Trustee. The Board of Trustees shall appoint and employ all officers, employees and professional consultants which it may deem desirable, including without limitation, a General Manager of the Systems, attorneys, engineers, architects, and other advisors. No )fficer or employee of the Board of Trustees may be employed who shall be related within the second degree of consanguinU./ or affinity to any member of the Board of Trustees. The Board of Trustees shall obtain and keep continually in force an employees' fidelity and indemnity bond of the so-called

 " blanket" type, written by a solvent and recognized indemnity company authorized to do business in the State of Texas and covering losses to the amount of not less than One-Hundred Thousand Dollars ($100,000).

1516 047 15

The rnembers of the Board of Tr. stees, other than the Mayor of the City, shall receive annual compensation in the minimum amount of Two Thousand Dollais ($2,000.00), except that the Chairman of the Board shall receive annual compensation in the minimum amount of Two Thousand Five Hundred Dollars ($2,500.00). Such compensation may be increased from time to time by the majority vote of the City Council then in office. The members of the Board of Trustees and administrative officers shall not be personally liable, either individually or collectively, for any act or omission not w;!Ifully fraudulent or in bad faith. SECTION 21: Metitod of Amendment, The City hereby reserves the right to amend ordinances authorizing the issuance of Parity Bonds subject to the following terms and conditions, to-wit: (a) The holders of Parity Bonds aggregating in principal amount sixty-six and two-thirds (36-2/3%) percent of the agtjregate principal amount of then outstanding Parity Bonds shall have the right from time to time to approve any amendment to this ordinance which may be deemed necessary or desirable by the City; provided, however, that nothing herein contained shall permit or be construed to permit amendment of the terms and conditions of this ordinance or in the bonds so as to: (1) Make any change in the maturity of outstanding Parity Bonds; (2) Reduce the rate of interest borne by any of the outstanding Parity Bonds; (3) Reduce the amount of the principal of, or redemption premium,if any, payable on any outstanding Parity Bonds; (4) Modify the terms of payment of principal or of interest or redemption premium on outstanding Parity Bonds or any of them or impose any condition with respect to such payment; (5) Affect the rights of the holders of less than all of the Parity Bonds then outstanding; or (6) Change the minimum percentage of the principal amount of bonds necessary for consent to such amendment. (b) If at any time the City shall desire to amend this ordinance under this Section, the City shall cause notice of the proposed amendment to be published at least once in a financial publication ptblished in the City of New York, New York. Such notice shall briefly set forth the nature of the proposed amendment and shall state that a copy thereof is on file at the Office of the City Clerk of the City of San Antonio for inspection by all holders of Parity Bonds then outstanding. (c) Whenever at any time within one (1) year from the date of publication of such notice the City shall receive an instrument or instruments executed by the holders of at least sixty-six and two-thirds (66-2/3%) percent in aggrec, ate principal amount of all Parity Bonds then outstanding, which instrument or instruments shall refer to the proposed amendment described in said notice and which shall specifically consent to and approve such amendment in substantially the form of the copy thereof on file with the City Clerk of the City of San Antonio, the City may adopt the amendatory ordinance ;n substantially the same form. (d) Upon the adoption of any amendatory ordinance pursuant to the provisions of this Section, the ordinances aJhorizing the Parity Bonds then outstanding shall be deemed to be modified and amended in accordance with such amendatory ordinance, and the respective rights, duties and obligations of the City and all holders of outstanding Parity Bonds shall thereafter be determined, exercised and enforced, subject in all respects to such amendment. (e) Any consent given by the holder of a bond pursuant to the provisions of this Section shall be irrevocable for a period of six (6) months from the date of the publication of the notice provided for in this Section, and shall be conclusive and binding upon all future holders of the same bond during such period. Such consent may be revoked at any time after six (6) months from the date of the publication of said notice by the holder who gave such consent, or by a successor in title, by filing notice with the City Clerk of the City of San Antonio, but such revocation shall not be effective if the holders of sixty-six and two-thirds (66-2/3%) percent aggregate principal amount of the then outstanding Parity Bonds as in this Section defined, have, prior to the attempted revocation, consented to and approved the amendment. (f) For the purposes of establishing ownershio of Parity Bonds, the f act of the holding of Parity Bonds by any bondholder, the amount and numbers of such bonds, and the dates of their holding such bonds, may be proved by the affidavit of the person claiming to be such holder, or by a certificate executed by any trust ccmpany, bank or any other depository wheres er situated showing that at the date therein mentioned such person had on deposit with such trust company, bank or other Ob 16

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depository the bonds described in such certificate. The City may conclusively assume that such ownership continues mtil notice to the contrary is served on the City. 9 SECTION 22: Recognition of Provisiens of Indenture. It is specifically recognized and affirmed that until defeasance of the provisions of Article V of the Indenture, the pledge of revenues herein for the payment and security of the Parity Bonds is inferior to the pledge of revenues therein to the payment of principal of and interest on the Old Series Bonds and to the maintenance of the

  " SAN ANTONIO ELECTRIC AND GAS SYSTEMS RESERVE ACCOUNT" thereunder. All terms, conditions, covenants, agreements, stipulations and trust provisions whatsoever of the indenture, providing and constituting the means of securing and providing for payment of the Old Series Bonds, including, but not limited to,the provisions of Article V thereof relating to application of revenues, are hereby recognized and affirmed and shall be given full force and effect in all respects until (i) the conditions for defeasance of the Indenture (set forth in Section 1 of Article XIV) have been fulfilled in such manner and to such extent as will have caused the " Trust Estate" to revert to the City free of the encumbrance thereof, or (ii) the Indenture has been amended in such manner as would permit the Parity Bonds to occupy a position of parity with the Old Series Bonds, in which event all such bonds will become Parity Bonds, or (iii) a defeasann of the indenture has taken place by operation or application of the law.

SECTION 23:Transiflon of Funds Upon Defeasance of the Indenture-In accordance with the provisions of the ordinance authorizing the issuance of the Previously Issued Parity Bonds, and at such time as the conditions, provisions and terms of the Indenture shall become inoperative and the " Trust Estate" conveyed by the Indenture reverts to the City free and clear of the encumbrance created thereby, any funds remaining in the " San Antonio Electric and Gas Systems Bond Reserve Account" (created and established in Section 4 of Article V of the Indenture) shall be transferred and credited to the Reserve Amount on deposit in the " Retirement Account," and all moneys and funds remaining on deposit in the " Electric and Gas Systems improvements and Ccntingencies Fund" and the " Electric and Gas Systems Surplus Fund" (created and established in Section 6 (as amended) of Article V of the Indenture) shall be transferred and credited to the " Repair and Replacement Account", SECTION 24: Maintenance and Operation -Insurance. The City hereby agrees and reaffirms that the Systems shall be maintained in good condition and operated in an efficient manner and at reasonable cost. So long as any of the Parity Bonds are outstanding, the City, acting by and through the Board of Trustees, agrees to maintain ins'urance of a kind and in an amount which usually would be carried by private companies engaged in a similar type of business. SECTION 25: Records - Accounts - Accounting Reports. The City, acting by and through the Board of Trustees, hereby agrees, covenants and reaffirms that so long as any Parity Bonds, or any interest thereon, remain outstanding and unpaid, a proper and complete set of records and accounts pertaining to the operation of the Systems sha!l be kept and maintained separate and apart from all other records and accounts of the City, in which complete and correct entries shall be made of all transactions relating b the Systems as provided in Article 1113, V.A.T.C.S.,and that the holderor holders of anyof the Parity Bonds or any duly authorized agent or agents of such holders shall have the right at all reasonable times to inspect all such records, accoums and data relating thereto and to inspect the Systems and all properties comprising the same. The Board of Trustees shall, so far as practicable and to the extent consistent with the provisions of this ordinance, keep its books and records in the manner prescribed in the Uniform System of Accounts adopted by the National Association of Regulatory Utility Commissioners. It is further agreed that as soon after the close of each Fiscal Year as may reasonably be done, the City (acting by and through the Board of Trustees) will cause an annual audit of such books and accounts to be made by an indeoendent firm of certified public accountants. Each such audit, in addition to whatever other matters may be thought proper by the accountants, shall reflect the revenues and expenses of the Systems for said Fiscal Year, and the assets, liabilities and financial condition of the Systems (in reasonable detail) at the close of such Fiscal Year. Expenses incurred in making the audit above referred to are to be regarded as Maintenance and Operating Expenses and paid as such. Copies of the aforesaid annual audit shall be immediately furnished to the Executive Director of the Municipal Advisory Council of Texas at his office in Austin, Texas, and to the original purchaser of a series of Parity Bonds and any subsequent holder thereof at his written request. At the close of the first six (6) months' period of each Fiscal Year, the Treasurer of the City Public Service Board is hereby directed to furnish a copy of an operating and income statement in reasonable detail covering such period to any bondholder upon his written request therefor received not more than thirty (30) days af ter the closa of said six (6) months' period. Any bondholder shall have the right to discuss with the accountant making the annual audit the contents thereof and to ask for such additionalinformation as he may reasonably require, provided such bondholder shall have offered to the Board of Trustees sufficient indemnity to pay any costs, expenses and liabilities whlch may or might be int. ared in providing such additionalinformation. SECTION 26: Remedies la the Event of Default. In addition to allof the rights and remedies provided by the laws of the State of Texas, it is specifically cc"enanted and agreet. >articularly that in the event the City (i) defaults in the payments to be made to the 1516 049 17

Retirement Account as required by this Ordinance, or (ii) defaults in the observance or performance of any other of the covenants, conditions or obligations set forth in this Ordinance, the following remedies shall be available: (a) The holder or holders of any Parity Bonds shall be entitled to a writ of mandamus issued by a Court of proper jurisdiction, compdling and requiring the City, its officers, the Board of Trustees, and/or all of them, to observe and perform any covenants, conditions or obligations prescribed in this Ordinance. (b) No delay or omission to exercise any right or power accruing upon any default shallimpair any such right or power, or shall be construed to be a waiver of any such default or acquiescence therein, and every such right and power may be exercised from time to time and as often as may be deemed expedient. The specific remedies herein provided shall be cumulative of all other existing remedies and the specifications of such remedies shall not be deemed to be exclusive. SECTION 27: Special Covenants. The City hereby further covenants as follows: (a) The City has secured from the Board of Trustees a resolution acknowledging its duties, responsibilities and obligations under this Ordinance and agreeing to fully comply with all its terms and provisions, including the administration and operation of the Systems and the disposition of revenues of the Systems. (b) It has the lawful power to pledge the revenues supporting this issue of bonds and has lawf ully 3xercised said power under the Constitution and laws of the State of Texas, including said power existing under Articles 1111 et seq., that the bonds issued hereunder, the Previously Issued Parity Bonds and Additional Parity Bonds, when issued, shall be ratably secured under said pledge of income in such manner that one bond shall have no preference over any other bond of said issues. (c) Other than for the payment of the bonds herein authorized, the Previously issued Parity Bonds, and the previously issued Old Series Bonds, the rents, reunues and income of the Systems have not in any manner been pledged to the payment of any debt or obligation of the City or of the Systems. (d) So long as any of the Parity Bonds or any interest thereon remain outstanding, the City will not sell or encumber the Systems or any substantial part thereof, provided that this sh3ll not be construed to prohibit the sale of such machinery or other properties or equipment wnich has become obsolete or otherwise unsuited to the efficient operatica of the Systems; and, further, with the exception of the Additional Parity Bonds expressly permitted by this Ordinance, the City will not encumber the Net Revenues unless such encumbrance is made junior and subordinate to all of the provisions of this Ordinance. (e) No free service of the Systems shall be allowed and should the City or any of its agents or instrumentalities make use of the services or fdlities of the Systems, payments for services rendered by the Systems should either be made by the City or amounts equal in value to the services rendered by the Systems shall be deducted from the annual payment due the General Fund of the City from the Net Revenues of the Systems as provided in Sect:on 14 hereof. (f) To the extent it legally may, the City further covenants and agrees that, so long as any Parity Bonds or any interest thereon are outstanding, no franchise shall be granted for the installation or operation of any competing electric or gas system other thar that owned by the City, and the operation of any such systems by anyone other than the City is hereby prohibited. SECTION 28: Bonds are Specla! Obligations. The bonds authorized by this Ordinance are special obligations of the City payable from the pledged Net Revenues and the holders thereof shall never have the right to demand payment out of funds raised or to be raised by taxation. SECTION 29: Bonds Negotiable. The New Series 1979-A Bonds constitute negotiable instruments within the meaning of the Uniform Commercial Code of the State of Texas. Each snd every successive holder of any such bond, orofinterest coupons appertaining thereto, is conclusively presumed to forego and renounce his equities in favor of subsequent holders for value without notice and agrees that such bond and said interest coupons may be negoHated by delivery by any person having possession, however acquired. SECTl0N 30: Ordinance to Constitute Contract. The provisions of this Ordinance shall constitute a corm act between the City of San Antonio and the holder or holders from time to time of the New Series 1979-A Bonds and after the issuance of any of said bonds, no change, variation, or alteration of any kind in the provisions of this Ordinance may be made, unless as herein 1516 050

otherwise provided, until all of said bonds issued hereunder shall have been paid as to both principal and interest. D SECTION 3h Approval by Attorney General and Registration by the Comptroller of Public Accounts.The Mayor of the City and Treasurer of the City Public Service Board are hereby authorized to have control and custody of the New Series 1979-A Bonds and all necessary records and proceedings pertaining thereto pending the sale of said bonds and the delivery thereof to the purchasers, and the Mayor and other officers and employees of the City and the City Public Service Board are hereby authorized and instructed to make such certifications, execute such instruments and perform such acts as may be necessary to assure the proper investigation, examination and approval thereof by the Attorney General of the State of Texas,and their registration by the State Comptroller of Public Accounts, and to accomplish delivery of said bonds to the purchasers thereof. SECTION 32: No Arbitrage. The City covenants to and with the purchases of the New Series 1979-A Bonds that itwill make no use of the proceeds of such bonds at any time throughout the term of this issue of bonds which,if such use had been reasonably expected on the date of delivery of the bonds to and payment for the bonds by the purchasers, would have caused the New Series 1979-A Bonds to be arbitrage bonds within the meaning of Section 103tc) of the Internal Revenue Code of 1954, as amended, or any rN ulations or rulings pertaining thereto; and by this covenant the City is obligated to comply with the requirements of the aforesaid Section 103(c) and all applicable and pertinent Department of the Treasury regulations relating to arbitrage bonds. The City further covenants that the proceeds of the New Series 1979-A Bonds will not otherwise be used directly or indirectly so as to cause all or any part of the New Series 1979-A Bonds to be or become arbitrage bonds within the meaning of the aforesaid Section 103(c), or any regulations or rulings pertaining thereto. (End of Bond Ordinance Excerpts) SAN ANTONIO ELECTRIC AND GAS SYSTEMS HISTORY AND MANAGEMENT San Antonio acquired its gas and electric utilities in 1942 from the American Light and Traction Company which had been ordered by the Federal Government to sell properties under provisions of the Holding Company Act of 1933.The total funds required for the purchase were raised by the sale of $33,950,000 first mortgage revenue bonds. The Trust indenture securing the Old Series Bonds establishes management requirements and provides that the complete management and control of the electric and gas systems, while the Old Series Bonds are outstanding, shall be vested in a Board of Trustees consisting of five g cititzens of the United States of America permanently residing in Bexar County, Texas, to be known as the " City Public Service Board of San Antonio", sometimes also referred to herein as " Board"or" CPS".The Mayorof the Cityof San Antonio is a permanent ex officio member. The present members of the Board are: ELOY CENTENO, CHAIRMAN President, Centeno Supermarkets, Inc. GLENN 81GGS, VICE CHAIRMAN Chairman, First National Bank of San Antonio RUBEN M. ESCOBEDO Certified Public Accountant Escobedo and Stinson EARL C. HILL Attorney at Law Hill and Walls MRS. LILA COCKRELL Mayor, City of San Antonio (Ex Officio Member) While the Old Series Bonds are outstanding, vacancies in membership on the Board are filled by majority vote of .he remaining members. No person who is related within the second degree of consanguinityoraffinity to any Board member or any person who has been a member of the Board within a period of five years prior to the election shall be eligible for election as a member of the Board. The members of the Board are eligible for Mection at the expiration of their first term of office to B one additional term only. 1516 051 19

The Board is vested with all of the powers of the City with respect to the management and operation of the systems and the expenditure and application of the revenues therefrom, including all powers necessary orappropriate for the performa.Re of all cc,/enants, undertakings and agreements of the City contained in the Trust indenture, except regarding rates and issuance of additional bonds. The Board has full power and authority to make rules and regulations governing the furnishing of electric and gas service and full authority with reference to making extensions, improvements and additions to the systems, and to adopt rules for the orderly handling of its affairs. It is empowered to appoint and employ all officers and employees and obtain and keep in force a " blanket" type employees' fidelity and indemnity bond covering losses in the amount of not less than $100,000. The Ordinances which authorize the issuance of the New Series Bonds,and which willcontrolafter the Old Series Bonds are no longer outstanding, contain similar management provisions. The management provisions of this Ordinance, which are set out in full in a previous section, add, among other things, the requirement that new Board appointees must also be approved or in certain cases appointed by a majority vote of the City Council and grants the City Council authority to review Board action with respect to research, development and planning. See Material Litigation - Other Matters on pp. 40-41 for information relating to a lawsuit challenging the present method of appointment of Board trustees. ADMINISTRATION AND OPERATING PERSONNEL Long-time career service is typical of CPS employees, who presently number 2,880. All executive and supervisory positions are held by individuals who have been thoroughly schooled and trainea in the utilities field. CPS employees have a full range of fringe benefits including a pension plan augmented by Social Security, group life insurance, hospitalization and major medical and other benefits. Generally good working conditions have produced a stable, well-qualified, highly motivated work force which for the past year recorded the very low turnover rate of 0.80% per month. Principal executive personnel and organization are shown on the following chart. GENERAL MANAGER J K 5prut.e INDUST Ri AL ELOPMENT O* rector y p g) F F E ADM N RA T L '" # J B Poston Soccorary Freeswer SPECsAL AMtST ANT POWER PL ANT opt RAf TONS FINANCIAL StRWIC63 LEGAL SERVICES png RE St ARCH M M HntmeAft J K Deers e P S Schoceer O E Peea y.n,ge, y n g., y,,,9,, CONS TRocTiON ENGINf FRING CUSTOMER 5ERvCES TR S A ATKw W f Deone J # PW8'nos LE h C H Oneerd Menager Men *9*' ****9*' Meneger SYST E M OPERATKWS PL ANNING & DEVELOPME NT PE RSONNE L INFORMATsON SERVICES A C Meine A von Rosentierg J M Cossono D 5 Yhomes Meneger Meneger Manager Meneger PUBLIC RELAYtONS L J Ssengler MayI r979 20 I IU UJd

ELECTRIC AND GAS SALES BY CUSTOMER CATEGORY D 1976 1977 Fiscal Years Ended January 31: 1978 1979 1979* ELECTRIC SYSTEM SALES IN KWH Residential 1,941,245,967 1,92'),326,373 2,155,884,079 2,318,020,427 2,332,539,731 Commercial & Industrial 2,645,439,577 2,748,937,271 2,919,511,452 3,059,620,744 3.083,150,702 Street Lighting 63,104,513 64,265,627 65.257,868 66,085,279 66,334,723 Public Authorities 965,196,593 983,537,835 1.025,463,732 1,050,896,902 1,051,198.130 Other Utilities 93,874,280 96,684,320 105,999,400 335,000,540 331,916,060 ANSL 8,281,414 8,887,802 9,372,657 9,697,386 9,723,987 Total Sales in KWH 5,717,142,344, 5 830,639,228 6,281,489,188 6,839,321,278 6,874,863,333 AVERAGE NUMBER OF CUSTOMERS Residential 237,427 242,468 250,072 262,769 265.108 Commercial & Industrial 26,436 26,952 28,155 29,393 29,551 Street Lighting 23 28 35 41 41 Public Authorities 2,192 2,278 2,351 2,403 2,418 Other Utilities 3 3 3 5 4 ANSL 5,484 5,890 6,078 6,249 6,270 Total Customers 271,565 277,619 2863_94 300,860 303,392 GAS SYSTEM SALES IN MCF h Residential 13,101,777 14,691,364 13,248,917 15,597,842 14,890,004 Commercial 6,048,435 6.701,652 6,109,391 6,856,216 6,631,178 Industrial 5,993.699 5,736,020 5,221,150 5,076,945 5,108,628 Public Authorities 1,962,519 2,192,842 1,944,347 2,279,048 2.199,479 Total Sales in MCF 27.106,430 29,321,878 26,523,805 29,810,051 28,829,289 AVERAGE NUMBER OF CUSTOMERS Residential 209,808 213,694 218,840 226,168 227,369 Commercial 16,438 16,379 16,494 16,723 16,753 Industrial 390 373 349 370 376 Public Authorities 2,170 2,122 2,104 2,074 2,064 Total Customers 228,806 232,567 237,787 245,335 246,562 KWH SALES PER CUSTOMER Residential 8,176 7,953 8,621 8,822 8,798 Commercial & Industrial 100,070 101,994 103,694 104,094 104,333 MCF SALES PER CUSTOMER Residential 62 69 61 69 66 Commercial 368 409 370 410 396 12 months ending March 31,1979. D 1516 053 21

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DESCRIPTION OF PHYSICAL PROPERTY ELECTillC SYSTEM Generating Plants The electric generating system operated by the Board consists of six steam electric generating stations with step up substation systems. The J. T. Deely Plant, located at Calaveras Lake, southeast of the City, is equipped to burn either coal or fuel oil. Unit No.1 was placed in service in July,1977 and Unit No. 2 has been in commercial operatio.1 since August,1978. These two units will carry approximately one-half of the maximum system load for the near future on coal, which is less expensive and more available than oil or gas. Also located at Calaveras Lake and sharing its cooling capability is the O.W. Sommers Plant, composed of two units which are capable of operating on either natural gas or fuel oil. The V. H. Braunig Plant is located on Braunig Lake, also southeast of the City. It has three units which operate on either natural gas or fuel oil. Both Calaveras Lake and Bre Jnig Lake have additional space and coolirig capability for future generating units. These lakes, which cover approxirr tely a 5,000 surface acres, are man-made and utilize treated sewage effluent and runoff waters. CPS was a pioneer in the use of poorer quality water for cooling purposes, thereby saving the higher quality underground water for other uses. While the above plants now generate most of the load, there are three older plants which are held in reserve. They are thew. B. Tuttle, Mission Road, and Leon Creek Plants. They can burn either natural gas or fuel oil and are cooled by water recircu!ated through cooling towers. CPS owns over 800 railroad cars which are ussd in unit trains to haut coal from mines in Wyoming to the Deely Plant. CPS also performs its own required car maintenance and servicing at their car maintenance shops locatea at the Deely Plant. Details of installed units at CPS generating stations are as follows: Year Capability Generatina Station Fuel Installed MW J.T. Deely Plant Coal 1978 418 Coal 1977 418 O.W. Sommers Plant Gas / Oil 1974 400 Gas / Oil 1972 400 V.H. Braunig Plant Gas / Oil 1970 390 Gas / Oil 1968 220 Gas / Oil 1966 200 W.B. Tuttle Plant Gas / Oil 1963 140 Gas / Oil 1961 85 Gas / Oil 1956 80 Gas / Oil 1954 59 Leon Creek Plant Gas / Oil 1959 85 Gas / Oil 1953 59 Mission Road Plant Gas /G:1 1958 80 Total Active Capability 3,034 Units in Storage-Not Commercially Available Leon Creek Plant Gas / Oil 1951 26 Gas / Oil 1949 26 Mission Road Plant Gas / Oil 1948 20 Gas / Oil 1945 20 Total Capability in Storage 92 am .- 23

Transmission Syshm A network is provided for the movement of large blocks of power from the generating stations to the various parts of the service area and to or from neighboring utildies as required. This is composed of 69.000 volt.138.000 volt and 345.000 volt lines with transformers and switching stations to provide the necessary flexibility in the moveroeot of bulk power. The San Antonio System is integrated with eleven other electric utilit,as to form the Texas Interconnected System (TIS) which covers a large portion of Texas. The other utilities in the TIS are listed below: West Texas Utilities (WTU) Houston Lighting and Power Company (HL4P) Dallas Power and Light Company (DP&L) Central Power and Light Company (CP&L) Texas Electric Service Company (TESCO) Lower Colorado River Authority (LCRA) Texas Power ar'd Light Company (TP&L) City of Austin, Texas, Municipal Utilities (Austia) Texas Municipal Power Pool (TM?P) Medina Electric Co-op/ South Texas Electric Co-op (MEC/STEC) City of Brownsville These inerconnections, through operating agreements between the several utilities, provide standby power in case of outages as well as firm power in the event capacity deficiencies occur at a particular locality within the area. The arrangements serve to reduce the standby capacity which each utility would otherwise need to have running. This membership in TIS, which in turn is united with approximately 75 other utilities, municipalities and co-ops in Texas in the Electric Reliability Council of Texas (ERCOT), provides CPS with a high level of electric service reliability. CP&L and WTU are subsidiaries of th,; Central and Southwest Corporation (C&SW), a public utility holding company which also owns and operates electric utilities within the Southwest Power Pool (SWPP) which serve portions of Oklahoma, Arkansas and Louisiana. Since 1974 C&SW has taken the position that its subsidiaries can be most economically operated as a single synchronous system ar;d that this result will be best achieved by an interconnection between SWPP and the now intrastate TIS /ERCOT. C&SW has introduced evidence intended to support its contentions in a proceeding now pending in the Securities and Exchange Commission. HL&P and the Texas Utilities (TU) subsidiaries TESCO, DP&L and TP&L have controverted C&SW's contentions in that proceeding and maintain that they have the right, in the interests of their own customers, to disconnect from CP&L and WTU if the two Texas subsidiaries of C&SW operate on an interstate basis. San Antonio, Austin and LCRA have historically viewed their own customers' best interests as lying in an intrastate system including the power reserves of the TU and HL&P systems, preferably the exisung TIS, and have participated in the SEC hearing and various other proceedings arising from C&SW's actions. San Antonio has also intervened in appeals pending in State and Federal District Courts from an order issued by the Public Utility Commission of Texas (PUCT) on July 11,1977. The Commission's order, entered af ter a hearing initl3ted by petitions filed by HL&P, TU, San Antonio, Austin and LCRA, requires thecontinuation of the historicalinterconnections of T;S unless, upon notice and hearing, the Commission finds a change to be in the public interest, and prohibits any TIS member from interconnecting with others except pursuant to a valid court or regulatory order. The order, which San Antonio, Austio, LCRA, HL&P and TU support, is attacked by CP&L and WTU on grounds, among others, that it constitutes undJe interference with interstate commerce. On May 11,1978, the Federal District Court issued an order ruling that it woJ!d abstain from exercising its jurisdiction until the State District Court has resolved questions concerning the PUCT's pow trs under State law. The 5th Circuit Court of Appeals affirmed that result in an opinion of March 28,1979. In the State District Court suit, briefs have been filed and oral argument has been heard by the Court. In February,1979 CP&L, WTU, and the other C&SW subsidiaries jointly filed with the Federal Energy Regulatory Commission (FERC) an application .vhich requests the commission to initiate a proceeding and enter orders establishing interconnections and coordir led operations between TIS /ERCOT and SWPP, and to exempt CP&L and WTU from the PUCT's order. San Antonio, nustin, LCRA, HL&P, TU and the PUCT have filed interventicas in the FERC proceeding. The relief sought in the C&SW companies petitions is based on provisions of the Public Util3y Regulatory Policies Act of 1978, which amends the Federal Power Act to give FERC authority to order interconnections between utilities, require the provision of transmission services by one utility to another ("v...eeling"), and to exempt utilities from any state law or rule which prevents voluntary coordination of electric utilities. Any such interconnection and wheeling orders must be based on considerations of public interest, energy conservation, reliability, and other factors. 24 hkb

Other proceedings arising from C&SW's contentions irwlude an antitrust suit brought in a Dallas Federal Distnct Court by WTU and CP&L against HL&P and TU, which has been decided against the plaintiffs but is being appealed, a proceeding h commenced in the Nuclear Regulatory Commission by CP&L which raises antitrust issues in connection with the application for operating licenses for the South Texas Nuclear Project (See NEW G ENERATING UNITS, page 33), and a proceeding filed in 1976 by the C&SW companies in the Federal Power Commission (now FERC) seeking ERCOT/SWPP interconnections, which is still pending on appellate remand. Although the outcome of these various proceedings and their effect on the interconnected system asit nowexists cannot be predicted, the City Public Service Board is taking and will continue to take all steps necessary to maintain the most reliable and economical service passible for the consumers dependent upon its system. Distribution System The Distribution System is supplied by 61 substations strategically located on the high voltage transmission syston. The central business seGion of San Antonio is served by five underground network systems,each consisting of four primary feeders operated at 13 KV, transformers equipped with network protectors, and a 4 wire 120/208 volt secondary grid. This system is well designed for botn service and reliability. There are over 6,000 miles of pole lines and over 40 miles of underground duct lines in the distribution system.The overhead lines also carry secondary circuits and street lighting circuits. Presently there are approximately 40,000 street lighting units in service, with the vast majority of these being modern, high intensity units. Many of the subdivisions added in recent years have been served by underground distribution systems. TOTAL TRANSFORMER CAPACITY INDICATING NET ANNUAL INCREASE KVA F/Y Ended 1-31: Overhead Underground Total 1972 2,007,134.5 199,781.0 2,206.915.5 D 1973 1974 2,183,263.5 2,337,149.5 203,781.0 202,856.0 2,387,044.5 2,540,005.5 1975 2,563,716.0 204,331.0 2.768,047.0 1976 2,731,886.5 205,081.0 2.936,967.5 1977 2,915,456.0 205,581.0 3.121,037.0 1978 3.120,524.5 213,581.0 3,334,105.5 1979 3,383.280.0 214.081.0 3,597,361.0 1979* 3,416,081.5 220,581.0 3,636,662.5 As of March 31,1979.

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PLANNED SUPPLY LINE p e)O

26

GAS SYSTEM h Gas Delivery Natural gas is transported to San Antonio by Lo-Vaca Gathering Company, a subsidiary of Coastal States Gas Producing Company, through two parallel 24-inch supply mains from South Texas, and a 30-inch supply main from West Texas. Gas is purchased and metered at two City Gate Stations and at the O. W. Sommers and V. H. Braunig Power Plants. Outer Supply Line System The CPS has constructed 54.3 miles of 24 and 30-inch lines to form an outer loop supply line system between the two main City Gate Stations. Twin one-milt' lengths of 20-inch line connect the V. H. Braunig Plant to City Gate Station No.3. 24-inch and 16-inch source lines bring gas to O. W. Sommers Power Plant giving that station a double feed. Lines are now being extended beyond the outer loop system to feed the perimeter of the city. Inner Supply Line System A network of approximately 140 miles of lines, ranging from 4 to 24-inch, supply gas at intermediato pressures to regulator installations located at strategic points throughout the distribution system. Theinner supply operates at pressures of from 25 to 60 p.s.i. These pressures, and that on the outer supply line system, at 150 p.s.l., are maintained through the use of remote control equipment. Distribution System The inner supply line system feeds into the distribution system consisting of over 2.900 miles of 2 to 16-inch lines, together with the n. uessary pressure control equipment, valves, gauges, service lines, service regulators and meters. A program to replace all old mains and services with new, welded and coated steel pipe is substantially completed. Cathodic protection for prevention of corrosion has been completed for substantially all of the gas distribution system. A high molecular weight polyethylene pipe has been used for distribution lines in the 2 and 4-inch sizes since 1974. GENERAL PROPEllTIES Operation Control System The nerve center of CPS operations is the Gas & Electric Operations (GEO) System. This is a computerized monitoring and control system which was placed in service in 1971 as the first in the industry after having been designed by CPS personnel. All substat;ons, power plants and major gas regulating points are continually monitored and displayed on one line diagrams on video screens. Any abnormality registers an alarm and the system operator can bring up on another screen any detail of the control points and, with a light pen, operate the various switches and valves as required. In addition to the control capability, the system gathers data which is recorded on the computer for various reporting needs, such as loads, peaks, and BTU content. As this control system was the first of its type in the industry, it has attracted nationwide interest. Support Facilitle: The operating systems are supported by moder' shops for the maintenance of such items as meters, transformers, communication equipment, vehicles, railroad r .s and heavy construction equipment. These shops, together with warehouses, supervisory offices and vehicle storage, are strategically located throug hout the area to minimize driving time to work locations. General Offices The general offices are located at the intersection of Navarro and Villita Streets in the central business district of San Antonio. The administrative, accounting and engineering functions are handled at this location. Adjacent thereto are a parking garage and the Customer Service Center. At this location customer contacts are handled either in person or by telephone. Information concerning any customer account is available to contact personnel in a matter of seconds from the computer system by use of video data terminals. Work orders are transmitted to the decentralized work locations by teletype. A second Customer Service Center was opened February 6,1978, at the site of the Mission Road Power Plant. The new center 27 6 059

was established to provide the same services as the original center but in a location more accessible to the freeways and with ample free parking. Assembly Building 8 The Villita Assembly Building is located near the General Office Building and is used for employee meetings or rented for civic events. It has a capacity of 2,000 persons as an auditorium or 1,200 for dinner. Vehicles and Work Equipment A complete fleet of automobiles, trucks and work equipment is owned by the utility.To provide the optimum use of employees' time. Minor maintenance is performed on the equipment at decentralized facilities and major maintenance is handled at a central garage. TERRITORY SERVED The electric system serves a territory consisting of all of Bexar County an - small portions of the adjacent counties of Comal, Guadalupe, Atascosa, Medina, Bandera, Wilson and Kendall. Certification of this service area has been approved by the Texas Public Utility Commission. (See RATES on page 45). In addition to the area served at retail, electricity is sold at wholesale rates to the City of Floresville Electric Light and Power System, City of Hondo Utilities and the City of Castroville. Bulk power from electric generating capacity in excess of the requirements of retail and wholesale customers is sold to other south Texas utilities on a periodic or emergency basis. CPS also has negotiated a contract for the sale of up to 90 MW of power per year for a 2 year period (with a 1 year renewal option) to South Texas Electric Cooperative, Inc. and Medina Electric Cooperative, Inc. The gas system serves the City of San Antonio and its environs. THIRTY LARGEST CUSTOMERS Excluding Government Bases and City of San Antonio [ Based on Sales for Calendar Year of 1978) { Gas Customers Electric Customers Annual Annual Annual Araual Customer Name MCF Resenue _ Customer Name KWH Revenue San Antonio Portland Cement Company 549.455 0 s1.226.722 45 Capitol Cement 58.928.000 s1.551.282 48 Lone Star Energy Corporation 420.257 6 929.047.44 United Services Automobile Association 42.313.600 1.206.780.38 Howell Refinery Company 316.035 4 707.225 54 Longhorn Portland 39.264.000 1.147.052.56 Colotex Corporation 246.083 3 550.876.33 University of Texas Medical School 31.092.600 846.179.49 Pearl Brewing Company 241.934.1 540.491 93 Pearl Brewing Company 29.260.000 717.290.13 Mcoonough Brothers. Inc. 199.338 0 445.556 69 Southwestern Bell Telephone (Martin St.) 26.192.000 741.049 55 Thermonetics. Inc. 176.342 8 393.766 60 Southwest Research Institute 25.644.000 709.090.95 Roegelein Provision Company 139.882.3 290.128 81 Santa Rosa Hospital 22.243.200 600,953 29 Lone Star Brewing (Can Plant) 136.393 4 304.575 48 Trinity University 20.809.600 563.998 13 Fnto Lay 133.315 7 297.972 50 Kaiser Cement & Gypsum 19.622.400 592.328 61 Swift Packing Company 123.629 3 277.197 91 Frost National Bank 17.314.560 509.268 61 City Water Board 111.536 8 250.073 04 City Water Board (Basin St ) 16.977.000 489.211.11 Santa Rosa Hospital 111.028 3 245.318 89 Southwest Texas Methodist Hospital 16.653.600 447.811 87 Aztec Ceramic Inc. 87.930 5 196.915 05 Southwestern Bell Telephone (St. Mary's) 16 402.560 469.338 29 Metropolitan General Hospital 80.651 9 190.453 01 City Water Board (Commerce St.) 16.W4.000 474.097.84 L & H Packing 77.406 8 173.532.27 University of Texas at San Antonio 16.0P 600 443.178 09 Friednch Retngeration Inc. 72.632 5 162.568 02 City Water Board (Wurzbach Ad ) 14.913.000 414.801.51 remas State Hospital & Special School 71.918 9 160.535 64 Lone Star Brewing (Can Plant) 13.731.84u 373.388 62 P & M Products 71.917.2 160.104 91 San Antonio Union Jun.or College 13.372.000 ',0* '* Robert B. Green Hospital 65,250 4 144.744 20 Roegelein Provision Company 13.074.200 355.189.53 Gebhardt Chili 63.589 8 140.073 60 Lone Star Brewing (Brewery) 12.768.000 367.949 73 Southwest Research 62.639 8 140.286 91 Turbine Support oivision 12.172.800 345.310 94 Lone Star Brewing (Brewery) 59.714.7 133.873 23 Baptist Memonal Hospital (Richmond St.) 12.153.600 333.360.12 Southwest Research 58.715 9 131.327.42 Bexar County Hosptial 10.873.600 295.633 31 R.J Reynolds 58.247.8 130.226.13 K.O. Steel Castings 10.704.200 333.868 83 Flint Chemical 57.946 0 130.181.56 Fnedrich Refrigeration Inc. 10.623.000 308.436.72 Southwest Texas Methodist Hospital 57.192 0 128.396 49 H E.B. Grocery (Warehouse) 10.120.320 292.504.77 T srbine Support oivision 56.051.4 126.219 51 San Antonio Community Hospital 9.638.400 274.955.98 S.anshine Laundry 55.482.0 131.022 97 Baptist Memonal Hospital (oallas St ) 9.288.000 250.898.78 Colonial Cake 54.447.6 121.976.58 H E. Butt Grocery Company (Milk Plant) 9.068.160 255.162 84 2, 1516 Cou

STATEMENT OF REVENUES. EXPENSES AND NET INCOME Fiscal Years Ended January 31: 1975 1976 1977 1978 1979 ELECTRIC DEPART %IENT BILLED REVENUES Residential $ 58,367,358 $ 73,663,630 $ 82,686,781 $ 97,534,606 $102,567,648 Commercial & Industrial 56.753,468 82,896,391 98,910,987 107,065,657 108,724,239 Street Lighting 2,903,512 3,762,512 4.309,624 4,676,029 4,742,370 Public Authorities 17,194,067 26,429.513 31,494,195 33,040,451 32,622,424 Other Utilities 1,563,319 2,367,737 2,864,076 3.117,915 7,597,096 Miscellaneous 1,082,170 1.059 689 1.059,664 1,190,126 1,421,615 Total Revenues $137,863,894 $190,179,522 $221.325,327 $246,624,784 $257,675,392 OPERATION & MAINTENANCE EXPENSE Production $ 63,691,933 $102,172,718 $119,519,344 $132,270,382 $134,254,461 Transmission 337,346 507,799 454,635 469,254 445,477 Distribution 6,162,310 7.405.023 7,463,012 7,783,894 8,745,565 Customer Acc't & Collection 1,712,224 1,933 695 2,034,206 2,153,074 2,303,922 Customer information 694,957 568,525 601,476 668,103 605,283 Administrative & General 5,074,480 6,513,C73 7,562.374 8,243,504 8.162,643 Payroll Taxes 806.453 850,522 893.156 954,232 1,229,912 Total Expenses $ 78.479,703 $119,951,355 $138,528,203 $152,542.443 $155.747,263 Operating income -Electric $ 59,384,191 $ 70,228,167 $ 82,797,124 $ 94,082.341 $101,928,129 GAS DEPARTMENT BILLED REVENUES Residential $ 20,182,687 $ 28,856,788 $ 35,413,850 $ 36,633,834 $ 44,000,955 Commercial & Industrial 14,567,166 21,282,067 25,020,166 26,212,056 28,421,774 Public Authorities 2,213,558 3,448,123 4,376,593 4,561,102 5,432,901 D Miscellaneous Total Revenues 301,824

                                   $ 37,265,235 353.472
                                                 $ 53,940,450 399.328
                                                                     $ 65,209,937 380,709
                                                                                       $ 67,787,701 450,596
                                                                                                     $ 78,306,226 OPERATION & MAINTENANCE EXPENSE Gas Purchased                     $ 27,284,932  $ 44,419,128        $ 59,047,169      $ 55,360,622  $ 66.117,264 Distribution                          2,900,003     3,406,152           3,562,028         3,594,477     4,126,944 Customer Acc't & Collection           1,239,888     1,400,261           1,473,046         1,559.123     1,668,357 Customer Information                    297,838       243,653             257,775           286,330       259,407 Administrative & General              2,072,674     2,660,268           3.088,857         3.367,066     3,334,038 Payroll Taxes                           267,719       301,614             303,012           320,899       366,123 Total Expenses                    $ 34,063.054  $ S2,431,076        $ 67,731.887      $ 64,488.517  $ 75,872.133 Operating income-Gas            $ 3.202,181   $ 1,509,374         $ (2,521,950)     $ 3,299,184   $ 2,434,093 Combined Operating income -

Electric and Gas $ 62,586.372 $ 71,737,541 $ 80.275,174 $ 97,381,525 $104.362,222 Non-Operating income 4,462,828 3,e19,970 4,129,524 5,275,279 7,275,239 Total $ 67,049,200 $ 75.577,511 $ 84,404,698 $102,656,804 $111,637,461 Add: Interest During Construction $ 2,154,682 $ S,844,553 $ 13,127,659 $ 13,511,090 $ 12,866,866 Less: Amortization of Debt Expense and Other interest $ 13,354 $ 29.853 $ 93,966 $ S2.508 $ 65,714 Net Revenues $ 69,190,528 $ 81,392.211 $ 97,438,391 $116,115.386 $124,438,613 OThER DEDUCTIONS Interest on Bonds S 7,643,267 $ 11,779,529 $ 19,462,274 $ 26,929,420 $ 34,362,315 Payments & Refund to City 22,759.008 27,814,923 31,709,773 36.718,574 39,631,139 Depreciation 15,404,984 16,23;,'42 17,477.449 20,889.372 27,502,563 Total Deductions $ 45,807,259 $ 55.827.494_ $ 68,649,496 $ 84.537.366 $101,496,017 Net income L2_3,383,269 $ 25,564.717 $ 28,788,895 $ 31,578,020 $ 22,942,596 1516 061 a

CONDENSED STATEMENTS OF ASSETS AND LIABILITIES January 31,1970 to March 31,1979 l Asuts Plant and Equipment Accounts Current Assets Accumulated & Construction Other Date At Cost Depreciation Net Funds Assets Total 1-21-70 $ 420,480,731 $ 85,354,841 $ 335,125,890 $ 43,547,382 $ 6.221,232 $ 384,894,504 1-31-71 457,741,134 93,632,443 364,108,691 37,470,509 6,638,506 408,217,706 1-31-72 501,731.982 103,189,742 398,542,240 56,116,968 7,979,136 462,638,344 1-31-73 546,423,222 108,512,170 437,911,052 41,011,811 8,504,627 487,427,499 1-31-74 599,315,589 120,160,491 479,155,098 53,117,044 10,371,751 542,643,893 1-31-75 677,114.390 134,194,473 542,919,917 104,119,549 12,358,323 659,397,789 1-31-76 809.025,826 149,252,780 659,773,046 73,118,432 17,162,152 750,053,630 1-31-77 954,207,395 163,811,352 790,396,043 82,349,961 19,982,542 892,728,546 1-31-78 1,100,709,068 182,598,717 918,110,351 100,666,917 24,887,407 1,043,664,675 1-31-79 1,265,232,510 209,126,958 1,056,105,552 132,666,709 32,174,890 1,220,947,151 3-31-79 1,289,020,024 214,073,843 1.074,H6,181 172,224,609 42,944,843 1,290,115,633 Llabilities Deferred Contributions Revenue Current Credits in Aid Of City Equity Date Bonds Liabillies* and Reserves Construction in Plant Total 1-31-70 $ 71,040,000 $ 7,535,644 $ 1,047,565 $ 8,939,243 $ 296,332,052 $ 384,894,504 1-31-71 67,910,000 8,484,040 1,672,557 10,064,750 320,086,359 408,217,706 1-31-72 94,190,000 10.511,602 1,250,383 11,870,539 344,815,820 462,638,344 1-31-73 90,345,000 11,871,812 2,702,383 14.013.491 368,494,804 487,427,490 1-31-74 120,860,000 16,154,612 1,724,969 15,888.615 388,015,697 542,643,893 1-31-75 201,195,000 28,147,738 1,794,946 16,858,703 411,401,402 659,397,789 1-31-76 245,595,000 48,331,153 1,891,712 17,259,079 436,976,686 750,053,630 1-31-77 358,110,000 48,142,063 3,158,921 18,529,474 464,788,088 892,728,546 1-31-78 484,290,000 40,651,961 2,075,149 20,367,567 496,279,998 1,043,664,675 1-31-79 622,975,000 54,035,211 2,538,062 22.175,416 519,223,462 1.220,947,151 3-31-79 697,975,000 36,753,005 2,855,073 22,481,492 530,051,063 1,290,115,633

Excludes current maturities of long-term debt. l 30 I5I6 062

COMPARATIVE ANALYSIS [ Dollar Amounts in Thousands Rounded) D 1974 1975 _ 1976 Operating Expense Balance Available For Debt Service Depreciation Expense Earnings Before interest Expense intererst on Bonds Payments and Benefits To City' interest Dunng Construction PERCENTAGES Revenue Operating Expense Balance Available For Debt Service Depreciation Expense Earnings Before interest Expense interest on Bonds Payments and Benefits B Construction Net income Times Bonds interest Covered Electne Gas Footnotes OF ELECTRIC AND GAS UTILITY OPERATIONS' 1970 1971 1972 1973 Fiscal Years Ending Januarv 31: '977 1978 1979 1979' Increase 1970-1979 INCREASE DOLLARS Revenue $79.508 $83.451 $90.716 $100.614 $107.098 $179.592 $247.960 $290.665 $319.688 $343.257 $346.500 336 % 33.417 35 913 38.907 45.795 55.816 112.543 172.382 206.354 217.083 231.685 234.521 602% 46.091 47.538 51.809 54.819 51.282 67.059 75.578 84.311 102,'iOS 111.572 111.979 143 % 9.248 9.819 10,855 12.558 13.856 15.405 16.233 17.478 20.889 27.502 28.449 208 % 36.843 37.719 40.954 42.261 37.426 51.644 59.345 66.833 81.716 84.070 83.530 127% 2.695 2.601 4.041 3.997 5.528 7.656 11.810 19,462 26.929 34,362 36.142 1.241 % 10.698 11.o96 12.168 13.697 14.475 22.759 27.815 31.710 36.719 39.631 40.083 275% (2.098) (2.154) (5.845) y1,28) (13.511) (12.867) (13.326) Net income $23.450 $23.722 $24.745 $24.567 $ 19.521 $ 23.383 $ 25.565 $ 28.789 $ 31,579 $ 22.944 $ 20.631 (12%) s00 00 % 100 00% 100 00% 100 00% 100 00% 100 00 % 100 00% 100 00% 100.00 % 100 00% 100 00 % 42 03% 43 03% 42 89 % 45 52% 52 12% 62 67 % 69 52% 70 99 % 67.90 % 67 50 % 67 68 % 57 97% 56 97 % 57.11% 54 48 % 47 88% 37.33 % 30 43% 29.01 % 32.13% 32.50 % 32.32% 11 63% 11 77 % 11 97% 12 48 % 12 94% __8 Sa% 6 55 % 6 01 % 6 53 % 8 01 % 8 21 % 46 34% 45 20% 45 14% 42.00% 34 94 % 28 75 % 23 93% 23 00 % 25 57% 24 49% 24.11 % 3 39% 3 12 % 4 45 % 3 97% 5.16% 4 26 % 4 76% 6.70 % 8 42 % 10 01% 10 43% To City' interest Dunng 13 46% 13 66 % 13 41 % 13 61% 13 51% 12 67 % 11 22% 10 91% 11.49% 11 55% 11.57 % (196%) (120%) (2 36%) (4 52%) (4 23%) (3 75%) (3 85%) 29 49% 28 42% 27 28 % 24 42% 18 23% 13 C2% 10 31% 9 91 % 9 89 % 6 68 % 5 96 % 17.10 18 23 12 82 13 72 9 28 8 76 6 40 4 33 3 81 3 25 3.10 Number of Customers (Average For Padod) 231.682 237.558 246.520 256.821 265.832 270.190 271.565 277.619 286.694 300.860 303.392 31 % 198.350 202.681 208.699 215.647 222.475 227.078 228.806 232.567 237.787 245.335 246.562 24 %

The only changes in rates dunng the 10-year penod shown were increases of approximately 19% in June.1974, and 5 25% in August.1976.
12 months ending March 31.1979.

s Does not include Street Light Construction. D 31 1516 g .

CITY PUBLIC SERVICE BOARD OF SAN ANTONIO RECOP.') 0F GROWTH-PRODUCTICW 0F ELECTRIC POWER F/Y e Ended Net KWH Percont Maximum Percent Average

Percent 1-31: Generation increase KW Demand increase KW Demand Load Factor 1958 1,467,403,000 0.47 333,700 11.20 255,600 50.20 1959 1,574,182,000 7.28 358,800 7.52 2.',4,200 50.08 1960 1,747,943,700 11.04 395,800 10.31 308,900 50.28 1961 2,060,063,700 17.86 438,000 10.69 335,900 53.69 1962 1,990,182,700 (3.39) 440,700 .59 '160,200 51.55 1963 2,306,680,600 15.90 548.000 24.35 404,000 48.05 1964 2,567,732,500 11.32 571,000 4.20 438,000 51.19 1965 2,636,078,000 2.66 623,000 9.46 456,000 48.15 1966 2,811,697,900 6.66 664,000 6.24 486,000 48.34 1967 3,107,039,900 10.50 759,000 14.31 562,000 46.73 1968 3,512,454,400 13.05 840,000 10.67 625,000 47.60 1969 3,930,182,600 11.89 941,000 12.02 689,000 47.68 1970 4,524,422,200 15.12 1,107,000 17.64 786,000 46.66 1971 4,827,311,000 6.69 1,144,000 3.34 834,000 48.17 1972 5,334,120,600 10.50 1,274,000 11.36 964,000 47.67 1973 5.884,186,800 10.31 1,364,000 7.06 1,060,000 49.25 1974 5,784,500,600 (1.69) 1,415,000 3.74 1,059,000 46.67 1975 5,806,029,700 .37 1,412,000 (.21) 1,030,000 46.94 1976 6,071,902,600 4.58 1,493,000 5.74 1,089,000 46.42 1977 6.211,489,100 2.30 1,560,000 4.49 1,078,000 45.45 1978 6,691,908,500 7.73 1,641,000 5.19 1,133,000 46.55 1979 7,267,236,400 8.60 1.688,000 2.86 1,203.000 49.15
Average of Monthly Peak Demands.

FIVE YEAR FORECAST OF ELECTRIC AND GAS OPERATING DATA [ Dollars in Thousands) Fiscal Years Ended 1-31: 1980 1981 1982 1983 1984 Gross Revenue * $382,932 $446,188 $469,807 $496,698 $517,197 Total Operating Expenses 261,295 295,89,.5 312,290 324,154 320,962 Available for Debt Service $121,637 $150,293 $157,517 $172,544 $196,235 Annual Debt Service Requirements $ 59,155 $ 73,707 $ 82,893 $ 90,108 $ 93,486 Estimated Debt Service Coverage 2.06x 2.04x 1.90x 1.91 x 2.10x Estimated KWH Sales (000,000) 7,891 " 8.476 " 8.221 8,781 9,314 Revenue per KWH Total 3.79C" 4.15 C" 4.50C 4.32C 3.98C Residential 4.46C 4.82C 4.99C 4.80C 4.45C Estimated Peak Demand (MW) 1,834 1,963 2,124 2,270 2,409 Assumes a proposed 6.2 % rate increase will be granted effective October 1,1979. There is, of course, no assurance that this rate increase will be forthcoming. " Includes STEC/MEC Electric Firm Power Sales estimated at 780,600, MWH and 850,600 MWH, respectively. q 32

                                                                                                                       }{    O h[i

THE 1980 - 1982 CONSTRUCTION PROGRAM A comprehensive orogram of planning and construction to meet current and future electric and gas needs is continually D being reviewed, updated and extended. To reduce time required and maximize accuracy and efficiency, CPS utilizes a computer-based mathematical model for its forecasting process. CPS bases its near term construction and operating needs on a three-year fcrecast, which is a part of a twenty-year development and electric generation plan that is maintained. The current three-year forecast calls for construction expenditures of $601 million.The $100 million which will be raised by this issue will supply certain of the required funds, as will revenues from operations. It is anticipated that additional revenue bonds will be issued to help fund the total program, with the next sak of additional New Series Bonds tentatively scheduled for early 1980. However, prior to the issuance of additional revenue bonds, the current three-year forecast and the longer term construction estimates will be reviewed and revalidated by both CPS staff and consultants. Currently proposed capital expenditures for 1980 - 1982, based upon detailed estimates which include interest during cons *ruction, are shown in the following table: ESTIMATED CAPITAL EXPEN0lTURES FOR THE CONSTRUCTION PROGRAM (Thousands of Dollaral Fiscal Years Endina 1-31: 1980 1981 1982 Gas System $ 6,063 5,545 5,828 Electric System: DIST RIBUTlON 26,307 24,410 23,810 TRANSMISSION 6,896 12,081 1,446 POWER PLANTS: D South Texas Project (1982-83, Nuclear) 172,618 135,305 130,317 Acquisition of Additional Fuel Reserves 1,069 4,514 3,564 Tools and Equipment 555 241 257 Special Projects 3,853 2,873 589 1987 Lignite Mine 190 459 1988 Lignite Site 792 838 General Property 7,261 19.602 3,465 Total Construction Budget $ 224,622 $ 205,553 $ 170,573 Anticipated Bond issues $ 175,000 $ 170,000 $ 115,000 The cost of the CPS interest in the two nuclear units of the South Texas Project scheduled for completion in 1982 and 1983,is estimated to be approximately $986.00 per KW, including interest used during construction but excluding fuel costs. A cost of $1,137.00 per KW is the estimated construction cost of the lignite unit which is included in tentative plans for 1988. As a final cost comparison, CPS engineers estimate that if additional nuclear units were added in 1990 and 1992, the cost would be approximately $1.394.00 per KW and $1,636.00 per KW, respectively including interest used during construction but excluding fuel cost. NEW GENERATING UNITS The major portiori of the schedule 1980-1982 construction program is for new generating units at the South Texas Nuclear Project, (the " Project" or "STP '). In June,1973, CPS agreed to participate in the Project, which involvc:, the construction of 1516 065 33

two 1,250,000 KW units in the Palacios-Bay City area near the Texas Gulf Coast. Participants in the Project and their share therein are as follows: Houston Lighting & Power Company 30.8% City Public Service Board of San Antonio 28.0% Central Power and Light Company 25.2 % City of Austin 16.0% 100.0% A 12,000 acre site for the Project has been purchased and the required constructiori permits approving the Project were awarded by the Nuclear Regulatory Commission (NRC) in December,1975.The two 1,250,000 KW units are now expected to be completed in 1982 and 1983. San Antonio's share is 700,000 KW. This capacity will serve a significant portion of the basic kilowatt hour needs at that time. A report released in October,1978, by i . dependent management consultants engaged by Project participants has projected a substantial increase in the estimated cost of the Project from the level of prior estimates, due in part to the interaction of inflation and construction delays, and regulatory requirements more onerous than anticipated. The report also indicates that commercial operation dates for each unit will be two years later than originally estimated. The total estimated cost of the CPS share of the Project is now anticipated to be $783 million, including construction, interest during construction, and fuel through 1983. Through March 31,1979, San Antonio's investment in the Project totalled $272,510,000. On June 4,1976, CP&L, one of the four Project participants, petitioned the NRC to convene an out-of-time antitrust hearing on grounds of a significant change in circumstances arising from attempts by CP&L's parent, C&SW,to effect a merger of the ERCOT system with the Southwest Power Pool, seeking the modification of the construction permits for the Project to require replacement of the historically intrastate electrical connections existing among the participants and with other utilities and to allow access to their transmission lines by third parties operating interstate. (See Transmission System, pp. 24

- 25). The NRC's Atomic Safety and Licensing Appeal Board denied CP&L's petition, and the Commission declined to review the Appeal Board decision. The NRC, however, issued a Memorandum and Order on June 15,1977, holding that such antitrust allegations must be reviewed in the context of licensing proceedings and that it would grant a request by HL&P to consider the need for any antitrust hearing in the context of an expedited application for operating licenses for the Project.       g The application for operating licenses has accordingly been filed and the NRC has, based upon advice from the Attorney General of the United States that significant changes have occurred which warrant an antitrust hearing, given notice of an antitrust nearing in connection with the operating license proceedings for the Project and designated an Atomic Safety and Licensing Board to conduct the hearing. The Board will consider issues raised including whether or not the cperating licenses for the Project should be conditioned on HL&P and other participants maintaining their current interconnections and not unreasonably refusing to interconnect with other utilities engaged in interstate commerce in order to avoid the creation or maintenance of a situation inconsistent with the antitrust laws on the basis of significant changes in activities of the participants since the previous antitrust review. The Board has set a schedule for prehearing proceedings which, if maintained, would lead to a hearing beginning in September,1979.

A separate Atomic Safety and Licensing Board has been appointed to consider petitions to intervene in any hearing in connection with the application for operating licenses. Five petitions to intervene were filed based upon various safety, envircnmental and financial allegations. On Apnl 3,1979, the Board issued an Order granting theintervention of two groups based upon the residency of members living near the STP site as to issues involving construction quality, safety standards and local environmental conditions. On May 18,1979, the Ator,1ic Safety and Licensing Appeals Bcard denied an appeal of that Order which was filed on behalf of the Project participants. Until the exact nature and scope of issues raised by the two intervenors has been determined, it cannot be predicted whether or when a hearing may be held and,if held,its length and effect on the cost or schedule of the Project. On January 5,1978, Matagorda County and other taxing authorities within whose boundaries the Project is being constructed filed suit against the Project participants alleging that the Project is a taxpaying entity which is liable for 100% of the ad valorem taxes on the Project site, and alternatively that the Cities of San Antonio and Austin are proportionally liable for taxes attributable to their undivided property interests in the Project, and asserting a lien upon such real property which would be superior to any existing liens thereon. Ad valorem taxes have been paid by HL&P and CP&L on their undivided interest in STP, but San Antonio and Austin have claimed exemptions as municipal subdivisions of the State from ad valorem taxes on their undivided interests in the Project. On June 4,1979, the trial court overruled Plaintiff's Motic. for Summary Judgment and sustained Defendants' Motions for Summary Judgment, including Sin Antonio's Motion forJudgment that its interest in the Project is exempt. Counsel for the Board are of the opinion that the Project is not a taxpajing entity, that the undivided interest of San Antonio in the Project is exempt from county and state ad valorem taxes, and that the ruling of the 1516 v

trail court should be affirmed if appealed. An adverse determination in the suit on appeal, requiring that San Antonio pay ac! valorem taxes on its undivided interest in the Project, would have a substantial impact on the cost of such generating capacity. The CPS tentatively proposes the addition of further generatorcapnev for operation in 1988.This unit is tentatively planned to be a mine-mouth unit firing Texas lignite and may be built as . ; aint project with other utilities. CPS presently owns approximately 20 million tons of lignite reserves, bLt a decision to p;cceed with this unit wil! depend on the acquisition of additional environmentally su! table lignite reserves and future load growth developments. Long range plans also indicate the need for addit! )nal capacity in the early 1990's which wil' probably be joint units with other utilities. Final commitment to install these units will depend on future load growth developments, economic considerations and full evaluation of the alternatives available. Historically, peak demand of the CPS electric system has increased at about 11 percent per year. During the later 1960's and early 1970's a slight decline in system growth rate was observed. The decline in rate of growth accelerated after 1972 in response to rising costs and energy conservation efforts. During 1977. a new study of CPS future growth rate was prepr4 red by the CPS staff. The resultant forecast reflects changes occacring in area economic factors and demographic considerations. The study indicated a growth rate averaging about 6.0 percent over the 1979 - 1993 period. CPS planners continually monitor very carefully growth experience as it occurs in order to identify new trends in time for appropriate modification of long range system planning. ENVIRONMENTAL MATTERS CPS is subject to extensive regulation with respect to air and water quality, solid waste disposal and other environmental matters by various federal, state and local authorities. Environmental standards have been established by the Texas Air Control Board, the Texas Department of Water Resources and the Environmental Protection Agency (EPA). Permits from EPA and the Texas Department of Water Resources have been obtained for liquid waste releases for all CPS power plantsin Bexar County, although CPS objections to certain permit provisions are currently pending with EPA. Construction permits have been obtained from the Texas Air Control Board for all new facilities having air emissions and operating permits will be obtained as CPS demonstrates compliance with the permit requirements. LE%m S.ycu~ % ? ,# . c

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EBASCO BUSINESS CONSULTING COMPANY A Division of Ebssco Services incorporated 100 CllURCII STREET NEW YORK, N.Y.10007 May 301979 City Putlic Service Board Navarro At Villita San Antonio, Texas 78296 Attention: Mr. J. K. Spruce, General Manager Gentlemen: At your request we have reviewod the need for the issuance of $100 million of revenue bonds which the Board proposes to sell. This is part of the bonds which the board plans to sell during the fiscal year 1979-80 to help finance $601 million in new construction that it estimatos will be required during the fiscal period 1979-80 to 1981-82. Of this amount $225 million is scheduled for constructior: duririg the fiscal year 1979-80. We have reviewed the Board's three-year construction program and find that it is based, generally, on sound engineering pnnciples as they relate to the long-range design and pMnaing of the Board's electric and gas utility systems. In reaching this opinion, we have knowledge of the fact that the Board, from time to time during t* past thirty year period, has eng6ged independent engineering consultanis to assist and advise it with every important step in the development of its engineering systems. These independent consulting engineers worked closely with the Board's competent engineering staff during these frequert system planning studies. In addition to these outside consultants, the Board's engineering staff has worked closely with engineers of the various merrbers constituting the Texas Interconnected System. As part of this assignment, we have reviewed the Board's long-range (1979-1993) system development and electric generation plans and have discussed the assumptions and conclusions upon which these plans are based. In our opinion, the timing of the installation of the major facilities included in the Board's three-year constuction program is a compatible with (a) the realities of its changed fuel situation and (b) its projections are consistent with practices followed by the public utility industry. We have reviewed the estimated costs of the Board's three-year construction program and find that they were prepared in a reasonable and consistent manner. Out of a construction budget of $601 million, a total of $458 million, or 76%, is scheduled for power plant construction and the remaining $143 million, or 24%, is fur other gas and electric system constuction requirements. Improvements to the gas system during this three-year period are scheduled ai 418 million, while the imorovements to the electric distribution system are $75 million and the electric transmission system are $20 million dunng the same period. Improvements to property common to the gas and electric systems are $30 million. The largest portion of the capital requirements during this period, is for the CPS' 28% interest in the South Texas Nuclear Project, which is currently approximately 40% complete. Total expenditures for this project are expected to be $438 million during the three-year period and account for 73% of the total capital requirements. The Board's selection of coal and nuclear generating faciiities was based on engineering judgment which took into consideration the uncertainty of futur9 gas and oil supplies for electric power plant operations. In our opinion, the Board's three-year construction program reflects its obligation and necessity to keep ahead of the demands on its electric and gas systems and at the same time to provide the people it serves with reliable service at the lowest practical cost. The Board proposes to finance this const JClion program mainly through revenue bond issues. In our opinion, this issue of $100 million of revenue bonds is necessary to meet obligations under current commitments and contracts for construction projects which may not tse deferred at this time without risking service reliability. Sincerely yours, A

                                                                                                                       . 4 Julius Brietling Consulting Engineer 8

1516 068

FUEL SUPPLY NATLIRAL GAS Under a 20-year contract ending April 1,1982, the CPS purchases natural gas both for resale and for fuel use for its electric generating stations from Coastal States Gas Producing Company (Coastal States) and its subsidiary Lo-Vaca Gathering Company (Lo-Vaca). The Coastal States /Lo-Vaca contract was believed adequate to provide all of the CPS's gas needs for the 20-year period ending in 1982 at fixed prices. Curtailments of naturalgas deliveries which were experienced beginning in November,1972, were initially attrit'uted to reperational failures. Subsequently it was revealed that the supplier did not have sufficient gas to fulfill its contract comrnitments to its various customers. Major Coastal States /Lo-Vaca customers, including CPS, the City of Austin and the Lower Colorado River Authority have taken the lead in pursuing remedial action before the Railroad Commissicn of Texas, the State's regalatory authority,and in the Courts. (See Texas Railroad Commission Action and Pending Proceedings, pp. 37 - 40, and Material Litigation, page 41).On July 17,1970, the 200th Judicial Court of Travis County, Texas ordered the reorganization of Lo-Vaca and appointed a

 'upervisor-manager. Other significant actions, which are discussed in qreater detail in the following section include:

The Railroad Commission has issued curtailment priorities to insure fair distribution of available gas by Lo-Vaca. On September 27,1973, the Railroad Commission granted Lo-Vaca an interim rate increase based upon its weighted averr_ge cost of gas plus 5 cents transportation per MCF. An additional requirement was that Coastal States is to provide up to $2,500,000 a month for gas gathering and treatment facilities and for advance payments for purchase o any new gas (For subsequent Orders of the Railroad Commission which may affect the cost of gas see Texas Railroad Commission Action and Pending Proceedings pp. 37 - 40). Since the Court's appointment of a supervisor-manager, major curtailments of natural gas deliveries from the Lo-Vaca system have c eclined both in number and magnitude as new supplies have been added. The increased price of these new supplies has been passed onto Lo-Vaca's customers through the interim ra;e. From the contract price c f 23.75 cents per MCF, the cost of Lo-Vaca gas has escalated to a high of $2.32 per MCF in March,1979. The average cost oi gas to CPS for the 12 months ending March 31,1979 was approximately $2.21 per MCF,and the average daily gas usage was about 170,000 MCF. It B is anticipated that natural gas prices will continue to increase in the future under the interim rate formula. Since 1974 Lo-Vaca has been able to supply CPS its required gas deliveries except for several minor curtailments. This was a vast improvement over the period from November,1972 to August,1974 during which time numerous curtailments occurred. On these '.casions of curtailment CPS burned fuel oil and gas purchased from other sources. CPS is presently receiving gas deliveries for ds full needs. CPS cannot predict whether or not there will be future gas curtailments or their length, frequency or severity if they are experienced. The Natural Gas Policy Act of 1978 regulates "first sales"of gas from producer to pipeline, and, for gas sold to Lo-Vaca under existing intrastate contracts for resale to San Antonio, sets a ceiling equal to the" contract" price as of the date of the Act's passage (November 8,1978) plus an annualinflation factor and an escalation factor. Uncertainly relating to the nature of final federal regulations under tne act and the number of variables affecting gas prices make it difficult to assess accurately the act's effect on San Antonio's future cost of gas. Texas flallroad Commisalon Action and Pending Proceeding: The Railroad Commission of Texas (tne " Commission") has general regulatory authority over gas pipeline companies, including certain matters relating to rates and the apportionment cf gas when in short supply, when and to the extent required in the public interest. On March 1,1973 Lo-Vaca, joined by Coastal States, filed an Application with the Commissior seeking a review and revision of Lo-Vaca's contracts and rates with its gas customers. Hearings in this proceeding commenced on May 1,1973, and were concluded in October,1973. On September 27,1973, the Commission entered an interlocutory Order providing for an interim rate for natural gas to be paid to Lo-Vaca pending final decision by the Commission in these proceedings. Under this Interlocutory Order, as amended, customers of Lo-Vaca, including the CPS, pay for gas delivered to them during any month at a rate equal to Lo-Vaca's weighted average adjusted cost of gas for the month plus 5 cents per MCF. The stated purpose of this Order was to enable Lo-Vaca to contract and pay for additional higher-priced gas and to this end the Order required Coastal States to contribute up to $2,500,000 per month to Lo-Vaca as needed for pipeline and gathering facilities, treating plants and advance D payments for purchase of new gas. 1516 069 37

In a Final Order in the Lo-Vaca rate proceedings, issued on April 12,1976, the Commission recognized that " Coastal States Gas Producing Co. and its affiliates have exercised, in the opinion of the Commission, unsound and unreasonable business judgment in jeopardizing its ability to serve those that had in good faith contracted to receive their public utility services,"and concluded that Coastal and Lo-Vaca had not conclusively demonstrated their lack of ability to perform the Lo-Vaca sales contracts nor met the judicial standards which would permit the Commission to order modification of their gas sale contracts. On July 10,1976, the Commission entered an Order rescinding its Final Order of April 12,1976, and granted rehearing for the limited purpose, among other things, of reconsidering its finding that Coastal /Lo-Vaca had not met the judicial standards which would permit the imposition of permanent rates in excess of gas sales contract prices. The Commission continued in effect its Interlocutory Order of September 27,1973, as amended, as well as the limitations on new sales and " banking" arrangements, and required Lo-Vaca to file updated evidence regarding rate-base, reveriue and expenses. Commission hearings as to the issues of the jL dicial standards applicable to revised contractual rates," banking" or buy-sell agreements and other rate-related matters commenced as scheduled by the Commission in July,1977. After cross-examination of Coastal /Lo-Vaca witnesses, San Antonio and other Coastal /Lc-Vaca customers presented rebuttal evidence. The hearings were completed in October,1977, and San Antonio filed brieis urging that Coastal /Lo-Vaca had not met the applicable judicial tests which would permit revision of its contractual rates and that Coastal States Gas Corporation, the parent corporation of Coastal and Lo-Vaca, should be held responsible as a successor to ' e obligations and liabilities of its subsidiaries. On December 12,1977, the Commission, with one member dissenting, entered a Final Order on Rehearing denying in all things the application of Lo-Vaca Gathering Company to review and revise its existing contracts, finding that Coastal /Lo-Vaca has exercised " unsound and unreasonable business judgment in alienating gas reserves, thereby jeopardizing their ability to serve those that had in good faith contracted to receive their public utility service". The Commission also ordered that customers on the Coastal /Lo-Vaca System are entitled to a refund of the difference between their respective contract prices and amounts paid under the Commission's interim rate, as amended, since September 27,1973, until the date of the Order. An equitable disposition of the reiunds to the ultimate natural gas consumers is to be made by each Lo-Vaca contractual customer. The order provides that this refund obligation extends to Coastal States Ges Corporation as well as Coastal States Gas Producing Co. and Lo-Vaca jointly and severally, in light of the fact that the two parent corporations have

" managed and controlled Lo-Vaca in such a manner that the separate corporate structures have been disregarded". All three corporations were likewise held jointly and severally obligated for the continuation and fulfillment of the Coastal /Lo-Vaca Sales Contracts with existing customers, and all natural gas under the control of Coastal Producing and Lo-Vaca constituting a present supply for existing natural gas customerr was held dedicated to the continuation of public utility services. As in its prior Order, the Commission prohibited the sale by Coastal /Lo-Vaca of gas to new customers or the increase of volumes under existing contracts without Commission approval, and expressed its intention not tointerfere with or otherwise impair private contractual rights between any of the parties or any claims for damages arising from them. The 0, der provides that, should it be enjoined by a Court of competent jurisdiction during the pendency of judicial appeal, the Interlocutory Order of September 27,1973, as amended, will be the effective order during such pendency, as well as during the period of time necessary for disposition of motions for reheming. Coastal /Lo-Vaca have appealed the Order, which appeal has been abated pending further proceedings before the Corrmission on rehearing.

In motions filed by San Antonio and other customers of Coasta'/Lo-Vau, the Commission was advised that a settlement of the controversies between Coastal /Lo-Vaca and most of its customers had been reached and was requested to grant rehearing of the Final Order of December 12,1977, in order to hold a hearing on such settlement. On January 24,1977, a Summary of Settlement and Reorganization Plan, jointly evolved by representatives of certain customers of Coastal and Lo-Vaca including CPS and representatives of Coastal, was filed with the Commission. By resolutions of February 28 and March 3,1977, CPS and City Council of San Antonio formall/ approved the Plan and authorized preparation and execution of final documentation. If the Settlement is implemented, the above proceedings as well as other htigation and claims of like nature by customers of Coastal /Lo-Vaca would be dismissed and released in consideration of the terms of settlement which would become a part of an agreed court decree of settlement. The final Agreement of Parties and Settlement Plan, dated as of December 26,1977 (The " Plan") has now been executed by approximately 80% of Coastal /Lo-Vaca customers, based on 1975 purchased volumes, and t;y the Coastal companies and Oscar S. Wyatt, Jr. The Plan provides that the Texas gas pipeline utility properties and associated debt of Coastal /Lo-Vaca would be spun off into a New Company, with the nonutility assets and associated debt retained by Coastal States Gas Corporation. The Plan provides that San Antonio will pay the New Company, Commission approved rates for future deliveries of natural gas, agreed to be cost-of-gas plus 10c per MCF f or one year and cost-of-gas plus 15C per MCF thereafter subject to review and revision by the Commission. A settlement Trust (the " Trust"), for the benefit of settling customers, would receive a number of shares of the common stock of Coastal States Gas Corporation having a book value of l approximately $20.8 million, preferred stock in the New Ccmpany having $115 million liquidation value,13.4% of the

                                                                                                          /      n 38 1I  '           '

common siock in the New Company and a one year note from New Company for $8 million plus interest. All stock held by the Trustee would be sold within seven yecrs, subject to restrictions for orderly distribution with no undue adverse market effect. The settling customers' beneficialinterest in the proceeds of the Trust would be in proportion to their 1975 purchases of gas D from Coastal /Lo-Vaca. On this basis, San Antonio's interest would be approximately 17%. In addition, Coastal States Gas Corporation wnuld undertake a gas search program, for the benefit of the New Company and settling customers, requiring a minimum expenditure by Coastal of $160 million over the next fifteen years to develop new gas reserves to be committed to the New Company at discounts ranging initially from prices of $1.50 per MCF to 85% of market in the fifth year. Addi'ional discounts are provided for after recoupment by Coastal of its costs. At the end of 15 years, Coastal must have dedicated 300 billion cubic feet of reserves under the program, of which 225 billion cubic feet must be at the discounted prices, or incur a penalty which would result in either a cash payment to the Trust or continued exploration and drilling. On March 10,1978, the Commission issued an Order granting rehearing of its December 12,1977 Order for the purpose of considering the Plan as a possible alternative to the December 12 Order, meanwhile maintaining the interim rate in effect. At a hearing held by the Commission on April 3 to April 20,1978, the Commission heard the testimony and cross-examination of witnesses supporting the Plan and written closing statements were filed in May,1978. On August 7,1978, the Commission entered an Order Continuing Proceedings on Rehearing finding that the Plar,"is reasonable, f air, equitable, feasible and in the public interest, and should be implemented as such a resolution in the public interest of the matter herein and covered by said Plan pursuant to the terms thereof and this Order." The Commission attached to that Order a form of Final Order, implementing the Settlement Plan and establishing new rates for t.he purchase of natural gas from the New CompMy,which would be entered upon satisfaction of certain conditions to the effectiveness of the Plan, including approvan Dy stockholders of Coastal, necessary approvals by the SEC, IRS and DOE, and Commission approval of any changes to the Plan. In additon to some minor changes in the Plan. the Commission reserved for later consideration and decision certain questions not involving San Antonio relating to the flow-through between certain direct and indirect customers of Coastal /Lo-Vaca of increases from present interim natural gas rates resulting from the Plan. These questions were decided by the Corrnission in favor of flow-through on April 27,1979, but these orders are not final and appeals may be filed. The Plan as amended, provides that conditions to its effectiveness must be met by June 30,1979. While some of the conditions have been satisfied, such as IRS and Coastal stockholder approval, others have not, i cluding approval by all necessary debt holders and other regulatory agencies, and 90% of the customers based upon 1975 purchased volumes. In D view of the number of parties involved and the necessary approvals required, including extension of time for satisfying conditions, it is not possible to predict whether or not such Settlement will be implemented, or, if implemented, the exact amount and time of payment of benefite to San Antonio. If the Settlement Plan is not implemented for any reason, Lo-Vaca has indicated, both in filings before the Commission ano ;n communicationr to its customers, that under a Final Order requiring sale of natural gas at contract prices or a refund of amounts paid in excess of contract prices, Lo-Vaca would not be able to maintain financial viability and has referred to the

 " threat of bankruptcy proceeding."If either the Commission proceedin;;s or the litigation now pending against Coastal /Lo-Vaca and related parties result in the initiation of bankruptcy proceedings, San Antonio is advised by counsel that the pipeline f.roperties would probably not be liquidated, but would be continued in operation in the public interest pending arrangement of debt and/or reorganization of the debtors.While the ultimate outcome of such proceedings and their effect on San Antonio cannot be predicted San Antonio is further advised by counsel that the Bankruptcy Court and the Railroad Commission would have adequate power to maintain and preserve most if not all of the gas supply needed for continuing service, at prices necessary in the public interest to pay for such gas and continued operation.

On June 21,1973, the Commission issued an Order establishing natural gas curtailment priorities for the delivery of natural gas to Lo-Vaca's customers pending final decision on Lo-Vaca's perraanent curtailment plan. Deliveries of natural gas by Lo-Vaca are governed by this Interim Order, which provides that natural gas to be used for the generation of electricity to meet residential, hosp:tal, schoo!, church and other human needs consumption is given a priority second only to direct usage of natural gas for the same purposes. Hearings regarding a permanent curtailment plan for Lo-Vaca concluded on August 29, 1974, but no report has been issued by the Hearing Examiner. The ultimate curtailment priorities among Lo-Vaca's customers as finally established by the Commission cannot now be reasonably predicted. On March 28,1975, the Commission ordered that a hearing be held to allow all gas utilities, owners or operators of gas-fired boilers, and any interested party to appear and present evidence on the question of elimination of naturalgas as a boiler fuel in Texas. On December 17,1975, the Commission adopted an Opinion and Order, effective on that date, concluding that any phase-out of natural gas as a boiler fuelin Texas should be done in an orderly manner and with the minimum disruption to the economy. The Final Order of the Commission, as amended on March 3,1976, ordered that, except for existing sales D agreements such as CPS's Gas Purchase Agreement, no gas utility within the jurisdiction of the Commission shall sell or 1516 071 39

transport more than 3,000 MCF per day of natural gas to any customer for use as a boiler fuel. The Commission further ordered that gas deliveries to current boiler fuei users who consumed an average of 3,000 MCF per day or more during 1974 or 1975, such as CPS, will be reduced 10% below that user's 1974 or 1975 consumption (whichever is higher) by January 1, 1981, and reduced 25% of that amount by January 1,1985.The City has anticipated such an eventuality through steps toward conversion to other sources of fuel. On Apri' 30,1970, the Commission, after notice and hearing, repealed its rule relating to elimination of natural gas as a boiler fuelin Texas, in light of the preemptive provisions of the Power Plant and Industrial Fuel Use Act of 1978. In its Order, the Commission exp;essed its intent that Texas energy users be allowed to make energy-use decisions based on economic forces and without sacrifices greater than those imposed on energy users outside Texas. Under the Power Plant and Industrial Fuel Use Act of 1978, natural gas may not be used as a primary energy source in an existing power plant on or after January 1,1990, unle ss an exemption has been obtained. CPS would be prohibited, af ter May 8,1979, from burning natural gas as a primary energy source in its five gas-fired electric generating stations in amounts exceeding the average yearly proportions used by each facility during the 1974-1976 base period, absent an exemption from the Act's provisions. CPS has applied for such a two-year temporary exemption from the Economic Regulatory Administration. Materla! Utigat!on Fuel Supply Matters if the Settlement Plan discussed in the previous section is implementeJ, a number of pending suits affecting San Antonio's relations with its gas suppliers, Coastal /Lo-Vaca, will be resolved. The primary litigation which will be disposed of is San Antonio's Bexar County Suit by Counterclaims, filed originally in 1972 and expanded by amendment in 1974 against Lo-Vaca, Coastal Producing and Coastal Corporation as well as against Oscar S. Wyatt, Jr.,a directorand chief executive of the parent corporation. The Counterclaim, filed subsequent to a 1972 suit for declaratory judgment brought by Lo-Vaca and Coastal States, seeks, among other things a declaration of Coastal /Lo-Vaca's obligation to deliver San Antonio's full contract requirements for natural gas at the contract prices, and damages now in excess of $350,000,000 attributable to higher fuel costs resulting from Coastal /Lo-Vaca's unjustified breach of the contract, and to capital expenoitures resulting from fraudulent misrepresentations made by Wyatt and other corporate officers concerning the supplier's ability to meet San Antocio's f uture gas needs. The City is advised by its legal counsel that the contentions of Cuastal States and Lo-Vaca in their originct petition, which seeks to limit their contractual supply obligations, are without merit and that Coastal States and Lo-Vaca, as public utility pipeline companies, have a legal duty ii, addition to and independent of contract, to provide a full and uninterrupted supply of natural gas to the City both during and after the termination of the present gas supply contract. Trial of the pleas of privilege of Coastal States Gas Corporation and Oscar S. Wyatt, Jr., to be sued in their home county of Harris Courity, Texas, began September 27,1976, and continued until January 25,1977, when it was recessed subject to implementation of the proposed Plan of Settlement and Reorganization dated January 24,1977,which is discussed under the previous heading. Implementation of the Settlement Plan would likewise resolve claims relating to Coastal /Lo-Vaca's liability for failure to deliver natural gas at contract prices and quantities raised in a suit originally brought by U. ited Texas Transmission Co. in a Harris County district court in June,1973. San Antonio intervened in that suit in February,1974, and is a customer class defendant to a counterclaim and crossclaim brought by Coastal /Lo-Vaca in August,1974, reeking a declaratory judgment that they have no liability for such delivery failures. The suit has been inactive since 1975, and the City's legal counsel anticipate that, absent settlement, the liability issue will ultimately be determined in the Bexar County litigation <r the Railroad Commission proceedings. Similarly, the issue of San Antonio's right to deduct, from its monthly natural gas payments to Coastal /Lo-Vaca, the excess costs of f uel oil generation of electricity during periods of natural gas delivery curtailments will be resolved should settlement be implemented. This issue, involving deducted amounts of approximately $8,000,000, was raised by Lo-Vaca before the Railroad Commission, which has to date taken no action thereon. Other Matters On June 22,1976, a suit styled Byrd v. City of San Antonio wLs filed in the United States District Court for the Western District of Texas, against the rnembers of the City Publ;c Service Board and the members of theSan Antonio City Council.allsuedin their of ficial capacitbs. and the City of San Antonio, challenging the constitutionality of the manner in which the members of the City Public Service Board are selected, as provided for in various City trust indentures and ordinances. The plaintiffs, adeged to represent individual classes of citizens and voters, seek a declaratory judgment by a three-judge panel that the J 6 U/2 40

Board is illegally constituted and that members must relinquish their positions, on grounds that the Board is not accountable to the electorate and, therefore, not a " republican" form of government, as required by Article 4 Section 4 of the U. S. Constitution, that its selection process abridges the right to vote under the 14th Amendment, and that certain changes in the D manner of selection of Mayor are violative of the Federal Voting Rights Act of 1965, as amended. The plaintiffs also seek preliminary and permanent injunctive relief restraining the individual defendants from appointing a City Public Service Board and seek permanent relief for either the election of the Board or appointment by thv City Councilin lieu of the present system. Three memtwrs of the City Council of San Antonio, Councilmen Cisneros, Hartrran and Rohde, named defendants in the suit in their capacities as city councilmen, petitioned the court to be realigned as plaintiffs and were so realigned. Messrs. Rohde and Hartman are no longer members of the City Council. On January 3,1977, counsel for the City filed a motion to dismiss the suit on grounds of failure to state a cause of action, and the presiding judge granted that motion, dismissing the plaintiffs' amended complaint and their Motion for Preliminary injunction. On January 5,1979, the judge denied the Plaintiffs' Motion for Staf of Judgment Pending Appeal and on the same day Plaintiffs' Motion for injunction Pending Appeal was likewise denied by members of the Fifth Circuit.Thelowercourt's dismissalof plaintifft claim has been affirmed by the United States Court of Appeals for the Fifth Circuit and plantiffs' appiication for review by the U.S. Supreme Court is pending. On August 31,1976, an amended petition was filed in the suit of League of United Latin American Citizens (LULAC) v. Cityof San Antonio - City Feblic Service Board, a suit first filed in November,1974, after denial of an attempted intervention by the Plaintiff organization n Lo-Vaca, et al. v. San Antonio, that denial being upheld on appeal. The amended pleading asserts a class action on the part af all CPS ratepayers and adds as defendants all members of the City Council and City Public Service Board as well as all of th9 counterclaim defendants and the presiding judge in the Lo-Vaca suit. The LULAC suit seeks to establish the right of the asserted class to any recovery obtained in the Lo-Vaca suit and prays for a judgment of one billion dollars. Counsel for the Ciy are of the opinion that the suit is without merit. COAL , in May,1974, CPS signed a 20-year contract for the purchase of coal from the Sun Oil Company. The contract provided a total of 55,450,000 tons of low-sulfur coal committed to San Antonio from the substantial reserves held by Sun Oil Company in Campbell County, Wyoming. The coal contract price consists of three parts, the mining, capital and reclamation segments. The mining segment is based on the actual mining costs incurred after the mine is in operation and is currently $3.12 per ton. The capital segment includes profit as well as cost for capital for the mine and is fixed at $3.50 per ton, which is subject to adjustment either up or down at the request of either partyif the then current contract price is significantly out of line with the prevailing market price of sales of comparable coal and this other party does not wish to terminate the contract. The reclamation segment is set at 5 cents per ton which is equivalent to more than $4,000 per acre and should be adequate to cover reclamation costs. In addition to this reclamation segment, the abandoned mine reclamation fee adds $0.35 per ton. The black lung tax took effect on April 1,1978, and amounts to 2 percent of the price of coal at the mine, or about $0.15 per ton. In May,1975, the City initiated proceedings in the Interstate Commerce Commission to establish a tariff for unit train railroad transportation of the coal from Wyoming to San Antonio, a distance of approximately 1,600 miles. On October 13,1976, the Commission issued an Order establishing the rate for such delivery by Burlington Northern, Inc., Southern Pacific Transportation Co., and others, at $10.93 per ton. The carriers appealed such Order to the United States Court of Appeals for the Eighth Circuit. On January 7,1977, an ex parte rate increase was granted which increased the rate to $11.37 per ton. On March 29,1977the United States Court of Appeals for the Eighth Circuit affirmed the Final Order of the I.C.C. The carriers petitioned the I.C.C. to reopen the case and on October 21,1977, the Commission reopened Docket No. 36180 for receipt of additional evidence and to consider modification of the Order of October 13,1976. On November 30,1977,and June 17,1978ex parte increases were granted which increased the rate to $11.94 per ton and $12.42 per ton, respectively. On December 12,1977, the carriers completed their filing with the Commission on the reopened Docket No. 36180 and requested a freight rate of $18.23 per ton. By an Order served on October 25,1978, the Commission granted the carriers an increase effective December 1,1978, raising the rate to $16.12 per ton. On Decenjber 15,1978 an ex parte increase raised the rate to its current level of $17.01. Both a petition for reconsideration of the decision and a petition for review by the D.C. Circuit Court of Appeals were filed on behalf of CPS. On June 1,1979, the City Public Service was notified that as a result of the reconsideration of the October 25,1978, Order, a rate of $17.23 per ton was set subject to an ex-parte increase of 5.5%, bringing the rate to $18.18 per ton. On June 5, 1979, the Commission granted an additional 1.2% increase to the tariff to compensate for the higher cost of diesel fuel. It is expected that these additional costs will be passed through to the consumer by the fuel adjustment clause, subject to approval by the appropriate regulatory bodies. City Public Service will continue to oppose the increase through the requested review by the D.C. Curcuit Cr art of Appeals. In addition to the railroad tariff, the cost of maintenance of the City-owned rail cars to be used to transport the coalis inc!'&d in the cost of coal delivered to the plant. This maintenance cost, in conjunction with the costs associated with coal yard

                                                                                             ,o.                .

41

operations and ash handling, amount to approximately $0.80 per ton, which adds approximately 4.8C per million BTU to the cost of coal. For the twelve months ending March 31,1979, CPS has burned 2.2 million tons of coal at an average price of $19.83 per ton to produce electricity from the J. T. Deely Plant. The CPS coal in stockpile as of March 31,1979, was 2,034,472 tons,or approximately six month's supply,and has an inventory cost of approximately $44.0 million. This large inventory and other factors have resulted in CPS taking less coalin 1977 and 1978 than anticipated by the supplier, which has claimed that CPS has not taken quantities required by the contract. While CPS is continuing its efforts to maximize the use of coal for genert. tion of electricity, it will continue to take delivery of no more than required for such needs consistent with its interpretation of the coal supply contract. LIGNITE As previously indiccted, CPS is studying the feasibi'ity of constructing a lignite-fired generating plant jointly with another utility company. Lignite reserves of from about 50 million to 70 million tons would be required to meet the long-term needs of a modern base load unit. CPS acquired in 1945 and presently owns approximately 20 million tons of lignite reserves located in Lee and Bastrop Counties, about 90 miles from San Antonio. A recent lignite acquisition program resulted in the addition of a probable 10 million tons of lignite. Additional lignite reserves in Bastrop, Washington, Lee, and Fayette Counties may be available for apportionment among the customer groups from implementation of Settlement of the Coastal /Lo-Vaca lawsuit. The CPS is now actively engaged in exploration and negotiation for the acquisition of additionallignite reserves in the Lee and Bastrop County area and in other areas of central and south Texas to augment tile current holdings. An application has been filed with the Bureau of Land Management in Santa Fe, New Mexico for a permit to mine lignite reserves under Camp Swift Military Reservation located in Bastrop County, Texas near existing known lignite reserves owned by CPS. FUELOIL CPS is using fuel oil to supplement natural gas as an input fuel to generate electricity. During 1976, the relative prices for fuel oil and natural gas resulted in it being cheaper for CPS to burn No. 6 residual fuel oilinstead of natural gas in certain units which have the capability to use No. 6 fuel. On September 30,1976, CPS entered into a contract with Tesoro Petroleum Corporation to purchase approximately 6,000 barrels per day of No. 6 oil for a one-year period ending September 30,1977. The contract was renewed in September,1977, for an additional one-year period, and a new one-year contract for the purchase of 4,000 - 6,000 barrels per day of No. 6 oil entered into effective October 1,1978. The price per barrel under the new Sales Agreement (effective October 1,1978) is oetermined by one of the two methods described below which yields the lowest price to CPS: (A) Based on the posted price in Platts Oilgram of Gulf Coast Cargoes

or 0.7% sulfur No. 6 fuel oil, the simple average of the high plus low posting, minus five cents, plus the published freight tariff from Corpus Christi to the point of delivery. Or, (B) $0.23 per MMBTU less than the cost of natural gas from Lo-Vaca Gathering Co. for the period of oil deliveries. The price per barrel is determined by multiplying the MMBTU cost (after subtracting $0.23) by 6.09. Ti.e Agreement further stipulates that either party can request renegotiation orcancelif the price determined under the above formula differs substantially from the market price or for other reasons which substantially affect costs. Tesoro gave such notice to CPS on March 28,1979, requesting that the price be renegotiated upward. CPS is evaluating the basis for this nctice and the requested price. For the twelve month period ending March 31,1979,863,585 barrels of No. 6 Fuel Oil have been purchased at an average price of $11.26 per barrel. This is equivalent to $1.85 per MMBTU as compared to an average Lo-Vaca gas cost of $2.12 per MMBTU.

Total fuel oil consumption by CPS for generation amounted to 1,023,839 barrels for the twelve month perbd ending March 31,1979. CPS has a usable oil storage capability of 1.4 million barrels. As of March 31,1979, the oil inventory was 603,553 barrels. In November,1974, CPS executed a No. 4 Fuel Oil Sales Agreement (the " Agreement") with a joint venture (the " Seller") composed of Quintar a Refinery Co. and Hov, ell Corporation providing for the purchase by CPS of 4,380,000 barrels of No. 4 fuel oil per calendar year through 1981. The Agreement related back to an effective date of May 16,1974. The initial base price established by the Agreement was $9.673 per barrel of oil, which was subject to upward or downward adjustment in accordance with the increase or decrease in actual expenses of the seller, including, among others, crude oil costs, gathering and transportation costs, refining costs, labor, taxes and inflation. The Agreement stated that the $9.673 per barrel initial base price was determined according to Federal Energy Administration ("FEA") ceiling price regulations and that in the event applicable ceiling prices fall below the Agreement price, seller, at its option, may discontinue deliveries. The Agreement price would increase to any such ceiling price in the event it were greater than the Agreement price. The invoice price of oil delivered under the Agreement in August,1975 was { $13.79 per barrel. In the event of termination of price regulations, the Agreement provided for a price increase of 11%. 1516 074 42

On June 18,1975, CPS filed a complaint with the FEA a@g generally that the Agreement was violative of FEA ceiling price and allocation regulations and,in effect, requesting FEA assistance in determining a lawful price and allocation levels. CPS has accepted no oil pursuant to the Agreement since August 31,1975, after providing the Seller with notice that CPS had D been advised by counsel that it could not lawfully pay an Agreement price which was violative of FEA price regulations and that the Agreement was void. On March 28,1979, Seller filed suit in Nueces County (Corpus Christi), Texas, asking damages aggregating approximately

 $66,000,000 based upon an alleged breach of the Agreement by City Public Service and the failure of City Public Service to pay for oil taken under the Agreement. On the same date, City Public Service filed suit against the Seller in Bexar County (San Antonio), Texas, for undetermined damages based upon payment for oil delivered under the Agreement in excess of F.E.A.

price ceilings and for a determination that the Agreement is void. City Public Service and Seller have since reached a settlement of these suits and all claims arising out of the Agreement and City Public Service allegations of overcharges, by the payment by City Public Service to the Seller of approximately $2,700,000. City Public Service has previously withheld

 $6,182,734.81 of amounts invoiced by Seller for oil received by City Public Service as a set-off against amounts claimed by City Public Service as overcharges under F.E.A. price regulations.

NUCLEAR On September 8,1975, Houston Lighting & Power Company (HL&P), as project manager for the South Texas Project,was notified, along with approximately 20 other utilities, by Westinghouse Electric Corporation that it would be unable to provide all of the uranium oxide (yellow cake) which it i.ad ir. tended and contracted to sell to these utilities for enrichment and fabrication into fuel for approximately 23 comestic and 4 foreign nuclear plants, including South Texas Project. Westinghouse claims it is excused from performance of these contracts because of "commercialimpracticability"under the Uniform Commercial Code and offered to allocate its available supply to the utilities at the contract prices and engagein a program to acquire additional uranium to be made available at higher prices. On October 8,1975, Houston Lighting & Power Company filed suit, individually and on behalf of the other participants in the South Texas Project,ir U. S. District Court, Harns County, Texas, demanding performance of its contract with Westinghouse to the fullest extent possible and seeking damages for any nonperformance. Similar suits were filed in other Courts by other utilities, all of which were consolidated in a U. S. District Court for the Eastern District of Virginia. Trial of the liability phase of the case was completed June 3,1978. In October,1978, prior to rendition of any decision. Westinghouse reached a D settlement, approved by the Court,with HL&P, acting on behalf of the Project participants. Under the terms of the Settlement, Westinghouse is obligated to provide the Project with over 9 million pounds of uranium concentrate, the first 2,377,000 pounds for the initial core of both units to be priced at originally quoted prices of approximately $13.20 per pound,some $30 below current market. The remaining concentrate is to be delivered by Westinghouse at production costs, which are expected to be in excess of the original quoted price as adjusted but below current ma,ket prices. Westinghouse must also furnish, at no charge or at discount charges, full fabrication services for the initial core and fuel reloads for each unit for 16 years, as well as certain equipment and additional services at discounted prices, additional concentrate subject to development of additional uran:um reserves, and a cash payment of $1 million. The uranium oxide provided by Westinghouse together with a minimum 5.600,000 pounds provided by another supplieris expected to satisfy the fuel requirements of both units through 1988 and at least 50% of such 'equirements through 1996. FUEL SUPPLY

SUMMARY

While the CPS gas supply situation has improved over the preceding year, the outlook for the futtue remains uncertain. Public policy regarding the use of remaining gas reserves for boiler fuel makes the future use of gas in electric energy generation uncertain. As previously discussed CPS will be subject to restrictions on natural gas usao for bciler f uel under the Power Plant and Industrial Fuel Use Act except to the extent of any exemptions obtained. The Natural Gas Policy Act,in addition to its pricing provisions, subjects intrastate gas, including gas intended for boiler fuel use, to Presidential emergency purchase autnority and emergency allocation authority to assist in meeting interstate natural gas requirements for high priority uses. The future effect of these pieces of federallegislation on the price and availability of the City's supply of natural gas cannot now be predicted. The CPS has, therefore, completed essential conversion of its existing generating units for oil firing and continues to be actively engaged in negotiations for advantageous purchases of additional supplies of natural gas and fuel oil. For the long term, CPS plans call for diversification of the electric generating system to emphasize the use of coal, nuclear D fuels, or lignite as the fuel for base load capacity. As previously detailed, CPS has a long-term coal contract for the purchase 1516 075 43

of an adequate fuel supply for the two naw coal-fired units. Under the terms of the Westinghouse settlement, along with other contracts entered into, initial requirements of nuclear fuel for the South Texas Project will 5e adequate and at costs below those used by CPS in confirming the economic feasibility of the City's participation in the Project. ENERGY CONSERVATION PROGRAM CPS for the past several years has been encouraging voluntary cone',rvation on the part of all customers in their use of electricity and natural gas. CPS has publicized methods by which customers can re61ce energy consumption through conservation and the elimination of energy waste. The results of the voluntary conservation programs have been reflected in the previously mentioned decline in the growth rate of peak demand. The results of any energy conservation programs will be carefully studied in the development of CPS plant expansion requirements. CPS is subject to the provisions of the National Energy Conservation Policy Act (NECPA), part of the 1978 federal energy legislation, which establishes certain residential conservation standards and requires nonregulated electric and gas utilities, such as CPS, to file with the Secretary of Energy a plan for implementing the standards which conforms to conservation rules promulgated by the Secretary. Alternatively, if the state's governor determines that nonregulated utilities will be subject to the state's plan for regulated utilities, CPS's cc npliance under NECPA will be pursuant to the state plan. In either case, NECPA standards will require utilities to infc.m customers of cost savings, inspect dwellings and inform consumers of the cost of installing conservation measures, and arrange for the installation and its financing. The cost of complying with these and other requirements of NECPA may be significant, but cannot be accurately predicted. As previously stated, it has not been necessary for CPS to curtail any of its electric service to the public and curtailment of natural gas service by CPS has occurred only in the case of one large customer several years ago.

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RATES in June,1975, the Texas Legislature passed and the Governor signed the Public Utility Regulatory Act, providing for the creation of a Public Utility Commission for Texas and further providing for the regulation of rates, operations and services of public utilities as defined by the Act. Under the Act, significant original jurisdiction over the rates, services and operations of electric and gas public utilities is vested in the Public Utility Commission and Texas Railroao Commission, respectively. While generally excluding from its coverage municipally-owned utilities, Section 3 (c) (4) of the Act contains language which includes as public utilities municipally-owned gas and electric utilities operated by a board of trustees which was not directly appointed by the City's governing body as of May 1 1975, a classification which includes San Antonio gas and electric systems. On December 16,1977, the 53rd District Court of Travis County rendered judgment in City of San Antonio, et. al. v. Morris declaring that portion of Section 3 (c) (4) of the Act which classifies certain municipally-owned utilities as "public utilites" unconstitutional as a special and local law prohibited by the Texas Constitution. The Court's judgment awarded San Antonio and one other municipal plaintiff refunds of the gross receipt assessments which the cities had paid under protest to the Public Utility Commission and declared that the plaintiff cities are not properly classified as "public utilities" under the Act but are " municipally-owned utilities" for all purposes under the Act. The Third Court of Civil Appeals decision affirming the judgment of the trial court became final on November 28,1978. As a municipally-owned utility under the Act, CPS will be subject to appellate but not original rate regulatory jurisdiction by the two Commissions in unincorporated areas in which it serves, will be subject to less stringent certification requirements than public utilities, and will not be liable for the annual gross receipts fee. The San Antonio City Council will continue to exercise general original rate regulatory jurisdiction over the service area, including unincorporated areas served by CPS, as a municipally-owned utility. Under the Public Utility Regulatory Policies Act of 1978 (PURPA), certain federal standards are established which must be given consideration subject to public notice and hearing by state electric utility regulatory authorities and by nonregulated retail electric utilities such as CPS. A hearing date for the six rate standards including cost of service, declining block rates, time-of-day rates, seasonal rates, interruptible rates and load management techniques, must be set by November 9,1980, but consideration of the standards may be required earlier in a ate case by an intervenor, and a determination as towhether the standards will be implemented must be made by November 9,1981. The five retail service standards relating to master metering, automatic adjustment clauses, information to consumers, procedures for termination of electric service and advertising must be considered in a public hearing held within two years from November 9,1978. Hearings mustalso be held D to consider the implementation of lifeline rates if such rates are not in effect by the end of the two-year period. PURPA requires that the utility's decision regarding whether or not to adopt the standards must be made available in writing to the public, in addition, the utility will be required to fund the reasonable costs of public participation in the hearings, including attorney and witness fees, under either a direct compensation plan or adequately funded public counsel program. Likewise, the utility must report annually to the Secretary of Energy regarding action taken as to the standards. The cost of complying with these provisions of PURPA, though not quantifiable, is likely to be substantial. Pursuant to Section 133 of PURPA, the Federal Energy Regulatory Commission has promulgated regulations requiring significant reporting by electric utilitier including CPS, of data relating to the costs of providing retail electric service. Because tl.e regulations will require the furnishing of certain data not otherwise available, including marginal cost information and expanded load data studies, some of such data to be provided as early as Novemtm. t 1980, the cost of compliance may be significant. RATE INCREASE - AUGUST 30,1976 The City of San Antonio is obliged under the Trust indenture and the New Series Bonds Ordinance to establish rates and collect charges in an amount suf ficient to pay all electric and gas system operation and maintenance expenses, to service all Old Series and New Series Bonds, and to make all other payments prescribed in the Old Series Bonds Trust indenture and New Series Bond Ordinance. On August 30,1976, the City Council approved an electric rate increase which over the next 12 months was estim.sted to increase revenues by 5.25 percent. At the same time, the cost of fuel contained in both the electric and gas basic rates was increased from the previous low levels to higher, more realistic levels. The cost of fuel in the electric basic rates was increased from approximately 0.259C per KWH to 1.86c per KWH, whereas, the cost of gas in the gas basic rates was increased from $0.238 per MCF to $1.793 per MCF. In June,1977, CPS filed with all appropriate regulatory authorities to which it was then subject, including the City Councils of San Antonio and other incorporated communities within its service area and with the two State Commissions havirg jurisdiction over unincorporated areas, its applications for increases in its gas and electric extension charges and miscellaneous charges and for revisions in its service rules and regulations. The application was approved by the San D 1516 077 45

Antonio City Council in Ju!y,1977, and has since then been accepted by all of the smallincorporated communities served. The application was approved m all respects except as to certain service rule provisi'.)ns by the two Commissions, which exercised original jurisdiction prior to the judgment rendered in San Antonio v. Morra. The new extension polief and the charges, rules and regulations have been implemented throughout the service area effective April 24,1978. FUTURE RATE INCREASE The electric rates now in effect are those approved on August 30,1976. The current gas rates were approved as of June 6, 1974, with the amendment to the gas cost included in the basic rate, effective August 301976. The gas adjustment provided fcr no net increase in gas revenue. A resolution to request that the City Council approve an increase in both the gas and electric rates byan amount sufficient to increase total annual revenues by 6.2% was passed by the City Public Service Board of Trustees on June 6,1979. This regt est, if granted by the City Council, would increase electric revenues by 5.8% and gas revenues by 7.3% annually. While these rate increases will be requested, there is no assurance as to whether rates will be changed, the amount, or the effective date of any such change. ELECTRIC AND GAS RATE SCHEDULES The electric rates which were placed into effect on August 30,1976, continue to encourage conservation during peak usage periods by strengthening the ratchet features originally implemented with the rate char.ge which occurred in June,1974. These features serve to penalize customers who use excessively more electricity durin;, system peak summer months than they do during other months. The principal electric rate schedules now in effect are as follows: MO b THLY RA TE Resiaential Service Bar Summer Billing (June through September)

$2.25             Service Availability Charge 4.3c            per KWH for all KWH Nonsummer Billing (October through May)
$2.25             Service AvailabHity Charge 4.3c            per KWH fcr all KWH up to a total c.onsumption equal to 40% of the average monthly use* of the previous Summer Bilhng period.

3.4c per KWH for all KWH in excess of 40% of the average monthly use* of the previous Summer Billing period.

                  'Until a summer average use (at least one complete summer month's billing cycle) has been established, the Nonsummer 4.3c block shall include consumption up to 350 KWH. The 3.4C block shall include all consumptions above 350 KWH.

General Service Rate

 $2.25            Service Availability Charge 5.0c            per KWH for the first 1,200 KWH*

4.1c per KWH for the next 3.400 KWH 3.0c per KWH for all additional KWH

                  *120 KWH are added for each KW of Billine. Demand over 5 KW. Billing demand from October through May may not be less than 80% of highest measured demand from June through September. Billing demand f rom June through September is the highest measured demand.

1516 070 46

Large Lighting and Power Rate Demand Charge

  $260.00           for the first 100 KW of Billing Demand 2.20         per KW for all additional KW of Billing Demand Energy Charge 2.90c        per KWH for the first 70,000 KWH 2.32c        per KWH for all additional KWH

Billing demand from October through May may not be less than 80% of highest demand from June through September. Billing demand from June through September may not be less than 100 KW.

The principal gas rate schedules are: MONTHLY RA TE General Service Rate Winter Billing (December through March)

  $1.50             Service Availability Chaige
  $1.52             per 1000 cubic feet for the first 1,000 cubic feet
  $2.27             per 1000 cubic feet for the next 9,000 cubic feet
  $2.13             per 1000 cubic feet for the next 30,000 cubic feet
  $1.97             per 1000 cubic feet for all additional cubic feet Nonwinter Billing (April through November)
  $1.50             Service Availability Charge
  $1.52             per 1000 cubic feet for the first 1,000 cubic feet
  $2.27             per 1000 cubic feet for the next 4,000 cubic feet
  $2.13             per 1000 cubic feet for the next 35,000 cubic feet
  $1.97             per 1000 cubic feet for all additional cubic feet Industrial Class A Rate
  $,14.00           Service Availability Charge
  $ 1.52            per 1000 cubic feet for the first 10,000 cubic feet
  $ 2.02            per 1000 cubic feet for the next 90,000 cubic feet
  $ 1.92            per 1000 cubic feet for the next 100,000 cubic feet
  $ 1.87            per 1000 cubic feet for all additional cubic feet Industrial Class B Rate
 $14.00            Service Availability Charge
 $ 1.520           per 1000 cubic feet for the first 10,000 cubic feet
 $ 1.920           per 1000 cuoic feet for the next 110,000 cubic feet
 $ 1.845           per 1000 cubic feet for all additional cubic feet Industrial Class C Rate
 $200.00           Service Availabilit/ Charge
 $ 1.52            per 1,000 cubic feet for the first 600,000 cubic feet
 $ 1.84            per 1,000 cubic feet fo. the next 29,400,000 cubi:: feet
 $ 1.82            per 1,000 cubic feet for 0 additional cubic feet FUL1 AND GAS COST ADJUSTMENT The foregoing rate schedules approved by the 3an Antonio City Council on August 30,1976 contain a fuel cost adjustment clause in the electric rates and a gas cost adjustn. ant clause in the gas rates which allows the recovery of fuel and gas costs that vary above or below the costs which are incluJed in the basic rates. Electric basic rates are subject to an adjustment of D plus or minus the amount of change in the price of fuel above or below a t,asic cost of $0.0186 per KWH sold. The gas basic rates are subject to an adjustment of plus or minus the amount of change in the price of an selJ iboveor belowa basic cost of $1.793 per MCF sold.                                                                   ,      O V//

47

ELECTRIC CUSTOMER STATISTICS Fiscal Years Ended January 31: 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1979* RESIDENTIAL Average Monthly KWH/ Customer 609 631 698 766 724 686 681 663 718 735 733 Average Monthly Bill / Customer $11.56 $11.94 $12.98 $14.14 $14.42 $20.62 $25.86 $28.42 $32.50 $32.53 $32.57 Average Monthly Revenue /KWH $.0190 $.0189 $.0186 $.0184 $.0199 $.0301 $.0380 $.0429 $.0452 2.0442 $.0444 COMMERCIAL AND INDUSTRIAL Average Monthly KWH/ Customer 6,372 6,760 7,256 7,515 7,368 7,642 8,339 8,500 8,641 8,675 8,694 Average Monthly Bill / Customer $83.64 $88.30 $93.35 $97.18 $105.05 $176.41 $261.31 $305.82 $316.89 $308.25 $310.05 Ave age Monthly Revenue /KWH $.0131 $.0131 $.0129 $.0129 $.0143 $.0230 $.0313 $.0360 $.0367 $.0355 $.0357 ALL CUSTOMERS Average Monthly KWH/ Customer 1,532 1,588 1,699 1,798 1,718 1,689 1,754 1,750 1,826 1,894 1,888 Average Monthly Bill / Customer $22.07 $22.92 $24.46 $25.99 $27.13 $42.19 $58.03 $66.12 $71.34 $70.98 $71.14 Average Monthly Revenue /KWH $.0144 $.0144 $.0144 $.0145 $.0158 $.0249 $.0331 $.0378 $.0391 $.0375 $.0377

12 months ending March 31,1979.

TYPICAL RESl0ENTIAL GAS AND ELECTRIC BILLS OF SIX TEXAS CITIES

City Usages: 500 Kilowatt hours for Electric,5.000 Cubic feet for Gas Electric Bill Gas Bill Total Bill g

Fort Worth $18.56 $11.81 $30.37 SAN ANTONIO 20.60 14.27 34.87 Austin 18.51 18.74 37.25 Dallas 24.01 13.34 37.35 Houston 23.08 18.13 41.21 Corpus Christi 26.59 17.39 43.98 Based upon April,1979 billings including Fuel and Gas Cost Adiustments. TEN YEAR RECORD OF CITY OF SAN ANTONIO BENEFITS FROM CITY'S ELECTRIC AND GAS UTILITY SYSTEMS Year Ending Payments increase in City's Total Annual 1-31: To City

Equity in System Benefits to City 1970 $ 11,131,102 $ 23,415,134 $ 34,546,236 1971 11,083,183 23,754,307 3!.,,437,490 1972 12,700,217 24,729,461 37,429,673 1973 14,085,974 23,678,984 37J64,958 1974 14.993,759 19,520,893 31,514,652 1975 23.387,116 23,385,705 ,d,772,821 1976 28,447,237 25,575,284 54,022,521 1977 x*, 9 9,018 27,811,402 60,000,420 1978 36,996,987 31,491,910 68,488,897 1979 39,557,154 22,943,464 62,500,618 Totals $225,171,747 $246,306,544 $471,478,291 Payments to City annually include cash payments, refund of charges for furnishing City electricity and gas, and construction of street lighting facilities for City.

( 1516 000 48

LEGAL OPINION The City will furnish a transcript of proceedings had incident to the issuance and authorization of the Bonds,includin;p a no-litigation certificate and a certified copy of the unqualified approving opinion of th- '"orney General of Texas,as recordedin D the Bond Register of the Comptroller of Public Accounts of the State of Texas, stating that the Bonds are valid and binding obligations of the City. The City will furnish the unqualified approving legal opinion of Messrs. McCall, Parkhurst & Horton, Dallas, Texas, Bond Counsel for the City (" Bond Counsel"), to the effect that, based upon an examination of such transcript, the Bonds are valid and binding special revenue obligations of the City and that the interest on the Bonds is exempt from all present federal income taxes under existing statutes, regulations, rulings and court decisions. The legal opinion will be printed on the Bonds. Messrs. McCall, Parkhurst & Horton were not requested to participate and did not take part n the preparation of the Official Notice of Sale or the Official Statement, and such firm has not assur..ed any responsibility with respect thereto or undertaken independently to verify any of the information contained therein,except that,in es crpacityas Bond Counsel, such firm has reviewed the information describing the Bonds and the Bond Ordinance in this Official Notice of Sale and the Official Statement to verify that such description conforms to the provisions of the Bond Ordinance.Thelegal fees to be paid Messrs. McCall, Parkhurst & Horton for services rendered in connection with the issuance of the Bonds are contingent on the sale and delivery of the Bonds. FINANCIAL ADVISOR Russ Securities Corporation, the Municipal Finance Subsidiary of Rotan Mosle Fincocial Corp.,is employed as Financial Advisor to the Board under an agreement providing for a fee based on a percentage of the face amount of each separate issuance of bonds, such fee to be contingent upon the bonds actually being issued, sold and delivered. Although Russ Securities Corporation performed an active role in the drafting of the Of ficial Notice of Sale and Official Statement,it has not independently verified all of the information set forth herein. No person, therefor,is permitted to rely upon the par.icipation of the Financial Advisor as an implicit or explicit expression of opinion as to the completeness and accuracy of such information. AUTHENTICITY OF INIJRMATION The financial data and other information set forth in this Official Statement has been obtained from CPS and City records and other sources which are believed to be reliable, but it is not guaranteed as to the accuracy or completeness thereof, and its inclusion herein is not to be construedas a representation to that effect. Also, there is no guarantee or representation that any l of the assumptions or estimates contained herein will ever be realized. All of the summaries or excerpts of statutes, ordinances, regulatory agency orders, judgments or other documents do not purport to be complete statements and are made subject to al! of the provisions of such statutes, ordinances and documents. Reference should be made to such original sources in all respects. CERTIFICATION OF THE OFFICIAL STATEMENT At the time of payment f or and delivery of the Bonds, the City Public Service Board of San Antonio will furnish the successful bidder a certificcte, executed by a proper officer or officers of the Board acting in their official capacities, to the effect that to the best of their knowledge and belief: (a) the descriptions and statements of or pertaining to the t3oard contained in its Official Statement, as supplemented and amended, on the date of such Official Statement, on the date of sale of the Bonds and the acceptance of the best bid therefor, and on the date of the de!ivery of the Bonds, were and are true and correct in all material respects; (b) insofar as the Board and its affairs, including its financial affairs, are concerned, such Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein,in the light of the circumstances under which they were made, not misleading; and (c) insofar as the descriptions and statements, including financial data contained in such Official Statement, as supplemented and amended, of or pertaining to entities other than the Board and their activities are concerned, such statements and Jata have been obtained from sources which the Board believes to be reliable and that the Board has no reason to believe that they are untrue in any material respect. This Official Statement has been duly approved by the City Council of San Antonio, Texas and by the City Public Service Board of San Antonio. CITY OF SAN ANTONIO, TEXAS CITY PUBLIC SERVICE BOARD OF SAN ANTONIO J se Mrs. Lila Cockrell Eloy nteno 3 ;

                                                                                                           ,           n Mayor, City of San Antonio, and                                           Chairman, Board of Trustees v           vv i Ex officio Member, Board of Trustees 49

APPENDIX A CITY OF SAN ANTONIO, TEXAS - GENERAL INF0ftMATION TN City of San Antonio is the County Seat of Bexar County. It is located in south central Texas,75 miles south of the state h capital in Austin, and it on the main transcontinental line of the Southern Pacific Railroad kOO miles west of Houston and 570 miles east of El Paso. Also, it is approximately 140 miles from the Gulf of Mexico at Corpus Christi and 150 miles from the Mexican border cities of Del Rio (Ciudad Acuna), Eagle Pass (Piedras Negras), and Laredo (Nuevo Laredo). The City was founded in the early eighteenth century, and was an important provincial capital of northern Mexico until the Texas Revolution. It was incorporated by the Republic of Texas in 1837 and has largely retained the flavor of its Spanish origins while growing into an important Texas urban center. San Antonio has a Council-Manager form of government. In 1970, San Antonio with a populztQn of 654,153 was the third city in size in Texas and the fifteenth largest city in the United States. By September 30,1978, the estimated population of San Antonio has risen to 824,124, placing the Cityamong the ten largest cities in the U.S. accord .ig to the latest U.S. Census Bureau reports. The 1978 population of Bexar County was estimated at 924,488. The area e . the City has grown from 36 square miles when incorporated in 1837 to 317 square miles.The present population estimate of 824,124 does not include military personnel quartered at the several military installations in the area. San Antonio is located at an average elevation of 701 feet above sea level and enjoys a .,,oJified subtropical climate, normal mean temperatures ranging from 50 degrees in January to 84 degrees in July. The hot summers are tempered by the prevailing Gulf winds from the southeast and the winter climate has made it a recognized resort area enjoying about 50% of the possible winter sunshine. The San Antonio River, an attraction for visitors, winds through the city streets, and the river walk Paseo del Rio" area is a focal point for a continuing beautification and renovation program. River taxis convey hotel visitors to the major Convention Center and the Tower of the Americas nearby on Hemisfair Plaza, where the 250th anniversary of the founding of the City was celebrated in 1968. Other tourist attractions include the Alamo, which was the church of the Mission San Antonio del Valero; four other 18th century Spanish missions; La Villita, a restoration of the first permanent settlement on the San Antonio River; and the Governor's Palace. Tourism contributes substantially to San Antonio economy. A record of the City's continued importance as a conver, tion center is shown in the following statistics compiled by the San Antonio Convention and Visitors Bureau: San Antonio Convention Statistics Calendar Total Estimated Year Conventions Defeaates Dollar Value 1972 277 159,040 23,856,000 1973 330 160,693 24,104,700 1974 403 180,554 27,060,600 1975 415 195,019 29,247,850 1976 465 185,224 27,783.600 1977 434 164,521 29,613,980 1978 488 189,610 34,129.800 1970~ 192 52,836 9,510.480 First three months 91979 ending March 31,1979. In addition to being a major tourist attraction, San Antonio is an important military center. At the end of the 1978 fiscal year, the latest 'date for which statistics are available, San Antonio had rpproximately 43,489 active duty military personnel and 29,043 active civilian employees at the various local installations w5ich had combined ant'ual payrolls of some $909,301,103. The area installations include:

1. FORT SAM HCUSTON. Finished in 1879, the Quadrangle portion house the Headquarters of the Fifth Army and the rrservation consists of about 1,830 buildings situated on more than 3,026 acres. The Post houses Brooke Army Medical Center, and tenant organizations include the Alamo Area Support L. iter of the Army and Air Force Exchange Service, an office of the Army Engineer Topographic Production Center, the Fourth Recruiting District, U. S. Army, the Modern Pentathlon Training Center, and ot',er satellite organizations.

2. U.S. ARMY HEALTH SERVICES COMMAND. Established, in 1973, this Command was the result of reorganization of the Army.

The Brooke Army Medical Center, operating under this Command, consists of a general teaching hospital and the U. S. Army Dental Labortstory. The Academy of Health Sciences is also a part of the Health Services Command and is the only military medical teaching facility of its kind in the U. S. All Army medicalcenters, hospita!s, and major medical activities located in the t1 / llo 0O90c A-1

U.S., Canal Zone, Puerto Rico, Guam, Johnson Isiands and the Trust Territory of the Pacific Islands are now joined under the Health Services Command. The U. S. Army institute of Surgical Research, the burn treatment and research center for the military and a branch of the Medical Research and Development Command, Washington, D.C.,is also locatec at this facility.

3. RANDOLPH AIR FORCE BASE. Located 15 miles northeast of San Antonio, Randolph AFB is the home of the Air Training Command and the Air Force Recruiting Service, as well n the Twelf th Flying Training Wing. Randolph AFB is also the Air Force Military and Civilian Personnel Center which maintains personnel records and assignments for the entire U. S. Air Force. The first solar heated and cooled facility in the Air Force, the Randolph Base Exchange, began r pe ations in the Fall of 1977.

4. SAN ANTONIO AIR L*ilSTICS CENTER [SA/ALC). Kelly Air Force Base provides logistical support to Air Force operational commands around the world. Established in 1917 as Kelly Field, the Base has grown to become the largest single industrial complex in the Southwest. It is here that the B52 Stratofortresses and CSA Transports are maintained and modified. The Base is one of five major logistics centers under the Air Force Logistics Command,is the location of the headquarters of the Air Force Security Service, and has as tenants 31 other military organizations.

5. BROOKS AIR FORCE BASE. Established as Brooks Field over sixty years ago in the southern portions of San Antonic, the Base is the location 01 the headquarters of the AerosparWedical Division of the Air Force Systems Command. This Division operates laboratories, classrooms r.nd treatment facili'.es,inc!uding: the Wilford Hall USAF Medical Center at Lackland AFB, which is the largest Department of Defense single-sti JClure medical Center; the School of Aerospace Medicine on Brooks AFB, the 6570th Aerospace Medical Research Laboratory at Wright-Patterson Air Force Base in Ohio; and the Air Force Occupational and Environmental Health Laboratcry. Brooks is also headquarters for the Air Force Human Resources Laboratories and the location of the Air Force Medical Service Center which operates under the command of the Surgeon General's office.

6. AIR FORCE MILITARY TRAINING CENTER AT LACKLAND Lackland, an Air Force training base,is 12 miles west of downtown San Antonio and is a major complex of military, technical, and professional schools providing 110,000 to 120,000 personnel annually to the operational and support commands of the Air Force. The Center has a ct,rrent population of 10,496 military and 6,810 civilian perso..nel.

San Antonio is an important and expanding medical center. The South Texas Medical Center is located on a 683-acre site in D the narthws515ection Of the City, much of the Mnd having been donated to the San Antonio Medical Foundation. The Foundation has in turn contributed some 252.06 acres to various institutions, and at January 1,1979, a total of 26 facilities were completed or under construction in the Center at a cost of some $308,Z44,199. Construction work in progess for new and added facilities amounts to $29,200,000. Ti,e combined annual budget of these approximates $205 million, and the facilities employ 10,724 persons. Major f acilities include the Bexar County Teaching Hospital, the 700-bed Audie L. Murphy Veterans Administration Hospital, and The University of Texas Health Science Center consisting of Medical School, Dental School, School of Allied Health Sciences, Graduate School of Biomedical Sciences, School of Nursing and College of Pharmacy. Other facilities include Southwest Texas Methodist Hospital, Oak Hills Medical Building, a Cerebral Palsy Treatment Center, Villa Rosa Psychiatry and Rehabilitation Center (Psychiatry, Physical Medicine & Rehabilitation). Ecumenical Center for Religion and Health, Cancer Therapy and Research Center, San Antonio Community Hospital, a Comrnunity Guidance Center, Lutheran General Hospital, and The Easter Seal Society Rehabilitation Center. Including the new VA Hospital, there are currently 2,376 beds in the six hospitals in the Center. Outside the Center location, San Antonio also has seventeen other hospitals, including thirteen private hospitals with a total of 3,654 beds and two state hospitals with a total of 1,202 beds as well as two Department of Defense hospitals with a total of 1,J64 beds. In addition, ground is about to be broken for the neve 166 bed Community Hospital of Southwest San Antonio. In addition to the previously mentioned schools for medicaland dentaleducation, otherinstitutions of higherlearning within the City include two junior colleges, two colleges and six universities which of fer a wide variety of vocational training as well as undergraduate and graduate degree programs for a total student entvilment of more than 48,800. San Antonio's newest university is the University of Texas at San Antonio which opened for graduate level students in 1973 and opei ad for undergraduate students for the first time with the fall semester,1975. Located on 600 acres in the northwest sector of the City, the $61 million campus is now substantially completed. For the current fiscal year beginning September 1,1978, the new University's total operating budget is $15.6 million, approximately the same as that for previous year. Research and development has become an important contributor to San Antoni% growth. The Southwest Research Center is one of the nation's most respected research and development organizations as J tslocated apprmimately eight miles west of San Antonio. The Center covers a 2,500-acre sitt and has a staff of over 1,800 individuals composing two not-for-profit, tax-exempt scientific research institutions. m, 1JlD m UUJ A-2

Southwest Research Institute is an engineering and applied research institution working primarily for industrial clients on a fee basis. It has a staff of approximately 1,650 and an annual budget of over $60 million. Southwest Foundation for Research and Education is a basic biomedical research institution. It operates on an annual budget of about $5.5 million and has a sta.f of approximately 245 people. It conducts research in the areas of Biological Growth and Development, Reproductive Physiology and Biology, Microbiology and Infectious Diseases, and the Environmental Health Sciences. Major areas of research are in atherosclerosis the major cause of lieart attacks and strokes, biochemistry, ca7cer, infectious diseases and virology, and reproductive biology. Southwest Founda* ion has been formally designated by the World Health Organization as its one center for research in the study of disease transmissable from nonhuman primates to man. San Antonio's industry is well diversified, ranging from apparel, pharmaceuticals, asphalt, fcod products, breweries, cans, boxes, air-conditioning, batteries, furniture, cigars, aircraft, road equipment, cement, plastics, and fiberglass products, to aluminum products, iron and steel products, oil well equipment, trunks and fuggage, research electronics, truck trailers, and musical instruments. It is,in addition, the home office location of severalinsurance companies, including the United Services Automcbile Association which occupies an impressive $100 million headquarters complex. The U.S.A.A. employs approximately 4,400 people and is reported to be the 9th largest among the nation's auto insurance companies. Levi-Strauss has recently opened two new plants to manufacture children's clothing and women's clothing. They currentlyemploy about 1,400 paople combined and project a figure of 3,000 to 4,000 when the plants are put into full operation. Nine K-Mart department stores have been opened for business and the new Ingram Park Mall, which opened in early 1979, contains two anchor stores and approximately 120 other outlets. The Mall will contain a total of five anchor stores and 145 outlet stores when fully occupied. In addition, a 400-plus-room-hotel, located near the International Airport began operations dunng the summer of 1978 and a new 255 room hotel was opened in early 1979 in the downtown area. There is presently also under construction a 550 plus-room-ho'el scheduled to be opened in late 1979. The latest Texas Employment figures shown San Antonio area unemployment in February,1979 was 5.8% down from approximately 6.7% the previous February. Some factors indicating the economic strength of San Antonio are as followr Growth indices Year Telephone Electric Gas Water Endina Connections Customers Customers Customers

1969 401,573 232,952 199,749 146,089 l

1970 429,954 239,519 204,327 148,452 1971 458,785 248,739 210,632 151,200 1972 491,100 260,632 219,127 154,513 1973 515,313 267,443 224,084 159,012 1974 538,800 269,500 227,923 161,100 1975 558,203 272,566 230,042 162,627 1976 589,663 279,587 234,337 164,454 1977 622,732 290,904 240,566 167,633 1978 662,892 307,705 249,391 172,185 1979 " 672,994 309,380 250,128 172,740 City Water Board only. As of March 31,1979. Businn Indices Calendar Bank Building Postal Year Clearinas Permits Receipts 1969 $10,884,022,753 $ 85,904,537 $17,798,558 1970 10,014,836,330 103,210,207 18,256,681 1971 11,547,764,451 131,082,000 21,349,000 1972 13,312,759,105 223,749,000 23,583,000 1973 16,304,437,765 226,710,152 24,271,968 1974 17,475,520,274 183,520,814 26,407,000 1975 18,249,836,385 158,840,443 29,818,000 1976 20,323,429,838 162,380,313 35,410,000 1977 22,537,211,921 213,651,080 38,753,148 1978 25,745,461,776 238,435,225 45,100,929 1979* 6,703,544,454 89,547,235 11,834,901 First three months of 1979 ending March 31,1979. O 9 i

                                                                                                            '    I      U Li '$

A-3

There are 44 banks in metropolitan San Antonio, which had total deposits of $3,441,246,547 at March 31,1979, an increase of approximately .'.68% over the first quarter of 1978. Total loans have increased more than 16% over the same period last year, The ten largest City of Sat. Antonio taxpayers as listed on the tax rolls are shown below: D Market Value in Dollars Sept. 30,1978

1. Southwestern Bell Telephone Company $202,600,489

2. United Services Automobile Association 81,155,644

3. Frost National Barik 35,117,089

4. National Bank of Commerce 25,898,133

5. H.E. Butt and Company 18,288,422

6. Sears, Roebuck & Co. 17 881,400

7. IBM 15,073,200

8. Alamo National Bank 14,628,378

9. Joske's of Texas 13,120,933

10. Ray Ellison Property 12,955,689

SUMMARY

FINANCIAL STATEMENT [ Relating to General Obligation Bondal The following brief financial statement of the City of San Antonio, Texas as of March 31,1979, is submitted for informa-tion purposes: 1978 Estimated Actual Value of Taxable Property $5,747,527,622 1978 Assessed Valuations (45% of Ac' jal) $2,586,387.430 General Obligation Bond Debt $ 122,873,000 Less: Self-Supporting Debt $13,039,119 Applicable Interest & Sinking Fund 7,811.340 20,850,459 NET GENERAL OBLIGATION DEBT $ 102,022,541 The above statement does not include the following special obligations (Revenue Bonds) which are payable solely from revenues of City-owned utility systems and other municipal enterprises: As of March 31,1979 Revenue Bonds Reserve Fund Outstandina Balances Electric and Gas Systems Revenue Bonds $697,975,000 $32,458,b." Water Revenue Bonds 51,145,000 4,334,425 Sewer Revenue Bonds 24,375,000 1,982,500 Airport Revenue Bonds 6,307,000 623,185 D 1516 085 A-4

COMPARATIVE RECORD OF MUNICIPAL SALES TAX COLLECTIONS (10 Large,-t Texas Cities Based upon 1970 Census) Sales Taxes - Net 1979* 1978 1977 1976 1975 Beaumont $ 1,625,676 $ 5,833,417 $ 5,203,997 $ 4,313,428 $ 3,514,584 Amarillo 1,713,336 6,474,596 6,072,153 5,019,925 4,483,750 Lubbock 2,080,208 7,894,896 7,201,597 5,614,266 4,848,690 Corpus Christi 2,391,158 9,000,730 7,781,217 6,347,307 5,557,860 Austin 3,907,023 14,916,835 13,009,879 9,184,380 8,185,869 El Paso 3,023,569 11,738,879 10,345,787 0,034,726 8,100,664 Fort Worth 4,672,385 18,841,540 15,875,359 12,351,647 11,116,944 San Antonio 6,548,535 25,503,388 22,877,320 18,966,511 16,579,604 Dallas 13,988,492 52,152,250 46,498,780 35,364,489 31,899,559 Houston 24,429,635 92,457,067 76,423,020 62,599,850 55,377,459 Collections as of March 31,1979. 4 1516 030 A-5

APPENDIX B D FINANCIAL STATEMENTS WITH ACCOUNTANTS' REPORT THEREON THE CITY PUBLIC SERVICE BOARD OF SAN ANTONIO JANUARY 31.1979 AND 1978 PEAT, MARWICK, MITCIIELL & CO. CERTIFIED I'UBLIC ACCOUNTANTH NATIONAL BANK OF COMMERCE HUILDING BAN ANTONIO, TEXAS 78205 Board ot Trustees The City Public Service Board of San Antonio: We have examined the balance sheets of The City Public Service Board of San Antonio as of January 31, 1979 and 1978, and the related statements of operations and application of earnings, D changes in equity accounts and changes in financial position for the yeara then ended. Our examinations were made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the aforementioned financial statements present fairly the financial position of The City Public Service Board of San Antonio at January 31, 1979 and 1978, and the results of its operations and application of earnings and the changes in its financial position for the years then ended, in conformity with generally accepted accounting principles applied on a cons istent basis.

                                   ,                  j February 28, 1979 D

1516 087 B-1

THE CITY PUBLIC SERVICE BOARD OF SAN ANIONIO Balance Sheets January 31, 1979 and 1978 (Dollars in Thousands) Assets 1979 1978 Utility plant, at cest: 21ectric $ 825,033 706,914 Gas 122,902 119,373 General 16,579 16,280 Construction work in progress (note 6) 300,719 258,142 Total utility plant 1,265,233 1,100,709 Less accumulated depreciation 209,127 182,599 Net utility plant 1,056,106 918,110 Restricted cash (substantially temporary cash invest-ments and U. S. Government obligations stated at cost which approximates market) (note 3): Bond Reserve - Old Series Bonds 17,107 16,590 Bond Reserve - New Series Bonds 14,095 7,524 Improvements and Contingencies Fund 22,581 7,906 Total restricted cash 53,783 32,020 Current assets: Cash, including temporary cash investments 19,297 9,164 Accounts receivable, net of $300 allowance for doubtful accounts 26,777 22,025 Inventories: Materials and supplies 13,884 13,282 Fuel stock 46,939 45,022 Prepayments 657 607 Total current assets 107,554 90,100 Deferred charges: Unamortized debt expense 973 774 Other 2,531 2,661 Total deferred charges 3,504 3,435

                                                             $ 1,220,947  1,043,665 See accompanying notes to financial statements.

B-2 1516 080

THE CITY PUBLIC SERVICE BOARD OF SAN ANIONIO

 )                                      Balance Sheets January 31, 1979 and 1978 (Dollars in Thousands)

Liabilities and Equity 1979 1978 Long-term debt, excluding current maturities (note 3) - Revenue Improvement Bonds: Old Series - 3.1% - 7% due serially to 1997 $ 170,570 17),225 New Series - 57. - 87. due serially to 2003 439,175 __]"' , 000 Total long-term debt 609,745 474,225 Equity: Appropriated retained earnings (note 3): Bond Reserve - Old Series Bonds 17,107 16,590 Bond Reserve - New Series Bonds 14,095 7,524 Improvements and Contingencies Fund 22,581 7,906 Total 53,783 32,020 Reinvested earnings 465,440 464.260

)                     Total equity                                     519,223    496,280 Current liabilities:

Current maturities of long-term debt 13,230 10,065 Accounts payable and accrued expenses 51,332 37,891 Customer service deposits 2,703 2.761 Total current liabilities 67,265 50,717 Deferred credits: Customer advances for construction 2,135 1,686 Other 404 389 Total deferred credits 2,539 2,075 Contributions in aid of construction 22,175 20,368

                                                                   $ 1,220,947  1,043,665 D

1516 0C. B-3

THE CITY PUBLIC SERVICE BOARD OF SAN ANTONIO Statements of Operations and Application of Earnings ll Years ended January 31, 1979 and 1978 (Dollars in Thousands) 1979 1978 Revenue: Electric $ 257,676 246,625 Gas 78,306 67,788 Interest 7,275 5,275 Gross revenue 343,257 319,688 Expenses: Gas, electricity and fuel 190,533 179,801 Other operating and general 28,863 27,350 Maintenance 12,223 9,966 Depreciation 27,503 20,889 Interest and debt expense 34,428 26,982 Allowance for interest charged to construction (12,867) (13,511) Payments to the City of San Antonio (note 4): In lieu of taxes 4,901 4,703 Refund of electric and gae services 8,323 8,126 Additional payments, net of transfers for street lighting facilities 26,407 23.890l Total expenses 320,314 288,196 Earnings before application $ 22,943 31,492 APPLICATION OF EARNINGS Earnings before application 22,943 31,492 Add: Depreciation 27,503 20,889 Interest requirements on New Series Bonds (payable from Improvements and Contingencies Fund) 24,141 16,429 Available for application $ 74,587 68,810 To operating funds for working capital (fuel stock in 1978) 3,000 22,000 To pay long-term debt requirements - Old Series Bonds: Principal payments 6,390 6,120 Bond reserve 517 151 To Reinvested Earnings - Net loss on sale of utility plant assets - (87) To Improvements and Contingencies Fund: Minimum requirement (12-1/2% of gross revenue) 42,907 39,961 Balance of available revenue 21,773 665 Amount applied $ 74,587 68,810g See accompanying notes to financial statements. B-4 1516 090

THE CITY PUBLIC SERVICE BOARD OF SAN ANTONIO Statements of Changes in Equity Accounts I Years ended January 31, 1979 and 1978 (Dollars in Thousands) 1979 1978 Bond Reserve - Old Series Bonds: Balance at beginning of year $ 16,590 16,439 Additions - from application of earnings 517 151 Balance at end of year $ 17,107 16,590 Bond Reserve - New Series Bonds: Balance at beginning of year 7,524 2,778 Additions - from Improvements and Contingencies Fund: Interest earned on Bond Reserve investments 768 312 Reserve requirements 5,803 4,434 Balance at end of year $ 14,095 7,524 Improvements and Contingencies Fund: Balance at beginning of year 7,906 14,619 Additions - from application of earnings: Minimum requirement (12-1/2% of gross revenue) 42,907 39,961 Balance of available revenue 21,773 665 72,586 55,245 D Deductions: New Series Bonds: Interest earned and reserve requirements (6,571) (4,746) Payment of bond interest (24,141) (16,429) Payment of bond principal (4,925) (2,700) Expenditures for construction (14,368) (13,864) To purchase fuel stock inventory - (9,600) Balance at end of year $ 22,581 7,906 Reinvested Earnings: Balance at beginning of year 464,260 430,952 Additions: From Improvements and Contingencies Fund: For construction 14,368 13,864 To purchase fuel stock inventory - 9,600 From application of earnings. To operating funds for working capital (fuel stock in 1978) 3,000 22,000 Old Series Bonds principal payments 6,390 6,120 From Improvements and Contingencies Fund - New Series Bonds principal payments 4,923 2,700 Net loss on sale of utility plan assets - (87) 492,943 485,149 Less depreciation (27,503) (20,889) D Balance at end of year $ 465,440 464,260 See accompanying notes to financial statements. B-5 1516 091

Tile CITY PUBLIC SERVICE BOARD OF SAN ANTONIO Statements of Changes in Financial Position l Years ended January 31, 1979 and 1978 (Dollars in Thousands) 1979 1978 Sources of work q capital: From operations: Earnings before application $ 22,943 31,492 Charges to earnings not using working capital - depreciation 27,503 20,889 Working capital provided from operations 50,446 52,381 Contributions in aid of construction 3,004 2,432 Proceeds of revenue bonds 150,000 135,000 Increase in deferred credits 15 - Decrease in restricted cash - 1,816 203,465 191,629 Applications of working capital: Acquisition of utility plant 166,247 149,197 Retirement of bonds 11,315 8,820 { Increase in currect maturities of long-term debt 3,165 1,245 Increase in restricted cash 21,763 - Increase in deferred charges 69 373 Decrease in deferred credits - 1,084 202,559 160,719 Increase in working capital 906 30,910 Working capital at beginning of year 39,383 8,473 Working capital at end of year $ 40,269 39,383 Increase (decrease) in components of working capital: Cash 10,133 (1,731) Accounts receivable 4,752 (4,266) Inventories 2,519 30,681 Prepayments 50 (19) Current raturities of long-term debt (3,165) (1,24 5) Accounts payabla and accrued expenses (13,441) 7,744 Customer service deposits 58 (254) Increase in working capital $ 906 30,910 See accompanying notes to financial statements. l 1516 092 B-6

THE CITY PUBLIC SERVICE BOARD OF SAN ANTONIO l Notes to Financial Statements January 31, 1979 and 1978 (1) Summary of Significant Accounting Policies (a) Basis of Accounting The City Public Service Board empleys tb2 accrual method of accounting based upon the Uniform System of Accounts for Gas and Electric Utilities issued by the National Association of Regulatory Utility Commissioners. Revenue is recognized at the time the customer is billed. (b) Utility Plant Utility plant is stated at cost. An allowance for funds used during construction is included in the cost of utility plant and was computed at rates ranging from 5.4% to 6.07. in 1979 and 5.7% to 5.9% in 1978. Retirements of utility plant, together with removal cost less salvage, are charged to accumulated depreciation. Costs of repairs and minor replacements are charged to expense as incurred. (c) Depreciation and Amortization Depreciation of utility plant is provided on the straight-line basis h over the estimated useful lives of the related asset group. Contributions in aid of construction are amortized over a period equal to the life of the related contributed assets. (d) Inventories Inventories are stated at the lower of average cost or market. (2) Pension Plans The Board has a pension plan covering substantially all employees. Insurance is purchased for each employee in amounts designed to yield a cash value at retirement suf ficient to provide annuities eque to prescribed benefits. The City Public Service Board pays approximately 757. of the cost of the plan and the employee pays the balance. The total pension expense amounted to $2,719,000 for 1979 and $2,716,000 for 1978. (3) Revenue Bond Indenture Requirements The Trust Indenture executed by the City of San Antonio in conjunction with the issuance of the revenue bonds dated February 1, 1951, through August 1, 1974, "Old Series Bonds," contains, among others, the following provisions: g, 1516 09s B-7

2 THE CITY PUBLIC SERVICE BOARD OF SAN ANTONIO Notes to Financial Statements ll (1) All of the assets of the gas and electric systems, together with the net revenues of the systems, are pledged with the Harris Trust and Savings Bank of Chicago, Illinois, as Corporate "rustee, to secure the payment of the "Old Series Bends". (2) Gross revenues of the gas and electrie systems shall be applied to: (a) expenses of operating and maintaining the systems; '5) debt service and reserve requirements on the "Old Series Bonds"; (c) payment of an "in lieu of tax" amount to the City of San Antonio; (d) an amount equal to 12-1/2% of gross revenues to the Improve-ments and Contingencier Fund; (e) additional benefits and payments to the City of San Antonio to bring total city benefits and payments to 14% of gross revenues; (f) additional payments to the Improvements and Contin-gencies Fund until such fund equals 20% of the value of fixed capital assets; and (g) balance to surplus fund. (3) The following funds are established: (a) General Fund; (b) Improvements and Contingencies Fund; (c) Bond Con-struction Fund (containing the proceeds of revenue bonds); (d) Principal and Interest current requirements (contain- { ing the monthly payments of annual debt requirements); and (e) Bond Reserve Fund (containing an amount equal to the fiscal year's principal and interest requirements). These funds may be invested with authorized depository banks or in U. S. Government securities. Beginning the year ended January 31, 1976, New Series Electric and Gas Systems Revenue Improvement Bonds ("New Series Bonds") were issued. These bonds are junior and subordinate to the "Old Series Bonds". The bond ordinances auth-orizing these issues provide that no further bonds or obligations will be authorized or issued under the terms of the Trust Indenture for "Old Series Bonds" and that at such time as the Trust Indenture becomes inoperative the Trust Estate will revert to the City. While any of the "Old Series Bonds" are outstanding, the "New Series Bonds" are payable solely from the net revenues of the systems deposited and available for deposit (1) in the Improvements and Contingencies Fund and (2) certain payments to the City af San Antonio. At such time as the Trust Indenture covering the "Old Series Bonds" becomes inoperative revenues will be applied as follows: (a) for maintenance and operations expenses of the systems; (b) for payment of the "New Series Bonds"; (c) for the payment of any bonds inferior in lien to the "New Series Bonds" which may be issued; (d) for an amount equal to 6% of the gross revenues of the systems to be deposited in a Repair and Replacement Fund; (e) for cash payments and benefits to the City of San Antonio not to exceed 14% of the gross revenues of the systems; and (f) any remaining revenues to the Repair and Replacement Fund. The funds created by the "New Series Bonds" ordinance are similar to those set forth under the "Old Series Bonds" Trust Indenture. l (Continued) B-8

3 k THE CITY PUBLIC SERVICE BOARD OF SAN ANTONIO Notes to Financial Statements At January 31, 1979, $75,000,000 of "New Series Bonds" had been authorized but had not been issued. (4) Payments to the City The Trusc Indenture provides for benefits and services totaling 14% of The City Public Service Board's gross revenue to be provided to the City of San Antonio. Currently the total benefits and services to the City of San Antonio are less than 14% of gross revenue as a result of the voluntary action of the City in reducing such benefits due on increased fuel and gas costs. The reduction of City berefits has been passed on to utility consumers, and accordingly, there is no effect on financial operations. (5) Significant Litigation A gas purchase agreement dated June 14, 1961, with Alamo Gar Supply Company, which was subsequently acquired by Coastal States Gas Producing Company and its wholly-owned subsidiary, Lo-Vaca Gathering Company, provides for supply of the full natural gas requirements of the City of San Antonio I gas and electric systems through April 1, 1982. Beginning in November, 1972, significant interruptions in deliveries of natural gas were experienced, resulting in additional costs being incurred by The City Public Service Board 2: the result of having to purchase fuel oil and gas from others as a substitute ?,r gas not supplied. The added costs have been passed on to The City Pub .ic Carvice Board curtomers as authorized by the existing rate ordinance of the City of San Antonio, and a part of these costs, which represents the cost of fuel oil in excess of the equivalent cost of gas, has been withheld from payment to the supplier. The supplier's responsibility for these additional fuel costs is disputed and is in the process of being resolved through litigation or settlement along with claims for additional damages resulting from the failure of the supplier to raeet contractual and legal obligations. Amounts which may be recovered through such litigation or settlement will be returned to the utility's ratepayers. (6) Purchase and Construction Commitments Purchase and construction commitments amounted to $12,800,000 at January 31, 1979. In addition to the above, The City Public Service Board has commitments under an agreement with flouston Lighting & Power Company, Central Power and Light Company and the City of Austin for joint construction of a nuclear power plant. The City Public Service Board share of the remaining cost of the plant is estimated to be approximately $343,000,000 for construction over the next four to five years, exclusive of initial fuel requirements and interest during construction. D 1516 095 B-9

APPENDIX C CPSB INTERIM FINANCIAL STATEMENTS CITY PUBLIC SERVICE BOARD OF SAN ANTONIO Statement of Revenue and Application of Revenue [Unaudited] l Thous.nds of Dollars] Period Endina April 30,1979 Three Twelve Months Months THE REVENUE FROM OPERATIONS WAS: Electric Sales $ 52,414 $260,512 Gas Sales 27,227 77,720 Interest and Other 2,864 8,841 TOTAL REVENUE 82.505 347,073 THE REVENUE WAS APPLIED AS FOLLOWS: FOR OPERATING AND MAINTAINING THE SYSTEM: Fuel and Gas purchased 44,257 192,881 Other operating and general expenses 8,303 30.090 Maintenance 3.436 13.003 55,996 235,974 FOR OPERATIONS: 3,000 FOR DEBT REQUIREMENTS: Interest and debt expense 10,257 36,938 h Retirement of bonds

3,583 12,154 Additions to bond reserve fund 2,019 7,540 Allowance for funds used during construction (3.994) (13.669) 11,865 42,963 FOR PAYMENTS AND SERVICES TO THE CITY OF SAN ANTONIO 8,637 40,172 FOR ADDITIONS TO UTILITY PLANT: (Exclusive of street light facilities for City of San Antonio) Total expenditures 39,207 167,832 Additions to improvements and Contingency Fund 6,007 17.516 45,214 185.348 Less Funds from Other sources (including Bond Construction Fund, Customer Contributions, etc.) 39,207 160,384 Total Revenues for Additions to Plant 6.007 24,964 TOTAL REVENUE APPLIED $ 82,505 $347.073 () Represents decrease C-1 1516 096

CITY PUBLIC SERVICE BOARD OF SAN ANTONIO Comparative Balance Sheets at April 30 D [Unsudited) [ Thousands of Dollars) Assc,ts 1979 1978 Utility Plant $1,304,175 $1,138,580 Less allowances for depreciation 216.463 188,020 1,087,712 950,560 Restricted Cash and Securities: Bond Reserve Fund 33,222 25,681 Bond Fund Current Requirements 14,179 11,086 Construction Funds 65.242 54,814 112,643 91,581 Current Assets: Cash, including temporary investments 3,089 i,317 Accounts receivable 19,416 19,014 Materials and supplies 14,080 13,001 Fuel Oil 6,936 7,993 Coal 43,469 42,70' Prepayments and other _ 3,741 2.918 90,731 86,950 Unamortized Debt Expense 1,066 877

)
                                                                                     $1,292,152    $1.129,968 Liabilities Long-term Debt Old Series                                                                     $ 177,225       $ 183,615 New Series                                                                          520,750       375,675 697,975       559,290 Less current maturities                                                              14.330         11,315 683,645       547,975 Earnings Reinvested in Plant                                                          533,712       512,466 Current Liabilities:

Current maturities of long-term debt 14,330 11,315 Accounts payable 31,981 24,017 Customers' service deposits 2.737 2,734 49,043 38,066 Deferred Credits and Reserves 2,917 10,511 Contributions in Aid of Construction 22,830 20.950

                                                                                    $1,292,152     $1,129.968 1516 097 C-2

APPENDIX D TEXT OF CERTMN INDENTURE PROVISIONS The provisions of the Old Series Bond Trust indenture, except as pertain to the issuance of parity bonds, will continue to rernain in full force and effect, and will also govern insof ar as the New Series Bonds are concerned as long as any of the Old SMes Bonds rernain outstand' ' The Trust indenture as amended includes among other Articles and Sections thereof the following: ARTICLE II SPECIAL COVENANTS SECTION 1. He City is duly authorized under the laws of the State of Texas to create and issue the bonds and to execute and deliver this Indenture and to mortgage and pledge the property con-veyed and mortgaged hereunder and to pledge the revenues pledged hereunder, ard all necessary action on the part of the City and its Board of Commissioners for the creation and issue of the bonds and the execution and delivery of this Indenture has been duly and effectively taken, and the bonds in the hands of the holders thereof are and will be valid and enforceable obligations of the City in accordance with their terms. SECTION S. The City will not, except as specifically permitted by the provisions of this Indenture, create or voluntarily permit to be created any debt, lien or charge which would be on a parity with or prior to the lien of this Indenture on the trust estate or any part thereof or on the income to be derived from the trust estate and from the operation of the City's complete electric light and power system and gas distribution system or any part thereof; and will not do or omit to do j or suffer to be done or omitted to be done any matter or thing whatsoever whereby the lien of this 1 Indenture or the priority of such lien or the bonds at any time hereby secured might or could be lost or impaired; and that it will pay or cause to be paid or will make adequate provisin. Nr satisfaction and discharge of all lawful claims and demands for labor, materials, supplies o-other objects which if unpaid might by law be given precedence to or an equality with this inden-ture as a lien or charge upon the trust estate or any part thereof or the income and profits thereof; provided that nothing in this section shall require the City to pay, discharge or make provision for any such lien, Marge, claim or demand so long as the validity thereof shall be by it in good faith contested, :niess thereby, in the opinion of the Corporate Trustee, the tmst estate or some material ps c thereof will be lost, forfeited or materially endangered. He provisions of this section are subject to the erception that the Board of Trustees may borrow from time to time on a purely temporary basis, such sums as would ordinarily be borrowed by pri-vat . companies engaged in similar business in connection with current operations, and expected to be paid and retired from current revenues received during the fiscal year in which such sums are

           ~rrowed .

SECTION 8. The City, acting through the Board of Trustees, will maintain, preserve and keep the trat estate in a state of good repair, working order and condition and will not dispose of the trust estate in whole or in part except in the manner and upon the tems provided in Article VII hereof. SECTION 9. The City, acting through the Board of Trustees, will duly and punctually keep, observe and perform each and every term, coven' ant and condition on its part to be kept, observed and per-formed, contained in this Indenture, and will punctually perform all duties with reference to the trust estate required by the Constitution and laws of the State of Texas, including particularly the making and collecting of such reasonable and sufficient rates and charges for electricity, gas and services supplied by its electric light and power plants and system and gas distribution system, to the City and to all other consumers, adjusting such rates and charges from time to time in such manner as will render the same reasonable but at the same time fully sufficient to meet all the requirements of this Indenture, it being exprestly hereby covenanted and agreed that such rates and charges will be so fixed that the revenues derived therefrom will be sufficient at j all times to pay for all operating, maintenance, depreciation and replacement costs and interest 1

                                                                                                         /    AQq 1510 U/o D-1

charges and principal maturities, and to maintain the Bond Reserve Account and the various funds as provided in this Indenture, and to fully carry out all of the agreements contained in this In-denture and any supplemental Indenture hereto. SEGION Iv. To the extent the City may legally so covenant, the City agrees that it will not grant a franchise for the operation of any competing electric system or gas system in the City of San Antonio until all bonds issued hereunder shall have been retired. ARTICLE III AC(X)UNTS AND RECDRDS SEGION 1. The City, acting through the Board of Trustees, shall keep full and proper books of record and account, in which full, true and proper entries will be made of all dealings, business and affairs of the City which in any way affect or pertain to the operation of the trust estate and the City's electric light and power plants and system and gas distribution system, and will furnish to the Corporate Trustee and to such bondholders as may request such statement, at least once every six months and at such other times as the Trustee may reasonably request, statements in reasonable detail showing the earnings and expenses of the City's electric light and power plants and system and g.s distribution system, including the trust estate and the application of funds in the General Account hereinafter established, for the preceding six months' period. Said Board will also furnish to the Trustee from time to time suJ other data as to the plants, prop-erties and equipment comprising a part of the trust estate as the Corporate Trustee shall reason-able request. SEGION 2. As soon after the close of each fiscal year as may reasonably be done, said Board of Trustees will furnish to the Corporate Trustee and to all bondholders who may so request full audits and reports covering the operations of the Systems for the preceding fiscal year, sad showing the earnings and expenses of the properties and the disposition made of all revenues for said fiscal year, the amounts av_.ilable for the purposes set forth in Article V hereof, and, in such detail as the Corporate Trustee may request, the assets, liabilities and financial condition of the Systems at the close of such operating year. The Board of Trustees at the same time shall furnish to said Trustee an estimate of earnings and expenses for the ensuing year in sufficient detail to indicate the probable total net income from operations and amounts available for the several funds and accounts established herein. If any such audit discloses any discrepancies or misapplication of funds, the Board of Trustees shall be charged with the duty of rectifying such misapplications as far as possible and of remedying any deficiencies in payments hereunder from the first funds available for such purpose. SECTION 3. The Board of Trustees will, out of revenues cf % trust estate, upon written request of the governing body of the City or either of the Indenture Trustees, permit the governing body of the City and the Indenture Trustees, or either of them, at all reasonable times, by their agents , engineers, accountants and attorneys, to examine and inspect the plants, property, books of account, records, reports and other data relating to the trust estate and to take copies and extracts therefrom, and will afford a reasonable opportunity to make any such examination and inspection and will furnish the Indenture Trustees and the governing body of the City any and all such other information as they may reasonably request. The Indenture Trustees shall be un ter no duty to make any such examination enless requested so to do by the holders of twenty-five p r cent in principal amount of the bonds at the time outstanding and unless such holders shall have offered the said Trustees security and indemnity satisfactory to it against any costs, expenses and lia-bilities which might be incurred thereby. SEGION 4. The Board of Trustees shall, so far as practicable and to the extent consistent with the provisions of this Trust Indenture, keep its books and records in the manner prescribed in the Uniform System of Accounts for Electric Utilities adopted by the National Association of Railroad and Utilities commissioners on November 10, 1936, and in the Uniform System of Accounts for Gas Utilities adopted by said Association on November 10, 1936. ARTICLE IV INSURANCE SEGION 1. The City covenants and agrees that at all times it will insure and keep insured through the Board of Trustees all properties subject to the lien hereof which are of a character usually insured by private corporations and cities operating like properties, such insurance to be written in good and responsible insurance companies, against risks customarily insured against by private corporations and cities engaged in similar business activities, and in the same manner and to the same extent, all loss therefrom (except any single loss which does not exceed $25,000) being pay-able to the Corporate Trusti,e by the customary mortgagee or trustee clauses to be attached to or ir,erted in the policies. The Board of Trustees shall furnish to the Corporate Trustee a list of such policies, shcwing the character of the insurance, the property and risk covered, the name of the insurance company, and other pertinent details, and shall keep said Trustee fully informed of c lJI6 Uy/ D-2

any chenge in . . edditier. to such list. Upon the written request of said T mstee such policies will be deposited with it. Said Trustee, subject to the provisions of Article IX hereof, shall be .iVer m cbligation or duty to obtain any such schedule and shall have no duty or responsibility with respect to the sufficiency or effect of any of such policies of insurance, the renewal thereof, or the responsibility of the insurer:,, or with respect to any such schedule or the matters shown therein, except to display any such schedule to any holder of bonds desiring to inspect the same. In case of loss or danage to any of the insured property, the proceeds of any such insurance on any one loss amounting to not more than $25,000 shall either be promptly applied by the Board of Trustees to the repair or replacement of the property destroyed or damaged, or otherwise to the improvement of the mortgaged property, or if not so applied within two years of the date of receipt thereof by the Board of Trustees, such proceeds shall be deposited ano used for the redemption of bonds as en addition to redemption funds provided for in Section 6 of Article V hereof. In any case where the proceeds of cny such insurance shall amount to a sum in excess of $25,000 on account of any one loss, all such moneys shall be promptly deposited with the Corporate Trustee and shall be paid out from time to time to the Board of Trustees upon written request of the Board, signed by its Chairman or Vice Chairman and its Secretary, and accompanied by a certified copy of the resolution of the Doerd directing such request, and specifying that certain expenditures have been made or incurred in re. pairing or replacing the property so impaired or destroyed, and the amount thereof, and requesting the payment by said Trustee to the Board of Trustees of an amount not in excesr of the ameunt of such expenditures. If in the judgment of the Board of Trustees and of a licer ed engineer selected by the Board of Trustees and approved by the Corporate Trustee, the inti. -ts of the City and the bondholders will be best served through the application of all or r t of such insurance proceeds to improvements to the mortgaged property which do not con-st Tu .e the repair or replacement of the property for the destruction or impairment of which the J .,ur ance proceeds are so paid, the amount of such proceeds, to the extent permitted by law, may be ajplied by the Board of Trustees to the making of such improvements, and payment thereof shall be wade to the Board of Trustees by the Corporate Trustee and expended in the manner provided in the last preceding sentence hereof. The Corporate Trustee may in its discretion require such additional proof of the matters certified in such resolution as it may consi(er necessary or desirable. Any insurance proceeds not so paid out by said Trustee within a period of two years from the date of the receipt thereof shall be added to the redemption fund provided for in Section 6 of Article V hereof and used for the redemption of bonds as therein provided. Any adjustment of any loss under any policy of insurance made by the Board of Trustees may be con-sented to by the Corporate Trustee without investigation as to the fairness thereof. ARTICLE V APPLICATION OF REVENUES SECTION 1. During the time any bonds issued under this Indenture remain outstanding, the properties constituting the City's electric generating, transmission and distribution system and gas distribu-tion system (including all of the properties and facilities of every kind constituting the " Trust Estate") shall be operated on the basis of a fiscal year commencing on February 1 of each yeir and ending on the following January 31st. SECTION 2. All revenues of every nature received through the operation of the systems shall be deposited as received in a general fund or account to be known as the " City of San Antonio Electric and Gas System General Account," hereinafter referred to as the " General Account". Revenues re-ceived for the General Account shall be deposited from time to time as received in such bank or banks as may be selected by the Board of Trustees as the depository or depositories of funds received and administered by the Board of Trustees, such bank or banks being hereinafter collec-tively referred to as the " Depository". The bank or banks in which such funds are kept on deposit shall at all times be a bank or banks located in the City of San Antonio unless there is no bank in the City of San Antonio qualified and willing to serve as depository, in which case the Deposi-tory may be any aank or banks in the State of Texas selected by the Board of Trustees. The Board of Trustees shall advise the Corporate Trustee of the names of bank or banks selected as Deposi-tory from time to time. If for any reason, in its sole discretion, the Corporate Trustee shall disapprove the appointment of any bank or banks for such purpose and shall so advise the Board of Tr iste ss, the Board of Trustees shall promptly appoint some other bank or banks which meet with the approval of the Corporate Trustee. SECTION 3. Funds in the General Account shall be used from day to day and month to month to pay the current expenses of operating, maintaining and repairing the systems, including the cost of insurance, the purchase and carrying of stores, material and supplies, the pt;rchase, manufacture and production of gas and electricity for distribution and resale, the payment of salaries and the payment of all other expenses properly incurred in operating and maintaining the systems and keepir.g them in good repair and operating condition. The system of accounts referred to in Section 4 of Article III hereof shall govern in determining whether any particular expenditure represents an operating and maintenance expense or a capital expenditure for extensions and additions to the 4 D-3 g*

systems. In the event that at eny time hereafter taxes of any n.ture shall be lawfully imposed on the systems, or any part tl ereof, or any income or ravenues thereof, by the United States of America or any governmental body or taxing subdivision other than the City of San Antonio, and such D taxes are paid under the provisions of Section 7, Article II hereof, all such payments shall be made from the General Account cs an expense of operation under the provisions of this section. All funds used prior to the date of this Indenture for the carrying of stores, materials and supplies shall be permanently retained in the General Account for such purpose and additional funds shall be added thereto out of revenues from time to time to the extent necessary for carrying such stones, materials and supplies, and there shall be retained in the General Account at the end of each fiscal year funds in such an amcant as may be required to meet unpaid accounts and obligations which have accrued or are payable during the year, as necessary operating funds to insura the continued opera-tion of the systems. SECTION 4. After p*oviding for the cost of operations, maintenance and repairs and extensions pro-vided for by Article 1113 Revised Civil Statutes of Texas as amended, and the retention of necessary operating funds and funds for carrying stores, materials and supplies in accordance with the pro-visions of Section 3 of this Article V, the next available ft:nds in the General Account shall be used for and the saw are hereby pledged to the payment of the principal and interest on bonds issued hereunder and the maintaining of a reserve for such purpose, and the Board of Trustee:, shall cause to be. paid to the Corporate Trustee in due time in each year such amounts as will be fully sufficient to promptly pay all principal of and interest on bds issued hereunder which will become due on August 1 of such year, and February 1 of the next succeeding fiscal year. The funds in the

  " San Antonio Electric and Gas Revenue Bonds Reserve Account" held by the Corporate Trustee under the Indenture dated August 1, 1942 shall become and constitute upon the effective date of the Trust Indenture the " San Antonio Electric and Gas Systems Bond Reserve Account" hereinafter referred to as the " Reserve Account") under this Trust Indenture to be used by the Corporate Trustee solely for the payment of principal and interest on bunds secured hereby falling due at any time when there would be a default if funds in the Reserve Account were not used for such purpose. During any period of time when the total amount of funds in said Reserve Account is less than the amount which would be sutficient to pay all pris.cipal and interest on bonds theretofore issued hereunder which will become due during tha fiscal year immediately succeeding the close of the current year, the Board of Trustees shall pay to the Corporate Trustee an additional amount for addition to said Reserve Account equal to twenty per cent of the total payments otherwise to be aade to the Orporate Trustee to meet interest and principal accruing and payable during the fiscal year on all bonds then outstanding and unpaid, Such added payments for said Reserve Account sha,1 cease when said fund has reached the said one fiscal year's requirements as above provided.

h e payments required to be made to the Corportte Trustee in this section shall be made as nearly as possible in equal monthly installments in eact fiscal year on or before the tenth day of each month, provided that if the 'enth day shall fall on a Sunday or holiday the payment may be made on the next succeeding secular day. The " Reserve Account" and the monthly payments to meet next maturing interest ci upons and bond maturities shall be kept as separate accounts. The funds neces-sary to meet maturing interest coupons and bonds shall be forwrded by the Corporate Trustee to the paying agent just prior to each maturity. SECf!ON 5. From the next available funds in the General Account after the payments, provisions for payments 2nd additions to funds and accounts to the full extent required in Sections 3 and 4 of this Article V have been made, there shall be paid into the General Fund M the City of San Antonio, for general City use, the sum of $531,000, as a reimbursemant for the loss of taxes which the City would receive were the Systems privately owned, for the fiscal year ending January 31, 1952, and a like payment shall be made in each fiscal year thereafter as hereinafter provided. Said payment o f $ 531,000 for the first fiscal year is based upon the value of fixed capital assets of the Systems located within the city limits of the City of San Antonio as of January 31, 1951 being $35,000,000 and the payment to be made in each fiscal year after the first fiscal year shall be in said sum of

  $531,000 increased or decreased by the ratio by which the value of fixed capital assets within the city limits of the City of San Antonio is increased or decreased above or below the said $35,000,000 as at the end of the preceding fiscal year. The term "value of fixed :apital assets" as used in this Section 5 and in Section 6 of this Article V shall mean the original cost of physical plant, including real estate nd equipment, constituting the electric and gas systems (but excluding all cash funds and accounts) after deducting, at original cost, all actual retirements of property and all accrued depreciation at rates established in conformity with the accounting provisions contained in Article III of this Trust Indenture, and all questions of cost, property retirements and deprecia-tion shall be determined by the accounts and records kept by the Board of Trustees in accordance with said Article III of this Indenture.

To the extent such remaining funds as provided above are sufficient, such payments in lieu of taxes shall be made in equal monthly 1 tstallments. The obligation to pay such annual sums into the General Fund the 2ity shall be cumulative and if in any fiscal year the money in the General Account after aftet eeting all requirements of Sections 3 and 4 of this Article V shall he inst.fficient to pay D in full the sums so due for such year, so much thereof as may be available s!.411 be paid and the [~ i / 1OI D-4

deficiency shall be paid from the first available funds in the succeeding fiscal year or years after meeting all prior requirements of Sect. ens 3 and 4 of this Article V. SE.CTION 6. That from the next available funds in the General Account after the payments, provisions for payments and additions to funds in full accordance with the provisions of Section 3, 4, 5 of this Article V shall be made there shall be paid into a fund to be known as the " Electric and Gas System Improvements and Contingencies Fund" (hereinafter called the " Improvements and Contin-gencies Fund") an annual sum equal to not less than twelve and one-half (12-1/2%) per cent of the gross revenues of the systems to be used, as permitted by Article 1113 Revised Civil Statutes of Texas, as amended, for the purposes: (a) extensions, additions and improvements to the Systems (b) to meet contingencies of any kind in connection with the operation, maintenance, improvement, replacement or restoration of property, ara (c) the payment of bonds or other obligations for which other funds are not available. To the catent money in the General Account is sufficient for meet-ing the provisions of Paragraphs 3 to 5, inclusive, of Article V of the Indenture, the transfers or payments into said Fund shall be made in monthly installments. After setting aside and pro-viding for said minimum amount of twelve and one-half (11-1/2%) per cent of gross revenues of the systems to be placed in said Fund as above specified, there shall be paid into the General Fund of City, to the extent available from remaining revenues in the General Account as of the end of each fiscal year: (a) a sum sufficient to reimburse the City for all amounts paid to the Board during the year for gas and electric services of the Systems used by the City for municipal purposes during such fiscal year and to the extent such remaining funds are ofund to be sufficient, such reimbursements may be made currently in monthly installments; and (b) commencing February 1,1960, and during the three fiscal years ending January 31, 1961, 1962, and 1963, a sum in cash which, when added to (1) the payment in lieu of taxes for the year as provided in Section 5 of Article V of this Indenture, (2) the amount of said reimbursements for electric and gas services during the year, and (3) the amount expended during the year for additions to the street and traffic lighting system will amount to $6,508,000 for the year, and commencing with the fiscal year beginning February 1,1963, and for each fircal year thereafter, a sum in cash which, when added to the pay-ments, reimbursements and expenditures for the year mentioned in (1) to (3), inclusive, in the next preceding sentence hereof, will total an amount equal to 14% of the gross revenues of the Systems for the current fiscal year. Such fixed total payments for the first three fiscal years and such additional payments to be made thereafter based on gross revenues shall be paid in monthly installments in accordance with estimates made by the Board and shall be adjusted on or before March 15 after the close of each fiscal year. All funds remaining the the General Account of the Board of Trustees after making such payments and j reimbursements, including all allowances for depreciation, shall be placed in the said " Electric 1 and Gas System Improvements and Contingencies Fund" until such fund, after all disbursements and charges for the purposes above specified have been made, amounts to twenty (20%) per cent of the value of fixed capital assets as shown by the audited statement of the Systems. If at the close of any fiscal year any funds falling into said Improvements and Contingencies Fund result in increasing it above twenty (20%) per cent of the value of fixed capital assets as shown by the audited statement as of the end of the fiscal year, such excess shall be retained in a fund to be known as the " Electric and Gas Systems Surplus Fund"- The monies in the Surplus Fund shall be used by the Board of Trustees either (a) as an offset to permit the reduction of either electric rater or gas rates or both commencing in the next fiscal year and extending for such time as the funds sill permit, or (b) for the redemption of so many of the last maturing bonds then eligible for redemption prior to maturity, as the available funds are sufficient to retire, such bond retirements to be made out of such fund only when funds available for such purpose reach the amount of $1,000,000 or more. In the event monies in the Surplus Fund are used by the Board of Trustecs as an offset to permit the reduction of rates, the Board of Trustees shall in each year transfer all or so, much of the Surplus Fund to the General Account of the Board as it may deem necessary, based on the advice of rate engineers for the Board, to offset or aid in offsetting the loss of revenues during the succeeding fiscal year or years due to such rate reductions. If at the beginning of each fiscal year the total of the funds in the Improvements and Contingencies Fund and in the Bond Construction Fund available for extensions and improvements to the systems, plus the amounts estimated by the Board of Trustees to be available from revenues for such purposes during such fiscal year, is less than the amount budgeted for extensions and improvements during such fiscal year, it shall be the duty of the Board of Trustees to request the City Council to authorize and provide for the sale of additional improvement bonds in the amount necessary with other funds, to meet the cost of budgeted improvements, and it shall be the duty of the City Council to provide for the issuance and sale of such bonds in order that the budgeted extensions and im-provements may be 'nade. SECW 7 All mterest received by the Board of Trustees and the Corporate Trustee upon funds of the system u. opon bonds or other securities in which such funds may be invested in accordance with the provisions of this Trust Indenture, except interest received on the Bond Reserve Account, shall be paid annually into the General Account and deal with as a part of the revenues of the system. Interest received on the Bond Reserve Account may, at the discretion of the Board of Trustees, be 1516 102 D-5

used for payment of bond interest and principal from time to time. All funds in the possession of the Board of Trustees under the Trust Indenture dated August 1,1942 and not specifically dealt with and allocated by the provisions of this Trust Indenture shall, upon the effective date of this Trust B Indenture, become funds to be administered by the Board of Trustees hereunder for the same purposes and uses to which the same have been dedicated under said prior Trust Indenture. All moneys and funds held in any of the accounts and special funds provided for in this Indenture shall be held as trust funds and accounts for the benefit of the holders of the bonds issued hereunder and moneys and funds in all of said accounts and funds shall at all times, to the extent practicable, be ade-quately secured by or, as to money in the Reserve Account, invested in United States government bonds or other marketable securities eligible as security for the deposit of trust funds under regulations of the Board of Govemors of the Federal Reserve System, or by indemnity bonds of suret) companies qualified as surety for United States government deposits. All securities and indemnity bonds taken or standing as security for such money or funds shall be subject to the approval of the Board of Trustees. The Board of Trustees shall make a monthly report to the Corporate Trustee specifying the amounts held in each of the funds on deposit in the Depository and listing the securities and indemnity bonds standing as security for such deposits, and the Corporate Trustee may, but nel not, require such additions and substitutions to be made in such securities and indemnity bonds as in its opinion is necessary to protect the interest of the holders of the bonds. Moneys and funds at any time held in the Improvements and Contingencies Fund may, at the discretion of the Board of Trustees, be invested in securities which are either direct obligations of the United States of America or direct obligations of any State or municipality in the United States of America which are eligible for the investment of trust funds under the laws of either the State of Texas or the State of New York then in force, or which are direct obligations of Bexar County, Texas, the City of San Antonio, Texas, or the San Antonio Independent School District. SECTION 8. At the close of each fiscal year all accounts and funds of the Systems shall be balanced and adjusted and such transfers, distribution and adjustments made as will cause all revenues and income for the year to be applied and held in accordance with the provisions of this Article V, and the Board of Trustees shall at the close of each operating year cause an audit of the Board's accounts and operations to be made by or under the supervision of independent certified public accountants selected by the Board of Trustees. ARTICLE VI MANAGEMENT SECTION 1. Pursuant to the authority contained in Article 1115, Revised Civil Statutes of Texas, g 1925, as amended, the complete management and control of the systems during such time as any bonds issued hereunder are outstanding and unpaid shall be vested in a Board of Trustees consisting of five citizens of the United States of Ameries permanently residing in Bexar County, Texas, to be known as the " City Public Service Board, of San Antonio". Said Board is referred to in this Trust Indenture as the " Board" and the " Board of Trustees"- The Mayor of the City of San Antonio shall ex officio be one of the members of the Board of Trustees, and the remaining members of the Board of Trustees shall consist of Walter P. Napier, to serve for a term ending January 31, 1953; Willard E. Simpson, to serve for a term ending January 31, 1955; James H. Calvert, to serve for a term ending January 31, 1957; and John M. Bennett, Jr. , to serve for a term ending January 31, 1959; each term of office to commence with the date of this Trust Indenture. All vacancies in membership on the Board, whether occasioned by failure or refusal of any person above named to accept appointment or by expiration of tem of office or othemise, shall be filled by the majority vote of the remaining members of the Board of Trustees. No person who is related within the second degree of consanguinity or affinity to any member of the Board of Trustees or any person who shall have been a member of the Board of Trustees within a period of five years prior to the election shall be eligible for election as a member of the Board. The tem of office of each member elected to the Board, s'ter the initial terms of the members named above, shall be five years. A person who has served as a member of the Board either for an initial term as above specified or a single five-year term by virtue of election by the Board of Trustees, shall be eligible to be re-elected for one additional five-year tem, and one only. A member who is elected to the Board to serve out an unexpired portion of a retired member's term shall not be considered to have served a " term" un-less the unexpired portion of the term so served is three years or more. Permanent removal of residence from Bexar County by any member of the Board shall vacate his office as a member of the Board, and any member of the Board, other than the Mayor of the City, who shall be continuously absent from all meetings held by the Board for a period of four consecutive months shall, unless he shall have been granted leave of absence by the unanimous vote of the remaining members of the Board, be considered to have vacated his office as a member of the Board. Any member of the Board other than the Mayor of the City may, by unanimous vote of the remaining members of the Board, be reroved from office, but only for adequate cause. Except as otherwise specifically provided in this Trust Indenture, the Board of Trustees shall have absolute and complete authority and power with reference to the control, management and operation of the systems and the expenditure and application of the revenues of the systems subject to the provisions contained in this Trust Indenture, all of which shall be binding upon and shall govern 1516 iC D-6

the Board of Trustees. In connection with the management and operation of the systems and the expenditure and application of the revenues therefrom, the Board of Trustees shall be vested with all of the powers of the City with respect thereto, including all powers necessary or appropriate for the performance of all of tt.e covenants, ur.dertakings and agreements of the City contained in this Trust Indenture, and shall have full power and authority to make mies and regulations governing the fumishing of electric and gas service to customers and for the payment of the same, and for the discontinuance of such services upon failure of custours to pay therefor, and, to the extent authorized by law, shall have full authority with reference to making of extensions, improve-ments and additions to the systems and the acqt.1 ring by purchase or condemnation of properties of every kind in connection therewith. The Board of Trustees shall elect one of its members as Otairman and one as Vice Chairman of the Board and shall appoint a Secretary and a Treasurer, or a Secretary-Treasurer, who may, but need not be, a mesber or members of the Board. If a member of the Board of Trustees is not appointed as Secretary or Treasurer, or Secretary-Treasurer, then an employee or employees of the Board whose duties in the operation of the systems require performance of similar duties may be appointed as Secretary or Treasurer, or Secretary-Treasurer, he Board of Trustees may follow and adopt such rules for the orderly handling of its affairs as it may see fit and may manage and conduct the affairs of the systems with the same freedom and in the same manner ordinarily employed by the Board of Directors of private corporations operating properties of a similar nature, he Board of Trustees shall appoint and employ all officers and employees which it may deem desir-able, including a General Manager of the system and an attorney or attorneys. No officer or em-ployee of the Board of Trustees may be employed who shall be related within the second degree of consanguinity or affinity to any member of the Board of Trustees. ne Board of Trustees shall obtain and keep continually in force an employees' fidelity and indem-nity bond of the so-called " blanket" type, written by a solvent and recognized indemnity company and covering losses to the amount of not less than One Hundred nousand Dollars ($100,000). ne members of the Board of Trustees, other than the Mayor of the City, shall receive annual com-pensation in the amount of Two nousand ($2,000.00) Dollars, except that the Chaiman of the Board shall receive annual compensation in the amount of Two Thousand Five Hundred ($2,500.00) Dollars. The members of the Board of Trustees shall not be personally liable, either individually or col-1ectively, for any act or omission not willfully fraudulent or in bad faith. ARTICLE VII POSSESSICN AND RELEASE OF PROPERTY SECTION 1. While not in default in the payment of principal of or interest on any of the bonds secured hereby, or in respect of any of the covenants, agreements or conditions in this Indenture contained, the City, through the Board of Trustees, shall be permitted and suffered to possess, use and enjoy the trust estate and all property and appurtenances, franchises and rights conveyed by this Indenture (except money or property, if any, expressly required to be deposited with the Cor-porate Trustee) and to receive and use the revenues, rents, issues, income, produce and profits thereof with power in the ordinary course of business freely and without let or hindrance on the part of the Indenture Trustees or of the holders of the bonds, to use and consume supplies; to alter, repair, dismantle and change the position of any of its buildings and structures, plants, mains, pipe lines, poles, wires, conduits or other property whatsoever (provided that no such change shall impair the lien of this Indenture upon any such building, structure, plant, main, pipe line, pole, wire, conduit, or other property); to replace and renew any of its equipment, machinery or other property; and to acquire any and all rights, easements and contracts in connection therewith and release any rights, easements and contracts which are abandoned. SECTION 2. no City from time to time, through the Board of Trustees, while in possession of the trust estate shall be suffered and permitted without any release from or action by the Indenture Trustees or either of them, to sell, exchange or otherwise dispose of, free from lien of this In-denture, (1) any of its equipment, machinery, fixtures, apparatus, appliances, tools, implements, or other chattels at any time subject to the lien hereof which may have become worn out or un-serviceable, disused, undesirable or unnecessary for use in the conduct of its business, replacing the same by, or substituting for the same, other property of equal value to the City, which shall forthwith become, without further action, subject to the lien of this Indenture, and (2) any mate-rials, merchandise equipment and supplies in the ordinary course and conduct of its business; pro-vided, however, that upon the sale or other disposition of such property to the value of $10,000 or more in any one calendar month, the Board of Trustees shall cause to be fi;ed with the Corporate Trustee a certificate describing such property, stating that :uch property has become worn out, unserviceable, undesirable or unnecessary for use in the conduct of its properties and that such disposition thereof will not impair the operating integrity of the properties, and stating also the consideration received from such sale or other disposition thereof and the use made or to be 15% $ D-7

made of such consideration. SECTION 3. So long as the City is not in default hereunder the City may sell or othentise dispose D

of any real property and improvements thereon mortgaged or covered by this Trust Indenture and the Corporate Trustee shall release the lien and cucumbrance of this Trust Inde?ture upon such property, but only upon the receipt by the Corporate Trustee of a certificate signed br a majority of the members of the Board of Trustees and by an independent licensed engineer str. ting in substance: (1) that the proposed sale price of the property to be released represents the then fair value of the property to be sold; (2) that the City is not, to the knowledge of the signers of the certiff-cate, in default in the performance of any of the tems or covenants of this Trust Ir. denture, or any indenture supplemental thereto, or any of the bonds secured thereby; and (3) that the release of the property will not, in the opinion of the signers, be prejudicial to the interest of the bond-holders and that the property to be released is not, or will not at the date of delivery or sur-render of possession thereof be necessary or useful in the proper and economical operation of the systems. The money received from the sale of such released property shall te held and used by the Board to the extent permitted by law for the purchase of additional property deemed by the Board necessary or advantageous to the system, and unless such money is used in such purchase of property within two years of the time received, the same shall be used for the redemption prior to maturity of as many of the bonds as may be redeemed with such money in the manner and as a part of the redemption fund provided for in Section 6, Article V of this Trust Indenture. All additional property pur-chased or acquired under the provisions of this section shall immediately upon such purchase or acquisition become subject to the lien of this Indenture. APTICLE VIII ISSUE OF ADDITIONAL BW DS (This section has not been reproduced since it is no longer applicable) ARTICLE IX DEFAULTS AND REMEDIES SECTION 1. For the purpose of this Indenture and any indenture supplemental hereto the following events are hereby defined as and are declared to be " events of default": (a) Default in the due and punctual payment of any interest on any bond or bonds and the con-tinuance thereof for a period of ninety (90) days after written notice thereof by the Corporate Trustee to each member of the governing body of the City of San Antonio and to each member of the Board of Trustees, stating that payment has been demanded and default made. (b) Default in the due and punctual payment of the principal of any of the bonds at maturity th.reof and the continuance thereof for a period of ninety (90) days after written notice thereof by the Corporate Trustee to each menber of the governing body of the City of San Antonio and to each member of the Board of Trustees, stating that payment has been demanded and default made. (c) Default in the performance or observance of any other of the covenants, agreements or conditions on the part of the City to be kept, observed and performed contained in this Indenture or any indenture supplemental hereto, or in the bonds, and continuation of such default for a period of ninety (90) days after written notice thereof by the Corporate Trustee to each member of the governing body of the City of San Antonio and to each member of the Board of Trustees. (d) The institution of bankruptcy proceedings, either voluntary or involuntarf, under any State or Federal statute, whereby the City's duty to carry oot all of the covenants and agreements in this Indenture or any supplemental indenture might be in anywise affected. Any notice hereinprovided to be given to a member of the governing body or the City Clerk, or to a member of or the Secretary of the Board of Trustees shall be deemed sufficiently given if sent by registered mail with postage prepaid to the person to be notified, addressed to him at the post office in the City of San Antonio. The Corporate Trustee may give any such notice in its discre-tion and shall give such notice if requested so to do by the holders of not less than. twenty per cent (20%) in principal amount of the bonds at the time outstanding. Wherever the term " bonds" is used in this article and elsewhere in this Trust Indenture, unless the context clearly indicates otherwise, the same shall be taken to refer to any bonds issued under this Indenture or any indenture supplemental thereto. D 1516 105 D-8

SECTION 2. Upon the happening of any event of default as defined in Section 1 of this artic1t., *ne Corporate Trustee shall, but only upon the written request of the holders of not less than sixty per cent (60%) in principal amount of the bonds then outstanding hereunder, and upon being in-demified to its satisfaction, by notice in writing to the Secretary of the Board of Trustees and to the City Clerk, to be sent as provided in Section 1 hereof, det:lare the priacipal of all bonds then outstanding hereunder to be due and payable immediately, and upon any such declaration the said principal shall become and be due and payable immediately, anything in this Indenture or in the said bonds to the contrary notwithstanding. This provision, however, is subject to the condi-tion that if at any time .fter the principal of said bonds shall have been declared due and payable and befcre any sale of the trust estate shall have been made, all arrears of interest upon all such bonds, with interest upon all past due installments of interest at the rate borne by the bonds, and all past due principal of the bonds, together with the reasonable charges and expenses of the In-denture Trustees, their agents, attorneys and cs msel, shall be paid by the City, and after all other defaults which may have occurred shall hav. been remedied or cured to the satisfactien of the Trustee, then and in every such case, the holders of sixty per cent (60%) in principal amount of the bonds then outstanding may, by notice in writing given to the Corporate Trustee, and to the City Clerk and the Secretary of the Board of Trustees in the manner provided in Section 1 of this article, waive such default and its consequences, and rescind such declaration, but no such waiver or rescission shall extend to or affect any subsequent default or impair or exhaust any right or power consequent thereon. SECTION 3. Upon the happening of any event of defa"" ss defined in Section 1 of this article, the Indenture Trustees or either of them, personally or by their attorneys or agents, may to the extent permitted by law enter into and upon and take possession of all the trust estate and each and every part thereof and exclude the City and the Board of Trustees, or its agents, servants and employees, wholly therefrom, and have, hold, use, operate, manage and control the same, and each and every part thereof, and in the name of the City or otherwise, as they shall deem best, conduct the busi-ness thereof and exercisn the franchises pertaining thereto and all the rights and powers of the City, and use all of the then existing property, materials, current supplies, stores, and other assets for that purpose, and at the expense of the trust estate from time to time maintain, restore, insure and keep insured the properties, plants, equipment and apparatus provided or required for use in connection with such business, and likewise from time to time, at the expense of the trust estate, makc ,11 such necessary or proper repairs, renewals and replacements and all such useful alterations, additions, betterments and improvements as to them may seem judicious, and collect and receive all rates, earnings, income rents, issues, profits and revenues of the same and of every part therof, and after deducting therefrom the expenses of operation and all expenses incurred hereunder and all other proper outlays herein authorized, and all payments which may be made as just and reasonable compensation for their own services, and for the services of their attorneys, agents, and assistants , and the rest and residue of the moneys received by the Trustees, or either of them, shall be applied as follows: (a) In case the principal of none of the bonds shall have become due, to the payment of the interest in default, in order of the maturity of the Installments of such interest, with interest on the overdue installments thereof at the same rates, respectively, as were borne by the bonds on which such interest shall be in default, such payments to be made ratably to the parties entitled thereto without discrimination or preference. (b) In case the principal of any of the bonds shall have become due by declaration or other-wise, first to the payment of the interest in default, in the order of the maturity of the install-ment thereof at the same rates, respectively, as were borne by the bonds on which such interest shall be in default, and next to the payment of the principal of all bends then due, such payments to be made ratably to the parties entitled thereto without discrimination or preference. In case all of such payments, and payment of whatever may be paysble for any other purpose required by any provision of this Indenture, shall have been made in full and no suit to foreclose or enforce this Indenture shall have been begun or sale made as hereinafter provided, and upon compliance with all other provisions of this Indenture as to which the City shall be is default, the Indenture Trustees, after making such provision as to them may seem advisable for the payment of the next maturing installment of interest to fall due upon the bonds, shall restore the possession of the trun estate (other than any cash at the time required to be held by the Corporate Trustee here-under) to the Board of Trustees. SECilm 4 Upon the happening of any event of default as defined in Section 1 of this Article, if the principal of all of the bonds outstanding hereunder shall have been properly declared due and payable as provided in Section 2 of this Article, and whether or not the remedies authorized by Section 3 of this Article shall have been pursued in whole or in part, the Indenture Trustees, ur either of them, may cause this Indenture to be foreclosed and the trust estate to be sold, and may proceed to protect and enforce the rights of the Indenture Trustees and the bondho. 3rs here-under in such manner as counsel for said Trustees shall advise, whether for the specific perform-ance of any covenant, condition, agreenent or undertaking herein contained, or in aid of the execu-D-9

                                                                                       \5\6 #

tion of any power herein granted, or for the enforcement of such cther appropriate legal or equi-table remedies as may in the opinion of such counsel be more effectual to protect and enforce the rights aforesaid. The Indenture Trustees shall take any such action or actions if requested so to D do by the holders of at least sixty per cent (60%) in principal amount of the bonds then outstanding hereunder. MGION 5. Upon the happening of any event of default as defined in Section 1 of this Article, and if the principal of all of the outstanding bonds shall have been declared due and payable as pro-vided in Section 2 of this Article, then and in every such ctse, and whether or not the remedies authorized by Section 3 of this Article shall have been pursued in whole or in part, the Indenture Trustees, or either of them, shall, but only upon the written request of the holders of not less than sixty per cent (60%) in principal amount of the bonds then outstanding hereunder, with or without entry, sell to the highest bidder the trust estate and all right, title, interest, claim and demand thereto and the right of redemption thereof, at any such place or places, and at such time or times and upon such notice and terms as the Trustee acting may fix and specify and as may be required by law. In case of such sale of any of the property subject to this Indenture, notice of such sale shall first be given by publication in at least one daily newspaper published in the city in which the sale is to be made at 1 cast once a week for four successive weeks next preceding such sale, and by like publication in at least one daily newspaper published in the City of New York, New York, and by the giving of any other notices which may be required by law, and upon such sale the Trustees may make and deliver to the purchaser or purchasers a good and sufficient deed or deeds for tne same, which sale shall be a perpetual bar both at law and in equity against the City and all persons and corporations lawfully claiming or to claim by, through or under it. No purchaser at any such sale shall be bound to see to the application of the purchase money or to in-quire as to the authorization, necusity, expediency or regularity of any such sale. Nevertheless, the City, if so requested by the acting Trustee, shall ratify and confirm any sale or sales by executing and delivering to the acting Trustee or to such purchaser or purchasers all such instru-ments as may be necessary or in the judgment of the acting Trustee proper Dr the purposes which may be desigaated in such request. Such r.atice of sale shall state that the City has granted to the purchaser of the mortgaged property a franchise for the operation thereof for a period of twenty years dating from such purchase. SEGION 6. In the event of any sale, whether made under the power of sale hereby granted and con-ferred or under or by virtue of judicial proceedings or of a judgment or decree of foreclosure and sale, the whole of the trust estate shall be scid in one lot and as an entirety, unless s ich sale D as an entirety is impossible or impracticable by reason of some statute or otherwise. SEGION 7. The acting Trustees may from time to time adjourn any sale to be made by them hereunder by announce-ent at the time and place of stch adjourned sale, and without further notice or publica-tion except as otherwise required by law may make such sale at the time and place to which the same may be so adjourned. SEGION 8. In case an event of default as defined in Section 1 of this Article occurs, and if all of the bonds outstanding hereunder shall have been declared due and payable as provided in Section 21.ereof, and in case a bill in equity shall be filed or any other judicial proceeding commenced to enforce any right sf the Indenture Trustees or oi the bondholders under this Indenture or othemise, then as a matter of right, the acting Trustee shall be entitled to the appointment of a receiver of the trust estate and of the earnings, income or revenues, rents, issues and profits thereof with such powers as the court making such appointment may confer. SEGION 9. In case the Indenture Trustees, or either of them, shall have proceeded to enforce any rights under this Indenture by foreclosure, sale, or otherwise, and such proceedings shall have been discontinued or superseded, or shall have been detemined adversely to said Trustee or Trustees, then and in every such case the City and the Indenture Trustees shall be restored to their former respective positions and 1t hts hereunder in respect of the trust estate, and all rights, remedies and powers of the Indt a re Tnastees and the bondholders shall continue as though no such proceedings had been taken. SECTION 10. In case of any such sale of the trust estate, any bondholder or bondholders or com-mittee n bondholders or either Trustee, may bid for and purchase such property and upon compliance with the terms of sale may hold, retain possession and disnose of such property as the absolute right of the purchaser or purchasers without further accountability and shall be entitled, for the purposes of making sett1 ? ment or payment for the property purchased, to use and apply any bonds hereby secured and sny interest thereon due and unpaid, whether or not such interest be evidenced by coupons, by presenting such bonds and coupons in order that there may be credited thereon the sum apportionable and applicable t5ereto out of the net proceeds of such sale, and thereupon such purchaser or purchasers shall be credited on account of such purchase price payable by him or them with the sum apportionable and applicable out of such net proceeds to the payment of or as credit on the bonds and coupons so presented. 1516 107 D-10

SEGION 11. The proceeds of any judicial or other sale of the trust estate, together with any funds at the time held by the Corporate Tmstee and not otherwise appropriated, shall be applied as follows: First: To the payment of the costs, expenses, fees and other charges of such sale and a reasonable compensation to the Indenture Trustees, their agents and attorneys, and to the discharge of all expenses and liabilities incurred and advances or disbursements made by said Trustees hereunder. Second: Any surplus then remaining to the payment of the whole amount then due or unpaid upon the bonds issued hereunder and then outstanding for principal and interest, with interest on overdue principal and overdue installments or interest at the same rates, respectively, as were borne by the bonds whereof the principal or installments of interest may be overdue, and in case such pro-ceeds shall be insufficient to pay in full the whole amount so due and unpaid, then to the payment of sud principal and interest ratably according to the aggregate amount due on all bonds then out-standing without preference or priority of principal over interest or of interest over principal. Third: Any surplus then remaining to the City or whomsoever rv be lawfully entitled thereto. SEGION 12. In case of a sale under any of the foregoing provisions of this Article, whether made under the power of sale herein granted or under or by virtue of judicial proceedings, the principal of all bonds issued hereunder and then outstanding, if not previously due, shall immediately there-upon bacome due and payable, anything in said bonds or in this Indenture, or any supplemental indenture, to the contrary notwithstanding. SEGION 13. The remedies herein conferred upon or reserved to the Indenture Tmstees or to the holders of bonds hereby secured are not intended to be exclusive of any other remedy, but each remedy herein provided shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing, and every power and remedy hereby given to said Trustees or to the holders of bonds issued hereunder may be exerciud from time to time as often as may be deemed expedient. No delay or omission of said Trustees or of any holder of bonds issued hereunder to exercise any power or right arising from any default hereunder shall impair any such right or power (unless the exercise of such right or power shall become barred by law) or shall be construed to be a waiver of any such default or to be acquiescence therein. SEGION 14. Anything in this Indenture contained notwithstanding, the holders of sixty per cent (60%) in principal amount of bonds hereby secured and then outstanding shall have the right by an instrument or instruments in writing delivered to the Indenture Trustees to direct and control said Trustees as to the method of taking any and all proceedings for any sale of any or all of the tmst estate or for the foreclosure of this Indenture, or any supplemental indenture, or for the appoint-ment of a receiver- and may at any time cause any proceedings authorized by the terms hereof to Se so taken or to se discontinued or delayed; provided, however, that such holders shall not be entitled to cause said Trustees to take any proceedings which in their opinion, or the opinion of the one acting, would be unjustly prejudicial to non-assenting bondholders. SEGION 15. No holder of any bond or coupon issued hereunder shall have any right as such holder to institute any suit, action or proceeding for the foreclosure of this Indenture or for the execu-tion of my Trust hereunder or for the appointment of a receiver, or for any other remedy here-under, all right of action hereunder being vested exclusively in the Indenture Trustees, unless and until such holder shall have previously given to said Trustees written notice r a default hereunder and of the continuance thereof, and also unless the holders of the requisite principal amount (sf the bonds then outstanding shall have made written request upon said Trustees and shall have afforded a reasonable opportunity to institute such action, suit or proceeding in the name of one or both of them, and unless said Trustees shall hava been offered reasonable indemnity satis-factory to them against the costs, expenses and liabilities to be incurred tl.erein or thereby, and said Trustee for thirty (30) days after receipt of such notification, request or offer of indemnity shall have failed to institute any such action, suit or proceeding, it being understood and intended that no one or more holders of the bonds shall have the right in any manner whatever by his o- their action to affect, disturb or prejudice the lien of this Indenture, or any supple-ment hertto, or to enforce any right thereunder except in the manner herein provided and for the equal benefit of all holders of such outstanding bonds. SEG10N 16. In any suit or action by or against the Indenture Trustees, or either of them, arising under this Indenture or on all or any of the bonds or coupons issued hereunder, said Trustee or Trustees shall not be required to produce such bonds or coupons, but shall be entitled in all things to maintain or defend any such suit or action without their production. SEGION 17. If any covenant, agreement, waiver or part thereof in this Article or elsewhere in this Indenture, or in any supplemental indenture, contained be forbidden by any pertinent law, or under any pertinent law be effective to render this Indenture invalid or unenforceable, or to impair the lien thereof, then each such covenant, agreement, waiver or part thereof shall itself be and is here-1516 108 D-11

by declared to be wholly ineffective and this Indenture and supplements thereto shall be construed as if the same were not included herein. D ARTIC11 XI FRANC M E In the event that any sale of the tmst estate shall be made under any of the provisions of this Indenture for the enforcement of the lien of this Indenture, and any supplements thereto, the City hereby grants to the purchaser or purchasers at such sale a franchise to operate the property so purchased for a term of twenty years dating from such purchase, subject to all laws regulating same then in force. 1he properties so purchased, in the event they are operated by the purchaser pursuant to such franchise, shall be operated, conducted and maintained in such manner as to be a benefit to the City of San Antonio and its inhabitants, and such purchaser shall be pledged to render efficient public service. ARTICLE XII MDDIFICATION OF THIS INDENTURE SECTION 1. The holders of seventy-five per cent (75%) in principal amount of bonds at any time outstanding (not including in any case any bonds which may then be held or owned by or for the account of the City) shall have the right from time to time to consent to and approve the execu-tion by the City and the Indenture Trustees of such Mnture or Indentures supplemental hereto as shall be deemed necessary or desirable by the city for the purpose of modifying or amending any of the terms or provisions contained in this Indenture or in any Indenture or Indentures supplemental thereto or contained in the ordinance authorizing bonds secured by this Indenture; provided, however, that nothing herein contained shall permit or be construed as permitting the modification or amendment of the terms and conditions contained in this Indenture or any supple-mental Indenture or any ordinance or bonds so as to: (a) Make any change in the maturity of the bonds issued hereunder. (b) Reduce the rate of interest borne by any bonds. (c) Reduce the amount of the principal or premium, if any, payable on bonds. (d) Modify the terms of payment of principal or of interest or premium upon bonds or any of them or impose any conditions with respect to such payment. (e) Affect the rights of the holder of less than all bonds then outstanding. If at any time the City shall request the Indenture Trustees to enter into such Supplemental Inden-ture, said Trustee, unless they shall deem that such proposed supplemental Indenture shall contain provisions which affect their rights or obligations and to which they are unwilling to assent, shall at the expense of the Board of Trustees, cause notice of the proposed execution of such supplemental Indenture to be published in a financial newspaper or journal published in the City of New York, New York, and in a newspaper of general circulation published i.n the City of San Antonio, once during each calendar week for at least four successive calendar weeks, and on or before the date of the first publication of such notice, the Corporate Trustee shall also mail a copy thereof to each reghtered owner of bonds at his address appearing on said Trustee's registry books, but failure to mail any such notice or any defect therein shall not affect the validity of the proceedings for obtaining consents to the execution and delivery of such supplemental Indenture. Such notice shall briefly set forth the nature of such proposed supplemental Indenture and shall state that a copy thereof is on file at the principal office of said Trustee for inspection by all holders of bonds. h'henever at any time within one year from the date of the first publication of said notice the City shall deliver to the Corporate Trustee an instrument or instruments executed by the holdars of at least seventy-five per cent (7 A) in aggregate principal amount of the bonds then outstanding as in this section defined, which instmment or instruments shall refer to the proposed supplemental Indenture described in said notice and shall specifically consent to and approve the execution thereof in substantially the form of the copy thereof on file with the Corporate Trustee, there-upon, but not otherwise, the Indenture Trustees shall execute the said supplemental Indenture in substantially the said form without liability or responsibility to any holder of any bond, whether or not such holder shall have consented thereto. If the holders of at least seventy-five per cent (75%) in aggregate principal amount of the bonds outstanding as in this section defined at the time of execution of any such supplemental Indenture, or the predecessors in title of such holders shall have consented to and approved the execution thereof as herein provided, no holder of any bond, whether or not such holder shall have consented to or shall have revoked any consent as in this section provided, shall have any right or interest to object to the execution of such supplemental Indenture or to object to any of the terms or pro-D-12

visions therein contained, or to the operation thereof, or to enjoin or restrain the Indenture Trustees or t'.e City from executing the same or from taking any action pursuant to the provisions thereof. SECTION 2. Upon the execution of any supplemental 'ndenture pursuant to the provisions of this section, this Indenture and any supplements thereto and the ordinances authorizing the bonds then outstanding shall be and be deemed to be modified and amended in accordance with such supplemental Indenture, and the respective rights, duties an. Aligations of the City, the Trustees and all the holders of outstanding bonds shall thereafter be determined, exercised and enforced, subject in all respects to such n:odifications and amendments. Any consent given by the holder of a bond pursuant to the provisions of this section sha.1 be irrevocable for a period of six months from the date of the first publication of the nctice pro-vided for in this Article, and shall be conclusive and binding upon all future holders of the same bond during such period. Such consent r y be revoked at any time after six months from the date of the first publication of such notice of the holder who gave such consent, or by a successor in title, by filing notice with the Trustees in form satisfactory to them of such revocation of consent, but such revocation shall not be effective if the holders of seventy-five per cent (75%) aggregate principal an.ount of the bonds outstanding as in *his section defined have, prior to the attempted revocation, consented to and approved the supplemental Inde..ture referred to in such revocation. For the purposes of this Article, ownership of bonds shall be established in the manner provided in Section 1 of Article XIII of this Indenture. Any supplemental Indenture executed in accordance with the provisions of this Article shall there-after form a part of this Indenture and all the terms and conditions in any such supplemental Indenture as to any provision authorized to be contained therein shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. d 4

                                                                                     \s\6       \W D-13

APPENDIX E CPSB RESOLUTION APPROVING NEW SER!ES BONDS ORDINANCE A RESOLUTION OF THE CITY PUBLIC SERVICE BOARD OF SAN ANTONIO. TEXAS. RELATING TO THE ISSUANCE AND SALE OF $100.000 000 CITY OF SAN ANTONIO TEXAS. ELECTRIC AND GAS SYSTEMS REVENUE IMPROVEMENT BONDS. NEW SERIES 1979-A WHERE AS. pursuant to the authonty Conte ned 17 Article 1115. V A T C S , a Trust Incenture, dated February 1.1951 and various Supplementalindentures thereto (Collectively called the " Indenture') providing secunty for the payment of outstanding revenue bonds known as "Old Senes Bonds" and ordmances passed by the City Council of the City of San Antonio. Texas, on October 9.1975. February 2.1976. June 24 C, hary 6.1977. July 15,1977. February 23, 1978, August 3.1978 and January II.1979 (collective!y called the" Ordinances"), authorizing the issuanci of outstanding revenue bonds known as"New Senes Bcnds", the completo management and control of the e!ectric and gas systems (the Systems") of the City of San Antonio. Texas. is vested m a Board of Trustees known as the City Public Service Board of San Antonio, Texas (the " Board"), dunng the period of time any of the aforementioned"Old Senes Bonds"and"New Senes Bonds" are outstanding and unprd, and WHERE AS. in the performance of its duties and responsibilities pertaming to the management and operation of the Systems, the Board has determmed that

$100.000.000 in revenue bonds should now be issued by the City to provide funds to meet the costs of improvements and extensions to the Systems currently under construction and estimated costs of planned improvements and extensions to said Systems. such arnount cf bonds being based upon (i) the difference between the estimated costs of such extensio.'s and improvements and the total amount of funds available and estimated to be available to meet said estimated costs, and (n) the current rate of expenditure of funds for such capitalimprovement project costs; and WHEREAS by virtue of the authonty and power vested in the Board with reference to the ex penditure and application of the revenues of the Systems and to comply with the terms and conditions prescribed m the Ordmances for the issuance of additional bonds on a panty with the heretofore issued "New Series Bonds." it is prnper for :he Board to formally request the City Council of San Antonio to authonze and sell Such bonds. consent to the issuance of the same, approve the ordmance authonzing such bor.ds and agree to Comply with all the terms and provisions of such ord nance with relation to the operation of the Systems, and the handling of the proceeds of such bonds NOW. THEREFORE. BE IT RESOLVED BY THE BOARD OF TRUSTEES OF THE CITY PUBUC SERVICE BOARD OF SAN ANTONIO. TEXAS.

l 1. That the City Council of the City of San Antonio, Texas, is hereby for rially requested to authorize and sell $100.000,000 in pnncipal amount of revenue mnds payable from the same source. secured in the same manner and on a panty with the heretofore issued "New Senes Bonds"; and the Board by the adoption of this resolution does hereby evidence its consent to the issuance and sale of such bonds and ine payment thereof from the net revenues of the Systems andits approval of the ordmance authonzmg the issuance of the $100.000.000 " City of San Antonio. Texas. Electnc and Gas Systems Revenue Improvement Bonds. New Senes 1979- A. dated August 1.1979, a copy of which ordinance is attached to this resolution; and the Board hereby agrees to comply with all of the terms and provisions of said ordinance with relation to the administration and oper1 tion of the Systems and the disposition of the revenues therefrom; and

2. That the Board recognizes that the ordmance authorizing the New Senes 1979- A Bonds contains a covenant of the City of San Antonio to the effect that the City will make no use of the proceeds of the New Genes 1979-A Bonds directly or mdirectly that would cause such bonds to be arbitrage bonds withm the meanmg of Section 103 (c) of the Internal Revence Code of 19;4. as amended, and realizmg that in accordance with the terms of the ordinance the proceeds of such bonds will be entirely within the control and disposition of the Board, therefore specifically adopts the covenants made by ..-City Council in the ordmance authonzing such bonds concernmg the use of the proceeds of such bonds to the effect that such bonds will not become arbitrage bonds, and hereby covena ts with the purchasers of the New Senes 1979-A Bonds that it will make no use of the proceeds of such bonds at any time throughout the term of such issue of bonds which. if such use had been reasonably expected on the date of delivery of the bonds to and payment for the Bonds by the purchasers, would have caused the Bonds to be arbitrage bonds within the meaning of Section 103 (c) of the Internal Hevenue Code of 1954. as amended, or any regulations or ruimgs pertaming thereto, and by this covenant the Board is obligated to comply with the requirements of the aforesaid Section 103 (c) and all applicable and pertinent Department of Treasury regulations relating to arbitrage bonds.

PASSED AND APPROVED by an affirmative vote of the Board of Trustees of the City Public Service Board of San Antonio, Texas,thisthe 21stdayof May.1979. ATTEST:

                                                                                                                           /s/          ELOY CENTENO Chairman. City Public Service Board
/s/          HOWARD FRELMAN Secretary. City Public Service Board                                                                                              f p                                                                                                                        151o              III E-1

I (THIS PAGE INTENTIONALLY LEFT BLANK) ( q 1516 112

u ! OFFICIAL BID FORM , July 12,1979 Honorable Mayor and City Council City of San Antonio, Texas San Antonio, Texas Mrs. Cockrell and Council Members: Reference is made to your Official Notice of Sale dated May 31,1979, and accompanying Official Statement relative to

       $100,000,000 City of San Antonio, Texas, Electric and Gas Systems Revenue improvement Bonds. New Series 1979-A which Notice and Official Statement are made a part hereof.

For your legally issued bonds, as described in said Official Notice of Sale and Official Statement, we will pay you par and accrued interest from August 1,1979 to the date of delivery to you, plus a cash premium of i for bonds maturing and bearing interest as follows: Princip ' Maturity Principal Maturity Amount (Feb.1) Rate Amount (Feb.1) Rate

                               $ 1,200,000     1981          %             $ 2,MJ,000       1993              %

1,300,000 1982 % 2,925,000 1994 % 1,400,000 1983 % 3,125,000 1995 % g % 3,325,000 1996 ,._% 1,500,000 1984 1,625,000 1985 % 3,550,000 1997 % g % 3,775,000 1998 % 1,750,000 1986 1,875,000 1987 % 4,025,000 1999 % 2,025,000 1988 % 4,275,000 2000 % 2,150,000 1989 % 4,575,000 2001 % g % 2,300,000 1990 % 4,850,000 2002 E 450,000 1991 % 20,000,000 2003 %

2,575,000 1992 % 20,675,000 >4 % For information purposes only, and not as a part of this bid, we have calculated the Effective Interest Rate as follows: Gross Interest Cost $ Less: Premium NET INTEREST COST $ EFFECTIVE INTEREST RATE % Cashier's Check of the Bank, in the amount of $2,000,000 (is attached hereto) (has been made available to you prior to the opening of this bid), and is submitted in accordance with the terms set forth in the " Official Notice of Sale". Respectfully submitted,

                                                                                                                                          ^~
               ,                                                          By:                                                       _

Authorized Representative -mm.. -

                                                                  $100,000,000 CITY OF SAN ANTONIO, TEXAS                                                   /

ELECTRIC AND GAS SYSTEMS REVENUE IMPROVEMENT BONOS, > NEW SERIES 1979-A a BOND YEARS Number of Accumulated Maturity Bond Years Years (2-1) Amount From 8-1-79 1.5 1981 $ 1,200,000 1,800.00 2.5 1982 1,300,000 5,050.00 3.5 1983 1,400,000 9,950.00 4.5 1984 1,500,000 16,700.00 5.5 1985 1,625,000 25,637.50 6.5 1986 1,750,000 37,012.50 7.5 1987 1,875,000 51,075.00 8.5 1988 2,025,000 68,287.50 9.5 1989 2,150,000 88,712.50 10.5 1990 2,300,000 112,862.50 11.5 1991 2,450,000 141,037.50 12.5 1992 2,575,000 173,225.00 13.5 1993 2,750,000 210,350.00 14.5 1994 2,925,000 252,762.50 15.5 1995 3.125,000 301,200.00 16.5 1996 3,325,000 356,062.50 17.5 1997 3,550,000 418,187,50 18.5 1998 3,775,000 488,025.00 19.5 1999 4,025,000 566,512.50 20.5 2000 4,275,000 654,150.00 21.5 2001 4,575,000 752,512.50 22.5 2002 4,850,000 861,637.50 23.5 2003 20,000,000 1,331,637.50 24.5 2004 2( 675,000 1,838,175.00 Average Life of 13:us-18.381 years Return of Good Faith Deposit is hereby acknowledged. A i C 1516 114

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                                                                                                                                                                               .44.w. , s Looking Across Town Lake ustin Skyline in the Background                                                                   }h}h }'ih

OFFICIAL BID FORM IIonorable Mayor and City Council September 13,1979 City of Austin Austin, Texas Centlemen: Reference is made to your Official Statement and Notice of Sale and Bidding Instructions, dated August 10,1979, of $60,000,000 CITY OF AUSTIN, TEXAS UTILITY SYSTEM REVENUE BONDS, SERIES 6, both of which constitute a part hereof. For your legally issued Bonds, as described in said Notice of Sale and Bidding Instructions and Official Statement, we will pay you par and accmed interest from date of issue to date of delivery to us, plus a cash premium of $ for Bonds maturing and bearing interest as follows: Interest Interest Interest Ataturity Hate Alaturity Rate Alaturity Rate 10-1-1983 % 10-1-1991 Tc 10-1-1999 % 10-1-1984 % 10-1-1992 % 10-1-2000 % 10-1-1985 % 10-1-1993 % 10-1-2001 % 10-1-1986 % 10-1-19M % 10-1-2002 % 10-1-1987 % 10-1-1995 % 10-1-2003 % 10-1-19S8 % 10-1-1996 % 10-1-2004 % 10-1-1989 % 10-1-1997 % 10-1-2005 % 10-1-1990 % 10-1-1998 % 10-1-2006 % Our calculation (which is not a part of this bid) of the interest cost from the above is: Total Interest Cost $ Less Premium NET INTEREST COST $ EFFECTIVE INTEREST RATE % Check of the Bank, . in the amount of $1,200,000, which represents our Good Faith Deposit (is attached hereto) or (has been made available to you prior to the opening of this bid), and is submitted in accordance with the terms as set forth in the OfIlcial Statement and Notice of Sale and Bidding Instructions. We agree to accept delivery of and make payment for the Bonds at Citibank, N.A., New York, New York, on September 25, 1979, or thereafter on the date the Bonds are tendered for delivery, pursuant to the terms set forth in the Notice of Sale and Bidding Instructions. Respectfully submitted, By Authorized Representative ACCEPTANCE CLAUSE a The above and foregoirg bid is hereby in all things accepted by the City of Austin, Teras, this the 13th day of September,1979.

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-t r Alayor, City of Austin, Texas d, A'1 TEST: Clerk, City of Austin, Texas Approved: City Attorney, City of Austin, Texas Return of Good Faith Deposit is hereby acknowledged: By - r- 4 ' 117 lDlO $ 5 '

OFFICIAL BID FORM IIonorable Mayor and City Council September 13,1979 Cityof Austin Austin, Texas Gentlemen: Reference is made to your OfEcial Statement and Notice of Sale and Bidding Instructions, dated August 10,1979, of $60,000,000 CITY OF AUSTIN, TEXAS UTILITY SYSTEM REVENUE BONDS, SERIES 6, both of which constitute a part hereof. For your legally issued Bonds, as described in said Notice of Sale and Bidding Instructions and Official Statement, we will pay you par and accrued interest from date of issue to date of delivery to us, plus a cash premium of $ for Bonds maturing and bearing interest as follows: Interest Interest Interest hiaturity Hate Afaturity Hate Maturity Hate 10-1-1983 % 10-1-1991 % 10-1-1999 % 10-1-1984 % 10-1-1992 % 10-1-2000 % 10-1-1985 % 10-1-1993 % 10-1-2001 % 10-1-1980 % 10-1-1994 % 10-1-2002 % 10-1-1987 % 10-1-1995 % 10-1-2003 % 10-1-1988 % 10-1-1996 % 10-1-2004 % 10-1-1989 % 10-1-1997 % 10-1-2005 % 10-1-1990 % 10-1-1998 % 10-1-2006 % Our calculation (which is not a part of this bid) of the interest cost from the above is: Total Interest Cost $ Less Premium NET INTEREST COST $ EFFECTIVE INTEREST RATE % Check of the Bank, in the amount of $1,200,000, which represents our Good Faith Deposit (is attached hereto) or (has been made available to you prior to the opening of this bid), and is submitted in accordance with the terms as set forth in the OfHeial Statement and Notice of Sale and Bidding Instructions. We agree to accept delivery of and make payment for the Bonds at Citibank, N.A., New York, New York, on September 25, 1970, or thereafter on the date the Bonds are tendered for delivery, pursuant to the terms set forth in the Notice of Sale and Bidding Instructions. Respectfully submitted, By Authorized Representative ACCEPTANCE CLAUSE The above and foregoing bid is hereby in all things accepted by the City of Austin, Texas, this the 13th day of September,1979. hfayor City of Austin, Texas A'ITEST: City Clerk, City of Austin, Texas Approved: City Attorney, City of Austin, lexas Return of Good Faith Deposit is hereby aanowledged: By 1516 118

NOTICE OF SALE AND BIDDING INSTRUCTIONS ON

                                               $60,000,000 City of Austin, Texas (Travis and Williammn Counties)

Utility System Revenue Bonds, Series 6 Selling Thursday, September 13,1979, at 10:30 AM, CDT THE SALE Bonds Offered for Sale at Competitive Bidding...The City of Austin, Texas (the " City"), is offering for sale its $60,000,000 Utility System Revenue Bonds, Series 6 (the " Bonds"). Address of Bids... Sealed bids, plainly marked " Bid for Bonds", should be addressed and deliv-cred to "hf ayor and City Council, City of Austin, Texas", prior to 10:30 Ah!, CDT, on the date of the bid opening. All bids must be submitted on the Official Bid Form, without alteration or interlineation. Place and Time of Bid Opening...The City Council will open and publicly read the bids for the purchase of the Bonds in the Council Chambers, City IIall Annex, at 10:30 Ah!, CDT, Thursday, September 13,1979. Award of the Bonds. ..The City Council will take action to award the Bonds (or reject all bids) promptly after the opening of bids, and adopt an Ordinance authorizing the Bonds (the " Ordinance") and pass a Resolution adopting the Official Statement. THE BONDS Description . . . The Bonds will be dated September 1,1979, and interest coupons will be due on April 1,1980, and each October 1 and April 1 thereafter until the earlier of maturity or redemption. The Bonds and interest coupons attached thereto will be payable at The American National Bank of Austin, Austin, Texas, or, at the option of the holder, at Citibank, N.A., New York, New York. The Bonds will mature serially on October 1 in each year as follows: Principal Principal Principal Year Amount Year Amount Year Amount 1983 $ 100,000 1991 $ 840,000 1999 $2,170,000 19S4 100,000 1992 900,000 2000 2,375,000 1985 175,000 1993 1,120,000 2001 2,720,000 1986 250,000 1994 1,250,000 2002 6,800,000 1987 375,000 1995 1,535.000 2003 8,000,000 1988 475,000 1996 1,625,000 2004 8,000,000 1989 585,000 1997 1,850,000 2005 8,000,000 1990 695,000 1998 2,000,000 2006 8,000,000

    'The City riserves the right, at its option, to redeem the Bonds maturing 10-1-1990 through 10-1-2006, both inclusise, in whole or any part thereof, on 10-1-1989, or any interest payrnent date thereafter, at the respective reiemption prices (expressed as percentages of the principal amount) set forth below, plus accrued interest to the date fixed for redemption.

Period During Which Redeemed Hedemption (Both Dates Inclusive) Price October 1,1989 - September 30, 1990 . . . 103 % Octolwr 1,1990-September 30, 1991 102 % October 1,1901 - September 30. 1992 102 Octd cr 1,1902 - September 30, 1993 10I % Octoler 1,1993-Septemtwr 30,1991 101 October 1,199 8 - and thereafter . . 100

                                                         ~I~                                              , 3 1516          ,ily

Security for Payment . . . Then bonds (the " Bonds"), authorized at elections, will constitute special obligations of the City of Austin, payable as to both principal and interest and equally secured by a first lien on and pledge of the net revenues of the City's combined Electric Light and Power, Waterworks and Sewer System and are in all things on a parity with all outstanding and unpaid previously issued parity bonds (as herein def;ned). The City, however, expressly reserves the right to issue additional bonds or incur contractual obligations payable from such net revenues in all things on a parity with the Bonds .md previously issued parity bonds, provided, however, that any and all such further bonds or contractual obligations may be so issued or incurred only in accordance with and subject to the covenants, conditions, limitations and restrictions relating thereto whMh are set forth and contained in the Ordinance authorizing this series of bonds and to which said Ordinance reference is hereby made for more complete and full particulars. CONDITIONS OF TIIE SALE Type of Bids and Interest Rates . . . The Bonds will be sold in one block on an "All or None" basis, and at a price of not less than their par value plus accrued interest to the date of delivery of the Bonds. Bidders are invited to name the rate (s) of interest to be borne by the Bonds, provided that each rate bid must be in a multiple of 1/8 of 1% or 1/20 of 1% and must not exceed 10%. The highest coupon rate bid may not exceed the lowest coupon rate bid by more than 1% in coupon rate. No limitation is imposed upon bidders as to the number of rates or coupon changes which may be used. All Bonds of one maturity must bear one and the same rate. No bids involving supplemental coupons will be considered. Each bidder shall state in his bid the total interest cost in dollars and the net effective interest rate determined thereby, which shall be considered informative only and not as a part of the bid. Basis for Award...For the purpose of awarding the sale of the Bonds, the interest cost of each bid will be computed by determining, at the rate or rates specified therein, the total dollar cost of all interest on the Bonds from the date thereof to their respective maturities, using the table of Bond Years herein, and deducting therefrom the premium bid, if any. Subject to the City's right to reject any or all bids and to waive any irregularities except time of filing, the Bonds will be awarded to the bidder (the " Purchaser") whose bid based on the above computation produces the lowest net effective interest cost to the City. Good Faith Deposit... A Good Faith Deposit, payable to the " City of Austin, Texas", in the amount of $1,200,(XX), is required. Such Good Faith Deposit shall be in the form of a Cashier's Check, or its equivalent, which is to be retained uncashed by the City pending the Purchaser's com-pliance with the terms of his bid and the Notice of Sale and Bidding Instructions. The Good Faith Deposit may accompany the Official Bid Form or it may be submitted separately. If submitted separately,it shall be made available to the City prior to the opening of the bids, and shall be accom-panied by instructions from the bank on which drawn which authorize its use as a Good Faith Deposit by the Purchaser who shall be named in such instructions. 'Ihe Good Faith Deposit of the Pmchaser will be applied on the purchase price on the date of delivery of the Bonds. No interest will be allowed on the Good Faith Deposit. In the event the Purchaser should fail or refuse to take up and pay for the Bonds in accordance with his bid, then said check shall be cashed and accepted by the City as full and complete liquidated damages. The checks accompanying bids other than the winning bid will be returned immediately after the bids are opened, and an award of the Bonda has been made. DELIVERY OF TIIE BONDS AND ACCOMPANYING DOCUMENTS Printed Bonds...The City will furnish printed bonds which will be executed by the fMmile signatures of the Mayor and Clerk of the City, and by the manual signature of the Comptroller of Public Accounts of the State of Texas. The Bonds will be in ecupon form without privilege of registration as to principal or interest.

                                                  - ii -

16 12u

CUSIP Numbers... It is anticipated that CUSIP identification numbers will be printed on the Bonds, but ncither the failure to print such number on any Bond nor any error with respect thereto shall constitute cause for a failure or refusal by the Purchaser to accept delivery of and pay for the Bonds in accordance with the tenns of this Notice of Sale and the terms of the O$cial Bid Form. All expenses in relation to the printing of CUSIP numbers on the Bonds shall be paid by the City; provided, however, that the CUSIP Service Bureau charge for the assignment of the numbers shall be the responsibility of and shall be paid for by the Purchaser. Delivery...The Bonds will be tendered for delivery to the Purchaser at Citibank, N.A., New York, New York, at the expense of the City. Payment for the Bonds must be made in immediately available funds for unconditional credit to the City, or as otherwise directed by the City. The Purchaser will be given five business days' notice of the time fixed for delivery of the Bonds. It is anticipated that delivery can be made on on about September 25, 1979, and it is understood and agreed that the Purchaser will accept delivery and make payment for the Bonds or September 25,1979, or theiester on the date the Bonds are tendered for delivery, up to and including October 9,1979. If for any reason the City is unable to make delivery on or before October 9,1979, then the City shall immediately contact the Purchaser and offer to allow the Purchaser to extend his offer for an additional thirty days. If the Purchaser does not elect to extend his offer within five days thereafter, then his Cood Faith Deposit will be returned, and both the City and the Purchaser shall be relieved of any further obligation. In no event shall the City be liable for any damages by reason of its failure to deliver the Bonds, provided such failure is due to circumstances beyond the City's reasonable control. Conditions to Delivery...'lle obligation of the Purchaser to take up and pay for the Bonds is subject to the Purchaser's receipt of (a) the legal opinion of Nfessrs. Dumas, Iluguenin, Boothman and N1orrow, Bond Counsel for the City ("Hond Counsel"), (b) the no-litigation certificate, and (c) the certification as to the Official Statement, all as further described in the Omeial Statement. Legal Opinions . ..The Bonds are offered when, as and if issued. subject to the unqualified legal opinion of the Attorney General of the State of Texas, and hiessrs. Dumas, IInguenin, Boothman and hforrow (see Legal Opinions in Official Statement); the opinion of said firm will be printed on the Bonds. Certification of Official Statement... At the time of payment for and delivery of the Bonds, the City will execute and deliver to the Purchaser a certificate in the form set forth in the Official Statement. Change in Tax Exempt Status . . . At any time before the Bonds are tendered for delivery, the Purchaser may withdraw his bid if the interest received by private holders from bonds of the same type and character shall be declared to be taxable income under present Federal income tas laws, either by ruling of the Internal Bevenue Service or by a decision of any Federal court, or shall be declared taxable or be required to be taken into account in computing any Federal income taxes, by the terms of any Federal income tax law enacted subsequent to the date of this Notice of Sale and Bidding Instructions. GENERAL Blue Sky Laws . . . By submission of his bid, the Purchaser represents that the sale of the Bonds in states other than Texas will be made only pursuant to exemptions from registration or, where necessary, the Purchaser will register the Bonds in accordance with the securities law of the states in which the Bonds are offered or sold. The City agrees to cooperate with the Purchaser, at the Purchaser's written request and expense, in registering the Bonds or obtaining an exemption from registratica in any state where such action is necessary. Not an Offer to Sell...This Notice of Sale does not alone constitute an offer to sell the Bonds. bet is merely notice of the sale of the Bonds. The offer to sell the Honds is being made by means of

                                                  - iii -

1516 121

the Notice of Sale and Bidding Instructions, the OEcial Bid Form and the Official Stater ent. Prospective purchasers are urged to carefully examine the OEcial Statement to determine the awest-ment quality of the Bonds. Issuance of Additional Bonds . . . The City anticipates issuing approximately $60,000,000 Utility System Revenue Bonds in h1 arch,19S0. Ratings . . . The outstanding Utility System Revenue Bonds of the City are rated "Aa" by Afoody's Investors Service, Inc. and "A+ by Standard & Poor's Corporation. Applications for contract ratings on this issue have been made to both Afoody's and Standard & Poor's. The results of their determina-tions will be provided as soon as possible. The Official Statement...The City will furnish to the Purchaser, without cost,50 copies of the OEcial Statement (and 50 copies of any addenda, supplement or amendment thereto), complate except as to interest rates and other terms relating to the reoffering of the Bonds. Arrangements have been made with the printer of the Official Statement, Bowne of Dallas, Dallas, Texas, phone number 214-651-1001, to hold the type intact until after the date of the sale of the Bonds. The Purchaser may order at his own expense any number of the Official Statements from the printer, and may also arrange, at his total expense and responsibility, for completion and perfection of the first or cover page of the Official Statement so as to reflect interest rates and other terms and information related to the reoffering of the Bonds. The City assumes no responsibility or obligation for the distribution or delivery of any of these copies to any one other than the Purchaser. Additional Copies of Notice, Bid Form and Statement.. . A limited number of additional copies of this Notice of Sale and Bidding Instructions, the Official Bid Form and the Official Statement, as available over and above the normal mailing, may be obtained at the ofBees of First Southwest Company, Investment Bankers,900 hiercantile Bank Building, Dallas, Texas 75201, Financial Advisors to the City. The City reserves the right to reject any and all bids and to waive irregularities, except time of filing. The OfIlcial Statement will be approved as to form and content and the use thereof in the offering of the Bonds will be authorized, ratified and approved by the City Council on the date of sale, and the Purchaser will be furnished, at the time of payment for and delivery of the Bonds, a certified copy of such approval, duly executed by the proper officials. DAN DAv1DsoN Ci:y Manager Arrrsr: GRACE hlONROE City Clerk August 16,1979 O

                                                  -iv -

l}lf l}

BOND YEAllS Accumulated Year Amount Bond Years Bond Years Year 1983 $ 100,000. 408.333 408.333 1983 1984 100,000. 508.333 916.666 1984 1985 175,000. 1,064.582 1,981.24S 1985 1986 250,000. 1,770.832 3,752.080 19S6 1987 375,0N). 3,031.248 6,783.328 19S7 1988 475,000. 4,314.581 11,097.909 1988 1989 .. 585,000. 5,898.748 16,996.657 1989 1990 693,000. 7,702.914 24,699.571 1990 1991 810,000. 10,149.997 31,849.568 1991 1992 960,000. 12,559.996 47,409.564 1992 1993 1,120,000. 15,773.329 63,182.893 1993 1994 1.250,000. 18,854.162 82,037.055 1994 1995 1,535,000. 24,657.911 106,724.966 1995 1996 1,625,000. 27,760.411 134,485.377 1996 1997 1,S50,000. 33,454.160 167,939.537 1997 199S 2,000,000, 38,166.660 206,106.197 1993 1999 2,170,000. 43,580.826 249,687.023 1999 2000 2,375,000. 50,072.90S 299,759.931 2000 2001 2,720,000. 60,066.657 359,826.5SS 2001 2002 6,800,000. 156,966.644 516,793.232 2002 2003 , 8,000,000. 192,666.640 709,459.872 2003 2001 8,000,000. 200,666.640 910,126.512 2001 2005 . 8,000,000. 208,666.640 1,118,793.152 2005 2006 8,000,000. 216,666.640 1,335,459.792 24 Average Staturity 22.258 Years 15i6 123

-V-

This Official Statement does not constitute an offer to sell Bonds in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. No dealer, salesman, or any other person has been authorized to give any information or make any representation, other than those contained herein, in connection with the offering of these Bonds, and if given or made, such information or representation rmist not he relied upon. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made here-under shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof. OFFICIAL STATEMENT Dated August Ifi,1979 INTEREST ENEAf PT, IN TIIE OPINION OF BOND COUNSEL, FROA1 PRESENT FEDERAL INCOAIE TANES UNDER ENISTING STATUTES, REGULATIONS, RULINGS AND COURT DECISIONS

                                                   $60,000,000 City of Austin, Texas (Travis and Williamson Counties)

Utility System Hevenue Bonds, Series 6 Dated: September 1,1979 Denomination: $5,000 Principal and semi-annual interest ( April I and October 1) payable at The Americaa National Bank of Austin, Austin, Texas, or, at the option of the holder, at Citibank, N.A., New York, New York. Fir t interest coupon due April 1,19S0. Coupon bearer bonds, not registrable. AfATUllITY SCIIEDULE Amount Alaturity Rate Yictd Amount Maturity Hate Yield $ 100,(XX) 10-1-1983 $ 1,535,000 10-1-1995' 100,000 10-1-1C84 1,025,000 10-1-1996* 175,000 10-1-1985 1,850,000 10-1-1997* 250,000 10-1-I986 2,000,000 10-1-199S' 375,0(M) 10-1-1987 2,170,000 10-1-1999' 475,000 10-1-1988 2,375,000 10 1-2fXX)* 585.000 10-1-I989 2.720,000 10-1-2001* 695,000 10-1-I990* 6,800,000 10-1-2002' 810,000 10-1-1991* 8,000,000 10 i-2003' 960,000 10-1-1992* 8,000,000 10 1-2(X)4' 1,120,(x10 10-1-1993* 8,000,000 10-1-2005' I,250,000 10-1-1994' 8,000,000 10-1-2006'

     ' The City resenes the right, at its option, to redeem the Honds maturing 10-1-1990 through 10-1-2006, both imlusise, in whole or any part theren[ on 10-1-1989, or any interest payment date thereafter, at the respective redemption prites (expressed as percentages of the principal amount) set forth below, plus accrued interest to the date fixed for redemption.

Period During Which Redeemed Redemption (Both Dates inclusive) Price Octoler 1,1989 - September 30,1990 103 % Oc tober 1,1990 - September 30,1991 102 % October 1,1991 - September 30,1992 102 October 1,1992-September 30,1993 101 % October 1,1993 - September 30,1991 101 October 1,1991 -cnd thereafter 100 Payment Record: The City has never defaulted on its Revenue Honds. There has been no default on General Obligation Bonds since 1900. As a matter of historical interest, the General Obligation debt was refunded at par with a vohmtary reduction in interest rate following a disastrous flood in April, 1900, which destroyed the City's dam, water plant and power station. The City was in default prior to this time because it had not appropriated available funds to the payment of interest due January 1,1900, on Water and Light Bonds. Legality: Attorney General of the State of Texas, and Alessrs. Dumas,Iluguenin, Boothman and Aforrow, Attorneys, Dallas, Texas. (Opinion Printed on the Bonds; See Legal Opinions.) Delivery: Anticipated on or about September 25, 1979.

TABLE OF CONTENTS

O 1

Description of the Bonds 3 Elected Officials 3 Appointed Officials 3 Consultants and Advisors 4 Security for Payment 4 Condensed Operating Statement 5 Coverage Factors and Outstanding Bonds Fund balances 5 5 Authorized Revenue Pands Operating Statement, Last Five Fiscal Years 6/7 8 Comparative Analysis of Utility Operations. Debt Service Requirements 10/11 Value of the Systems 12 City's Equity in Utility Systems 12 The Electric, Waterworks and Wastewater Systems 13 The Electric System 13/20 Generation and Use Data 21 Analysis of Electric Bills 22 Projected Use of Fuel by Source 22 Proceeds 22 Graph - KWil to Electric System 23 Graph - Projected KWII to Electric System 24 Nfonthly Electric Utility Hates 25/32 The Waterworks System and Sanitary Sewer and Wastewater System 33/36 Analysis of Water and Sewer Bills 37 Information Concerning Water Sales 38 Nfonthly Water and Sewer Rates 39/41 llevenue Hond Ordinance Provisions 42/47 Projected Debt Service Coverage 48/49 Other Information: llevenue Bond Retirement Funds Comparative Statements 50 Accounting 50 Ad Valorem Tax Bonds 50 Automatic Escalators 50 Deficit Financing 50 Retirement Systems 50 Letters from A. S. llansen, Inc. Regarding Retirement Funds 51/54 Vahiation and Debt Information 55/56 Unfunded Debt 56 Debt and Tax Rate Limitations 56 Valuation and Funded Debt IIistory 56 Taxable Assessed Valuations by Category 56 Estimated Overlapping Funded Debt Payable from Ad Valorem Taxes 57 Tax Data 57 hfunicipal Sales Tax 57/58 Top Ten Taxpayers 58 General Information Regarding City and Its Economy 59/02 Ratings 63 Tax Exemption 63 llegistration and Qualification of Bonds for Sale 63 Legal Investments in Texas 63 Legal Opinions and No-Litigation Certificate 63/GI Authenticity of Financial Information Gi Certification of the Ollicial Statement Gi The cover page hereof, this page, and any addenda, supplement or amendment hereto, are part of the OfIicial Statement. A copy of the Annual Financial lleport for the Fiscal Year Endirg September 30,1976, is available upon request. h a 2 1516 125

ELECTED OFFICIALS s All Te-ms Expire 515-81) Carole Keeton hicClellan Afayor Lee Cooke Councilmember Richard Goodman Councilmember Betty Ilimmelblau Councilmember Ron hiullen Councilmember Jimmy Snell Councilmember John Trevino, Jr. Councilmember APPOINTED OFFICIALS Length of Employment Position and Length of Time with City Name in This Position of Austin Dan Davidson City hianager for 7 Years 9 Years Norman hick. Barker Finance Administrator for 7 Years 18 Years Afonty C. Nitcholas Director of Finance for 4 Years 4% Years Jerry L. IIarris City Attorney for 2% Years 9% Years Grace hionroe City Clerk for 4% Years 31 Years John German Director of Public Works for 1% Years 9 Years R. L. IIancock Llirector of Electric Utility for 8% Yests 30 Years Curtis E. Johnson Director of Water and for 7% Years 19% Years Wastewater Jack Klitgaard Tax Assessor-Collector for 15% Years 27 Years CONSULTANTS AND ADVISORS Auditors Peat, hfarwick, hiitchell & Co., Austin, Texas Consulting Engineers Bovay Engineers, Inc. Ilouston, Texas Bond Counsel Dumas, Iluguenin, Boothman and htorrow Dallas, Texas Financial Advisors First Southwest Company Dallas, Texas 1516 126

SECURITY FOll PADIENT g These bonds (the ' Bonds"), authorized at elections, will constitute special obligations of the City of Austin, payable as to both principal and interest and equally secured by a first lien on and pledge of the net revenues of the City's combined Electric Light and Power, Waterworks and Sewer System and are in all things on a parity with all oc' standing and unpaid previor.ly issued parity bonds (as hercia deeed). The City, however, expres ly reserves the right to issue additional bonds or incur contrr.ctual obiigations payable from such ne. revenues in all things on a parity with the Bonds and previously issued parity bonds, provided, howe ter, that any and all such further bonds or contractual obligations may be so issued or incurred only in accordance with and subject to the covenants, conditions, limitations and restrictions relating thereto which are set forth and contained in,the Ordinance authorizing this series of bonds and to which said Ordinance reference is hereby made for more complete and full particulars. CONDENSED OPEllATING STATENIENT ELECTRIC LIGIIT AND POWER, WATEI1WOIIKS AND SEWEH SYSTENI (With Fuel Cost Adjustment) 12 %Ionths Ended 9-30-78 6-30-79( a ) INCONIE Electric Utility $150,807,742 $140,750,141 Wcter Utility 19,500,515 19,450,870 Wasiewater Utility 10,081,413 10,397,847 Niiscellaneous Utility 6,671,451 10,143,570 Total Income $157,667,151 $1SG,778,428 EXPENSE Electric Utility $ 97,957,545 $ 92,805,931 Water Utility 8,410,491 8,963,227 Wastewater Utility 5,397,6S2 5,590,542 Total Expense $111,771,718 4'07,339,703 Nrr Iscous AVAH.ADLE Fon DENT SEnv1LE $ 75,595,433 $ 79,418,725 Recoverable Fuel Costs Excluded from Expense (b) $ 20,6S5,500 $ 20,0S5,500 Electric Customers 141,115 149,639 Water Customers 99,9S9 103,156 Sewer Customers 87,159 91,928 (a) 6-30-79 figures are not audited. (b) Recoverable fuel costs reflected in the Utility Fund have been deferred based upon a fuel cost adjustment ic.rmula in use from 1973 to N1 arch 31,1978, designed to bill eledrie utility customers for fuel costs in execss of 18e per 1 Mh1 HTU's on a six-menth moving average. A new utility rate sebedide was implemented on April 1,197c, to bill, on a monthly basis, the estimated actual fuel cost incurred from that date. The remaining unbilled balance of the recoverable fuel cost of $20,G%S00 will be billed to customers 1.cginning October I,1979, to September 30, 1983, in accordance with a rate surcharge ordinance passed by the City Council during 1978. O 1516 .a_i

COVERAGE FACTORS AND OUTSTANDING BONDS h1aximum piincipal and interest requirements,2002, all outstanding Utility System Revenue Bonds and these Series 6 Bonds at an assumed interest rcte of 6%% $ 59,183,500 Coverage of maximum requirements by 6-30 79 Net Income 1.31 Times Af aximum principal and interest requirements,1931, all outstanding Utility System Revenue Bonds and these Series 6 Sonds (first lien) at an assume (' interest rate of 6%Tc, and outstanding Electric, Waterworks and Sewer System Refunding Revenue Bonds (second lien) $ 59,336,415 Coverage of maximum requirements by 6-30-79 Net Income 1.31 Times Utility Svstem Revenue Bonds outstanding,8-1-79, and these Bond: $430,7S0,000 Electric, Waterworks and Sewer System Refunding Revenue Bo-outstanding, 8-1-79 $318,925,000 FUND BALANCES ( As of S-1-79) Utility System Revenue Bonds: Interest and Sinking Fund $ 12,300,000 3cserve Fund S 9,768,266 Electric, Waterworks and Sewer System Refunding Revenue Bonds: Interest and Sinking Fund $ 1,910,4S8 Reserve Ftmd $ 30,000,000 AUTIIORIZED REVENUE BONDS Amount Amount Date Amount IIeretofore Being Unissued Purpose A 4hariicd Autherfied Issued Issued Balance Water Improvements 11-20-76 $ 32,237,000 $19,500,000 $ $ 12,737,000 Sewer huprovements 11-20-76 46,920,000 25,920,000 - 21,000,000 Electric System Fayettc(a) ' 20-79 58,625,000 27,000,000 10,000,000 21,625,000 Electric System Improvements 1-20-79 23,810,000 13,000,000 3,000,000 7,S10,000 Electric System Nuclear (b) 4-7-79 215,850,000 47,000,000 16S,850,000

                                          $377,442,000        $S5,420,000  $60,000,000  $232,022,000 (a) The issuance of these bonds is restricted to Fayette Power Project, transmission lines and coal stockpile therefor.

(b) The issuance of these bonds is restricted to participation in the South Texas Project and fuel in process and progress. Anticipated Issuance of Voted Revenue Bonds . . . The City anticipates issuing approximately $60,000,000 Bonds in Alarch,1980. The decisions for issuance of future indebtedness will be decided later. 1516 123

OPERATING STATENIENT ELECTRIC LIGIIT AND POWER, WATERWORKS AND SEWER SYSTEM Fiscal Year Ended REVENL'E 9 30 7g g_30 77 9 30_76 9-30 "5 9-30-74 ELECTRIC UTILITY mesde ) $ 60,449,943

                                                                                 .                  $ 55,31S,072      $ 47,773,026     $ 37,5S2,777     $29.9 0,130 Rural         (- Residential s2.036.727        M,340,363        5s.893,256       46,330,960      27,M 6,944 Commercial- General 1,7M,433          1,221,570         961,510         617,507 City Utility D partment                                                        3.325.592 1,6 S.593            565.753           436,303         343,44S         19S,711 Public Street Lighting City General Government Departments                                            1.233,$40          1,241.60S           637,929         502,106         246f69
                                                                                         -                           3ss.927         305.637         166,602 Austin Public Schools (a)                                                                                                                               94,02S Rent from Electric Property                                                      101.313            105.495           126,7N            99,396 Customers' Forfeited Discounts and Penalties                                   1,651,577          2,324,231         1,637,240       1,2SS,0SS       1,0ss,970 Afiscellaneous                                                                   327,157            269,692           199,422         156.90s         139.526 Receivables Adjustments, Etc. (b)                                                           (1,271.379)       (1,137,033)        (S94,492)       (266,1S4)

Total Electric Utility $150,$07,742 $124.955,29S $110,177,M4 $ 86,670,33S $5S,903,403 WATER UTILITY Urban $ 14.146,315 $ 9,931,s7v $ 10,20s,632 $ S,251,495 $ 7,792.216 2.330,4s4 1,M7,706 1,353.365 1,11s,191 731,25S Rural City Utility Departments 333,205 369.059 279,7s2 226.109 21s s52 4s1.958 451.355 313,742 253,552 301,21S City General Government Departments 37c226 30,110 23.200 Austin Public School (a) Sales to Other Water Utilities 399.936 506,141 356.976 2ss,51s 156,403 Receivables, Adjustmeats, Etc. (b) (127,256) (129,964) (105,057) (35,390) Water Connect.ons 1,469,362 76S.327 411,152 332,390 245.176 e Customers' Forfeited D:scounts 73,720 Afiscellaneous 269.535 194,793 200,75S 162.247 123.274 Total Water Utility $ 19.506.515 6 13,761,965 $ 13.061.699 $ 10,557,615 $ 9,553.246 SEWER UTILITY (c) Urban $ 9,19s S34 $ S,6N,30S $ 7,912,503 $ 6,014,371 $ Rural 70,114 121,s10 161.242 122,5S6 City Utility Departments 6.607 7,937 S,95S 6,S16 City General Government Departments 77,306 82.525 S4,669 M,367 Austin Public Schools (a) 17,571 13,3 M Sewer Connections 745.974 515,422 455,045 345,s50 162,703 Customers' Forfeited Discounts 36,55S _t - Rent from Sewer Property 1,232 1,02S 1.034 795 540

 ]'    Afiscellaneous                                                                   311.51S              15.410            64.053          4S,721           13.243 Hm          n, A@unments, Etc. (b)                                                               (S7,261)          (91,732)        (69,776)          C Total Sewer Utility                                                  $ 10,6s1,443       $ 9,261,179      $ S,613,373      $ S,547,124      $ 176,456(c)

~ Interest and Other S 6.671,451 $ 4.225,356 $ 3,059,234 $ 2.833,503 $ 2,613,559 TNJ y total REVENUES $157,667,151 $152.203,795 $134,911,950 $106.614,555 $71,246,724 (a) Austm Independent School District pays bills for all months except July and August. The City pays the bills for these months, as the schmls and school grounds are used for recreation purposes (b) Revenues and espenses for the year ended September 30, 1978 reflect the provision for doubtful collection of accounts receivable in general and administra-tion expenses. These provisions are reflected net in revenues in prior years. O Sewer Utility for Escal year ended 9-30 "4 included under " Watertegory. Utihty

OPERATING STATEMENT ELECTRIC LIGHT AND POWER, WATERWORKS AND SEWER SYSTEM-Continued Fiscal Year Ended 9-30-78 9-30-77 9-30-76 9-30-75 9-30 74 EXPENSE ELECTRIC UTILITY Production $ 86,300,003 $64,328,55S $ 56,S37,492 $ 39,145,578 $16,642,004 Distribution 4,002,672 3,63S.065 3,913,033 4,109,274 3,592,352 Transmission 195.250 157,553 Customers' Accounting and Collection 2,242.677 1,S95,218 1,149,935 910,495 S7S,149 Sales Promotion 182.160 156,321 127,672 157,460 140,00S Jobbing and Contract Work 67,551 (9,807) 46,202 (76,492) (35 226) Administrative and General 4,920,652(a) S10,5SS 692,279 1,074,136 3S4,067 Engineciing 46,520 31,367 7S,837 Total Electric Utility $ 97,957,515 $71,007,593 $ 62,845,450 S 45,320,451 $21,601,351 WATER UTILITY Pumping Plant . $ $ $ $ 693 500 $ 522 332 Purification 3,720,059 2,600,077 2,30s,781 1,526,940 1,297,085 Distribution 3,230,416 3,052.532 2,127,950 1,670,090 1,516,873 Customers' Accounting and Collection E62,52S 762,84S $66.162 703,12S 578,149 Jobbing and Contract Work (6,51S) (107,976) 235,393 65,242 (29,463) Administrative and General 609,976(a) 111,771 421,970 619,S92 422,727 Total Water Utility $ S,416.491 $ 6,419,252 $ 5,960.256 $ 5.2S1,792 $ 4,607,703 SEWER UTILITY Sewer Lines $ 1,851,498 $ 1,590,614 $ 1,66S 137 $ 1,425,935 $ 1,216,522 Sewage Treatment Plant 2,350,9S1 1,150,001 1,07S,911 990,252 720,660 Jobbing and Contract Work 17,176 14,433 (17,915) 1,S74 (7,611) Administrative and General 312,409(a) 48,051 260,401 206,424 33,012 Design Engineering S5,594 46,965 65.366 (19,322) 77 Customers' Accounting and Collection 750,024 663,346 7S3,786 533,406 --* Total Sewer Utility $ 5,397,652 $ 3,543,443 $ 3,S3S,656 $ 3,138 569 $ 1,992,660 { TOTAL EXPENSE (b) $111,771,71S $50,970,5SS $ 72,614,392 $ 53,740,S12 $28,201.717 m Nor REVENUE AVAILABLE FOR Drar SenvicE S 75,595,433(b) $71,233,210 $ 62,267,55S $ 52,853,773 $43,045,007 Electric Customers 144,115 137,376 124.121 117,901 114,577 g Water Customers 99,959 9S,579 91,654 91,160 S5,36S g Sewer Customers S7,159 85,790 81,850 80,421 (a) Revenues and expenses for the year ended September 30, 1978 reflect the provision for doubtful collection of accounts receivable in general and ad-ministration expenses. These provisions are reflected net in revenues in prior years. (b) All interest expense is included in this statement except for interest on revenue bonds. In the Annual Financial Report, the interest is shown separately in complian with AICPA requirements. Depreciation expenses are not included in this schedule. See "Cornparative Analysis of Utility Operations".

COMPARATIVE ANALYSIS OF UTILITY OPERATIONS October 1,1973 to September 30,1978 (Thousands Rounded) Fiscal Year Ended (h) 5 Year 9-30-74 9-30-75 9-30-76 9-30-77 9-30-78 Increase Dollars Revenue $ 71,247 $100,615 $134,912 $152,210 $187,667 263 % Operating Expense 28,202 53,741 72,611 80,971 111,772 396 % Ealance Available for Debt Service $ 43,G15 $ 52,874 $ 62,268 $ 71,239 $ 75,895 1769b Depreciation Expense Sli>5 8,592 9,801 10,727 13,289 155 % Earnings Ilefore Interest Expense. $ 31,490 $ 41.282 $ 52,461 $ 60,512 $ 62,600 18296 Interest Incurred on Debt 7,5S1 10,117 15,123 22.24S 29,203 3S596 Less Interest Capitalized (3,018) (4,541) (7,545) (12,663) (18,197) 603 % Ner Ixcoste(a) $ 29,927 $ 38,700 $ 44,886 $ 50,927 $ 51,000 17295 Percentages Hevenue 100.00To 100.009b 100.0096 100.00 % 100.000b Operating Expense 39.5sTo 50.419b 53.8596 53.20 % 59.56To llalance Available for Debt Service 60.42 % 49.5996 46.159b 46.80To 40.4496 Depreciation Expense 12.0196 8.06?b 7.2006 7.0596 7.0896 Earnings Before Interest Expense. Interest Incurred on Debt 48.419b 10.Gl96 41.539b 9.49 % 38.8996 11.21To 39.75To 14.62 % 33.36To 15.569b g Less Interest Capitalized (4.2395) (4.2696) (5.59%) (6.75%) (0.70To) Ner Iscoste . 42.009b 36.309b 33.27To 31.8895 27.5096 (a) Years prior to September 30, 1978, have been restated to gisc clicct to interest capitali7ed on fixed assets. (b) Year ended Septemler 30,1977, has been restated to conform to the audited financial statements. t O 8 1516 i')I

(T111S PAGE INTENTIONALLY LEW BLANKl 1516 132 9

O DEBT SERVICE REQUIREMENTS Outstanding First Lien Bonds Series 6 First Lien Bonds Calendar Year Principal Interest Total Principal Interest Total 1979 $ 11,507,573 $ 11,507,573 1980. 22,168,015 22,168.015 $ 4,062,498 $ 4,062,498 1981 $ 2,000,000 22,133,015 24,133,015 3,750,000 3,750,0(X) 1982 2,800,000 21,971,515 24,771,515 3,750,000 3,750,0(X) 1983 3,100,000 21,633,265 21,733,265 $ 100,000 3,750,000 3,850,000 1984 3,200,000 21,714,265 21,914,265 100,000 3,743,750 3,813,750 1985 3,500,000 21.351,015 24,851,015 175,000 3,737,500 3,912,500 1986. 3,700,000 21,115,515 24,815,515 250,000 3,726,563 3,976,563 1987 3,000,000 20,867,515 24,767,515 375,000 3,710,938 4,085,933 19SS 4,100,000 20,606,515 24,706,515 475,000 3,687,500 4,162,500 1989 4,500,000 20,326,515 24,826,515 585,000 3,657,813 4,242,813 1990 P,600,000 20,000,515 25,600,515 695,000 3,621,250 4,316,250 1991 6,500,000 19,621,581 26,121,581 810,000 3,577,813 4,417,813 1992 1993 7,700,000 9,500,000 19,211,790 18,732,715 26,911,700 28,232,715 960,000 1,120,000 3,525,313 3,465,313 4,485,313 4,585,313 h 1091 11,000,000 18,211,310 29,211,310 1,250,000 3,395,313 4,615,313 1995 12,800,000 17,551,090 30,351,090 1,535,(XX) 3,317,188 4,852,188 1996 14,900,000 16,830,510 31,730,540 1,625,000 3,221,250 4,816,250 1997 17,000,000 15,917,790 32,917,790 1,850,000 3,119,GS8 4,969,088 1993 20,280,000 14,912,490 35,192,490 2,000,000 3,004,063 5,001,063 1999 23,400,000 13,637,050 37,057,050 2,170,000 2,879,063 5,019,063 2000 27,700,0(X) 12,181,350 39,884,350 2,375,000 2,743,438 5,118,438 2001 31,000,000 10,491,625 45,391,625 2,720,000 2,595,000 5,315,000 2002 41,700,000 8,258,500 49,958,500 6,800,000 2,425.(XX) 9,225,000 2003 30,000,000 5,935,500 41,935,500 8,000,000 2,000,0(X) 10,0(X),0(X) 2001 30,500,000 ' '21,500 31,621,500 8,000,000 1,500,000 0,500,000 2005 31,500,(XX) 1,829,250 33,329,250 8,000,000 1,000,000 0,000,000 2006 0,000,000 270,(XX) 9,270,000 8,000,000 500,003 8,500,(XX)

                    $370,780,000     $413,171,319       $813,951,349 $60,(XX),000      $83,466.251       $143,466,251 Note: Interest on the Series 6 First Lien Bonds has been calculated at the rate of 0.25% for purposes of illustration.

10 0 1516 lE

pg, 'g"j,, Refunding Second Lien Bonds Crand Total Pr ne pal Bonds Principal Interest Total Requirements Retired $ 11,507,573 $ 11,507,573 26,230,513 $ 5,210,000 $ 25,146,250 $ 30,356,250 56,586,763 27,883,015 10,050,000 19,680,060 29,730,060 57,613,075 28,521,515 11,550,000 19,096,680 30,646,680 59,168,195 28,583,265 12,180,000 18,436 420 30,616,420 59,199,685 28,758,015 12,820,000 17,758,400 30,578,400 59,336,415 8.42 % 28,763,515 13,470,000 16,993,162 30,463,163 59,226,678 29,792,078 14,285,000 16,148,313 30,433,312 59,225,390 28,853,453 15,095,000 15,283,485 30,378,485 59,231,938 28,869,015 16,025,000 14,340,273 30,365,273 59,234,288 29,069,328 16,865,000 13,302,510 30,167,510 59,236,838 21.40 % 29,916,765 17,050,000 12,275,575 29,325,575 59,242,340 30 512,394 17,480,000 11,215,215 28,695,215 59,237,609 31,397,103 17,780,000 10,061,040 27,841,040 59,238,143 32,818,028 17,535,000 8,8S6,570 26,421,570 59,239,598 33,8S6 653 17,620,000 7,727,775 25,347,775 59,234,428 39.09 % 35,206,278 17,460,000 6,574,590 24,034,590 59,240,868 36,576,790 17,240,000 5,420,910 22,660,910 59,237,700 37,887,478 17,065,000 4,281,915 21,346,915 59,234,393 40,196,553 15,890,000 3,153,975 19,013,975 59,240,528 42,100,113 15,000,000 2,136,915 17,136,915 59,243,028 63.13 % 45,002,788 13,095,000 1,141,305 14,236,305 59,239,093 50,709,625 8,160,000 368,280 8,528,280 59,237,905 59,183,500 59,183,500 51,935,500 51,935,500 44,124,500 44,124,500 92.46 % 42,329,250 42,329,250 17,770,000 17,770,000 100.00 % 5 57,420,603 $318,925,000 $249,429,618 $568,351,618 $1,525,775,221 11 1516 134

VALUE OF TIIE SYSTE5fS Fiscal Year Ended 9-30-78 9-30 77 9-30-76 9-30-75 9-30-74 Utility Plant: Electric $599,998,382 $162,610,065 $361,285,591 $261,999,S56 $218,6S 1,151 h Water 13S,10S,893 129,021.075 122,729,719 106,S11,077 91,193,116 Sewer 142,725,261 133.35S,585 128,119,619 102,767,375 77,258,418 Equity in Vehicles 3,421,2S7 Total Valua SSSO,832.539 $725,022,725 $608,131,932 $171,011,30s $390,557,002 Reserve for Depreciation: Electric $ 78,565.125 $ 68,413,017 $ 61,001,776 $ 55,679,193 $ 49,415,210 Water 25,303,850 22,369,653 20,578,097 18,478,999 17,092,113 Sewer 10,078,155 13,416,770 11,740,697 10,308,016 0,433,935 Total Depreciation 120.247 130 $101,199,170 $ S3.323,570 $ 81,466,20s $ 75,971,25S Value After Depreciation $760,585,409 $620,823 255 $514,811,362 $386,515,100 $314,5S5,741 CITY'S EQUITY IN UTILITY SYSTEAIS Fiscal Year Ended 9.30-78 9-30-77 9-30-70 9-30-75 9-30-74 Utility Plant SSSO,832,539 $725,022,725 $608,131,932 $171,011,30s $390,557,002 Plus: Inventories, Nfaterials and Supplies

28,510 1,108,768

                                  $SSO,861,079 $725,022.725 $60s,131,932 $471,011,308 $391,065,770 Less: Reserve for Depreciation                     $120,217,130 $101,199,170 $ 83,323,570 $ 81,400,S 'S            $ 75,971,25S Revaluation of Properties                                    2,993,773       3,232,730         3,471,6S7     3,710,613   g Customers' Advances                                                                                              W for Construction                17,403.931     18,976,429       20,416,207       19,917,361     16,084,582
                                  $137,651,061 $126,169,672 $110,972,507 $107,855,250 $ 95,766,4S3 Utility Plant, Net                 5743,210,018 $393,833,053 $ 191,162125 $363,156,052 $295,899,2S7 Net Debt:

Revenue Bonds Ontstanding $553,855,(X)0 $ 131,SS5,00() $5 D,315,(XX) $217,300,00() $189,3S5,000 Less: Construction Cash in Bank or U. S. Treasury Bills $ 46,26~),261 $ 38,792,074 $ 10,793,878 $ 22,6SO,967 $ 9,903,779 Bond Principal Retire-ment and Reserve Fund 27,435,695 27,893,112 24,416,390 22,017,501 20,592,151

                                  $ 73,700,959 $ 66,6S5,4SG $ 35.240.26S $ 41,728,471 $ 30,495,930 Net Debt                           $ 1S0,151,011 $36S,199,514 $2S 1,104,732 $202,571,529 $158,8S9,070 City's Equity in Utility Plant                            $263 055.977 $230,653,539 $207,057,693 $160,5Si,523 $137,010,217 Percentage of City's Equity              35.39 %         38.52 %         42.16 %           41.22 %       46.30 %

Does not include fuel oil inventories.

Capitalized interest is included in the figures shown above as follows: Fiscal Year Ended 9-30-71 $ 3,017,729 Fiscal Year Ended 9-30-75 4,510.061 Fiscal Year Ended 9-30-76 7,511,789 Fiscal Year Ended 9-30-77 12 662.61S Fiscal Year Ended 9-30-78 18,197,40S Total $45,963,238 l}j{ jb 12

TIIE ELECTIIIC, WATEllWOllKS AND WASTEWATEll SYSTEhtS The City owns and operates a combined utilities system (the " System") which provides the City, adjoining areas of Travis County and certain adjacent areas of Williamson County with electric, water and sewer service. The City owns all the facilities of the water and sewer systems and owns all existing facilities of the electric system. As described below, the City owns participations with other utility systems in three major facilities of the electric system currently under construction. There follows a description of the System, the service areas, operations and responsibilities, existing facilities and current construction. TIIE ELECTIllC SYSTEh! Service Area and Customers The City's electric utility system (the " Electric System") currently serves an area of 121.3 square miles comprising the corporate lirrdts of the City and an addiusnal 300 square mile area lying beyond the corporate limits. The Electric System's service area has been experiencing growth in population in recent years, mainly in the City and adjoining areas. The City's population in 1978 was estimated to be 331,577. The Electric System had approximately 145,000 customers in 1978, an increase of approximately 570 over the previous year. The Electric System expects continued growth in the number of customers and power demand from both residential and commercial users. Thus, its current construction and diversification program is designed to meet existing and future require-ments of its service area. The Electric System's main sources of revenue are residential and commercial customers within the service area, which together accounted for approximately 957o of revenues in fiscal year 1978. The City has entered into a power sales contract with Ilouston Lighting & Power Company pursuant to which the City has agreed to supply 500 htW (megawatts) of capacity for calendar years 19S0 and 1981, contingent on availability and interchange capability. The City is currently negotiating a four year extension of such contract. The following table lists the ten largest users of electric power in the System in the fiscal year ended September 30, 1978, which in total represents approximately 97o of KW sales and approxi-mately 770 of sales revenues: AIAJOll ELECTilIC ACCOUNTS Fiscal Year Ending 9-30 78 Account KW Demand Revenue Texas Instruments 8,964 KW $2,1S3,187.67 Ilergstrom Air Force Ilase 11,936 KW 2,007,347.40 IBNI Corporation 7,992 KW 1.565,001.24 Nf otorola, Inc. 5,040 KW 1,233,174.63 University of Texas 20,000 KW(a) 630,270.64 State Board of Control 4,050 KW 795,655.37 Ilighland h!all 3,7S0 KW 609,137.16 L.ll.J. Building - State 2.520 KW 560,787.56 Austin State Ilospital 2,700 KW 531,5S2.S6 Texas Ilighway Department 2,340 KW 460,72S.91 (a) Standby contract capacity. jgt / z, IJ10 lsO 13

Existing Facilities Generating Stations. The Electric System currently opera'es three steam generating plants with a total of eleven turbine generators. These power plants are located along the north bank of the Cok>rado Iliver ansi along an off-stream impoundedi mnd, cast of the downtown area of the City. The existing facilities have a total station generating capacity of 1,100,000 KW (kilowatts) consisting of the following: 1 - 20,tHN) KW Turbine Generators (installed 1951 and 195~)) - Seaholm Power Plant 1 - 10jHN) KW Turbine Generator (installed 1958) -Seaholm Power Plant 2 - 100jHH) KW Turbine Generators (installed 1960 and 1961) -IIolly Street Power Plant 1 - 165jHN) KW Turbine Generator (installed 1966) -IIolly Street Power Plant 1 - 325,000 KW Turbine Gei:erator (installed 1970) - Decker Power Station 1 - 190jHN) KW Tmbine Generator (installed 1971) - Holly Street Power Plant 1 - 100fHN) KW Turbine Generator (installed 1977) - Decker Power Station Distribution System. The Electric System is composed of approximately 7,71S miles of distri-bution lines and an undergromul secondary network system serving the business area of the City. This system consists of twenty-four primary feeders with approximately 159,000 Kilovolt Amperes ("KVA") of network transfonners with protectors and a 69 KV (Lilovolts) grid consisting of 81.1 miles of line incorporating thirty substations, aggregating 1,161,000 KVA of transformation. There is currently under comtruction a 13S KV system which, when complete, will encircle the City. The 138 KV system will connect with the Decker Creek Station and, through the Decker Creek Station, with the electric power system of the Lower Colorado Iliver Authority ("LCllA"). At present, 74 8 miles of the 138 KV system have been completed, serving fourteen substations with a total of 911,000 KVA. Interconnections erith Other Systems. The Electric System is interconnected with the LCilA, a hydro-electric and steam system, with whom the City has a power interchange agreement. In addition. the City is a inember of the Texas Interconnected System, which is composed of six major investor owned systems, two major municipal systems and two cooperatives. As a participant in the Texas InterconnectcJ .9 d. the City's Electric System is able to Imy from and sell to other mem-hers of such systern. The diversification of the fuel sources of the member systems increases the potential for economic interchanges among the respective systems. The Electric System will be ahic to sell its power to other members during petiods of excess capacity, and purchase from other members during periods of high demand. This arrangement generally provides for the possibility of maximizing the use of the less expensive fuel sources by all members of the interconnected system, hfajor Comtruction Program In response to the short supply of natural gas as a fuel source for power plant boilers and the high emt of natural gas, the City developed and is currently implementing a generation plan that will lessen the Electric System's dependence on natural gas as a source of boiler fuel by the comtruction of power facilities that will make use of coal (the Fayette Power Project), uranium (the South Texas Project). It is expected that these effmts will result in a significant lessening of the System's dependence on natural gas by the early 1980's and will, at that time, enable the Electric System to limit the operation of existing gas fired facilities to " peaking" capability, therchy establishing solid fuel facilities as the " base load" generating mode of the System. On January 20, 1979 the citizens of Austin approved the horrowing authority of the City in the amount of $S2.100jH)0 for certain capital improvements in fiscal years 1978-79 and 1979-80. The horrowing authority encompasses the financing of transmission, distribution, substation, street-lighting improvements and completion of the comtruction program at the Fayette Power Plant Project. 11 -4 7

                                                                                       \S% \M

In a January 20,1979, referendum, the citizens of Austin declined to authorize a reduction in tim City's participation in the South Texas Project to a level consistent with then existing borrowii.g authority ($161,0(X),000). A subsequent referendmn on April 7,1979, resulted in citizen approval of a continued 16% participation by the City in the South Texas Project. Additional borrowing authority of $215,600,000 was also approved for financing of the plant and the purchase of nuclear fuel. Farfette Potect Project. The Fayette Power Project is a joint power project (50% per participant) undertaken by LCHA and the City. Pursuant to the participation agreement, LCHA was appointed Project hlanager and established a Slanagement Committee composed of two representatives from each participant to direct the development and operation of the projut. 'Ihe project consists of the installation of two 550 hlW generation units utilizing western coal as a fuel source. The location of the Fayette Power Project is approximately S% miles cast of LaGrange, located between LaGrange and Fayetteville in Fayette County. The land has been acquired, conunitments for most of the project equipment have been made, and construction contracts have been awarded. The plant design will utilize a cooling pond for condenser cooling water purposes. A dain has been constructed to impound the cooling water and the adjacent reservoir has been filled. Due to the extended construction period associated with a faci!ity of this magnitude, many of the contracts anticipate escalations in accordann with certain nationalindices. Coal deliveries began in January,1979. Unit No. I and common facilities were cla:sified commer-cial June 10, 1979. Unit No. 2 is identical to Unit No.1 and the completion of its construction will follow that of Unit 1 by one year. hiost of the equipment bids for Unit No.1 provided options for Unit No. 2, which have already been executed. The land purchase and reservoir development were anticipated under Unit No. I thereby reducing the overall costs of Unit No. 2 and making the project economically attractive to the City. The City's port %n of plant cost for both units is anticipated to be $2157300,(NM), with $179,033.325 invested in the projc(t as of June 30.1979. South Texas Project. The South Texae Project is a jointly owned nuclear fueled facility, located in hiatagorda County between Bay City and Palacios. The participants in the project are llouston Lighting & Power, Central Power and Light, City Public Service of San Antonio, and the City. The City and City Public Service are municipal entities. Ilouston Lighting & Power and Central Power and Light are investor owned utilities. The City of Austin entered into the project sub-sequent to bonding authority approved in November of 1973, and became a participant in the project after basic siting, construction, and equipment decisions were made. Pursuant to the participation contract executed by all participants in the Project. Ilouston Lighting & Power was designated as the Project hianager and a hlanagement Committee was established which is com-posed of representatives of each participant. The decision. making authority of the representatives on the hlanagement Conunittee is in direct relation to the dollar amount of their participation in the construction of Project. The construction and eventual operation of the South Texas Facility are subj et to the extensise regulatory requirements of the Nuclear Regulatory Conunission (the "NRC"). A project applica-tion. an enviromnental report and a preliminary safety analysis have been filed with the NRC in accordance with various administrative and statutory requirements. On December 22,1975, the NRC, af ter extensive review of these documents, issued a Construe-tion Permit authori/ing construction of the project, and in August 1978, an application for an operating license was filed. Iloweser, the NHC's review of the application has been suspended by the NRC's Director of Nuclear Reactor Regulation as a result of NHC stalI commitments to investigate the recent incident at the Three 11ile Island nuclear plant in Pennsylvania. See "Eifect of Recent Developments Pertaining to Nuclear Power." The project consists of two 1.250 htW generating units. Austin's participation in the project is 169, which when the project is fully operational will provide approximately 40011W of generating capability. 15 1516 130

The generator for Unit No. I has been set, the condensers installed, the low pressure turbines installed azul many r iajor pieces of e<piipment have been set. The river inke structure has been turned over to llouston Lighting & Power and is umlergoing final tests amijartup. The cooling water reservoir is essentially complete, aml will be suitable for filling any time af:cr September, 1979. The imclear reactor vessel for Unit #1 was set in July ami the placcioent of the four large steam generators will fol!ow shortly. The current project schedule anticipates commercial status of Unit No. I for April 1982 and commercial status of Unit No. 2 for April,1983, imless affected by the matters discussed umler " Effects of llecent Developments Pertaining to Nuclear Power." llrown & lloot, Inc. is Engineer Constructor on the project and currently le approximately .l.200 employees at the project site. Due to the long time frame associated with a project of this type, equipment and construction costs are subject to considerable escalation. Currently, the total project cost is estimated to be

$2JX)7,276JXH), based on cost aml schedule estimates prepared in 1978. The City's dollar portion of that estimated expenditure is $321,1(it.l(W1. The City's expenditure for its portion of the South Texas Project through June 30, 1979, is approximately $150,811.310. Currently, the total project cost is estimated to he $2fX)7,276fMN), an increase of $70S,276JNN) from the $1,299JXX)J)00 estimated cost for the project in August,1977. The estimated cost is predicated on the current comple' ion schedule.

The City of Ilrownsville, Texas has requested, through Central Power & Light Company, par-ticipation in the South Texas Project in the form of an undivided interest in the construction and operation of the two units currently under construction. Subsequent communications with the City of Ilrownsville will indicate more clearly their desires. Austin cannot identify at this time the probability of lirownsville's ent.y into the project or the effect, if any, of their entry. Sources of Fuel Gas uml Oil. The Electric Utility Sys:cm has previously experienced varying degrees of curtail-ment of natural gas. These shortfalls in available gas have been made up by use of on-site fuel oil, and no curtailment to electric customers has been necessary. As is the case with most electric utilities, the prospect of continued fuel availability is not as stable as desired, however, there has been substantial improvement in the City's fuel posture in the last 21 months. Stand.by fuel oil storage capacity has been expanded to approximately 10,000jX)0 gallons, and current fuel oil inventory is lifXX)JHM) gallons. In view of the current and anticipated gas supplies and the market availability of fuel oil, the inventory is deemed to be more than adequate. The current gas supply has improved considerably over 1972,1973 and 1971 supplies, with estimates by the supplier indicating favorable increases over the next twelve months. Certain modifications have been omnpleted to improve the firing characteristics of existing boilers when firing in the fuel oil mode. Additional changes are anticipated to further improve the boiler per-formance under fuel oil firing conditions and an enginecrmg study has been completed relative to the feasibility of converting the larger boilers in the system to full fuel oil firing. No major conversion is anticipated at this time. Fuel oil burning capability was greatly increased with the opnational status of Decker 1 A numbi r of customers of Coastal States Corporation (" Coastal States") and I,o-Vaca Co pora-tion ("Lo-Vaca") have initiated legal action to recover damages from Lo-Vaca resulting from their inability to meet the terms of their long term fixed price natural gas supply contracts. The magni-tude of the claims is very high, and comiderable cifort has been expended to arrive at an acceptable settlement. Lo-Vaca has indicated that in the event a settlement canaat be reached they will initiate some form of hankruptcy proceeding. In the event this occurs it is anticipated that Lo-Vaca will continue to function as a utility and while there might be some transitional disruptions the City will be able te, maintain a fuel supply at least as stabic as it has been in the recent past. Af ajor Coastal States and Lo-Vaca emtomers, and Coastal States Gas Corporation, Coastal States Gas Producing Company and Lo-Vaca, have arrived at a settlement and have sulunitted the agree-ment to the Texas llailroad Commission (the " Commission") for consideration. Public hearings b2 fore the Commission began April 3,1978. A final order with modifications to the agreement was issued August 7,1978. If the modifications are accepted by the settling parties, the order will become final. 16 1516 09

In general, the settlement provides for the permanent separation from Coastal States Corporation of certain gas and other properties, and the formation of a new corporation (Valero Corporation) which is to be totally and permanently independent of Coastal States and any of their officers. The settlement includes the following provisions:

1. The board of directors will be broadened to include an Austin businessman not employed or doing business with the City.

2. A customer trust fund will be established to receise: (i) certain Coastal States conunon stock; (ii) certain Valero Corporation common stock; (iii) certain Valero Corporation preferred stock; and (iv) certain funds accruing imm the gas scarch pmgram.

3. A Gas Search Program will be developed and funded by Coastal States Gas Corporation to dedicate certain new gas at a price discounted below market price, the cash benefits of which are to be distributed to the customers by means of a customer trust fund.

4. Coastal States Cas Corporation will transfer to Valero certain Texas lignite holdings near Austin and the Fayette Power Project. These properties will be available to the City, City Public Service, LCllA, and Cc.. tral Power and Light, at book value if desired.

5. The existing Lo-Vaca rate (5e pe 100() cubic feet) will be maintained throughout the hear-ings; the rate will be raised to 10e per 1000 cubic feet for the : ext twelve months after cettlement.

The fin'd results of the Ilailroad Conunission order cannot be anticipated at this time nor can other actions by various involved regulatory bodies, customers, cred, cs, rate payers or stock-holders, but if concluded in this form it is anticipated that the gas supply availability and the City's overall economic gain will be better than if Lo Vaca were forced into bankrupt. y. Coal. In conjimetion with the development of the Fayette Power Project with LCllA, a decision was made to utili/c low sulphur coal for Units No. I and No. 2 on the basis of economics, availability within the time constraints, and the status of sulphur removal technology. The City has entered into a coal contract with Decker Coal Company for 50,000,000 tons of coal over a twenty-five year term. An additional coal supply contract has been executed with Atlantic llichfield Company for a fif teen year supply in the amount of approximately 27,000,000 tons. Trans-portation for both supplies will be by unit trains. The Decker mine is in the State of Afontana and the Atlantic Ilichfield mine is in Wyoming. The State of Nfontana has imposed an au valorem tax on coal extracted from that state. The rate of this tax varies between 207b to 307b depending upon the quality of the coal extracted. "Ihe City and ten other public and private utility operators and several coal mining entities have in:,tituted an action against the State of Afontana in a Nfontana State Court. 'Ibe Plaintiffs are sceling to declare the Afontana " Coal Severance Tax" unconstitutional based on the contentions that the Act is a discriminatory burden on interstate commerce and an improper attempt at state preemption of federal policy. The Afontana trial court has rendered a decision adverse to the City and the other Plaintiffs. This decision will be appealed to the Afontana Supreme Court. There is some probabili'y that this case will eventually reach the Supreme Court of the United States. Since the imposition of this tax in 1975, Decker Coal Company, the coal company currently responsible for supplying 10076 of the coal utilized by the Electric System in power production, has been paying this tax under protest. A portion of the costs of this tax are passed through the City. The City and I CilA have been actively pursuing access to Texas lignite reserves located on property oum1 by the federal government at Camp Swift appmximately 35 miles from Austin. The area has been core drilled and evaluated. Procurement through the government is extremely difficult but certain legislation simplifying the procedure has been enacted and will help in the potential develo[unent of this resourec. In addition to this sourec, certain lignite holdings belonging to Coastal States wouhl be available to the City through the pmposed Lo-Vaca settlement, if agree-17 1516 14u

ment can be reached. The economics of these holdings have not been evaluated; however, they arc located close to the Fayette Project. Nuclear. The award for the nuclear steam system to Westinghouse anticipated in conjunction with their furnishing the nuclear steam system for the South Texas Project, includes a ten year contract to provide nuclear fuel for the facility. In 1973, Westinghouse announced that it would not be able to fulfill its commi9nents to a number of utilities throughout the United States with respect to nuclear fuel, and claimed that such contracts were no longer valid as a result of their interpre-tation of the " Uniform Commercial Code' The South Texas Project and a number of uher electric utilities in the United States challenged that position in the courts. Following legal action by several Westinghouse customers in a U.S. District Court in Virginia, a set'lement was reached in October,1978, between the South Texas Project and Westinghouse. Estimates iedicate that the settlement will provide for the recovery of at least 76% of the value of the participant's claim againr+ Westinghouse. This is based on the settlement pmvisions providing to the participants uranium, equipment and services valued in excess of $300,000.000. The settlement will provide in excess of 8 million potmds of uranium to the project. In addition, a contract for 5 million pounds of uranium has been executed with Chevron Corporation. These supplies of uranium will provide over a 10 year supply for the pmject. Effect of Hecent Developments Pertaining to Nuclear Power The NHC's Director of Nuclear Reactor Regulation has suspended the review of nine pending applications for operating licenses, including the application of the South Texas Project, until January 1980 because of the manpower demands on the NRC staff in connection with the investi-gation of the recent incident at the Three Nfile Island Nuclear Station near Harrisburg, Pennsylvania. The Director has advised the affected utilities that such action was taken subject to future con-gressional action providing for additional personnel. It cannot now be predicted how much, if any, delay may be experienced or what additional costs, if any, may result from such suspension. As a result of the incident at the Three Ntile Island, which resulted in the release of above-normal levels of radiation to the envimnment and severe damage to the reactor core, various governmental bodies are studying a bmad range of issues relating to the design, construction and operation of nuclear electric generating facilities, particularly those of the design and manufacture used at Three Afile Island. The Nuclear Regulatory Commission has established a task force to conduct a generie review of feedwater transients in nuclear reactors 2f the design and manufacture used at Three Afile Island. In the United States Congress, legislative pmposals have ben introduced and hearings are being held concerning aspects of nuclear electric generation. Other agencies of government are conducting. -l may be expected to conduct in the future, other reviews relating to nuclear electric generation. The City cannot predict the findings, recommendations and other results of these or any future studies and hearings; whether any recommended legislation will be adopted; or whether governmental regulations affecting nuclear electric generation will be significantly modified. The City cannot predict the effect of any of the foregoing on its Electric Utility System or the South Texas Pmject. The Pmject Nianager for the South Texas Project, Ilouston Lighting & Power Company, has formed a team to a review of the implications of the information learned fmm the Three Niile Island incident on the design of the nuclear steam system for the South Texas Project. This team is composed of representatives of the manufacturer 4 the nuclear steam supply system, engineering representatives of the Engineer Constructoi and representatives of the Pmject Af anager. In addition, the Project hlanager has dispatched a team of technical personnel, composed of permane plant personnel currently under training. to the Three N1ile Island installation to review the damage, to assist the ovmer and to enhance their training. The Project hianager has under development an updated appraisal of the STP budget and schedule. The assimilation of detailed data components, which will form the basis of this new appraisal, is nearing completion. While no prediction can be made at this time, such new appraisal g may include increased construction cost estimates and result in delayed in-service date for STP Unit #1. 1516 141

Ilegulatory Statters The Railroad Commission of Texas, on January 5,1973, issued an order rectoiring every natural gas utility subject to its jurisdiction to file a curtailment program with the Commission by 1%ruary 12, 1973. Such order set forth certain priorities, similar to those contained within typical Federal Power Commission curtailment orders, for deliveries of natural gas until the Commission conhl approve the curtailment program of each utility. At various times, public hearings have been con-ducted to detennine priorities for the LoNaca system. Ily interim order dated June 21,1973, natural gas to be used for the generation of electricity to meet residential, hospital, school, church and other human needs consumption was given a priority second only to direct usage of natural gas for the same purposes. Such favorable ranking, ahead of commercial and industrial usage, has been con-tinued to date. The Public Utility Cc anission of Texas (the *Conunission") was created in 197~) by the Texas Legislature to regulate certain electric utility rates, operations, aml services within the State. The City has original jurisdiction over the electric rates, operations and services of its own system within its boundaries. 'Ihe Attorney General of Texas has rendered an opinion that the Conuniwion has no appellate jurisdiction over such rates. The respective original and appellate jurisdictions of the City atul the Conunission with respect to rates, operations aml services of the City's electric system outside of its boundaries is not elcar at this time, but the Statute appears to give the Com-mission no such original jurisdiction, and appellate jurisdiction only with respect to retail sales and not sales between one City and another. The Statute provides that after September 1,1977, the City may surrender to the Conunission jurisdiction over utility rates, operations and services, but it is not elcar whether this includes the right to surrender jurisdiction over its own municipal system. The Texas Public Utility Conunission has previously taken testimony relating to a bifurca-tion in the Texas Interconnected System resulting from Central and Southwest Corporation actions relating to participation in interstate commerce. The Texas Public Util:ty Commission has directed the reconnection of the Texas Int"rconnected System as a result of testimony. The system has been restored to its previous physical arrangement. It appears Central and Southwest will pursue its interstate objectives through various other administrative and legal forums. On February 1,1979, a U.S. District Court in Dallas ruled that the policies of several Texas utilities against connecting with any other utility that transmits power across state lines are not in violation of federal anti-trust laws. There is no indication whether an appeal of this ruling will be made. Ilouston Lighting & Power, acting in its capacity as project manager for the South Texas Project, filed in August,1978, the application for an Operating License. NRC will conduct an anti-trust hearing in conjunction with the Operating License hearing. Three of the five Federal Acts comprisine the National Energy Act aficet. electric utilitics directly. They are: The National Energy Conservation Policy Act, Power Plant and Industrial Fuel Use Act, and the Public Utilities llegulatory Policy Act. These acts presently are in the administrative rule making stage and their direct impact on the City's Electric Utility System will depend on the final nature of the rules adopted by the various administrative agencies relating to the specific acts. On the basis of current knowledge and interpretation of the acts and proposed rule making, it appears that Austin will be able to comply with the rc<luirements of the various acts and rules and regulations without unusual adverse impact except tl.e additional cost and expense of additional stafling and administrative costs associated with the rettuirements of the various acts. Ilates In 1976, the hiayor's Electric Rate Commission, an appointed citizens group, conducted a study of electric rates and made several reconunendations for adjustments in the rate structure and the fuel cost adjustment associated with each rate. The City Council employed the firm of l'ouche Ross & 19 1516 142

Company (" Touche lloss") to review the recommended rate structure and the revenue requirements and to comment on the economic impact of the reconunendations. Touche lloss reported on Decem-g ber 14,1970 that it was unable to support the proposed rates of the citizen group or the current rates. The revenue requirements study was completed and an interim rate adjustment was approved by the City Council effective January 1,1977 to equalize projected revenue for the 1976-77 fiscal year and revenue requirements for the same period. Touche lloss & Company also rect nmended a complete cost of service, long term revenue require-ment and rate design study for implementation of a new tariff structure by October 1,1977, and was retained for such purpose. In December,1977, a final repint was presented including the design of a new rate structure. Af ter a public hearing, the City Council adopted the rates to become effective April 1,1978. A Itate hianage nent Program has been established as recommendel by Touche Iloss. The budget reconunendation, not yet approved by the City Council, calls for revenue from customer sales increase of approximately 8.8% for the 1979-80 fiscal year. Certain Statistical Information Concerning the Electric System There follows statistical information prepared by the Electric System and the City Finance Department regarding demand requirements, electric bills, and a projection of supply capacity as related to generating fuel sources. The data concerning use under the heading " Generation and Use Data" reflects certain adjustments to account for the fact that customer billings are made on a staggered cyclical basis, whereas the data on generation is on an actual fiscal year basis. In add! tion, the use data has been adjusted to reflect the Electric System's estimates of KWil in the " Loss and Unaccounted For" category. O O co \s\6 W

0 00 0 0 0 0 0, 0 0 8 4 0 8 9 5 1 5 8 1 9 0 0 I 0 0, 0, 0, 0, S, 0 3 9, 6 66,2 8, 5 9 8, 9 8, 0 0 0 I 1 0, 5, 0, 1, 0, 0, W S 4 4 9 8 1 4 8 4 06 95 9 4 6 0 5 1 1 3 3 4 3 8 0 4, 3, 7, 3, 4, 8, 1 1, 5 3 8, 8 6 7, 6, 4 6 4 K 9 24 2 9 7, 6, 4, 7, 3, 4, 6 7-3 1 8 4 3 1 0 1 1 3 1 8 1 3 2 5 7 4 8 5 91 91 9 3 0 3- 6, 1 7, 1 6, 1, 3: 4, 5, 1 6, 2 2 2 1 1 2 2 2 9 s e r ge 0 7 37 3 2 0 2 4 5 2 am 3, 5, 8 9, 9 3 2 2 3 0 1 7 3, r o et vs 0 1 1 2 0 1 1 Au 1 1 1 1 C 0 00 0 00 0 3 6 64 8 3 70 9 9 7 5 1 9 0 0 0 0 0 0 7 0 9 1 8 0 0 0, 0, 0, 0, 0, 3, 9, 4, 5, 9, 0, 0, 4, 4, 9, 0, 0, I 0 1 3 8 4 4 9 I 5 2 1 0 G 4, 3 7 1 5 4 7 2 3 2 7 7 0 8 3 1 W 2, 0, 3, 8, 0, 1 5, 8 5, 3, 1, 7 0, 7 6, 3 8, 0 8, 8 S 5, 0, 6 5 K 4 2 0 1 2 9 1 8 02 8 2 1 5 6 1 7- 3 S3 2 63 6 8 9 3 2 1 5 5 2 3 6 7, 1, 7, 4, 4 5, 2 7, 0 2 3 2 1 2 2 2 3-s 9 e r 7 ge 1 3 0 2 2 3 7 4 1 am 8, 3 1 0 3 3 3 1 1 9 3, ro 0, 9, 3 et 3 2 5 6 vs 0 1- 1 1 AuC 1 1 1 t a a 0 00 0 0 0 0 7 7 0 00 00 0 0 7 3 0 0 D 0 0, 0 00, 0 5 6 1 0 0 0 1 8 0 0 0, 0, 0, 5, 0, 1, 0, 0, 0, 0, 0, 1, 8, 0, 0, e s d e I I 5 3 3 5 8 5 6 1 2 5 1 7 0 00 00 0 0 7 4 2 1 7 1 0 1 0 0 0 1 5 7 1 U d n W 6, 9, 5, 4, 1, 7, 3, 0, 4, 0, 3, 7, 0, 7, 4, 1, 7 E K 0 2 4 5 4 1 1 8 0 8 8 8 4 0 6 1 1 d 6 1 4 3 24 1 0 6 7 1 2 5 5 7 3 1 n r a 7 8, 2 8, 0, 4, 4, 5, 2 8, a e 0 2 3 2 1 1 2 2 2 Y 3-n s o l a 9 er ge 4 6 0 2 0 4 6 0 6 i t c am 0 7 0, 8 1 3 3 4 2 8 a s r o 5, 5, 3 1 0, r i r e t vs 8 21 0 1 e 0 2 2 n Au C 1 1 1 e G 0 00 0 0 0 0 0 0, 0 0 5 9 5 6 4 2 1 0 8 4 5 9 8 2 0 0 0, 0, 0, 0, 1, S, 0, 9, 0, - 8 8 9 0 8, 0 0, 0 3 1, 6, 1, 0, l 8 3 1 8 6 0 7 1 O 2 2 1 0 8 4 i 6 6 3 8 8, 4 1 7 8 2 S 0 5 4 0 4 7 W 7, 3, 1, 2, 5, 2, 7, 0, 4, 7, 2, 5, 4, 5, 7 7 K 4 7 1 2 6 91 6 1 6 7 7 2 9 7 4 1 6 7- 9 7 9 3 2 2 5 7 5 6 1 7 0 4 4, 4 0, 0, 0 6, 7, 8, 2 0, 3- 3 3 3 1 1 2 2 3 9 s er 76 5 1 ge 2 2 3 2 7 0 7 3 3 3 3 am r 4, 9, 3, 3 - 3 1 8, eo 3 31 7 7 vst 2 3 3 Au 1 1 1 C 0 0 0 00 0 7 5 0 5 0 0 00 3 5 0 0 0 0 0 0 0 6 8 5 7 1 8 6 0 0 0, 0, 4 7 0, 0, 8 0, 3 6, 8, 7, 9, 8, - 7, 4, 0, 0, 0, 0, I 1 1 1 3 5 2 8 6 9 4 3 3 I 2 1 0, 7 3 2, 3 0 5 5 2 3 5 3 4 8 3 6 W 6, 8, 6, 7, 0, 7, 1, 0, 1, 0, 9, 6, 6, 7 S 7- K 6 91 5 32 2 5 2 7 3 4 7 0 4 7 2 5 2, 4 7 6, 4 5 5 3 8 2 5 7 6 2 2 5 0 2, 1, 7, 8, 0, 2 2, 3- 3 3 3 1 1 2 3 3 9 s er ge 5 9 4 2 33 5 9 8 2 5 3 2 1 am r 2 3, 8, 1, 3 - 3 1 6, e s t os 1 5 7 7 1 4 4 Au 3 1 1 1 C R O A F R T r C o d L N A s F n U R t n a a d O C C : g s e r de r m e o rm C L ) n l o m E s U t n e t a F A ot s l i e i t s o t r s s u D ic h r e n d o T de n T WK v r e ig tn e S h c a p e U so oc t n WK e ev r s ( e c L m D Y C c C a T C I e y S i v ic n s HETr U t ie I v S e r e t r l y y k I I c e Wl K e i o U s l ia S e e r a b p u t i N S o a e WR P t l t K I L D T y t n la e S c D e P n U i t UL Ti dan s T A

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ANALYSIS OF ELECTRIC BILLS Fiscal Year Ended 9-30-78 9-30-77 9-30-76 0-30-75 9-30-74 All Customers Average .hfonthly KWII Per Customer 1635 1731 1773 ISOS 1869 Average Alunthly Hill Per Customer $50.55 $77.31 $78.78 $61.69 $42.89 Average Afonthly Revenue Per KWil $0.01926 $0.01163 $0.01441 $0.03112 $0.02295 Residential Customers ( AE and RS) Average h!anthly KWil Per Customer 733 735 773 7Ss 915 Average Afonthly Hill Per Customer $38.21 $38.5S $36.80 $30.16 $24.05 Average hionthly Revenue Per KWII $0.05213 $0.0523S $0.01763 $0.03527 $0.02623 General Customers Average Afonthly KWII Per Customer 9118 9500 9730 9919 9445 Average Afonthly Bill Per Customer $ 131.89 $ 101.03 $390.25 $315.S2 $199.0S Average Afonthly Revenue Per KWil $0.01736 $0.010S9 $0.01011 $0.03184 $0.0210s PROJECTED USE OF FUEL BY SOURCE The table on page 21 illustrates the projected KWII to the Electric System and the future fuel source distribution and reflects the Electric System's generation plan to lessen dependence on natural gas and diversify fuel sources with the introduction of coal capacity in 1979 and nuclear power om the South Texas Project, scheduled for completion in 19S2. h PilOCEEDS

    $ 17,000,00() Electric System Nuclear Revenue Bonds will be used for progress payments for the South Texas Project. $10.000,000 Electric System Fayette Revenue Bonds will be used for progress payments on the coal plant, coal stockpile, and transmission from Fayette Plant. $3,000,000 Electric System llevenue Bonds will be used for ongoing transmission and distribution projects.

O 22 1516 i45

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0 N, 1979 1980 1981 1982 1983 1984 1985 1906 1987 1988 1989 1990 YEAR O O O

MONTIILY ELECTRIC UTILITY RATES Approved by the Austin City Council on January 19, 1978; cifective with bills rendered on or af ter April 1,1978. BE IT ORDAINED BY TIIE CITY COUNCIL OF TIIE CITY OF AUSTIN: PART 1. That the monthly rates and charges for sales made and services rendered by any part of the Electric Light and Power Works and System of the City of Austin be, and the same are hereby, established, levied, fixed and prescribed as follows: Residential Type Service Multiple Fuels Application: This rate is applicable to all electric service required by single family residential customers in single-family dwellings, mobile homes, town houses or individually metered apartment units when that electricity provided by the City of Austin is used in conjunction with other forms of energy. This rate is applicable when a portion of a residence or household unit is used for nonresidential ptwposes only as defined by subsection 45-10.l(i) of the Austin City Code. This rate is further applicable to any church, synagogue or other public place which is used for the purpose of conducting group religious worship senices. This rate is not applicable for senice to any dormitory, school, lodge, gynmasium, meeting hall or any other indoor or outdoor facility which is not used by the public for group religious worship senices. Electric senice of one standard character will be delivered to one point on customer's premises and measured through one meter. Character of Sercice: Alternating current, 60 cycles, single phase, (or three phase) service in accordance whh the Installation llules and Standards for Electric Service prescribed by the City of Austin from ti.ne to time. Rate: Billing hionths of Billing hionths of November through April hfav through October Customer Charge $3.00 $3.00 Energy Charge

72e per KWII all KWII

72c per KWII all KWII Capacity Charge NONE 2.5 per KWII first 500 KWII 1.375c per KWII all addi-tional KWII
Plus an adjustment for fuel cost calculated according to the formula set forth in Part 2 of this ordinance.

Iiesidential Type Service Single Fuel Application: This rate is applicable to all electric service required by single family residential customers in single-family dwellings, mobile homes, town houses or individually metered apartment units when that electricity provided by tk 7ty of Austin is the only source of energy used on the premises. 25 1516 142

This rate is applicable when a portion of a residence or household unit is used for ron-residential purposes only as dcIined by subsection 15-10.l(i) of the Austin City Code. g This rate is further applicable to any church, synagogue or other public place which is used for the purpose of conducting group religious worship senices. This rate is not applicable for service to any dormitory, school, lodge, gymnasium, meeting hall or any other indoor or outdoor facility which is not used by the public for group religious worship senices. Individually metered apartment units must contain an individual air conditioning system, heating system and water heater which serves only that apartment. A gas meter, butane tank or other fixed fuel source availabic to supply the customer's premises would disqualify the residence from this rate until such source is removed. Use of a portable gas supply for use only with gas grills or gas started fireplaces would not disqualify a customer from this rate. Electric senice of one standard character is delivered to one point of senice on the customer's premises and is measured through one meter. Character of Serrice: Alternating current, 60 cycles, single phase, (or three phase) service in accordance with the Installation llules and Standards for Electric Service prescribed by the City of Austin from time to time. liate . Ililling Nfonths of Ililling %fonths of Nosemlwr through April Nfay through Ortolwr Customer Charge $350 $3.50 Energy Charge

66e per KWil all KWil

                                                                    *Riv per KWil all KWil Capacity Charge           NONE                               2.5e per KWil first 500 KWII 1.275e per KWII all additional KWII

Plus an adjustment for fuel cost calculated according to the fornmla set forth in Part 2 of this ordinance.

Cencral Service Multiple Fuels Application: This rate is applicable to all electric service required by any customer to whom no other specific rate applies and when the electricity provided by the City of Austin is used in conjunction with other forms of energy. Electric service of one standard character will be delivered to one point of service on the customer's premises and is incasured through one meter. Character of Serrice: Alternating current, 60 cycles, single phase or three phase in accordance with the lustallation llules and Standards for Electric Service prescribed by the City of Austin from time to time. liate: Applicable to a customer whose electric service meets or exceeds 30 kilowatts per month for any two months within the most recent six summer billing months or as determined by the City of Austin. This rate shall be applied for a term of not less than one year (twelve months). Ililling Nfonths of Ililling 5fonths of Nmemler through April hfay through Octoler Customer Charge "$ l.50 "$ 1.50 Energy Charge 'l.2e per KWil all KWil *l.2e per KWII all KWII Capacity Charge 53.22 per Kiv all KW $5.78 per KW first 30 KW

                                                                   $3.95 per KW all additional KW g

26 1516 q,

The kilowatt (KW) for the current billing month shall be the maximmn indicated or recorded by metering erjuipment installed by the City of Austin. When the power factor is less than S5%, kilowatt (KW) shall be determined by multiphing the indicated KW by S5% and dividing by such lower peak power factor. Rate: Applicabic to a customer whose electric service does not meet or exceed 30 kilowatts per month for any two months within the most recent six sununer billing months or as determined by the City of Austin. Billing Nfonths of Billing Afonths of Nosember through April Afay through October Customer Char ge ' $ 1.50 '$ 1.50 Energy Charge 'l.2e per KWil all KWII *l.2e per KWil all KWII Capacity Charge NONE 2.5e per KWII first IJXX) KWII 1.55c per KWII all additional KWII

Plus an adjustment for fuel cost calculated according to the formula set forth in Part 2 of this ordinance.

 " Plus an additional $15.00 per month for custoiners whose KWII billed in any month within the last 12 months exceeded 10,000 KWII.

General Senice Single Fuel Appliention: This rate is applicable to all cicetric service rc<piired by any customer to whom no other specific rate applies and where the electricity provided by the City of Austin is the only source of energy used on the premises. The primary use of this energy nmst be for space 'omfort conditioning. Electric service of one standard character will be delivered to one point of service on the customer's premises and is measured through one meter. Character of Serciec: Alternating cu rent, 60 cycles, single phase or three phase in accordance with the Installation Rules and Standards fo. Electric Service prescribed by the City of Austin from time to time. Rate: Applicable to a customer whose (lectric service m(cts or exceeds 30 kilowatts per month for any two months within the most recent six stumner hilling months or as determined by the City of Austin. This rate shall be applied for a term of not less than one year (twelve months). Billing Afonths of Billing 5fonths of Nmember through April Afay through October Customer Charge " $ 6.00 '5000 Energy Charge *l.2e per KWil all KWII 'l.2e per KWII all KWII Capacity Charge S2.0s per KW all KW $6.92 per KW first 30 KW S3.S6 per KW all additional KW The kilowatt (KW) for the current billing month shall be the maxinnun indicated or recorded by metering equipirent installed by the City of Austin. When the power factor is less than S5Tc, kilowatt (KW) shal be determined by multiplying the indicated KW by 85% and dividing by such lower peak power f .ctor. Rate: ApplicaDie to a customer whose electric service does not meet or exceed 30 kilowatts per month for any two months within the most recent siv summer billing months or as determined by the City of Austin. 27 bl

Billing Months of Billing hionths of November through April May through October Custoraer Charge "$6.00 "$6.00 Energy Charge *l.2e per KWil all KWil *l.2e per KWil all KWII Capacity Charge NONE 2.5e per KWII first 1,000 KWII 1.63e per KWII all additional KWII

Plus an adjustment for fuel cost calculated according to the formula set forth in Part 2 of th;s ordinance.

" Plus an additional $15.X) per month for customers whose KWil billed in any month within the last 12 months excee<.ed 10,000 KWil.

Primary S.1.vice Multiple Fuels Application: This rate is applicable to all electric service required by any customer who receives service at 12,500 volts or higher and whose electric service does not meet or exceed 3,000 kilowatts for any two months within the previous twelve months. This customer shall furnish, install, own, maintain and operate all facilities and equipment on the customer's side of the point of delivery. The electric scivice provided by the City of Austin is used in conjunction with other forms of energy. Electric service of one standard character will be delivered to one point on the customer's g premises and measured through one meter. W Character of Sc.eice Alternating current, 60 cycles, three phase 12,500 volts or higher in accordance with the Installation Hules and Scandards for Electric Service prescribed by the City of Austin from time to time. Rate: ' Eilling Months of Hilling Afonths of November through April May through October Customer Charge $121.00 $121.00 Energy Charge 'l.152c per KWil all KWII *1.152e per KWII all KWII Capacity Charge $3.22 per KW all KW $5.78 per KW first 30 KW

                                                                $3.95 per KW all additional KW The kilowatt (KW) for the current billing month shall be the maximum indicated or recorded by metering equipment imialled by the City of Austin. When the power factor is less than S570, kilowatt (KW) shall be determined by multiplying the indicated KW by 857e and O.MS.g by such lower peak power factor.

Plus an adjustment for fuel cost calculated according to the formula set forth in Part 2 of this ordinance.

Primary Service Single Fuel Application: This rate is applicable to all electric service required by any customer who receives service at 12,500 volts or higher and whose electric service does not meet or exceed 3,000 kilowatts for any two months within the previous twelve months. 28 1516 151

The electric service provided by the City of Austin must be the only source of energy used on the premises. This customer shall furnish, install, own, nnintain and operate all facilities and equipment on the customer's side of the point of delivery. Electric senice of one standard character will be delivered to one point on the customer's premises and measured through one meter. Character of Scrcice: Alternating current, 60 cycles, three phase,12,500 volts or higher in accordance with the Installation Rules and Standards for Electric Senice prescribed by the City of Austin from time to time. Bate: Billing 5fonths of Billing Afonths of November through April Af ay through October Customer Charge $121.00 $121.00 Energy Charge 'l.152e pt < .Wil all KWil *1.152c per KWil all KWil Capacity Charge $2.0S per KW all KW $6.92 per KW first 30 KW

                                                                 $3.S6 per KW all additional KW The kilowatt (KW) for the current billing month shall be the maximum :ndicated or recorded by metering equipment installed by the City of Austin. When the power factor is less than 857e, kilowatt (KW) shall be determined by multiplying the indicated KW by 85Te and dividing by such lower peak pewer factor.

Plus an adjustment for fuel cost calculated according to the formula set forth in Part 2 of this ord:uance.

Large Primary Service Application: This rate is applicable to all electric service required by any customer who receives service at 12.500 volts or higher and whose electric senice meets or execeds 3,000 kilowatts for any two months within the previous twelve months. The customer shall furnish, install, own, maintain and operate all facilities and equipment on the customer's side of the point of delivery. This rate shall be applied for a term of not less than one year (twelve months). Electric service of one standard character will be delivered to one point of senice on the customer's premises and is measured through one meter. Character of Service: Alternating current, 60 cycles, three phase 12,500 volts or higher in accordance with the Installation Rules and Standards for Electric Senice prescribed by the City of Austin from time to time. Rate: Billing Afonths of Billing Afonths of Nmember through April Afay through October Customer Charge "$121.00 " S121.00 Energy Charge 'l.15e per KWil all KWil 'l.15e per KWII all KWII Capacity Charge $2.50 per KW all KW $3.50 per KW first 3,000 KW

                                                                $2.10 per KW all additional KW o
                                                      ~9 1516 152

The kilowatt (KW) for the current billing month shall be the maximum indicated or recorded by metering equipment installed by the City of Austin. When the power factor is less than S576, kilowatt (KW) shall be determined by multiplying the indicated KW by S57b and dividing by such lower peak power factor.

Plus an adjustment for fue! cost calculated according to the formula set forth in Part 2 of this ordinance.

Plus an additional $200.(H) per month will be charged for customers whose KWII in any month of the last 12 months exe.mded 13xX)JYX) KWil.

Water and Wastewater Application: This rate is applicable to all electric service required for the operation of water purnping and sewage disposal systems owned, operated and maintained by the City of Austin. Character of Serrice: Alternating current, G) cycles, single phase or three phase, in accordance with the Installation llules and Standar is for Electric Service prescribed by the City of Austin from time to time. llate: Billing Stonths of Billing Afonths of Nosemtwr through April 5 fay through Octoler Customer Charge $23.(X) per .\leter $25.(X) per .\leter Energy Charge *

                                             .60e per KWII all KWil

G)c per KWil all KWII Capacity Charge NONE 2.50 per KWII first 1,(X)0 KWII 1.Ge per KWII all additional KWil
Plus an adjustment for fuel cost calculated according to the formula set forth in Part 2 of this ordinance.

h Street I.ighting and Trafile Signals Appli, etion: This rate is applicable to all electric service for the ilhnnination and operation of traffic 5 gnals on all dedicated public streets, highways and expressways or thoroughfares within the city ! mits of Austin operated and maintained by the City of Austin. Cla racter of Scrrice: Alternating current,60 cycles, single phase. llate: Billing Afonths of Billing 5fonths of November through April 5fav through October Customer Charge $12S,667.(X) $128,667.00 Energy Charge

ASc per KWII all KWII
ASv per KWII all KWII Capacity Charge NONE .62c per KWil all KWII
Plus an adjustment for fuel cost calculated according to the formula set forth in Part 2 of this ordinance.

Other City Application: This rate is applicable to all electric service required for municipal buildings, parks and other municipally owned and operated establishments within the City of Austin. Character of Serrice: Alternating current, G) cycles, single phase or three phase in accordance with Installation llules and Standards for Electric Service prescribed by the City of Austin from time to time. a Y O

Rate: Billing 5fonths of Billing %fonths of Nosernher through April Afay th ough October Customer Charge $10.00 per meter $10.00 per meter Energy Charge *

                                        .60c per IGVII all KWII            *
                                                                              .60c per KWII all KWII Capacity Charge                  NONE                                 1.16e per KWII all KWII

Plus an adjustment for fuel cost calculated according to the formula set forth in Part 2 of this ordinance.

Nightwatchman Application: Applicable to private outdoor overhead lighting installed, owned, operated, and maintained by the City of Austin. Rate: Billing 5fonths of Billing Nfonths of Novernber through April hf av through October Customer Charge " $3.30 per Light " $',.30 per Light Energy Charge *

                                        .4Sc per KWII all KWII                 .I se per KWII all KWII Demand Charge                    NONE                                 .62e per KWII all KWII

Plus an adjustment fcr fuel cost calculated according to the formula set forth in Part 2 of this onlinance.

    " Plus $1.50 per month, per pole, for all poles.

PART 2. The fuel clause adjustment provided for in this ordinance sijall be calculated according to the following fonmila: Fuel Charge Application: Applicable to all City of Austin electric rates for which a fuel charge is prescribed. Fuct Charge Formula: The fuel charge can be expressed by the following formula: Fuel Cost /KWII = (F) + (E- A)

                                                                ~S   S Where F is the estimated cost of fuels, including refunds and the cost or revenues of purchased or sold power for the calendar month S is the estimated sales of KWII for the month E is the actual cost of fuels, including refunds and the cost or revenues of purchased or sohl electrical energy for the second preceding calendar month A is the actual cost recovered in the second preceding calendar month.

The fuel charge formula is intended to recover the actual cost of fuel adjusted for any purchase or sale of electrical energy. 'Ihe intent is to avoid any over-or under-recovery of costs associated with fuel. PART 3. Bills computed under this ordinance are due when rendered. Each bill shall have se" forth thereon a date falling between twenty-seven and twenty-nine days after the date of Le bill. Bills paid after the specified date shall have added thereto a per.alty equal to five percent (57c) of the bill. Provided, however, this provision shall become effective on all bills rendered after April 1,1978. at 1516 154

PAllT 4. The rates and charges provided for in this ordinance shall become effective on all bills rendered on or after April 1,1978. PAllT 5. Service rendered under this rate ordinance shall be provided pursuant to rules and regulations prescribed by the City of Austin from time to time. PAllT 6. Any accum ilated balance remaining in the Electric Utility Account "IlECOVEllAlli E FUEI, COSTS' after the passage of this ordinance shall be recovered from future revenues of the Electric Utility System prior to September 30,1983, by: (1) A surcharge on customer billings from October 1,1979, to September 30,19S3. The surcharge shall be calculated annually at October of the years 1979,1950,19S1 and 1982, and shall be calculated by dividing the accumulated balance of recoverable fuel costs by the projected kilowatt hours to be billed over the remaining menths ending on September 30,1983,and/or, (2) Applying other net revenues to the recoverable fuel cost bahnee. O O 32 r-i g--n 1516

TIIE WATEllWOllRS SYSTEh! Servde Area The City supplies treated water to residential and conuncreial customers throughout the corporate limits of the City. In addition, the City supplies treated water to Travis County Water Control and Impmvement Districts Numbers 10,12, and 14. With respect to the Ci;j's obligations under these contracts, the City is responsible for meter reading, billing and collection functions and is paid a specific charge per customer per month. Ililling is predicated upon the actual cost of services plus 10'lL In addition, the City sells water to two Alunicipal Utility Districts and operctes and maintains the water and sewer lines of the Alunicipal Utility Districts. The water supply contrr 'ts between the City and the various water control and improvement districts are of thirty years duration and were entered into between 1952 and 1958. The City has previously acquired, under the authority of Vernon's Annotated Texas Civil Statutes Article llS2c-1, the Systems and assets of Travis-Williamson Counties Water Control and Improvement District No. I and Travis County Water Control and Improvement Districts Nos. 4, 6, 7, 8, 5, 9,11 and 13. The City has paid off and cancelled the bonded indebtedness of Districts Nos.1, 4, 6, 7 and 8. The City in acquiring the Systems and assets of Districts Nos. 5,9,11 and 13 a.sumed the outstanding and unpaid bonded indebtedness of said Districts. The consideration for t le conveyances made by the Districts to the City is stated in the agreements between the City t ud the Districts which read in part as follows: "The City of Austin hereby assumes and guarantees t le payment of the face value and interest legally required to be paid on all outstanding and i npaid bonded indebtedness of the District upon presentation and surrender when due of all bonds a id interest coupons." The principal and interest on these bonds are being paid from surplus r venues of the City's combined Electric, Waterworks and Sewer System. histing Facilities In 1858, City leaders campaigned successfully for the first Austin Dam across the Colorado Iliver, which was completed early in 1893. Austin has long continued its efforts for an adequate water supply. In 1931, a $4,500,000 loan and grant was obtained from the Public Works Administration to complete the lluchanan Dam as a flood control structure. The Lower Colorado lliver Authority finished the dam which is 150 feet high,11,200 feet long, and the lake it forms is thirty-two miles long and two miles wide, covering 23,000 surface acres. This Dam is the longest multiple arch dam in the world. Since that time, a full-scale stairway of lakes has been created by the building of five additional dams, giving the area 150 miles of lakes. The Tom Afiller Dam is within the City limits, and forms Lake Austin, which covers 3,000 surface acres; hiansfield Dam, the fifth largest masonry dam in the world, impounding Lake Travis, covers 42,000 acres; hlarble Falls Dam creates Lake hlarble Falls which spreads over 900 acres; Lake Lyndan 11. Johnson, hehl by Ahin Wirtz Dam, has an area of 6,300 acres; Iley Inks Dam forms Lake Inks with a surface of 900 acres. The combined aimge capacity of the six lakes is around 3,300,000 acre feet of water, or more than a trillion gallons. Approximately 800,000 acre feet of this is reserved for flood control, but the estimated safe water yield of this source, after the normal flow of the river rolls on down-stream,is in excess of 600 million gallons a day. Of the six dams across the Colorado Iliver. two form major impounding reservoirs for the control of flood water, allowing runoff at a controlled rate. U. S. G. S. records at the Austin gauging station show the following runoff: 195S - 3,i52,000 Acre Feet 1968 - 2,511,000 Acre Feet 1959 - 1,lSI,000 Acre Feet 1969 - 846,900 Acre Feet 1960 - 2,555,0(X) Acre Feet 1970 - 2,052,000 Acre Feet 1961 - 1,812,000 Acre Feet 1971 - 690,600 Acre Feet 33 1516 1V

1962 - 1,023JXX) Acre Feet 1972 - 1,128,000 Acre Feet 1963 - 761200 Acre Feet 1973 - 696,000 Acre Feet 1961 - 529,6(X) Acre Feet 1971 - 1,163,(XX) Acre Feet 1965-IJ)681XX) Acre Feet 1975 - 1,532,300 Acre Feet 1966 - 1,189J)00 Acre Feet 1976 - 500,100 Acre Feet 1967 - 713JXX) Acre Feet 1977 - 958,9(X) Acre Feet Using the twenty years shown, 1958-1977, the average runol' would be 1,329,795 acre feet per year. Using the lowest year,1976, the runoff was 500,100 acre feet, or 163 billion gallons, which is nearly 7 times the unount of water used by the City for the fiscal year ended September 30,1977. This indicates a reliable source of water supply for the present use and for future growth. The waterworks system is also comprised of three water treatment plam. (Green, Davis and Ullrich) having a combined daily capacity of 1023)00,000 gallons and a s'mrt-time additional capacity of 51(XX)JXX) gallons per day. The water treatment phmts also maintm i a ground storage capacity of 29JXX),000 gallons and an c!cvated storage capacity of blf)00JX)0 gallons at any one time. The Waterworks system includes a water distribution system having 1,795 miles of water mains of varying diameters, several distribution storage tanks, 101,659 meter units, 8,915 fire hydrants and fourteen booster pump stations. The City receives its water supply from the Colorado lliver through the three water treatmer.t plants. The Green plant takes water from Town I,ake, which is located near the downtown area of the City. The Davis plant and the Ullrich plant both take water further upstream from Lake Austin. The Green Plant. This plant is located east of Shoal Creek near its junction with the Colorado Iliver and is designed for a nominal capacity of 22 mgd and a safe overload capacity of 33 mgd. An intake station on the river contains four traveling water screens and four raw water pumps. The firm pmnping capacity (i.e., with one of the largest pumps out of service) is 11.3 mgd. Water is purnped through a forty-two inch line to the chemical feed building, where it is split to two h parallel pretreatment units. The Green plant was constructed in 1921 and expanded in 1935,1938, and 1919. N1any of the facilities have outlived their useful life, and extensi'.e modernization is required to restore this plant to a status compaarble to the other two plants. Extensive engineering feasibility studies exploring the most eflicient and economical method to effect this modernization are presently underway. The Dacis Plant. Located at Nfour.t Bonnell lload and West 35th Street, the Davis Plant is rated at a nominal capacity of 60 mgd and an overload capacity of 90 mgd. The plant is of convention d design, with rapid mix hasins, flocculation basins. sedimentation basins, gravity filters, clea; ,vell storage, and raw water and finished water pumpmg stations. The plant was constructed in 1951 and expanded in 1963 and 1975. The Ullrich Plant. The Ullrich nlant is located on a site south of Iled Bud Trail and Forest View Drive. Initial stage construction of the plant, completed in 1969, provides for a nominal capacity of 20 mgd and a safe overload capacity of 30 mgd. Ilydraulic capacity is .10 mgd. The sum of $2,500JNX) has been authorized and appropriated for the construction of a new ptunping station at this plant. The existing plant facilities consist of an intake and raw water pumping station, raw water transmission main, two upflow-solids contact clasiliers, six filters, chlorine disinfection, clear well reservoir, high service pumping station, and sludge handling facilities. Itates The budget reconunendation, not yet approved by the City Council, calls for rate increases of approximately 16% for the 1979-50 fiscal year. g 31 1516 157

AIAJOlt WATER ACCOUNTS Fiscal Year Ending 9-30-78 Consumption (In llundreds Account of Gallons) Revenue University of Texas, Alain Campus 3,060,769 $443,9S6.12 llergstrom Air Force llee 3,830,6s0 200,453.03 Travis County Water Control & Improvement District #10 2,700,030 225,333.43 hiotoro!a, Inc. 2,026,419 107,012.S9 Trasis County Water Control & Improvement District #12 1,235,167 100,515.15 Williamson County hiunicipal Utility District #1 662,192 31,852.97 Travis State School S60,250 49,964.39 Austin State Ilospital 845,5S7 48,120.12 City of Hollingwood 652,935 53,522 01 State lloard of Control 62S,653 34,SS2 97 SANITAllY SEWER AND WASTEWATER SYSTEh! Service Area The City's sanitary sewer and wastewater system (the " Wastewater System") services the cor-porate limits of the City. In addition, the City has entered into contracts to operate and maintain the closed wastewater systems of the Williamson County hiunicipal Utility District Number One and the Lost Creek Alunicipal Utility District. The City also supplies treated water to these utility districts. The Wastewater System cunently senes approximately S7,6S7 customers. Existing Facilities The Wastewater System is composed of three main sewage treatment plants, one sludge storage area, approximately 1,300 miles of sanitary sewer mains and lines, and fifty-five lift stations with a treatment capacity of approximately 60,500,000 gallons per day. The three treatment units are the Walnut Creek Sewage Plant which began operation in 1977, the Govalle Sewage Treatment Plant constructed in 1936, the Williamson Creek Sewage Treatment Plant constructed in 1961 The llornsby Bend Sewage Treatment Plant has been serving as a sludge storage pond area since 1956. The Walnut Creek Sewage Treatment Plant has a capacity of treating 27,000,000 gallons of sewage per day in its primary units and 18,000,000 gallons per day in its secondary units. By utilizing flow aqualization tanks the secondary system is capable of functioning on a constant capacity basis twenty-four hours per day. The Covalle Sewage Treatmen. Plant although initially constructed in 1936 has undergone several expansions and modernizatio, s ed now is rated at a daily capacity of 40,000,000 gallons of sewage per day. The plant uv contact stabilization method of treating waste water. Sludge from this plant is also forwarded to the llornsby Bend Sludge storage area. The Williamson Creek Sewage Treatment Plant has a capacity of approximately 4,500,000 gallons per day and operates primarily as an evaporation facility where wastewater is collected into ponds and allowed to evaporate. After treatment, wastewater is returned to the Colorado River. Sludge from the three treatment h plants is piped to several sludge ponds located in the Hornsby Bend area of the City. These sludge 35 1516 150

ponds have been in use since 1956 and it is now estimated . their useful lives will not extend g beyond four or five additional years. Several feas;bility studies are presently underway with respect W to what metimd of sludge disposal will be :itilized after the llornsby llend storage ponds are no longer usable. The eventual plan chosen by the City will need approval by both the Texas Department of Water llesources and the Federal Environmental Protection Agency. Stormwater is collected in an entirely separate gravity feed storm sewer system and is completely segregated from the sanitary sewer system. The storm sewer system is operated and maintained by the City's Department t f Public Works. Slaintenance and inspee ion of the City's Wastewater System is accom( shed by maintenance personnel employed by the Ci y's Water and Wastewater Department. The City believes that t ie structural condition of the Wastewater System is generally sound. Expenditures for operation, m iintenance and repairs of the fifty-fim lift stations and the 1.300 miles of sewer lines and mains have averaged approximately $2,500,000 per year during the last five fiscal years. Encironmental Considerations. The City is currently in compliance with the Federal Water Polintion Control Act Amendments of 1972 and in addition is in compliance with the rules and regulations of the Texas Department of Water Resources. Itates The budget recommendation, not yet approved by the City Council, calls for rate increases of approximately 16'Jo for the 1979 40 fiscal year. O O 36 a 6 15;

ANALYSIS OF WATER AND SEWER BILLS Fiscal Year Ended 9 30-78(b) 9-30-77( b) ,9-30-76( b ) 9-30-7h( b) 9 30-74 AVERAGE NIONTIILY BILL PER CU5TO.\lER Urban .$ 12.51 $ 12.51 $ 10.14 $ 8.87 $ 8.37 Rural (a) 26.45 17.10 13.87 12.13 9.23 City General Government Departments 106.40 109.66 81.23 71.05 85.67 For Austin Public Schoo's (July and August only) Playground Use 0.00(c) 0.00(c) 182.20 159.36 256.45 City Utility Departments 471.97 4SO.55 33S.81 296.34 303.96 Average .\1onthly Bill-Above Consumers $ 13.53 $ 13.50 $ 11.00 $ 9.62 $ 8.94 Sales to Other Water Utilities 10,916.12 8,650.3S 4,613.36 4,061.37 2,606.72 Average .\1onthly Bill-All Consumers .$ 14.80 $ 13.56 $ 11.33 $ 9.91 $ 9.09 AVERAGE NIONTIILY USAGE IN 1,000 GALLONS Urban 20.68 18.85 17.31 15.14 18.26 Rural (a) 16.93 15.81 14.52 12.70 19.35 City General Government Departments 148.51 166.16 152.53 133.41 186.24 For Austin Public Schools (July and August only) Playground Use 0.00(c) 0.00(c) 337.61 295.29 396.43 City Utility Departments 690.27 817.63 750 5S 656.50 639.93 Average .\lonthly Usage - Above Consumers 21.31 19.74 IS.12 15.85 19.33 Sales to Other Water Utilities 10,117.95 8,061.56 7,3S9.59 6,463.65 12,497.03 Average .Nfonthly Usage - All Consur.. rs 21.70 20.35 1S.63 16.34 19.51 AVERAGE REVENUE PER 1,000 GALLONS Urban $ 0.5S3 $ 0.619 $ 0.670 $ 0.5S6 $ 0.458 Rural (a) 1.272 1.009 1.092 0.955 0.477 City General Government Departments 0.597 0.562 0.609 0.533 0.460 For Austin Public Schools (July and August only) Playground Use 0.00(c) 0.00(c) 0.617 0.5 10 0.195 City Utility Departments 0.569 0.477 0.516 0.451 0.417 Average Revenue - Above Consumers S 0.529 $ 0.611 $ 0.694 $ 0.607 $ 0.462 Sales to Other Water Utilities 0.S99 Of43 0.718 0.628 0.209 Average Revenue- All Consumers .$ 0.568 $ 0.610 $ 0.693 $ 0.000 $ 0.421 (a) Includes cmtomers in City-owned water districts. (b) Reflects water billings only. (c) This category included in urban .md rural.

                                                                                    ]}}            ]   {

37

INFOR51ATION CONCERNING WATER SALES Fiscal Year Ended 9-30-7S 9-30-77 9-30-76 9-30-75 9-30-74 Average Thousand Average Thousand Average Thousand Average Thousand Average T housand Customers Gallons Customers Gallons Customers Gallons Customers Gallons Customers Gallons Thousand Gallons Pumped 24,66 ,174 23,448,383 20,254,376 19,028,05S 21,241,403 Less: Sales to Other Water Utilities 4S5,662 703,451 537,847 517,161 749,825 TIIOUSAND GALLONS TO SYSTE51 24,181,512 22,744,932 19,716,529 18,510,897 20,491,578 WATER SALES: Urban 94,008 22,331,142 86,261 17,426,327 83,115 15,als,037 79,650 14,469,266 77,549 17,000,380 Ilural 8,SS6 1,805,476 9,225 1,444,989 8,137 1,252,594 7,900 1,204,417 6,604 1,534,173 102.894 21,136,618 95.4S6 18,871,316 91,252 16,300,7 l 87,550 15,673,6S3 84,153 18,534,553 City Departments 392 698,598 343 597,818 320 518,2E 311 498,289 293 654,828 Austii. Public Schools - --o--( a ) ( a ) (a) 16 58,041 16 55,809 15 118,930 392 698.593 343 597,818 336 576,062 327 554,098 308 773,758 72 596,391 64 421,018 66 361,961 353,924 305,349 g City Utility Departments . 61 60 TOTAL SALES TO ULTIh1 ATE CONSUNIER 103,358 25,431,607 95,893 19,800,152 91,654 17,241,854 87,941 16,578,705 84,521 19,613,660 Used by Water Department 559,595 2,138,190 1,853,498 149,982 177,761 Loss and Unaccounted For 690,500 716,590 621,177 1,782,210 700,157 TIIOUSAND GALLONS TO SYSTEAt 21,181,512 22,744,932 19,716,529 18,510,89' 20,491,578 ~ hiaximum Daily Consumption _ Thousand Gallons 143,044 129,032 102,152 95,677 124,665 Os Average Daily Consumption - Thousand Gallons 67,446 64,242 55,329 52,132 58,195 (a) This category incl .ded in urban and rural. O O O

Af0NTIILY WATER AND SEWER RATES Approved by the Austin City Council on January 19,1978; effective with bills rendered on or af ter April 1,1978. BE IT OHDAINED BY TIIE CITY COUNCIL OF TIIE CITY OF AUSTIN: PART 1. That the monthly rates and charges for st.les made or senices rendered by the Water System and the Wastewater System of the City of Austin are hereby established, levied, fixed and prescribed as follows: A. Water Rates- Application: These rates are applicable to all sales or senice of water within and outside the corporate limits of the City of Austin. Rate per 1.000 gallons Inside Outside Afonthly Water Use City City gallons S $ First 2,000 Afinimum Charge Next 28,000 0.74 1.11 Next 970,000 0.61 .91 All over 1,000,000 0.51 .81 B. Water- 3finimum Afonthly Charge - Application: These rates are applicable to all sales or senice for the first 2,000 gallons or less monthly. Afinimum 3fonthly Charge: For the first 2,000 gallons or less monthly. Inside Outside hieter Size City City inches 3 $

                  %                                    2.52                             3.78
                  %                                    2.77                             4.16 1                                     3.65                              5.48 1%                                     4.03                             6.05 1%                                    4.79                              7.19 2                                      7.06                            10.59 3                                    22.68                              34.02 4                                    27.72                              41.58 6                                    42.84                              64.26 8 or larger                          57.96                              S6.94 C. Water- Afonthly Standby or Ready-to-Scree Charge- Application: This charge is applicable to each owner of property which has water senice available to his property by virtue of the existence of a meter or other facilities through which the pmperty can be served. This charge shall apply even though the meter may be turned off and even though no water was used during the month.

This charge shall not apply if the owner of the property or a water customer on the owner's property is billed under the minimum monthly charge for water senice as provided for herein. 39 1516 102

Morthly Standby or Ready-to-Scree Charge: Inside Outside hfeter Sire City Cit y inches $ $

                 %                                 2.52                                3.7S
                 %                                 2.77                                4.16 1                                   3.63                                5.4s 1%                                  4.03                                6.03 1%                                  4.79                                7.19 2                                   7.06                               10.59 3                                  22.6s                               34.02 4                                  27.72                               41.58 6-                                 42M                                 6126 8 or larger                        57.06                               86.9J D. Private Fire Protection Charges- Application: Charges on an annual basis for private fire protection service based on the size of the service are as follows:

Prisate Fire Protection Charges: Annual Charge Sire of Inside Outside Service City City inche. $ $ 4 46.99 71.12 6 104.14 156.12 8 IS5.42 278.13 g 10 or over 259.56 434.34 W (Sections E and F amended to the following on 51ay 25, IJS) E, in-City - Wastetrater Screice Charges - Application: These rates are applicable (1) to all customers within the corporate limits of the City of Austin whose premises are connected to the wastewater sewer service of the City of Austin and who have metered water connections, and (2) to all water customers whose premises are not connected to the wastewater sewer service of the City of Austin if wastewater service has been made available to the customer for a period of time exceeding three years. Afonthly Water Use gallons First 2,000 hiinimum charge $2.90 per month Next 2S,000 @ $0.72 per 1,000 gallons Next 970,000 @. $0.01 per 1,000 gallons All over 1,000,000 @: $0.36 per 1,000 gallons F, in-City - Wastescatcr Monthly Standby Charge or Ready-to-Serce Charge - Application: This charge is applicable (1) to meh owner of property within the corporate limits of the City of Austin which has a metered ater connection and which is connected to the City wastewater sewer service, and (2) to each owner of property within the corporate limits of the City of Austin which has a metered water connection and which is not conected to the wastewater sewer system of the City of Austin if wastewater service has been made available to the property for a period of time exceeding three years. This charge shall apply even ' hough the water meter may be turned off and even though there was no water used during the month. This charge shall not apply to owners of property or wastewater customers using the owner's property who are billed under paragraph E, above. g 40 15\6 \oh

Charge:

    $2.00 per month.

G. Out of City - Wastercater Service Characs - Application: These charges are applicable to wastewater senice customers outside the corporate limits of the City of Austin which have metered water esmnections: 5fonthly Water l'se gallons First 2,000 hfinimum charge $435 per month Next 2S,000 @ $1.08 per 1,000 gallons Next 970,000 @ $0.76 per 1,000 gallons All over 1,000,000 @ $051 per 1,000 gallons

11. Out of City - Wastercater Afonthly Standby Charge or llcady-to-Screc Charge- Application .

This charge shall be applicable to owners of property outside the corporate limits of the City of Austin which is connected to the wastewater system of the City of Austin and which has a metered water connection. This charge shall apply even though the water meter may be turned off and even though there was no water used during the month. This charge sha not apply to owners of property or water customers using the owner's property who are billed under paragraph G, above. Charue:

    $435 per month.

I. Afethods of Computation - Application: Computations outlined herein are applicable to the rates specified in l' and C above. Bills will be computed on the basis of average use for December, January and Februaq hilline periods, or the current month for hfarch through November bills, whichever is less. Charges based on average use would be billed each month throughout the year, unless water use for that month is less than the computed average. hicasured sewage volume, acceptable to the City, may also be used as a basis of determining vohime. Where residential accounts do not have an acceptable history of winter water use, charges for the period March throuch November shall be billed on the current month's water usage, or a charge based on a water usage of 7,000 gallons per month, whichever is less. Where accounts other than residential do not have an acceptable history of winter water use, charges for the period Afarch thmugh November shall be based on monthly water use unless sewage volume can be determined. J. Wastewater senice shall be subject to the provisions of the City of Austin Industrial Waste Ordinance and any conflict between this rate ordiaance and the Industrial Waste Ordinance shall be resolved in favor of the Industrial Waste Ordinance. PAllT 2. The rates and charges provided for in this ordinance shall become effective on all bills rendered on or after April 1,1978. PAllT 3. Ilills computed under this ordinance are due when rendered. Each bill shall have set forth thereon a date falling between twenty-seven and twenty-nine days after the date of the bill. Bills paid after the specified date shall have added thereto a penalty equal to five percent (5%) of the bill. Provided, however, this provision shall become effective on all bills rendered after April 1,1978. 41 1516 14

IlEVENUE IlOND OllDINANCE PilOVISIONS g A synopsis of certain provisions of the bond ordinance authorizing the City of Austin, Texas, Utility System llevenue Ilonds, Series 6,is set forth below. Definitions. For all purposes of this ordinance and in particular for clarity with respect to the issuance of the bonds herein authorized and the pledge and appropriation of revenues for the payment of bonds similarly secured, the following definitio are provided: (a) The term " bonds" shall mean the first lien revenue bonds authorized by this ordinance. (b) The term "previously issued parity bonds" shail mean the outstanding and unpaid first lien revenue bonds known as CITY OF AUSTIN, TENAS, UTILITY SYSTEM REVENUE IlONDS, to wit: SERIES 1, dated April 1,1977, and originally issued in the total principal amount of SS0JXX),000; SERIES 2, dated October 1,1977, and originally issued in the total principal amount of $35,000,000; SElllES 3, dated April 1,1978, and originally issued in the total principal anmunt of $78,000,000; SERIES 4, dated October 1,1978, and originally issued in the total principal amount of $77,750.000; and SElllES 5, dated .\ larch 1,1979, and originally issued in the total principal amount of $80JM)0,000. (c) The term " additional bonds" shall mean the additional parity bonds which the City reserves the right to issue under " Additional Bonds or Contractual Obligations" hereof. (d) The term " bonds similarly secured" shall mean the bonds, previously issued patity bonds, additional bonds and contractual obligations. (c) The term "contractt obligation" shall mean those obligations (1) issued by the City or incurred by the City payable from the net revenues of the system, and (2) incurred pursuant to express charter or statutory authority heretofore or hereafter adopted. and (3) whiah by the terms of the ordinance authorizing their issuance or the incurring of the contractual obligation h provide the payments to be made by the City for the retirement or payment thereof shall be on a parity with and of e<ptal dignity with the payments for other bonds similarly secured and are to be paid from the funds established for the payment and security of the bonds siniilarly secured. (f) The term " fiscal year" shall mean the twelve months' period ending September 30 of each year, provided the fiscal year may hereafter be changed once in any three calendar year period. (g) The term "second lien bonds" shall mean the outstanding and impaid bonds designated

     " CITY OF AUSTIN, TENAS, ELECTRIC, WATERWO6::S AND SEWER SYSTEM llEFUND-ING REVENUE RONDS, SERIES 1979," and other obligations or bonds incurred or issued on a parity with the Series 1979 bonds under and pursuant to the provisions of the cruinance authoriz-ing the issuance of said Serios 1979 bonds.

(h) The term " net revenues" shall mean the gross revenues of the System less the expense of operation and maintenance, including all salaries, labor, materials, repairs and extensions necessary to render efficient service, provided, however. that only such expenses for repairs and extensions as in the jndgment of the City Council, reasonably and fairly exercised, are necessary to keep the System m operation and render adequate service to the City and the inhabitants thereof, or such as might be necessary to meet some physical accident or condition which would otherwise impair any bonds payable from the net revenues of the system, shall be deducted in determining net revenues." (i) The term " System" or " Systems" shall mean the City's combined Electric Light and Power, Waterworks and Sewer System, including all present and future additions, extensions, replacements and improvements thereto; provided that, notwithstanding the foregoing, and to the extent now or hereafter authori/ed or permitted by law, the term " System" shall not mean g any electric light and power, waterworks or sewer facilities of any kind (including any electric W 42 1516 105

power generating and transmission facilities) which are declared not to be a part of the System and which are acqu: red or constructed by the City with the proceeds from the issuance of "Special Facilities lionds," which are hereby defined as being special revenue obligations of the City which are not Ilonds v .ured by and payable from a lien on and pledge of the Net Ilevenues, as hereinafter defined, on a parity with the lionds, but which are secured by and payable from any other liens on and pledges of any revenues, sources or payinents, including, but not limited to, (i) special contract revenues or payments received from any other legal entity in e"unection with such facilities and/or (ii) a lien on and pledge of the Net llevenues junior and subordinate in all respects to ;he lien and pledge in favor of the llonds; and such revenues, sources or payments shall not be considered as or constitute Gross Revenues of the System, unless and to the extent otherwise provided in the ordinance or ordinances authorizing the issuance of such "Special Facilities lionds." hedge of Recennes. The City covenants and agrees that the entire net revenues of the System are herchy irrevocably pledged for the payment and security of the principal of and interest on the bonds similarly secured as in this ordinance provided. Rates aml Charges. For the benefit of the original purchasers as well as the ultimate owners of bonds similarly secured, and in addition to all provisions and covenants in the laws of the St. te of Tem and in this mdinance, it is expressly stipulated that the City shall, at all times while any of the bonds similarly secured or the second lien bonds are outstanding and unpaid, maintain rates and collect charges for the facilities _ and services afforded by the System, as required by Articl" 1113, V.A.T.C.S., which will provide revenues sufficient at all times to: (a) Pay for all operation, maintenance, depreciation, replacement and betterment charges of said System; (b) Establish and maintain the Utility System llond Fund and the Utility System !!cserve Fund provided and established by this ordinance for the benefit and security of the bonds similarly secured; and (c) Pay all other outstanding indebtedness against said System or the revenues thesefrom. System Fund. The City covenants that it will continue to deposit, as collected, all revt nues of every nature derived from the operation of the System into a separate account known as the Electric, Water and Sewer System Fund (herein called the " System Fund") heretofore established in connection with the issuance of the similarly secured bomts and the second lien bonds, which shall be Lep; separate and apart from all other funds of the City, and, further, that said System Fund shall be pledged and appropriated to the following uses and in the order of precedence shown: Fmsr: To the payment of all necessary and reasonable expenses of operation and maintenance of the System as said expenses are defined by statute. Srcoxn: To establishing and maintaining the Utility System llond Fm.d and then the Utility System lleserve Fund (in that order) hereby created for the payment and security of the bonds similarly secured. Tmun: For the payment of the principal of and interest on subordinate indebtedness of the System or its revenues or for any other proper City purpose now or hereafter permitted by law. Utilitt/ System Bomi Fund. The following provisions shall govern the establishment, maintenance and use of the Utility System ilund Fund: The City covenants that from the funds in the System Fund, the City shall pay into the Utility System llond Fund during each year in which any of the bonds similarly secured are outstanding, an amount equal to one hundred per centum (100) of the amount required to meet the principal and interest payments falling due on or before the next 43 1516 106

maturity date of the said bonds similarly secured, such payments to be made in equal monthly installments. If the revenues of the System in any month, after deductions for operation and main-g tenance, are then insu$cient to make the required payments into the Utility System Bond Ft.nd, then the amount .,f any deficiency in the payment shall be added to the amount otherwise required to be paid into the Utility System Bond Fund in the next month. All monics paid into the Utility System Bond Fund shall be deposited in the City's depository bank, and said depository bank shall transfer the amount then to become due to the paying agent. Said money shall be continuously secured as provided by law for securing funds of the City. Reserce Fund. The following provisions shall govern the establishment, maintenance and use of the Reserve Fund: From the funds in the System Fund, after deductions have been made fo- the payment of necessary and reasonable expenses of operation and maintenance of the System, and the prescribed payments into the Utility System Bond Fund, payments shall be n.ade into a UClity System Reserve Fund heretofore established for use in meeting the requirements of principal of :nd interest on the bonds similarly secured in the event monies on hand in the Utility System Bond Fund are insu$cient for such purpose. The amount to be accumulated in the Utility System Reserve Fund shall be equal to the average annual requirements (on a calendar year basis) for the payment of the principal of and interest on the bonds similarly secured as determined on the date of the delivery of the last series of bonds which are bonds similarly secured as defined herein. Immediately following the delivery of a series of bonds or the execution of a contractual obli-gation, which are defined es bonds similarly secured, the appropriate City oEcials shall determine the Required Reserve Fund Amount as ell as the amount then on han2 in the Utility System Reserve Fund and the amount of the difference shall be deposited in the said Reserve Fund in 60 equal payments, the initial payment to be made on or before the 15th day of the month nea following the month in which such bonds are delivered or the contractual obligation is incurred. In the event money in the said Reserve Fund is used for the purpose for which the same was established, or in the event there is not suscient money to make the monthly payment required in the preceding paragraph, then the amount required to make up the deficiency shall be added to that reauired to be made in the following month or months until the Required Reserve Fund Amount is on deposit in said Fund. The depository bank of the City is hereby designated as the custodian of the Utility System Reserve Fund and the deposits above prescribed shall be transmitted to said Fund in said Bank. Incestment of Certain Funds. The Utility System Bond Fund may be invested in such securities or in such manner as may be lawful investments for an interest and sinking fund. All money resulting from the investment of said fund shall remain a part of said fund, but may serve to reduce the amount which odierwise would b required to be deposited therein. The Utility System Reserve Fund may be invested or reinvested from time to time in direct obligations of, or obligations unconditionally guaranteed by, the United States of America, or evidence of indebtedness of any agency or instrumentality of the United States of America, and in certificates of deposit of any bank or trust company, the deposits of which are fully secured by a pledge of securities of any of the kinds hereinabove specified, such obligations or accurities to mature in not more than ten years from the date of such investmert or not later than the final maturity of the bonds outstanding fe which the Reserve Fund is established, whichever is shorter. Any obligations in which money is so inves ed shall be kept in escrow with the custodian of said Reserve Fund, and shall be promptly sold and the proceeds of sale applied to the making of payment required to be made from said Reserve Fund, whenever such payments are necessary to be made under the provisions of this Section. All money resulting from the investment of said Reserve Ft nd may be transferred to the System Fund as the same are received. 4i 1516 loi

Further Cocenants. The City further covenants and agrees by and through this ordinance as follows: (a) That the bonds similarly secured (including the bonds herein authorized) shall be special obligations of the City, and the holders thereof shall never have the right to demand payment out of any funds raised or to be raised by taxation. (b) That it has the lawful power to pledge the revenues supporting this issue of bonds and has lawfully exercised said power under the Constitution and laws of the State of Texas, and that the bonds similarly secured shall be ratably secured in such manner that no one band shall have preference over any other bond of said issues. (c) That other than for the payment of the bonds similarly secured and the second lien bonds, the net revenues of the System have not been in any manner pledged to the payment of any debt or obligation of the City or the System. Additional Ilonds or Contractual Ohligations. In addition to the right to issue bonds of inferior lien as authorized by the laws of this State, the City reserves the right to hereafter issue additional bonds or enter contractual obligations payable from the net revenues of the Systems which are on a parity with the bonds similarly secured. The additional bonds, when issued, or contractual obligations shall be payable from and secured by a first ben on and pledge of the net revenues of the Systems in the same manner and to the same extent as are the bonds and the previously issued parity bonds; and the bonds similarly secured and the contractual obligations shall in all respects be of equal dignity. It is provided, however, that the City will not issue any such additional bonds or other parity obligations of any nature unless and until all the following conditions have been met: (a) The City is not in default as to any covenant, condition or obligation contained in ordinances authorizing bonds similarly secured. (b) That the laws of the State of Texas effective at the time of the authorization of such additional t ends or the entering of the contractual obligation provide permission for the issuance of such hands or incurring such contractual obligation. (c) That the City has secured from a Certified Public Accountant a certificate showing that the net earnings of the Systems' preceding fiscal year or for any If consecutive months out of the 15 months immediately preceding the month of the adoption of the ordinance authorizing the proposed additional bonds or the incurring of the contractual obligation are equal to at least 1.25 times the maximum annual principal nd interest requirements (on a calendar year basis) of all obligations payable from and secured by a first lien on the net revenues of the System which will be outstanding upon the issuance of such proposed additional bonds or the incurring of the cont: actual obligation. As used in this Section, the term net earnings" shall mean the gross revenues of the System after deducting maintenance and ope ation expenses, but not deducting depreciation or other expenditures which, under standard accoun.ing practice, should be charged to capital expenditures. (d) The addhion.a bonds are made to mature or the principal amount of contractual obliga. tions become due on April 1 or October 1 (or both) of each of the years in which they are scheduled to mature. The bonds similarly secured may be refunded (pursuant to any law then available) upon such terms and conditions as the City Council of the City may deem to be in the best interest of the City and its inhabitants, and if less than all such outstanding revenue bonds or contractual obligations are refunded, the proposed refunding bonds shall be considered a:" additional bonds" under the provisions 45 looO

151O

of this Section and the report required in subdivision (c) shall give effect to the issuance of the proposed refunding bonds (and shall not give effect to the bonds being refunded following their g cancellation or provision being made for their payment). Contractual obligations, once incurred, may be modified under the same terms in that the report required in subdivision (c) shall give effect to the modifications to be made. Maintenance and Operation -Insurance. That the City shall maintain the System in good condi-tion and operate the same in an efficient manner and at reasonable cost. So long as any bonds similarly secured are outstanding, the City agrees to maintain insurance for the benefit ot the holder or holders of bonds similarly secured on the System of a kind and in an amount which usually would be carried by private companies engaged in a similar type of business. Nothing in this ordinance shall be construed as requiring the City to expend any funds derived from sources other than the operation of the System, but nothing herein shall be construed as preventing the City from doing so. Records- Accounts- Accounting Reports. That the City hereby covenants and agrees that so long as any bonds similarly secured or any interest thereon, remain outstanding and unpaid, it will keep and maintain a proper and complete system of records and accounts pertaining to the operation of its System separate and apart from all other records and accounts in which complete and correct entries shall be made of all transactions relating to said System. as provided by Article 1113, V.A.T.C.S., and that the holder or holders of any bonds similarly secured or any duly authorized agent or agents of such holders shall have the right at all reasonable times to inspect all such records, accounts and data relating thereto, and to inspect the System and all properties comprising same. The City further agrees that following the close of each fiscal year, it will cause an audit of such books aed accounts to be made by an independent firm of Certified Public Accountants. Each such audit in addition to whatever other matters may be thought proper by the Accountant, shall particularly include the following: (a) A detailed statement of the income and expenditures of the System for such fiscal year. (b) A balance sheet as of the end of such fiscal year. (c) The Accountant's comments regarding the manner in which the City has carried out the requironents of this ordinance and his recommendations for any changes or improvements in the operation, records and accounts of the System. (d) A list of the insurance policies in force at the end of the fiscal year on the System properties, setting out as to each policy the amount thereof, the risk covered, the name of the insurer, and the policy's expiration date. INpenses incurred in making the audits above referred to are to be regarded as maintenance and operacion expenses and paid as such. Copics of the aforesaid annual audit shall be immediately furnished to the Executive Director of the \funicipal Advisory Council of Texas at his office in Austin, Texas, and. upon request, to the original purchaser of a series of bonds similarly secured. The audits herein required shall be made within 60 days following the close of each fiscal year insofar as is possib!c. Excess Reecnnes. All revenues in excess of those required to establish and maintain the Utility System Hond Fund and the Utility System Reserve Fund as herein required may be used for any proper City purpose n v or hereafter permitted by law. Security of Funds. All funds created by this ordinance shall be secured in the manner and to the fullest extent permitted by law for the security of public funds ami ;Wunds created by this ordinance shall be used only for the purposes herein specified. Remedy in Eccnt of Default. That in addition to 4: '.ts and remedies provided by the laws of the State of Texas, the City covenants and ags o ,. , rly that in the event the City (a) defaults in payments to be made to the Utility System b mJ runa e the Utility System Reserve Fund 40

                                                                                                \S\6 \b9

as required by this ordinance or (b) defaults in the observance or performance of any other of the covenants, conditions or obligations set forth in this ordinance, the holder or holders of any of the bonds shall be entitled to a writ of mandamus issued by a court of proper jurisdiction, compelling and requiring the City and its officers to observe and perform any covenant, condition or obligation prescribed in this ordnance. No delay or omission to exercise any right or power accruing upon any default shall impair a x such right or power, or shall be construed to be a waiver of any such default or acquiescence therein, and every such right and power may be exercised from time to time and as often as may be deemed expedient. The specific remedy herein provided shall be cumulative of all other remedies and the speciPea-tion of such remedy shall not be deemed to be exclusive. Bonds are Special Obligations. That the bonds are special obligations of the City payable from the pledged net revenues and the holders thereof shall never have the right to demand payment thereof out of funds raised or to be raised by taxation. Bonds are Negotiable trutruments. That each of tl.e bonds herein authorized shall be deemed and construed to be a " Security", and as such a negotiable instrument, within the meaning of Artic!c 8 of the Uniform Commercial Code. Cittj Manager-Director of Finance to Hace Charge of .tecords and Bonds. That the City Manager and the Director of Finance shall be and they are hereby authorized to take and have charge of all necessary orders and records pending investigation by the Attorney General of the State of Texas, and shall take and have charge and control of the bonds herein authorized pending their approval by the Attorney General and their registration by the Comptroller of Public Accounts. Competition. That so far as it legally may, the City of Austin covenants and agrees, for the pro-tection and security of the first lien revenue bonds and the similarly secured revenue bonds heretofore and herein authorized, and the holders thereof from time to time, that it will not grant a franchise for the operation of any competing System in the City of Austin until all first lien bonds and bonds similarly secured shall have been retired. Ordinance to Constitute Contract. That the provisions of this ordinance shall constitute a con-tract between the City of Austin, Texas, and the holder or holders from time to time of thc bonds similarly secured and no change, variation or alteration of any kind of the provisions of this ordinance may be made, until all of such bonds shall have been paid as to both principal and interest. 47 151'IU I / O'

PROJECTED DEBT SERVICE COVERAGE There follows a projection prepared by the City staff, reviewed and ecrtified by Bovay Engineers,Inc., of Ilouston, Texas, with respect to future revenues and expense of the System and amounts available for payment of debt service. Total C *I System Revenues Operation and hiaintenance Expense Net income an nterest Ending Water and Combined Water and Combined Available For Require. 9-30 Electric Sewer _ Total Electric Sewer Total Debt Service ments(a)(h) 1979 $ 162,932,000 $ 33,103,000 $ 196,335,000 $ 99,080,000 $15,163,000 $114,2 83,000 $ 82,092,000 $ 11,507,573 1980 191,516,000 37,636,000 232,182JXX) 115,711,000 17,931,000 133,615,000 98,537,000 56,586,763 1981 201,650,000 41,100,000 242,756/XX) 116,314,000 18,900,000 135,214JXX) 107,542,000 57,613,075 1982 212,9G),000 45J)00,000 257,960,000 120,363,000 20,600,000 141,1G3,000 116,797,000 59,168,195 1983 206,110,000 47,025,000 233,165/XX) Il0,261/XX) 21,736,000 131,997,000 121,168,000 59,199,685 1981 202,105,000 49,141,000 251,516.000 104,890,000 22,714 JXM) 127,601,000 123,912,000 59,336,415 1985 213.540,000 51,352,000 261,892,(XX) Il7,510/XX) 23,736,dX) 141,216,000 123,616,000 59,226,678 1980 237,170,000 53,663,000 290.833,000 140,400,000 21,801,000 165,201,000 125,629,000 59,225,390 1987 263,390,000 56,078,000 319,468,(XX) 165,750,000 25,921,000 101,671,000 127,797,000 59,231,938 1988 291,070,000 58,602,000 319,672JXX) 192,940,000 27,087/MX) 220,027,000 129,645,000 59,234,288 1989 325,100/X)0 61,239,000 3S6,729,000 226,450,000 28,300,000 251,756,000 131,973/XX) 59,236,838 1990 368,850,000 63,991,000 428,844,000 265,810,000 29,580,000 295,420,000 133,424,000 59,212,340 1991 415,650,000 66.874,000 482,521,000 313,350,000 30,911,000 341,261,000 138,263,000 59,237,609 1992 483,560/xx) 69,883/XX) 553,413,000 365,730JXX) 32,302,000 398,032,000 155,411,000 59,238,143 1993 567,370,000 73,028JXX) 610,398,000 423,480,000 33,755,000 457,225,000 183,163,000 59,239,598 1991 601,412,000 76,311/XX) 677,726,000 418,889/X)0 35,274,000 484,163,000 193,563,000 59,234,428 1995 637,197/MX) 79,749,000 717,216J)00 475,822,000 36,862,000 512,68 tjX)0 204,562,000 59,240,868 1996 675,747,000 83,337,000 759,084,000 504,371,000 38,520/XX) 512.891/XX) 216,193,000 59,237,700 1997 716,292,000 87,087JXX) 803,379,000 538,631,000 40,251,000 574,888,000 228,491,000 59,231,393 1998 759,269,000 71J)06,000 830,275,000 566,712,000 42,065,000 608,777,000 211,498,000 59,240,528 1999 801,825JMX) 95,102,000 899,927JXX) 600,714,000 43,958,000 Gi l,672,000 255,255,000 59,243,028 2000 853,115fXX) 99,381/X)0 952,196J)00 636,757,000 45,930,000 682,693,000 269,803,000 59,239,093 2001 908,302JXX) 103,853,000 1,008,155,000 674,963,000 48/X)3,000 722,966,000 285,189,000 59,237,905 2002 958,560fX)0 108,527,000 1,067,087,000 715,461,000 50,16 8 /X)0 765,625J)00 301,462,0(X, 59,183,500 2003 1,010,073,000 113,410,000 1,129,483,000 758,388,000 52,421,000 810,809,000 318,674,000 51,935,500 2001 1,0 7 038JXX) 118,514J)00 1,195,552JX)0 803,891,000 51,780,000 858,671,000 336,881JXX) 44,124,500 2005 1,14 !,660,0(X) 123,887,000 1,265,507/XX) 852,125,000 57,245/XX) 909,370,000 356,I7/XX) 42,329,250 2006 1,210,160,000 129,420,000 1,339,580,000 903,252,000 59,821,000 963,073,000 376,507,000 17,770,000

                                                                                                                       $1,525,775,221 (a) See " Debt Senice llequirements" on pages 10 and 11.

(b) Amounts shown include debt service payable on October 1 of the next succeeding fiscal year, O 48 i '? >

1516

Assumptions in Projection

1. Electric revenue and expense estimates from 1979 to 1993 are the latest projections available.

These projections were made in conjunction with an on-going cost of service and rate study and from a corporate model that contains the following assumptions. An 8.896 increase in revenue from customer sales is anticipated in FY60, contingent on Council approval.

a. The long term energy growth rate is estimated to be 6% per year compounded. This forecast was developed from growth trends from the past 6 years.

b. The long term customer growth rate is projected at 3.276.

c. Cost projections are based on the addition and availability of three new generation units.

Fayette Unit #2 is scheduled for commercial operation in June of 19S0, STP Unit #1 in April of 19S2, and STP Unit #2 in April of 1983. d.' Projections are based on the economic loading of generating units. With the addition of the three units discussed in e., nuclear wi'l be base baded and will provide approximately 49% of the energy produced in the mid-1950's. Coal will be used fe: mid-range loading and will provide approximately 457b of the energy in 1985. Cas/od will be used for peaking and will provide approximately 696 of the energy.

c. The total fuel expense for each year is based on the projected energy usage per fuel type and the projected price.

f. The electric rate of return on rate base is projected at 5.7996 for 1979.19S0 and 1981 are projected at 69%.1982 to 1984 are projected at 6.796.19S5 to 1993 are projected at 6.S76.

g. In fiscals 1980,1981, and 1982, revenues include revenue from a power contract for 500htW of capacity with flouston Lighting & Power Company. Revenue from this contract accounts for $6 million in FYSO, $S million in FY81, and $2 million in FY82. Although the peatial for additional revenue from energy sales exists, no revenue or expense was included for this ccmtingency.

h. Between FY80 and FYS3, revenue from recoverable fuel expense billings, totalling $20.6 million, is included. Recoverable fuel costs are deferred fuel expenses resulting from the time lag in fuel cost recovery associated with the ohl fuel cost adjustment formula. These costs were incurred but never expensed or billed to the customer. In accordance with an ordinance approved by the City Council in 1978, these costs are billed during October 1, 1979 to September 30,19S3. The financial forecast includes these expenses and records revenues associated with these billings.

i. Electric capital requirements are based on the Department's 5-year Capital Improvements Program. Beyond FYS4, distribution and general plant are escalated from present trends and costs.

j. Electric revenues include operating revenues and other non-operating revenue, such as interest income and miscellaneous revenue.

2. From 1994 to 2005, ch ctric estimates are based on a 3.096 growth rate in energy sales with a 3%

inflation factor. Revenues and expenses are annually compounded at 6%.

3. Water and Sewer revenue coimates are based on projected system revenue requirements through FYS2, based on an existing rate study. The Water and Sewer revenue estimates anticipate a 1696 rate increase in FYSO, followed by 5.5CL increases in FYS1 and FYS2. These rate increases are contingent on Council approval. Beyond FYE2, revenue estimates are compounded annually at 4.5CL.

4. Water and Sewer expense estimates are based on expense projections through FYS2. Beyond FYS2, expense estimates assume a 4.5% increase per year plus extraneous .:xpenses that are not patterned.

5. Electrie, Water, and Sewer revenues assume certain rate increases and are calculated at levels sufficient to provide annual transfers to the City's Cencral Fund, transfers to " pay as you go" Capital Improvements for the system, and certain additional debt service requirements.

49 3 g4 f 3 1JIO !I c

OTIIER INFORAIATION REVENUE BOND RETIllE% TENT FUNDS g COMPAHATIVE STATEMENTS Fiscal Year Ended 9-30-74 9-30-75 9-30-78 9-30-77 9-30-78 Beginning flalance $14,298,050 $16,229,151 $18,449,010 $19,706,359 $22,940,131 Contributions from Utility Fund 17,221,0!2 20,303,134 24,592,221 34,321,374 41,935,282 Total Available Funds $31,519,122 $36,532,285 $43,311,231 $54,027,763 $64,875,413 Disbursements: Bond Prin-ipal $ 7,600,000 $ 7,735,000 $ 8,330,000 $ 8,700,000 $ 9,050,000 Bond Interest and Commission 7,6s9,971 10,318,275 15,304,842 22,387,632 28,389,718 Total Disbursements $15,2s9,971 $18,0S3,275 $23,634,842 $31,0S7,632 $37,439,718 Ending llalance $16.229,151 $18.419,010 $19,706,389 $22,910,131 $27,435.695 ACCOUNTING All City funds are on an accrual basis with expenditures and revenues accrued as incurred or earned. Utility fuel expense expended but not yet recovered is deferred. Federal grants are accrued to the extent that the expenditures have been made by the City. AD VALOREAf TAX HONDS Since 1955, Austin has levied 340 per $100 valuation, except for fiscal years 1975,1976 and 1977, in which the levy was reduced to 32v, out of an authorized amount of at least $1.50 for general obligation debt service. A further reduction to 28v was made for 1978-79. AUTOAIATIC ESCALATORS Austin does not have automatic escalators in payroll nor in its retirement systems. The retire-ment systems may grant cost-of-living increases up to 3% for the employees and 2% for the firemen only if recommended by the independent actuary and approved by the retirement board and the City Council. DEFICIT FINANCING Austin is barred by State statute and City Charter from deficit budgetary accounting. RETIREAIENT SYSTEAIS Austin operates its own two retirement systems, which are actuarily sound. An actuarial report (A. S. Ilansen, Inc.) and an independent audit (various) are performed annually. As a requirement of the City Charter, contributions by the employees equal contributions by the City to the retirement systems. Normal retirement for the firemen is age 55 on the highest three years of the last ten. (Contributions by the employer and employee each equal 12.13% Firemen are not covered under Social Security.) Normal retirement for all other City employees is age 62 based on the best con-secutive five out of the last ten years. (Contributions by the employer and the employee are 6% each. All other City employees are also covered under Social Security.) A. S. IIansen, Inc.'s most recent reports are shown on the following pages. 50 1516 173

Hansen A. S. Hansen, inc. First Interrictional Building, S ,ite 2020 - Dollos, Texas 75270

Telephone 2f4-748-0501 February 9, 1979 Mr. Dan H. Davidson City Manager City of Austin P. O. Box 1088 Austin, Texas 78767

Dear Mr. Davidson:

We are pleased to provide the following information with regard to the City of Austin Employees' Retirement and Pension Fund.

1. Date of last actuarial valuation January 1, 1978

2. Actuarial cost method used Entry-age-normal, with frozen-initial liability 3 Normal cost due January l, l978

               $4,527,630

4. Amortization of past service costs for most vscent year Total employer and employee contributions for 1977 were $6,799,975 of which $2,454,503 was applied toward the past service costs 5 Period over uhich past service costs are being amortized The City and employees contribute at a fixed percentage of salary.

Past service costs are currently being amortized over a period of. less than 20 years.

6. Interest on past service costs, if not being ti ed Not applicable O$ces Throughout the United States 51

Mr. Dan H. Davidson g February 9, 1979 W Page Two 7 Unfunded past service costs as of January l, l978

          $23,017,137

8. Actuarially computed value of vested benefits in excess of the book val;.e of fund assets as of December 31, 1977

          $0-Book value of assets currently exceeds actuarial value of vested benefits 9  Book value of assets as of December 31, l977
          $56,870,610

10. Method of recognizing actuarial gains or losses including realized and unrealized gains and losses on securities The actuarial gains or losses are not calculated separately, but are used to reduce or increase the future normal costs. These actuarial gains or losses are automatically spread over future years.

I1 Any changes in actuarial assumptions or cost methods from the previous year and approximate effect thereof None If we can be of further assistance, please call on us. Yours very trulv, A. S. HANSEN, 11C. m A F. Pierce Noble Fellow of the Society of Actuaries FPN:pab 1516 175

G 52

Hansen A. S. Hansen, inc. First international Building, Suite 2000 -

                                                                  ?ollos, Texas 75270 Te9 phone 214-748-0501 February 9, 1979 Mr. Dan H. Davidson City Manage -

City of Aur'.:n P. O. Box 1088 Austin, Texas 78767

Dear Mr. Davidson:

We are pleased to provide the following information with regard to the Fire-men's Relief and Retirement Fund of Austin, Texas.

1. Date of last actuarial valuation January 1, 1978

2. Actuarial coat method used Entry-age-normal with frozen-Initial liability 3 Nomat coat due January 2,1978

               $1,000,900

4. Amortization of past service costa for most recent year Total employer and employee contributions for 1977 were $1,445,363 of which $609,335 was appiled toward the past service costs

5. Period over which past service costa are being amortised Past service costs are currently being amortized over a period of less than 30 years

6. Interest on past service costa, if not being amortized Not appilcable 1516 176 Omces Throughout the United States 53

Hr. Dan H. Davioson February 9, 1979 g Page Two 7 Unfunded past service coste as of January l,1978

          $5,606,331

8. Actuarially computed value of vested benefits in excess of the book value of fund assets as of December 31, 1977

          $6,284,199 9    Book value of asseta as of December 32, 1977 513,150,644

10. Method of recognizing actuarial gains or losses including realized and unrealized gains and losses on securities The actuarial gains or losses are not calculated separately, but are used to reduce or increase the future normal costs. These actuarial gains or losses are automatically spread over future years.

I1. Any changes in actuarial assumptions or cost methoda from the previous year and approximate effect thereof None. If we can be of further assistance, please call on us. Yours very truly, A. S. HANSEN, INC. A F. Pierce Noble Fellow of the Society of Actuaries FPN:pab

                                                                                    -m Hansen mm mmu 51

r, 1 / 177

VALUATION AND DEBT INFORhiATION 1978 Afarket Valuation of All Taxable Property $4,037,358,000 1978 Taxable Assessed Valuation (75% of Afarket Value)(1)(2)(3) $3,478,018,430 City Funded Debt Payable From Ad Valorem Taxes: General Purpose Bonds (as of 7-31-79) $ 98,560,000 Assumed Water District Bonds (as of 7-31-79) 2,994,000 Series 259 Bonds Now Being Issued 8.800,000 Total $ 110,354,000 Less: Assumed Water District Bonds (4) 2,994,000 Total General Purpose Debt. $ 107,360,000 Intercst and Sinking Fund (as of 6-30-79)(5) $ 5,611,662 Ratio Total General Purpose Debt to hfarket Valuation 2.32 % Ratio Total General Purpose Debt to Taxable Assessed Valuation 3.09 % 1979 Population - 332,086 Per Capita Taxable Assessed Valuation - $10,473.24 Per Capita Total Debt - $323.29 Area - 12L3 Square hiiles (1) Pursuant to authority permitted by Section 1-b, Article VIII of the State Constitution, which became effective January 1,1973, the City granted an exemption of up to $8,000 of Assessed Valuation of the residence homestead of property owners over 65 years of age. The Taxable Assessed Valuation, as shown above, does not include $90,440,540 Assessed Valuation of properties exempted under this authority. (2) The Legislature, pursuant to a constitutional amendment and Article 7150h, VATCS, mandated an additional property tax exemption, beginning in 1976, for disabled veterans or the surviving spouse or children of a deceased veteran who died while on active duty in the armed forces. The exemption from taxation applies to either real or personal property with the amount of Assessed Valuation exempted ranging from $1,500 to $3,000, dependent upon the amount of disability or whether the exemption is applicable to a surviving spouse or children. The Tar-able Assessed Valuation, as shown above, does not include $4,977,520 Assessed Valuation of properties exempted under this authonty. (3) Legislation passed by the 66th Legislature and signed by the Governor removes non-commercial vehicles from the tax rolls and increases the deduction for homesteads for persons over 65 and those that are disabled. The effect of such legislation would be to reduce the tax rolls of the City approximately 4% Ilowever, even in the year (every other year)~ in which property evaluation is not undertaken, it's estimated that the City's assessed valuation will increase from approximately $3,469,000,000 to approximately $3,514,000,000. The City Council may continee ad valorem taxation on non-commercial vehicles by o:-dinance, but a decision has not been made at this time. (4) Assumed Water District Bonds consist of the following: $491,000 Travis County Water Control and Improvement District No. 5 Bonds; $1,318,000 Travis County Water Control and Improve-ment Di3trict No. 9 Bonds; $995,000 Travis County Water Control and Improvement District 1%.11 Bonds; and $190,000 Travis County Water Control and Improvement District No.13 a . Is. The City has acquired the Systems and assets of these Districts and assumed the out-standing and unpaid bonded indebtedness of said Districts under authority of Article ll82e-1, V.A.C.S. The consideration for the conveyance made by the Districts to the City is stated in the agreements between the City and the Districts which read in part as follows: "The CV of Austin hereby assumes and guarantees the payment of the face value and interest legally required to be paid on all outstanding and unpaid bonded indebtedness of the District upon presentation and surrender when due of all such oonds and interest coupons." The principal and interest on these bonds are being paid from surplus revenues of the City of Austin's combined Electric Light and Power, Waterworks and Sewer System. 1516 17^

(5) After provision for 7-1-79 debt service requirements. (6) The above statement of indebtedness does not include the following revenue bonds, as these bonds are payable solely from the net revenues of the System, as defined in the Bond Ordinance authorizing the bonds: $370,780,000 Utility System Revenue Bonds outstanding; $60,000,000 Utility System Revenue Bonds now being issued; and $318,925,000 Electric, Waterworks and Sewer System Refunding Revenue Bonds. UNFUNDED DEBT The City has no unfunded debt outstanding as of 7-31-79. DEBT AND TAX RATE LL\flTATION All taxable property within the City is subject to the assessment, levy and collection by the City of a continuing, direct annual ad valorem tax sufficient to provide for the payment of principal of and interest on bonds within the limits prescribed by law. Article XI, Section 5, of the Texas Con-stitution is applicable to Austin, and limits its maximum ad valorem tax rate to $2.50 per $100 assessed valuation (for all city purposes). The City operates under a IIome Rule Charter which imposes a limit of $2.50 for all purposes, including General Operation expenses not to exceed $1.00. VALUATION AND FUNDED DEBT HISTOllY Ratio Funded Funded Debt Debt to Taxable Outstanding Tarable Fiscal Assessed at End Assessed Period Valuation of Year Valuation 1969-70 $ 896,007,140 $ 36,755,000 4.109b 1970-71 1,069,251,720 3S,868,000 3.61To 1971-72 1,207,067,100 43,369,000 3.5970 1972-73 1,317,935,760 41,829,000 3.33 7o 1973-74 1974-75 1,486,887,010 1,843,008,571* 48,401,000 69,137,000 3.26 % 3.75 7o h 1975 76 1,995,128,178 80,363,000 4.03 7o 1976-77 2,539,518,553' 75,954,000 2.99 7o 1977-78 2,731,036.610 89,779,000 3.299o 197a 79 3,478,018,430 107,360,000 0.099b

 'A large amount of theincrease due to revaluation.

TAXABLE ASSESSED VALUATIONS BY CATEGORY 1976 % of Total 1977 % of Total 1978 % of Total Assessed Assessed Assessed Assessed Assessed Assessed Classification Valuation Valuation Valuation Valurtion Valuation Valuation Real: Land $ 535,633,170 21.09 % $ 565,690,730 20.71 7o $ 740,503,670 21.29 % Improvements 1,494,040,2*(0 58.83 7o 1,590,679,870 58.25 % 2,067,253,180 59.44 % Total Real $2,029,673,440 79.925 $2,156,370,600 78.96 % $2,807,756,850 80.73 % Personal Property: Inventories $ 382,766,152 15.07 % $ 428,446,810 15.69 % $ 501,917,570 14.43 % Automobiles, Trucks and Trailers 116,713,270 4.60 % 136,031,500 4.98 % 158,802,360 4.57 % Ilouse Trailers 5,227,300 .217o 5,037,840 .1896 3,861,890 .11% Boats 2,861,261 .11% 2,901,340 .119h 3,195,880 .09% Airplanes 2,277,130 .099b 2,248,550 .08% 2,483,880 .07% Total Personal Property Total Assessed

                       $ 509,845,113     20.08 7o $ 574,666,040     21.049b $ 670,261,580          19.27 %   g Valuation            $2,539,518,553 100.00 7o $2,731,036,640 100.00 7o $3,478,018,430 100.00 %

56 1816 179

ESTIAfATED OVERLAPPING FUNDED DEBT PAYABLE FROAf AD VALOREAf TAXES ( As of 7-31-79) Total % Overlapping Taxing Jurisdiction Funded Debt Applicable Funded Debt City of Austin $107,360,000 100.00 % $107,360,000 Austin Independent School District S8,536,988 92.5495 81,932,129 Del Valle Independent School District 1,867,400 18.789b 350,698 Eanes Independent School District 7,443,000 0.17 % 12,653 Puund Rock Independent School District 30,906,000(1) 0.119b 33,997 Travis County 12,430,000 84.34 % 10,483,462 Williamson County .0170 Williamson County Alunicipal Utility District No.1 5,350,000 .019b 535 Total Overlapping Funded Debt $200,173,474 Ratio Overlapping Funded Debt to Taxable Assessed Valuation 5.769b Per Capita Overlapping Funded Debt- $002.78 (1) Ineludes $8,000,000 sold August 7,1979. TAX DATA (Year Ending 9-30) Distribution Tax Tax General Interest and % Current % Total

       's ear                       Hate       Fund Sinking Fund Tax Levy          Collections Collectium 1968-69                       $1.29       $.95         $.34     $10,421,778    94.91 %      99.55 %

1969-70 1.29 .95 .31 11,558,671 95.089b 99.149b 1970-71 1.29 .95 .34 13,793,227 95.99 % 99.4795 1971-72 1.29 .95 .34 15,571,166 95.5796 98.539b 1972-73 1.27 .93 .31 17,118,897 96.7395 99.579b 1973-74 1.27 .93 .34 18,881,428 95.039b 97.149b 1974-75 1.19 .87 .32 21,930,412 95.1495 99.319b 1975-76 1.27 .95 .32 25,338,313 93.35 % 96.79 % 1976-77 1.27 .95 .32 31,993,873 95.81 % 100.149b 1977-78 1.24 .92 .32 33,861,852 96.40 % 99.72 % 1978-79 .96 .GS .28 33,3S8,977 94.81 % 97.65 % *

Collections for part year only, through June 30,1979.

Property within the City is assessed as of January 1 of each year; taxes become di,e October 1 of the same year; and become delincpient on February 1 of the following year. Penalty and interest, however, are net added until Alarch I. Split payments are not permitted. Discounts are not allowed. AfUNICIPAL SALES TAX At an election held on September 30, 1967, the citizens of Austin voted a 196 retail sales and use tax to become effective on I nuary 1,1968. This tax provides a substantial additional revenue 57 1516 18u

source, and strengthens the overall financial position of the General Fund of the City. Collections and enforcements are effected through the offices of the Comptroller of Public Accounts, State of Texas, g who remits the proceeds of the tax to the City of Austin monthly. Revenue from this source has been: Fiscal % of Equivalent of Year Ending Ad Valorem Ad Valorem 9-30 Ilevenue Tax Levy Tax Itate Per Capits' 1970 $ 4,054,923 35.02 % $0.4269 $10.10 1971 4,746,038 34.03 7o .4439 18.17 1972 5,528,042 35.50 7o .4580 20.18 1973 6,568,190 38.37 7o .4873 22.93 1974 7,259,279 38.45 % .48S2 24.73 1975 7,905,395 36.05 7o .42S9 26.32 1976 9,165,G13 36.17 7o .4594 29.75 1977 11,491,263 35.92 7o .4561 35.70 1978 13,523,349 39.93 % .4951 40.59 1979 " 10,461,127

Based on population of City of Austin as reported in the Statistical Abstract, City of Austin and Travis County,1978, published by the COA Planning Department.

"Through June 30,1979. TOP TEN TAXPAYERS 1978 % of Total Nature of Assessed Assessed Name of Taxpayer Property Valuation Valuation International Business Afachine Corporation Af anufacturing and Leasing $121,443,210 3.49 % Southwestern Bell Telephone Company Telephone Utility 107,534,610 3.00% Texas Instruments, Inc. Afanufacturing 30,641,490 .8S% Austin National Bank Bank 21,779,400 .63% hiotorola Corporation hfanufacturing 19,733,180 .57% Southern Unian Gas Company Gas Utility 18,654,370 .547o Capital National Bank Bank 18,170,870 .52% City National Bank Bank 14,457,560 .42To 1I. E., Butt Grocery Retail 14,252,970 .41% Tracor Incorporated hfanufacturing 11,382,760 .33%

                                                                              $378,050,450      10.88 %

O

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GENERAL INFODIATION REGARDING CITY AND ITS ECONOMY General Description The City of Austin is located in Travis County in Southeast Central Texas. The City lies in the valley of the Colorado River, in the midst of farm and ranch lands and the highland lake region. The dams which form the highland lakes are administered by both the Lower Colorado River Authority and the City, and provide flood control, water conservation, and certain electricity to a 31,000 square mile area. In October,1839, the national offices of the Republic of Texas were moved to the City, and in 1872, the City was designated as the pennanent capital of the State of Texas (the " State"). As the State capital, the City is headquarters for all legislative, executive, and state agencies, judicial oper-ations and administrative oEces. The City is also the county seat of Travis County. Population The City's metropolitan area in 1978 had a population of 491,519 as estimated by the City's Chamber of Commerce. The population of the Standard Metropolitan Statistical Area ("SNISA") increased by over 100,(XX) people during the 1970-1976 period, a growth rate of 27.9%, placing the City's SNISA as the second fastest growing metropolitan area in the State. The following table presents population trends of the City, the State and the United States since 1940. Austin Texas United States Annual Annual Annual M Population Change (a) Population Changef a) Population Change ( a) 1910 87,930 +65.5% 6,414,824 + 10.1% 132,165,000 +0.7% 1950 132,459 + 50.6 7,711,194 + 20.2 151,326,000 +1.4 1960 186,M5 + 40.9 9,57],677 + 24.2 179,323,000 +1.7 1970 253,539 + 35.9 11,196,730 + 1.8 203,212,000 + 1.3 1975 302,500(b) + 1.7 12,237.000 + 1.8 213,051,000 + 0.9 1976 303,0s7(b) + 2.1 12,4s7,000 + 2.0 214,669,000 + 0.8 1977 321,900(b) + 4.2 12,608,908 + 1.0 216,383,000 +0.8 1978 332,086(h) + 3.0 12,917,534 + 2.4 218,059,000 + 0.8 Sotmet: United States Department of Commerce, Bureau of the Census (a) The compound annual percentage increase or decrease over the preceding period. (b) Department of Planning, City of Austin estimates. Business and Industry There are approximately 450 manufacturing firms in the City supporting payrolls of over $140 million annually. Over $5SO million annual value is added by manufactured products. Industries of long standing inchide Elgin Butler Brick Company, in Austin since 1873, the 50-year-old Adams Extract Company and llart Graphics and Ogee Centers, Inc. (formerly The Steck Company), printers, organized 1912. The largest companies ~ i the Austin SNISA are Glastron Boat Company, International Business Niachines, Inc., Niotorola, T . ., Texas Instruments, Tracor, Inc. and Woodward, Inc. Portions of IBN1's omce products and omcc systems equipment are developed and manufactured at the companyi facilities in the City. Operations began in 1967 with a work force of anproximately 300 which has grown to a present level of approximately 4,100 employes. Expansion ecmpleted in 1977 provides 1.2 million square feet of manufacturing and development s a . 59

Employment Characteristics As of December 31, 1977, the Austin h!ctropolitan area had 7,800 unemployed out of a total labor force of 205,950 for an actual rate of 4.0%, compared to 5.2% for the State and 7.8% for the United States. The following tables set forth employment by type and broad industrial sources for the years indicated, for the Austin ShtSA: WAGE AND SALAllY Eh1PLOYh!ENT IN TIIE AUSTIN AIETilOPOLITAN STATISTICAL AREA (a) Industrin' Classification 1970 1971 1972 1973 1974 1975 1976 Afanufacturing 12,350 13,000 13,350 14,300 14,850 15,300 17,200 Durable G *s 7,950 8,550 8,900 0,850 10,550 10,850 12,600 Non-Durabie Goods 4,400 4,450 4,450 4,450 4,300 4,450 4,000 Cos ernment 48,350 51,200 54,950 58,500 62,900 67,000 69,')oo Federal 6,300 6,200 0,350 6,600 6,800 7,300 7,700 State 31,050 33,150 33,750 37,150 40,250 42,750 41,050 Local 11,000 11,850 12,850 14,750 15,850 16,950 17,250 Trade 25,100 26,700 28 800 32,050 32,550 35,100 35,850 Wholesale 4,000 4,150 4,500 4,650 4,750 5,150 5,250 lietad 21,100 22,550 21,300 27,400 27,800 29,950 30,000 Sen ices 21,700 27,550 30,450 33,050 31,300 35,800 37,800 Ilusiness and Personal 8,950 9,250 9,500 10,150 10,550 11,300 12,350 hiedical and Professional 9,700 11,650 13,150 13,950 14,400 15,000 15,750 Finance, Insurance and Ileal Estate 6,050 6,f150 7,600 8,950 9,350 9,500 9,700 Contrac t Construction 8,150 0,050 10,550 11,850 11,300 0,000 8,750 Tranmortation and Utilities 3,650 4,100 4,350 5,100 5,550 5,500 5,550 Afining and Agriculture 300 300 350 300 300 450 500 Totals 122.900 131,900 142,800 155,200 161,750 168,750 174,650 Sounct:: Texas Emphiyment Conunission. All data are calendar year averages and by place of ' employment. (a) Austin ShtSA includes Travis and llays Counties. Texas Instruments, Inc. located on a 460-acre site eleven miles northwest of the Texas State Capitol, employs approximately 1,200. Current expansion is underway to create additional capacity. hiotorola, Inc. began productio- in a major integrated cir iit assembly plant in 1971. Current employment is about 1,200, and long range plans anticipate an eventual total of around 4,000. Industries located in Austin also include metals, chemicals, petroleum, printing supplies, candy, ironworks, aluminmn, caskets, aircraft ecpiipment, leather, clothing, concrete, boots, pipeline con-struction, castings, foods, fishing supplies, air conditioning, furniture, valve manufacturing, nuclear and scientific research, boat manufacturing a id plastics. There are extensive deposits of limestone just outside the City. Such supply of caw material contributed to the development of an industry of national recognition in 1928, when Texas Quarries was organized and started production of Cordova Shell and Cordova Cream limestone as building material. Cranite Afountain, near hlarble Falls (some 50 miles from Austin), together with other sources, furnishes a large supply of granite. Another natural resource of the Austin Ilills is native cedar, Clays and tales exist in cosmnercial <ptantity for use as insecticide carriers, tile manufacturing and dinnerware. Austin is an insurance center, Regional as well as 33 home insurance offices are located in the City. Proximity to State ofilces and a wntral State location are factors which encourage insurance etunpanies to locate their headquarters in the City Austin is third in the State in number of conventions held and delegates attending. During 1977, 863 conventions were held and drew over 225,789 delegates. hfore than an estimated $21.6 h c0 I

                                                                                                }Elb

million was placed in Austin's ever expanding income. The tourism industri now exceeds $165 million annually. Austin is the shopping center for a 20-county tr ae area, with a population of over 901,859 with an annual buying income of over $4.7 billion. Agriculture The ten counties in the area surrounding Austin, which is primarily agricultural country, com-bine farm and livestock industries grening in excess of $55 million annually. Chief crops are cotton, corn and small grains. Turkey and poultry production has become increasingly important. Transportation Rail facilities are furnished by the hiissouri-Kansas-Texas, hiissouri Pacific, and Sou'.hern Pacific. Amtrak brought passenger trains back to Austin in January,1973, as one stop on the hiexico City-Kansas City route. Air transportation is furnished by Braniff, Texas International, Continental Airways, Eastern, Tejas, Southwest, and Chaparral, with 58 daily arrivals and departures. Bus service is furnished by Greyhound, Continental, Kerrville and Arrow, with 45 arrivals and departures per day. Groteth Indices Utility Connections Building Permits Federal, Tele- State and Postal M Electric Water Cas phone Tatable Municipal Total Receipts IbS8 81,763 rS,732 70,795 161,504 $101,352,400 $ 30,514,585 $131,866,985 $10,788,843 1969 87,284 71,271 73,096 190,234 113,981,636 36,991,236 150,972,872 11,509,740 1970 92,449 72,923 73,831 206,477 116,352,700 17,877,138 134,229,838 12,378,374 1971 99,G88 70,778 74,195 226,720 159,056,589 43,406,689 202,463,278 15,385,884 1972 110,881 79,935 79,318 247,304 201,383,230 35,848,065 240,231,295 17,405,311 1973 115,106 83,767 82,239 268,620 195,418,800 44,245,040 239,663,840 18,592,117 1974 119,423 89,065 84,304 289,723 135,792,100 127,098,561 262,890,661 21,924,804 1975 123,148 91,673 66,470 310,063 93,318,700 54,655,772 147,974,472 24,306,710 1976 124,495 91,900 88,919 335,825 150,073,500 52,884,707 202,918,207 28,123,536 1977 136,866 98.736 91,984 358,694 204,821,520 23,272,911 228,094,431 32,000,000 1978 145,491 101,689 95,693 N.A. 337,333,700 11,856,812 349,190,512 36,346,775 Somtz: Community Profile, compiled by Chamber of Commerce. Education: Unicersity of Texas The University of Texas at Austin was founded in 1883 on forty acres. The campus now encompasses almost 300 acres. Off-campus and research facilities in Austin cover another 837 acres. It is the only institution of higher education in the entire Southwest which is a member of the Association of American Universities, composed of forty-eight institutions of highest academic standing on the North American continent. Enrollment 1968-69 32,155 Fall,1970 39,100 Fall,1971 39,503 Fall,1972 39,900 Fall,1973 40,619 Fall,1974 41,841 Fall,1975 42,598 Fall,1976 41,3S7 Fall,1977 41,660 Fall,1978 43,095 I 61

                                                                                                      )6)b

The hfain University includes sixteen colleges and schools, a Division of Extension with a state-wide program, and more than fifty research and public service units. Its facilities are housed in more than 110 buildings. The more than thirty organized research laboratories at the University include the Cell Research Institute, Genetics Foun/.ation, Center for Plasma Physics and Thermonuclear Research, Linguistics Research Center (hlachine Trcuslation), Defense Research Laboratory, Center for Rela-tivity Theory, Clayton Foundation Biochemical Institute, Biological Sciences Curriculum Study Project, Geomagnetics and Electrical Geoscience Research Laboratory, and Electrical Engineering Research Laboratory. Tbc University's General Library, with 4,000,000 volumes, is the largest library in the region. Addition of the Lyndon B. Johnson Library and the East Campus Library and Research Center has contributed to the quality of the system. Other Educational Facilitics The City's public school system had a total enrollment of 58,C>11 in the fall of 1978. The physical plant of the system includes seventy-five campus buildings. Austin Community College, under the auspices of the Austin Independent School District, opened for classes in September,1973 and now has 13,000 students at twenty-six locations. Other institutions located in the City include St. Edwards University (Catholic-4 years), Episcopal Seminary of the Southwest, Concordia College (Lutheran), Presbyterian Theological Seminary, Iluston.Tillotson (4 years), St. hf ary's Academy (Catholic), St. Stephens Episcopal School (4-year high school), State School for Deaf, State School for Blind, State Schcol for Deaf and Blind, and a variety of private and professional institutions. Banking The eighteen banks in the City and year of their establishment are: The American National Bank, 1890; The Austin National Bank,1890; Bank of Austin,1957; The Capital National Bank,1934; Citizens National Bank,1961; City National Bank,1936; Community National Bank,1968; First State Bank,1968; University State Bank,1969; North Austin State Bank,1959; Texas 5 tate Bank,1945; Travis Bank and Trust,1969; Chase National Bank,1972; Bank of the Ilills,1972; Union National Bank,1974; Oak Ilill National Bank,1974; National Bank of Commerce,1976; Western National Bank, 1976; Republic National Bank,1977. Combined bank Statistics Year Deposits Year Deposits Year Deposits 196S $6SO,576,74S 1971 $ 966,171,151 1975 $1,491,707.000 1969 676.516,0S2 1972 1,115,220,566 1976 1.591,2S9,813 1970 785,515,073 1973 1,200,602,321 1977 1,855,06S,000 1974 1,359,511,955 1978 2,046,580,000 Other Informati>n The City Coliseum, with 6,900 square feet oi iloor space, will seat gatherings of 4,000 people. The $3.5 million Auditorium has 110,000 square feet of floor space, and has facilities to seat 5.518 people, or exhibit space covering 80,000 square feet. I icentennial projects and events, totaling over $6.3 million, were designed to permanently enhance the City's recreational and cultural facilities. Almost $500,000 of these projects were funded by private, individual groups. 62 I b I .b

                                                                                           .       lob  .

RATLNGS Applications for contract ratings on this issue have been made to Moody's Investors Service, Inc. and Standard & Poor's Corporation. An explanation of the significance of such ratings may be obtained from the company furnishing the rating. The ratings reflect only the respective views of such organizations and the City makes no representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by either or both of such rating companies, if in the judgment of either or both companies, circumstances so warrant. Any such downward revision or withdrawal of such ratings, or either of them, may have an adverse effect on the market price of the Bonds. TAX EXEMPTION The delivery of the Bonds is subject to an opinion of Dumas, Iluguenin, Boothman and Morrow, Bond Counsel to the City (" Bond Counsel"), to the effect that interest on the Bonds is exempt from all present Federal income taxes under existing statutes, rulings, regulations and court decisions. The laws, regulations, court decisions and administrative regu!ations and rulings upon which the con-clusion stated in Bond Counsel's opinion will be based are subject to change by the Congress, the Treasury Department and later judicial and administrative decisions. REGISTRATION AND QUALIFICATION OF BONDS FOR SALE The sale of the Bonds has not been registered under the Federal Securities Act of 1933, as amended, in reliance upon the exemption provided thereunder by Section 3(a) (2); and the Bonds have not been qualified under the Securities Act of Texas in reliance upon various exemptions contained therein; nor have the Bonds been qualified under the securities acts of any jurisdiction. The City assumes no responsibility for qualification of the Bonds under the securities laws of any jurisdiction in which the Bonds may be sold, assigned, pledged, hypothecated or otherwise trans-ferred. This disclaimer of responsibility for qualification for sale or other disposition of the Bonds shall not be construed as an interpretation of any kind with regard to the availability of any exemp-tion from securities registration provisions. LEGAL INVESTMENTS IN TEXAS The Bonds are legal investments for sinking funds of Texas counties, cities and towns. They are eligible to secure Texas state and school district funds, and constitute legal investments for insurance companies in the State of Texas. No review has been made cf the laws of the states other than Texas to determine whether the Bonds are legal investments for various institutions in those states. LEGAL OPINIONS AND NO-LITIGATION CERTIFICATE The City will furnish a complete transcript of proceedings had fr:ident to the authorization and issuance of the Bonds, including the unqualified approving legal opnion of the Attorney General of the State of Texas, to the effect that the Bonds are valid and legaN bin ling obligations of the City, and based upon examination of such transcript of proceedings, the ung aalified approving legal opinion of Bond Counsel, to like effect and to the effect that the interest c n the Bonds is exempt from Federal income taxation under existing statutes, regulations, ndings and court decisions. The customary closing papers, including a certificate to the effect that no litigation of any nature has been filed or is then pending to restrain the issuance and delivery of the Bonds, or which would affect the provision made for their payment or security, or in any manner questioning the validity of said Bonds or the coupons appertaining thereto, will also be furnished. Bond Counsel was not requested to participate, and did not take part, in the preparation of the Notice of Sale and Bidding 63

                                                                                ,g,     -      n '

Instructions, the Official Bid Form and the OfIlcial Statement, and such firm has not assumed any a responsibility with respect thereto or undertaken independently to verify any of the information W contained therein, except that, in its capacity as Bond Counsel, such firm has reviewed the informa-tion describing the Bonds in the Official Statement to verify that such description conforms to the provisions of the bond resolution. The legal fees to be paid Bond Counsel for services rendered in connection with the issuance of the Bonds are contingent on the sale and delivery of the Bonds. The legal opinion will be printed on the Bonds. AUTIIENTICITY OF FINANCIAL INFORMATION The financial data and other information contained herein have been obtained from the City's records, audited financial statements and other sources wuh are believed to be reliable. There is no guarantee that any of the assumptions or estimates contained herein will be realized. All of the summaries of the staNtes, documents and resolutions contained in this Official Statement are made subject to all of the provisions of such statutes, documents and resolutions. These summaries do not purport to be complete statements of such provisions and reference is made to such documents for further information. Reference is made to original documents in all respects. CERTIFICATION OF TIIE OFFICIAL STATENfENT At the time of payment for and delivery of the Bonds, the Purchaser will be furnished a certificate, executed by proper officers, acting in their official capacity, to the effect that to the best of their knowledge and belief: (a) the descriptions and statements of or pertaining to the City i mtained in its Official Statement, and any addenda, sunplement or amendment thereto, on the date of such Official Statement, on the date of sale of said Bo '2s and the acceptance of the best bid there-for, and on the date of the delivery, were and are true and correct in all material respects; (b) insofar as the City and its affairs, including its financial affairs, are concerned, such ofIicial Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (c) insofar as the descriptions and statements, including financial data, of or pertaining to entities, other than the City, and their activities contained in such Official Statement are concerned, such statements and data have been obtained from sources which the City believes to be reliable and that the City has no reason to believe that they are untrue in any material respect; and (d) there has been no material adverse change in the financial condition of the City since the date of the last audited financial statements of the City. The City will furnish the Purchaser, as a part of the transcript of proceedings, a certified copy of a resolution of the City Council as of the date of the sale of the Bonds which will approve the form and content of this OfIlcial Statement, and any addenda, supplement or amendment thereto, and authorize its further use in the reoffering of the Bonds by the Purchaser. CAnoLE KEEloN h!CCLELIAN Mayor ARREST: CHACE Monnos City Clerk 9 G1

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ML19260B176

Contents

Text

Dearborn Street,

Dearborn Street,

SUMMARY

SUMMARY

SUMMARY

Dear Mr. Davidson:

Dear Mr. Davidson:

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