ML20035C269

Forwards Securities & Exchange Commission Form 10-K Annual Rept

ML20035C269
Person / Time
Site:	Comanche Peak
Issue date:	04/01/1993
From:	William Cahill, Marshall B TEXAS UTILITIES ELECTRIC CO. (TU ELECTRIC)
To:	NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM)
References
TXX-93153, NUDOCS 9304060421
Download: ML20035C269 (83)

Text

{{#Wiki_filter:== Log # TXX-93153 1""" M File # 10045 ~_ 841.1 ~~ ..r 2-Ref. # 10CFR50.71(b) i TllELECTRIC William J. Cahill, Jr. Gr< up Yk r President U. S. Nuclear Regulatory Commission Attention: Document Control Desk Washington, DC 20555

SUBJECT:

COMANCHE PEAK STEAM ELECTRIC STATION (CPSES) DOCKET NOS. 50-445 AND 50-446 SUBMITTAL OF SECURITIES AND EXCHANGE COMMISSION ANNUAL REPORT FORM 10K Gentlemen: } Pursuant to 10CFR50.71(b), TV Electric hereby submits five (5) copies. of the Form 10K Annual Report. Sincerely, William J. Cahill, Jr. By: J. S. Marshall Generic Licensing Manager - JDR/ Enclosures c-Mr. J. L. Milhoan, Region IV, w/o enclosures Resident' inspectors. CPSES, w/o enclosures I W .nnnn* $$4 IN$k EEh5 / / h' I ' 4 FUN. Olive Streer L.B. 81 Dah. Texas 75201 L. J

i SECURITIES AND EXCIIANGE COMMISSION WASillNGTON, D.C. 20549 i Form 10-K l i [V'] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) i OF TIIE SECURITIES EXCIIANGE ACT OF 1934 [ For the Fiscal Year Ended December 31,1992 -l OR l [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF TIIE SECURITIES EXCIIANGE ACT OF 1934 Commission File Number 0-11442 .L Texas Utilities Electric Company 1 (Exact name of regissrant as specified in as chaner) A Texas 1.R.S. Employer I Corporation No. 75-1837355 i l 2001 Bryan Tower, Dallas, Texas 75201 l Telephone Number (214) 812-4600 Securities Registered Pursuant to Section 12(h) of the Act: Name of each etchange on i Title of each class which reeistered 'i Depositary Shares, each representing New York Stock Exchange, Inc. l I/4 of a share of $8.20 Cumulative Preferred Stock, without par value. Securities Registered Pursuant to Section 12(g) of the Act: Preferred Stock, without par value f Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes i No __ l ) Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K, is not contained herein, and will not be contained, to the best of registrant's knowledge,in definitive prosy or information statements incorporated by reference in Part til of this form 10-K or any amendment to i this Form 10-K. (v'] t i Aggregate market value of Common Stock on January 29,1993 held by non-affiliates: None Common Stock outstanding at January 29,1993: 148,600,000' shares, without par value j i DOCUMENTS INCORPORATED BY REFERENCE None j

b T 1 TABLE OF CONTENTS item Description Page PARTI 1 B usiness..... 1 The Company 1 Peak Load and Capability. 2 Fuel Supply and Purchased Power.. 3 Competition..... 6 i Operations Review And Cost Reduction 7 Regulation and Ra.es 7 Comanche Peak Nuclear Generating Station I1 Environmental Matters........ 12 2 Properties.. 15 Construction Program 16 The Company System 18 3 Legal Proceedings......... 19 I 4 Submission of Matters to a Vote of Security Holders 19 PART 11 5 Market for Registrant's Common Equity and Related Stockholder Matters.. 19 6 Selected Finar cial Data... 20 Financial Statistics..... 20 Operating Statistics.......... 21 i t 7 Management's Discussion and Analysis of Financial Condition and Results of 0perations............................................ 22 8 Financial Statements and Supplementary Data 30 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure,........ 58 PART 111 10 Directors and Executive Officers of the Registrant 58 11 Executive Compensation......... 60 12 Security Ownership of Certain Beneficial Owners and Management. 66 13 Certain Relationships and Related Transactions. 66 PART IV 14 Exhibits. Financial Statement Schedules and Reports on Form 8-K.. 67 i L

t t PART I Item 1. BUSINESS a Tile COMPANY j I Texas Utilities Electric Company (Company) was incorporated under the laws of the State of Texas in 1982 and has perpetual existence under the provisions of the Texas Business Corporation Act. The. i Company is an electric utility engaged in the generation, purchase, transmission, distribution and s' le i a of electric energy wholly within the State of Texas. The Company possesses all of the necessary franchises and certificates required to enable it to conduct its business (see Regulation and Rates). i The Company is the principal subsidiary of Texas Utilities Company (Texas Utilities). Texas - Utilities also has three other subsidiaries which perform specialized seGes for the Texas Utilities Company System (System Companies), including the Company: Texas Utilities Fuel Company (Fuel

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Company) owns a natural gas pipeline sy stem, acquires, stores and delivers fuel gas and provides other { fuel services at cost for the generation of electric energy by the Company; Texas Utilities Mining Company (Mining Company) owns, leases and operat es fuel production facilities for Ihe surface mining and recovery of lignite at cost for use at the Company's generating stations; and Texas Utilities Services Inc. (TU Services) provides financial, accounting, computer. telecommunications, personnel, i procurement and other administrative services at cost. TU Services also acts as transfer agent, registrar and dividend paying agent with respect to the preferred stock of the Company. The Company's service area covers the north central, eastern and western parts of Texas, with a population estimated at 5,590,000 - about one-third of the population of Texas. Electric service is. provided in 88 counties and 372 incorporated municipalities, including Dallas, Fort Worth, Arlington. - Irving, plano, Waco, Mesquite, Grand Prairie, Wichita Falls, Odessa, Midland, Carrollton, Tyler, Richardson and l{illeen. The area is a diversified commercial and industrial center with substantial hanking, insurance, communications, electronics, aerospace, petrochemical and specialized steel manufacturing, and automotive and aircraft assembly. The territory served includes major portions of the oil and gas fields in the Permian 11asin and East Texas, as well as substantial farming and ranching sections of the State. It also includes the Dallas-Fort Worth International Airport, Alliance j Airport and the site of the Superconducting Super Collider. For energy sales and operating revenues i contributed by each customer classification, see item 6, Selected Financial Data - Operating Statistics. i At December 31,1992, the Company had 7,369 full-time employees (see Operations Review and Cost Reduction). l t i i t r 1 1 .E

item 1. BUSINESS'(Continued). PEAK LOAD AND CAPABILITY l r The Company's net capability, peak load and reserve,in megawatts (MW), at the time of peak were - as follows during the years indicated: 1 Peak Lead (a) Increase 't (Decrease) l'iras Net Oier Peak Year Capability Amount Prior Year Load tb) Rese r*e f e) - l 1992.... 21,697 17.525 3.4% 17,102 4,595 21.849 16,952 (5.9) 16,831 5,018' 1991 1990. 21,949 18,007 5.0 17,795 4,154 j ta) ne Company peak load includes interruptible load at the time of peak of 463 MW in 1992,341 MW in 1991 and 347 MW j in 1990. I (b) he Com pany firm peak load excludes interruptible load at the time of system pcak and includes 40 MW in 1992,220 MW in 1991 and 135 MW in 1990 of load associated with certain wholesale customers who were purchasing non. firm encrpy from sources other than The Company. (c) Amount of net capabihty in escess of firm peak load at the time of peak. The peak load changes resulted primarily from customer growth in the service area offset by i weather factors.The peak load in 1992 occurred on August 10. Included in the 1992 net capability was 1,771 MW of firm purchased capacity, including 1,691 MW of cogeneration and small power. production. The Company expects to continue to purchase capacity in the future from various sources.. (See Fuel Supply and Purchased Power and Note 14 to Financial Statements.) r Firm peak load increases over the next ten years are expected to average approximately 2.1% ann ually. after giving c!fect to an aggressive load management program (including interruptible ~ contracts). The Company's ten year system integrated resource plan (Resource Plan) provides for meeting the increases in required net capability through the completion of nuclear, lignite and - ~! gas / oil. fueled combustion turbine capacity additions, through purchased power capacity (including cogeneration and small power production) and through the Company's load management programs. .i Such load management programs improve the efficient use of the Company's generating units and help delay the need to add new capacity. The Resource Plan is subject to annual review as part of a regular planning process. When con. pared to the previous Resource Plan, the current plan reflects a two year deferral for the in-service dates of the Twin Oak lignite units (Twin Oak) and 1,290 MW of combined L cycle combustion iurbines. The in. service dat es for simple. cycle combustion t urbines, tot aling 290 M W 4 of capacity, have been accelerated three years when compared to the prior Resource Plan.- The components of the Resource Plan (see Item 2, Properties - Construction Program) are as follows: Resource Plan 1993 2002 Capability Resource Additions (MW) Percent 1,580 23 % [ Combustion Turbines... 1,500 22 Lignite Purchased Power 1,450 21' 1,235 18 Load Management 1,150 6 Nuclear. 6.915 100 % i Total 2 i

e 'I .I r Ittta 1. BUSINESS (Continued). t I UEL SUPPLY AND PURCIIASED POWER 'I t Net input for 1992 was 86,070 million kilowatt-hours (kWh) of which 74,652 million kWh were I generated by the Company. During this period,806,582,612 million British thermal units (Blu) of fuel (including 35,172,954 million litu furnished by Aluminum Company of America (Alcoa) at no cost) [ were consumed for electric generation (see Lignite). Average fuel and purchased power cost (excluding capacity charges) per kWh of net input was 1.85 cents for 1992,1.82 cents for 1991 and 1.83 cents for 1990. A comparison of the resource mix for net kWh input and the unit cost per million 11tu of fuel to the Compatay during the last three years'is as follows: htix for Net Unit Cost kWh Input l'er htillion Htu inz in: Ano an2 inn inn. l Fuel for Electric Generation: Gas 34.4 % 37.3 % 37.7 % $ 2.69 52.47 52.48 0.0 (a) 0.1 0.2 10.24 6.07 5.30 I Oil.

1. ignite (b).

44.2 43.9 44.4 1.05 1.05 . 0.96 Nuclear 8.1 6.1 3.9 ' O 41 0.33 0.64 (c) ' i Total / Weighted Average Fuel Cost 86.7 87.4 86.2 $ 1.65 $1.62 $1.63 f Purchased Power 13.3 12.6 13.8 Total. 100.0 % 100.0 % 100.0 % i l ta) Fuel oil amounted to 0.02% of total fuel requirerner,ts. (b) Lignite cost per ton to the Company was 513.19 for 1992. 313.48 for 1991 and 51238 for 1990. (c) Unit cost per million istu in 1990 includes avoided cost of fuel during trial operations. The 1990 cost sut sequent to : conunercial operation was 5038 per miHion Dtu. Gas i Fuel gas for units at nineteen of the principal generating stations of the Company, havmg an aggregate net gasloil capability of 12,931 MW, was provided during 1992 by Fuel Company. Fuel-Company supplied approximately 49% of such fuel gas requirements under contracts with producers at the wellhead and under other contracts with dedicated reserves and 51% under contracts with commercial suppliers. Additional gas / oil. fueled combustion turbines, with an aggregate net capability of 1,580 MW, are planned for the future (see Peak Load and Capability and item 2, Properties - ' }' Construction Program). i Fuel Company has acquired under contracts expiring at intervals through 2008, with producers at the wellhead, supplies of gas which are generally expected to be produced over a ten to fifteen year period. As gas productic.1 declines and/or contracts expire, new contracts are expected to be negotiated to replenish or augment such supplies. During 1992, no curtailments were experienced under these contracts. i i e i 5 3 i h i ? i

.m t I I Item 1. BUSINESS (Continued). l FUEL SUPPLY AND PURCIIASED POWER - (Continued)' { l Gas - (concluded) r Fuct Company has negotiated gas purchase contracts, ranging in term from one to twenty years,- l with a number of commercial suppliers. Additionally, Fuel Company has entered into a number of short. term gas purchase contracts with other commercial suppliers at spot market prices; however, these contracts typically do not provide for a fitm supply obligation from the seller nor a firm purchase _ obligation from Fuel Company. During periods of winter peak gas demand, curtailments of gas deliveries have been experienced; however, such curtailments have been of relatively short duration, have had minimalimpact on operations and have generally required utilization of fuel oil and gas storage inventories to replace the gas curtailed. I i Fuel Company owns and operates an intrastate natural gas pipeline systent which extends from the i gas-producing area of the permian Basin in West Texas to the East Texas gas fields and southward to the Gulf Coast area. This system includes a one-half interest in a 36-inch pipeline which extends 395 miles Irom the Permian Basin area of West Texas to a point of termination south of the Dallas-Fort 2 Worth area and has a total estimated capacity of S00 million cubic feet per day with existing l compression facilities. Additionally, Fuel Company owns a 397c undivided interest in another 36-inch . j pipeline, connecting to this pipeline and extending 58 miles eastward to one of Fuel Company's ~ underground gas storage f acilities. Fuel Company also owns and operates approximately 1,650 miles of various smaller capacity lines which are used to gather and transport natural gas from other i gas-producing areas. The pipeline f acilities of Fuel Cornpany form an integrated network through w hich f uel gas is gathered and transpor ted io certain generating stations of the Company for use in the generation of electric energy. I Fuel Company also owns and operates three underground gas storage f acilities with a usable capacity of 27.2 billion cubic feet with approxirnately 21.3 billion cubic feet of gas in inventory at December 31,1992. Gas stored in these facilities currently can be withdrawn for use during periods I of peak demand, to meet seasonal and other fluctuations or curtailment of deliveries by gas suppliers. Under normal operating conditions, up to 500 million cubic feet can be withdrawn each day for a two week period, with withdrawals at lower rates thereafter. Oil l l' During 1992, the Company's utilization of fuel oil as an alternate source of boiler fuel amounted to 25.829 barrels or 0.027o of total fuel requirernents. Fuel oil is stored at all nineteen of the i principally gas-fueled generating stations. At December 31,1992, the System Companics had fueloil storage capacity sulficiens to nccommodate approximately 6.6 million barrels of oil with approximately j 2.4 million barrels of oilin im entory. Fuel Cornpany has access to an oil pipeline and owns a terminal l tacility to provide for more dependable and 'ficient movement of oil. Generally, oil required to l replenish that oil removed from storage will be obtained through purchases in the open market. ? I I 4 2 I i

i 4 Item 1. BUSINESS (Continued). I FUEL SUPPLY AND PURCILASED POWER -(Continued) i Lignite Lignite is used as the primary fuelin two units in service at the Big Brown generating station (Big Brown), three units at the Monticello generating station (Monticello),three units at the Martin Lake generating station (Martin Lake) and one unit at the Sandow generating station (Sandow) having an - aggregate nei capability of 5,845 MW. Two other lignite-fueled units,with an aggregate nel capability - i of 1,500 MW, are included in the current Resource Plan (see Peak Load and Capability and item 2, Properties - Construction Program). The Company's lignite units, which are or will be base loaded to operate at the maximum practical capacity factor, have been or will be constructed adjacent to surface mined lignite reserves. At the present time, the Company owns in fee or has under lease an estimated 905 million tons of proven reserves dedicated to existing power plants, plants under construction or plants in the advanced stages of design. Mining Company owns, leases and operates equipment to remove the overburden and to recover lignite. One of the Company's lignite units, Sandow 4, is fueled from lignite deposits owned by Alcoa, which furnishes fuel at no cost to the Company for that portion of energy generated from such unit which is equal to the amount of energy delivered to Alcoa (see Item 6, Selected Financial Data - Operating Statistics). The Company 3 continues to evaluate the use of western coal to supplement its existing lignite fuel supply. For information concerning applicable air quality standards, see Environmental Matters. Lignite production operations at Big Brown, Monticello and Martin Lake are accompanied by an I extensive reclamation program which returns the land to productive uses and includes a vegetation restoration program. Similar programs are planned for future lignite-fueled generating stations. For information concerning federal and state laws with respect to surface mining, see Environmental-Matters. i ? Nuclear The Company is operating one nuclear-fueled generating unit and is finalizing construction on a second unit at the Comanche Peak nuclear generating station (Comanche Peak), each of which is designed for a net capability of 1,150 MW. (See Peak Load and Capability, Comanche Peak Nuclear Generating Station and item 2, Properties - Construction Program.) in February 1993, pursuant to a license issued by the Nuclear Regulatory Commission (NRC), the Company loaded fuel and commenced low power testing of Unit 2. Enriched uranium has been. purchased for Unit I through 1997 and the first three years of operation for Unit 2. Commitments have been obtained for fuel fabrication services for Unit I through 2002 and Unit 2 for the first ten years of operation. Uranium hexafluoride conversion services have been contracted for through 2003; l and a uranium enrichment contract having a duration of approximately 22 years has been made with the U. S. Department of Energy. Commitments have been obtained for uranium ore concentrates for i both units for the period 1994 through 2001. Additional contracts for uranium ore concentrates and nuclear fuel cycle services will be required in the future; however, it is not possible to predict the ultimate availability or cost thereof. The National Energy Policy Act of 1992 (Energy Act), which was enacted in October 1992, has provisions ior the recovery of a portion of the costs associated with the decommissioning and decontamination of the gaseous diffusion plants used to enrich uranium for fuel. These costs willbe recovered in fees paid to the Department of Energy as determined by the Secretary of Energy. The total annual assessment for all domestic utilities is capped at $150 million per federal liscal year assessable for fifteen years. The Company's share (currently estimated to be $1.8 million 5

l Item 1. BUSINESS (Continued). FUEL SUPPLY AND PURCIIASED POWER - (Concluded) Nuclear - (concluded) per year) will be in proportion to the amount of uranium separative services it uses. (See Competition j for information pertaining to the Energy Act.) The Nuclear Waste Policy Act of 1982, as amended (NWPA), provides for the development by the federal government of interim storage and permanent disposal facilities for spent nuclear fuel and/or high level radioactive wast e materials. The Company is unable to predict when the federal government I will be able to provide such storage and disposal facilities. Under provisions of the NWPA, funding for the program will be provided by a one-mill per kW!i fee currently levied on electricity generated and sold from nuclear reactors, including ti.e Comanche Peak units. Onsite storage capacity for spent fuelis sufficient to accommodate the operation of Comanche Peak for approximately 20 years and this storage capacity can be increased, subject to approval by the NRC. Purchased Power I In 1992, the Company purchased 11,417 million kWh or approximately 13% of its energy requirements and had available 1,771 MW of firm purchased capacity or approximately 8% of net capability under contract at the time of peak load. The Company may acquire purchased power - r capacity in the future to accommodate a portion of its system load and continues to investigate i potential available sou.es. For information concerning the Resource Plan, see Peak Load and Capability and Note 14 to Financial Statements. General The Company is not able to predict:(i) whether or not problems may be encountered in the future in obtaining the fuel and purchased power it will require, (ii) the effect upon its operations of any difficulty it may experience in protecting its rights to fuel and purchased power now under contract, or (iii) the cost of fuel and purchased power. All reasonable costs of fuel and purchased power are i generally recoverable subject to the rules of the Public Utility Commission of Texas (PUC). (See Regulation and Rates for information pertaining to the method of recovery of purchased power and fuel costs.) COMPETITION The Company shares PUC certification in certain portions of its service area. In addition, some f energy consumers in its service area have the ability to produce their own electricity or use alternative forms of energy. The level of competition is affected by, among other ilaings, changes in regulation, the cost of energy alternatives and new technologies. l The Energy Act seeks to increase competition in electric generation and increase access to electric l transmission systems. The Energy Act addresses a wide range of energy issues, including several matters affecting bulk power competition in the electric utility industry, nuclear licensing reform, i nuc! car plant decommissioning and energy efficiency. This legislation includes changes to the Public Utility lloiding Company Act of 1935, the Public Utility Regulatory Pelicies Act of 1978, and the Federal Power Act. Implementation of this legislation through rulemakingis in process at the Federal Energy Regulatory Commission (FERC). 6 t )

i i Item 1. BUSINESS (Continued). COMPETITION - (Concluded) l The Company is unable to predict the ultimate outcome of these developments or what impact,if any, they may have on its operations. l OPERATIONS REVIEW AND COST REDUCTION in April 1992, the System Companies commenced a plan to better prepare the System Cornpanies to operate in the rapidly changing business environment of the electric utility industry and to reduce costs. All aspects of System Companies' operations were examined to identify opportunities for [ effective changes in business processes and operating practices. Implementation of resulting changes in processes and practices has begun and will extend beyond 1993. Related to this plan, the System Companies announced on June 1,1992 an offer of enhanced voluntary early retirement to approximately 3,700 of the System Companies' 15,200 employees. All other regular full. time employees were offered a voluntary severance program. The election period for this program ended on September 1,1992, with separation dates occurring through November 1, 1992. A total of 4,499 employees (about 30%) accepted the voluntary early retirement / severance [ program. The number of employee acceptances was about equally divided between employees electing t carly retirement and those electing voluntary severance. In September 1992, the System Companies deferred the cost of this program, which at December 31,1992 was approximately $255 million. The Company has requested recovery of these costs in ratesin Docket 11735 over a three year period as an offset to reductions in operating costs from changes in business processes and operating practices, I which will result in the annual savings of approximately $117 million (see Regulation and Rates below). REGULATION AND RATES Regulation Texas Utilities and its subsidiaries, including the Company, are exempt from the provisions of the Public Utility Holding Act of 1935, except Section 9(a)(2) which relates to the acquisition of securitie: of public utility companies. The Company does not transmit electric energy in interstate commerce or sell electric energy at wholesale in interstate commerce, or own or operate facilities therefor, and its facilities are not connected directly or indirectly to other systems which are involved in such interstate activities, except during the continuance of emergencies permitting temporary or permanent connections or under order I of the FERC exempting the Company from jurisdiction under the Federal Power Act. In view thereof, the Company believes that it is not a public utility as defined in the Federal Power Act and has been advised by its counsel that it is not subject to general regulation under such Act. l The PUC has originaljurisdiction over electric rates and service in unincorporated areas and those municipalities that have ceded originaljurisdiction to the PUC and has exclusive appellatejurisdiction to review the rate and service orders and ordinances of municipalities. Generally, the Texas Public Utility Regulatory Act prohibits the collection of any rates or charges (including charges for fuel) by a public utility that do not have the prior approval of the PUC (see Rates). The provisions for inclusion of construction work in progress (CWIP) in rate base provide that such inclusion is an i exceptional form of rate relief to be granted only when necessary to the financialintegrity of the utility 7 i I I I i

7 i Item 1. BUSINESS (Continued). 'l l REGU!ATION AND RATES -(Continued) F Regulation - (concluded) { and that it shall not be included for major projects to the extent they have been imprudently planned or managed. 6 i The construction of new production facilities of the Company is subject to PUC certification. In January 1992, the PUC approved the Notice of Intent (NOI) applications which were filed by the Company in June 1991 for 1,512 MW of combustion turbines and 650 MW of coal-fired generation. An NOI is the first step of a process for PUC approval for construction of utility plant. Certain j intervenors in the NOl proceeding have appealed the PUC's approval by filing an action which is currently pending in the 126th Judicial District Court of Travis County, Texas. (See Peak Load and Capability and item 2, Properties-Construction Program.) l i The System Companies are also subject to various other federal, state and local regulations. (See i Comanche Peak Nuclear Generating Station and Environmental Matters.) { Rates I Pursuant to a PUC rule, the recovery of fuel costs is provided through fixed fuel factors. The rule I requires refunds of material over recoveries of fuel cost revenues and reductions in the fixed fuel factors in the event that the utility is materially over-recovered and projects that it will materially I over-recover its known c,r reasonably predictable fuel costs. Material, as defined in the rule, is the j lesser of $40 million or 4% of the annual known or reasonably predictable fuel costs most recently approved by the PUC. Final reconciliation of fuel costs is to be made in a utility's general rate case or at a reconciliation proceeding. The rule also provides for an emergency request to increase the fixed fuel factors, which must be acted upon within thirty days on an interim basis by the PUC, if reasonably unforeseeable circumstances have resulted in a material under-recovery of known or I reasonably predictable fuel costs. Reconciliation of fuel costs takes place in a general rate case and may be requested otherwise if it has either been over one year since the utility's last fuel reconciliation or the utility has materially under-recovered its known or reasonably predictable fuel costs. In such reconciliation, the utility has the burden of proving that it has generated electricity efficiently, maintained effective cost controls,its non-affiliated fuel and fuel-related contracts have produced the lowest reasonable cost of fuel to ratepayers, and, for luels acquired from affiliates, all fuel-related expenses are reasonable and necessary and that the prices charged are no higher than prices charged by the supplying affiliate to other of its affiliates or divisions or to unaffiliated persons or corporatic.ns for ihe same item or class of items. Under-recovery reconciliation will be granted only for that portion of fuel costs increased by cenditions or events beyond the utility's control. Interest will be paid or received by the utility on auy over-or under-recovery of fuel costs at the utility's composite cost of capital as established b) the PUC in the utility's most recent general rate case. The rule imposes penalties of up to 10% n G cvent that interim refunds, when required, are not timely requested and in the event that an emergency increase is granted when there was no emergency. In addition, the PUC rules contain a provision which generally allows recovery through a Power Cost Recovery Factor (PCRF), on a monthly basis, of purchased power capacity costs not included in base rates from qualifying cogenerators and qualifying small power producers. The portion of purchased power costs f or fuel is included in the fixed fuel factor. In January 1993, the PUC amended its rule governing the recovery of fuel costs, effective May 1 8 i j 1 l

Item 1. BUSINESS (Continued). REGUIATION AND RATES -(Continued) l Rates - froncluded) 1993. Under the amended rule, eligible fuel costs will continue to be recovered through fuel factors. The amended rule allows a utility's fuel factor to be revised upward or downward every six months, according to a specified schedule. Each six months, a utility will be required to petition to make either i surcharges or refunds to ratepayers, together with interest based on a twelve month average of prime i commercial rates, for any material cumulative under-or over-recovery ot fuelcosts. If the cumulative difference between the over-or under-recovery, plus interest, is in excess of F7o of the annual i estimated fuel costs most recently approved by the PUC,it will be deemed to be material. The rule j also contains a procedure for an expedited change in fuel factors in the event of an emergency. Final reconciliation of fuel costs must be made either in a reconciliation proceeding, which may cover no more than three years and no less than one year, or in a general rate case. In a final reconciliation, a utility will have the burden of proving that fuel costs under review were reasonable and necessary i to provide reliable electric service, that it has properly accounted for its fuel related revenues, and that fuel prices charged to the utility by an affiliate were reasonable and necessary and not higher than 3 prices charged for similar items by such affiliate to other affiliates or nonaffiliates. In addition, the j amended rule provides for recovery of purchased power capacity costs that are not otherwise included in base rates, for purchases from qualifying facilities, on a monthly basis through a PCRF. The energy-related costs of such purchases will be included in the fuel factor. Penalties of up to 10% will be imposed in the event Ihat either an emergency increase has been granted when there was no emergency or when collections under the PCRF exceed PCRF costs by 10% in any month or 5% in the most t recent twelve months. Pending Rate Request b On January 22, 1993, the Company made applications to the PUC (Docket 11735) and to its municipal regulatory authorities for upward adjustments in rates for electric service throughout its service area. Such request reflects, among other things, costs associated with the anticipated commercial operation of Comanche Peak Unit 2, costs associated with Comanche Peak Unit I capital I investment after the end of the Docket 9300 test year (see below), additional ad valorem taxes and - certain postretirement benefit costs. The proposed rate adjustments. if approved, would affect all ' i' classes of service and are estimated to increase annual operating revenues by approximately $760 million, or 15.3%, based upon the test year ended June 30,1992. The Company is unable to predict the extent to which this rate increase request will be granted. The Company expects to place new rates e in effect, under bond, when Unit 2 of Comanche Peak achieves commercial operation which is scheduled for the peak season of 1993. The request to place additional amounts of Comanche Peak investment in rate base will be subject to a review by the PUC for prudence of costs incurred. In connection with the September 1991 rate order in Docket 9300, the PUC reviewed costs incurred through June 1989 on Unit 2 and through fuel load in February 1990 on Unit 1. At December 31, 1992, the Company had approximately $2.6 billion invested in Comanche Peak that had not been j reviewed for prudence. The Company cannot predict the outcome of any future prudence review.The Company is also seeking reconciliation, under the fuel rule currently in effect, of approximately $.1.6 billion of fuel costs incurred during the three year period ended June 30,1992 (see Rates). t i 9 - r 5 s~

i t Item 1. BUSINESS (Continued). i REGULATION AND RATES - (Continued) Prior Rate Request l In January 1990, the Company made applications to the PUC (Docket 9300) and to its municipal { regulatory authorities for upward adjustments in rates for electric service throughout its service area which would inct ease operating revenues by approximately $442 million, or 10.2%, based upon the test year ended June 30,1989. Such request reflected costs associated with the commercial operation of l Unit 1 of Comanche Peak. On August 13,1990, pursuant to rules of the PUC, the Company placed its requested rate increase into effect, under bond, applicable to energy sales on or after such date. I In September 1991, the PUC issued a final order in Docket 9300.The order provided for a total revenue inc: ease of approximately $442 million and included $695 million of CWIP in rate base to support the revenue increase. It also included a prudence disallowance of $472 million with respect to certain Comanche Peak costs relating to 87.8% of the Company's ownership interest in both units of Comanche Peak. With respect to the Company's reacquisition of the remaining 12.2% minority owner interests in Comanche Peak, the order included an additional disallowanca of $909 million. In addition, the order provided for refunds aggregating $56 million, including interest, principally with respect to fuel gas costs considered imprudent by the PUC. Such amount is being refunded to customers, with interest, over a two year period that began in November 1991. [ in November 1991, the Company filed a petition in the 250th Judicial District Court of Travis County, Texas, requesting a reversal and remand of the order. Other parties to the PUC proceedings l also filed appeals with respect to various portions of the order. In September 1992, after a hearing, the Court entered a judgment in the appeals. 6 the judgment, the Court affirmed the prudence 4 disallowance of $472 million with regard to certain costs associated with Comanche Peak but reversed and remanded to the PUC for reconsideration those portions of the PUC's final order providing for additional disallowances aggregating $884 million with respect to the Company's reacquisition of minority owner interests in Comanche Peak. The Court concluded that upon remand the PUC must { consider all factors relevant to the overall public interest, including all factors and considerations raised by the evidence presented by the Company, and should not base its decision solely on a "least-cost" comparison of generation alternatives in its determination of reasonable value in connection with these transactions. The Court also found that the PUC erred in ordering a refund of approximately $2.5 million with respect to certain fuel gas costs considered imprudent by the PUC. In addition, the Court indicated that the PUC erred in its calculation of the amount of the Company's cash working capital. The Court recognized that on remand the PUC may adjust the amount of CWIP included in i the Company's rate base to be consistent with the PUC's redeterminations regarding the minority owner reacquisitions and the amount of cash working capital. Therefore, the Company does not expect this judgment to affect current rates approved in the PUC's final orer. t Other parties to this suit have appealed this judgment. The Company disagrees with certain portions of the judgment and also has appealed. The Company is unable to predict the outcome of such appeals and any reconsideration by the PUC. i in October 1992, the General Counsel's office of the PUC filed a complaint against the Company requesting that the PUC review certain aspects of the Company's implementation of bonded rates in Docket 9300 for the period during which such rates were in effect. The comphint alleges primarily that during such period the Company should not have accrued approximately $70 million of an allowance for funds used during construction (AFUDC) related to the Unit 2 investment which was t h 10 s 'I

a l Item 1. BUSINESS (Continued). P.EGUIATION AND RATES -(Concluded) Prior Rate Request - (conclude:) subsequently included as CWIP in rate base pursuant to the rate order in Docket 9300.The Company disagrees with the General Counsel's position and expects that the issue will be resolved during the pendency of, or in connection with, Docket 11735. In December 1992, the PUC ruled in another electric utility's proceeding that an " actual taxes paid" method of accounting for income taxes proposed by an inter"enor in that proceeding'was the appropriate ratemaking approach based on its interpretation of two state court rulings. Generally, an " actual taxes paid" approach to ratemaking treatment for income taxes proposed by intervenors involves utilizing tax benefits generated by costs which are not allowed m rates to reduce rates charged to customers. The tax benefits associated with the Comanche Peak costs disallowed in Docket 9300 are the tax benefits that primarily could be affected under this approach. According to a Private Letter ' l Ruling issued to the Company by the Internal Revenue Service, such ratemaking treatment to the extent it relates to property classified for tax purposes as public utility property, would result in a violation of the normalization rules contained in the Internal Revenue Code. Violation of the normalization rules would result in a significant adverse elfeet on the Company's results of operations and liquidity. The Company believes that the court rulings cited by the PUC in its recent decision are not controlling as regards rate mak.ing treatment of the tax benefits associated with the costs of Comanche Peak. Accordingly, the Companyis prepared to strongly oppose such ratemaking treatment for income taxes in Docket 11735 on the same basis as it is currently opposing the imposition of such rate making treatment in the appeals by the other parties of the rate order in Docket 9300. See item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 12 to Financial Statements. COMANCHE PEAK NUCLEAR GENERATING STATION l The Company is subject to the jurisdiction of the NRC with respect to nuclear power plants. NRC regulations govern the granting of licenses for the construction and operation of nuclear power plants and subject such plants to continuing review and regulation. In April 1990, the NRC issued a full power operating license for Unit 1. The construction permit for Unit 2 is in effect and has been extended until a " latest date for completion"of August 1,1995. In February 1993, pursuant to a license - issued by the NRC, the Company loaded fuel and commenced low power testing of Unit 2. For information relating to cost and scheJule estimates see item 2, Properties - Construction Program. i In August 1992, following action by the NRC statf which extended the construction permit for Unit 2, an Atomic Safety and Licensing Board (ASLB) was established to_ determine whether proposed ' l intervenois have standing to intervene and,if so, whether valid issues exist to necessitate a hearing to determine if there was a good cause to extend such construction permit. In December 1992,the ASLB i issued an order denying a hearing on these petitions, and the proposed interveno_rs have taken actions [ to appeal this decision. The Company does not believe that any such proceedings will affect the licensing of Unit 2 for full power operation. l f i l I 11 'i i 1

Item 1. BUSINESS (Continued). ENVIRONMENTAL MATTERS The System Companies are subject to various federal, state and local regulations dealing with air i and water quality and related environmental matters (see item 2, Properties-Construction Program for scheduled environmental expenditures). Air Under the Texas Clean Air Act, the Texas Air Control Board (TACB) has jurisdiction over the 'i permissible level of air contaminant emissions from generating facilities located within the State of Texas, in addition, the new source performance standards of the Environmental Protection Agency (EPA) promulgated underthe federalClean Air Act Amendmentsof1990(Clean Air Act),which have also been adopted by the TACB, are applicable to such generating units, the construction of which commenced after September 18,1978. The Company's generating units have been constructed to operate in compliance with current regulations and emission standards promulgated pursuant to these Acts; however, due to variations in the quality of the lignite fuel, operation of certain of the lignite-fueled generating units at reduced loads is required from time to time in order to maintain compliance with these standards. Generating facilities under construction have received state and federal nrmits and are designed to comply with applicable statutes and regulations. The federal Claan Air Act includes provisions which, among other things, place limits on the sulfur. dioxide emissions produced by generating units. The Clean Air Act requires that fossil-fueled plants meet new sulfur dioxide emission standards by 1995 (Phase 1) and additional sulfur dioxide emission standards by 2000 (Phase 11). The Company's generating units are not affected by the Phase ! I requirements. The Phase 11 requirements currently are met by all but four of the Company's generating units. Because the sulfur dioxide emissions from these four units are relatively low and alternatives are available to enable these units to reduce sulfur dioxide emissions or utilize compensatory additional reduction allowances achieved in other units, compliance with the applicable l Phase 11 sulfur dioxide requirements is not expected to have a significant impact on the Company. On January 11, 1993, the EPA issued its " core" regulations to implement the sulfur dioxide reduction program. The Company is reviewing these regulations and is preparing a compliance plan in accordance with the regulations. 1 To meet these sulfur dioxide requirements, the Ckan Air Act provides for the annual allocation of sulfur dioxide emission allowances to utilities. Utilities will be permitted to transfer allowances within their own systems and to buy or sell allowaro s in a new allowance trading market to be 'l established under the Clean Air Act. The EPA will grant a maximum number of allowances annually [ to the Company based on the amount of emissions from units in operation in 1985. The Clean Air Act l also provides that the Company will be granted additional annual allowances for certain Company j units under construction based on part of their anticipated emissions. The Company intends to utilize internal allocation of emission allowances within its system and,if it is cost effective, may purchase emission allowances to enable both existing and future electric generating units to meet the requirements of the Clean Air Act. The Company is unable to predict the extent to which it may generate excess allowances or will be able to acquire allowances from others if needed. Other provisions of the Clean Air Act may require the Company to take other actions. The ? Company's lignite-fired generating units meet the currently required nitrogen oxide limits in the Clean Air Act. The requirements of the Clean Air Act for ozone nonattainment areas may require nitrogen oxide emission reductions at the Company's natural gas. fired units in the Dallas-Fort Worth area by ? 12 l I i

Item 1. BUSINESS (Continued). I 2 ENVIRONMENTAL MATTERS -(Continued) l <tir - - (concluded) 1996. The Clean Air Act also requires studies over a four year period by the EPA to assess the 'I potential for toxic emissions from utility boilers. The Company is unable to predict either the results of such studies or the effects of any subsequent regulations. Continuous emission monitoring systems are required by the Clean Air Act to be installed by 1995 on most of the Company's fossil-fueled units and sucli installation has begun. ] Only certain parts of the regulations implementing the Clean Air Act have been published as final ' rules. Until more of these regulations have been promulgated and specific state requirements developed, the Company will not be able to fully determine the cost or method of compliance for these requirements. The Company believes that it can meet the requirements necessary to be in compliance with these provisions as they are developed. Capital requirements related to the Clean Air Act are. l included in the Company's estimated construction expenditures. Any additional capital costs, as well as any increased operating costs associated with new requirements or compliance measures, are expected to be recovered through rates, as similar costs have been recovered in the past. Water The Texas Water Commission (TWC) and the EPA have jurisdiction over all water discharges [ (including storm wat er) from generating stations and mining areas. The Company's generating stations + presently in operation have been constructed to operate in compliance with applicable state _ and federal requirements relating to discharge of pollutants into the water. The Company, Fuel Company, and Mining Company have obtained all required waste water discharge permits from the TWC and the 1 EPA for facilities in operation and have applied for or obtained all such permits for facilities under construction. The Company, Fuel Company, and Mining Company believe they can satisfy tl e requirements necessary to obtain any required permits or renewals. Diversion, impoundment and withdrawalof water for cooling and other purposes are subject to the l jurisdiction of the TWC The Company possesses all necessary permits for these activities from the TWC for its present operations and plants under construction. j i Other ~, Federal legislation regulating surface mining was enacted in August 1977 and regulations implementing the law have been issued. Mining Company's lignite mining operations are currently regulated at the state level by the Railroad Commission of Texas. Surface mining permits have been l issued f or current Mining Company operations that provide fuel for Big Brown, Monticello and Martin. ll Lake. l Treatment, storage and disposalof solid and hazardous waste are regulated at the state level under f the Texas Solid Waste Disposal Act and at the federallevel under the Resource Conservation and Recovery Act of 1976, as amended (RCRA). The EPA has issued regulations under the RCRA and -{ the TWC has issued regulations under the lexas act applicable to the Company generating units. The i Company has registered its solid waste disposal sites and has obtained or applied for such permits as are required by such regulations. i 13 [ E 3 -e ~--

i i Item 1. BUSINESS (Concluded). ? ENVIRON 51 ENTAL SIA"ITERS -(Concluded) [ Other - (comcluded) Under the federal Low-Level Radioactive Waste Policy Act of 1980, as amended, the State of Texas is required to provide by 1996, either on its own or jointly with other states in a compact, for the l disposal of alt low-level radioactive waste generated within 1he state. The State of Texas is taking steps - l to site, construct and operate a low-level radioactive waste disposal site by 1996 and submitted a license application in March 1992 for a low-level waste disposal facility. The crate of Texas has entcred into an agreement with other states in its region to take and dispose of alllow-level radioactive waste from Texas for the period January 1,1993 through June 30,1994. i I i -i 1 k s h i i t 4 't .g h .I 4 k

a 1

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9 l,

i 1 I 1 1 11 1 i j i i i

Item 2. PROPERTIES. I' At December 31,1992. the Company owned or leased and operated the following units: Electric Net Generating _ Capability Units fuel Sou rce 1 MW) 47 Natural Gas (a)........ 11,936 59.9_ 9 Lig n i t e................ 5,845 29.3 2 Nuclear. 1,150 - 5.8 1 10 D iesel................. 20 0.1 15 Combustion Turbines (b).. 975 4.9 To t a l............... -.. ~ 19,926 100.0 - i (a) TF.rty-eight (38) natural gas units are ' designed to operate on fuel oil for short periods when gas supplies are j interrupted or curtailed. Five d) natural gas units are designe.1 to operate on fuel oil for extended periods. (b) Natural Gas units leased and operated by the Company. Such units are designed tooperate on fuel oil for extended l pe riods. '{ f . The principal generating facilities and load centers of the Company are connected by 3,861 circuit miles of 345,000 volt transmission lines and 9,098 circuit miles of 138,000 and 69,000 volt transmission lines. The Company is connected by six 345,000 volt lines to llouston Lighting & Power Company; by three 345,000 volt, eight 138,000 volt and nine 69,000 volt lines to West Texas Utilities Company; by two 345,000 volt, seven 138,000 volt and one 69,000 volt lines to the Lower Colorado River Authority: by four 345.000 volt and eight 138,000 voit lines to the Texas Municipal Power Agency; and at several points with smaller systems operating wholly within Texas. The Corrpany is a member of the Electric [ Reliability Council of Texas (ERCOT), an intrastate network of investor-owned entities, cooperatives i and public entities. ERCOT is the regional reliability coordinating organization for member electric i power systems in Texas. The generating stations and other important units of property of the Company are located on lands owned primarily in fee simple. The greater portion of the transmission and distribution lines of the j Company, and of the gas gathering and transmission lines of Fuel Company, has been constructed over.

i lands of others pursuant to casements or along public highways and streets as permitted by law. The l

rights of the System Companies in the realty on which their properties are located are considered by them to be adequate for their use in the conduct of theit business. Minor defects and irregularities customarily found in titles to properties of like size and character may exist, but any such defects and i irregularities do not materially impair the use of the properties affected thereby. The Company snd Fuel Company have the right of eminent domaia whereby they may, if necessary, perfect or secure titles to privately held land used or to be used in their operations. Electric plant of the Comyny is generally suliect to the liens of its mortgages. ~ i t During the period from January 1,1990 to December 31,1992, the Company made gross property j additions of approximately $2,655,106,000 and retirements of property aggregating approximately.

j 5172.249.000. Such gross additions amounted to approximately 12.9% of electric plant at Decernber

-i 31,1992. I i l f -15 1 1 I f

i Item 2. PROPERTIES (Continued). ? CONSTRUCTION PROGRAM l I Construction expenditures, excluding AFUDC (see Note I to Financial Statements), for the years l 1993 through 1995 are estimated as follows: l 1993 1994 199s Electric Property: Thousands or potter. Production Comanche Peak Unit 2.... $ 82,000 Other Production....... 117,000 144,000 367,000 Other Production - Environmental (a)....... 41.000 98,000 68.000 Total Production 240,000 242,000 435,000 Transmission 49,000 43,000 62,000 Distribution 262,000 238,000 240,000 General 29,000 37,000 53,000 $580.000 $560.000 $790.000 l Total. Such expenditures do not include amounts for: Nuclear Fuel (excluding AFUDC) $ 5,000 $ 5,000 $ 68,000 (a) The System Companies are subject to federal, state and local regulations desting with environmental protection (see ttem 1. Business-Environmental Matters) Such espenditures for e.mistirag units approximated 12$.400.000 for 1992. 510.400,000 for-' I99I and $15.500.000 for i990. Comanche Peak Nuclear Generating Unit 2 Unit 2 is scheduled for service for the peak season of 1993. At December 31.1992, the Company had 54.22 billion invested in Unit 2 (net of $485 million included in the reserve for regulatory disallowances required by the PUC order in Docket 9300, see Note 12 to Financial Statements), including AFUDC. The - t estimated cash requirements in 1993 to complete Unit 2 are approximttely $82 million. AFUDC accruals for Unit 2, which approximated $30 million for the month of January 1993, will continue until the unit is in commercial operation. Also, in January 1993, pursuat.t to adopting a new accounting standard for income taxes which precludes net-of-tax accounting for income taxes, the Company increased previously recorded AFUDC for Unit 2 by $219 million with a corresponding increase in deferred income taxes. Oth-r Generating Units i The Company's Resource Plan includes two lignite. fueled 750 MW units at Twin Oak scheduled for service for the peak seasons a 1999 and 2000, respectively. Estimated construction expenditures.- excluding AFUDC, for the 1993-1995 period include approximately $221 million applicable to these. l generating units. Active construction and the accrual of AFUDC on Twin Oak, suspended in v September 1987 due to forecast changes in load growth,is expected to resume in 1995.' Construction j activities for the 290 MW of gas / oil. fueled combustion turbines planned for the peak season of 1998 are expected to begin in 1994._ Estimated construction expenditures, excluding AFUDC, for the 1993 1995 period include approximately $5 million applicable to this generating capacity. 4 16 l t (

i - i Item 2. PROPERTIES (Continued). j CONSTRUCTION PROGRA 51 - (Concluded) i Other Generating Units- (concluded) The remainder of the Company's Resource Plan includes 1,290 MW of gas / oil fueled generating combustion turbine units, none of which require significant construction expenditures in the 1993-1995 period reflected above. (See item I, Business - Peak Load and Capability.) { The effects of inflation on construction costs, the reevaluation of growth expectations or additional i regulatory requirements may result in changes in estimated completion costs and in. service dates for certain generating units in design or under construction. Actual expenditures and dates of completion I may further vary because of other uncertain factors such as licensing delays, changes in peak load j requirements and cost and availability of fuel, labor, materials and capital. Commitments in i connection with the construction program, principally for generating stations and related facilities, are generally revocable subject to reimbursement to manufacturers for expenditures incurred or other cancellation penalties. For information regarding financing of the construction program see item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. 4 P I t i 1 0 [ t I F i i i [ 1 J i 1 f i I 17 l i i a w a

Items 2. PROPERTIES (Concluded). THE COMPANY SYSTEM Decesaber 31, IM2 en se e s.a M d 1 r m_ -s ,, m. -. = anu e e, T j _gg,., x L =. g - . I? f l -- } k,. ~~ ~ ~- --4; i x j 3,_ y 7 N.j N f v l 7 .t:i ~~ t __ V 18

Item 3. LEGAL PROCEEDINGS. In November 1991 Sherce Anne Meyer, as custodian for Adam Joseph Davenport, allegedly as a shareholder of Texas Utilities, filed suit in the United States District Court for the Northern District of Texas derivatively on behalf of Texas Utilities an' e Company against Texas Utilities and the Company as nominal defendants and J. S. Farrington, 'e Nye, James K. Dobey, Jack W. Evans, William M. Grif fin, Margaret N, Maxey, James A. Middleton, Charles R. Perry and William II. Seay, directors of Texas Utilities, and James 11. Zumberge, a former director of Texas Utilities, S. S.Swiger, a former officer of Texas Utilities, and T. L. Baker, an officer of the Company. The plaintiff alleges breaches of fiduciary duty and negligence primarily relating to Comanche Peak, which the plaintiff claims have resulted in damages in an amount not less than $1.381 billion.- In December 1991, the Court entered an order which stayed this suit until thirty days after entry of a final judgment by the + District Court in the Company's appeal of the final order of the PUC in Docket 9300, in September 1992, a final judgment in this appeal was entered by the District Court. (See Item 1. Business - Regulation and Rates.) The plaintiff refuscd to extend the stay pending the appeals of thisjudgment and Texas Utilities moved to extend the stay through resolution of the appeals or alternatively to dismiss the suit. In December 1992, this suit was consolidated with a similar suit brought against Texas Utilities by another alleged shareholder. On January 29,1993, the Court entered an order which i stayed the consolidated suit until thirty days after the disposition of all appeals from the final order of the PUC in Docket 9300. (See Item I, Business-Regulation and Rates). Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY !!OLDERS. 1 None. r PART 11 Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKilOLDER l MATTERS. All of the Company's comrnon stock is owned by Texas Utilities. Reference is made to Note 6 to Financial Statements regarding limitations upon payment of dividends on common stock of the Company. E t 1 [ 19 1 i

i Item 6. SELECTED FINANCIAL DATA. FINANCI AL STATISTICS Year Ended December 31 1992 1991* 1990 1989 1988. Total assets - end of year (thousands).... $17,962,812 $17,093,474 $17,387,276 $16,173,648 $14,828,250 Electric plant - gross - cad of year (thousands).. . $21,957,681 $20.865,047 $19,693.580 $18,116,758 $16.370,676 Accumulated depreciation and amortization - end of year. 3,790.626 3,417,856 3,038,302 2,762,101 2,558,282 i Reserve for regulatory disallowances - cod of year 1,308.460 1,308,460 Construction crpenditures (including allowance for funds used during construction)..... 1,107,555 1,195,680 1,431,647 1,793.890 1,542,974 I Capitalization - end of year (thousands) Long-term debt. 5 7,280,301 5 7,253,626 5 6,750.635 $ 6,079,503 $ 5,872.613 Preferred stock: Not subject to mandatory redemption.. 909,564 1,007.728 1,007,728 1,007,732 909,582 Subject to mandatory redemption. 418,748 425,758 426,737 329,009 328,770 Common stock equity 6,198.208 5.741,437 6,452,690 5.814.013 5,278.697 Total. $14.806,821 $14,428,549 $14.637,790 $13.230,257 $12,389,662 Embedded interest cost on long-term debt - end of year. 9.2% 9.7% 9.8% 9.8% 9.9% Embedded dividend cost on preferred l stock - end of year 8.4% 8.5% 8.6% 8.3% 8.3% t income (loss) before cumulative effect of a change in accounting principle (thousands)..... $740.216 $(289,173) $964,276 $886,176 $747,062 Cumulative effect of a change in accounting for unbiled revenue (Net of tares of $41,679,000)(Note 14) 80.907 Net income (loss)(thousands) $821,123 $(289,173) $964.276 $886,176 $747.062 Dividends declared on common stock (thousands). $645,260 $ 650,940 $607,230 $542,298 $500,968 Ratio of carnings to fixed charges....... 2.5 0.3 2.5 2.6 2.6 i Allowance for funds used during construction as percent of carnings to common stock. 43.3 % 73.1 % 65.1 % 59.3 % Return on average common stock equity. 11.8 % (6.7)% 13.8 % 14.0 % 12.9 % Cash flows from operations (less dnidends paid) as a percent of cash I construction expenditures.. 38.9 % 27.1 % 24.0 % 12.6 % 10.7 % ? Certain financial statistics for the year 1991 were affected by the Company's recording a charge against earnings, representing provisions for disallowances in the rate order issued by the Public Utility Commission of Texas in Docket 9300. (See Note 12 to Financial State ments.) 20 i i ?

item 6. SELECTED FINANCIAL DATA (Concluded). I OPERATING STATISTICS Year Ended December 31, 1992 1991 1990 1989 1988 i ELECTRIC ENERGY GENERATED AND I PURCIIASED (MWh) Generated - nea station output. 74,652,339 76,326,601 76,044,403 74,925,395 73,493,397 i Purchased and net interchange 11,417,251 11,027,061 12,179,724 12,588,899 12,095.385 Total generated and purchased 86,069,590 87,353,662 88,224,127 87,514.294 85,588.782 Company use, losses and unaccounted for 5,747,156 4.996,123 4,496,294 5.571,768 4,864,236. Total electric energy sales 80,322,434 82.357,539 83,727,833 81,942,526 80,724,546 ELECTRIC ENERGY SALES (MWh) Residential 27,266,411 28,505,885 28,157,802 27,294,613 26,722,342 Commercial.. 22,959,464 23,012.114 23,429,101 22,539,351 21,899,895 Ind ustrial... 21.108,894 21,482,750 21,839,196 21,377,542 21J16,862 1 Government and municipal.. 5.032,780 5,056,868 4,914,503 4,683,259 4,583,505 I Total general business. 76,367,549 78,057,617 78,340,602 75,894,765 74,722,604 Other electric utilities. 3,954.885 4,299,922 5.387,231 ~ 6.047,761 6,001,942 1 Total electric energy sales 80,322,434 82,357,539 83,727,833 81,942,526 80,724,546 OPERATING REVENUES (thousands) Residential 51,995,767 52,043,421 51,859,239 51,752,679 51,704,219 Commercial. 1,405,546 1,391,995 1,266,030 1,228,672 1,182,869 Industrial. 849,365 852,952 801,821 817,802 815,887 Government and municipal. 304,286 303,597 273,596 - 251,941 245,249 I Total general business. 4,554,964 4,591,965 4,200,686 4,051,094 3,948,224 Other electric utilities. 209,170 228,075 232,755 245,821 239,937 Total from electne energy sales.. 4,764,134 4,820,040 4,433,441 4,296,915 4,188,161 Other operating revenues (including unbilled revenue and over/under. recovered fuel revenue)* 142,561 71,482 107,474 21,650 (36.343) Total operating revenues 54,906,695 54,891.522 54,540,915 54,318,565 54,151,818 i i El.ECTRIC CUSTOMERS (end of year) Residential 1,952,916 1,921,119 1,900,005 1,875,524 1,858,727 Commercial. 210,185 205,555 205,359 - 210,824 209,520 - Industrial. 21,969 22,156 22,214 22,024 - 22,179 Government and municipal. 28,204 27,719 24,53S 23,434 20,037 Total general business...,. 2,213,274 2,176,549 2,152,116 2,131$06 2,110,463 Other electric utilities.. 243 247 63 64 64 Total electric customers.. 2,213,517 2,176,796 2,152,179 - 2,131,870 2,110.527 i RESIDENTIAL STATISTICS (excludes master-metered customers, kWh sales and revenues) i Average kWh per customer 13.329 14,099 14,050 13,754 .13,505 Average revenue per kWh. 741r 7,26c 6.69c 6,50t 6.48e - [ Industnal classification includes service to Alcoa-Sandow-Elecir,c energy sales (MWh). 3,157,852 3,359,824 3.517,431 3,276,303 3,525,416 Operating revenues (thousands). 156,043 555,987 155,274 556,985 556,608 - In 1992, other operating revenues do not include 5122,586,000 of unbilled base rate revenues which were reclassified as a e cumulative effect of a change in accounting principle effective January 1,1992. i Y 21 l i

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 4-RESULTS OF OPERATIONS. Liquidity and Capital Resources The primary capital requirements of Texas Utilities Electric Company (Company) in 1992 and as. estimated for 1993 through 1995 are as follows: 1992 1993 1994 1995 Thousands of Donars Cash construction crpenditures (creluding allowance for funds used during construction) 5 B31,000 5580.000 5560,000 5790,000 i Nuclear fuel (excluding aHowance for funds used during construction)... 23,000 5,000 5.000 68,000 Maturities and redemptions of long-term debt. sinking fund requirements and redemptions of preferred stock..... 1,807,000 174,000 157,000 122.000 t Total... 52,661,000 5759.000 5722,()00 5980,000 For detail concerning major construction work now in progress or contemplated by the Company and the commitments with respect thereto, see Item 2, Properties - Construction Program and Note 14 to l Financial Statements. The Company has generated cash from operations sufficient to meet operating needs, pay dividends on capital stock and finance a portion of capital requirements. Factors affecting the ability of the Company to continue to fund a portion ofits capital requirements from operations include adequate rate relief in the future reflecting regulatory practices allowing recovery of capital investment through - adequate depreciation rates, normalization of federal income taxes, recovery of the cost of fuel and purchased power and the opportunity to earn competitive rates of return required in the capital markets. j For 1992, approximately 39% of the cash needed for construction expenditures was generated from t operations by the Company. The Company expects internal cash generation to improve due to reductions in construction expenditures and the anticipated effects of the rate increase requested in Docket 11735 (see below). In April 1992, the Texas Utilities Company System (System Companies) commenced a plan to better prepare the System Companies to operate in the rapidly changing business environment of the electric utility industry and to reduce costs. All aspects of the System Companies' operations were examined to identify opport unities for effective changes in business processes and operating practices. Implement ation i of resulting changes in processes and practices has begun and will extend beyond 1993. j Related to this plan, the System Companies announced on June 1,1992 an offer of enhanced voluntary carly retirement to approximately 3,700 of the System Companies' 15,200 employees. All other regular full-time employees were offered a voluntary severance program. The election period for this program ended on September 1,1992, with separation dates occurring through November 1,1992 - A total of 4,499 employees (about 30%) accepted the voluntary early retirement / severance program, The number of employee aceptances was about equally divided between employees electing early retirement and those electing voluntary severance. In September 1992, the System Companies deferred the cost of this - program, which at December 31,1992 was approximately $255 million. The Company has requested recovery of these costs in rates in Docket 11735 (see following paragraph and Note 12 to Financial l Statements) over a three year period as an offset to reductionsin operating costs from changes in business processes and operating practices, which will result in net annual savings of approximately $117 million. The voluntary retirement / severance program was funded through a conbination of pension plan assets (approximately $355 million) and general funds (approximately $84 million) of the Company and will not materially affect the Company's financial position or results of operations. (See Note 9 to Financial Statements.) 22 i

e item 7. h1ANAGEh1ENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued). Liquidity and Capital Resources - (continued) On January 22,1993, the Company made applications to the Public Utility Commission of Texas (PUC) in Docket 11735 and to its municipal regulatory authorities for upward adjustments in rates for electric service throughout its service area. Such request reflects, among other things, costs associated 3 with the anticipated commercial op: ration of Unit 2 of Comanche Peak nuclear generating station r (Comanche Peak), costs associated with Comanche Peak Unit I capitalinvestment after the end of the Docket 9300 test year (see below), additional ad valorem taxes and certain postretirement benefit costs. The proposed rate adjustments, if approved, would affect all classes of service and are estimated to increase annual operating revenues by approximately $760 million, or 15.3%, based upon the test year ended June 30,1992. The Company is unable to predict the extent to which this rate increase request will be granted. The Company expects to place new rates in effect, under bond, when Unit 2 of Comanche Peak achieves commercial operation which is scheduled for the peak season of 1993. The request to place additional amounts of Comanche Peak investment in rate base will be subject to a review by the PUC for prudence of costs incurred. In connection with the September 1991 rate order in Docket 9300, the PUC reviewed costs incurred through June 1989 on Unit 2 and through fuelload in February 1990 on Unit 1. At December 31,1992, the Company had approximately $2.6 billion invested in Comanche Peak that had not been reviewed for prudence. The Company cannot predict the outcome of any future prudence review. Accordingly, no provision for loss, if any, has been made in the financial statements of the Company. The Company is also seeking reconciliation, under the fuel rule currently in effect, of l approximately $4.6 billion of fuel costs incurred during the three year period ended June 30,1992. In September 1992, the 250th Judicial District Court of Travis County, Texas, entered a judgment in the appeals of the Company's Docket 9300 which granted a $44 million, or 10.2% increase in operating revenues. In the judgment, the Court affirmed the prudence disallowance of $472 million with regard to certain costs associated with Comanche Peak but reversed and remanded to the PUC for reconsideration those portions of the PUC's final order providing for additional disallowances aggregating $884 million with respect to the Company's reacquisition of minority owner interests in Comanche Peak. The Court concluded that upon remand the PUC must consider all factors relevant u the overall public interest, 6 including all factors and considerations raised by the evidence presented by the Company, and should not r base its decision solely on a *least-cost" comparison of generation alternatives in its determination of reasonable value in connection with these transactions. The Court also found that the PUC erred in ordering a refund of approximately $2.5 million with respect to certain fuel gas costs considered imprudent by the PUC. In addition, the Court indicated that the PUC erred in its calculation of the amount of the Company's cash working capital. The Court recognized that on remand the PUC may adjust the amount of construction work in progress (CWIP) included in the Company's rate base to be consistent with the PUC's redeterminations regarding the minority owner reacquisitions and the amount of cash working capital. Therefore, the Company does not expect thisjudgment to affect the current rates. i approved in the PUC's final order. ,y Other parties to this suit have appealed this judgment. The Company disagrees with certain portions of the judgment and also has appealed. The Company is unable to predict the outcome of such appeals' and any reconsideration by the PUC. The disallowed Comanche Peak related costs are reflected as i reserves for regulatory disallowances on the Company's balance sheet pending the outcome of any further i appeals or reconsideration by the PUC (see item 1, Business - Rates, and Note 12 to Financial Statements). 23

l Itsm 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued). i Liquidity and Capital Resources - (continued) In October 1992, the General Counsel's office of the PUC filed a complaint against the Company requesting that the PUC review certain aspects of the Company's implementation of bonded rates in Docket 9300 for the period during which such rates were in effect. The complaint alleges primarily that during such period the Company should not have accrued approximately $70 million of allowance for funds used during construction (AFUDC) related to the _ Unit 2 investment which was subsequently included as CWIP in rate base pursuant to the rate order in Docket 9300. The Company disagrees with the General Counsel's position and expects that the issue will be resolved during the pendency of, or in ~ connection with, Docket 11735. in December 1992, the PUC ruled in another electric utility's proceeding that an ' actual taxes paid

• method of accounting for income taxes proposed by an intervenor in that proceeding was the appropriate ratemaking approach based on its interpretation of two state court rulings. Generally, an ' actual taxes paid" approach to ratemaking treatment for income taxes proposed by interrenors involves utilizing tax benefits generated by costs which are not allowed in rates to reduce rates charged to customers. The tax benefits associated with the Comanche Peak costs disallowed in Docket 9300 are the tax benefits that primarily could be affected under this approach. According to a Private Letter Ruling issued to the Company by the Internal Revenue Service, such ratemaking treatment, to the extent it relates to property classified for tax purposes as public utility property, would result ir. a violation of the normalization rules contained in the Internal Revenue Code. Violation of the normalization r ules would result in a significant adverse effect on the Company's results of operations and liquidity. The Company believes that the court ~

rulings cited by the PUC in its recent decision are not controlling as regards ratemaking treatment of the tax benefits associated with the costs of Comanche Peak. Accordingly, the Company is prepared to l strongly oppose such ratemaking treatment for income taxes in Docket 11735 on the same basis as it is i currently opposing the imposition of such ratemaking treatment in the appeals by the other parties of the t rate order in Docket 9300. Although the Company cannot predict the outcome of its appeal of the Docket 9300 rate decision, i future regulatory actions or any changes in economic and securities market conditions, no changes are expected in trends or commitments which might significantly alter its basic financial position. External funds of a permanent or long-term nature are obtained through the sales of common stock i to Texas Utilities Company (Texas Utilities). preferred stock and long-term debt. The capitalization ratios of the Company at December 31, 1992, consisted of approximately 49% long-term debt,9% preferred stock and 42% common stock equity. i j Y I a f l 9 24 i 5 I

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued). Liquidity and Capital Resources- (continued) Financings in 1992 by the Company included the following: teng-Term Debt: Principal Month Amount Description February 5 150,000,000 8-1/8% First Mortgage and Collateral Trust Bonds due 2002 February 175,000,000 8-7/8% First Mortgage and Collateral Trust Donds due 2022 April 50,000,000 6-3/4% Collateralized Pollution Control Revenue Bonds due 2022 April 200,000,000 8-1/4% First Mortgage and Collateral Trust Bonds duc 2004 April 100,000,000 9% First Mortgage and CollateralTrust Bonds due 2022 June 150,000,000 7-1/8% First Mortgage and Collatetal Trust Bonds duc 1997 June 147,000,000 B% First Mortgage and Collateral Trust Bonds due 2002 June 33,000,000 6-$/8% Collateralized Pollution Control Revenue Bonds due 2022 August 175,000,000 6-3/8% First Mortgage and Collateral Trust Bonds duc 1997 i August 150,000,000 7-3/8% First Mortgage and Collateral Trust Bonds due 2001 . August 175,000,000 8-1/2% First Mortgage and CollateralTrust Bonds duc 2024 November 40,000,000 6.55% Collateralized Pollution Control Revenue Refunding Bonds duc 2022 November 16,935,000 6.70% Collateralized Pollution Control Revenue Bonds due 2022 November 100,000,000 7-3/S% First Mortgage and Collateral Trust Bonds due 1999 November 200,000,000 8-3/4% First Mortgage and Collateral Trust Bonds duc 2023 December 46.660,000 6-1/2% Collateralized Pollution Control Revenue Refunding Bonds duc 2027 Total 11,808,595,000 ') Common Stock: Month Shares Net Proceeds Description March 3,875,000 $199,562,500 Without par value December 3,600,000 201,600,000 Without par value Total 5401.162,500 In 1992, the Company redeemed or made principal payments of $1,807,382,000 on long-term debt and preferred stock, of which $1,570,000,000 represents the early redemption of higher coupon debt. Tbc replacement of higher coupon debt during 1992 reduced interest expense by approximately $25,000,000 for the year or $37,000,000 on an annualized basis. Early redemptions oflong-term debt and preferred stock may occur from time to time in amounts presently urdetermined. For information regarding short-term financings of the Company, see Note 3 to Financial Statements. i t In January 1993, the Companyissued and sold 5,000,000 depository shares each representing 1/4th of a share of $8.20 Cumulative Preferred Stock for $121,062,500. The Company expects to sell additional debt and equity securities as needed including (i) the possible future sale of up to 750,000 shares of Cumulative Preferred Stock (P00 par value), or depository shares representing fractionalinterests in shares of such Cumulative Preferred Stock, currently registered with the Securities and Exchange Commission (Commission) for offering pursuant to Rule 415 under the Securities Act of 1933 and (ii) $800,000,000 of First Mortgage and Collateral Trust Bonds with respect to which a registration statement has been filed with the Commission in contemplation of offering pursuant to Rule 415. Because of the planned reduction in construction expenditures and the anticipated i t 25 l t )

item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION' AND RESULTS OF OPERATIONS (Continued). t Liquidity and Capital Resources - (concluded). effects of the rate increase requested in Docket 11735, the scheduled reduction in the Company's joint lines of credit is not expected to materially affect the Company's ability to fund its capital requirements. For information regarding short-term financings of the Company, see Note 3 to Financial Statements. ) In November 1990, the federal Clean Air Act Amendments of 1990 (Clean Air Act) were enacted which, among other things, place limits on the sulfur dioxide emissions produced by generating units. The Clean Air Act requires that fossil-fueled plants meet new sulfur dioxide emission standards by 1995 (Phase I) and additional sulphur dioxide emission standards by 2000 (Phase II). The Company's generating units are not affected by Phase I requirements. The Phase II requirernents are currently met by allbut four of the Company's generating units. Other provisions of the Clean Air Act may require the Company to take other actions; however, only certain parts of the regulations implementing requirements have been published as final rules. Until these regulations have been promulgated and specific state requirements developed, the Company will not be able to fully determine the cost or method of compliance with the major requirements. The Company's capital requirements have not been significantly affected by the Clean Air Act's requirements. Although the Companyis unable to fully determine the cost of compliance with the Clean 1 Air Act, it is not expected to have a significant istpact on the Company. Any additional capital costs, as well as any increased operating costs associated with these new requirements, are expected to be recovered through rates, as similar costs have been recovered in the past. (See Item 1, Business - Er vironmental Matters, and Note 14 to Financial Statements.) _l The National Energy Policy Act of 1992 (Energy Act) was enacted in October 1992. The Energy Act seeks to increase competition in electric generation and increase access to electric transmission systems. The Energy Act addresses a wide range of energy issues, including several matters affecting bulk power competition in the electric utility industry, nuclear licensing reform, nuclear plant decommissioning and energy efficiency. This legislation includes changes to the Public Utility Holding Company Act of 1935, the Public Utility Regulatory Policies Act of 1978 and the Federal Power Act. The Company is unable to predtet the impact of this legislation on its operations. (See Item 1, Business - Competition, and Note 14 to Financial Statements.) See Item 6, Selected Financial Data - Financial Statistics for additional information. Results of Operations Operating revenues increased 0.3% and 7.7% for the years ended December 31,1992 and 1991, respectively. The following table details the factors contributing to these changes. 1 Increase (Decrease) [ l' actors 1992 1991-t Thousands of Dollars Base rate revenue. 5(57,824) 3 548,973 l'uct revenue.... 42.161 (73.827) Power cost recovery factor revenue (89) (129,073) Unbilled revenue and other. 30.925 4.534 Total 5 15.173 5 350,607 l 26 [ t i f r e

f' Item 7. MANAGEMENT *S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued). Results of Operations - (continued) ~ Base rate revenue decreased in 1992 as a result of lower energy sales and increasedin 1991 due to higher rate levels implemented in late 1990. Energy sales decreased 2.5% for 1992 and 1.6% for 1991 due to decreased customer usage resulting from milder weather and unfavorable economic conditions, partially offset by an increase in customers. Fuel revenues increased in 1992 primarily due to fuel refunds in 1991, partially offset by decreased energy sales. Fuel ievenues decreased in 1991 prirnarily due to a lower fuel factor and a PUC ordered refund of disallowed fuel gas purchases. (See Note 12 to Financial Statements.) The increase in unbilled revenue and other in 1992 was primarily due to the accrual of unbilled revenue. (See Note 15 to Financial Statements.) Fuel and purchased power expense increased 1.1% for 1992 and decreased 13% for 1991. Fuel and purchased power expense increased for 1992 primarily due to the increased price of gas which more than offset the decrease in generation. The decrease in 1991 was the result oflower cost of nuclear fuel and gas and reduced off. system power purchases. (See Item 1, Business - Fuel Supply and Purchased Power and item 6, Selected Financial Data - Operating Statistics.) Total operating expenses, excluding fuel and purchased power, decreased 1.9% for 1992 and increased 18.7% for 1991. Operation and maintenance expenses decreased in 1992 primarily due to decreased employee related costs and management's efforts to further reduce other costs through the cost reduction program. (See Note 13 to Financial Statements.) Depreciation expense decreased in 1992 as a result of recording the disallowances associated with Comanche Peak Unit 1 in the Company's Docket 9300 rate order. Operation, maintenance and depreciation expense increased in 1991 primarily due to the commercial operation of Comanche Peak Unit 1. Amortization of rate case expenses related to Docket 9300 and increased employee related costs also contributed to the 1991 increase in operation expense. Federal income taxes increased in 1992 due to changes in the amortization of tax differences resulting from the recording of the Company's Docket 9300 rate order, partially offset by deductions related to the cost reduction program and the refinancing of Company debt. The increase in taxes other than income in 1991 reflects the effects oflegislation which increased ad valorem taxes. In January 1992, the Texas Supreme Court declared such legislation unconstitutional and instructed the State legislature to provide a revised law for school funding by June 1,1993, with the current law to remain in effect, subject to a referendum in the State of Texas on May 1,1993. An increase in franchise taxes and state and local gross receipts taxes also contributed to the increase in 1991. AFUDC decreased 16.4% and 41.1% in 1992 and 1991, respectively. The decrease for both years was caused by the implementation of the Docket 9300 rate order placing $695 million of CWIP in rate base and the exclusion of $485 million of CWIP disallowed on Unit 2 of Comanche Peak. A reduction in AFUDC rates also contributed to the decrease in 1992. The reduction in 1991 was also due to the full year's effect of the discontinuation of the accrual of AFUDC on Comanche Peak Unit 1 when the unit was placed in commercial operation in August 1990. (See Note 1 to Financial Statements.) Other income and deductions-net decreased for 1992 and increased in 1991, primarily due to changes t in interest income for each year related to the changes in temporary cash investments between years. Federal income taxes - other income increased in 1992 and decreased in 1991'due to the effect of recording the taxes associated with the provision for regulatory disallowances in 1991. (See Notes 8 and 12 to Financial Statements.) 27 i I 1

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued). Results of Operations - (concluded) Total interest charges, excluding AFUDC, decreased 6.0% for 1992 and increased 6.0% for 1991. Interest on mortgage bonds decreased in 1992 due to retirements and redemptions of certain higher rate issues. Interest on mortgage bonds increased in 1991 as a result of newissues sold during the period and annualized interest on issues sold in prior periods. The continuing retirement of debt incurred on the purchases of the minority ownership interests in Comanche Peak resulted in the reduction ofinterest on other long-term debt in 1991 and 1992. Other interest expense decreased in 1992 and increased in 1991 as a result of recording interest related to the settlement of prior years' federalincome tax returns and interest associated with the PUC's order to refund disallowed fuel gas costs in 1991. ~ The factors mentioned above along with the change in accounting for unbilled revenue (see Note 15 l to Financial Statements) and the recording of the provision for regulatory disallowances in 1991 (see Note 12 to Financial Statements) resulted in an increase to net income in 1992 over 1991. The net loss in 1991 was due to the recognition of the provision for regulatory disallowances and the provision for refunds and related interest. Another major factor affecting earnings in 1992 and 1991 was the discontinuation of the accrual of AFUDC on approximately $1.3 billion ofinvestment in Comanche Peak Unit 1, incurred after the end of the test year, which is not provided for in current rates but which is included in Docket 11735. Preferred stock dividends decreased 2.6% in 1992 primarily due to a reduction in adjustable dividend rates and increased 2.8% in 1991 as a result of the full periods' effect of prior period preferred stock issuances. Accounting Changes in December 1990, the Financia! Accounting Standards Board (FASB) issued Statement of Financial Accounting St andards No.106, *Em ployers* Accounting for Postretirem ent Benents Other Than Pensions" (Statement 106), which is effective for fiscal years beginning after December 15,1992. Statement 106 requires a change in the accounting for a company's obligation to provide health care and certain other ? benefits toits retirees from the ' pay-as-you-go* method to an accrual method and requires the cost of the obligation to be recognized in the period from employment date until full eligibility for benefits. The Coc pany's unfunded actuarial present value of employee service rendered to the date of adoption (transition obligation at January 1,1993) is approximately $300 million. Statement 106 allows the transition obligation to be either recognized immediately as the cumulative effect of a change in accounting principle or amortized evenly over the longer of the average remaining service lives of covered employees or 20 years. The Company intends to recognize the transition obligation over 20 years. The Company's total annual benefits cost under Statement 106, assuming amortization of the transition t obligation over 20 years, is approximately $46 million. In December 1992, the PUC issued a proposed rule that would allow a request for a one' time conversion from the ' pay-as-you-go* method for ratemaking purposes to a method allow'mg recovery of accrual costs as defined by the PUC rule. The proposed rule would exclude recovery of the transition obligation from net periodic postretirement benefit cost as defined by Statement 106. If the rule is approved as proposed, net income would be adversely affected by approximately $10 million annually. The proposed rule is expected to be finalized in the first quarter of 1993. 1 t 28 i

t i e item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND i RESULTS OF OPERATIONS (Concluded), e Accounting Changes - (concluded) l In November.1992, the FASB issued Statement of Financial Accounting Standards No.112, l

• Employers' Accounting for Postemployment Benefits"(Statement 112), which is effective for fiscal years i

beginning after December 15,1993. Statement 112 applies to certain types of postemployment benefits provided to former or inactive employees after employment but before retirement. The Company does not expect Statement 112 to have a material effect on the Company's financial position or results of i operations. In February 1992, the FASB i: sued Statement of Financial Accounting Standards No.109,* Accounting for Income Taxes" (Statement 109), which is effective for fiscal years beginning after December 15,1992. Statement 109, among other things, requires the liability method of accognition for all temporary differences, requires that deferred tax liabilities and assets be adjusted for an enacted change in tax laws or rates and prohibits net-of-tax accounting and reporting. Certain provisions of Statement 109 provide T that regulated enterprises are permitted to recognize such adjustments as regulatory assets or liabilities if it is probable that such amounts will be recovered from or returned to customers in future rates. Accordingly, initial application of Statement 109 in 1993 increased both total assets and liabilities by j approximately $1 A billion and the cffcct on net income is not considered material. Continuing application of Statement 109 is not expected to have a material effect on the Company's financial position or results of operations. 2 J i 1 4 .i i r i Y t i 1 1 1 29 ) l

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. TEXAS UTILITIES ELECTRIC COMPANY STATEMENTS OF INCOME Year Ended December 31 1992 1991 1990 Thousands of Dollars OPERATING REVENULS.. 54,906,695 54.891,522 54.540,915 OPERATINO EXPENSES Fuel and purchased power 1,775,885 1,756,423 1,779.,854 7 Operation 664,095 729,615 645,857 i Maintenance 297,079 304,683 - 289,949 'I Depreciation and amortization 409.006 425,216 316,527 Fede ral income taxes..... 197.694 152,963 136,060 Taxes other than income, 423,505 437,347 338,323 Total operating crpenses. 3,787,264' 3,806,247 3,506,570 OPERAT1NG INCOME 1,119,431 1,085.275 1,034,345 OTilER INCOME (LOSS) ~[ Allowance for equity funds used during construction. 194,462 251,744 402,447 Provision for regulatory disallowances (Note 12).. (1,381.145) i Other income and deductions - net 7.882 12,462 4,687 l'ederalincome taxes (Notes 8 at.512).. (2,479) 362,852 (1,435) Total other income (loss) 199.565 (754,087) 405,699 TOTAL INCOME, 1,319.296 331,188 ' 1.440,044 INTER 15P ClIARGES Interest on mortgage bonds. 598,235 608,729 551,986 Interest on other long-term debt 54,379 61,822 92,749 Other interest 36,202 62,111 46,604 Allowance for borrowed funds used during construction (109.736) (112,301) (215,571) Totalinterest charges. 579,080 620.361 - 475,768 Income (loss) before cumulative effect of a change i in accounting principic,. 740,216 (289,173) 964,276 Cumulative effect of a change in accounting for unbilled revenue (Net of taxes of 541.679,000)(Note 15) 80.907 r NIT INCOME (LOSS) 821,123 (289,173) - 964,276 PREFERRED STOCK DIVIDENDS.. 118,418 121,603 118,268 NET INCOME (LOSS) AITER PREFERRED STOCK DIVIDENDS 5 702,705 5 (410,776) 5 846,008 i P I i t See accompanying Notes to Financial Statements. 30

I TEXAS UTILITIES ELECTRIC COMPANY - STATEMENTS OF CASil FLOWS Year Ended Deceanber 31, 1992 1991 1990-Thousands of Dollars CASli FLOWS FROM OPERATING ACI1VITIES: Net income (loss) 5 821,123 5 (289,173) 5 964,276 Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation. 406,088 418,699 314.044 DcIerred federal income taxes - net 177,097 (247,264) 27,464 Federal investment tax credits - net (20.322) (53.498) 33,841 Allowance for equity funds used during construction - (194,462) (251,744) (402,447) Amortization of regulatory assets 13.941 17,540 11,087 Amortiration of nuclear fuel. 24,214 14,086 8,016 Provision for regulatory disallowances (Note 12).. 1,381,145 Provision for refunds and related interest - net (Note 12). (18,475) 44,893 Cumulative effect of a change in accounting for unbilled revenue - net (Note 15) (80,907) Cash flows from operations. 1,128,297 1,034,884 956,281 Changes in assets and liabilities: Receivables - net. 101,299 (29,854) 59,820 Inventories.. (17,791) (19.224) (45,215) Accounts payable - net 36,613 (17,095)- (39,429) Interest and taxes secrued. 1,514 84,021 16,608 ~ 54,372 42,999 (13,882) Other working capital. Over/under-recovered fuel revenue (42,203) (43,529) (53,704) Deferred taaes on over/under-recovered fuel revenue. 14,349 14,800 18,259 Voluntary retirement / severance program (See Note 13) (90,905) (2,089) 21,105 45,044 Othe r - net Cash provided by operating activities. 1,183,456 1,088.107 943,782 CASil FLOWS FROM FINANCING ACI1VITIES: Sales of securities: First mortgage bonds 1,808,595 737,298 590,790 Comme rcial paper. 215,000 Preferred stock, 95.625 Common stock 401,163 350,463 399.900 Retirement of long-term debt and preferred stock (1,86/,382) (237,178) (73,838) Change in notes payable to parent 51,750 (134,000) (240.750) Change in notes payable to banks 35,000 Preferred stock dividends paid.. (120.362) (121,610) (99.719) (645,260) (650.940) (607,230) Common stock dividends paid, Debt premium, discount and financing expenses, (125,009) (22,298) (8,283) Cash provided by (used in) financing activities 4 (436.505) 136,735 94,495 CASit I LOWS FROM INVEST 1NG ACI1VITIES: (1,107,555) (1,195,680) (1/11/,47) Construction crpenditures. Allowance for equity funds used during construction (excluding 179,519 232,068 97,289 amount for nuclear fuel).. Change in construction receivables /payables - net.. (4,301) (6.074) (3,606) Cash construction expenditures. (932,337) (969,6&6) (1,037,964) Non. utility property - net. 1,518 (27) (64 Nuclear fuel (escluding allowance for equity funds used [33.656) (16,694) (2,180) during construction)... Other investments. (8,591) (11,278) 1,454 (973,066) (997.6h5) (1,038,759) Cash used in investing activities . NET C11ANGE IN CASil AND CASli EQUIVALENTS. (226,115) 227,157 (482) CAS11 AND CASil EQUIVALENTS-IIEGINNING BALANCE. 231,801 4.644 5,126 CASil AND CASil EQUIVALENTS - ENDING BALANCE 5 5.6S6 5 231,801 5 44,44 See accompanying Notes to Financial Statements. 31 f

i TEXAS UTILITIES ELECTRIC COMPANY BALANCE SIIEETS ASSETS December 31 ~ 1992 1991 .[' Thousands of Dollars. ELECTRIC PIANT In service: Production 510,490,214 510.421,387 Transmission ' 1,493,602 1,443,565 Distnbution ' 3.567,646 3,377,396 General.. 440,665 425.448-Total... 15.992.127 15.667,796 less accumulated depreciation 3.741,020 3.392,463 Electric plant in service less accumulated depreciation. 12.251,107 12.275.333 Construction work in progress. 5.528,222 4,809,088 ~ Nuclear fuel (oct of accumulated amortizstion - 1992. 549.606.000, 1991, 525,393,000). 358.087 333,701 licld for future use.. 29.639 29,069 Electric plant less accumulated depreciation and amortization.. . 18,167,055 17,447,191

1. css reserve for regulatory disallowances (Note 12)..

1,308.460 1.308,460 Net electric plant 16.858.595 16,138.731 [ 35,993 28,919 [ INVESTMENTS, CURRENT ASSETS j Cash in banks.. 5.686 5,451 Temporary cash investments. 226,350 Special deposits. 7,510. 22,171-Accounts receivabic: 113.576 85,010 I Customers (Notes 10 and 15)... Othe r........ 30.289 39,840 [ Allowance for uncollectible accounts... (1,613) (2,931) Inventories - at average cost: [ Materials and supplies 187,301 174.977 l'uct stock.... 91,535 86.06B Prepaid tases. 9,778-10,771 j Other current assets 17,693 22,953 Total current assets 461.755 670,660 s DEFERRED DEBITS Unamortized regulatory assets: Debt reecquisition cosL6. 214.245 109,708 Canecited lignite unit costs 23,189 25.563 Rate case costs. 52.006 - 48.328 i Litigation and settlement costs.. 72,685. 72,685 ' Voluntary retirement / severance ymgram (Note 13).. { 204,881 Under. recovered fuel revenue 75.152 - 32.950 i Other deferred debits ',.... 36,996 38,615, z Total deferred debits. 679,154 327,849 Less reserve for regulatory disallowances (Note 12).... 72.685 72.685 Net deferred debits 606.469 255,164 Total. 517.962.812 517.093,474 See accompanying Notes to Financial Statements. E 32

1 i

1 TEXAS UTILITIES ELECTRIC COMPANY I llALANCE SIIEETS t CAPITAllZATION AND LIABILITIES December 31. 1992 1991 CAPITAllZA"I1ON Thousands of Dollars f Common stock vithout par value: Authorized shares - 180,000,000 Outstanding shares - 1992, 148.600,000; 1991,141,125,000. 5 4,717,625 3 4,316.463 Retained earnings. 1,480.583 1.424.974 Total common stock equity 6.198,208 5,74L437 Preferred s'ork: Not subject to mandatory redemption. Subject to mandatory redemption 909.564 1,007,728 418,748 425,758 Long. term debt,less amounts due currently.. 7,280,301 7.253,626 Total capitalization 14,806,821 14.428,549 CURRENT LIABILIT/S Notes payable: Parent... Banks., 51,750 Long. term debt due currently. 250,000 250,000 164,054 82,522 Total (crpected to be refinanced) 465.804 332,522 Accounts payable: i Affihates 138,586 109,288 Oths : 151,587 149.950 + Dividends declared. 27,795 30.225 Customers' deposits 52/40 52,159 Taxes accrued Interest accrued. - 257,384 251,363 181,415 185,923 Other cumnt liabilities 87,789 72,862 Total current liabilities 1,363.000 1,184,292 i i \\ DEFERRED CREDITS AND OTilER NONCURRENT LIABILITIES Accumulated deferred federal income taxes.. 889,576 658,585 Unamortired federalinvestment tax credits. 707,358 727,896 Other deferred credits and noncurrent liabihties, 196,057 94,152 Total deferred eredits and other noncurrent liabihties.. 1,792.991 1,480,633 COMMITMENTS AND CONTINGENCIES (Notes 2 and 14) Total 517,962,812 517.093,474 .i See accompanying Notes to Financial Statements. 33

TEXAS UTILITIES ELECTRIC COMPANY STATEMENTS OF RETAINED EARNINGS Year Ended December 31, 1992 1991 1990 Thousands of Dollars BAIANCE AT BEGINNING OF YEAR 51,424,974 52,486,690 52,247,913 ADD - NET INCOME (LOSS), 821.123 (289,173) 964,276 Total. 2.246,097 2,197,517 3.212,189 DEDUCT Cash Dividends: Preferred stock: 5 4.50 series (5 4.50 per share per annum) 334 334 334 4.00 series (5 4.00 per share per annum). 280 280 280 4.56 series (5 4.56 per share per annum), 4.00 scriss (5 4.00 per share per annum) 609 609 609 4.56 series (3 436 per share per annum), 440 440 440 296 296 296 4.24 series (5 4.24 per share per annum) 424 4 24 424 4 64 series (5 4.64 per share per annum) 464 464 4 64 4.84 series (5 4.84 per share per annum). 339 339 339 4.00 senes (3 4.00 per share per annum) 280 280 280 4.76 series (5 4.76 per share per annum). 476 476 476 5.08 series (5 5.08 per share per annum) 407 407 407 4.80 series (5 4.80 per share per annum) 480 480 480 4.44 series (5 4.44 per share per annum) 666 666 666 7.20 series (5 7.20 per share per annum) 1,440 1,440 1,440 7.80 series (3 7.80 per share per annum) 2,339 2,339 2,339 8.92 series ($ 8.92 per share per annum) 1,784 1,784 1.784 6.84 series (5 6 84 per share per annum). 1,368 1,368 1,368 7.24 series ($ 7.24 per share per annum) 1.809 1.809 1,809 7.44 series ($ 7.44 per share per annum) 2,232 2,232 2,232 7.48 series (5 7.48 per share per annum)... 2.244 2,244 2,244 8.20 series (5 8.20 per share per annum) 2,460 2.460 2,460 k 44 series (5 8.44 per share per annum) 9 y series (5 9.32 per share per annum) 2,532 2.532 2.532 2.796 2,796 2.796 9.36 series ($ 9.36 per share per annum) 2.808 2,808 2,808 8.68 series ($ 8.68 pcr share per annum) 2,604 2,604 2,604 i 8.16 series (5 8.16 per share per annum) 2.444 2.444 2,444 8.32 r, cries (5 8.32 per share per annum). 2.496 2,496 2,496 BS4 series (5 8.84 per share per annum) 2.652 2,652 2,652 9.48 series (5 9.48 per share per annum). 8,944 9,236 9,236 8,92 series (5 8.92 per share per annum) 4.460 4,460 4,460 l 10.00 series ($10.00 pcr share per sonum).. 4,900 5,000 5,000 10.92 senes ($10.92 per share per annum),.. 10.12 series (510.12 per share per annum). 3,276 3,276 3,276 3,542 3,542 3,542 10.08 series (510.08 per share per annum). 2,999 3,140 3.278 11.32 series (511.32 per share per annum).. 3,396 3,396 3,396 9.64 senes ($ 9.64 per share per annum) 9.640 9,640 9,640 10.375 series (510.375 per share per annum). 7,781 7,781 5,793 9.875 series (5 9.875 pcr share per annum) 2,469 2,468 555 Adjustabic rate senes A.... .4 6,500 6,500 6,613 Adjustable rate senes B 5,950 6,014 6,162 stated rate auction series A 6.180 - 8,240 8,240 Ileribic adjustable rate series A., 4.244 4.500 4.619 l'icsible adjustable rate series B.. 4.244 4,500 4,619 Common stock (per share: 1992, 54.48;1991, 54.80; 1990, 34.68), 645,260 650,940 607.230 + Total cash dividends 763.288 772,136 725,162 i Dividends other than cash - accretions. ~ 390 407 337' Total dwidends. 763.678 772.543. 725,499 I Preferred stock redemption costa, 1.836 BAIANCE AT END OF YEAR 51,480,$h3 51,424.974 32.486,690 i See accompanying Notes to Financial Statements. 34 l 1

TEXAS UTILITIES ELECTRIC COMPANT NOTES TO FINANCIAL STATEMENTS 1. SicNtrICANT ACCOL'NTING PouCIES Sysicm ofAccounts - The accounting records of Texas Utilities Electric Company (Company) are maintained in accordance with the Federal Energy Regulatory Commission's Uniform System of Accounts as adopted by the Public Utility Commission of Texas (PUC). Electric Plant - Electric plant is stated at original cost. The cost of property additions to electric plant includes labor and materials, applicable overhead and payroll-related costs and an allowance for funds used during construction. Allowance For Funds Used During Construction - Allowance for funds used during construction (AFUDC) is a cost accounting procedure whereby amounts based upon interest charges on borrowed funds and a return on equity capital used to finance construction are added to electric plant. The accrual of AFUDC is in accordance with generally accepted accounting principles for the industry, but does not represent current cash income. The Company is capitalizing AFUDC, compounded semi-annually, on expenditures for ongoing construction work in progress (CWIP) and nuclear fuel in process not otherwise allowed in rate base by regulatory authorities. In 1990 and 1991, the Company used a net-of-tax rate of 9.0% and 10.4%, respectively, on projects commenced before March 1,1986, and a gross rate of 10.5% and 12.0%, respectively, on projects commenced thereafter. The net and gross rates were changed for 1992 to 8.8% and 10A%, respectively. Rates were determined on the basis of, but are less than, the cost of capital used to finance the construction program. Depreciation ofElectric Plant - Depreciation is generally based upon an amortization of the original cost of depreciabic properties (net of regulatory disallowances) on a straight-line basis over the estimated service lives of the properties. Depreciation as a percent of average depreciable property approximated 2.7%,2.9% and 2.9% for 1992,1991 and 1990, respectively. Depreciation also includes an amount for Comanche Peak nuclear generating station (Comanche Peak) decommissioning costs which is being accrued over the life of the unit and deposited to an external trust fund. (See Note 14.) Amorti:ation of Nuclear Fuel and Refueling Outage Costs - The amortization of nuclear fuel in the reactor (net of regulatory disallowances)is calculated on the units of production method and, subsequent to commercial operation,is included in nuclear fuel expense. The Company accrues a provision for costs anticipated to be incurred during the next scheduled Comanche Peak Unit I refueling outage. i Rcrenues - Revenues include billings under approved rates (including a fixed fuel factor) applied to meter readings each month on a cycle basis and, beginning January 1,1992, an accrual of base rate i revenue for energy provided after cycle billing but not billed through the end of each month (see Note y 15). Revenues also include an amount for under-or over-recovery of fuel revenue representing the a difference between actual fuel cost and billings on the approved fixed fuel factor and a provision that generally allows recovery through a Power Cost Recovery Factor, on a monthly basis, of the capacity portion of purchased power cost from cogenerators not included in base rates. The fuel portion of - purchased power cost is included in the fixed fuel factor. Pursuant to a PUC rule, the Company is required to refund over-recovered fuelrevenue if the amount of over-recovery, including interest, exceeds the lesser of $40 million or 4% ofits annual known or reasonably predictable fuel costs most recently - [ 35 P

TEXAS UTILITIES ELECTRIC COMPANY NOTES TO FINANCIAL STATEMES"13 - (ContinuedJ 1. SIGNiflCANT ACCOt'NTING PottCIES - (concluded) approved by the PUC. Reconciliation of fuel costs is to be made in a general rate case or a reconciliation j proceeding. Reconciliation may be requested only ifit has either been over one year since the utility's last final reconciliation or the utility has materially under-recovered its known or reasonably predictable fuel costs. FederalIncome Taxes -The Company is included in the consolidated federalincome tax return of Texas Utilities Company (Texas Utilities) and its subsidiaries (Syr. tem Companies), and federalincome [ taxes are allocated to all System Companies based upon their taxable income or loss. Deferred federal I income taxes are currently provided for timing differences between book and taxable income (including the provision for regulatory disallowances). Generally, such differences result primarily from the use of liberalized depreciation and cost recovery deductions allowable under the Internal Revenue Code, the under-or over-recovery of fuel revenue and unbilled revenues accrued for tax purposes. Cumulative timing differences in earlier years for which deferred federal income taxes were not provided approximated $194,000,000 at December 31,1992. Investment tax credits are normally amortized to income over the estimated service lives of the properties. (See Note 8 for change in accounting for income taxes.) i Cash Flows - For purposes of reporting cash flows, temporary cash investments purchased with a remaining maturity of three months or less are considered to be cash equivalents. Supplemental schedules of cash payments and noncash investing and financing activities are provided below: l Year End December 31. 1992 1991 1990 Thousands of Dollars CASII PAYMENTS: i Interest (net of amounts capitalized) 5556.762 5605.545 5458.528 Income taxes 37.714 70,325 59,390 I NONCASilINVESTING AND 11NANCING ACI1VITIES: Purchase of minority ownership interest in Comanche Peak: Production and trent, mission plant 5 - 5 - $183.501 i Nuclear fuel... 13.709 Reimbursement of certain crpent.cs (deferred debits) and working funds advances 32.695 t Total purchase price 229,905 Plus financing charges. 8.634 Less amounts due from minority owners 45,818 Less promissory note, obligation and debt assumed. 174,721 l Less payment made in prior period-. 18.000 Cash paid on the purchase. .5 5 - 5 - i 36 i .i

TEXAS UTILITIES ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) P i 2. AmLIATES Texas Utilities provides common stock capital and partial requirements for short-term financing to - the Company. Texas Utilities has three other subsidiaries which perform specialized services for the System Companies, including the Company: Texas Utilities Services Inc. provides financial, accounting, computer, telecommunications, procurement, personnel, shareholder services and other administrative services at cost for which billings in 1992,1991 and 1990 were approximately $118,407,000, $133,615,000, and $123,289,000, respectively; Texas Utilities Fuel Company (Fuel Company) owns a natural gas pipeline system, acquires, stores and delivers fuel gas and provides other fuel services at cost for the generation of electric energy by the Company, for which billings in 1992,1991 and 1990 were approximately $844,671,000, $860,462,000 and $884,059,000, respectively; and Texas Utilities Mining Company (Mining Company) owns, leases and operates fuel production facilities for the surface mining and recovery of lignite at cost for use at the Company's generating stations, for which billings in 1992,1991 and 1990 werc approximatcly $382,379,000, $368,470,000 and $364,285,000, respectively. Payments for interes.t on short-term financings from Texas Utilities for 1992,1991 and 1990 were approximately $4,310,000, $3,512,000 and $18,427,000, respectively. The Company has entered into agreements with Fuel Company to procure certain fuels and related services and with Mining Company for the procurement and production oflignite; payments are at cost for the services received and are required by the agrectnents to be *at least equivalent in the aggregate to the annual charge to income on the books" of Fuel Company and of Mining Company. The Company is, in effect, obligated for the principal, $359,160,000 at December 31,1992, and interest on long-term notes of Fuel Company and of Mining Company through payments described above. Such notes mature at various dates through 2001 and have interest rates ranging from 8.50% to 10.85% i 3. SIIORT-TERM FINANCING e At December 31, 1992, the Company and Texas Utilities have joint lines of credit aggregating $1,025,000,000 under a credit facility agreement with a group of commercial banks. The facility, for which Texas Utilitics pays a fee,is scheduled by such agreement to be reduced in May 1993,1994 and 1995 by $325,000,000, $350,000,000 and $350,000,000, respectively. This credit facility may be used to finance new construction, as backup for commercialpaper and for general corporate purposes. At December 31,1992, $250,000,000 was outstanding under this credit facility. From time to time Texas Utilities makes short-term loans to the Company. .l 4. COMMON Stock The Company issued and sold shares of its authorized but unissued common stock to Texas Utilities as follows: December 1992, 3,600,000 shares for $201,600,000; March 1992, 3,875,000 shares for $199,562,500; December 1991, 3,950,000 shares for $200,463,000; June 1991, 3,125,000 shares for. $150,000,000; May 1990,8,600,000 shares for $399,900,000. j No shares of the Company's common stock are held by or for account of the Company, nor are any shares of such capital stock reserved for officers and employees or for options, warrants, conversions and other rights in connection therewith. 6 i i 37 f

2 TEXAS UTILITIES ELECTRIC COMPANT i r NOTES TO FINANCIAL STATEMENTS - (Continued) i 5. PREFERRED STOCK (curnulative, without par value, entitled upon liquidation to $100 e share; authorized 17,000,000 shares) Redemption Price Per Share Shares Outstanding A mount (Before Adding Accumulated Dividends) Series Groups December 31, December 31 Current Eventual Hisimum + From To 1992 1991 1992 1991 from To From To Thousands of Dollars Not Subject to Mandstory Redemption 54.00 5414. 1,142,942 1,142,942 5114,588 5 114,588 5101.79 5112.00 $101.79 5112.00 5.08 7.80, 1,629,675 1,629,675 163,270 163,270 102.40 103.60 102.40 103.60 B.16 IL92.. 1,999,475 1,999,475 198,642 198.642 101.92 104.09 101.00 103.60 9.32 11.32. 1,550,000 1,550,000 153,205 153,205 102.33 107.55 100.00 102.73 Adjustable rate (a). 1,850,000 1,850,000 181,713 181,713 103.00 103.00 100.00 10040 l Stated rate auction (b), 1,000,000 98,164 flexible adjustable rate (c).. 1,000,000 1,000,000 98,*46 98,146 100.00 100.00 Total 9,172.092 10,172.092 5909,564 51,007,728 Subjwt to Mandatory Redemption (d)(e) 58.92 5 9.48.. 1,433,300 1,474,250 5142,802 5 146,781 5102.00 5105.00 5100.00 5100.00 944 10.375 2,774,000 2,808.000 275,946 278,977 100.00 107.56 100.00 100.00 Total 4,207,300 4.282,250 5418,748 5 425.758 (a) Adjustable rate series A bears a dividend rate for the period ended January 31,1993,of 6.50% per annum and adjustable 4 rate series B bears a dwidend rate for the period ended December 31,1992, of 7.00% per annum, both of which are based on a fixed liquidation price of 5100 per share. (b) Stated rate auction series A was redeemed in September 1992. j (c) ficaible adjustable rate series A and B bear a dividend rate for the period ended December 31,1992 of 8.05% per annum, based on a fixed liquidation price of $100 per share. The shares mill continue to bear an adjust &ble dividend rate, based j on the rates of certain U. S. Treasury securities, through June 30,1993. During this initial period under certain circumstances relating to a change in federal tax law governing the dividends received deduction applicable to eligible [ corporations, the dividend rate may increase or decrease accordingly. In no case will the per annum dwidend rate during j this initial period be greater than 14% or less than 7%. After June 30,1993, dividends will be determined on the basis of certain auction procedures. The shares are not redeemable before June 30,1993, unless a change in the federal tax law [ governing the dividends received deduction occurs, at which time the sharc.s may be redeemed on any quarterly dwidend J payment date through April 30,1993. i (d) The Company is required to redeem at a pnce of $100 per share plus accumulated dividends a specified minimum number { of shares annually or semi-annually occurring on the initial /nert dates shown below, except for the 58.92 se. ries which does j not have a sinking fund provision. These re deemable shares may be called, purchased or othermise acquired, Certain issues may not be redeemed prior to 1995. The Company may annually ca;l for redemption, at its option, an aggregate of up to { i i I E i f i 38 l [

i TEXAS UTILITIES ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) 5. PREFERRED STOCK (cumulative, without par value, entitled upon liquidation to $100 a share; authorized 17,000,000 shares) - (concluded) twice the number of shares shown below for each senes at a price of $100 per share plus accumulated dividends. except for the 59.64 series which may be redeemed in a minimum amount of 10,000 shares at any time at a price of $100 per share plus + accumulated dividends plus a component at a vanable price per share which is designed to maintain the expected yicid at issuance: Minimum Redeemable Initial /Next Date of f Series Shares Mandatory Redemption $10.08 14,000 annually 4/1/93 9.48 66,700 annually 4/1/93 10.00 20.000 annually 7/1/93 9.64 125,000 semi-annually 5/1/95 10.375 150,000 annually 4/1/96 8.92 All outstanding shares 7/1/96 9.875 50,000 annually 10/1/96 The carrying value of preferred stock subject to mandatory redemption is being increased penodically to equal the redemption amounts at the mandatory redemption dates with a corresponding increase in preferred stock dividends. (c) L'nder certain circumstances relating to a change in federal tax law governing the dividends received deduction apphcable to eligible corporations, the dividend rate of the 59.64 series may increase to a maximum of $10.74. In 1992, the Company redeemed or otherwise acquired 14,000 shares ofits $10.08 series,20,000 shares j of its $10.00 series and 40,950 shares of its $9.48 series eumulative preferred stock which fulfills its mandatory redemption requirements until April 1,1993. i In the last three years, the Company issued and sold shares of its authorized preferred stock as s follows: October 1990,250,000 shares of $9.875 series, subject to mandatory redemption, for $24,531,250; [ April 1990,750,000 shares of $10375 series, subject to mandatory redemption, for $74,093,750. In January 1993, the Companyissued and sold 5,000,000 depository shares each representing 1/4th of a share of $8.20 cumulative preferred stock for $121,062,500. 6. RETAINED EARNtNGS RESTRICTIONS The Company's articles of incorporation, the mortgages, as supplemented, and the debenture agreements contain provisions wh':h, under certain conditions, restrict distributions on or acquisitions of its common stock. At December 31,1992, $163,428,000 of retained earnings were thus restricted as i a result of the provisions of such articles of mcorporation. P The articles of incorporation restriction provides in effer*. that the Company shall not pay any common dividend which would reduce retained earnings to Ic.,s than one and one-half times annual preferred dividend requirements. The mortgage restrictions are based primarily on the r: placement fund requirements of the mortgages. The restriction contained iL the debenture agreements is designed to maintain the aggregate preferred and common stock equity at or above 33-1/3% of total capitalization. i i F 39 i ? i i h

TEXAS UTILITIES ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) 7. IAnc TERM DEBT,less amounts due currently Maturity Groups Interest Rate Groups December 31, From To from To 1992 1991 ~! t Thousands of Dollars ~ First mortgage bonds: 1993 1997 4-1/4% 9-1/2% $ 474,000 5 3 %,000 j 1998 2002 6-5/8 10-3/8 1,207,000 690.000 2003 2007 7-1/2 10-1/8 800,000 750,000 2008 2012 9-3/8 11-5/8 325,000 400,000 ( 2015 2017 9-1/4 12.. 4. 450,000 1,675,000 2018 2022 8-7/8 11 3/8 1.225,000 950,000 2023 2024 8-1/2 6-3/4. 375,000 Pollution control series: I 2007 2027 6-1/2 10 1,136,595 990,000 Taxable pollution control senes: (a) l 2021 Vanous. 228,340 275,000 Sinking fund debentures: 1993 1994 fr5/8 7-3/4. 11.950 29,053 Secured medium-term notes, series A through C: 1994 2003 8.72 10.50... 600,000 600.000 Total.. 6.832,885 6,715,053 Pollution control revenue bonds: 2004 2009 5.70 7-5/8. 157,150 158,930 Promissory note, obligation and debt assumed for purchase of electric plant:(b) 1993 2021 8.25 9.73. 348,899 437,773 Unamortired premium and discount (58,633) (58,130) Totallong-term debt, less amounts due currently $7,280,301 37.253.626 (a) Taxable pollution control series consist of four senes: $18,340,000 at 3.65% and 510.000,000 at 3.90% of flexible rate Series 1991A at December 31,1992; 150,000,000 of Series 1991H at 8.10% through June 1,1993; $50,000,000 of Scrica 1991C at 8.49% through June 1,1994; and $100,003.000 of Series 1991D at 8.85% through June 1,1995. Series 1991A bonds are in a flexible mode and while in such mode will be remarketed for periods of less than 270 days, and are secured by an irrevocable letter of credit. The interest rates on Series 1991D through Series 1991D bonds will be repnced at various mandatory tender dates beginning in 1993. De Company has existing lines of credit that would allow refinancing of all the bonds on a long term basis should remarketing prove unsuccessful. (b) In 1988. the Company purchased the ownership interest in Comanche Peak ofliraros Dertnc Power Cooperative and issued a promissory note payable over 33 years. De note is secured by a mortgage on the acquired interest. Also in 1988 the Company purchased the ownership ie. crest in Comanche Peak of the Texas Municipal Power Agency under an installment sale agreement obligating the Company to male semi-annual payments through August 1993, which are included in long-term debt due currently at December 31, 1992. The transaction is treated as a completed purchase of electric plant; however, under terms of the agreement, legal title to the purchased assets passes to the Company at the time of, and in proportion to,each payment made, in 1990, the Company purchased the ownership interest in Comanche Peak of Ten-La Electric Cooperative of Tesas, Inc. (Tex-La) anu assumed debt of Tex-la payable over approximately 32 years. The assumption is secured by a mortgage on the acquired interest. Texas Utilities has guaranteed these various payments. t 40 k

T2XAS UTILITIES ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) i 7. LONG TERM DEBT,less amounts due currently -(concluded) t i. Sinking fund and maturity requirements for the years 1993 through 1997 under long. term debt instruments in effect at December 31,1992, were as follows: Sinking Minimum Cash Year Fund (s) Maturit)(b) Requirement (e) f Thousands of Deltars 1993 164.996 $116,967 1164,054 1994 24.238 140,450 147,143 1995 24,288 80,000 87,153 i 1996. 24.100 96,000 103,652 1997, 23,860 399,800 407,888 (a) Excluding requirements satisfied prior to December 31,1992: 51.422,500 for 1993. (b) The maturity requirements do not include the mandatory tenders of the Company's taxable pollution control series, equal to $78.340,000 in 1993,150,000,000 in 1994 and $100.000,000 in 1995, which are capected to be j stmarketed. (c) Other requirements may be satisfied by certification of property additions at the rate of 167% of such requirements, except for sixteen issues at 2001 l f From time to time, various principal amounts of first mortgage bonds have been redeemed by the Company prior to maturity. In 1992, the Company redeemed $1,570,000,000 of higher coupon debt. The debt reacquisition costs have been deferred and are being amortized over the remaining lives of the bonds retired pursuant to current regulatory treatment. Electric plant of the Company is generally subject to the liens of its mortgages. i f r o 6 o l i 41 i i

TEXAS UTILITIES ELECTRIC COMPANT NOTES TO FINANCIAL STATEMENTS - (Continued) 1 8. FEDERAL INCOME TAXES The details of federalincome taxes are as follows: Year Ended December 31 1992 1991 1990 Thousands of Dollars Charged (credited) to operating crpenses: 5 50,616 5 80,751 5 56,828 Current.. Deferred - net: Differences between depreciation methods and lives .. 185,246 222,766 155,587 Certain capitalized construction costs. 5,189 2,706 4,601 13,371 14,800 18,259 Over/under-recovered fuel revenue Early redemptions of long. term debt 35,543 3,364 (1,736) - Prepaid (accrued) pension cost. (4,891) (3,858) 2.942 (4,568) 277 (14,165) 1,Jabilled revenues Minority owners settlement. 190 5,971 Alternative minimum tax... (46,714) (64,754) (b0,162) 9,451 16,243 (37,171) Investment tax credit carryforward. (2,093) (20,336) (10,083) Amortization of tax rate differences... t Provision for refunds and related interest - net 6,282 (15,541) Prior year adjustments... 1,428 (18,883) (1,562) r .. (60,554) (46,595) Net operating loss carryforward Voluntary retirement / severance costs. 29,400 310 (4.819) 2,910 Other. Total . 167,400 85,530 - 45,391 Investment ist credits - net... (20,322) (13.318) 33,841 Total to operating crpenses. 197,694 152,963 136,060 Charged (credited) to other income: Current.. (21,567) (4,678) 1,102 Deferred - net: Provision for argulatory disallowances (327,178) Amortization of regulatory disallowances. 22,883 8,787 Other. 1,163 397 333 24.046 (317,994) 333 Totat Investment tax credits - regulatory disallowances,, (40,180) 2,479 (362,852) 1.435 Total to other income Charged to cumulative effect of a change in 41.679 accounting for unbilled revenue - deferred.. Total federal income taxes 5241,852 5(209,1589) 5137,495 f 42 t

TEXAS UTILITIES ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) 8. FEDERAL INCOME TAXES - (concluded) Federalincome taxes were less than the amount computed by applying the federal statutory rate to pre-tax book income (loss) as follows: Year Ended December 31. - t 1992 1991 1990 Thousands of Dollars Federalincome taxes at statutory rate of 34%. 5361,411 5(169.681) 5374,602 Reductions in federal income taxes resulting from: Allowance for funds used during construction. 98,221 118,603 207.702 Depletion allowance.. 22,014 21,104 24,975 Amortization of investment tax credits 20,322 20,401 16,647 Amortization of tax rate differences 2.093 20,336 10,083 i Reversal of prior tiook/ tar differences: Provision for regulatory disallowances Investment tax credit - regulatory disallowances (142,412) 40.180 Other.. (24.159) (23.278) (11,816) Prior year adjustments. 949 (11,694) 389 Other 4. 119 (3,032) (10,873) Total reductions 119.559 40,208 237.107 Total federalincome taxes $241,852 5(209.889) 5137,495 Effective tan rate 22.8 % 42.1 % 12.5 % The Company has net operating loss carryforwards of approximately $315 million that are available to offset future ordinary taxable income. Approximately $137 million of these loss carryforwatds expire in 2006 and the remaining $178 million expire in 2007. In addition, the Company has approximately $34 million of general business credit carryforwards which expire in 2006 and $248 million of minimum tax credit carryforwards which are available to offset future taxes. In February 1992, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No.109, " Accounting for Income Taxes" (Statement 109), which is effective for fiscal years beginning after December 15,1992. Statement 109, among other things, requires the liability method of recognition for all temporary differences, requires that deferred tax liabilities and assets be adjusted for an enacted change in tax laws or rates and prohibits net-of. tax accounting and reporting. Certain provisions of Statement 109 provide that regulated enterprises are permitted to recognize such adjustments as regulatory assets or liabilities if it is probable that such amounts will be recovered from or returned to customers in future rates. Accordingly, initial application of Statement 109 in 1993 increased both total assets and liabilities by approximately $1.4 billion and the effect on net income is not considered material. Continuing application of Statement 109 is not expected to have a material effect - on the Company's financial position or results of operations. b 43 i

m i TEXAS UTILITIES ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued) 9. RETIREMENT PLAN AND OTIIER POSTRETIREMENT BENEFITS The Companyhas a retirement plan covering substantially all employees. An employee's benefits are based on years of accredited service and average annual earnings received during the three years of highest earnings. The costs of the plan were determined byindependent actuaries. Contributions to the plan were determined using the frozen attained age method which is one of the several actuarial methods allowed by the Employee Retirement Income Security Act of 1974. For financial reporting purposes, pension cost has been determined using the projected unit credit actuarial method. The cumulative difference between pension cost as determined for financial reporting purposes and contributions to the plan is recorded either as prepaid pension cost or as accrued pension liability. (See Note 13.) The following table sets forth the plan's funded status and amount recognized in the Company's balance sheets: December 31, 1992 1991 Thoasands of Dettars Actuarial present value of accumulated benefits: Accumulated benefit obligation (including vested benefits of $512.658.000 for 1992 and $584.120,000 for 1991),. 5(543.118) $(622.537) Projected benefit obligation for service rendered to date $(641 34) 5(760.502) { Plan assets at fair value, pnmarily equity investments. governmtat bonds and corporate bonds 660.776 995,740 Plan assets in excess of projected benefit obligation Unrecognized net gain from past experience different from 19.042 235.238 that assumed and effects of changes in assumptions (158,456) (24t,433) Prior service cost not yet recognized in net periodic pension crpense. 21.839 21,949 Unrecognized plan assets in creess os projected benefit obligation at initial application (5.079) (8.660) Prepaid (accrued) pension cost 5(122.654) 5 7.094 Assumptions used in determination of the projected benefit obligation include the following: 1992 1991 Discount rate B.50% 8.50 % Increase in compensation icvels. 4.70 5.30 Total pension costs, including amounts charged to fuel cost, deferred and capitalized, were comprised of the following components: Year Ended December 31 1992 1991 1990 Thousands of Dollars Service cost - benefits earned dunng the period. Interest cost on projected benefit obligation. $ 23.838. $. 23.860 $ 22.23t 61,573 58.118 53AtB Actual return on plan assets (7t,043) .(207,126) 13.628 Net amortization and deferral (1.285) 136A94 (81.767) Net periodic pension cost,. 13.083 11.346 7,140 Deferred termination cost 116.665 Total pension cost. 5129,748 $ 11.346 5 7.140 44 r l

E TEXAS UTILITIES ELECTRIC COMPANY NOTT.S TO FINANCIAL STATEMENTS - (Continued) e 9. RETIREMENT PLAN AND OTIIER POSTRETIREMENT BENEFITS - (concluded) The assumed long-term rate of return on plan assets was 8.75% for 1992,1991, and 1990. in addition to the retirement plan, the Company offers certain health care and life insurance benefits to active and retired employees. The costs of such benefits are generally recognized as claims are paid. The costs of providing such benefits to retired employees, net of employee contributions, approximated $13,002,000 for 1992, $13,781,000 for 1991 and $12,342,000 for 1990. r In December 1990, FASB issued Statement of Financial Accounting Standards No.106,

• Employers' Accounting for Postretirement Benefits Other Than Pensions" (Statement 106), which is effective for fiscal years beginning after December 15,1992. Statement 106 requires a change in the accounting for a company's obligation to provide health care and certain other benefits to its retirees from the ' pay-as-you-go" method to an accrual method and requires the cost of the obligation to be recognized in the period from employment date until full eligibility for benefits. The Company's unfunded actuarial present value of employee service rendered to the date of adoption (transition obligation at January 1,1993) is approximately $300 million. Statement 106 allows the transition obligation to be either recognized immediately as the camulative effect of a change in accounting principle or amortized evenly over the longer of the average remaining service lives of covered employees or 20 years. The Companyintends i

to recognize the transition obligation over 20 years. The Company's total annual benefits cost under Statement 106, including amortization of the transition cbligation over 20 years,is approximately $46 million. In December 1992, the PUC issued a proposed rule that would allow a request for a one time conversion from the

• pay-as-you-go" method for ratemaking purposes to a method allowing recovery of accrual costs as defined by the PUC rule. The proposed rule would exclude recovery of the transition obligation from net periodic postretirement benefit cost as defined by Statement 106. If the rule is i

approved as proposed, net income would be adversely affected by approximately $10 million annually. The proposed rule is expected to be finalized in the first quarter of 1993.

10. SALES OF ACCOUNTS RECEIVABLE In 1989, the Company entered into a five year agreement with certain financial institutions whereby the Company is entitled to sell and such financial institutions are required to purchase, on an ongoing basis, up to an aggregate of $300,000,000 of undivided interests in customer accounts receivable.

Additional receivables are continually sold to replace those collected. At December 31,1992 and 1991, $300,000,000 and $200,000,000, respectively, of such receivables were owned by financial institutions.

11. COMANCllE PEAK NUCLEAR GENERATING STATION l

The Company is operating one nuclear-fueled generating unit and is finalizing construction on a second unit at Comanche Peak, each of which is designed for a capability of 1,150 megawatts. The Company owns all of the piant. (See Note 7.) t The Company is subject to the jurisdiction of the Nuclear Regulatory Commission (NRC) with respect to nuclear power plants. NRC regulations govern the granting oflicenses for the construction and 45 f

TEXAS UTILITIES ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued)

11. COMANCHE PEAK NUCLEAR GENERATING STATION-(concluded) t operation of nuclear power plants and subject such plants to continuing review and regulation. In April 1990, the NRC issued a full power operating license for Unit 1. The construction permit for Unit 2 is in effect and has been extended until a " latest date of completion" of August 1,1995. In February 1993, pursuant to a license issued by the NRC, the Company loaded fuel and commenced low power testing of Unit 2.

In August 1992, following the action byNRC staff which extended the construction permit for Unit 2, an Atomic Safety and Licensing Board (ASLB) was established to determine whether proposed intervenors have standing to intervene and, if so, whether valid issues exist to necessitate a hearing to determine if there was good cause to extend such construction permit. In December 1992, the ASLB issued an order denying a hearing on these petitions, and the proposed intervenors have taken actions to appeal this decision. The Company does not believe that any such proceeding will affect the licensing of Unit 2 for full power operation. Unit I and common facilities were placed in commercial operation on August 13,1990, and Unit 2 is scheduled for service for the peak season of 1993. At December 31,1992, the Company had $4.22 billion invested in Unit 2 (net of $485 million included in the reserve for regulatory disallowances required by order of the PUC in Docket 9300), including APUDC. The estimated cash requirements in 1993 to complete Unit 2 are approximately $82 million. AFUDC accruals for Unit 2, which approximated $30 million for the month of January 1993, will continue until the unit is in commercial operation. Also,in January 1993, pursuant to adopting a new accounting standard for income taxes which precludes net-of-tax accounting for income taxes, the Company increased previously recorded AFUDC by $219 million with a corresponding increase in deferred income taxes.

12. RATE PROCEEDINGS On January 22,1993, the Company made applications to the PUC (Docket 11735) and to its municipal regulatory authorities for upward adjustments in rates for electric senice throughout its senice area.

Such request reflects, among other things costs associated with the anticipated commercial operation of Comanche Peak Unit 2, costs associated with Comanche Peak Unit I capitalinvestment after the end of the Docket 9300 test year (see below), additional ad valorem taxes and certain postretirement benefit costs. The proposed rate adjustments,if approved, would affect all classes of senice and are estimated to increase annual operating revenues by approximately $760 million, or 15.3%, based upon the test year ended June 30,1992. The Companyis unable to predict the extent to which this rate increase request will be granted. The Company expects to place new rates in effect, under bond, when Unit 2 of Comanche Peak achieves commercial operation which is scheduled for the peak season of1993. The request to place additional amounts of Comanche Peak investment in rate base will be subject to a review by the PUC for prudence of costs incurred. In connection with the September 1991 rate order in Docket 9300, the PUC reviewed costs incurred through June 1989 on Unit 2 and through fuel load in February 1990 on Unit 1. At December 31,1992, the Company had approximately T2.6 billion invested in Comanche Peak that had not been reviewed for prudence. The Company cannot predict the outcome of any future prudence review. Accordingly, no provision for loss, if any, has been made in 'the financial statements of the l Company. The Company is also seeking reconciliation, under the fuel rule currently in effect, of approximately $4.6 billion of fuel costs incurred during the three year period ended June 30,1992. 46 i

TEXAS UTILITIES ELECTRIC COMPANT NOTES TO FINANCIAL STATEMENTS - (Continued)

12. RATE PROCEEDINGS - (continued)

In January 1990, the Company made applications to the PUC (Docket 9300) and to its municipal regulatory authorities for upward adjustments in rates for electric service throughout its service area which would increase operating revenues by approximately $442 million, or 10.2%, based upon the test - year ended June 30,1989. Such request reflected costs associated with the commercial operation of Unit i of Comanche Peak. On August 13,1990, pursuant to rules of the PUC, the Company placed its requested rate increase into effect, under bond, applicable to energy sales on or after such date. In September 1991, the PUC issued a final order in Docket 9300. The order provided for a total revenue increase of approximately $442 million and included $695 n,illion of CWIP in rate base to support the revenue increase. It also included a prudence disallowance of $472 million with respect to certain Comanche Peak costs relating to 87.8% of the Company's ownership interests in both units of Comanche Peak. With respect to the Company's reacquisition of the remaining 12.2% minority owner interests in Comanche Peak, the order included an additional disallowance of $909 million. In addition, the order provided for refunds aggregating $56 million, including interest, principally with respect to fuel gas costs considered imprudent by the PUC. Such amount is being refunded to customers, with interest, over a two year period that began in November 1991. In September 1991, the Company recorded a charge against earnings, as a provision for regulatory disallowances, of $1.381 billion ($1.011 billion after tax) as a result of the order in Docket 9300. The charge is comprised of the $472 million of costs associated with Comanche Peak that were disallowed and the disallowance of $909 million related to the minority owner reacquisitions. Also, the Company recorded a charge of $56 million including interest ($37 million after tax), representing principally fuel gas costs disallowed by the order. In Movember 1991, the Company filed a petition in the 250th J udicial District Court of Travis County, Texas, requesting a reversal and remand of the order. Other parties to the PUC proceeding also filed appeals with respect to various portions of the order. In September 1992, after a hearing, the Court entered a judgment in the appeals. In the judgment, the Court affirmed the prudence disallowance of $472 million with regard to certain costs associated with Comanche Peak but reversed and remanded to the PUC for reconsideration those portions of the PUC's final order providing for additional disallowances aggregating $884 million with respect to the Company's reacquisition of minority owner interests in Comanche Peak. The Court concluded that upon remand the PUC must consider all factors relevant to the overall public interest, including all factors and considerations raised by the evidence presented by the Company, and should not base its decision solely on a *least-cost" comparison of generation alternatives in its determination of reasonable value in connection with these transactions. The Court also found that the PUC crred in ordering a refund of approximately $2.5 million with respect to certain fuel gas costs considered imprudent by the PUC. In addition, the Court indicated that the PUC erred in its calculation of the amount of the Company's cash working capital. The Court recognized that on remand the PUC may adjust the amount of CWIP included in the Company's rate base to be consistent with the PUC's redeterminations regarding the minority owner reacquisitions and the amount of cash working capital. Therefore, the Company does not expect this judgment to affect the current rates approved in the PUC's final order. 47

m a i -r k TEXAS UTILITIES ELECTRIC COMPANY - ^ ' NOTES 'IU FINANCIAL STATEMENU - (Continued). a

12. RATE PROCEEDINGS - (concluded)

I i Other parties to this suit have appealed thisjudgment. The Company disagrees with certain portions - 1 of the judgment and also has appealed. The Company is unable to predict the outcome of such appeals - d and any reconsideration by the PUC. The disallowed Comanche Peak related costs are reflected as i ~ reserves for regulatory disallowances on the Company's balance sheet pending the outcome of any further j appeals or reconsideration by the PUC. In October 1992, the General Counsel's office of the PUC filed'a complaint against the Company _. requesting that the PUC review certain aspects of the Company's implementation of bonded rates in i Docket 9300 for the period during which such rates were in effect. The complaint alleges primarily that during such period the Company should not have accrued approximately $70 million of AFUDC related -i to the Unit 2 investment which was subsequentlyincluded as CWIP in rate base pursuant to the rate order - i in Docket 9300. The Company disagrees with the General Counsel's position and expects that the issue ' will be resolved during the pendency of, or in connection with, Docket 11735.

13. OPERATIONS REVIEW AND COST REDtJCTION

.i in April 1992, the System Companies commenced a plan to better prepare the Sydem Companies to operate in the rapidly changing business environment of the electric utility industry and to reduce costs.' .i All_ aspects of the System Companies' operations were examined to identify oppectunities for effective - changes in business processes and operating practices. Implementation of resultirg changes in processes - and practices has begun and will extend beyond 1993.: ,j Related to this plan, the System Companies announced on June 1,1W2 an offer of enhanced - i voluntary early retirement to approximately 3,700 of the System Companies' '.5,200 cmployees. All other regular full-time employees were offered a voluntary severance program. The election period for this - program ended on September 1,1992, with separation dates occurring through Nnvember 1,1992. A total-l of 4,499 employees (about 30%) accepted the voluntary early retirement / severance' program. The j number of employee acceptances was about equally divided between employees electing early retirement and those electing voluntary severance. In September 1992, the System Companies deferred the cost of ' this program and other related costs, which at December 31,1992 was approximately $255 million. The Company has requested recovery of these costs in rates in Docket 11735 (see Note 12) over a three year period as an offset to reductions in operating costs from changes in business processes and operating' i pradices,' which will result in net annual savings of approximately_ $117 million. The voluntary - retirement / severance progra;n was funded through a combination of pension plan assets (approximately 1 $355 million) and general funds (approximately $84 million) of the Company and will not materially affect the Company's financial position or results of operations. (See Note 9.) - -l i i p I i n' 5 i 48 I l 1a b

,-- - ~.

l

-I ci TEXAS UTILITIES ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued). 4 i s

14. CO\\i%1tDfENTS AND CONTINGENCIES t

l Cov uction Program t Construction expenditures, excluding AFUDC, for the years 1993 through 1995 are estimated 'at $580,000,000, $560,000,000 and $796/*! 3,000, respectively. The effects ofinflation, additio1 requirements, revisions in the expectes demand growth or other unknown factors could affect estimate:i completion costs and in service dates of generating units under construction. Commitments in connection.! with the construction program are generally revocable subject to reimbursement to manufactu[ expenditures incurred or other cancellation penalties. Clean Air Act 'I In November 1990, the federal Clean Air Act Amendments of 1990 (Clean Air Act) were enacted which, among other things, placed limits on the sulfur dioxide emissions produced by gj j The Clean Air Act requires that fossil-fueled plants meet new sulphur dioxide emission standard (Phase I) and additional sulfur dioxide emission standards by 2000 (Phase II). The Company i units are not affected by the Phase I requirements. - The Phase Il requirements are currently but four of the Company's generating units. Because the sulfur dioxide emissions from these four uni r i are relatively10w and alternatives are available to enable these units to reduce sulphur dioxide emis or utilize compensatory additional reduction allowances achieved in other units, compliance with the i applicable Phase 11 sulfur dioxide requirements is not expected to have a significant impact on th Company. j 1 r On January 11,1993, the Environmental Protection Agency.(EPA) issued its

• core" regulations to-implement the sulfur dioxide reduction program. The Company is reviewing these regulations and is'}

preparing a compliance plan in accordance wkh the regulations. The Companyintends t o utilize internal allocation of emission allowances within its system and, if cost effective, may purchase emission j allowances to enable both existing and future electric generating units to meet the requirements of the Clean Air Act. The Companyis unable to predict the cuent to which it may generate excess allowances - ; or will be able to acquire allowances from others if needed. 1 ~' Other provisions of the Clean Air Act may require the Company to take other actions. 'l The' Company's lignite-fired generating units meet the currently required nitrogen oxide limits in the Clean Air Act. The requirements of the Clean Air Act for ozone nonattainment areas may require nitroge oxide emission reductions at the Company's natural gas-fired units in the Da!!as-Fort Worth area byl The Clean Air Act also requires studies over a four year period by the EPA to assess the potential for toxic emissions from utility boilers. The Company is unable to predict either the results of such studies } or the effects of any subsequent regulations.' Continuous emission monitoring systems are require{ the Clean Air.Act to be installed by 1995 on most 'of the Company's fossil-fueled units and such I installation has begun. 1 i s i -l l 49 1 d I O s .n.-,c. -,, m s

TEXAS UTILITIES ELECTRIC COMPANT NOTES TO FINANCIAL STATEMENTS - (Continued) s

14. COmfiTMENTS AND CONTtNCENCIES- (continued) f Only certain parts of the regulations implementing the Clean Air Act have been published as final rules. Until more of these regulations have been promulgated and specific state requirements developed, the Company will not be able to fully determine the cost or method of compliance with the major requirements. The Company believes that it can meet the requirements necessary to be in compliance with these provisions as they are developed. Capitalrequirements related to the Clean Air Act are included in the Company's construction program. Any additional capital costs, as well as any increased operating costs associated with new requirements or compliance measures, are expected to be recovered through rates, as similar costs have been recovered in the past.

Energy Policy Act The National Energy Policy Act of 1992 (Energy Act) was enacted in October 1992. The Energy Act seeks to increase competition in electric generation and increase access to electric transmission systems. The Energy Act addresses a wide range of energy issues, including several matters affecting bulk power competition in the electric utility industry, nuclear licensing reform, nuclear plant decommissioning and energy efficiency. This legislation includes changes to the Public Utility Holding Company Act of 1935, the Public Utility Regulatory Policies Act of 1978 and the Federal Power Act. The Company is unable to predict the impact of this legislation on its operations. Purchased Power Contracts The Company has entered into purchased power contracts to purchase portions of the generating output of certain qualifying cogenerators and qualifying small power producers through the year 2005. These contracts provide for capacity payments subject to a facility meeting certain operating standards and energy payments based on the actual power taken under the contracts. The cost of these and other purchased power contracts is recovered currently through base rates, power cost and fuel recovery factors applied to customer billings. Capacity payments under these contracts for the years ended December 31, 1992,1991 and 1990 were $240,342,000, $229,953,000 and $226,083,000, respectively. Assuming operating standards are achieved, future capacity payments under the agreements are estimated as follows: Years Total y Thousands of Dollars 1993 $ 249,109 1994 244,799 1995 238.513 1996 228337 1997 4 237,014 Thereafter 899,436 Total. 52,097,208 50

TEXAS UTILITIES ELECTRIC COMPANY l NOTES TO FINANCIAL STATEMENTS - (Continued)

14. Cost %11TMENTS AND CONTINGENCIES-(continued) 1 Leases The Company has entered into operating leases covering various facilities and propertica including combustion turbines, transportation, data processing equipment and office space. Lease costs charged to operation expeuse for the years ended December 31,1992,1991 and 1990 were $66,219,000, $60,085,000 and $51,783,000, respectively, t

The Company's future minimum lease commitments under such operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31,1992, were as follows: b Combustion Years Turbines Other-Total Thousands of Dettars y i 1993 5 28,347 $ 9,451 5 37,798 1994 28,345 7.569 35.914 1995 28,345 3,670 32.015 1996 28.627 2,482 31.109. 1997 35,808 1,738 37,546 Thereafter. 661,395 7,141 668.536 Total minimum lease commitments.. 1810.667 532.051 1842.918 i Cooling Water Contracts 'I I The Company has entered into contracts with public agencies to purchase cooling water for use in the generation of electric energy. In connection with certain contracts, the Company has agreed,in effect, = t to guarantee the principal, $40,410.000 at December 31,1992, and interest on bonds issued to finance the reservoirs from which the water is supplied. The bonds mature at various dates through 2011 and have interest rates ranging from 5-1/2 to 7% The Company is required to make periodic payments equal to l such principal and interest for the years 1993 through 1997 as follows: $4,422,000 for 1993, $4,423,000 for 1994, $4,431,000 for 1995, $4,430,000 for 1996 and $4,435,000 for 1997. Payments made by the Company, net of amounts assumed by a third party under such contracts, for 1992,1991 and 1990 were $2,849,000, i $2,596,000 and $3,437,000, respectively. In addition, the Company is obligated to pay certain variable i costs of operating and maintaining the reservoirs; The Company has assigned to a municipality all contract rights and obligations of the Company in connection with $90,455,000 remaining principal amount of bonds at December 31,1992,it, sued for similar purposes which had previously been guaranteed by the Company. The Company is, however, contingently liable in the unlikely event of default by the + municipality. Nuclearinsurance With regard to liability coverage, the Price-Anderson Act (Act), as most recently amended in 1988 to extend its effectiveness through 2002, was enacted by Congress to provide financial protection for the. public in the event of a significant nuclear power plant incident. The Act sets the statutory limit of public liability for a single nuclear incident currently at $7.9 billion and requires nuclear power plant operators to provide fmancial protection for this amount. As required, the Company provides this financial 51 ?

TEXAS UTILITIES ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued)

14. COMMITMENTS AND CONTINGENCIES - (continued) protection for a nuclear incident at Comanche Peak resulting in public bodilyinjury and property damage through a combination of private insurance and industry-wide retrospective payment plans. As the first layer of financial protection, the Company has purchased $200 million of liability insurance from i

American Nuclear Insurers (ANI), which provides such insurance on behalf of two major stock and mutual insurance pools, Nuclear Energy Liability Insurance Association and Mutual Atomic Energy Liability Underwriters. The second layer of financial protection is provided under an industry retrospective payment program called Secondary Financial Protection (SFP). Under the SFP, each operating licensed reactor in the United States is subject to an assessment of up to $66.15 million, subject to increases for inflation every five years, in the event of a nuclear incident at any nuclear plant in the United States. The $66.15 million assessment will increase to approximately $80 million in 1993. Assessments are limited to $10 million per operating licensed reactor per year per incident. With respect to nucleer decontamination and property damage insurance, NRC regulations require that nuclear plant license-holders maintain not less than $1.06 billion of such insurance and require the proceeds thereof to be used to place a plant in a safe and stable condition, to decontaminate it pursuant to a plan submitted to and approved by the NRC before the proceeds can be used for plant repair or restoration or to provide for premature decommissioning. The Company maintains nuclear decontamination and property damage insurance for Comanche Peak in the amount of $2.625 billion, above which the Company is self-insured. The primary layer of coverage of $500 million is provided by ANL The remaining coverage includes premature decommissioning coverage and is provided by ANI in the amount of $800 million and Nuclear Electric Insurance Limited (NEIL), a nuclear electric utility industry mutual insurance company, in the amount of $1325 billion. The Company is subject to a maximum annual assessment from NEIL of $15 million in the event NEIL's losses under this type of insurance for major incidents at nuclear plants participating in this program exceed its accumulated funds and reinsurance. In conjunction with commercial operation of Comanche Peak Unit 1, the Companybegan maintaining Extra Expense Insurance through NEIL to cover the additional costs of obtaining replacement power from another source if Comanche Peak Unit 1 is out of service for more than twenty-one weeks as a result of covered direct physical damage. The coverage provides for weekly payments of up to $3.5 million for the first and $2.345 million for the second and third fifty-two week periods of each outage, respectively, after the initial twenty-one week period. The total maximum coverage is $426 millien. Under this coverage, the Company is subject to a maximum assessment of $5 million per year. Similar coverage will be obtained for Comanche Peak Unit 2 when it achieves commercial operation. Nuclear Decommissioning and Disposal of Spent Fuel The Company has established a reserve (included in accumulated depreciation) for the decommissioning of Comanche Peak Unit 1, whereby decommissioning costs are being recovered from customers over the life of the plant and deposited to an external trust fund (included in other investments). As of December 31,1992, $21,971,000 has been deposited to the external trust fund for decommissioning. Based on a site-specific study during 1992 using the prompt dismantlement method and then-current dollars, decommissioning costs for Comanche Peak Unit I and Unit 2 were estimated to be $255,000,000 and $344,000,000, respectively. Recovery of such costs began in August 1990, when j e 52 i

l I TEXAS UTILITIES ELECTRIC COMPANY i - NOTES TO FINANCIAL STATEMENTS - (Continued) t

14. COMNilTMENTS AND CONTINGENCIES-(concluded)

Comanche Peak Unit I began commercial operation. A request for recovery of costs for the revised. estimate of Comanche Peak Unit 1 and for recovery of these costs for Comanche Peak Unit 2 was included in Docket 11735. (See Note 12.) The Company has a contract with the United States Department of Energy for the future disposal of - spent nuclear fuel at a cost of one mill per kilowatt-hour of Comanche Peak Unit I net generation. The disposal fee is included in nuclear fuel expense. General In addition to the above, the Company is involved in various legal and administrative proceedings which,in the opinion of the Company, should not have a material effect upon its financial position or results of operations.

15. CIIANGEIN ACCOUNTING FOR UNBILLED REVENUE Effective January 1,1992, the Company began recording base rate revenue for energy sold but not billed through the end of each month to achieve a better matching of revenues and expenses. Prior to the change in accounting method, revenues were recognized l~ased on customer billings on a cycle basis. The change in accounting increased net income in 1992 by $102,044,000, of which $80,907,000 represents the -

cumulative effect of the change in accounting princip!c at January 1,1992. Pro forma effects, assuming [ retroactive application'of recording unbilled revenues, are presented below: Year Ended Decent.er 31,' 1992 't991 1990 i Thousands of Dollars As previously reported: Net income (loss). 1821,123 $(289,173) 5964.276 Pro forma: Net income (loss) 740,216 (256,457) 978,772

16. FAIR VALUE OF FINANCIAL INSTRUMENTS

-l In December 1991, the FASB issued Statement of Financial Accounting Standards No.107,

• Disclosures about Fair Value of Financial Instruments" (Statement 107) to provide readers of the financial statements another method of valuing financialinstruments on a current basis. The following information is provided in compliance with Statement 107 and represents management's best estimate of '

the amount at which the instruments could be exchanged in a current transaction between willing parties, i other than in a forced sale. The amounts reficcted in the balance sheet for cash, temporary cash investments and special deposits l approximate fair value due to the short maturity of those instruments. The fair value of financial-instruments for which estimated fair value has not been specifically presented is not materially different j than the related book value. ) 53 b

. +.. . ~. N l TEXAS UllLITIES ELECTRIC COMPANY q NOTES TO FINANCIAL STATEMENTS - (Continued) f J

16. FAIR VALUE OF FINANCI AL INSTRUMENTS - (concluded)

Other investments. include amounts principally for nucleai decommissioning fund assets and funds 'l invested pursuant.to certain incentive and compensation agreements'. The fair value of the nuclear decommissioning assets and incentive and compensation assets are estimated based on quoted market ~ prices at year-end for the instruments in which such funds are invested.

i nI The fair value of the long-term debt and preferred stock subject to mandatory redemption'are.

estimated at the lesser of the Company's call price or the present value of future cash flows discounted )

l at rates consistent with comparable maturities adjusted for credit risk.

l The carrying amount of other financial liabilities classified as current on the balance sheet, such as.. I notes payable-banks and long-term debt due currently, approximate fair value because of the short i maturity of those instruments. Customer deposits have no defined maturities and are reflected at the I amount payable on demand at the balance she'et date, l) The Company has agreed,in effect, to guarantee the principal and interest on bonds used to finance the reservoirs from which the Company uses cooling water for certain generating units. The Company l ~ is also the guarantor for the principal amount of certain bonds issued for similar purposes which were j assigned to a municipality. The outstanding principal at December 31,1992 of the bonds for which the Company is contingentlyliable is $131,000,000, which approximates fair value. The fair value of the bonds L - is estimated based on the present value of the instruments' approximate cash flows discounted at the year j end risk free rate for issues of comparable maturities adjusted for credit risk.

i

' t, The Company is in effect obligated for the long-term notes of Fuel Company and Mining Company ' 1 which total $359,160,000 at December 31, 1992.. The fair value of such notes is approximately 'l $390,423,000 which is calculated as the present value of the instruments' future cash flows discounted at j the year end risk free rate for issues of comparable maturities adjusted for credit risk. 0 The estimated fair value of the Company's significant financialinstruments' are as follows: 1992- ~$ 1 Carrying _ Fair - } Annount Value l Thousands of Dollars [ t Lorig. term debt. $7.280,301 $7,976,303 j Preferred stock subject to mandatory redemption 418,748 445,009 j Other investments. 31,620 32.623.

17. SUPPLEMENTARY FINANCIAL INFORMATION (Unaudited) f la the opinion of the Company, the information below includes all adjustments (constituting only I

normal recurring accruals and the change in accounting, discussed in Note 15 to Financial Statements) ~ necessary to a fair statement 'of such amounts; quarterly results are not necessarily indicative of l expectations for a full year's operations because of seasonal and other factors, including rate changes,; j 54 ~ r ? f l 'I en g - i-t -gr

TEXAS UTILITIES ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS - (Concluded) i

17. SI'PPLEMENTARY FINANCIAL INFORMATION (Unaudited) - (concluded) i variations in maintenance and other operating expense patterns, the impact of the change in AFUDC accruals (see Note 1) and,in the third quarter of 1991, the charge for provision for regulatory disallowances (For additionalinformation regarding the charge for provision for regulatory disallowance, l

see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 12.) Operating Revenues Operating inconne Net Income (Loss) Quarter Ended 1992 1991 1992 1991 1992 1991 Thousands of Dollars March 31. 51,056,920 51,094,003 5 218,249 5 242,004 5196,907 5 151.986 t June 30. 1,195.775 1,197,059 281,853 274,495 157,757 177,939 September 30 1,478,148 1,449,331 410,248 358,889 325,488 (728,314) December 31 1,175,852 1.151,129 209.081 209,887 110,971 109,216 54,906,695 54.891,522 51,119,431 51,085,275 5821,123 5(289,173) a 55

TEXAS UTILITIES ELECTRIC COMPANY STATEMENT OF RESPONSIBILITY The management of Texas Utilities Electric Company is responsible for the preparation, integrity and objectivity of the financial statements of the Company and other information included in this report. The financial statements have been prepared in conformity with generally accepted accounting principles. As appropriate, the statements include amounts based on informed estimates and judgments of management. The management of the Company has established and maintains a system of internal control designed to provide reasonable assurance, on a cost-effective basis, that assets are safeguarded, transactions are executed in accordance with management's authorization and financial records are reliable for preparing financial statements. Management believes that the system of control provides reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected within a timely period. Key elements in this system include the effective communication of established written policies and procedures, selection and training of qualified I personnel and organizational arrangements that provide an appropriate division of responsibility. This system of controlis augmented by an ongoing internal audit program designed to evaluate its adequacy and effectiveness. Management considers the recommendations of the internalauditors and independent certified public accountants concerning the Company's system of internal control and takes appropriate actions which are cost-effective in the circumstances. Management believes that, as of December 31,1992, the Company's system of internal control was adequate to accomplish the objectives discussed herein. The independent certified public accounting firm of Deloitte & Touche is engaged to audit, in accordance with generally accepted auditing standards, the financial statements of the Company and to issue their report thereon. /s/ ERLE NYE Erle Nye, Chairman of the Board and Chief Executive /s/ IL JAR RELL GIBBS IL Jarrell Gibbs, Executive Vice President and Principal Financial Officer i /s/ IL DAN FARELL IL Dan Farell, Vice President i and Controller ) ) 56 f

INDEPENDENT AUDITORS' REPORT 4 5 i Texas Utilities Electric Company: i We have audited the balance sheets of Texas Utilities Electric Company as of December 31,1992 and l 1991, and the related statements of income, retained earnings and cash flows for each of the three years in the period ended December 31,1992. Our audits also included the financial statement schedules listed in Item 14.(p)2. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. b We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial: + statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31,1992 and 1991, and the results of its operations and its cash flows for each of the three years in the period ended December 31,1992, in conformity with generally accepted accounting principics. Also, in our opinion, the financial statement schedules, when i considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note 15 to the financial statements, in 1992 the Company changed its method of accounting for base rate revenue sold but not billed. DELOITTE & TOUCHE Dallas, Texas March 4,1993 b I 57 2

Item 9. CIIANGES IN AND DISAGREEMENTS WITli ACCOUNTANTS ON ACCOUNTING AND FINANCLAL DISCLOSURE. Notie. I PART !!! - l Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF TIIE REGISTRANT. Identification of directors, business experience and other directorships: l Other Positions and Offices Presently lleld Present Principal Occupation '{ With the Conipany Date First er Emiple3maent and Principal l (Current Terni Espires Elected as Business (perceding 5 yrs.). N a use At May 15.1993) Director Other Directorships l T. L llater 47 Executive Vice February 20,1987 Executive Vice President of the Preside-t Company; prior thercio, Senior Vice President of the Company. J. S. Farrington 58 None September 17,1982 Chairman of the floard and Chief l Executive of Texas Utilities, the parent company of the Company; other directorships Texas Utilities. l

11. Jarrell Gibbs 55 Executive Vice May 24.1989 Vice President and Principal Financial.

} President Officer of. Texas Utilities. and Executive Vice President of the. Company; prior thereto. Executive Vice. President of Texas Electric Service Div%m; prior thereto. Vice President of toe Company; prior thereto, Treasurer ' and Assistant k Secretary of the Conipany. Eric Nye 55 Chairman and September 17.1982 President of Texas Untatics; prior Chief Executive thereto, Executive Vice President of the Company and Executive Vice President of Texas Utilities; other directorships: Texas Utilities. I Michael D. Spence 51 Executive Vice September 17,1982 Executive Vice President of the President Company; prior thereto. President of Generatingt Division. W. M. Taylor 50 Executive Vice May 20,1986 Executive Vice President of the I President Company; prior thereto. President of Dallas Power Division. I E. L Watson 58 Vice Chairman February 20,1967 Vice Chairman of the Company; f prior thereto. Executive Vice 1 President of the Company; prior thereto. Senior Vice President of the Company. i 9 i t 1 SK

Item 10. DIRECTORS AND EXECUTIVE OFFICERS' OF Tile REGISTRANT (Conduded), Identification of executive officers and business experience: Positions and Offices Prescotly lleid (Current Tern. Date First Elected Ilusiness Espeeience Nause of Officer Are ' Expires May 15,1993) to Present Offices (Preceding Fi e Years) Erle N3e 55 Chairnian and February 20.1987 - Same and President of Texas Utilities. Chief Executive T. I 11ater 47 Executive Vice October 1,1991 Senior Vice l' resident of the Company. President

11. Jarrell Gibbs 55 Executive Vice October 1.1991 Vice President and Principal financial Preside nt Officer of Texas Utilities; prior thereto, Executive Vice President' of lcxas Electric Se rvice Dwmon; print thereto.

Vice President of the Company; prior thereto, Treasurer and Assistant Secretary of the Company. Mich.sel D Spence 51 Executive Vice october 1,1991 President of Generating Division. President \\ W. M. Taylor 50 Executive Vice October I,1991 President of Dadas Poact Divmon. President l E. L Watson 9 Vice Chairman November 1,1992 Executive Vice President; prior thercio, Senior Vice President of the Cinnpany. 6 i Tliere is no family relationship beiween any of the above named executive officers. i 1 r 5 g f i I t I t L 59 t I

t-8- M Item i1. EXECUTIVE COMPENSATION. l .1 The Company has paid or awarded compensation' during the last three calendar years to the following executive of ficers for services in all capacities: I t

SUMMARY

COMPENSATION TABLE Name and t Principal At*puni Compensation All Other l Position M S ala rv$ Bonusto Compens,ation ($P8' p Eric Nye, 1992 525,000 0 622.941 -l Chairman of the 1991 493,750 0 NA Board and 1990 48.750 100.000 NA Chief Executive .l of the Company * = Michael D. Spence, 1992 285.000 0 321.160 I Executive Vice 1991 285,000 40,000 NA President 1990 285,000 75,000 NA i of Company 'i T. L Baker, t992 233.000 0 243,573 Executive Vice 1991 273.417 0 NA President 1990 202.500 0 NA l of Company i E. L Watson. 1992 220.000 u 240,717 Vice Chairman 1991 213.333 0 NA Li of Company 1990 199.000 0 NA. [ W. M. Taylor, D92 205.000 0 221.719 i I Executive Vice 1991 198.750 0 NA' President 1990 156.667 0 NA of Company (1) Amounts reported in the table consist entirely of compensation paid by Texas Utilities. f (2) Amounts reported as All Other Compensation" represent amounts attributable to participation -} in certain benefit plans as hereinaf ter described. Pursuant to the transition rules promulgated by l the Securities and Exchange Conunission with respect to the disclosure of executive compensation, such amounts for 1990 and 1991 are omitted. Under the Employees' Thrift Plan of the Texas Utilities Cotupany System, as amended effective' January 1,1993, all employees with at least six months of full time service with the Company may invest up to 167c of their regular salaty or wages in common stock of Texas Utilities, or in a variety l of selected mutual funds. The amounts reported above include contributions by employer-l corporations to each participant's account of 407c,507o or 607o of the employee's savings, up to 6G of the employee's regular salary or wages, depending upon length of service, which amount is invested in the conunon stock of Texas Utilities. During 1992, these employer contributions for-l Messrs. Nye, Spence.11aker, Watson and Taylor amounted to $8.239, $0, $ 1,812,56,1.;6 and $4,595, respectively. 'h t l r 60 r. 1 i I i

] Item 11. EXECUTIVE COMPENSATION (Continued). ) Under the Deferred and incentive Compensation Plan of the Texas Utilities Companiy System, officers of the Company with a title of Vice President or above may defer a percentage of their compensation. i.ot to exceed a maximum percentage determined by the Organization and Compensation Committee of the 130ard of Directors of Texas Utilities (Committee) for each Plan year and in any event not to exceed 15% of the participant's compensation. Such deferred compensation is included in amounts reported under ' Salary"in the table above. The Company makes a matching award equal to 150% of the deferred compensation. In addition,the Committee i can establish incentive awards under the Plan. In no event will the sum of allincentive awards in I any Plan year exceed 25% of the aggregate compensation of eligible employees. Such matching and incentive awards are subject io forfeiture under certain circumstances. During 1992, these matching and incentive awards for Messrs. Nye, Spence, llaker, Watson and Taylor amounted to $194,500, $66,300, $56,940, $54,600 and $66,900, respectively and are included above. Under the Plan, a trustee purchases Texas Utilities common stock with an amount of cash equal to the deferred 'I compensation, matching award and incentive award and the Company establishes accounts for each. l participant containing performance units equal to such number of common shares. Plan im esiments, including reinvested dividends, are restricted to Texas Utilities common stock. On the expiration of the applicable maturity period (three years for incentive awards, and five years for. deferrals and matching awards) the value of the participants' accounts are paid in cash based upon. j the then current value of the units:provided however, that in no event shall a participant's account: be deemed to have a cash value which is less than the sum of such participant's deferred amount together with a 6% per annum (compounded annually) interest equivalent thereon. The maturity requirement is waived if the participant dies or becomes totally and permanently disabled. Incentive awards and earnings thereon maturing in 1992 were distributed to Messrs.' Nye, Spence, !!aker, Watson and Taylor in the amounts of $80,040, 548,024, $24,012, $24,012 and $16,008,- respectively and are included above. During 1992, the 13oard of Directors of Texas Utilities j amended the Plan to waive the maturity requirement and accelerate the distribution of deferred amounts, matching awards and related earnings which would otherwise have been payable in 1994 and 1996. These distributions of matching awards and earnings for Messrs. Nye, Spence, Ilaker, Watson a nd Taylor were $287,662, $184,036, $ 137,509, $ 133,959 and $126,016, respectively and are included above. Texas Utilities has established a Salary Dc ferral Program ef fective April 1,1991 under which each employee of the Company whose annual salary is $80,000 ($82,480 for the Plan Year beginning-April 1992) or more may elect to defer a percentage of annual. salary for a period of seven years, a period ending with the retirement of such employee, or for a combination thereof. Such deferrals. may not exceed in the aggregate 10% of such annual salary, provided that no more than 6% may be deferred under the retirement option for the period ending.with the retirement of such l employee. Deferred compensation is included in amounts reported under Salary in the table above. The Company makes a matching award, subject to forfeiture under certain circumstances, equal l to 100'?c of the deferred compensation. A trustee will distribute at the end of the applicable maturity period cash equal to the amounts deferred and matching awards plus carnings equal to j the greater of the actual carnings of Program assets, or the average interest rate during the applicable maturity period of U.S. Treasury Notes with a maturity of ten years. The distribution of the amounts due under the Program will be in a lump sum if the maturity period is seven years i or,if the retirement option is elected,in twenty annualinstallments. The Company is financing the { retirement portion of the Program through the purchase of corporate owned life insurance on the tives of the participants and the proceeds from such insurance are expected to allow the Company j to tully recover the cost of the retirement option. During 1992,~ matching awards, which are included above, were made for Messrs. Ny c, Spence, llaker, Watson and Taylor in the amounts of $52.500, $22,800, $23.300, $22,000 and $8,200, respectively. bI 1 i E i.

i

l

.f Item 11. EXECLTIVE COMPENSATION (Continued). i 2 The Company maintains a retirement plan qualified under applicabic provisions of the Internal l Revenue Code (Code) for all employees who have reached the age of 21 und with at least one year of lull time service with the Company. Annual retirement benefits are computed as follows: for each year of accredited service up to a total of 40 years of service,1.3% of the first $7.,800,plus 1.5% of the . excess over $7,800 of average annualsalary received by the participant during his three years of highest l earnings. Retirement benefits are computed with respect a base salaries only and amounts reported i as salary for specified of ficers approximate carnings as defined by the retirement plans. Such benefits j are not subject to any reduction for Social Security payments.. Benefits payable from a qualified. i setirement plan are limited by provisions of the Code and the Company maintains a Supplemental l J Retirerneut Plan which provides for the payment of retirement benefits calculatea in accosdance with - l the retirement plan formula which would otherwise be limited by the provisions of the Code. As of January 31,1993, years of accredited service under the plans for Messrs. Nye, Spence, Baker, Watson and Taylor were 30,26,22,33 and 24, respectively. The table illustrates the total annual benefit payable at retitement under these retirement plans. i 'I 3Near AveraFe { Annual Earnines 20 Years service 30 Yer.rs Service 40 Years Service 5 $ 50.000 .5 14.685 5 22.032 5 29.376 l 100.000 29JM 44.532 59.376 200.000 39JM A 9.532 119,376 ? 400.000 . I19.5fs8 179.532 239.376 l \\ l 500.000 149M8 224.532 299.376 f 600.000 179.068 269.532 359.376 j I $00.000. 239.688 359.532 479.376 j 1 3 The following report is presented herein for informational purposes only. This information is not required to be included herein and shall not he deemed to form a part of this report or be Tded"with i the Securities and Exchange Commission. The report set forth hereinafter is the report of the Organization and Compensation Committee of the Board of Directors of Texas Utilities. While this report deals with compensation of executiies of Texas Utilities, it is illustratise of the methodology ( utilized in establishing the compensation of executive officers of the Company. References in the report to the Compan3 are references to Texas Utilities and references to pages of the proxy statement j ~ are references to the Texas Utilities' proxy statement to be filed with the Securities and Exchange 'j Commission on or about April 1,1993. i y ORGANIZA TION AND COMPENSA TION COMMITTEE REPORT 1 The Organi:ation and Compensation Conunatee of the Board of Directors is responsible under the l Company's Bylawsfor estabbshing thelevelofcompensation ofIhe executive officers ofthe Company. The i Comnunce consists of all of the nonemployee directors of the Company as identified on pages 2 and 3 of \\ tlas proxv statement and is chaired by James K. Dober. The Comminee has directed the preparation ofthis l report and has approved its contents and its submission to the shareholders. As provided by the rides of i ihe Securaies and Exchange Commisswn (Commusion I, shis report is not to be considered to befiled with the Commission nor incorporated by reference m any Commission Jilings. l l i h1 i P

~. -i I Item 11. EXECUTIVE COSIPENSATION (Continued). ) 'I The Committee normally considers executive compensation maners at its May meeting held in N connection with the Annual Meeting of Shareholders. At that meeting, the Committee reviews and I recommends to the ftdl Board executive officers' base salaries and bonuses, if any, and establishes the l maximum deferral percentage and incentive awards, if any, under the Deferred and incentive. t Compensation Plan. Although Company management may be present during Comminee discussions of - ojpcers' compensation, Comminee decisions with respect to the compensation of the Chairman of the l Board and ChiefExecutive and the President are reached in private session without the presence of any meinher of Company management. .I Levels of executive compensation, in the opinion of the Comminer, generally'should be determinedI based upon the performance of the Company and the contributions of individual officers _to such .i performance andin comparison topersons with com; arable responsibilities in similar business enserprises. i Compensation plans should align executive compensation with returns to shareholders with due consideration accorded te se attainment ofboth long-term andshort-term objectives. Such compensation u principles and practices have allowed, and should continue to allow, the Company to curact, retain and 1 motivate its key executives. _l The compensation of the officers ofthe Company consistsprimarily ofbasesalaries and the opportunity to participate in the Deferred and Incentive Compensation Plan (Plan) which is discussed later in this ; i report. Benefits provided itnder the Plan represent a substantialportion of the officers' compensation and the value of the future payment thereofis directiv related to the future performance of the Company's l common stock. The named executive officers participate to the fidlest extent permissible in the elective Jeature of the Plan. The officers are also eligible to participate in the Salary Deferral Prograni and the l Employees' Thrift Plan, both of which are described on pages 6 and 7 of thisprotv statement. The officers i also participate in the Retirement plan, the benefits payable under which are described on page 8 of this .l prcus statement. Exceptfor benefas under these plans, the oJ!icers do not receive any otherform ofdirect or indirect compensation from the Company. ? During 1992, whh management's recommendation, Ihe basesalaries ofthe executive officers, includlug the chief executive, were not increased. The recommendation of management and the approval of the-c Comminee in this regard was based upon seseralfactors, including the Company-wide efforts to reduce l costs in order to mitigatepartially the loss arising out of the TUElectric rate case. 2ncentive awards under 9 the Deferred and incentive Compensation Plan for the named executive ofpcers, including the chief: executive, were increased by a total of11 percent over the prioryear. As previously described, such awards are represented by common stock equivalents and the value of thefiaurepayment thereofis directly related to theJiaure performance of the Company's common stock. In establishing levels ofexecutive compensation, Ihe Comminee regularly reviews Compan yperformance ] and officers ' compensation compared to theperforman ce ofsimilar businesses andthe compensation levels of the executive management ofsuch businesses. Il'ith respect to Companyperformance, TU Electric, the i Company's principalsubsidiarvlin 1991 was the largest electric utility in the United States as measured by megawan hour sales, Other 1991 comparisons to the largest utilhies included electric revenues (61h), total ? I assets (3rd), net generating capability (3rd), number ofcustomers (6th) and number ofemployees (10th) The Committee also reviews a variety of industre financial and operating performance comparisons (induding,for example, productivity indicators, service reliability indexes;and meastires ofefficiency and ' ,j service quality) throughora the year and at the time salaries are established in May of eachyear. These { industra comparisons constinue _ an important component of the Comminer's review of executive wmpensation. Ihe Conuninee has not, however, adopted or approved a specific fornuda directivlinking - any performance measure, or the aggregate of all sneasures, to the levels of exectaire compensanon, 'i i

~ .) h _ 'l ? t ~ ltem 11. EXECt!TIVE COMPENSATION (Continued). f 1 i The Committee also reviews the compensation of the Company's officers compared to persons with h . comparable responsibilities in similar businesses as well as business in gen eral. In that regard, information is gatheredfrom indusur sources and osherpublished materials. Datafor 1991, which was reviewed by the .t Comminee in May 1992, indicated that the total compensation of the executive officers of the Company, .} includingIhe chiefexecutive, ranked at or below Ihe middle ofmost comparisons. Dne Committee carefully l reviews relevant compensation comparisons, but has not established a specific objective or targetfor the l compensation of the Company's executive officers as compared to the compensation paid by other l companies. i The Company has retained the services of an independent compensation consultantfor a number of Ihis consultant has provided a methodology under which professional and managerialjobs are vears. evaluated and the compensation of the named executive o][icers is within the ranges establishedfor those } positions. .I As previousiv noted, the Deferred and incentive Com;>ensatwn Plan (Plan) is administered by the Committee. The principalprovisions of the Plan are described on pages 6 and 7 of this proxy statement. l At its November i992 meeting, the Committee approved an amendment to the Plan to allow the payment { in 1992 of the value of the deferred amounts and inatchmg awards which would otherwise have been payable in 1994 and 1996. The acceleration of these payments was asahori:ed to more immediately l recogni:e the pariscipants'significant contributions to lhe redirection of the Company's business and in i ligin of the fact that the base salanes of the named executive officers were not increased in 1992. Such - i ucceleration did not result in any additional cost to the Company and may have allowed the officers to i retain a larger percentage of the distributions after the pay ment ofpersonalincome lates. Shareholder comments to the Comminee are welcomed and should be addressed to the Corporate - 'l i Secretarv of the Company at the Company's oJ] ices. 1 I 1 i i I P 7 E f ) I .} t>J i i i ~f

Item 11. (Concluded), PERFORMANCE GRAPH The following graph is presented herein for informational purposes only. This information is not required to be included herein and shall not be deemed to form a part of this report or be ' filed' with the Securities and Exchange Commission. The graph pertains to the common stock of Texas Utilities. Inasmuch as the common stock of the Company is wholly owned by Texas Utilities, this information is the most relevant data which is available in regard to this subject matter. The graph compares the performance of Texas Utilities common stock to the S&P 500 Index and to the Moody's 24 Utilities for the last five years. The graph assumes the investment of $100 at December 31,1987 and that all dividends were reinvested. Cumulative Total Retums for the Five Years Ended 12/31/92 collars 260 250 - 24 3 240 - t_ Texas Utilities 230 - 0 S&P 500 Index 220 - o Moody's 24 Utilities -211 210-209 200-190-180 - 1 170 - 160 - i 150 - e 140 - 130 - 120 - 110 - 100 l 19R7 M M 1990 1991 M Texas Utilities (1) 100 116 159 180 222 243 SA P 500 indcx (1) 100 117 154 149 194 209 Mnody's 24 Utilities (5) 100 116 149 156 202 211 65

Item 12. SECURITY OWNERSillP OF CERTAIN BENErlCIAL OWNERS AND.51ANAGES1ENT. Security ownership of certain beneficial owners at January 31.1993: Amount and Nature. Natue and Address of Bentlitial Title of Clau of Beneficint On ner Ou nership Percent of Claw Conanon Sto,k. Teans Utilities Company 148.600.000 shares 100.05 without par 6 ah.e. 2001 Bryan Tower sole voting and of the company Dalles. Teus 73201 investment power Security ownership of management at January 31, 1993: The following lists the common stock of Texas Utilities owned by the Directors and Executive Olficers of the Company. The named individuals have sole voting and investment power for the shares of common stock reported. Ownership of such common stock constituted less than I % of the outstanding shares for. each individual. None of the named individuals own any of the preferred stock of the Company, 1 Nuuilier et Shases %me of Couimon Stoc k T.1 ItaLer 1.804 1 5 l'arrington 14.819

11. Jarrell Gibbs 3.610 Eric Nye 13.343 Micheal D. Spence 5.269 W. M. Taylor 5.590 E. L Watson 4,577 s

All Directors and Esecutive Officers as a Froup (7) 49,012 3 liem 13. CERTAIN RELATIONSillPS AND RELATED TRANSACTIONS. None. 4 P 7 66 l 1 i 4

i i PART IV Item 14. EXIIIBITS, FINANCIAL STATEMENT SCilEDIM TC AND REPORTS ON FORM 8.K. l Page (a) Documents filed as part of this Report: 1. Financial Statements (included in Item 8. Financ..il Statements and Supplementary Data): Statements of Income for each of the three years in the pe riod ended December 31,1992 .........30 Statements of Cash Flows fo: each of the three years in the period ended December 31,1992 31 Balance Shee:s, December 31,1992 and 1991... . 32 Statements of Retained Earnings for each of the three years in the period ended December 31,1992..... ..... 3J Notes to Financial Statements. ... 35' Statement of Responsibility. 56 Independent Auditors' Report. 57 2. Financial Statement Schedules. For each of the three years in the period ended December 31,1992: Schedule V-Electric Plant. .. 75 .... 76 [ Schedule VI-Accumulated Depreciation. Schedule VIII-Valuation and Qualifying Accounts............... 77 Schedule IX-Short-term Borrowings... 78 Schedule X-Supplementary Information. . 79 - l The following financial statement schedules are omitted because of the absence of the ' .i conditions under which they are required or because the required information is included in the Financial Statements or notes thereto: 1,11,111, IV, Vil, XI, XII and X111. (b) Reports on Form 8.K: i P Reports on Form 8.K filed since September 30,1992, are as follows: Date of Report Itenis Reported October 28.1992 Item 7. FINANCIAL STATEMENTS AND EXillBITS December 3,1992 Item 5. OTHER EVENTS January 12,1993 Item 7. FINANCIAL STATEMENTS AND EXIllBITS l January 26,1993 Item S. OTHER EVENTS i February 23,1993 Item 5. OTliER EVENTS ' i I (c) Exhibits: [ Previously Filed

• With File As Exhibits N u mt.e r Exhibit Nu mber Dag

' s i 3(a) 2 91002 4(a) - Articles of Incorporation of the Company. 3(a) 1 33 52452 4(a).2 - Articles of Amendment of the Company, as corrected. 4 3(a) 2 2 91002 4(b) Statement of Resolution establishing Thirty. third Series of Preferred Stock of the Company. l 67 F e r-

i i Item 14 EXillBITS, FINANCIAL STATEMENT SCliEDULES AND REPORTS ON FORM 8 K (Continued). t Previopsit filed

• With File '

As Emhibits Number Enhibit Number Dated l ~ 3(a)-3 2-97786 4(b) Statement of Resolution establishing Thirty-fourth Series of Preferred Stock of the Company. 3(a)-4 33-5528 4 (b) Statement of Resolution establishing Thirty-fifth. ? Series of Preferred Stock of the Company. 3(a)-5 33-14585 4(b) Statement of Resolution establish'ng Thirty-sixth _ Series of Preferred Stock of the Company. 3(a)-6 33-14585 4(b) 5 - Statement of Resolution establishingThirty-seven th Series of Preferred Stock of the Company 3(a)-7 33-33432 4(b) Statement of Resolution establishing Thirty.cighth i Series of Preferred Stock of the Co:npany. 3(a)-S 33 33432 4(b) Statement of Resolution establishing Thirty-ninth Series of Preferred Stock of the Company. g 3(a)-9 33-33432 4(b) Statement of Resolution establishing Fortieth and Forty-first Series of Preferred Stock - of' the Company. 3(a)-10 33-52452 4(b) Statement of Resolution establishing Forty-second Series of Preferred Stock of the Company. 3(a)-I l 33-52452 4(b) Statement of Resolution establishing Forty-third - Series of Preferred Stock of the Company. 3(a)-12 - Statement of Resolution establishing Forty fourth Series of Preferred Stock of the Comg any. 3(b) - Bylaws of the Company, as amended. 4(a) 2-90185 4(a) - Mortgage and Deed of Trust, dated as of December 1,1983, between the Cornpany and Irving Trust Company (now The Bank of New York), Trustee. 4(a)-1 - SupplementalIndentures to Mortgage and Deed of ' Trust: 2 90185 4(b) First April 1,1984 2-92738 4(a)-1 Second September 1,1984 2-97185 4(a)-1 Third April 1,1985 2-99940 4(a)-1 Fourt h August 1.1985 l 2-99940 4(a)-2 ' Fifth September 1,1985 33-01774 4(a)2 Sixth December 1,1985 _i 33 9583 4(a)-1 Seventh March 1,1986 i 33-9583 4(a)-2 Eighth May 1,1986 33-11376 4(a)-1 Ninth October 1,1986 l 33-11376-4(a)-2 Tenth December 1,1986 33-11376 4(a)-3 Eleventh December 1,1986 q 33-14584 4(a)-1 Twelfth February 1,1987 33 14584 4(a)-2 Thirteenth March 1,1987 33-14584 4(.) 3 Fo u rteenth April 1,1987 33 24089 4(a)1-Fifteenth July 1,1987 33 24089 4(a)-2 Sixtee nth September 1,1987

l 33-24089 4(a)-3 Seventeenth October 1,1987 68

( l I t

1 1 Item 14 EXillBITS, FINANCIAL STATEMENT SCIIEDULES AND REPORTS ON FORM 8 K (Continued). i Presiansiv l'iled' [ With l'ile As Eshibits Nuin ber Eshibit Nurnber Dated 33 240S9 4(a)-4 Eighteenth March 1,1988 33-24089 4(a)-5 Nineteenth May 1,1988 33 30141 4(a) 1 Twentiet h - September 1,1988 33-30141 4(a)-2 Twenty first November 1,1988 33-30141 4(a)-3 Twe nty-secon d January 1,1989 33-35614 4(a)-1 Twenty-third August 1,1989 33-35614 4(a) 2 Twenty-fou rth November 1,1989 33-35614 4(a)-3 Twenty fifth ' December 1,1989 1 33-35614 4(a)-4 Twenty-six February 1,1990 ~ j 33-39493 4(a)-1 Twen ty-seventh September 1,1990 33-39493 4(a)-2 Twenty-eighth October i,1990 t 33-39493 4(a)-3 Twenty-nint h ' October 1,1990' 33-39493 4(a)-4 Thirtieth March 1,1991 33-45104 4(a)1 Thirty-first May 1,1991 l 33-45104 4(a)-2 Thirty-second July 1,1991 33-46293 4(a)-1 Thirty-third February 1,1992 33-49710 4(a)-1 Thirty-fourth April 1,1992 33-49710 4(a)-2 Thirty-fifth April 1,1992 33-49170 4(a) 3 Thirty sixth June 1,1992 1 33-49170 4(a)-4 Thirty seventh June 1,1992 .i 33-57576 4(a)-1 Thirty eighth August 1,1992 33-57576 4(a) Thirty-ninth October 1,199' 33-57576 4(a)-3 Fortieth November 1,1992 33-57576 4(a)-4 Forty-first December 1,1992-4(b) 2-2801 B2 - Mortgage and Deed of Trust, dated as of February 1,. 1937, between Dallas Power & Light Company and Old Colony Trust Company Trustee (The First-National Bank of Boston, successor Trustee). 1 4(b)-1 - SupplementalIndentures to Mortgage and Deed of i Trust: 1 2-7855 7(a) First April 1,1949 2-8466 7(a)-2 Second June I,1950 2-10071 4(b)-3 Third March 1,1953 .i 2-12200 2(b)-1 Fourth ' February 1,'1956 2-77857 4(b)-5 Fifth . December 1,1956 2 77857 4(b)-6 Sixth December 1,1959 4 2-20997 2(b) 7 Seventh-Februnry 1,1963 ' j 2-77857 4(b) 8 Eighth . January 1,1966 5 2-25805' 2(b)-9 Ninth February 1,1967 2 37161 2(c) Tenth June 1,1970. 2-42043 2(c) Eleventh November 1,1971 2 45403 2(c) Tw elf t h - September 1,1972 2 52708-2(c) Thirteenth March I,1975.

77857 4(b)-14 Fourteenth May 1,1977

} i 69 - 6 6 r

.i i 6 item 14. EXIIIBITS, FINANCIAL STATEMENT SCHEDllLES AND REPORTS ON FORM 8-K (Continued). Pre,iousiv Filed

• With l

File As: Es hibits N uauber Esbibit Nuiuber Dated 2 71621 4(c) Fifteenth June 1,1981 2-77857 4(b)-16 Sixteenth - November 1,1981 2-77857 4(c) Seventeenth . July 1,1982 2 81476 4(b)-18 Eighteenth November 1,1982 2 81476 4(c) Nineteenth February 1,1983 2-90185 4(c)-1 Twentiet h June 1,1983 2-90185 4(c)-2 Twenty-first January 1,1984 2-90185 4(c)-3 Twen ty-second April 1,1984 2-92738 4(b)-1 Twen ty-third September 1,1984 2 99940 4(b)-1 Twe n ty-fourt h September 1,1985: 1 33-11376 4(b)-1 Twenty fifth October 1,1986 33-14584 4(b)-1 Tw e n ty-sixth March 1,1987 33-24089 4(b)-1 Twenty-sevent h July 1,1987 33-30141 4(b)-1 Twen ty-eigh t h January 1,1989 33-35614 4(b)-1 Twen ty-nint h November 1,1989 33-46293 4(b) 2 Thirtieth February 1,1992 - 33 49710 4(b)1 Thirty-first June 1,1992 4(c) 2-5609 7(b) - Mortgage and Deed of Trust, dated as of March 1, 1945, between Texas Electric Service Company and The Fort Worth National Bank, Trustee (Bank One, Texas, N.A., successor Trustee). 4(c)-1 - SupplementalIndentures to Mortgage and Deed of' Trust: 2-7186 7(b) First October 1,1947 2-7423 7(c) Second April 1,1948 2-7894 7(d) Third April 1,1949 2-8982 7(e) Fourth June 1,1951 -j 2-9547 4(c) Fift h May 1,1952 _ 2-10118 4(c) Sixth . April 1,1953 - 2-12227 2(c) Seventh March 1,1955 2-60449 2(b)-1 Eighth. March 1,1956 2 60449 2(b)-1 Ninth-July 1,1957-2-60449 2(b)-1 Tenth _ November 1,1958 2-21105 2(b) Eleventh April 1,1963 2-23056 2(b) Twelfth - February 1,1965 2 24384 2(c) Thirteenth February 1,1966 2-26297 2(c) Fourteenth May 1,1967-2 31474 2(c) Fif t ee nth March'1,1969, 2-38358 2(c) Sixteenth October 1,1970 2-39627 2(c) Seventeenth April 1,1971 - 2 42552 2(c) Eight eenth. . January 1,1972 2-60449 2(b)-1 Nineteenth April 1,1974 '1 2 60449_ 2(b)-1 Twentiet h December 1,1974 - 2 60449 2(b)-1 Twe nty-first June 1,1975 70 i

i Itern 14. EX111 BITS, FINANCIAL STATEMENT SCIIEDULES AliD REPORTS ON FORM 8-K (Continued). Previondt l'iled' B it h File As Eshibits Number Eshibit Number Dated 2-60449 2(b)-1 Twenty-secon d March 1,1976 2-63425 2(c) Twenty-third February 1,1979 _ 1 2-66633 2(c) Twen ty-fourth March 1,1980 2-74809 4(c)-1 Twenty fifth-Novemoer 1,1981 2 74809 4(d)-1 Twenty-sixth _ December 1,1981 2-76675 4(c) Twenty-seventh April 1,1982 2-80329 4(c) Twenty-eighth November 1,1982 2-80329 4(d) Twenty-ninth December 1,1982 2-90185 4(d)-1 Thirtieth June 1,1983 2-90185 4(d)-2 Thirty-first January 1,1984 - 2-90185 4(d)-3 Thirty second April 1,1984 2-92738 4(c)-1 Thirty-third September 1,1984 7 2-99940 4(c)1 Thirty-fourth August 1,1985 33-9583 4 (c)- 1 Thirty-fifth March 1,1986 33-11376 4(c)-1 Thirty-sixth December 1,1986 33-14584 4(c)-1 Thirty-seventh February 1,1987 33-24089 4(c)-1 Thirty-eighth September 1,1987. 'f 33-24089 4(c)-2 Thirty-ninth October 1,1987 33 24089 4(c)-3 Fortie th March 1,1988 - 33-30141 4(c)-1 Forty-first September 1,1988 33-39493 4(c)-1 Forty-second September 1,1990 33-39493 4(c)-2 Forty-third March 1,1991 33-46293 4(c)-2 Forty-fourth February 1,1992 33-57576 4(c)-1 Forty.fifth October 1,1992 33-57576 4(c)-2 Forty-sixth November 1,1992 } 4(d) 2-5718 7(c) - Mortgage and Deed of Trust, dated as of May 1, 1945, between Texas Power & Light Company and l Republic : National Bank ' of. - Dallas, Trustee. 4 (NationsBank of Texas, N.A., successor Trustee). 4(d)-1 - Supph mental Indentures to Mortgage and Deed of r Tr ust: 2-7204 7(a) First October 1,1947 2 7446 7(a) Second April 1,1948, 2 9474 4(c) Third April 1.- 1952 2-10204 4(c)' Fourth M ay.1,1953 2-11162 2(b) Fifth October 1,1954 2-12856' 4(c) - Sixth November l_,1956 2-14553 2(b) Seventh December 1,1958 i 2-19452 2(b)-1 Eighth January 1,1961 2-21028 2(b) Ninth February 1,1963 l 2 24326 2(c) Tenth January 1,1965 2-24326 2(d) Eleventh February 1,1966 ' 2-25885 2(c) Twelfth February 1,1967 2 27853 2(c) Thirteenth January 1,1968 i 71

t Item 14. EXillBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (Continued). Pre inusiv tiied* v With I'ile As [ E=hibits Nuiu ber Eshibit Nuuiber. Dated 2-35941 2(c) Fou rt eenth February 1,1970 2-38171 2(c) Fifteenth September 1,1970 2 39083 2(c) Sixteenth February 1,1971 2-42763 2(c) Seventeenth February 1,1972 2 46740 2(c) Eighteenth February 1,1973 2 73790 4(b)-19 Nineteenth February 1,1974 2-73790 4(b)-20 Twentieth October 1.1974 2-52865 2(c) Twenty-first April 1,1975 2-55210 2(c) Twenty second January 1,1976 e 2-57963 2(c) Twenty-third February 1,1977 2-63369 2(c) Twe n ty-fo u rt h - February 1,1979 2-67594 (b)(2)-2 Twen ty-fif th May 1,1980 j 2-73790 4(c) Twenty sixth September 1,1981 l 2-77733 4(b) Twenty seventh November 1,1981 2-77733 4(c) Twenty-eight h June 1,1982 g 2-90185 4(e)-1 Twe n ty-nin t h November 1,1982 2 90185 4(e)-2 Thirtieth June 1,1983 .t 2-90185 4(e) 3 Thirty-first October 1,1983 2-90185 4(e)-4 Thirty-second January 1,1984 l 2-90185 4(c)-5 Thirty-third April 1,1984 2-92738 4(d)-1 Thirty-fou rt h September 1,1984 l 2 97185 4(d)-1 Thirty-fif th April 1,1985 l 33-01774 4(d)-1 Thirty-sixth December 1,1985 33-9583 4(d)-1 Thirty seventh May 1,_1986 33-145S4~ 4(d)-1 Tliirty-eighth December 1,1986 33-!!376 4(d)-1 Thirty-nint h April 1,1987 i I 33-24089 4(d)-1 Fortieth May 1,1988 33-30141 4(d)-1 Forty-first August 1,1988 33-35614 4(d)-1 Forty-second August 1,1989 i 33-35614 4(d)-2 Forty-third. Decembet 1,1989 33-35614 4(d)-3 Forty-fourth February 1,1990 33 39493 4(d)1 Forty-fif t h October 1,1990 33-45104 4(d)1 Forty sixth May 1,1991 l 33-45104 4(d)-2 For ty-seventh July 1,1991 33-46293 4(d)-2 Forty cighth February 1,1992 33 49710 4(d)-1 Forty-nin eth April 1,1992 - t 33-57576 4(d)-1 Fiftieth August 1,1992 33-57576 4(d)-2 Fifty-first December 1,1992 l 4(c) 2-28016 2(b) Debent ure Agreement, dated as of February l.1968, l between Dallas Power & Light Company and i Morgan' Guaranty Trust Company of New -York,. Tr ust e e. 72

Item 14. EXIIIBITS, FINANCIAL STATEMENT SCllEDULES AND REPORTS ON FORM 8-K (Continued), Presinusly Filet

• With File As Eshibits Number Eshibit Number Dated 4(, )-1 0-11442 4(c) First Supplemental Agreement, dated as of June 21,-

Form 10.K 1983, to the Debenture Agreement dated as of (1983) February 1,1968, between Dallas Power & Light Company and Morgan Guaranty Trust Company of New York Trustee. 4(e)-2 0-11442 4(c) -Second Supplemental Agreement, dated as of Form 10-K January 1,1984, to the Debenture Agreement dated (1983) as of February 1,1968, between TU Electric and - Morgan Guaranty Trust Company of New York, 1 Tr u st ee. 4(f) 2-27908 2(d) - Debenture Agreement, dated asof February 1,1968, between Texas Electric Service Company and-The-First National Bank of Fort Worth, Trustee (Bank - l One, Texas, N.A. successor Trustee). 4(f) 1 0-11442 4(d) First Supplemental Agreement, dated as of June 29, .i 1983, to the Debenture Agreement dated as of February 1,1968, between Texas Electric Service Company and the First National Bank of Fort Worth, Trustee (Bank One, Texas, N;A. successor - l Trustee). 4 (f)-2 0-11442 4(d) Second Supplemental Agreement, dated as of January i Form 10-K 1,1984, to the Debenture Agreement, dated as. of(1983) Februa ry 1,1968,betwee n TU Electric and Inter First - Dank Fort Worth, N.A., Trustee (Bank One, Texas, N.A., successor Trustee). 4(g) 2-31966 4(c) - Debenture Agreement, dated as of April 1,1969, between Texas Power & Light Company and First National Bank of Dallas, Trustee (NationsBank of Texas, N.A., successor Trustee).. 1 4(g)- 1 -t1442 4(e) First Supplemental Agreement, dated as of June 28, Form 10-K 1983, to the Debenture Agreement dated as of April (1983) 1,1969, between Texas Power & Light Company'and l InterFirst Bank Dallas, National Associc tio n,. Trustee (NationsBank of Texas, N.A., successor + Trustee). 4(g)-2 0-11442 -4(e) Second Supplemental Agreement, dated as of January-Form 10-K 1,1984, to the Debenture Agreement dated April 1, l (1983) 1969, between TU Electric and InterFirst Ba r:k Dallas, National Arsociation, Trustee (NationsBank of Texas, N.A., successor Trustee). 4(h) - Agrecment to furnish certain debt instruments. 4(i) - Deposit Agreement between the Company and Chemical Bank, dated January 19,1993. 73 i t

l Item 14. EXHIBITS, FINANCIAL STATEMENT SCIIEDULES AND REPORTS ON FORM 8-K (Concluded). Pres inusLF,iled

• l With

) File As Eshibian Nuiuber Emhibit Number Dated 10(a) ' - Deferred and incentive Compensation Plan of the Texas Utilities Company System, as amended June 30,1992. 10(b) " - Salary Deferral Program of the Texas Utilities Company System, as amended May 31,1992. 10(c) ' - Restated Supplemental Retirement Plan for the employees of Texas Utilities Company System, dated as of January 1,1991. Computation of Ratio of Earnings to Fixed Charges. 12 24(a) - Consent of Counsel. 24(b) - Independent Auditors' Consent. 28(a) 0-11442 28(b) - Agreement, dated as of February 12,1988, between Form 10.K TU Electric and Texas Municipal Power Agency. (1987) 28(b) 0 11442 28(c) -- Agreement, dated as of July 5,1988, between the Form 10-0 Company and the Brazos Electric Power Cooperative, (Quarter Ended Inc. June 30,1988) 28(c) 0-11442 28(d) - Agreement, dated as of February 1,1990, between Form 10.K' TU Electric and Tex-La Electric Cooperative, Inc. (1989) 28(d) 0-11442 - Amended and Restated Credit Agreement, dated as I Form 10.K of April 1,1990, among the Company. Texas Utilities, (1990) certain banks and Morgan GuarantyTrust Company [ of New York, Agent.

• Incorporated herein by reference.

" Management contract or compensation plan or arrangement required to be filed as an i exhibit to this report pursuant to item 14(c) of Form 10-K. F s k 74 l i i e +

TEXAS UTILITIES ELECTRIC COMPANY SCIIEDULE V-ELECTRIC PLANT For Each of the Three Years in the Period Ended December 31,1992 COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F Balance at 10ther Balance Beginning Additions Changes - at End Classification of Year at Cost Retirements Add of Year Thessands of Dollars Year Ended December 31,1992 Electne plant in service: Production. 510,421,387 5 80,882 512,054 5 $10,490,215 Transmission. 1,443,565 55,073 $,037 1,493,601 Distnbution. 3,377,396 218,007 27,757 3,567,646-Gencial 425,448 24,194 8,977 440,665 Total 15,667,796 378,156 53.825 15.992,127 Construction work in progress, 4,809,088 719,134 5.528,222 Nucicar fuct - net 333,701 48,600 (24,214)(a) 358,087 lictd for future use 29,069 570 29,639 Dectric plant before reserve.. 20,839,654 1,146,460 53,825 (24,214) 21,908,075 - Less reserve for regulatory disallowances (1,308,460) (1,308,460) Total electric plant 519,531,194 51,146,460 553,825 5 (24,214) $20,599,615 Year Ended December 31,1991 Dectric plant In serv. c: Production. . 510,342,116 5 90.446 511,175 5 510,421,387 Transmission 1,3S8,959 57,829 3,223 1,443,565 Distribution.. 3,190.258 220,796 33,658 3,377,396 General 408,294 26,419 9,265 425,448 Total 15,329,627 395.490 57,321 15,667,796 Construction work in progress,. 4,012,241 796,847 4,809,088 Nuclear fuel - net 311,416 47,678 (25,393)(a) - 333,701 lictd for future use 28,989 80 29,069 Electric plant before reserve 19,682,273 1,240,095 57,321 (25,393) 20,R39,654 Less reserve for regulatory disallowances (1,308,460)(b) (1,308,460) Total electne pla it $19,682,273 51,240.095 557,321 5(1,333.853) 519,531,194 Year Ended December 31,1990 i Dectric plant In service: I Production. 5 3.121,363 5 7,237,355 516,602 5 $10,342,116 - Transmission 1,321,739 68,528 2,852 1,544 (c) 1,388,959 Distribution.. 3,040,114 185,134 34,990 3,190,258 l General 390,718 24,235 6,659 408,294 Total 7,873,934 7,515,252 61.103 1,544 15,329,627 181,957 (c) 4.012,241 l Construction work in progress... 9,915,896 (6,085,612) I Nuclear fuct - net 301,676 7,338 2,402 (c)(d) 311,416 IIcid for future use 25,252 3.737 28,989 Total electric plant. 318.116,758 5 1,440,715 561,103 5 185,903 519,682,273 (a) Other changes to nuclear fuel include 524,214,000 and 525,393.000 deductec for amortization in 1992 and 1991, respectively, (b) Disallowed Comanche Peak re' 'ed costs, (See Note 12 to Financial Statements.) (c) Purchase of minority ownenhi;.nterests in Comanche Peak. (See Note I to Financial Statements.) ) (d) Other char >ges to nuclear f uelinclude 513,709,000 added upon purchase from Ter-La and $11,307,000 deducted for ' I amortization. 75 1 i

TEXAS UTILITIES ELECTRIC COMPANY SCIIEDULE VI-ACCUMULATED DEPRECIATION For Each of the Three Years in the Period Ended December 31,1992 COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F Additions l Balance at Charged to Other Balance i Beginning Costs and Net Changes - at End Classification of Year Expenses (a) Retirements Add (b) of Year Thousands of Dollars Year Ended December 31,1992 Accumulated depreciation.. 53,392,463 5406.088 563,444 55.913 $3,741,020 l Year Ended December 31,1991 Accumuhted depreciation. $3,026,995 1418.899 $60.582 $7.151 $3,392,463 Year Ended December 31,1990 Accumulated depreciation... $2,762,101 $314.044 157,606 $8,456 $3,026,995 (a) Includes depreciation on lignite fuel production facilities charged to fuel and beginning in 1990 decommissioning expense for Comanche Peak. (b) Depreciation and depiction charged to various accounts, including depreciation of transportation and reork equipment, based on estimated lives thereof, are charged to clearing accounts and allocated on the basis of the use of such equipment. t l l r L - I P b' 76 i r

TEXAS UTILITIES ELECTRIC COMPANY SCllEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS For Each of the Three Years in the Period Ended December 31,1992 COLUMN A COLU%1NB COLUSTN C COLUMN D COLUhiN E Additions Balance at Charged to Charged Beginning Costs and to Other Balance at Classification of Year Ex penses Accounts Deducti>ns (a) End of Year Thousands of Dollars Valuation account, deducted from related asset on the balance theet - Year ended December 31,1992 f Reserve for regulatory disallowances. $1,381,145 5 $1,381,145 Allowance for uncollectible accounts. 2,931 4,102 5,820 1,613 Year ended December 31,1991 t Reserve for regulatory disallowances. $1,381,145 5-5- $1,381,145 Allowan e for uncollectible accounts. 2,290 14,226 13.585 2,931 Year ended December 31,1990 l Allowance for uncollectible accounts. 3,141 5 13,670 $14,521 2,290 (a) Deductions from the allowance represent uncollectible accounts written off,less recoveries of annunts previously written off. t 77 i

TEXAS UTILITIES ELECTRIC COhlPANY SCllEDULE IX - SilORT-TERh! BORROWINGS For Each of the Three Years in the Period Ended December 31,1992 COLL'MN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMNF Weighted I Weighted Average Balance Weighted Maximum Average laterest At Av erage Amount Amount Rate Category of Aggregate End of Interest Outstanding Outstanding During Short-term Borrowings Year Rate During Year During Year (a) Year (a) Thousands of Dollars Year Ended December 31,1992 Amounts payable to banks for borrowings $250,000 3.86 % $350,000 $277,306 4.28 % lloiders of commercial paper 139,857 8,069 3.79 Year Ended December 31,1991 Amounts payable to banks for borrowings $250.000 5.77 % $300,000 $229,681 6.51 % lloiders of commercial paper 133,800 35,756 6.84 Year Ended December 31,1990 Amounts payable to banks for borromings (b) $ 35,000 10.00 % $ 35,000 97 9.86 % Iloiders of commercial paper 305,235 86,914 B.53 (a) Weighted averages are based upon daily amounts outstanding and equivalent annualinterest thereon. (b) Bank loan is at a rate at all times equal to the prime commercial lending rate; such loan was repaid on January 2,1991. 78 9

TEXAS UTILITIES ELECTRIC COMPANY SCIIEDULE X-SUPPLEMENTARY INFORMATION For Each of the Three Years in the Period Ended December 31,1992 t COtt MN A COLUMNB Charged to Espenses and Other Accounts Year Ended December 31, item 1992 1991 1990 Thousands of Dollars Tames other than income: Ad valorem $189,411 $176,414 $113,320 Local gross receipts.. 126,849 122,683 112,787 State gross receipts 72,345 71,512 64,570 State franchise. 20,252 49,182 31,481 Social security and unemployment 41,356 38,170 36,938 Public Utility Commission assessment 7,613 7.664 7,011 ' Miscellaneous.. 22,143 18,821 16,146 Total $479,969 $484,446 $382.253 Charged to: Operating crpenses.. $423,505 $437,347 $338,323 Electric plant and sundry accounts 56,454 47,099 43,930 Maintenance and repairs, depletior., amortization, royalties, research and development, and advertising, other than amounts set out separately in the financial statements, are not material. .i i i 79 t 5

p-SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TEXAS UTILmES ELECTRIC COMPANY Date: March 4,1993 By: /s/ ERLE NYE (Erie Nye, Chairnian of the Board and Chief Exetutise). Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Signature Title Date Is/ ERLE NYE Principal Executive (Erle Nye. Chairman of the Board and Chief Executive) Officer and Director l /s/ H. JARRELL GlsnS Principal Financial (H. JarreH Gibbs. Executive Vice P sident) Officer and Director /sr H. DAN FARELL Principal Accounting (H. Dan Fare!!. Vice President and Controller) Officer Is/ T. L. B AKER Director I (T. L. Baker) i p-March 4,1993 /s/ J. S. FARRINGTON Director 1 (J.S. Farrington) /s/ MICH AEL D. SPENCE Director (Michael D. Spence) l /s/ W. M. TAYLOR Director -[ (W. M. Taylor) ~i i /s/ E. L. WATSON Director ) i (E. L. Watson) { I e 80 - i t e A m- -T-- - -}}