ML19260B177
| ML19260B177 | |
| Person / Time | |
|---|---|
| Site: | South Texas  |
| Issue date: | 12/31/1978 |
| From: | HOUSTON INDUSTRIES, INC. |
| To: | |
| Shared Package | |
| ML19260B173 | List: |
| References | |
| NUDOCS 7912070375 | |
| Download: ML19260B177 (39) | |
Text
The Year In Review Earnings per share were $4.21 on a 7% increase in
- Primary Fuels signed an agreement with Shell Oil the average number of shares outstanding, Company to participate as a limited partner in compared with $4.41 in 1977. Shell's onshore oil and gas exploration in the
- The quarterly dividend was increased in January, continental U.S.
1978, from 49c to 53c per share and increased again
- Utility Fuels signed a contract for a 25-year supply in January,1979, to 59c per share. of coal, which will be a source of fuel for three of e IIL&P was granted a 598 million rate increase by II L& P's generating units.
the Texas Public Utility Commission.
- IIL&P's second generating unit designed to burn coal went into service in December.
Financial & Operating Highlightc 1978 1977 % increase flouston industries (Decrease)
Revenues (000) $ 1,349,438 $ 1,095,561 23' Net income (000) $ 128,657 $ 125,636 2 Per Sharc Data:
Net Earnings S 4.21 $ 4.41 (5)
Cash Dividends 5 2.12 $ 1.86 14 Book Value S 33.04 $ 31.14 6 Number of Weighted Average Shares Outstanding 30,589,992 28,478,757 7 Average Return on Shareholders' Equity 13.27 % 14.95?b (II)
'otal Property (000) $ 3,542,063 $ 3,001,242 18 Jonstruction Expenditures (000) S 530,594 $ 466,256 14 HL&P Turbine Name Plate Capacity (Kilowatts) 11,056,000 10,427,000 6 Peak Load (Kilowatts) 9,362,000 8.645,000 8 Kilowatt flour Sales (000) 50,275,767 45,885,725 10 Number of Customers Served 891,509 809,820 10 Average Residential Use (Kwh) 14,734 14.266 3 Average Residential Cost Per Kwh 3.36c 3.09c 9 Fuel Cost (000) $ 682,261 5 517,870 32 PFI Net Natural Gas Production (N1illion Cubic Feet) 11,049 9,458 17 Net Condensate Production (Harrels) 132,000 81,000 63
- Of the $253.9 million increase in revenues, $164.4 million resulted solely from recovery ofincreased fuel costs.
1516 188 7 012070 pp i
To Our Shareholders:
The year 1978 reflected the dynamic growth and $300 million through long-term financings, includin evolving nature of Ilouston Industries' subsidiary the sale of two million shares of common stock, first operations. mortgage and pollution control bonds.
During the year: IIL&P expects to spend nearly 5625 million for e Houston Lighting & Power Company new generating plants and related facilities in 1979, recorded new highs in sales and in the number 5801 million in 1980 and $918 million in 1981. Nfore of new customers served; than half of the required f unds will have to be raised by e H L& P was granted a $98 million rate increase; outside financing.
- Primary Fuels, Inc., expanded its oil and gas in January,1979, llL&P sold 300,000 shares of operations from offshore to onshore in the cumulative preferred stock carrying an annual continental U.S.; and dividend of 59.04. The following month, Houston e Utility Fuels, Inc., began acquiring and Industries sold two million shares of common stock at transporting coal for use by IIL&P, $29 %. The net proceeds from the sale were invested Houston Industries' revenues were up $253.9 prim rily in the common stock of HL&P und used to defray the cost of its constructiori program. It is million, or 23 percent, to reach $1,349 million. Net earnings were $128.7 million or 2.4 percent over the anticip ted that additional debt and equity securities will be sold before the year is out.
previous year. Ilowever, earnings per share of $4.21 A number of significant events took place in 1978 wcre down 20 cents on the basis of a 2.1 million increase in average shares outstanding.
- ith respect to llL&P's construction and fuel d w.ersific ti n er grams:
Dividend Raised
- The company's first generating unit designed to In January,1978, the quarterly dividend was burn coal achieved a 100 percent coal burn. A increased from 49 cents to 53 cents per share. A second 660,000-kilowatt coal-fired generator further increase to !9 cents per share, payable March was placed in commercial operation on gas and 10 to the holders of record January 26, was declared switched to full coal burning in early 1979.
in January,1979. Dividends per share have risen 51 percent from the third quarter of 1976.
- HI &P announced plans to build a 750,000-kilo-
"' tt lignite unit to be completed in 1985. The IIL&P Granud Rate Increase mnyann p ous ns to buHd tw(), m,M-New rates, reflecting a system-wide rate increase .
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- aggregating $98 million annually, took effect during " " * ' " " # " "
December. The increase was granted IIL& P by the
- "' "Y "Y Texas Public Utility Commission, following the filing in July of the company's first request to the .U* .omp ny reached a settlement with Westinghouse Electric Corporation regarding commission for rate relief.
nuclear fuel for the South Texas Project.
The amount of the increase the PUC granted was HL P,as pr jec t managn of thejointly less than that requested, however,I believe this first ou ned plant, sued Westinghouse in 1975 after experience resulted in mutual respect be'.wcen HI &P .
cuing uws tlwy wouM k unaNe to and the commission. The company, with an ambitious fulfil ur nium supply greements.
construction program designed to utilize fuels other e H L& P announced that construction delays could than natural gas and to serve the area's growing electric defer initial operation of the South Texas Proj-power needs, will require additional rate relief on a ect for up to two years. Completion of the proj-regular basis, cet s two 1.250,000-kilowatt reactors is now Some of the results of Hl's subsidiary operations scheduled for 1982 and 1983.
in 1978 were:
Ilouston Lighting & Power Company
^ " "" '" I " " P"
- i t I" ' "* ^ " *"" C k H L&P accoanted for nearly 94 percent of lil's E "" ".as not issued as had been nticipated. It is now expected to be issued in earnings. An unprecedented net gain of 81,689 individually metered customers reflected the service I te M onarh N atea's continuing growth. Total kilowatt hour sales Primary Fuels,Inc. Primary Fuels increas were up 9.6 percent.
in 1978,111 & P spent $453.7 million on to H1's earnings when it signed an agreement with construction. The company and HI raised more than Shell Oil Company to participate as a limited partner 2
1516 189
n Shell's onshore oil and gas exploration in most of elected to the position vacated by Mr. Woodson.
the continental U.S. The Outlook Despite a limited market for natural gas during There are a number of factors favoring Ilouston much of the year, PFI contributed $7.4 million or 24 Industries' future performance:
cents per share to fil's earnings, compared to $6.1 e We will continue to do business in the most million or 21 cents in 1977. d3namic area in the nation.
Utility Fuels,Inc.
- We have a strong management team and Utility Fuels signed a contract with Spring Creek dedicated employees who continue to deal Coal Company in Montana for a 25-year supply of effectiveiy with our many diverse problems.
Iow-sulfur coal. In addition, it acquired coal handling e We own a physical plant with up-to-date, facilities owned by 11L&P and purchased 1,150 coal efficient generating units and advanced facilities cars to supply coal to fil.&P's coal-fired generating to monitor our performance.
units. Inflation, the rising price of fuel, higher National Energy Act & CSW Dispute construction costs imposed by both rapid growth and Two very important matters that will affect our the need to utilize fuels other than natural gas and future operations are the National Energy Act and the more regulation will continue to pose challenges Central and South West case. which are unprecedented in our industry. We pledge The National Energy Act passed in 1978 will have our best efforts in meeting and solving these business a far-reaching effect on 11L&P's future operations. problems.
Some ofits more onerous and inequitable provisions were moderated during its consideration by Congress. cc~
llowever, Federal regulatory agencies are attempting ' h -cd to go beyond the intent of the Congress by imposing /
unreasonably burdensome regulations on the industry D. D. JOR DAN s hich will be unnecessarily costly to electric users. The President and company is actively participating in efforts to mitigate Chief Executive Officer the inflationary effect of such regulations. _ . . _ _ _ _ _ _ _ _ _ . _ _ . _
In February,1979, a Federaljudge ruled in >
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lil.& P's favor regarding Central and South West 7q _
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Corporation's attempt to force interconnection of ! .] .
electric utilities in Texas with other regional power .
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pools covering most of the Eastern United States. .
l 111.& P and two other electric utilities challenged -
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CSW's attempt since no showing had been made that ;
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their customers would benefit from such '
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interconnections, whereas substantial costs would be 1 .I }. g'-
incurred in making such interconnections. Thejudge <
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supported lil.&P's contention that lit.&P and other
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electric utilities in Texas have the right to restrict their .
operations to the state ifit is in the best interests of l s ; .
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r their customers. ! , ~ . ' -
Final resolution of this problem is subject to action in several other forums in which the matter is
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under consideration. [ ..
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Reese, Woodson Retire ; . =
In April, J. G. Reese retired as Chairman of the j
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lloard. lie will, however, continue to serve as a /. ;
nember of the til board until April,1979. { **s , .
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- 11. N. Woodson retired after 22 years of l .. \ .j ~
4 distinguished service as an til and 111.&P board j ., f M 5; - T ,,
.i member. Iloward W. llorne, president of a llouston [
+
,,- gi commercial: .i estate sales and leasing firm, w as !..a.. ._.'o.__.___.._____A 3 5'6 I90
HI's Financial Picture Revenues Were Up; But So Were Expenses participating in the plan. These 3.275 shareowners flouston industries' revenues in 1978 were 51,349 million, purchased 87,246 shares of ill common stock. Reinvested an increase of 5253.9 million, or 23.27 cover 1977. Nearly dividends accounted for 677c of the shares and optional cash 977cof fil's revenues were contributed by electric sales of its payments for the remaining 33Q.
subsidiary, llouston Lighting & Power Company. Under the plan, shareowners may automatically Total operating expenses rose 28.97cor $233.6 million reinvest quarterly cash disidends in ill common stock to reach $1,041 million. These expenses included a 327cjump and make optional cash payments of not less thcn 550 nor in llL&P's fuel costs and a 247c increase in llL&P's more than 53,000 each calendar qt.arter for additional expenditures for operation and maintenance. More than shares. Stor' "'.iers may elect either or both options.
527c of IIL&P's $1,304 million revenues in 1978 went to pay for Shareow net .aay receive additionalinformation on the plan fuel. by writing:
Earnings Slightly Up Ms. Ann Cherry increased casts were largely respc~=iL f or holding Vice-President and Trust Officer earnings for common stock to 5128.7 million,2.4% over Texas Commerce llank 1977 earnings. P.O. Box 2558 Retained earnings for the year were up 12.77c and Ill's llouston, Texas 77001 net worth per common share (" book value") increased 6% to 533.04. The market price of lit common stock at year's end Quarterly fligh And Low Sa'es Price On The New York was $27 3/ 8, compared to a closing price of $30 5/8 at the Stock Exchange And The Composite Tape end of 1977.
Dividends Continue to Grow 1978 Ilouston Industries' dividends have continued to grow Quarter liigh Low Dividend over the last decade. Dividends have increased at a p:irst S 28 $ 0.53 S 31 %
compound annual growth rate of approximately 8Q since 1970 Second 31 % 28 0.53 and i 1% for the past four years.
The quarterly dividend was increased four cents to 53 Third 33 % 30 0.53 cents per share in January 1978. resulting in an annual rate F.ourth 33 % 26 % 0.53 g of 52.12 per share compared with 51.86 per share in 1977. In 1977 January,1979, the quarterly dividend was raised to 59 cents per share. Qu rter liigh Low Dividend in 1978, the first year of fil's Dividend Reinvestment First S 36 % 5 31 % $ 0.44 Plan, llouston Industries raised $2,631.674 of new equity Second 34 % 30 0.44 capital and invested these proceeds in the common stock of Third 35 % 31 % 0.49 IIL&P. Ily year's end,10% of the shareowners were Fourth 34 29 % 0.49 1516 19; Disidends Paid on Common Stock Earnings Per Share W3 Quaned 1974 1975 1976 1977 1978 g [g$
54 28 $186 54 o t
$ g $g 51.56 51 61 , ,
52 92 $2 92 I .53 3rd
.37 .39 .49
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Houston Lighting & Power Company The Service Area's Healthy Economy ^rea served by H aston I.ighting & Power Company serses and is an 11 uston Lighting integral part of one of the healthiest economic areas in the & Power Company nation today.
Dominated by llouston, the nation's fifth largest and fastest growing city, the metropolitan area is expected to continue to have the highest growth rates in the nation in several categories - including after-tax personal income and total retail sales, according to " Sales & Marketing Manag ment,"a source of annual market data widely used by financial analysts.
Since 1970, population of the llouston-Galveston Standard Consolidated Statistical Area, which roughly approximates lil.& P's sersice area, has grow n by more than one-third and now exceeds 2.9 million. By 1985,it's expected to reach 3.6 million.
Ilouston is the energy center of the country and leads the nation in the number of energy-related firms occupying I,000 square feet or more of office space with 539. l'orty percent of the nation's basic petrochemical manufacturing capacity is concentrated in the flouston-Gulf Coast region.
The area is the fourth largest manufacturing center in the nation and tops the U.S. in manufacturing capital expenditures. The city's man-made port is the third largest seaport in the U.S. in total tonnage.
~lhe llouston area was No. I in the U.S. in 1978 in nonresidential construction. Ilouston leads the country in dow nton n and suburban office construction and leasing. In a decade of mixed economics in most parts of the country, llouston has more than doubled its office space.
1 or the fourth year in a row, the metropolitan area led the nation in residential construction. Indicative of the city's eminence in this category was the mose to llouston in p March,1979, of the headquarters of U.S. Ilome Nuclear Piani Corporation - - one of the largest builders of single family homes and townhomes m the country. Allens Creek
~lhe metropolitan area has one of the lowest $ Nuclear Plant Site unemployment rates in the nation. The number of new jobs y has been increasing about twice the national aserage and is M Generating Plants expected to grow at an annual rate exceeding Sri between 1978 and 1982. 345 KV Extra liigh Voltage I ransmission 1.ines 138 KV liigh Voltage Transmission I.ines 69 KV liigh Voltage Transmission I.ines Sersice Area Population (Millions) Kilowatt flour Sales (Hillions) 1974 19 6 1974 1975 1976 1977 1975 1977 i,7s 19]
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Opposite: The U.S. Ilume Buoldmg.18 stories of mirroredglass and polishedaluminum. n as completedm flouston in i978. U.S. Ilume Corporation movedits headquarters from Clearn arer. Fla.. into the buildmg in Alarch.1979.
Sales, Business Activity Vigorous a 2-million-square-foot,75-story skyscraper w hich will be The booming economy of the llouston-Gulf Coast area tallest office building in tl e country, outside New York and was reflected in llL&P's energy sales in 1978. Customers of Chicago.
IIL&P consumed almost 50.28 billion kilowatt hours of Industrial Expansion elect ricity - a 9.67o increase over 1977. T he increase was The company's service area has historically been down from the 12.3% jump in sales recorded in 1977.11 L&P dominated by heavy industry. In 1978, this sector accounted also established a record peak demand of 9,362,000 for 55% of IIL&P's kilowatt hour sales.
kilowatts - an 8.3% increase over the 1977 peak. The lifeblood of this base is the manufacture of The increase in llL&P's total ki'owatt hour sales was chemicals and petrochemicals. This group accounts for due primarily to the unprecedented surge in the number of nearly 59% of IIL&P's industrial energy sales. Some of the new customers. A net gain of 81,689 mdividually metered bigger expansions in this area were made by Diamond customers was established in 1978-almost 30,000 more Shamrock, Oxirane Chemical and Phillips Petroleum. The than the previous record set in 1977. largest industrialload addition was made by U.S. Steel.
The residential classification led all others in 1978 with At year's end,42 industrial projects were under a 12.3% increase in censumption. Usage per residential construction. Some of the larger projects are Air Products &
customer was up only 3.3%, compared to a 9% increase in Chemicals' air separation plant, an addition to Big Three 1977. The 1977 increase was the result of an extremely hot Industries' Bayport plant, an ethylene production plant by summer while the summer of 1978 was near normal. Exxon Company USA and an ethylene production plant by Average annual usage per residential customer was Monsanto-Conoco.
14,734,65% above the national average. Average cost per Future Outlook residential kilowatt hour rose from 3.09c in 1977 to 3.36c in Though faced with near record high interest rates and a 1978, primarily as a result ofincreased fuel costs. tightening of the money supply, the area's construction Industrial customers increased kilowatt hour usage by activity should continue to be among the strongest in the 9.6% followed by the commercial class vith an increase of nation in 1979.
6.9%. Ilousing starts are expected to be dow n but should still itesidential Construction lead the country.
The liouston-Gulf Coast area continued to boom in Although commercial and industrial expansion shoul 1978 and once again led the nation in residential continue strong through 1979 due to those projects already construction. M ore than 64,100 homes, apartments and under construction, recent studies done in conjunction with condominiums were completed in 1978. Apartment area industrial firms indicate that the rate of growth may construction was up 30% over the year before. slow in the immediate future.
Nearly 17,000 homes and 21,690 apartment units w ere llL&P has consequently lowered its estimates of annt.e!
under construction at year's end. peak load growth to the 4 to 5% range. For the past 5 years, Commercial Building peak demand within the llL&P system has grown at a The service area's robust business activity was bolstered compound rate of 6.9% per annum.
by a banner year m retail and office construction. In 1978, flow ever, IIL&P is continously monitoring the retail construction was more than double the previous year's projected growth in ; eak demands and will ta(e necessary with 7.3 million square feet completed. steps to respond to changing conditions.
More than 7.5 million square feet of office space was Building For The Future completed in 1978.
Thirty-one major office buildings representing 12.5 llL&P spent $453.7 million on construction in 1978.
million square feet were under construction at year's end. Seventy percent of that was for new generating facilities, an The most notable start in 1978 was the El Paso Tower, all-time record. The company expects to spend $624.6 Ilesidential Kilowatt ilour Sales (Billions) 1974 1975 1976 1977 1978 11.0 9M
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million for construction in 1979 and more than $2.3 billion 1.ight Company and the cities of Austin and San Antonio.
for the 1979-1981 period. Iloth projected expenditures are llL& P is project manager and ou ns 30.8% of the plant, well above the industry as erage. w hich is located 80 miles southwest of Ilouston.
In 1978, the company increased its generatine capacity 111.& P's announcement of the completion delay was to I l.056,000 kilowatts v.ith the start of cor.onercial made atter results of an analysis by an independent operation in I)ecember of W. A. Parish Unit 6-a 660,000- consulting firm also indicated the extended schedule could kilowatt coal-fired generator. push the plant's cost to about $2 billion.
W. A. Parish Coal Units STP's revised cost of $800 per kilowatt is still Work is progressing on 111.&P's third unit designed to comparable to similar facilities under construction elsew here burn coal. Unit 7, a 600,000-kilowatt generator,is scheduled in the country.
to begin operation in 1980. Work will begin that same year Allens Creek on Unit 8, also a 600,000-kilowatt generator, with ~1 he Allens Creek Nuclear Generating S'ation was the completion scheduled for 1983. subject of regulatory delay and opposition from inteneners llecause of the planned use of relatisely clean burning in 1978. Allens Creek, planned as a wholly-owned.
Western coal by ill.& P, W. A. Parish Units 5,6, and 7 will 1,200,000-kilowatt plant,is to be located about 50 miles west operate without exper.sise flu: gas desulf uritation of flouston.
equipment (" scrubbers"). Iloweser, as a result of 'I he company had planned to begin construction on amendments to the Clean Air Act, scrubbers w111 he required Allens Creek in late 1978. Ilowever, the Atomic Safety and for Unit 8 and for any future coal-fired plarts, regardless of 1.icensing floard postponed by two months a pre-hearing the amount of contaminants i9 the coal. w hich had beeri ~ heduled for September 15. The delay I. ignite in Ill.& P's l'uture dashed the company's hopes to begin work on the plant in The company's plans to build a lignite plant were 1978.
delayed in 1978 after I)ow Chemical Company USA in li ebruary,1979, additional delays became almost withdrew in May from w hat was designated as the 12reestone certain w hen an environmental group and oP a . were given Project. Plans announced in February had called for I)ow to permission to intervene in opposition to the granting of a pros ide lignite for tw o,750,000-kilow att generating units to construction permn.
be built and operated in Freestone County, Texas by ill.&P. As a result of the delays and the i:n olvement of Ill.&P was to hase a 500; or 750.000-kilowatt share of those inteneners,it's now expected that a construction permit for unity Allens Creek cannot be obtained before late 1979 and that in & P has rmw decided to proceed uith one, w holly- 'he plant cannot be completed until 1986. Previously, a 1985 ou ned,7i) 000-kilowatt unit to be completed in 1985 at a start-up date was planned. Should the licensing process be site outside the senice area that is yet to be determined. A delayed further, the planned completion date of 1986 may supply of lignite f or the unit is now being negotiated. 'I he not be met, estimated in-senice date is based on the assumption that Reserve Margins And Demsmd such t uel contracts and all construction pumits and licenses I)elays in the scheduled completion of planned will be obtained by September,1981. generating facilities may require the company to South Tesas Project supplement its generating capability during the 1982-1985 III.& P announced in Nosember that construction period to maintain a resene margin at or abose 15'li.
delays could defer initial operation of the South Texas 111.&P projects it uill be between 150.000 and Project (ST P) up to tuo y ears. Completion of the project's 400.000 kilowatts short of a 159 reserve margin during two units is now scheduled for 1982 and 1983. the period of 1982 to 1985. 'l he company is now evaluating S l'P, a nuclear plant with tw o, 1,250,000-kilow a t t alternatises to meet these shortla'Is, including purchased reactors, is jointly-oni ed by III.& P, Central Power and po w e r.
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Opposne: The unfinnhedstad andsuperstructure of W A Parish Unit 7is silhourtled against the eremng sun. The 600.0004 ilon atI coal-fired unit is s< heduledfor unmpletion in i980. While timompany expects it will be able to maintain a Unit 6,a twin to Unit 5 was placed on full coal burni 15% reserse with its present construction program status January 17,1979. Tiiey represent 11.5% of the through 1981,it has signed an agreement with the City of company's generating capability. Austin to purchase reserve energy in 1980 and 1981. Natural gas provided 98% of IIL&P's boiler fuel The City of Austin will sell 111.&P 500,000 kilowatts per requirements in 1978. Iloweser, by 1990 gas is expected to year on an as needed basis. This agreement serses the same account for only iIG of the company's generating purpose as if the caracity were installed on the ill &P requirements. Coal will accc ont for 43G of IIL&P's fuel mix system and will be an economical methol to satisfy in 1990 with oil and nuclear representing 31G and 15% of the temporary neec fuel mix that year respectively. Oil "ill be the transitional or " swing" fuel for the Financing The System's Expansion c mpany. Nearly 5,500,000 kilowatts of gas-fired capacity, Permanent financing by ill & P and its parent during one-half of IIL& P's total capacity, has been conserted to 1978 consisted of four issues:
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- ficaston Industries sold two million shares of .
In addition,6.7 million barrels of oil storege and a common stock m. February,1978, at $29.30 per p peline connecting these plants are in place. share. The net proceeds of the sale were insested
'his mix could be affected if the Texas Railroad primarily m the common stock of 111.&P. Commission modifies or eliminates a 1975 Natural Gas e in June,111 & P sold $19.2 million of 4.789 Order. Under this ruling, lil & P cannot enter into any pollution control bonds. additional natural gas contracts or extend its existing gas
- In August, Ill.& P sold $125 million of b..rst contracts. The commission announced in January,1979, it mortgage bonds at a cost of 8.915G.
will reconsider this order because no other state or the
- In December,11L&P sold $100 million of f.irst Federal gasernment was following Texas' lead.
mortgage bonds at a cost of 9.3447 The National Energy Act has established a date of 1990 In addition, lil.&P's parent issued a total of 87,246 for the complete cutoff of natural gas as boiler fuel for base shares of common stock through the Dividend Reinsest- load plants. IIL&P projects gas will account for IIQ ofits ment Plan at an average price of $30.16 per share. Another fuel mix that year. Iloweser, the Department of Energy ha- ' 171,902 common shares were issued through the Employee authority to grant exemptions under the act. Stock Ow nership plans at an average price of $32.76. The proceeds of both were invested in 11L&P common stock. Fuel For Electric Generation To support its $625 million construction budget, sales The company's fuel supply position was strengthened in of securities in 1979 began in January w hen llL&P sold $30 1978 by the signing of a long-term coal supply contract with million of 59.04 cumulative preferred stock at a cost of Utility Fuels, Inc. (U FI), and a settlement with Westinghouse 9.14G.111 sold tw o million shares of common stock in Electric Corporation concerr.mg nuclear fuel for the South February at $291/ 8 per share. Proceeds of $54.8 million Texas Project. from the latter were insested in the common stock of in June, ilL&P signed a contract with U FI for 165 111 &P to be csed in support ofits 1979 construction. million tons oflow-sulfur coal oser a 25-year period. Delis cries began in J uly. ~1 he coal will fuel W. A. Parish H L&P's Fast Changing Fuel Mix Uniis s,6 and 7. The company passed a major milestone August 31 in its in October, ilL&P reached an agreement in its dispute program te : duce its reliance on natural gas for boiler fuel with Westinghouse regarding nuclear fuel for the South w hen W. A. Parish Unit 5 achieved a 100G coal burn. Texas Project. The company, acting as an agent of the Although this 660,000-kilowatt unit was designed to burn participating utilities of STP, sued ir.1975 following an coal,it had been tired on natural gas from the time it was announcement that Westinghouse would be unable to fulfill placed in commercial operation in December,1977. uranium supply agreements. Energy Sources for Electric Peak Demand Growth (.\legawatts) Generation im ten 19'9 loso 19 0 f g ,,73 ,979, , %g, ,99g. I1.350' Q l 3 ,q
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't he settlement assures a nuclear fuel supply for STPat request for a rate increase with the Texas Public Utility terms very favorable to the STP participants. If the terms of Commission ( P UC).
the settlement develop to their fullest potential, the South The PUC, led by a three-man board appointed by the Texas Project participants could receive full recovery of the governor, assumed jurisdiction in 1976 over electric rates in value of the claim. unincorporated areas. Customers in these areas account for Also in 1978,111.&P began receiving uranium about 46% of li t.& P's revenues. concentrate under terms of a contract with Atlas Municipalities retained regulation over rates within Corporation for the initial core of Allens Creek. their respective corporate limits with lit.&P having the lhe company terminated financial support of ajoint option to appeal their decisions to the PUC. If they desire, uranium project with Continental Oil Company in New these cities can relinquish their rate-making authority to the Mexico for economic reasons. The project had been commission, subject to recall. To date, only one municipality regarded as a source of additional uranium for Allens Creek. w here lit.& P furnishes service has transferred its rate Ill.& P will request rate relief sufficient to amortire over a jurisdiction to the PUC. reasonable period of time the $8.9 million it had invested in Ill.&P filed a request July 14 with the PUC and the the project. If the request is denied, the costs will be charged iacorp, rated cities it serves for rates designed to increase to income in the period such a determination is made. operatirm revenues by approximately $175 million, plus an Ill & P is now seeking additional uranium concentrate additiom.l $54 million tor revenues which would have for Allens Creek to replace in part that which the Conoco otherwise i;een collected under the company's then existing project was to provide. Cost of Service clause. On November 20 the PUC issued an The company has sufficient fuel supplies to meet its order granting 111.&P a rate increase, which on a system-generating requirements through the early 1980% wide basis, would increase operating revenues by Additional fuel contracts are now being negouated. Natural approximately $98 million. gas will . main the backbone of 111.&P's generating system 111.&P placed the new rates in effect throughout the threugh 1983. It is provided by two long-term contracts system in Dectmber. The PUC is allowing the company to which expire in 1996 and 1984 respectivriv. apply the new rates on an interim basis pending the outcome 1.ow-sulfur coal for W. A. Parish Units 5 and 6 is being of appeals to the rate ordinances passed by some cities, provided by Utility Fuels, which has a contract with Kerr- including llouston, w hich granted increases lower than the McGee Coal Corporation that expires in 1981. The coal PUC's rate order. comes from Kerr-McGee's Jacobs Ranch Mine in Wyoming. The specifics of the rate increase approved by the PUC some 1,600 railroad miles from the W. A. Parish plant. were: The cost to transport this coalincreased significantiy,
- It provided for a 13.8% return on common equity.
from $15.60 to $17.1I per .an,in 1978. fil.&P has appealed
- It allowed 40% of Construction Work in Progress to the courts the In'erstate Commerce Commission's (CWIP) and nuclear fuel to be included in the rate approval of the original $15.60 tariff. The matter is still in base.
litigation.
- It climinated the company's Cost of Service The company's fuel costs rose $164.4 million, or 32% adjustment which allowed lit.&P to pass on over 1977. The average unit cost of fuel per million firitish monthly changes in labor costs, depreciation, Thermal Units (11 FUs) was 126.2c, compared to 105.5c the interest and preferred dividend requirements on a year before -a 20% increase. Fuel costs are expected to 12-month moving average basis.
continue to climb in 1979. wt," the PUC granted an increase considerably less Rates And The Regulatory Climate than w hat 111.&P had asked for, the commission did handle The company entered into a new regulatory the application in a timely manner. The PUC issued a final environment in 1978 w hen for the first time Ill.& P filed a order on lit.&P's request about four months after it was filed. Aserage Cost of Fuel llI.&P Return on Ascrage 1516 199 (Cents Per Million llTU) Common l'quity 1974 1975 1976 1977 1978 1974 1975 1976 1977 1978 126.24 14 7r; yg I 105Sc I , 9c; 12.74 Nl.7g
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llased on the amount ofincrease the PUC approved and in addition to R&D activities of particular interest to llL& P's financial needs, the company may be required to lil.& P, the company continued financial support of the seek rate relief on a regular basis. Electric Power Research Institute (EPRI), w hich Research And Development cons lid tes m j r rese reh efforts of both publicand 111 &P's R& D cfforts are designed to develop new inmtor owned utihties. sources of energy and find better ways to use and conserve Improving Energy Conservation the ones already available. In promoting the wise and ef ficient use of electrical in 1978, ilL&Pjoined other utilities , the Unisersity of energy,111 & P accomplishes two objectives. First, it holds Texas and the Department of Energy in the drilling of a down the growth in peak demand for electricity, thus geopressured-geothermal well 30 miles south of flouston. reducing the need for additional generating facilities w hich The purpose of the project is to determine if hot and highly in turn minimites capital, operational and maintenance pressuriecd water laden with methane gas can be tapped to costs. help meet the nation's energy requirements. Secondly, the company positions itself as one w hich is Drilling began in June. Iloweser,in December the well responsive to customers' concerns oser the rising cost of had to be abandoned at 15,700 feet after losing a piece of energy by offering assistance and advice on how to as oid drilling equipment downhole. A new well was begun in wasting energy and thus hold dow n electric bills. January,1919, near the site of the first. In 1978, llL&P made progress in achieving both these 111.& P is also contir.uing to help fund research in fusion goals. The company estimates its promotion of conservation at the Unisersity of Texas through the Texas Atomic Energy in all customer categories saved til &P more than $25 Research Foundation, which sponsors the UT Fusion million in future power plant construction costs. Research Center in 1978, construction began on the Texas A new Conservation Activities Division was formed in Experimental Tokamak (TEXT) at UT, a new atomic fusion 1978 to plan and conduct the company's residential and machine. It is expected to begin operation in 1980. commercial energy conservation programs. Its major Ill.& P is also involsed in a number of research projects accomplishments w ere: involving energy conservation: e Saw that 499 of all homes started in the service area e The company is monitoring the amount of energy joined the company's " Energy Checked" program. consumed by 20 test homes heavily equipped with The " Energy Checked" home is designed to meet energy-sasing components. Electric service costs for energy efficiency standards which result in lower the test homes will be compared to those of 10 peak demands.
" cont rol" homes similar in size and design. When e For existing homes, provided information and cost / benefit figures are available, they will be assistance to more than 30,000 customers through provided to builders and home buyers desiring to prese ntations, personal consultation. and literature employ ef fectise energy-sasing measures in home mailouts. Advice concentrated on weatherizing construction. homes and modifying usage habits to conserve e 'I he company is prmiding direction and guidance to energy.
Rice Unisersity for a study of how changes in comfort e in the business area, utilized personal calls and levels affect attit udes tow ard energy conservation. It is energy audits, seminars, and handout literature to expected the results will be used to demonstrate to the educate husiness customers on energy conservation business comm:inity that certain consersation meas- opportunities and how to implement them. ures can be implemented without adsersely affecting In addition to Conservation Activities' efforts, operations. approximately 809 of 111 & P's adsertising in 1978 dealt with e ~I he company is also studying the economics of using energy conservation. Such advertising generated more than waste heat from air conditioners for water heating. 150,000 t equests for literature on the subject. Aserage Residential Cost Per Kwh Aserage KWII t'se Per Residential K'"I'I ' Customer 1974 1975 19'6 1977 197N i974 1975 1976 1977 1973 3.16e g4 3 14.734 I 13.OlM 13.146
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Oppo site: Drillme pope u imed upfor u w on a geopres wreJ-geothermal a eli m the badground flL& P. the Umversity of Texas, other utolories anJohe Department of huergy arefinam mg the drollmg project. IIL&P'> load management and conservation efforts will instrument testing and air quality and environmental be intensified in 1979. Provisions within the Federal Energy studies. Conservation Policy Act will require the company to make At the complex, work continued on a 100,000-square-on-site audits of homes and assist homeowners in arranging foot maintenance shop. Scheduled for completion in the first installation of energy saving devices. The act will also quarter of 1979, the facility will enable the company to make require llL&P to arrange financing for the purchase of these more in-house repairs of turbine generators and large pieces devices and to provide detailed cost / benefit information. of equipment associated with power production. IIL&P is now working to comply with the guidelines. In the northern sector of the city, where a good portion f 11 ust n's building boom is taking place, progress was Protecting The Environment made on construction of the Gears Road Service Center. The company's expenditures for environmental The 87,000-square-foot center will be finished in 1979. protection facihties have risen dramatically as a result of the start of coal burning. Human Resources And Efficiency in 1978, llL& P spent $32 million for environmental Labor relations throughout the liL& P system remained protection equipment. The company expects to spend $54 good in 1978. A new two-year agreement between the million for such facilities in the next two years. Expenditures company and the International Hrotherhood of Electrical for this equipment for the five years ending 1978 totaled Workers, w hich represents approximately 3,350 bargaining $79.6 million. unit employees, became effective May 26. Improving Service While liL&P's operating efficiency has been The company has long been proud ofits customer consistently good, the company has mstituted a number of service record. Results of a survey conducted in late 1977 measures to hold dow n operating costs and increase the showed that 92% of those customers queried felt their elficiency of its employees and operations. electric ser ice was reliable and dependable. An analysis of the company's operations begun by liowever,it became esident to the company in 1978 that liL&P in 1975 is still ongoing. The study is being made the phenomenal growth in the number of customers and the under the direction of a management consulting firm, with resultant rise in workload volumes was challenging IIL&P's the cooperation and assistance of special company audit ibility to respond quickly to requests for service. teams nd an llL&P coordinator. , Consequently, a task force was created to evaluate The firm has presented staffmg, organizational and llL& P's ability to respond to customer needs and make procedural recommendations in the areas of materials recommendations to improve customer response. As a result man gement, data processing and clerical / administrative of its proposals, dis ., managers were designated in geographic areas throughout the system and given T date, approximately 53 milh.on in savings has been responsibility to coordinate service activities in their documented by changes made as a result of the audit. respective areas. IIL&P's top management team was strengthened in This decentralization of responsibility has resulted in 1978 w hen following the annual shareholders' meeting, two better and faster response to customer needs. Don Sykora, new officers were elected and tu o others appointed to new Commercial Vice President, assumed direction of this effort positions in the company. The new officers are Allen R. Heavers, Vice President-and the new title of Vice President of Customcr Relations. Purchasing & Services, and Edward A. Turner, Vice Building New Work Centers President-Power Plant Construction & Technical Services. In 1978, the company completed a 27,000-square-foot Heavers, w ho has 30 years of service with liL&P, was Chemical Laboratory building at its Energy Development gisen added responsibility over Architecture, Huilding Complex. The facility houses labs for health physics, Services and Special Services. lie was formerly General materials testing. metallurgy, fuel oil and coal analysis, Espenditures for Ensironmental 1516 207 Protection Facilities (Millions) Number of Customers (Thousands) 14" 6 1977 1978 1979 1980 19?4 1975 1976 1977 1978 132.0 N9 3.5
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Oppoute: Katar Dubes. an HI A Plah tes hmcian. condu< ts an anah sis in the compens 's Chemical BudJmg. u his h n as completed m 197K Manager of Purchasing & Stores. Turner was given responsibility for Power Plant Construction and Technical Services. I ormerly General Manager of Transmission & I)istribution, Turner has been with the company since 1954. J. I). Cowart was appointed to the new position of Group Vice President-Administratise and it. Stese i.etbetter to Comptroller. Cowart continues to have responsibility for the company's administratis e actis ities, including Personnel Relations, Corporate Services, l.and & Right of Way, as well as Operational Research and Security f unctions. Cowart has been with III.&P since 1943. I.etbetter, previously Assistant Comptroller, continues in his new job to manage the company's Accounting ()epartmen:. liejoined 111.& P in 1974. Obtaining Public Understanding Ill.&P broadened its efforts in 1978 to more ef fectively communicate an understanding of the issues m which the company is insohed. T hrough print, radio and television, the company emphasized the need to conserse energy, including how home weatherization measures and appliance selection and use affect electric bills. I)uring the year, voluntee, employee members of the company's Speakers llureau spoke to audiences totaling more than 17,000 on subjects including energy conservation, future energy sources, nuclear power and coal. To help junior and senior high school students better understand the production, transmission and use of electricity, the company added a full-time science demonstrator in 1978 who gase programs to more than 10.000 students.
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1516 204 17
Oppostre: A prvJm tuon platform about enght mJes out un the Gutt of tre un o at the W 6 n ellm State Irm t RU n the largest ofses eval sw h platforms useJ m markermg prnmar r l uch 'ofIshore prodm tmn. Primary Fuels, Inc. Primary Fuels (PFI) expanded its activities during a petroleum engineers, estimated Primary Fuelinet prosed year in w hich production was limited by soft market deseloped producing and nonproducing reserses at M8.7 conditions. billion cubic feet of gas and I million barrels of condensate. Aserage daily producth n in 1978 was approximately 30 heimaica million cubic feet of gas per day and 362 barrels of Net Hero *ershic Rescr'e' condensate. PFI had the capability to market 60 million "" i " 9 F"d' cubic feet of gas per day in 1978. PFI's contribution to lil's net income was $7.4 million 3[;j,i m rondensate or 24 cents per share, as compared to $6.1 million or 21 cents rinsincation cubic ree Harrels
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per share on approximately 2.1 million fewer shares in 1977. 604,725 Prosed I)eseloped Producing 77.266 Shell Contract in 1978, PFI expanded its actisities when it signed an Prosed I)eseloped Nonproducing I I,400 430,369 agreement in August with Shell Oil Company to participate .l obl 6 L035A94 as a hmited partner in Shell's onshore od and gas exploration and production in most of the continental An osersupply of intrastate gas in 197H presented Pl:1 United States. from approaching its maximum production capability.
"Wr terms of the agreement, Shell and PFI will At year's end PFI had approximately 43.000 acres , t engage in drilling exploration and deselopment wells and of fshore leases obtained from the state. In February,19 79, producing oil and gas onshore in the lower 48 states, 14 tracts totaling 14,500 acres were acquired.
Of the 1978 total acreage, about 41ri was held by excluding Michigan and part of the Gulf Coast. Term of the partnership is three and one-half years with Primary Fuels commercial production or the presence of wells capable of iming the option of terminating the agreement at the commercial production. Remaining leases expire between t, .nning of each calendar year. 1981 and 19M3, unless they are successf ully drilled or the At year's end, PFI was participating with Shellin 19 state allows them to be pooled with other leases that are exploratory wells in nine states. Of the 13 wells completed, producing. two are oil producers and four others show promise of being Ihe El Gordo Field continued to be the most productive. productise of the fise fields discovered since the start of drilling in 1974. l.ocated close to Matagorda Island, El Offshore Actisity Gordo accounted for approximately 66C; of Primary Fuele Primary Fuels has a 50Ci interest in a joint oil and gas production in 1978. All natural gas from El Gordo is being exploration .cnture being conducted along the lower Texas purchased by llouston Pipe 1.ine Company under a contract Gulf Coast. w hich expires in 1996. Primary Fuels' share of offshore production in 1978 Five wells completed in 1978 have yet to be connected totaled approximately iI billion cubic feet of gas and 132,000 barrels of condensate. At year's end,26 of the 51 to the pipe line. wells drilled were commercial producers, including the senture's first oil well. Gas and condensate was sold to unaffiliated purchasers at an average price of approximately $1.91 per million 11 FU for the gas, alter all transportation charges and other adjustments, and $12.86 per barrel for condensate. At the end of 1978, Miller and I.cnts, I.td., independent 15t- '
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Primar) Fuels Net PFI Gas Production Income (Millions) (Hillions of Cubic Feet) 19 't. 19F 197N 19'6 1977 197N
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Oppmae: A Utahr s l'ueh una train heads mio the" Jumper house"at the W. .t. Parnh plant for unloadmg. Coal-fsred unas (from left)3. 6 and 7 are m the bakround. Utility Fuels, Inc. Utility Fuels (UFI) operated primarily as a supplier and flowever, at the present there are no commitments to sell transporter of coalin 1978. UFI was organized in 1973 to this uranium concentrate to III.&P or anyone else. handle the acquisition and delivery of fuels to Ill.&P's U FI will aggressively purste further fuel contracts in generating plants. 1979. It expects to purchase two unit trains of I 10 coal cars UFI's major accomplishments for the year were: each in April and Niay. UFI expects to own approximately
- the signing of a contract for a 25-year supply of coal; 2,500 cars by the time W. A. Parish Unit 8 goes on line in
- the acquisition from 111.&P of coal handling 1983.
facilities at the W. A. Parish plant: U FI sold 565 million of 9c'csecured notes in 1978 to e the purchase of 1,I50 railroad cars to haul coal from finance the purchase of coal handling equipment and coal Wyoming to the W. A. Parish plant;and ca rs.
- the completion of the first milling campaign at a uranium mine it owns in Wye ag.
in May, U Fl purchased from Ilt..P coal handling facilities. The same month, III.&P transferred its short-term coal contract with Kerr-McGee Coal Corporation to U FI. U FI also purchased a fleet of 1,150 coal cars. Coal Contract in June, U Fl signed a contract with Spring Creek Coal Company,a subsidiary of Northern Energy Resources Company w hose parent is Pacific Power & l.ight Company, for 181.1 million tons oflow-sulfur coal to be provided to Utility Fuels over a 25-year period beginning in 1980. The coal will come from a proposed mine near Decker, Montana, some 1,600 railroad miles from flouston, and will help meet U FI's contract commitments to Ill.&P for coal. The arrangement of UFI undertaking the fuel supply function benefits 111.&P in two ways: 1) It frees 111.&P capital to finance projects more closely related to prosiding electric service. 2) It enables UFl to take advantage of financing opportunities w hich cannot be utilized by 111.&P because ofits financial requirements as a utility. These two advantages combine to save money for shareholders and customers. I'ranium Mine In addition to its coal-related actisities, U Fl continued to make progress at a uranium mine located on an 80-acre site near Casper, Wyoming. In June, UFI completed its first milling campaign, processing of uranium ore into y ellow cak e, w ith 113,165 pounds of yellowcake made available to U Fl. Ilased on estimates of the lease's recoverable reserves, the project could yield enough uranium concentrate for a maximum of three years of fuel reloads for Allens Creek. 1516 207 9 20
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- Sumn>.ary of Consolidated Operations i l housamh of D ' <r .)
Operating Revenuer Electric .. . . . .. . $ 1,303,604 5 1,069,786 5 841,616 5 634,153 5 486,837 Fuel Sales . . . .. . 20,823 6,305 Oil and Gas .. . . . .. . . 25,011 19,470 9,558 2,372 Total Operating Reser,ues . . . 1,349,438 1,095,561 851,174 636,525 486,837 Operating Expenses: Electric: Operation and N1aintenance . 196,942 159,093 129,569 120,010 104,300 Fuel. . .. . . . . . 682,261 517,870 353,651 239,947 139,323 Other Taxes . . . . . . . 60,172 51,435 47,364 42,622 36,777 Cost of Fuel Sold . 15,489 6,319 Oil and Gas Operating Expcnses 5,449 3.960 1,515 304 Depreciation, Depletion and Amortiration. 8I,010 69,073 58,953 51,428 45,148 Total Operating Expenses 1,041,323 807,750 591,052 454.311 325,548 Net Operating income . . 308,115 287,811 260,122 182.214 161,289 Other Income-Net , .. .. 19,718 14,699 17,171 9,014 8,643 Fixed Charges . . . 100,397 79,I7I 81,204 74,861 54,11I Federal income Taxes. .. 98,779 97,703 90,775 51,949 52,245 Net income. . .5 128,657 $ 125,63p $ 105,314 5 64,418 5 63,576 Earnings Per Common Share . .5 4.21 5 4.41 $ 4.01 5 2.92 5 2.92 Dividends Per Common Share . .$ 2.12 $ 1.86 $ 1.61 5 1.56 5 1.50 Shares Outstanding-End of Year (000) . 31,089 28,828 26,752 23,752 21,752 Shares Outstanding- Average (000) . . 30,590 28,479 26,252 22.097 21,752 Electric Plant Investment (thousands of $): Gross Additions. . . . 482,403 436,294 310,500 321,023 266,247 Total Plant Investment . . 3,381,24', 2,943,997 2,494,712 2.191,706 1,872,217 Accumulated Depreciation. 512,604 450,946 396,417 348,185 310,469 4 of Total Plant investment . 13.2 15.3 15.9 16.0 16.6 Generating Statistics: Steam Electric Stations Economy-litu Per Net KWil Generated . 10,223 10.154 10,042 10,009 9,929 Turbine Name Plate Capacity (N1W) . . 11,056 10,427 9,791 9,429 9,080 N1aximum System 1.oad (N1W). . 9,362 8,645 8,219 7A65 7,150 Electric Plant in Service Per KW of N1aximum System Load (5). 288 272 235 239 229 General Statistics: Kilowatt lic.ur Sales (000) . . . 50,275,767 45,885.725 40,858,700 38,146,548 35,807,282 Number of Customers. . .. 891,509 809,820 759,085 725,387 701,352 Average Residential Use (KWil) . . 14,734 14.266 13,146 ' i.-08 13,018 Average Residential Cost Per KWil . . 3.36c 3.09c 2.83c 2.38c 2.07 c flook Value Per Common Share. . .5 33.04 5 31.14 5 28.27 5 26.42 5 25.61 Ascrage Cost of Fuel (Niillion llTU) . 126.2c 105.5c 81.7c 59.8e 37.0c 1516 209 9 22
Management's Discussion and Analysis of Summary of Consolidated Operations Operating Revenues 1977. Current gas and condensate production is limited by Electric. Operating revenues increased $233,818,000 or market demand. The gas is being sold under long-term 22G in 1978 as compared with $228,170,000 or 27R in 1977. contracts to unaffiliated purchasers for use within the state Such increases base been attributable to recoveries of of Texas at an average price, after all transportation charges increased fuel costs, rate increases, and increased kilowatt and other adjustments, of approximately $2.1I per thousand hour (K Wil) sales in the following relative proportions: cubic feet. The contract prices are subject to future Recmcry of escalation. Condensate, which is subject to federal price increased Rate increased controls,is being sold at $12.86 per barrel. Comparatne Periods l'uel Cmts increases KWH Sales g g 1978 v.1977 73 % 5% 22G . . - 1977 v.1976 74 % 3Q 23 % items increased because of genera! inflationary pressures, increases in recoveries of fuel costs (ae " Operating increases in the number of customers and the amount of Expenses - Electric - Fuel Costs," below) have risen as a electricity generated, and the performance of scheduled result of increased generation and sharp increases in the cost maintenance. During 1976, these same factors had an of fuel. Ilouston 1.ighting & Power Company (llL&P),as impact on operation expenses; however, maintenance a result of a settlement in April 1976 with the City of expenses uere lower than normal primarily due to less llouston, was authorized to make monthly rate adjustments scheduled maintenance and a three-mon:h strike. The net for certain changes in labor costs, depreciation, interest, and effect of these items resulted in an increase in operation dividend requirements on preferred stock. This Cost cf and maintenance expense of 249 in 1978 and 239 in 1977. Service adjustment accounted for electric operating revenues Fuel. The cost of fuel to 11L& P has increased of $5,498,000 and $16.499,000 in 1977 and 1978, substantially oser the past four years. Of the S164,391,000 respectisely. In November 1978, the Texas Public Utility and $164,219,000 increases for 1978 and 1977, Commission issued an order granting 11L&P a rate increase approximately 5111,891,000 and SI17,290.000, respectively, and eliminating the Cost of Service a justment. The new were attributable to higher prices with the remainder of the electric rates were placed into effect during December of increase resulting from increased generation. Since 1978. December,1975, increased fuel costs base been recovered on Sales in 1976 were adversely affected by unseasonably a current basis through application of fuel adjustment n ild weather, particularly with respect to residential users. clauses in its rate schedules. Fuel Sales The increases in fuel sales reDect the delin ry 11L&P's fuel requirements during 1978 were met and sale of coal by Utility Fuels, Inc. (UFI) to Ill.&P whi h primarily with natural gas. In August, the W. A. Parish Unit began in Julv of 1978. (See " Operating Expenses - Cost or No. 5 generating station achiesed a 100% coal burn. In Fuel Sold," below.) January,1979, U nit No. 6 was placed on full coal burning Oil and Gas, Sales of oil and gas to others by Primary status. It is expected that coal will account for 9Q of Fuels, Inc.,(PFI) a w holly-ow ned subsidiary of Ilouston llL&P's fuel requirement in 1979. Industries (11I) increased to 525,011,000 in 1978 as compared O her Taxes. These taxes increased 17G during 1978 with $ 19,470,000 in 1977. Increases in sales of oil and gas are and 9% during 1977 as a result of increased valuations, due primarily to increased production. Daily production at additions to property and increased revenues. the end of 1978 was approximately 30 million cubic feet of Cost of Fuel Sold, Increases in the cost of fuel sold gas and 262 barrels of condensate. Net production totaled reflect the delivery and sale of coal by U F1 to 11L& P w hich approximately I!,049 million cubic feet of gas and 132,000 was initiated in July of 1978. The fuel delivered was used in barrels of condensate during 1978 as compared with 9,458 11L&P's first coal-fired unit w hich switched from natural million cubic feet of gas and 81,000 barrels of condensate in gas to coal. R es enues PFI Contribution to ill Earnings (Millions) (Cents Per Share) 1974 19/5 1u76 1977 1978 1976 1977 1973 51349.4 24c 51.095 6 sm 1516 21n n
% v/
Oil and Gas Operating Expense. Increases in oil and gas additions to the property insurance reserve which are expenses wert a result of greater production from existing expensed currently for accounting purposes but not allowed reserves. PFI folin as the full-cost method of accounting for as a deduction for tax purposes until a loss is incurred. As a costs incurred in the exploration and development of oil and result, the effective tax rate for 1976 1977, and 1978 was gas reserves. The full-cost method requires capitalization of 43.6ci,41.392 and 40.492, respectively. such costs with amortization as estimated reserves are Earnings. Net income for 1978 increased $3,021,000 produced. (See Note I to the Notes to Consolidated Financial resulting in earnings per share of $4.21 as compared with Statements.) $4.41 a share ir.1977 and $4.01 a share in 1976. Escalating Depreciation, DepIndon and imortisation. operating costs in 1978 limited the increase in earnings. Deprecir. ion expense was appr< ximately 3.3m of average Increased earnings in 1978 have been attributable to depreciable plant in service fo 1976 through I >78.The rate increases and increased KWil sales. New electric rates, increases in depreciation ey;mnse are attributable to w hich were placed into -ffect during December of 1978, were additions to depreciable Nant. based upon the higher cost levels being experienced in 1977 Other Income-Net. l . creases in this item relate primarily to and 1978. The effect of these new rates will not be fully increases in amouru for the Allowance for Funds Used realized until the current year. During Construction ( A FU DC) w hich corresponds to Construction Hudget and Financing. During February, changes in the average balance of qualified projects included 2,000,000 shares of common stock were sold by 111 at a in Construction Work in Progress. Since January 1, public of fering price of $29.30 per share. During June 1977, the debt portion of the AFUDC has been reclassified $19,200,000 of 4.7802 water pollution control revenue bonds as a reduction of fixed charges. The decrease ir other income were sold by lil.&P, during August $125,000,000 of 30-year in 1977 is attributable to this reclassification. First Mortgage Bonds were sold by 111.&P at an effective Fised Charges. Significant increases in annual construction interest cost of 8.91502,and during December $100,000,000 egenditures have required substantial external financing of 30-year First Mortgage I onds were sold by ill.&P at an through the issuance of debt and equity securities during a cifectise interest cost of 9.344ff. In addition, U FI, period of high capital costs. Such financings have resulted in sold $65,000,000 of 972 secured notes during 1978. Internally a significant increase in both interest expense and preferred generated funds enabled the company to finance the dividend requirements. See Statements of Subs: diaries' remainder of the 1978 construction program. Preferred Stock and 1.ong-Term Debt and Statements of in January, 1979,300,000 shares of $9.04 series Changes in Consolidated Financial Position. Other interest cumulatis e preferred stock uere sold by 11l.& P at a cost of charges decreased in 1976 and 1977 as a result of smaller 9.14?i and in February,1979, an ad. ional 2,000,000 shares aserage balances of short-term debt outstanding during of common stock we:c sold by 111 at a public sale offering those periods. Iloweser,in 1978 interest charges increased as price of $29.125 per share. Capita!i/ation at December 31, a result of a higher average balance of short-term debt 1978, adjusted to give eff ect to the February,109 sales of outstanding and increases in short-term interest rates. common and preferred stocks, reflected long-ters i debt Since January 1,1977, the debt portion of AFU DC of 51.601, preferred stock of 8.972 and common equity has been reclassified as a reduction of fixed charges. The of 39.5CI. decrease in fixed charges in 1977 is attributable primarily to this reclassification. Federal Income i nes. Changes in federal income taxes are generally related to changes in income excluding taxes and AFU DC. The company did not provide for deferred income taxes on interest which is deducted currently for tax purposes but capitalized for accounting purposes, and on 1516 zil aft'DC as a Percentage of Net income 1974 1975 1976 I"7 197N 22.V4 1974 1975 1976 197* 197N 19 Og i v j ] Qg 13 19 s
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^
399 399 dog Common i que y N u - .
Statements of Consolidated Income and Retained Earnings ( I housands of Doll.us) Year Ended December 31, 1978 1977 Resenues: Electric . , .. . . . . . . .. . . . . 5 1,303,604 5 1,069,786 Fuel Sales . ... . . .. .... . . 20,823 6,305 Oil and Gas , . . .. ... . . . .. . . . 25,011 19,470 Total . . .. . .. .. ... . . . . . .. I,349,438 1.095,561 Expenses: Electric: Operation and Maintenance (includes research and development co<.s: 1978, $8.775; 1977,59,752) . . .. .. .. . 196,942 159.093 Fuel. . .. . . . . ..... .. . . 682,261 517.870 Ot her Taxes . . .. . . . . . . .. 60,172 51,435 Cost of FuelSold . . . . . .. .. ... . . . 15,489 6.319 Oil and Gas Operating Expense .. .. . . .. 5,449 3.960 Depreciation, Depletion and Amortiration. . . . . 81,010 _ 69,073 Total. . . .. . . I 041,323 807,750 Net Operating Income . . . .. 308.115 287,811 Other Income: Allowance for Other Funds Used During Construction. . . 17,029 14.088 Other--Net . . .. . 2,689 611 Total . . . . .. . . 19,718 14.699 Jiud Charges: Interest on I.ong-Term Debt . . 87,140 71,888 Other Interest . 7,566 3,393 Allowance for Borrowed Funds Used During Construction . . . (11,639) (9,821) Preferred Disidends of Subsidiary . . . 17,330 13,711 Tot al . . 100,397 79.171 Income Before FederalIncome Taxes . .. 227,436 223,339 Federal Income Taxes: Current . . . (3,074) 13,2 I I Deferred: 1.iberalized Depreciation . . . 34,511 27,367 investment Tax Credit . . 53,989 47,635 Amortization of Investment Tax Credit . . (3,156) (2.310) Other -- Net . .. 16,509 I I,800 Total . . . . 98,779 97,703 Net income . . 128,657 125,636 Retained Earnings, Heginning of Year . . . 505,165 432,165 Total . . ... . 633,822 557,801 I. css Common Stock Disidends:S2.12 a share in 1978 and $1.86 a share in 1977 . 64,458 52.636 Retained Earnings, End of Year . . . . $ 569,364 5 505.165 Er enings Per Common Share (based on weighted aserage shares outstanding: 30,589,992 in 1978
;'d 28,478,757 in 1977) . . .
S 4.21 5 4.4 i Ser notes to consolidated financial statements. O 1516 212 25
Consolidated llalance Slicets < umo,.a.a nm
*be'3'-
Assets 197N 1977 Property, Plant and I:quipment- At Cmt: Plant (Note 3): l'roduction .. . . . ..... .. .. . 5 1,551,962 $ l.296.211 Transmission . . . . . .. . .. . .. . 290,951 273.3M I I)istribution. ... . .. .. . ... . . . 6N3,425 616.936 General .. . . . .. . . . . 165,7M9 160,127 Construction Work in Progress. . . .. .. .. . 621,175 538.109 Nuclear 1:uelIn Process. .. . . . . ... f?777 56.067 Coal llandling liquipment . .. . .. 71,.e,2 lilectric Plant Acquisition Adjustments. .. . . .. 3,166 3,166 Oil, Gas and Mining Property .. . . .... .. M9,348 57.245
'Iotal. .. . . . . .. 3,542,063 3.001.242 1.ess Accumulated Depreciation,1)epletion and Amorti/ation. . . . . 528.0M3 458.4H3 Property, Plant and Equipment-- Net . . .
3,013,9N0 2.542.759 Current Awets: Cash in llanks , . . .. . . 10,606 12.263 Temporary Cash Investments, at Cost . . . . 69,064 Wor king liunds and Special Depmits . . 4,650 3,953 Accounts Receivable: Customers (less accumulated prmision for uncolic;tible accounts) , 58,239 41.564 Others .. . . . 31,721 25.353 Iluel Stock: Oil, at As erage Cmt . 49,367 51.405 Coal, at I.ilo Cmt . . 25,304 Materiah and Supplies, at Average Cmt , , 24,023 20.07. 2,444 2.727 Prepayments . . . . Iotal . .. 275,41M I57.337 25,363 19.769 Deferred I)ehits . T O l' A I. 5 3,314,761 5 2,719,865 See notes to consolidated linancial statements. O 1516 a 3 26
ljabilities December 31. Common Stock Equity: 1978 1977 Common stock, no par; authoriicd,50,000.000 shares; outstanding,31,089.102 shares at Decemher 31, I978 and 28,828,236 shares at December 31,1977 (l.024,976 shares resers ed for conversion of SMG consertible debentures due 1985)(Note 8) , . S 457,515 5 392,425 Retained earnings . . . . . 569,364 505,165 Total. . ... . . . .. .. . 1,026,879 897,590 Preference Stock-No par; authorized, 10,000,000 shares, none outstanding. Cumulatise Preferred Stock of Subsidiary (Statement on following page) . 213,945 214,000 5%% Consertible Dehentures-Due 1985(consertible into common stock of the company at a rate of $38.96 a she e)(Note 8). . . .. 39,933 40,000 1.ony,-Term Debt of Subsidiaries (Statement on following page) . 1,377,646 1,074,980 Total Capitalization . . . 2,658,403 2,226,570 Current I.iabilities: Notes Payable (Note 4) . 56,497 31,929 Accounts Payable . . . 115,628 79,970 Taxes Accrued . . . . 21,099 23,552 Int < rest Accrued . ... . 28,491 23,375 Accrued I.iabilities to N1unicipalities . . . 27,972 23,695 Disidends Declared 4,332 3,759 Current Portion of 1.ong-Term Debt , 3,930 Other 12,711 I i,637 Total . . 270,660 197,917 Deferred Credits: Accumulated Deferred FederalIncome Taxes 192,855 142,254 Unamortized Insestment Tax Credit 153,161 107,765 Other 31,182 37,359 Total . . 377,198 287.3_78 Property insurance Reserse 8,500 8,000 Commitments and Contingencies (Note 5) TOTAL. S 3,314,761 5 2,719,865 1516 212 27
Statements of Subsidiaries' Preferred Stock and Long-Term Debt ( I nous.mh ot 1)oM.uq Cumulative Preferred Stock of flouston I.ighting & Power Company December 31. (Note 2)-Without par value; a uthorized 10,000,000 shares; outstanding 1978 1977 (entitled upon involuntary liquidation to $100 a share): 54 series,97,397 shares . . . . .. . . ..... . . ... . $ 9,740 $ 9.740 56.72 series,250.000 shares . .. .. .. .. .. .. 25,115 25,115 57.52 series,500,000 shares . .. .. . .. .. . .. . 50.225 50,225 59.52 series,400.000 shares .. .. . .. .. ... ... . . 39,372 39.372
$9.08 series 400,000 shares . ... .. . . . .. .. . . 39,395 39.395
$8.12 series,500,000 shares . .... . . . . . . . 50,098 50.153 TOTAL. . . . . ... . . . .$ 213,945 5 214.000 I.ong-Term Debt (Note 3):
llouston 1.ighting & Power Company: liirst mortgage bonds: Series 3%!i, dae 1981. . . .. . . . . 5 20,000 5 20.000 Series 2 %9, due 1985 . . . . . .. 30,000 30.000 Series 3%Q. duc 1986. .. .. . . 30,000 30,000 Series 4 %Q , d ue 1987 . .. . . . . 40,000 40,000 Series 39, due 1989 .. . . . . . 30,000 30,000 Series 4 %Q, due 1989. . . . .. 25.000 25.000 Series 4 %9, due 1992. . ... . . . . . 25,000 25,000 Series 5 %G. due 1996. . .. . . 40,000 40,000 Series 5 %9. d ue 1997 . ... . 40,000 40,000 Series 6%G due 1997. .. . . . 35,000 35,000 Series 6 %G, d ue 1998 . 35,000 35.000 Series 7%h, due 1999. . .. .. . . 30,000 30,000 Series 7%Q, due 200I . . . .. . . .. 50,000 50,000 Series 7 %Q , due 200I , 50,000 50.000 Series 8 %Q , d ue 2004 . . . . . 100,000 100,000 Series 10%;c , due 2004. 100,000
. . .. . .. 100.000 Series 8 %Q, due 2005. . .. .
. 125,000 125,000 Series 8 %G , d ue 2006 . . . .. . . 125,000 125,000 Series 8 %Q, due 2007 . . . . 125,000 125,000 Series 8 XG, due 2008 . .. . . . 125,000 Series 9%G, due 2008 . . . .. 100,000 Total . . . .. . . . . 1,280,000 1,055,000 7%G Water Pollution Control Revenue llonds, due 2004. 18,000 18,000 4.78G Water Pollution Control Resenue Ilonds, due 1998 (net of $2,274 of proceeds held by trustee) . . .. . .. .. . 16,926 Utility I uels, Inc.:
9G secured notes, maturing $7,200 annually through 1988. . . . 61,400 Other . .. . .. . . . . ., 1,320 1.980 T O T A I., . .. . . $ 1,377,646 5 1,074.980 See notes to consoli hted financial statements. O 1516 2l5 28
Statements of Changes in Consolidated Financial Position ( l housuah of Dollaro Year Ended December 31, 1978 1977 Source of I.unds: Operations: Net income . . . . ... . .. . ... .. .. .....$ 128,657 $ 125.636 Items Not Requiring Current Outlay of Working Capital: Depreciation, Depletion and Amortiration . .... ... .. .... . . 82,303 70,120 Deferred Federal income Taxes-Net . . ..... . . .. .. . 50,929 38,148 Insestment Tax Credit Deferred-Net < . . . .. . ... .... 44,380 39,190 Allowance for Funds Used During Construction . .. . . . (28,668) (23.909) Total . . . .. .... . .... .. ... . . 277,601 249,is5 Financing and Other: Sale of First Mortgage llonds . . .. .. . . . 225,000 125,000 Sale of Secured Notes . ... . . . . .. ... 65,000 Sale of Water Pollution Control Resenue llonds (net of proceeds held by '.rustec) . . . . . . . . . . . . 16,926 Sale of 500.000 Shares of $8.12 Series Preferred Stock. . . . . 50.153 Sale of 2.260,866 Shares of Common Stock . . . . . .. 65,090 Sale of 2.076,109 Shares of Common Stock . . . . .. 68.331 Other--Net . .. . . ..... . (5.299) 4.218 Total . . . . . . 644,318 496.887 Application of Funds: Construction and Nuclear Fuel Expenditures (net of allowance for funds used during construction) . . . .. . .... 530,594 466.256 Common Stock Dividends . . . . . . 64,458 52.636 Reclassification to Current Maturity of Long-Term Debt .. . . 3.930 Total . . . . .. . 598,982 518.892 Increase (Decrease)in Working Capital. . . ,5 45.336 5 (22.005) Changes in Components of Working Capital: Increase (Decrease) in Current Assets: Cash in Banks. . . . . S (1,657) 5 2.001 Temporary Cash Investments. . .. 69,064 Customer Accounts Receivable . . . . . 16,675 6,404 Fuel Stock . . 23,266 (2.369) Materials and Supplies . . . . 3,951 (5.408) Other . ... .. .. 6.782 4.781 Total . . . . 118,081 5,409 increase (Decrease) in Current Liabilities: Notes Payable. .. . . . . 24,568 25,625 Accounts Payable. . . . . . 35.660 10,085 Taxes Accrued . . . . . . . (2,453) (19,487) Interest Accrued . . . . . . . .. . 5,116 2.761 Current Portion of Long-Term Debt . . . . 3,930 Other .. .. . . 5,924 8.430 Total . . .. . . . . . . 72,745 27.414 increase (Decrease) in Working Capital. . . . . .. $ 45,336 S (22.005)
'ee notes to consolidated financial statements.
l$16 216 29
Notes to Consolidated Financial Statements I m the Y m s i e a hm t r 31. M S m! H" I. Accounting Policies.The following summarizes the more Revemees - Electric significant accounting policies of the company and its Resenues are recognized from the sale of electricity as bills subsidiaries. The accounting records of flouston I ighting & are rendered to customers. Rate schedules include fuel Power Company (IIL&P) are maintained in accordance adjustment clauses u hich permit recosery of fuel expenses in with the Uniform System of Accounts prescribed by the the month incurred. Texas Public Utility Commission. TcderalInce>me 7' aves Prim ip/c3 of Corno/idati m The company follows the policy of comprehensive The consolidated financial statements include the accounts interperiod income tax allocation, except that deferred of the company and its wholly ou ned subsidisacs,111.&P income taxes are not provided on interest which is deducted (the principal subsidiary), Primary Fuels, Inc. and Utility currendy for federal income tax purposes but capitali/ed for Fuels, Inc. ( U FI). All significant intercompany transactions accounting purposes, and additions to the property and balances are eliminated in consolidation, except insurance reserve w hich are expensed currently for purchases of coal by Ill.&P from UFl that are not accounting purposes but not allowed as a deduction for tax eliminated because of the distinction, for regulatory I urposes until a loss is incurred. purposes, between utility and non-utility operations. The insestment tax credit applied as a reduction of Plant federalincome taxes has been deferred and is being 1 he cost, reduced by contributions in aid of construction, of amortiicd over the estimated sersice lives of the related additions to electric plant, betterments to existing property, property. and replacements of units of property retired is capitalized. Property linurance Reserve Cost includes the original cost of contracted services, direct The costs of replacing major uninsured plant losses,less labor and material, indirect charges for engineering related tax effects, are charged to the reserve w hen incurred. supersision and similar merhead items, and an Allowance Retirement Plan for Funds Used During Construction ( AFU DC). AFUI)C, The company has a noncontributory retirement plan 6.5G on projects estimated to cost $50,000 or more and covering eligible employees. The cost of the plan was about estimated to require 90 days or more to construct, represents $4,773,000 in 1978 and $3,925,000 in 1977. Unfunded prior the cost of borrowed funds .' sed for construction, and a service costs of $20.863.000 are being amortired over a 40-reasonable rate on other funds so used. year period.1he policy of the company is to fund pension Maintenance of property and replacements and costs accrued.1 he actuarially computed value of sested renewals of items determined to be less than units of benefits does not exceed the fund's assets. property are charged to expenses --operation and Tarnino Per Common Share maintenance. The actual or aserage book cost of units of Earnings per common share are computed by disiding net property replaced or renew ed. plus removalcost,less salvage, neome by the weighted average number of common shares is charged to accumulated depreciation. outstanding during the respectise periods. Common stock The company computes depreciation using the straight- alents outstanding during the periods did not have a line method. The provisions for 1978 and 1977 were about materia! dilutise effect on earnings per share. 3.3q ofihe depreciable cost of plant. Di/aml Gas Property 2. Preferred Stock. Any r, art or all of IIL&P's prefe red The full cost method of accounting is used for oil and gas stock may be redeemed at the option of the compara at '.he operations. Accordingly, all costs of acquisition, exploration following per share prices, plus any unpaid accrued and des clopment of properties are capitalized. Depreciation, dividends to date of redemption: depletion and amortization of these costs are determined on 54 Series, $105.00. 56.72 Series: through July 31,1983, the unit-of-production method based on the cstimated $103.51; thereafter, $102.51. 57.52 Series: through proved reserves of producing oil and gas properties. October 31,1982, $105.35; therealter,5103.35 to 1516 217 30
$102.35. 59.52 Series: through September 30,1985, 1978 1977
$109.52; thereaf ter,5105.00 to $101.00. 59.0M Series: For the year ended I)ecember 31:
through March 31,1981, $109.0S; thereaf ter $105.00 to Weighted average aggregate
$101.00. $M.12 Series: through Nmember 30,1982, borrowings outstanding 5 78,125,000 $ 37,021,000
$109.37; thereaf ter, $106.25 to $102.25.
%. cig hted average interest rate on
- 3. l'irst Mortgage lionds, At December 31,1978, sinking or aggregate borrow mgs outstanding H.67e/c 6.69 7 imprmement fund requirements of Ill.& P's first mortgage bonds outstanding will be $22,100,000 for the year 1979, Maximum aggregate borrowings
$23,350,000 for ihe year 1980, $25,600,000 for the yea r 19XI outstanding at any ruonth end $133,900,000 $ 119,500,000 and $25,200,000 f or the years 1982 and 1983. Of such 5. Commitments and Contingencies, Significant requirements, $12,800,000 f or each of the years 1979 through commitments bas e been incurred in connection with 19H1 and $12,600,000 in 1982 and 1983 may be satisfied by ill.&l"s construction program and for nuclear f uel certification of propcrty additions at 100G of the purchases. I he construction program is presently estimated requirements and the remainder by certification of such to cmt about $624,647,000 in 1979, $800,N 10,000 in 1980, property additions at 166-2/ 34 of the requirements. Sinking and $917,687,000 in 1981. l'hese amounts do not include or imprmement fund requirements f or 1978 and prior years approximately $73,236,000 e.spected to be spent during such have been satisfied by certification of property additions. period f or uranium concentrate and nuclear fuel processing
~l he muable amount of Ill.&P first mortgage bonds is sersices for lil &l"s South I'esas and Allen Creek nuclear unlimited as to authoritation, but limited by property, plants and in addition, approximately $54,165,000 by UI I earnings and other prmisions of the mortgage and deed of for coal handling equipment and railroad cars which will trust and the supplementalindentures thereto. All of the serw fil.&l"s W. A. Parish plant. Commitments in company'+ plant is subject to liem securing its long-term connection with lil,&l"s construction program, principally debt. for generating plants and related f acilities, are generally
- 4. Short-Term Financing, I he interim tinancing revocable by fil.&P subject to reimbursement of requirements of the company \ operating subsidiaries are manufacturers', ir expenditures incurred or other net through short-term bank loans and the issuance of cancellation penalties.
ommercial paper. I he company has bank hnes of credit I he company has no material lease commitments. aggregating $270,000,000 (as compared with $241,000,000 fil.& P is presently negotiating certain vendor claims during 1977) w hich limit its total short-term borrowings and resulting f rom the cancellation in 1976 of one of tu o units at prmide Ior interest at the prime rate. No compemating its Allem Creek nuclear project. Reemery mer a lise-year balances are required by the lines of credit. period of claims settled through March 31,197X has been Additionalinformation with respect to short-term authorized by the regulatory authority. As remaining claims borrowings is as f ollows: are settled and rate application are pending. requests will be 1978 1977 n ade f or reemery. If the requests are denied, the costs will At December 31: he charged to income in the period such denial is made. Such llarrowings outstanding: charge,if any is not expected to hase a significant ellect on 7 llank I.oans $30,300,000 $31,100,000 tuture operaung results. In October 1978, Ill.& P terminated its financial Commercial Paper 25,000,000 support of a uranium exploration project in which it had
$55y00g00 $31.100.000 nvested $8,958,000 as of December 31,1978.111.& P will request rate relief sullicient to amortire such emts mer a Weighted average interest rate on reasonable period.11 the request is denied, the cmts will be aggregate borrowings outstanding i 1.20'7c 7.75 9 charged to income in the period such denialis made.
1516 218 31
- 6. Unaudited Quarterly Hesults of Operations.The following unaudited quarterly financialinformation for 1978 h
and 1977 includes,in the company's opinion, all adjustments (which comprise only normal recurring accruals) necessary for a fair presentation: Earnings per Operating Operating Set Common Resenues Income Income Share T housands of Dollars Quarter ended:
%f arch 31,1978 5265,336 5 54,616 $20.908 5 .71 June 30,1978 327,099 69,3I6 27,549 90 Sept.30,1978 426,373 l12,702 49,848 1.61 Dec. 31,1972 330,630 71,48I 30,052 99 %1srch 31,1977 212,947 52,074 20,400 74 June 30,1977 263,917 65,432 27,593 .96 Sept.30,1977 345,775 101,127 46.875 1.63 Dec. 31,1977 272,922 69,178 30,768 l os
- 7. Unaudited Heplacement Cost Ir. formation.The impact of inflation ex perienced in recent years has resulted in replacement costs of productive capacity that are significantly greater than the i..storical costs of such assets reported in the company's consolidated financial statements.
The company has computed the replacement cost data in accordance with Securities and Exchange Commission requirements and has included such data in its Form 10-K report filed with the commis, ion.
- 8. Subsequent Esent.On Jr.nuary 30,1979, Ill.& P sold 300,000 shares of $9.04 cumulative preferred stock at a price of $100 per share. The net proceeds from the sale uill be used to defray the cost of Ill.&P's construction program.
On February 7,1979, the company sold 2,000,000 additional shares of its common stock at 529.125 per share. l'he net proceeds of the sale will be invested primarily in the common stock of 111.&P and will be used by III.&P to defray Ihe cost ofits construction program. As a result of the sale, the conversion price for the outstanding SMG convertible debentures was changed from $38.96 to $38.34 per share, and the number of shares of common stock resersed for conversion for such debentures was increased from 1,024,976 to 1,041,549.
- 9. Heclassifications. Certain amounts previously reported in the 1977 financial statements and notes thereto hase been reclassified to conform with the 1978 presentation. These reclassifications had no effect on consolidated net income.
O 1516 219 32
Auditor's Opinion llouston Industries incorporated: We have esamined the consolidated balance sheets and the stat ments of subsidiaries' preferred stock and long-term debt of flouston Industries incorporated and subsidiaries as of !)ecember 31,1978 and 1977 and the related statements of consolidated income and retained earnings and changes ;n consolidated financial position for the years 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 above-mentioned consolidated financial statements present fairly the financial position of the company and its subsidiaries at December 31,1978 and 197 and the results of their operations and the changes in their financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. del.OITTE II ASKINS & SEI.I.S 11ouston, Texas February 12,1979 1516 220 33
IIouston Industries Incorporated Directors O fficers Thomas II. AhclI,( A.C) I). I). Jordan I.aw y er and Itancher l' resident and Chief fixecutise Wharton. Texas 01ficer Searcy Ilracewell,(C,1)) G. W. Oprea, Jr. Niember of 1.aw firm of Vice l' resident Isracewell & l'atterson 11.11. I)ean flouston, I cxas Vice l' resident and Treasurer
% m. R. Ilrow n,( A.C) J. M.1)ugdale Niember of 1.aw firm of Secretary and Assistant llaker & ilotts and General Ireasurer Counsel of the Company
. J. H. Johnuon llouston. I.cxas Ass stant Secretary II. H. I)can,(II)
Vice l' resident and Treasurer of the Company lloust on, ~I cxas John C. l{chols,(11,1)) Chairman of the lloard and Chief I:xecutise Of ficer Citizens llank & Irust Co. Ilay t ow n, 'I e xas floward W. Ilorne,(ll) l' resident of I he llorne Company lloust on, 'l exas I). I). Jordan,( A.II) l' resident and Chiet !!xecutisc Otticer of the Company llouston, l exas Wendel 1). l.c),( A,C)
' limber I. ands and I nvest ment s llouston. Icxas G. W. Oprea, Jr.. (ll)
Vice l' resident of the Company llouston, Texas J. G. Heese,( A II) Retired Chairman of the lloard of the Company llouston, Texas W illard I:. Walbridge,( A,1)) Senior Vice l* resident Corporate Attairs of Capital Cities Communications. Inc. Ilouston l'exas ( A) N1 ember of I!xecutis c Committee (11) N1 ember of 1 inance Committee (C) Niember of fixecutise Salary Committee (1)) N1 ember of Audit Committee O u 1516 22;
Houston Lighting & Power Company Officers
). D. Jordan President and Chief Ex-cutive Officer G. W. Oprea, Jr.
Executive Vice P esident T. A. Standish Senior Vice President J. D. Cow art Group Vice President Administratiu
- 11. R. Dean Group Vice President Accounting & Finance K. R. Ilinckley Group Vice President External Relations A. R. Heavers Vice President Purchasing & Services R. I.. Evans, Jr.
Vice President Operations R. St. AlcCuistion Vice President Engineering C. I. 31cNeese Vice President
'ederal Relations J.31. AlcReynolds Vice President Engineering Consultant D. E. Simicons Vice President Corporate Planning D. D. S3 kora Vice President Customer Relations E. A. Turner Vice President Power Plant Construction & Technical Services R. S. I.ethetter Comptroller J. .\1. Dugdale Secretary and Treasurer J. R. Johnston Assistant Secretary and Assistant Treasurer 1516 222 35
Annual Meeting The annual meeting of shareholders will be held g April 25,1979, at 10 a.m. in the Electric Tower,61I Walker, llouston, Texas. A formal notice of the meeting accompanied by a proxy statement and proxy form will be mailed to shareholders on or about March 19,1979. Executive Offices Electric Tower, llouston, Texas Mail Address: 611 Walker, P O. dox 1700, liouston, Texas 77001 Telephone:(713) 228-2474 Stock Listing flouston Industries common stock is traded under the symbol IIOU on the New York and Midwest Stock exchanges. Transfer Agent for the Common Stock Texas Commerce llank National Association, hcaston, Texas Registrar for the Common Stock First City National llank of flouston, llouston, Texas Trustee Under Indenture for Convertible Debentures llankers Trust Company, New York, New York g Auditors Deloitte liaskins & Sells, llouston, Texas Counsel llaker & 110tts, llouston, Texas Dividend Disbursing Agent fortheCommon Stock Texas Commerce llank National Association, llouston, Texas Disidend Reinvestment for the Common Stock For the convenience of shareholders, dividends may be automatically reinvested in flouston Industries common stock. For information, contact Ms. A.:n Cherry Texas Commerce llank, P.O. Ilox 2558, llouston, Texas 77001. (713) 236-4636 SEC Form 10-K A copy of the annual report to the Securities and Exchange Commission on Form 10-K may be obtained without charge upon written request to: The Secretary, at the flouston Industries executive offices. O 36
Centra. 'ower anc Lig,t Company Annua. Report 1978
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C aairman's Letter O For Central Power and Light Com- supplies in the future has also im- just three years ago. Maintaining the pany 1978 was a year of continued proved in recent years because the earnings levels and debt coverage growth. Kilowatt-hour sales in- Company has expanded its at>ility to ratios necessary to attract such funds creased 7.1% and revenues, aided burn fueloil as an alternative to natu- e reasonable rates will have to con-by rate increase to wholesale cus- ral gas and because coal and nuclear tinue as a high management priority. tomers and by slightly higher fuel capacity will be added in the near it will also require the cont . ed co-prices, were up 10.5% future. The downward turn of sales operation of all employees in main-Several factors contributed to the brought on by rising fuel prices in taining a highly efficient operation. growth. Among them wereindustrial those rec"ssion years has been re- Difficult times su.h as the Com-expansions, population growth, a versed, and sales have returned to pany has experienced in recent years healthy economy, favorable weather giowth trends that are close to his- serve to prove again that a com-conditions, relatively stable fuel torical patterns. pany's most important asset is its prices, and greater customer accep- There is good reason to believe that people. An active recruiting program tance of the higher costs of electricity. the years ahead will bring a continua- designed to keep the Company But since it was the second consecu- tion of growth and progress to South staffed with well-qualified employees tive year for most of these factors to Texas and to the Company. Agricul- produced good results in 1978, and a j,revail, sales and revenue gains were ture, long the mainstay of the re- training program, centinually refined modest when compared to the large gion's economy, is healthy and to meet changing needs, helped em-increases reported in 1977. growing. Industry is expanding and ployees develop additional skill - Special efforts to control costs were record numbers of new industrial The Company made substant continued during 1978 and contnbu- prospects have recently shown inter- progress in carrying out its Affirma-ted to an improvement of 18% in net est in the area. Tourists and winter tive Action plan and continued to income. residents are seeking the South Texas work actively with organizations Some of the basic conditions which sun in ever-growing numbers and which seek greater opportunity for affect the Company's operations are adding hundreds of millions of minorities and females. have improved considerably since dollars to the economy. It is a pleasure to acknowledge the 1974 and 1975. In those years the But the future will not be without support of the Company's employ-prices CPL paid for boiler fuel were challenges. Chief among these will ces. Their dedication and initiative escalating very rapidly. Fuel prices be the need to raise capitalin unprec- have played a key role in solving have now leveled significantly, and edented amounts. For the three-year problems of the past just as they will during the past two years the Com- period 1979-1981 budgeted capital undoubtedly contribute immeasur-pany's unit fuel costs have risen at a expenditures are $M9.2 million, an ably to successfully meeting the chal-lesser rate than that of inflation. The amount that is greater than the Com- lenges of the future. certainty of having adequate fuel pany's total investment in gross plant
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/M R. W. H irdy /
Chairman and Chief Exec stive Officer Mmh 1,1979}}