ML20003E975
| ML20003E975 | |
| Person / Time | |
|---|---|
| Site: | Comanche Peak  |
| Issue date: | 03/31/1981 |
| From: | Price G TEXAS POWER & LIGHT CO. |
| To: | |
| Shared Package | |
| ML19240B984 | List:
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| References | |
| 3780, NUDOCS 8104170612 | |
| Download: ML20003E975 (33) | |
Text
{{#Wiki_filter:._ De ckef No. 3 7to 1 2 3 4 5 6 7 DIRECT TESTIMONY OF 8 9 j 10 GARY L. PRICE 3j 12 13 FOR 14 15 16 TEXAS POWER & LIGHT COMPANY 17 18 19 20 MARCH 1981 l 21 22 23 24 25 26 38.10 4.17 0 h/fl= 27 28 'f ,4 a* g a S
.--~- PAGE 1 of 18 DIRECT TESTIMONY OF GARY L. PRICE 1 2 Q. WILL YOU STATE YOUR NAME AND ADDRESS PLEASE? 3 A. Gary L. Price, Texas Power & Light Company, P. O. Box 226331, Dallas, Texas. 4 Q. WHAT ARE YOUR POSITION AND RESPONSIBILITY FOR TEXAS POWER & 5 LIGHT COMPANY? 6 A. I am Treasurer and Assistant Secretary. As the chief accounting officer of the 7 Company, I have overall responsibility for accounting matters and cash manage-8 ment. I also participate in arrangements for long-term financing of the Company. 9 Q. WOULD YOU BRIEFLY DESCRIBE YOUR EDUCATION, PROFESSIONAL 10 OUALIFICATIONS AND COMPANY EXPERIENCE? 11 A. I received a B.B.A. degree from Baylor University in 1966. I began my career 12 with Texas Power & Light as a trainee immediately fcilowing graduation. In 1969, 13 I became Supervisor of Budgets and in 1972, I became Manager of General 14 Accounting. I was elected Assistant Treasurer in 1975, and in November of 1980, 15 I was elected Treasurer and Assistant Secretary. Included in my fourteen years 16 with the Company are appearances before numerous city councils and the Public 17 Utility Commission of Texas concerning rate applications of the Company. 18 I became a Certified Public Accountant in 1968, ana i belong to the Texas 19 Society of Certified Public Accountants, the Dallas Chapter of Certified Public 20 Accountants and the American Institute of Certified Public Accountants. 21 O. TO WHAT EXTENT DO YOUR DUTIES BRING YOU INTO CONTACT "/ITH THE 22 INVESTMENT COMMUNITY? 23 A. For the past few years I have been involved in meeting with investment banking 24 firms during the issuance of new securities and consultation with individual 25 investors, security analysts and other parties interested in Texas Power & Light's 26 securities, including agencies that rate the Company's securities. 27 Q. M R. PRICE, WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS 28 PROCEEDING? Im.<
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PAGE 2 cf 18 1 A. There are several areas of major importance that I will address in my testimony. First, I will discuss the present financial position of the Company and 2 describe some of the events that have contributed to the Company's current 3 4 financial status. At the same time, I will comment on the capitalization of the 5 Company as it relates to Schedule H of the rate filing package which I am G sponsoring in this proceeding. 7 Secondly, I will discuss the return on common equity that the Company is ~ 8 requesting in view of the recommendations contained in the testimony of \\1r. 9 Luf tig and Dr. Brigham. 10 Third, I will discuss the composite overall cost of capital we are requesting 11 and how the requested return relates to and affects the Company's financial 12 integrity. 13 Fourth, I will discuss the necessity for inclusion of 100% of the adjusted 14 test-year-end le fel of CWIP in the rate base and a continuation of the current 15 recovery of fuel costs through the fuel adjustment clause. 16 Q. PLEASE DISCUSS THE CO\\1PANY'S PRESENT FINANCIAL CONDITION. 17 A. The Company has, over the past ten years or so, been involved in a massive 18 construction program to convert from natural gas as a boiler fuel to more 19 abundant and less expensive lignite and nuclear fuels as Mr. Spence has previously 20 testified. This program has been detrimental to the investor but the customer 21 has benefited significantly in that the fuel cost savings through the use of lignite 22 have amounted to millions of dollars. As a result of our construction program, we 23 have nearly quadrupled our plant investment during this period which has resulted 24 in great pressure being exerted upon the Company's financial position. 25 Q. MR. PRICE, COULD YOU EXPLAIN EXACTLY WHAT YOU MEAN WHEN YOU 26 SAY PRESSURE HAS BEEN EXERTED UPON THE COMPANY'S FINANCIAL 27 POSITION? 28 A. Yes. As shown on Exhibit GLP-1, our total electric plant has increased from $760 TEXAS POWER & LIGilT COMPANY
c PAGE 3 of 18 million at the end of 1970 to over $2.9 billion at the end of 1980. As shown on j 2 Exhibit GLP-2, the Company's internal generation of capital requirements has 3 been inadequate for many years. As a result of the Company's cash earnings 4 having been inadequate, the Company has had to acquire a disproportionately 5 large share of its capital requirements externally. Due to this circumstance, G coupled with the fact that interest rates on new debt are substantially higher than 7 our embedded cost of debt, fixed-charge coverages have declined significantly to 8 3.3 times in 1980, as shown in Exhibit GLP-3. This exhibit s' hows TP&L's 9 supplemental coverages which include our a!!ocable portion of the interest on Texas Utilities Fuel Company (TUFCO) and Texas Utilities Generating Company 10 11 (TUGCO) senior notes. Exhibit GLP-4 shows that, while AFUDC as a percent of net income available for common has remained in the 20 percent range over the 12 13 past few years, it increased significantly in 1980 over 1979 and will increase even further as a result of construction expenditures averaging over $400 million per 14 15 year over the next few years, unless adequate amounts of CWIP c,re included in IG the Company's rate base. As the CWIP balance increases, without corresponding 17 rate base inclusion, the AFUDC to balance for common ratio becomes con-18 siderably higher and, thus, the quality of our earnings much lower. 19 Q. MR. PRICE, WHILE THE FINANCIAL INDICATORS YOU JUST DISCUSSED 20 HAVE DETERIORATED OR REMAINED BELOW ACCEPTABLE MINIMUMS, l l 21 HASN'T THE COMPANY ACTUALLY EXPERIENCED AN INCREASE IN THE f 22 RETURN ON COMMON EQUITY TO A LEVEL ABOVE THE 15.5% AUTHORIZED l 23 IN DOCKET 3006? 24 A. On the surface it might appear that we earned our authorized return; however, if 25 we examine the numbers, taking into consideration that the Company was granted 26 a return on unamortized investment tax credits at the composite cost of capital, 27 we actually fell short by 116 basis points as shown in Exhibit GLP-5. In addition, 28 when our actual earnings are adjusted to remove the effects of the abnormally hot TEXAS IUWER & l.lGIIT COMPANY
PAGE 4 of 18 1 summer we experienced in 1980, the earned return falls short of the authorized 2 return by 219 basis points. This is especially troublesome in an inflationary 3 period such as that of the past few years since the Company's base rates must be 4 adequate to cover the cost of service including an adequate return on the 5 Company's common equity without relying on increased revenues due to abnormal 6 weather. The Company was fortunate that we did have a hot summer, since it 7 helped to partially offset the impact of inflation and the ongoing effects of 8 attrition. As shown in this filing, rates are not adequate and it would not be 9 prudent to hope for another record-breaking heat wave to produce the necessary 10 base rate revenue. Moreover, a 15.5% return on common equity is inadequate in 11 view of today's market conditions as verified by Mr. Luf tig and Dr. Brigham. As 1 12 stated before, we have saved the customer millions of dollars while the common 13 stockholder has nct been receiving an adequate return. As shown on Exhibit 14 GLP-6 the market price of the stock of Texas Utilities has not been above book 15 value since about September 1978. It is very obvious that the market place is 16 telling us that our earnings are inadequate. 17 Q. MR. PRICE, DID THE ABNORMAL WEATHER EXPERIENCED IN 1980 AFFECT 18 THE FINANCIAL INDICATORS SHOWN ON EXHIBITS GLP-2, GLP-3, AND 19 GLP 4. 20 A. Yes. Each of these financial indicators were improved by reason of the 21 abnormally hot weather experienced in 1980 over what they would have been had 1 22 we experienced normal weather. Internal cash generaton for 1980 was 42.8%; l 23 even that inadequate percent of internal generation was better than what it would 24 have been had we experienced normal weather (39.8%). The inadequate fixed-i 25 charge coverage realized in 1980 (3.34 times) would have been 3.15 times if I 26 normal weather had been experienced. The AFUDC as a percent of net income I 27 available for common, whic.h rose to the unacceptable level of 27.0%, would have l i 28 risen to 29.3% had the 1980 weather been normal. I h TEXAS LOWER & I.lGHT COMPANY ~
PAGE 5 of 18 1 Q. MR. PRICE, WOULD YOU PLEASE DESCRIBE THE COMPONENTS OF THE 2 COMPANY'S CAPITAL STRUCTURE? 3 A. Yes. I have prepared Exhibit GLP-7 which shows, in column (b), the Company's 4 actual capital by source at December 31, 1980. At the end of 1980, the Companv 5 had total capitalization of $2.4 billion made up of long term debt, preferred stock, 6 common stock equity and unamortized investment tax credits. I will discuss this 7 exhibit and the adjustments i have made to the capital structure at a later point 8 in my testimony. 9 Q. MR. PRICE, WOULD YOU BRIEFLY DESCRIBE ANY FINANCING RESTRIC-10 TIONS IMPOSED BY THE COMPANY'S MORTGAGE, DEBENTURE AGREE-11 MENTS AND ARTICLES OF INCORPORATION? 12 A. Yes, sir. With respect to our mortgage bonds, new issues must be based on 13 property additions, with the maximum amount of new issues being limited to 60% 14 of such additions. New issues of mortgage bonds may ng be made unless, for 15 twelve consecutive months out of the last preceding fifteen months, earnings 16 before income taxes were at least twice the annual interest requirements on all 17 bonds at that time outstanding, including the additional new issue proposed. 18 The Company's sinking fund debenture agreements provide, among other 19 things, that no additional junior funded debt (debentures or debt ranking equal 20 thereto) may be issued unless earnings for twelve consecutive months out of the 7 21 last fif teen months, computed before income taxes, were at least twice the 22 annual interest requirement on all outstanding indebtedness of the Company, 23 ncluding interest on the proposed junior funded debt. Af ter incurrence of the 24 additional debt, all similar amounts of debt of the Company may not exceed 25% 25 of the outstanding mortgage bonds plus capital stock and surplus. The debenture l 26 agreements also contain dividend restrictions on common stock which are designed to maintain the aggregate preferred and common stock equity above 33 27 28 1/3% of total capitalization. Also, each issue of the sinking fund debentures has a TEXAS POWER & l.IGIIT COMPANY [
PAGE 6 of 18 1 cash sinking fund provision whin requires a 2% annual sinking fund requirement I commencing in the fif th year fo!!owing issuance of the debentures, so that 40% of 2 3 the issue will be redeemed by the sinking fund prior to final maturity. 4 The Company is also obligated for several series of pollution control revenue 5 bonds sold by the Sabine River Authority of Texas and the Brazos River Authority 6 of Texas to finance construction of pollution control facilities at several of the 7 Company's jointly-owned generating stations. With reference to the Company's preferred stock, new issues may not be 8 g 9 made unless, for twelve consecutive months out of the last fif teen months, 10 earnings before income taxes were at least i 1/2 times the sum of (O the annual 11 ir.terest requirement on all indebtedness, and (2) the annual dividend requirement 12 on all shares of preferred stock outstanding including the proposed issue. 13 Q. WHAT QUALITY RATINGS HAVE BEEN ASSIGNED TO T* E COMPANY'S OUT-14 STANDING DEBT AND PREFERRED STOCK ISSUES BY THE TWO MAJOR 15 RATING AGENCIES, MOODY'S INVESTORS SERVICE, INC. AND STANDARD & 16 POOR'S CORPOR ATION? 17 A. The Company's First Mortgage Bonds have been designated triple A, the highest 18 bond rating of both agencies. The Sinking Fund Debentures and Pollution Control 19 Revenue Bonds have been assigned a double A rating by both agencies since they 20 are not secured by property but only by the general credit of the Company. 21 The Company's preferred stock is rated double A by both rating agencies, 22 similar to our debentures and pollution control revenue bonds. 23 in order to maintain these ratings, the deterioration of the Company's 24 financial indicators must be reversed. 25 Q. DOES THE COMPANY HAVE ANY OBLIGATIONS NOT INCLUDED IN THE 26 CAPITALIZATION SHOWN IN EXHIBIT GLP-7? 27 A. Yes. Through our Operating Agreement with Texas Utilities Generating Company 28 (TUGCO), the Company is, in effect, obligated, along with Texas Electric Service TEXAS POWER & I.IGIIT COMPANY
~ PAGE 7 of 18 Company (TES) and Dallas Power & Light (DP&L), for $400 million of Senior 1 Notes issued by TUGCO to finance its lignite mining operations. There are two 2 separate issues of TUGCO Senior Notes, one issue in the principal amount of $200 3 million due in September 1998 with an interest rate of 9.20% and a second issue of 4 $200 million due November 1999 bearing interest at 10.45E 5 Under a separate but similar Operating Agreement with Texas Utilities Fuel 6 Company (TUFCO), the Company is obligated along with TES and DP&L for $100 7 milli n of 8.50% Senior Notes due December 1996. In addition, before rates fro n 8 this proceeding go into effect, TUFCO will issue an additional $50 million of g Senior Notes. 10 jj Q. MR. PRICE, SINCE THE PRINCIPAL AMOUNTS OF THE TUGCO AND TUFCO SENIOR NOTES DO NOT APPEAR ON THE COMPANY'S FINANCIAL STATE-12 MENTS AS A DIRECT LIABILITY, WHAT IS THE IMPACT OF THESE NOTES ON 13 THE COMPANY'S CAPITAL REQUIREMENTS AND INTEREST COVERAGE .4 REQUhtEMENTS? 15 16 A. Under the requirements of the Securities and Exchange Commission (SEC), we must include our pro rata portion of interest on the TUGCO and TUFCO Senior 17 Notes in the calculation of our fixed charge coverage as if it were our own direct 18 liability. In order to maintain an adequate SEC fixed charge coverage, including 19 the Senior Note interest, the Company must maintain a capital structure with an 20 equity base sufficient to support the additional debt requirements and earnings 21 that will produce adequate fixed charge coverage when the additional or scpple-22 mental interest components are included. Exhibits GLP-3 and GLP-8 illustrate 23 24 this more clearly. Tith reference to interest coverage, the significance of debt in the capital 25 structure revolves, in the short run, around the Company's ability to pay the 26 27 interest as it comes due. Interest payments, of course, come from current 28 carnings; the ability to meet those payments is gauged in terms of interest TEXAS POWER & LIGHT COMPANY
PAGE 8 of 18 1 coverage or how many times current earnings will cover the interest require-t 2 ments. Even though the actual principal obligation for the TUGCO and TUFCO 3 Senior Notes does not appear on the Company's balance sheet, the Company is 4 directly obligated to pay its allocated share of the interest costs under the 5 Operating Agreements. 6 Q. MR. PRICE, FOR THAT PORTION OF THE TUGCO AND TUFCO NOTES IS 7 TP&L RESPONSIBLE? 8 A. Of the $400 million of TUGCO Senior Notes outstanding at December 31, 1980, 9 the Company is obligated for 43.7% or $174.8 million with a corresponding annual 10 interest obligation of approximately $17.1 million. 11 Of the $88.2 million (excluding amounts due currently) of TUFCO Senior 12 Notes outstanding at December 31, 1980, the Company is obligated for 45.68% or 13 $40.3 million with an annual interest obligation of approximately $3.4 million. In 14 addition, the Company will also be obligated for a like percentage of the 15 additional $50 million of Senior Notes. 16 Q. M R. PRICE, YOU ' PREVIOUSLY DISCUSSED THE COMPANY'S CAPITAL 17 STRUCTURE AT DECEMBER 31, 1980, AS SHOWN IN EXHIBIT GLP-7. WOULD 18 YOU PLEASE EXPLAIN THE AD3USTMENTS YOU HAVE MADE TO THE 19 COMPANY'S CAPITAL 5TRUCTURE? 20 A. Yes. I have adjusted the capital structure per books at December 31,1980, as 21 shown in column (b) of Exhibit GLP-7, page 1 of 5, to reflect new financing for 22 the Company in the form of $85.5 million additional common stock to be sold to l 23 Texas Utilities Company prior to the rates set in this proceeding going into l 24 effect. I have also adjusted the capital structure to include the remaining $7.6 25 million funds on deposit with the trustee for the BRA Pollution Control Revenue l 26 Bonds which were issued to construct pollution control facilities at Sandow #4. l l 27 The adjustment in column (e) on page 1 of 5 of Exhibit GLP-7 is to remove l 28 from the capital structure amounts related to the portion (82.569%) of Sandow TEXAS POWER & LIGHT COMPANY
PAGE 9 of 18 3 Unit #4 that is dedicated by contract to Alcoa. The adjustment is prepared on a 2 consistent basis with the Sandow #4 elimination approved by this Commission in 3 Docket No. 3006. The mechanics of this adjustment are shown in detail in Exhibit 4 GLP-7, page 4 of 5. 5 Q. IN YOUR OPINION, DOES THE CO\\1PANY'S CAPITAL STRUCTURE AS AD-6 JUSTED REFLECT AN APPROPRIATE CAPITAL STRUCTURE FOR PURPOSES 7 OF THIS RATE PROCEEDING? 8 A. Yes, sir. The adjusted capitalization ratios, as shown in column (g) on page 1 of 9 Exhibit GLP-7, are the proper ratios for use in this proceeding and show that the 10 adjusted capital structure consists of 41.25% debt, 11.54% preferred stock, 11 40.63% common equity and 6.58% unamortized investment tax credits. While the 12 capital structure I have proposed is appropriate for the purposes of this particular 13 Proceeding, it is clear that, in order to support the supplemental interest 14 obligation, the Company will need to continue to increase the common equity 15 component in the future as can be seen from Exhibit GLP-8, which shows the 16 effects of the Company's portion of the TUGCO and TUFCO Senior Notes on the 17 capital structure. In addition, the Company needs to increase its equity 18 component to partially offset increasing risks. 19 Q. NiR. PRICE, WOULD YOU DISCUSS THE COSTS APPLICABLE TO EACH 20 CO\\iPONENT OF THE CAPITAL STRUCTURE AS ADJUSTED, AS WELL AS 21 WHAT YOU HAVE DETERhilNED TO BE THE OVERALL OR CONiPOSITE COST 22 OF CAPITAL? 23 A. I have prepared several schedules included in Exhibit GLP-7 to show the costs of 24 each component of the capital structure of the Company, as adjusted, at 25 December 31, 1980. Page 2 of 5 of this exhibit shows, in detail, the components 26 of the Company's long-term debt and the associated interest costs used to arrive 27 at an average cost of 8.02%. Af ter adjusting for the elimination of 32.569% of 28 Sandow #4, the average or embedded cost of the Company's long-term debt is TEXAS POWER & l.IGIIT CO.\\f PANY
PAGE lo of 18 1 7.99%. I Page 3 of 5 of Exhibit GLP-7 shows, in detail, the outstanding issues of the 2 Company's Preferred Stock and the annual dividend requirement of each issue 3 used to arrive at the average cost of 7.96%. Af ter adjusting the Preferred Stock for the 82.569% Sandow #4 elimination, the average or embedded cost is 7.86%. 5 6 O. HOW DID YOU DETERMINE THE COMPANY'S COST OF COMMON EQUITY 7 CAPITAL? 8 A. I have relied upon the expert opinions of Dr. Eugene Brigham and Mr. Mark Luf tig whose testimonies are included in this proceeding. Dr. Brigham has recommended 9 10 that the Company needs to earn and actually realize a return between 17.7% and 11 18.9%, and Mr. Luf tig has determined that TP&L must actually earn a minimum 12 return of 18%. Af ter careful consideration of the testimony of these two expert rate of return witnesses, I have selected a 17.75% return and have included this 13 return in column (h) of Exhibit GLP-7 and as a part of the computation of the 14 15 overall cost of capital shown in column (i) on page 1 of 5 of that exhibit. 16 Both Mr.' Luf tig and Dr. Brigham have recommended returns on common 17 equity that will, if earned, enable TU to sell new issues of common stock at book 18 value. As shown in Exhibit GLP-6, the returns earned by the Company over the 19 past two years have not been sufficient to attain a market to book ratio of 1. As 20 a result. Texas Utilities has sold its last two issues of common stock at prices well 21 below book value. In March 1981, Texas Utilities will sell 5,000,000 additional 22 shares of common stock and, in all likelihood, it will be the third consecutive issue 23 sold below book value. 24 Q. HAVE YOU DETERMINED AN APPROPRIATE RATE OF RETURN ON THE 25 COMPANY'S INVESTMENT TAX CREDITS INCLUDED IN THE CAPITAL 26 STRUCTURE? 27 A. Yes. Af ter years of controversy surrounding the intent of Congress in providing 28 for the investment tax credit and the appropriate return that sho 21d be earned on TENAS IUWER & LIGIIT COMPANY
PAGE 11 of 18 the unamortized portion of investment tax credits, the Interna.1 Revenue Service 1 has issued final regulations pertaining to section 46 of the Internal Revenue Code. 2 3 The regulations, issued on March 15,1979, deal specifically with proper regulatory treatment of investment tax credits and establish 'the composite cost of capital as 4 the appropriate return to be earned on the tax credits. I have, therefore, applied 5 6 the composite cost of capital to the unamortized investment tax credits in the 7 capital structure shown on page 1 of 3 of Exhibit GLP-7. Also, the limitations 8 applicable to the Company, since it is an option 2 company, are that the credit is not available if the benefits are flowed through to income faster than ratably over 9 10 the useful life of the property and, further, that there can be no reduction in rate 11 base by reason of the credit. 12 Q. WHAT HAVE YOU DETERMINED TO BE THE OVERALL RATE OF RETURN TO 13 BE APPLIED TO THE COMPANY'S ORIGINAL COST RATE BASE? 14 A. I have determined the overall fair rate of return on invested capital of the 15 Company at December 31,1980, to be 12.22% as shown in Exhibit GLP-7, page 1 16 of 5. When applied to the Company's requested original cost rate base, as 17 furnished by Mr. McDonough, the composite rate will produce a total dollar return 18 of $280,778,897. If the mathematical approach employed by the Commission in 19 the past is followed in this case, the return dollars of $280,778,897 would provide l 20 a 9.57% return on the adjusted value rate base. This computation appears in l 21 Exhibit GLP-7, page 5 of 5. l 22 Q. MR. PRICE, WHEN THE COMMISSION GRANTS THE COMPANY A SPECIFIC 1 l 23 RATE OF RETURN, DOES THAT, IN EFFECT, GUARANTEE THAT THE 24 GRANTED RETURN WILL BE EARNED? I ( 25 A. No, sir. There is no guarantee that the authorized return will be earned. The 26 regulator should, however, take steps to afford the Company a reasonable 27 opportunity to earn the return that the regulator finds to be fair, reasonable and 28 necessary. Being granted the means or opportunity to earn the allowed return on TEXAS POWER & LIGliT COMPANY
PAGE 12 of 18 common e guity is at least as important as the determination of the cost of 1 2 common equity. 3 Q. WOULr, YOU DISCUSS WHAT YOU NiEAN, IN NiORE SPECIFIC TERN.iS? 4 A. Yes, sir. There are several major considerations that impact the authorized 5 return and the Company's ability to actually earn that return. First of all, our 6 Company is faced with a construction program of approximately $400 million per 7 year and is going to have to raise significant amounts of capital from external 8 sources. It is a fact that, in the inflationary period of the past fif teen years, new g issues of First Aiortgage Bonds have carried an interest rate in excess of the 10 embedded cost of debt. A good example of this is our Niay 1980 offering of $50 11 million of First \\iortgage Bonds with an annual coupon rate of 113/8% I might 12 add that the 113/8% rate was near the market minimum rate for electric utilities 13 for the year. Our embedded cost of debt included in the rates in effect at the 14 time was 7.79E This, of course, is the phenomenon we refer to as capital 15 attrition. 16 In the same fashion, our other costs of doing business do not remain at test 17 year levels during the period rates are in effect. Inflation, as well as other 18 factors, increase the Company's operating expenses over the average level of 19 operating expenses allowed in the Company's cost of service. The result is 20 expense attrition. i. 21 Another consideration is investment attrition. Even if inflation were l 22 completely eliminated, investment attrition would still be a factor contributing to 23 the inability of the Company to eara the authorized return. This will occur 24 because the Company is adding plant at a unit cost higher than the embedded cost 25 of similar plant. 26 In summary, the cornbined effects of ct.tal attrition, expense attrition and 27 investment attrition assure that the Company will not h.w e a reasonable 28 opportunity to earn the authorized return unless the regulator recognizes the l TEXAS POWER & I.lGIIT CO.\\1PANY
PAGE 13 of 18 economic realities under which we operate and takes steps to offset the adverse 1 effects of attrition. 2 i 3 Q. MR. PRICE, WHAT PORTION OF THE COMPANY'S CONSTRUCTION WORK IN PROGRESS ARE YOU REQUESTING TO BE INCLUDED IN THE RATE BASE? 4 5 A. We are requesting the inclusion of 100% of CWIP at December 31,1980, as adjusted, in the Company's rate base. 6 7 Q. IN YOUR JUDGMENT, IS THE INCLUSION OF 100% OF CWIP IN THE RATE BASE ESSENTIAL TO THE FINANCIAL INTEGRITY OF TP&L? 8 9 A. Very definitely. The rate of return requested on common equity in this Proceeding is predicated on a rate base whic.1 includes the requested amount of 10 CWIP. Exclusion of CWIP from the rate base would undermine the viability of the 11 requested return, which is the very minimum return recommended by Mr. Luf tig 12 and Dr. Brigham, and will impose obstacles to our financing program. The ability 13 of the Company to currently recover the financing costs of its construction 14 15 Program has a major impact on its risk position. Cash flow is extremely important to the Company; bills must be paid with real money, not AFUDC. 16 The alternative to inclusion of CWIP in the rate base is to defer the 17 recovery of the financing costs associated with the construction program by 18 19 capitalizing them as AFUDC. The payment of actual financing costs, however, cannot be deferred, and, as a result, the Company's cash earnings are reduced. 20 21 With less cash earnings, the Company's internal generation of funds is reduced; 22 therefore, the need for external financing is increased. As discussed earlier in my 23 testimony, this results in more pressure being exerted on the Company's financial 24 position and a higher embedded cost of capital. 25 Tith $637 million in CWIP (as adjusted) at December 31,1980, the Company 26 must have a substantial increase in the level of Construction Work in Progress 27 included in the rate base or the amount of AFUDC will increase even more t 28 dramatically in 1981. Referring again to GLP-1 and GLP 4, the amount of CWIP TEXAS POWER & LIGHT CONF PANY
PAGE 14 of 18 in relation to total electric plant is 25.4% and the percent AFUDC is of balance 1 for common is 27.0%; both have increased significantly over the previous years. 2 The increasing amount of AFUDC in lieu of cash earnings is undermining the 3 4 Company's financialintegrity. 5 Q. WHAT OTHER DISADVANTAGES RESULT FROM EXCLUDING CTIP FROM THE 6 RATE BASE? 7 A. There are a number of disadvantages in addition to those I have already mentioned. The major ones are (1) a decline in the quality of earnings, (2) reduced 8 interest coverage and (3) higher rates in the future. 9 ii 10 O. WHY DOES THE QUALITY OF EARNINGS DECLINE? 11 A. Simply stated, non-cash income is substituted for cash income. This income is 12 simply the result of a journal entry rather than actual cash earnings. As a result, 13 the quality of earnings declines. In other words, as AFUDC becomes a higher 14 Percentage of the Company's earnings, the quality of earnings declines. Full inclusion of CTIP in the rate base would not eliminate the accrual of AFUDC 15 16 because the CWIP balance at the time these rates go into effect will be 17 substantially higher than the level we are requesting in the rate base in this 18 proceeding. 19 O. HOT IS INTEREST COVERAGE REDUCED? 20 A. As I mentioned earlier, exclusion of CWIP from the rate base lowers cash flow and 21 increases the need for external financing. This will result in more interest costs 22 to be covered. Also, earnings that are received in lieu of AFUDC would have to 23 cover their tax liability. Since interest coverage is computed on a pre-tax basis, 24 the use of AFUDC in place of real earnings would result in lower coverages. 25 O. HOT WOULD FUTURE RATES BE INCREASED? 26 A. By capitalizing AFUDC, the total cost of facilities is increased and this, in turn, 27 increases future revenue requirements which customers must pay. Another factor I 28 is the higher cost of capital to the Company due to an increased risk position and h TENAS N)WER & LIGHT COMPANY
PAGE 15 of 18 the Company's external f.nancing requirements being increased. This higher cost 1 of capital will directly increase the revenue requirements from the Company's 2 3 customers. DOES THE CUSTO\\iER PAY FOR CONSTRUCTION IF CWIP 15 INCLUDED IN 4 Q. THE RATE BASE? 5 No. The investor is still paying for the construction. The customer is only paying 6 A. the " interest" or carrying cost on the money used for construction. 7 8 Q. \\1R. PRICE, ARE THERE ANY FACTORS IN ADDITION TO THE ITE\\tS MENTIONED THUS FAR THAT WILL HAVE AN IMPACT ON THE COMPANY 9 ABILITY TO MAINTAIN ITS FINANCIAL INTEGRITY UNDER THE RATES T 10 11 SET IN THIS PROCEEDING? There is one factor in particular that has a very significant impact on our 12 A. Yes. 13 cash flow and quality of earnings. It is very important that the Company be allowed to continue to have the ability to utilize the FCF tarif f to recover 14 currently the Company's cost of fuel used in generating electricity. 15 16 Q. WHY IS THE FUEL TARIFF SCHEDULE NECESSARY? The necessity of an FCF tariff schedule is still readily apparent when one realizes 17 A. that this is the cheapest method for the customer and that the Company is still 18 f aced with fluctuating fuel costs due to the fuel mix and the varying costs of each 19 type of fuel. Even minor fluctuations in the cost of gas, oil or lignite multiply out 20 to a large amount of money when one considers the vast quantities of fuel that we 21 burn. Through the use of a Fuel Cost Factor tariff schedule, the inevitable delay 22 between the happening of an event (lower or higher fuel costs) that entitles a 23 party (customer -- lower fuel costs; Company -- higher fuel costs) to legal relief 24 and the date when he gets relief is overcome. The customer receives the benefit 25 of lower fuel costs immediately, and the Company is protected when fuel costs 26 The uncertainty surrounding unit outages, abnormal weather, and the 27 increase. availablility and price of gas and oil are but a few of the factors that make it 28 TEXAS IUWER & LIGIIT COMPANY
PAGE 16 of 18 impossible to accurately predict our fuel mix and the corresponding fuel costs. 1 2 During 1980, fuel costs represented approximately 51% of our total operating 3 expenses. If we were unable to recover these costs on a current basis, our cash fl w would be adversely affected and our financial position weakened. 4 5 Q. HAS THE PERIOD OF RAPIDLY ESCALATING FUEL COSTS SUBSIDED FOR 6 TEXAS POWER & LIGHT? 7 A. Texas Power & Light is still subjected to fluctuating fuel costs. Feather, type of fuel used (fuel mix) and the difference in the cost of each type of fuel used are 8 9 major factors of varying fuel costs. The Company uses the power plants which burn the cheapest fuel first (base load) and then uses the power plants using the 10 more expensive fuels to meet the change in the Company's load. Therefore, 11 changes in the customers' electrical requirements due to weather can and do 12 cause wide fluctuation in fuel costs. Another reason for fluctuation in fuel costs 13 14 is the wide difference in the cost of lignite versus natural gas. When a lignite unit is not operating (due to planned maintenance or unscheduled outage), the lost 15 generation must be replaced by generation from a gas-fired unit. The net result 16 l 17 is that the same amount of kilowatt hours are produced, but the fuel cost for 18 those same kilowatt hours is increased approximately three times (lignite @ 70c 19 Per MMBTU-gas @ $2.00 - $2.50 per M\\1 BTU). l 20 Q. 15 IT PROPER RATE-MAKING PROCEDURE TO GRANT THE SAME RETURN l 21 ON COMMON EOUlTY AND THE SAME ALLOWANCE FOR WORKING CAPITAL 22 IF FULL FUEL COST RECOVERY 15 NOT PERMITTED ON A CURRENT BASIS? l 23 A. No; any knowledgeable authority will verify that there is more risk associated 24 with a company that does not have a tariff which permits the current recovery of I' its full fuel costs than a company that has such a tariff. The increased risk 25 26 requires a higher return on capital to compensate investors for this increased risk. 27 Of course, any comparison between the working capital requirements of a 28 company with full current fuel recovery and a company with a fuel limitation or h TEXAS IMER & LIGilT COMPANY
PAGE 17 of 18 1 lag in the collection period (all other things being equal) will show that the 2 working capital requirements of a company with a fuel limitation or lag will be 3 greater due to the funds of that company being used longer before their collection 4 from the customer. 5 Q. DID THE PUBLIC UTILITY COMMISSION IN DOCKET NO.178, DOCKET NO. 6 1517 AND ALSO IN DOCKET NO. 3006 DETERMINE THE COMPANY'S 7 WORKING CAPITAL REQUIREMENTS AND ITS COST OF CAPITAL 8 RECOGNIZING THE FCF TARIFF SCHEDULE WOULD PROVIDE FOR FULL 9 CURRENT RECOVERY OF FUEL COSTS? 10 A. Yes. In all previous proceedings before this Commissior., the working capital 11 requirements and the cost of capital were determined on the basis that the cost of 12 fuel used in generating electricity would be billed currently to all customers based 13 on the electricity consumed. 14 Q. IS THERE ANY OTHER SENEFIT BESIDES REDUCED WORKING CAPITAL 15 REQUIREMENTS AND A LOWER COST OF CAPITAL DIRECTLY ATTRIBUT-16 ABLE TO THE 'USE OF A FUEL COST FACTOR TARIFF SCHEDULE WHICH 17 PROVIDES FOR FULL CURRENT RECOVERY OF FUEL COSTS? 18 A. Yes. Rate case expenses are reduced due to the simple fact that the Company 19 does not have to file for increased rates as of ten. In the last rate proceeding, the l Company's rate case expenses were approximately $500,000 and took approxi-20 21 mately eight to nine months to complete. Since fuel is the largest operating l l 22 expense of the Company, any restriction placed upon the collection of fuel costs i 23 will reduce the time between rate cases. Under present eco.iomic conditions, 24 Texas Power & Light must get rate relief almost annually even with full recovery 25 of its fuel expense. With anything less than full recovery of fuel expense, the 26 Company would be placed in the position of having to ask for rate relief every few 27 months, which not only would be extremely expensive but also would be an 28 administrative nightmare due to the fact that there are 190 cities which exercise j TEXAS IUWER & LIGIIT CO. f PANY \\
PAGE 18 cf 18 1 original jurisdiction over the rates and services of Texas Power & Light within 2 their corporate limits as well as the original jurisdiction of this Commission over 3 the rates and services provided in the remainder of our service area. Lower rate 4 case expenses, lower working capital requirements and a lower cost of capital all 5 directly benefit the customer through lower base rates. 6 Q. MR. PRICE, WOULD YOU PLEASE SUMMARIZE YOUR TESTIMONY? 7 A. Yes. The main thrust of my testimony is that it is extremely important for TP&L 8 to maintain its financial integrity. The high credit rating we have had in the past 9 has enabled us to achieve the substantial benefits that our customers are enjoying 10 today. Our financial flexibility and strength played a significant role in our 11 ability to utilize lignite-fueled generation in place of high cost natural gas 12 generation, saving our customers hundreds of millions of dollars in the ten years 13 or so since we began utilizing lignite as a boiler fuel. During this period, we have 14 seen times when it was very difficult for utilities to obtain long-term financing, 15 e5Pecially on reasonable terms, but, because of our credit rating, we had access to 16 the markets at lower costs and reasonable terms. I strongly believe that it is in 17 the long term best interest of our customers for TP&L to maintain its triple A 18 bond rating. Our requested inclusion of CWIP in the rate base and the requested 19 12.22% overall return in this proceeding are the minimums necessary to preserve 20 our financial integrity and provide a fair return on common equity. 21 Q. DOES THIS CONCLUDE YOUR TESTIMONY? 22 A. Yes, it does. 23 24 25 26 27 28 TEXAS POWER & LIGHT COMPANY
1 C.W.I.P. AS PERCENT OF TOTAL ELECTRIC PLANT 3,000 - 52.950 (EXCLUDING 82.569% OF S ANDOW **4) 2,800 - ~ 2,600 - 52.58i 2,400 - I I TOTAL ELECTRIC PLANT 52.295 2,200 M C.W.I.P. ~ 2,000 1,800 a Q 1,600 si.564 u. ~ O 1,400 si.3os m j 1,200 $i,,o7 5 1,000 5960 I $857 2s.c 800 5760 600 1e.8% 23.9% 22.4% 0'.' - O 400 16.6% v.i L' j M !?.i ~ 200 1o.2% 8.6% s.8% s O 5 A-1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 as -l YEAR END ]
4 TEXA5 POWER & LIGHT COMPANY Internal Generation of Capital Requirements 1971 through 1980 ($000 Omitted) 1971 1972 1973 1974 1975 1976 1977 1978 1979 1989 No. Description (as (bl~ (c) (d) (c) (f) (g) (h) ~7~ ~@~ ~6d~ l Cash Construction Requirements: 2 Total Construction Expenditures $100,604 $107,764 $152,542 $203.771 $264,776 $261,171 $278,075 $305.095 $%),049 $420,829 3 Less AFUDC 5,912 4,%9 5,400 11,606 14,504 19,108 20,667,, _18,120 23,825 37,745 4 Total Cash Construction Requirements $ 94,692 $102295 gg gg $250,272 }242063 gg j2g7] $32,2j gg u 5 Funds f rom Internal Operation: 6 Net income af ter Preferred and Common Dividends $ 14,919 $ 19.485 $ 17,721 $ 20.364 $ 11,117 $ 19,815 $ 34,470 $ 47,217 $ 44,070 $ 64,028 7 Depreciation Provisions 18,812 21,958 25,217 29,518 35,064 43,671 4's,009 56,312 64,152 69,880 8 Deferred Federal income Tax - Net 1,172 2,681 5,399 6,699 9,413 11,152 13,192 20,827 27,164 33,55l 9 Federallovestment Credit Adjustments 3,013 4,790 2,498 5,863 12,312 19,647 31,118 35,021 42,993 34,062 10 Allowance for Funds Used During Construction (5.912) (4,%9) (5,400) _ (11,606) (14,504) (19,108) (20,667) (18,120) (23,825) (37,745) 11 Total Funds trom lnternal Operation $_3_2004 $ 43,945 Wd35 M 838 Qg Mtt 17, g g2, g3 h_554 gg 2 12 Per Cent Internal Generation (Line 11 + Line 4) 33.8 % 42.8% 30.9 % 26.5% _22.5% _ 31.1% _ J.6% 49.2 % 45.6% 38%_ rn h ti V a? ? -~ ~
I TEXAS POWER & LIGHT COMPANY j FIXED CHARGE COVERAGES (S.E.C. Basis) INCLUDING ALLOCABLE PORTION OF INTEREST ON TUFCO AND TUGCO SENIOR NOTES i 6-PRE - TAX COVERAGE G e 5.6 (Including AFUDC) \\\\ PRE-TAX COVERAGE 49 (Excluding AFUDC) \\ 4 d 5-
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a _._ - m l 5 \\
- '47's N
N O Ys 4.0 k j38 5 4-AFTER - TAX COVERAGE N N 36 y (including AFUDC) g i 3.6 3. 3;3 3.2 g ' s 3.2 3.2 6 w l E \\\\ I 3.0 N d N , / p 'l3.3 N3.0 3.0 3.4 \\ i \\ 2.9 2 i 3-g _,, _ __,,g \\ i ~~~~ i o c N 25 25 2;6 2.5 2.5 30 3.0 l 1 AFTER -TAX COVERAGE N x m iZ (Excluding AFUDC) 2.6 y f,_--- " D % yg i L 2.3 N m o Ei 2.2 f ~ 2.1 2.1 2.1
- A "o
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m 150-A.F.U.D.C. AS PERCENT OF NET INCOME s,4o 140-AVAILABLE TO COMMON SHAREHOLDERS 33, _ 120 - l 110 - i- -i INCOME AVAllABLE TO sio6 9 m 100 COMMON SHAREHOLDERS sh N f l u mig WM9 r= a=s -=2 n i 4 gg }gj T d 90 F"E A.F.U.D.C. ss9 O iMs MiB
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Exhibit GLP-5 Page 1of1 TEXAS POWER & LIGHT COMPANY Comparison of Earned Return vs. Authorized Return on Common Equity and Unamortized Investment Tax Credits ($000 Omitted) As Adjusted Actual For Normal Weather 12 Months 12 Months Line No. Description Ended 1980 Ended 1980 (a) (b) (c) Earned Return Calculation: 1 Average Common Equity $ 863,345 $ 857,776 2 Average Unamortized Investment Tax Credits 155,078 155,07_8 3 Total $1,018,423 $1,012,854 4 Earnings Available for Common Equity and Investment Tax Credits $ 139,885 $ 128,748 5 Earned Return on Average Common Equity and Investment Tax Credits (Line 4 e Line 3) 13.74 % 12.71 % 6 Authorized Return (A) 14.90 % 14.90 % 7 Earned Return Excess (Deficiency) jl.16)% ( 2.19)% Per Docket 3006 (1980) (A) Authorized Return Calculation: Amount Rate Return Common Equity $792,075 15.50 % $122,772 Unamortized Investment Tax Credits 118,042 10.91 % 12,878 Total $910,117 $135,650 14.90 % Total Authorized Return
et TEXAS UTILITIES COMPANY AVERAGE MARKET PRICE Vs. BOOK VALUE OF STOCK 32 - 29.66 j 1 28.85 I 27.51 28 ' 24 - AVERAGE / MARKET PRICE (MONTHLY AVERAGE HIGH - LOW) 21.76 20.92 20.80 [ b 20.% 19.69 l 19'76 20.19i '/- l i m E 20 - 19.10 18.,09 f ' 20.14 o 17.07 / 18.95 k I O' l 17.34 15.09 / 16 - l-13.40 le N 'f' / YEAR.END BOOK VALUE 12 - ~ x sa o co 8- "A "O I I i 1 1 I I I I I O g- ]I 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 YEAR
i i TEXAS UTILITIES COMPANY I AVERAGE MARKET PRICE Vs. BOOK VALUE OF STOCK 24-1 s 800K VALUE BY MONTH 21.76 22-21.54 g 20.81 20.80 f 20.63 20.45 20.51 l- \\, yl l 20.14 20.17 s j \\ p 20.09 m 20- \\- N-I = l 20.02 - 19.25 z 4 i 8 18 - 18.63 l i g 18.% AVERAGE l l M/.RKET PRICE 17.38 17.56 (MONTHLY AVER AGE HIGH - LOW) 16 - } ,5 >5 16.13 l O cz "R "O og 4 6 6 6 6 6 6 e i i e i i i i S O N D J F M A M J J A S O N D J F M A M J J A S O N D wi l l o 1978 1979 1980 YEAR I I i
.. _ _ _. _ ~. l ) TEXAS POWER & LIGHT COMPANY i Schedule of Capital and 1 Overall Cost of Capital ( (Dollars in Thousands) l l Adjustment Capital at 12/31/80 Amounts at Per Cent Cost Weighted Line Capital at for New Adjusted for Sandow #4 12/31/80 of of Cost of i ~ Description 12/31/80 Financing New Financing Adjustment (C) Adiusted Total CaLital JCatal No. l (a) (b) (c) (d) (c) (f) (g) (h1 (F 1 Long-Term Debt $1,013,642 $ 7,591( A) $1,021,233 $ (72,987) $ 948,246 41.25% 7.99% 3.30% l 2 Preferred Stock 285,782 785,782 (20,433) 265,349 11.54 7.86 .91 t 3 Common Stock Equity 920,355 85,500(B) i,005.855 (71,895) 933,960 40.63 17.75 7.21 4 Unamortized Investment Credits 169.645 169,645 (t3, 9 ) 151,167 6.58_ 12.22 .30 l 5 Total h389.424 $ 93,091 $2,482,515 }(183,793) $2,2*t.722 100.00 % 12.22% l i 1 (A) BRA Pollution Control Revenue Bonds - funds on deposit with trustee per Exhibit GLP-7, page 4 of 5 (B) Proceeds from sale of comon stock to Texas Utilities (Parent) (C) Elimination of capital attributed to that portion (82.569%) of Sandow #4 dedicated to Alcoa. m oE $5 ( 22.p? l l w
Euhibit GLP-7 Page 2 of 5 TEXA5 POTER & LIGHT COMPANY Schedule of Long. Term Debt and Composite Cost Arnual Principal Interest or issue Maturity Amount Amortization Average Line No. Title Date Date Outstanding Requirement Cost la) (b) (c) (d) (e) (1) (Thousands of Dollars) FIRST MORTGAGE BOND 5; I 31/4% 5eries 04 01 32 04 01 82 14,000 $ 4M 2 31/8% 5eries 10 01 54 10-01 84 20,000 625 3 4 3/8% 5 cries 11-01. % 11 01 86 10,000 437 4 41/2% 5eries 12-01-58 12 01 88 12,500 563 5 4 1/2% 5eries 01 01 61 01-01 91 12,000 540 6 4 3/8% Series 02-01-63 02 01-93 10,000 438 7 41/2% 5eries 01 01 65 01 01 95 14,000 630 8 5 % 5eries 02 01 66 02-01. % 20,000 1,000 9 51/2% 5eries 02-01-67 02 01 97 30,000 1,650 10 6 5/8% 5eries 01 01 68 01-01 98 25,000 1,6% 11 8 5/8% 5eries 02 01 70 02 01 00 30,000 2,587 12 8 7/8% 5eries 09-01 70 09 01 00 30,000 2,663 13 71/8% 5eries 02-01 71 02 01 01 30,000 2,137 14 71/2% 5eries 02 01 72 02 01 02 40,000 3,000 15 71/2% 5eries 02 01 13 02 01 03 50,000 3,750 16 81/4% Series 02 01-74 02 01-04 50,000 4,125 17 101/8% 5eries 10 01-74 10 01 04 50,000 5,06) 18 91/24 Series 04 01 75 04 01 05 100.000 9,500 19 8.60 % 5eries 01 01-76 01-01 06 100,000 8,600 20 81/4% 5eries 02.01 77 02 01 07 100,000 8,250 21 9 3/84 Series 02-01 79 02 01 09 100,000 9,375 22 113/8% 5eries 05 01-80 05 01 10 30,000 5.688 SINKING FUND DEBENTURES: 23 45/8% Series 01 01 62 01-01 87 6,711 310 24 41/2% Series 01 01 64 01 01 89 10,773 485 25 7 3/4% 5eries 04-01 69 04 01 94 16.228 1,258 POLLUTION CONTROL REVENUE BONDS (neth Sabine River Authcrity of Texas 26 6 1/4% 5e-les 12 01 76 12 01 06 29,773 1, 861 27 5.70 % 5eries 07 01 77 12.01 07 11,235 640 28 6.60 % 5eries 03 01-79 12 01 08 4,652 M7 Brazos River Authority. Texas 29 71/2% 5 cries 12 01-79 17-01 04 12,723 954 30 7 5/8% Series 12 01 79 12-01-09 29,686 2,264 31 NOTESPAYABLE Various Various 1,969 151 32 UNAMORTIZED DEBT D15 COUNT (3,760) 797 33 UNAMORTIZED DEBT EXPEN5E (3,848) 34 TOTAL LONG-TERM DEBT @ 12 31 80 ( Actual)........................ $ 1,013,642 $31,25t 83% AD3USTMENTS: Sandow #4 Eliminations 35 82.%9b of BRA 7 t/2ib Pollution Control Revenue Bonds (12,386) (929) 32.%9% of BR A 7 5/8% Pollution Control Revenue Bonds (28,899) (2,204) 37 First Mortgage Bonds at average incremental rate of 9.2% (31,702) (2,917) Financing Adiustments 38 Polution Control Revenue Bonds. funds or. deposit 39 BR A 7 1/2% 5eries 2,277 171 40 BRA 7 5/8% 5eries 5,314 405 W 48 246 $75,780 g% 41 TOTAL LONG. TERM DEBT @ 12 31 80 (Adjusted)........
.~ TEXAS POWER & LIGHT CdMPANY Schedule of Preterred Stock and Composite Cost No. of Line Shares Amount Annual Dividend % Average No. Description Outstanding issued Per Books Requirement Cost (a) (b) (c) (d) (e) (f) (Thousands of Dollars) 1 $4.56 Serles........... I33,786 04/50 5 13,379 610 2 $4.00 Series........... 70,000 04/50 7,000 280 3 $4.84 Serles........... 70,000 05/53 7,000 339 4 $4.76 Serles........... 100,000 10/56 10,000 476 5 $4.44 Serles........... 150,000 01/65 15,061 666 6 $7.80 Serles........... 300,000 04/69 30,030 2,340 7 $7.24 Serles........... 250,000 02/72 25,113 1,810 8 $8.20 Series........... 300,000 02/74 30,108 2,460 9 $9.3 2 Ser les........... 300,000 03/75 29,625 2,7% 10 $8.68 Series........... 300,000 01/76 29,550 2,604 11 $8.16 Serles........... 300,000 01/77 29,655 2,448 12 $8.84 Serles........... 300,000 02/79 29,591 2,652 13 $10.92 Series.......... 300,000 05/80 29,670 3,276 14 Total Preferred Stock @l2-31-80 (Actual) 2,873,786 $285,782 $22,757 7.96 % AD3USTMENTS 15 Sandow //4 Eliminations rn 16 Preferred Stock at average incremental cost of 9.3% (20,433) (1,900) 4 u -- 17 Total Preferred Stock &{ @ l2-31-80 ( Adjusted) $265,349 $20,857 7.86 %
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" r-17 ub
n._ Exhibit CLP.7 Pagy4of 3 TEXA5 POWER & LIGHT COMPANY Schedule of Capital Structure Adjustments for Ehmination of Capital Attributed to that Portion of Sarew #4 g Dedicated to Alcoa (Thousands of Dollars) Portion Dedicated to Alcoa Total (82.569 4) 7T~ (b) SANDOW #4 CAPIT AL REQUIREMEN3 $234,032 $ 193,238 Total Charses to Construction Work in Progress . Less: 4,150 3,427 2 Allowance fur Funds Used During Construction 7'28' '*018 3 Deferred Federal Income Tases 4 Balance to be f manced by Debt, Preferred Stock, Common Equity and 22?t.__3 183"793 S9 Unamortized Investment Credits 7 2,,579 18,478 $ Less Amount financed through Unamortized Investment Credits 6 Balance to be fmanced by First Mortgage Bonds, Pollution Control Revenue h21.4 g Bonds, Preferred Stock and Common Equity Annual' AVER ACE E EIGHTED INCR EMENTAL COST OF FIRST MORTC ACE BONOS AND 7UfTRIMT6EKU5E5T671N ANCE TH AT P6RTIOMNDOS #4 Principal Interest / Dividend % Average Amount Requirement Cost BEbTc4TC575 ALCOA (c) (d) (c) First Mortgage Bonds $100,000 $ 9,500 7 197). 91/2% 5eries 100,000 8,600 8 1976 8.60% 5eries 100,000 8,250 9 1977 8 I/4% 5eries 10 1978. None 100,000 9,373 11 1979. 9 3/8% 5eries 50,000 , 5.688 12 1980. Il 3/8% 5eries h 000 $ 41,413 g !) TOTAL Preferred Stock $ 29,625 $ 2,796 14 1975. $9.32 Series 29,550 2,604 15 1976. $8.68 5eries 29,653 2,448 16 1977 - $8.16 Series 17 1978. None 29',591 2,652 18 1979. $8.84 5eries 29,670 3.276 19 1980. $10.92 5 cries 1].48E M h 20 TOTAL Detail of Principal % of % Average CAPITAL TO BE ELIMINATED FOR 5ANDOW #4 Debt Amount Total (1) Cost (f) (g) (h) (i) 21 First Mortga6e Bonds $31,702 (6) 9.20 % Pollation Control Revenue Bonds 22 BR A 71/2% faries 12,386 (4) 7 J/2% 28,899 (S) 73/8% 23 BRA 7 5/84 Wies 72,987 (2) 44.15% 24 Total Debt 20.433 (2) 12.%% 9.30 % 25 Preferred Stock 71,895 (2) 43.49% i 26 Common Equity 18,478 (3) 27 Unamortized Investment Credits L h83 793 100.00% 28 TOTAL 2 l f (1) Capitalization percentages based on percent Debt, Preferred Stock and Common Equity is of Total of same at 12 31 80 adjusted for new imancing per Exhibit CLP.7, page 1, column (dh r Percent Description Amount of Total l Long-term Debt $1,021.233 44.13 % Preferred 5tock 285,782 12.% i Common Stock Equity 1,005,855 43.49 i [2 & Eg gg 2 Tota! s (2) Capitalization percentage times Total to be financed by First Mortgage Bonds, Pollution Control Revenue Bonds, Preferred 5tock and Common Equity (Line 6, column (b) of this Exhibit). (3) 82.%9 4 of Unamortized Investment credits applicable to sandow #4 at 12 31.80 (Line 5, column (b) of this Exhibit) (4) 82.%9% of 7 I/2% BRA Pollution Control Revenue Bonds issued in DeM* !*'e (3) 32.%9% of 7 S/8% BR A Pollution Control Revenue Bonds issued in December 1979. ( (6) Total Debt applicable to Sandow #4 less Pollution Control Revenue Bonds.
m Exhibit GLP-7 Page 5of5 d TEXAS POWER & LIGHT COMPANY Schedule of Return on Original Cost Rate Base and Adjusted Value Rate Base Weighted Cost Original Cost Return No. Description of Capital Rate Base Amount (a) (b) (c) (d) Original Cost Rate Base 1 Long-Term 3.30 % $2,297,699,650 '$ 75,824,088 2 Preferred Stock .91 2,297,699,650 20,909,067 3 Common Stock Equity 7.21 2,297,699,650 165,664,145 4 Unamortized Investments Credits .80 2,297,699,650 18,381,597 5 Total 12.22 % 2,297,699,650 $280,778,897 Rate of Return on Adjusted Value Rate Base I 6 $280,778,897 (Return) + $2,933,650,570 (Adjusted Value Rate Base) = 9.>7% i i I I l i .m
= TEXAS POWER & LIGHT COMPANY d Comparative Capital Structure Ratios December 31, 1973 through 1980 ($000's Omitted) Line 1930 Mo. Description 1973 1974 1975 1976 1977 1978 1979 As Adjusted (a) (b) (c) (d) (c) (I)- (g) (h) (i) Corporate j - 1 Total Capital $913,766 $1,129,119 $1,108,924 $1,541,710 $1,794,782 $1,875,301 $2,152,641 $2,298,722 2 Capital Structure: 3 Debt 47.78 % 47.44 % 46.03 % 45.98% 45.73% 43.89 % 44.12 % 41,25 % 1 4 Preferred Stock 11.77 12.19 12.78 12.77 12.62 12.08 11.90 11.54 l 5 Common Stock Equity 39.32 38.94 39.02 38.31 37.61 38.51 37.46 40.63 ) 6 Unamortized Investment Credits 1.13 1.43 2.12 2.94 4.04 5.52 6.52 6.58 7 Total 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 1 Stpplemental (includes allocable share of TUFCO and TUGCO Senior Notes)' j 8 Total Capital $1,576,660 $1,843,112 }2,018,111 $383,802 $2,513,838 9 Capital Structure: 10 Debt 47.18 % 47.15 % 47.86 % 49.54 % 46.28% 11 Preferred Stock 12.48 12.29 11.22 10.74 10.56 ) 12 Common Stock Equity 37.46 34.63 35.79 33.83 37.15 13 Unamortized Investment Credits 2.88 3.93 5.13 5.89 6.01 14 Total 100.00 % 100.00 % 100.00 % 100.00 % 100.00 % 1 C' 4 .oz
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e THE STATE OF TEXAS X COUNTY OF DALLAS X BEFORE the undersigned authority on this day personally appeared GARY L. PRICE, who, having been placed under oath by me, did depose as follows: "My name is Gary L. Price. I am of legal age and a resident of the State of Texas. The foregoing testimony, and exhibits, offered by me on behalf of Texas Power & Light Company, are true and correct, and the opinions stated therein are, to the best of my knowledge and belief, accurate, true, and correct." Y AAc GARY lbRICE SUBSCRIBED AND SWORN TO BEFORE ME by the said Gary L. Price this j[c - day of February, A. D.1981. / //h b tc h' ~ f@! ' i Robert D. Daniels Notary Public in and ".si for the State of Texas g-{.,_ 'h- [~ My Commission expires h8/Yf .}}