ML20039C168

Annual Financial Rept 1980

ML20039C168
Person / Time
Site:	South Texas
Issue date:	03/27/1981
From:	HOUSTON INDUSTRIES, INC.
To:
Shared Package
ML20039C167	List: ML20039C166 ML20039C168 ML20039C169 ML20039C170
References
NUDOCS 8112280533
Download: ML20039C168 (52)

Text

< -

.. +

v-

,,'.?

].9-Y iN fY,M'+ ' ' M Y E'

.as

'.,g,1..-

M t'.". f @ -

'i ~,.if 3

, K ~e,.~. @ % %

%e..

k

' [ ] p. M W

. '. 4 i$k$il};

y

, 4.';

' e

1. y 7..

..., 2 -@. AMgy g

,4

• 1 Ji *,.

.. -N,

w. :

..w

-rp+s CP..,

x

' ht

.1 '

r'"-'

.i

.5,

-.c p;p

+,d.,, f.

-y.

-Y.%. f M* *4.f y,,

~

.,~r, s

f

..f[f P'

,1,hj

/

Le

.w

<r.,.

~ ^. p

,..._(%

4

,-s

_ _ _ ~

'M

. 4 f&.

-~

...~,:

e.

a - m

--+:

'w' v.

• =m.

r-

~

' - 'r

. A t {.

.phm..,

e.. iye D.._

~.

ss _: -

Qah m7 r

7 '",

,gM t,

c ng.,c.

, '... =..

,s

.4-r JI -

..,,e i,g

f. ^.. _ ; g=

,4\\

e,

~, %

'4 p_

j'1.

,l q f,! ' -

t A

c,

).i_

I

", S b*

g.

• h

• %l 4- '

'f

.f * *%

h',

lr g

' E *,. ra

. y, i", " % -

.,.'4

~

,/*

, c m

t m

pu,

c

.... 4,.

1. ..... O.s.

I

. xy

. ~ k & l.

. ),M

. C;sf..

1 wlgg

. L g.5 4f

_ ~. m.,.

y

} }yj l

. :j t:

w. /4 % e~*arw k

~

,~.. _

~

~

.=

.. K A

' ~ -.

g, f,g

.m,

..,?

6

--n a O.+

~

gy. -

E-- -@

.O.

tj s.

m t -

.. ' ;z' z,,

=

- - ' - ~

~ ~ ~ ' ' '

.,p. 4

,(

a-e

,_k,

?

b.

j '

^

.s 3

\\

1980 Annual Report A

?:..

y...L 1.,~..

.g l

e

.A

<^

S

l I

I Houston Industries Incorporated Houston Industries is the parent company of three subsidiaries: Houston Ughting &

Power Company -- HL&P is the nation's sixth largest electric utility in terms of j

kilowatt hour sales. It serves a 5,000-square-mile area which includes Houston, the nation's fifth largest city.

Primary Fuels, Inc.- Primary Fuels is involved in the exploration for oil and gas offshore along the lower Texas Gulf Coast and onshore in the continental U.S. Utility cuels, Inc. - Utility Fuels' principal efforts are directed toward the acquisition and delivery of fuels to electric generating plants. To date,it has operated primarily as a supplier and transporter of coal to HL&P.

About the Cover Houston Industries' three subsidiaries are represented in the photos on the cover. A Houston Lighting & Power Company service truck (top), roughnecks changing pipe at a Primary Fuels /Shell Oil dn!!ing rig (middle) and a UtJIity Fuels coal train streaking southward to HL&P's WA. Parish plant.

1 P

The Report's Headlines The quarterly dividend was raised in January

.] to 67 cents per common share and increased again in January 1981 to /4 coats per share.

Net income was up 14 percent. However, earnings per share were down 3 percent on a 17 percent increase in the age number of common shares l

outstanding.

A three-for-two stock split has been recommended by the Board of Directors for approval by shareholders.

Houston Lighting & Power Company has revised its generating plant construc-tion program.

HL&P was granted two rate increases by the Public Utikty Commission of Texas.

HI Financial Highlights 1980 1979 Dividends Paid Per Share S2.68 S2.36 Earnings Per Share

$4.71 S4.84 Net income (thousands).

$183,901

$161,846 i

Retum On Average Common Equity 13.6%

14.4 %

i Book Value Per Share (year-end)

$35.14 534.62 l

Market Price (year-end closing)

S28 %

$23%

2 l

t

4 i

~

To Our Sharehoklers:

i l

I 4

q N:neteen e:gmy v.as 3 successful year fo earn ngs per sha'e fel;ust short cf 1979's performance.

Net mcome was up 14 percent to 5184 ren The quar'erty dmdond per common share w Is increased from 59 cents to 67 cents n January A second ra se to 74 cents per sha e vcas reade :n January 1951 - a 25 pe'cen' m.c eam :n :he t/ o-year penod Hoe. eve eam1ngs per shee v.ere dae.n to $4 71 from 54 84,o 1979, as a resul ot a 17 percent ncrease :n the average number cf shares outsrand ng i

F:nanc:ng has a: ready begun.n 1981 Most recenty *,ree rn :an shares of common t

stock sere so'd Marcn 6 at 525 25 Substanta: n m! sab vM be rmu red in 1981.,nc ud ng common stock. bonds and pre!crred stock as ma ket ccr d; tons a"ow The Board Has Recommended a Three-for-Two Stock Spht

!n the be et trat a lo'/.er cor share market pt;ce < l rnake the s'ock ma o attractoe arid broaden cur :nvesto' base. the Boara c' D1 ectors has recommended a three-for-teco soM cf Hi s common stock.

7 If approved by shareho'ders at tne annus meet ng May 13. an addtona' share of common stock v. " be issued to sh a'enciders for e'.ery t/.o they cwn as ct Ma / 26.

l The fo orr:g pages v.,: d scuss s g tf, cant de e ooments inat affec:ed Houston c

t

!ndustr es in 1980 Severat a eas. ho/.e.er. dese ve spec:a! r cr't.on here Five Planned Generating Units Have Been Moved Back Two Years I

The comcany s icng-stand:rg program of monccr ng condacns affect ng its ccrocrate oeve'coment has b'ought about a rescheduLng d generatng p! ant ccnstruct cn Como!et on of four ! gnce unis ong na,f schedwed to go en ! ne :n the years 1985.

19861987 and 1988 has been deferred 'cr two years The A' ens Cre9 Nuc' ear Gen-eratng Stat on. fccmerly schedu eo to De cc rp eted :n 1989 is noe. schedu'ed to go in ser/:Ce in 1991 The schedu!ed comotet.on dates of inroe un'is no ; uncm con.truct cn - a v.es'ern coahf'ed un:t and t/.o nuc!ea' un.ts that ccmpr:se tne jo:nty-o/. red Soutn Texas Project - a e not affected by the rev;sica Out:ay for tne former constructon pecgra n was estma'ed at S3 3 b L on for thn three-year perloc 1981-1 933. Tne i vo-year deferment e 1 red ;ce the estmated cost to

$2A bCon. a sum vnch va stn reau re ve y substant< rate reFef as wei as tne ris ng of large ; mounts of capita; in a penod cf Ngh!y vo'at e 'rke!cond?ons l-The concerns of Mcod/s invesirs Serece regard ng our abm:y to trnance the font er ccnstruct:On program ied them to ao/cora'e HL&P s f:rst mortgaae bonds and D e ferred stock in Novembs from Aa to A. These cecur;t 35 contuue to be rated IN equiva'eri to doub'e A by the other ma;or ratng ser<ces. Standard & Pocrt Ccroc<a-t;on and Fcch Investor's Seri:ce

m m,

,. v

.i..,

m a,,u.r <...

. q.

.. r, t_a

. v

+

q7 1 m:

n,-

o' t,

w t : h, g n

.,, r,-

o. ;

,,,r i

.s,a s.

c.

t t

' tt

,\\

l.

[.

. e.m-

,s y,

i

' {,m*

4 e [.,,.

?3,-

r.t.

t d

.m,'

r r

s c

,.,, -,,a

.4

,. s,

m,,

r.. ~. o.

m.4.

(

)..s s

( li g

(

1.

A h

.$1 y

F9.

mp'_

os,

, 1 s

z-,

.'-.(.

r

., e

.k,.

a.

~

. p 4

1 L i 4

.r i

r r.

L.

p

-('

4 6 4

..,,.,, -. n

_e,,,,

..J m.

A 7',.

k b

g e

y

, - h i,' p

. a par ~

i-'s41*

p m.

m.

. v....

o

,, ~$

p)- 9 m

.- q ut.

.t i

m,. :

a 4

q m

s t-

,=

s

'2 i2 -

9

..m r

g..

r, o.

4

,s.-

t.

m s) -

(a 4

a

,, +,

A Load Management VM Be Essential to Meet;ng Area Power Requirements

• 9 p..

,3

.I i

O P

• 4.t t

p g -Pv

• f

/

8\\ h

. -. ~

4 1.t o

,,o_.

. a..

s

.. u

-f L' 4 e

,')

F i

r-r 1

7

(

?

y v~,'ag r,

.<4,*

4.

r p

. ~

n

=

y,

. c.~,<

.rx r.

- 4

. u.

v Q ;-

6 4

e

. m...

3

+

r r3-3,j

> ~

The 1990 Cutoff Date for Gas is Unreakstic and Unattainable 4

7,

.1

. g~, f,-,

. a

7. - -

~., -

r,.

r c

,t ;

. o.

.a.

s ns a

s-t a

~

b i

ir n.... ~I, 1

,t 1.'

r

,, ~..

(. b J

^'

y

, ry'

(

y 1

},.

y 4

n,,r_,

a 4

1 h

,7F T

t y

P

,e r'

T i

f,'

t ag, v.'

4 5

1 p J J s

i.

k, 4

r

?

f

,1 j

r la

..e p

'1 1

g f

, pu y

i

.o m..

The New Administration's Support for Nuclear Power Is Encouraging w

s

~

~

. c.,,

,. c-

.,., e4 p.

- t i

I3 k s

4

[,* *j

' E f

s r

r *

, i 1'

( ;r ri,'

r.

U

/ -. ",

L%.

',y 4

m r,J,i r

,, t

.3 g

w

, j,-

- I, i

s(,

v,t pe \\

p+ *>

3 f -

e 6b,.

.-s. 0,, r f3

.r-->

r u

.t

/

• I i

• ?

4

.. L"'

g 4

f. F /

T,[

O 1

O *-

4

.,ss1

.. -,. s,1 pr e

+

<.c,

,i -,.,1 ; r 3

I. )' h;

[y e :4

,e j l r.+-

j; 7-

!r(

}

r C' I p ; 57 s

i r

, ('y

.>m~

t i r 1 7CQ R -.

n + t 4

a

+

r

+

c h.. +

m/

t,

-.. 4., e, :. r, ~

,e a,-r e

.p s t

~_t,,

a - '

m HI's Finaracial Picture Hover the previous year. Revenues rose 28 perce ouston industries' 1980 earnings were $184 million, an increase of 14 percent earnings per share were down 3 percent from $4.84 in 1979 to $4.71 because the average number of shares outstanding increased 17 percent.

Hl's improved net income resulted from a 21 percent increase in Houston Lighting &

Power Company's earnings to $177.3 million.

HL&P contributed 90 percent of Houston industries' revenues and 96 percent of its consolidated net income. HL&P's revenues rose to $2.1 billion as a result of rate Net income (Millions)

)f 6

?l??

?l??*

?l?$'

?l?l*

?l$$*

Eamings Per Share

,j))j)japygggggy

,a

?

,w

?w

=

l increases granted in January and October, recoveies of increased fuel costs and a 4.7 percent increase in kilowatt hour sales.

Increased fuel costs were the principal factor in the 24 percent increase in HL&P's total expenses of $1.9 billion. Fuel costs amounted to 57 cents of each dollar of the company's revenues.

Primary Fuels, Inc., contributed $3.7 million to Hl's consolidated net income or 10 t

cents per share. This was down from its 1979 contribution of $11.5 million. This decline was primarily because of increased expenditures in an exploratory program believed to have discovered reserves which have not been proved.

Utility Fuels, Inc., contributed $3.5 million, or 9 cents per share, to consolidated net income, down from its 1979 contribution of $4.8 million. UFI's carnings were adversely

j affected by higher general and administrative expenses, reduced interest income and the absence of uranium sa!es in 1980.

H1's return on average common equity was 13.6 percent, which compares to the electric utility industry's average of 11.3 percent. However, this was down from 1979's 14.4 percent. Hl's book value per common share increased to $35.14 from S34.62 in 1979.

The price per share of Hl's common stock on the New 'rork Stock Exchange reached a high for the year of $31% January 11 and a low of $24% February 28. Yteld on a share of common stock was 9.4 percent at year's end.

Return On Average Common Equity 7

l$7?

l$7?

l$1P

!$E' Dividends Paid Per Share of Common Stock

\\

5 i

h.MB JJJBJ2)))))MDBJJJJJJBJJJJ)))B NN NN

?!$

?$N

?$e!

We Increased the Dividend Houston Industries has maintained one of the highest dividend growth rates in the elec-tric utility industry in the past decade. In January 1980 the quarterly cividend was increased to 67 cents per common share. In January 1981 it was increased again to 74 cents per share, equal to an annual rate of $2.96 per share.

Including the latest increase, the quarterly dividend has been raised six times since the middle of 1976, from 39 cents a share to the current 74 cents.

During the 10-year period 1970-1980 Houston Industries had the third largest increase in dividend payments in the electric utility industry. according to a survey by a New York Stock Exchange firm. Hl's annual dividend rate rose 123.3 percent during l

the decade.

Our Dividend Reinvestment Gained in Populanty Houston Industries' dividend reinvestment plan continues to grow in popularity At year's end 5,660 shareholders, or 15 percent of all owners of HI common stock, were participating in the plan. This is a 17 percent increase from the number of shareholders who participated in 1979.

Shareowners may reinvest quarterly dividends and/or make optional cash payments of $50 to $3,000 each quarter for more shares. For information on the plan write: Ms.

Ann Cherry, Vice President and Trust Officer, Texas Commerce Bank, RO. Box 2558, Houston, Texas 77001.

A bill has been reintroduced in the Congress which basically would allow deferment of taxes on the first $1,500 per year ($3,000 for a joint return) of reinvested dividends.

Reinvested dividends have been taxed as ordinary income. Houston Industries is strongly supporting this proposal.

We Were Granted Two Rate Increases 6

HL&P was granted two rate increases in 1980. The latest was placed into effect in October after a September 12 settlement among HL&P the Public Utility Commission of Texas (PUC) and a number of intervenors. HL&P had asked the PUC and the cities it serves for a $214 million rate increase June 30.

The PUC approved new rates designed to increase HL&P's annual operating reve-nues by about $135 million and granted a 15.8 percent return on common equity. It also allowed 72 percent of construction work in progress and nuclear fuel in process at the end of the test year to be included in the rate base.

The PUC also approved an economy rate for low volume residential users. If they use 500 kilowatt hours or less during the summer months they will be billed on the low-er winter rate.

in January 1980 the PUC granted the company an $82 million increase, or about 46 percent of the $179 million requested July 2,1979. The order also provided for a 15 percent retum on common equity and allowed 60 percent of construction work in prog-ress and nuclear fuel in process in the rate base.

Considering the increases the PUC has allowed and the huge capital needs of HL&P's construction program, the company expects to request rate increases at least once a year in the 1980's.

PUC Rate Case Decisions Return Return Requested Amount on Equay Granted Amount on Equity July 1978

$175 m Aun 15.8 %

November 1978

$98 mson 13 8 %

July 1979

$179 maon 15 5 %

January 1980

$82 mAon 15%

June 1980

$214 mucn 16%

october 1980

$135 mson 15 8 %

Our Financing Was Umited Unfavorable market conditions and a downrating of HL&P's first mortgage bonds anc.

preferred stock by one rating agency limited financing in 1980.

Houston Lighting & Power Company sold $100 million of 12% 30-year first mort-gage bonds in June. However, in December HL&P cancelled the sale of $35 million of preferred stock and deferred the sale of $125 million of 30-year first mortgage bonds to await more favorable market conditions.

Moody's investors Service had downrated HL&P's first mortgage bonds and pre-ferred stock from Aa to A the previous month, mostly because of its concern about the company's ability to finance its former construction program in the mid-1980's.

Standard & Poor's Corporation and Fitch investor's Service still rate HL&P's bonds and preferred stock the equivalent to double A.

In February 1981 HL&P changed the terms of its $125 million issue of first mortgage bonds to mature in 10 years. The bonds were sold at an interest rate to yield 14.04%

Houston Industries sold three million shares of common stock in April at a price to the public of $27% per shere and another three million shares in October 9

at $26h.

in March 1981 it sold another three million shares of common stock at a price to the public of $25%.

Because of Hl's substantial capital needs more sales of debt and equity will be made in 1981 as market conditions allow.

Quarterly High and Low Sale Prices on the New

/

/

York Stock Exchange

(

and Composite Tape

/

/

i w

/l f

h j

'/

J'

/

A y

l

/

/, /

l l

HIGH 30';s 31%

31%

30 %

31%

29'y 29 Ts 29%

9973 7939 LON 27\\e 28 %

28's 26 %

24 %

25%

26%

25's DIVfDEND 57 57 57 57 6 7<

6 75 67*

67*

QUARTER Fest S&wnd 7tyd Four'n Forst Second Tivd Favrth

5.VEN,%%%NNftN60*N4%%Na's04t###weve.av..shva.w.O s.ww w w vv'a w wv' O

PAa w.y,%m m... v a m y w w m w.. m..;.m.m m..mK ". m.

i, 4.aw.

g x

/

.4,Y a r.

n y

,4-s.'

... s f

f.

j Y: ~

.k.1, f;:..

'b^

(f.

.Q

$;ghk)

-f fx.,

4,

.. A....

f,~& y

-[-l,;e G + :. }...,

-/ y'. Q. n

_.Q-l L pp.k a : \\',.

- ~

- ~

. 3, - -

.s

. ;p -.

4~

.s w

-..m

. o...:.,.....-,. <. ; -

. e,-.

7, n e

4

, w.,

, 4% f.

.a, 4

a, n.

3 ir.

7,.

2~

4-

,...;5; s

... -. g..

g.4;..,..

.,..m

<m t =- :

. a

, ~,..,.

,e n

.x p

- V.,-

i

.: ni : :

8

-r,..

f

. '.. r.-

. ?..- l - g u-

~.~.:

3

~

3:y +

i;.

-~ - : a

. q w

W.f, -

_.y.,

. f.

.? '..

6'"

- ',., s

}

+.

y, ' ;.:g -

g-

....' L.

p z.,, -. - :

c-m % g $,y :

~.

y p.

...e.

l,,...:.,_

s

~

_. a.s

..u.

~g 4.

' W ' : * ', ; i ?. +.

.s_ L ' pa

~*

.. ?. -..* <.. :,: %

I

..,X, & ~ L.

A ',. -.

y

.,.. - w.

. d.

+

.,.v,......

.g+y-,

t.

,.s gs t

%.. -. ' - -' s- -

g I-

' ~

y:

..g -.. '.. ;,.

,t S'.

g.

asum s

b

'L' s.Y f

' ' 1x '

.l, ;

T,.;,)....-

w[b.-)>~

.k.

W

._-y

- 9.;R y. p

.) -

.L

~

x 3"

g.gga 4p* **

i,n

,.3.s W_. 42.+

• .~",,

g> T},% @; f~

• 3 '.=7 f

J..

e *}. 7

;*/,,b."3 @ '

\\*

b,-.

" ~.:....

s Qf.

s 3

. 4:m ? N 3..':.. %.,. q

.,y.; ~'po f o

9 s

. ag 4

.F.' j*

y -

-_e._

g

m....g

.. g ; $ ?.

a

.A,

e., '.

\\'t,6

=s?

c-

< e+ e,.

2,

3....g.,,,d....I '

d.i.,t,3

~.

.. N:,..E 5

%'t r.. ' --

y

.e

= ~..... y. s..su s s

T 9

,t, y'

a. W 4

.,ee.'. "w. w.

s.

y e.-~.o.

...gw

.=

n.

=.m.-

MN

~

c.

7,,,. V'....

-a

+. s g,)

_s.,

W

,g.

" ? -_.y

/ *.4E.Br em es

- y% g,,-7

~ hg

.(

~',4 }.g /

J,g.

g..

g A

.i ?

\\:E-Aw

% ; ?

'd+

.. l f,.

-4

-J, %m.

' h ;. h: y.,..:

u

. ~, ' "

f k l, ;,. ] (.?

c.

J,,

• r y

. Q' rw_,3....,

.s u_

e van e

."T.'

x.,

W q

-,. -', y[v g -

.<g.s1 W4 --

< ~,

b[,9f.ic 4 4

t,*

'~

.,-e.,.*

.U gly p'

.k,,,

gl '?

>' f

)

" pt.te;-, &s q..,

g a. _,v - -

~,.*

- '..'.w,~..

s

~

f,'

Q' s

(.f,s.Q yl,,. j.

..I '. ' : 8 J-

/

,.. s

.?

s g y'

~

....f,.,.

A

(

..j '*

i _?

.g._,Q.

.-l 4

.n

^

3

.. <, %j'_'-

R

- ;. ~

c e

q-

):,

~

, y.y

.c

'.,.nt c.

. 4

/

9

...,.. j <'.

,., \\. '

.c

,e.,*

i 3 :,

2 4

t,

• >5.,,

2j p.

A e

r,

.?

+

=-

-.'...u,.;*

V u g L, c:.j

.q

v. s -

/..-

s.. -. ;., <

.y

'M

. 1. *. _, }.. -'

m 3

,, ' ',, y?

• L

_' A *

., g... y 7 '.,

. g.g 5

re.

g",a., w E

f f. ;, j '.J ~. ' _

+.y<.r_.a..',-~,'.

,... =.

7

.~ ~

p.,s y*. V

• , ;.,/ ' '

• f..

/ :

P,

",N. '

f.,..

..-. ' \\- _ l

,ss

.;,.. F' * ?

. +

( y,.

O t

e:..

. O

. ' f ",,,..

2....

n

'- l

,.l

'"h.",

y d.

~~.

gl g. l cl

.T.._.-

.x9.y.s !.

y :? n 9,-,. -

r 4

-= -

,. ss

.+ ; - -

- ^

J..

,..l

.. ~. -

}

y-

,,.%)i.-

f

% % '.s,...-...;., -..:

^i

~9 c

t

).. 1.g

'- z.

- ~ ~~

r". -.j.c f V

.h s,9

,=

t d, M - ;., % -.-

2

. ^ '

%s ';;-;:

. t sp.

.,h c

.... 3 c

, ;.o

..,s-.'

-. -.c 3 e i

O s.

.., t. -

. g

. ;j 4

= - ;j -,

...g>. _ ~ --,

,4.. x."

. 7 _..

r

u.. :.: _ -

- : y g

l, G.,

_ :,5 +

+,

.;:..m

..t-f.-

,..m.

. e,

. A.. ~ '.x.. '

w

.-..%.-) :,

-,. 44 s

.s'

• 1

,., 7.,y a.

... -..., 9,,

m-gg.

. i..

4 e... e-p n c g.- v.

^

~

yJ.<

pm.

y

...., -;p 5

s-A-

y.

..e c.f g,.

,. /., 6.... %... L

P. =. +,. '

i:,.

z L '

u% %

L..

l,t 4.

m a

vr t

-l.. ; j $' - +.' 4, '- L n.

.q.-

,: %.. jp 4

-.j-f%.Q.%.p dc2 ?;1.f.Q Qgu - -2.%..p,9M"&f ~

k '

_..u,, ',;

r n

L',,.,[ -, e ;

n..-

7.:..-

. ? 9,y";n..:

y,

,s.,

,x i

- 3 o-

-_Q? ^ '

-n W.

.N 6+.a..

m.1 e 1g, e

fquz : 5 9lMf_"..

. 4 s'

E

.Y

• ' ' w V ; N, N'.-

?.

p..

3 W

-.__(y*

y

.,y

,,, _ _gyyp,

.'f

.,Y

'y l

t

.'hnkV&Od2rTxO:CdN"'sDrEWnCC rC'd% MGWhQQDQMg

.u

- h, Houston Lighting & Power Company

.. }..

,g.

t ye

1. ' e g

.. 3b y

k 4

• r I. _, ~,

t as S'

A.

u i.

1 4

'.h' F

l s

). '

ie 9

s i * %

t a g

i d,';

-. ~

W

... p.,

7 ~ !. e

.,(

i

-. ' y r

i. d " ~ u

• zh - -

b}.. _.

1

/

f.'g '

'l

~~

~^

) $ ~

d

.7 4 -..-...

?

J

. f

_e

+

Y

,,f

+.-

4 m

h i

• Business Actmty Weathered Recession

n. o..

-a m,.

s,,.

,o.e n.>

u,,

4..o-. r

,m-

t.-, +

- r r

. m

~

m

. o..

m.. v.

m.. v t ~ g a. p / Y.-

s

.o s.~

.pb n,,

y.,

t s.v

,,U Lt

- p e

y s

,g u-

v. tyr.

c...

m

~.. L,,c

s..o c _-

(.,.

7 t,.

• r) w;,.-

,s e

a v

]fJ p,. rs. g.

r.,q jQ ]...

• q

.r

<.g, y-',_,

6 4

T

L '[J s

.i, c.p.

i s

v.

,._ _ i.. gg.

_m p<,..,

, c.

x,i e> t ~ <

o" m, n. w> vso T,V_

., w

.s i

o 4 Is 3 3

,,,,t ole nsj s.3, c, t c

~~ *

.-.m r

,.. q +- u < ' - ',

n 2 g. c, i

- -,.<L.,-

i -

a pr ;

,,t75 gr 3 ?. s.

qs.

.- [ g-.,.

y

- a p.

.a.g, m -, p.,,

,,,3 s

s4

,.4 h: y r r.g y,

37, 1 g 3 e, s.mm m..$ on :

tur w

- n :- * <

>o,

.. (-

n a_.

ty _.

v.

. v.,;*

-a gna a

m, u.

g<

. e,.,.

y.,

v.

-; +

r

,s n.

w o_

m..m r

m R n_1, p q r

<-,.. +-

.' y <i s

!, -m.

mk

.v e,-

s o

r mwa - -

2ta c. c r : t ri i.., e' n,

- rp i st g

y. _,.

m_m. f n.ca n.,,r n,

n, < m.., s

~..,

., p,__. o.,

r

(

.v

~t r-r.

7 y

.. m,

.r.,.

a,-m, r.

,g.,

r,s. m-4

.c..

s m_ u, 1 -

.4

+<

m m.

m.

x.

a 4

.f

{7 -r,e F r c i,*: '.

s' r

• Tr.- >. _:' c a..-

r,-

c. o

• s,,-, :,; c

. ^ < - -

.m,,

. c%c.

3 We've Made Major Decisions on Construcuon

m.,, s,

u,, ms. a,,

~., -.

. c, <_.,.x=,,,

n.

w.,,, m.

g,,,,.

~.

.~

s% +

.3. 4.

4 t..,.,g.

o.,.. g,,

, a %.

y,,,

.,., _., 7n,

~,

~

~

c Peak Demand Growth

(

(Magawatts)*

I suu W e

ff P

B'

/

d P

1

(

g 2

---+

• Exc W "q rie-ra te c'm d 8 0*)

8 445 9.114 93%

70 X6

/

?9 76

'377 7978 f979 79M s.

a

,, H, c

..- s3 p m. c...

.o c.

s

m.. i.,, fc

.x. c r.,,., pr a. +._u,r,

,e.

a n,,1, l

r; -

p.,: ;

d. 4 i.

,, e t s

.a r -

.u f f -:

Dy*

C._,

r "_'.-.. *,1, S. s.V.. j

• 7,',: ( ' e f^. (e' r ' f. i' r1

• s.. t a g,, t 1 %_ m.

+ b, r q(g y 4'1

• hr. w-oj v-'r.*>.,m, m

H t...L.

s.

.rr.3

--9 s.

s

-. vv vos ( i r

s 1 @s a, a7 y C9 j p-

, n + r,- -

.4 v& Q

• ev, r,

, -, *'Q1

.,+

e r r3 3. r i ri r e,,3..^*q c n. r d C fs j'I

+

i n

v vs p

y n-1 >

ap

-a

-,a,.d b *,..{ 4..

H:~/ P C N. '

so, k, m

• k" -

y

, i

+r h

z

. MCa qi..

.r e

e a

~2 ss 1

r ~l -

,O.

ar 7 c ~3 ' a r> 7 L'a :- *,,

.?

~ -

i.n. c.a y t ;. n... r-

-~. G,

iq f.t'p L aT' u'*.f} cry,

' r' i.

• ,rr'^

^

e

+..

Y w

a

. a u

,e

,s-

- f !)

,3 f

,7 I r - n. pr. > 7 - +

-f..rc.

r i

• el a

s>

v.

. < ;. c + 7 ;i l j,, + - 1. ;, q.e4 9

>>[yg q r,.., c.

.].

r w

c a

am s

c

.r a

r 1-f 4.) g 7' I W<~,-*;.

f {f

'f f.

'"'N c'

n' D P .-].

,(,' p. ] { l,4 m

1 ie I-9 '

O gg f

.x u

. ~

) {i ~

aC[. ';e,"q _, f

• g 1 (s' r *iFf 7'

sc, I

(n-h

.r'v.3, l

,sq,.

.h 3 hs,

'T l

-..rm s

- /

4 r

.rL.P }

Qi. vy, h

~ ?I_

s

,7 V.,~,,,<,

.rn ?v-s-r e,.

5 9

.e e :,

<1 7..,.

p, TV i r:.s 4

+

w(

e

+r

.n e

^ -A

. t..'a' u' ' ' " '. i L." s..mn C;r q p.'1. r >

,y

+ -.

is4 i.

a

.a i

- n., 2.h c

_,r r

,3 C ra

• m.mn*3 oc c reuv rn 'ma.

i r*

...i.'ir mm' i

o; -.

n2 f Hi.dp

,qe-

• n,- r c.,.

-3 7 A pap rp.. m n a.<w, p t. p -,

O n, d ', r +

4 n,,(4

• Q [p, er, n., p. r qu p.

<v u o

, m v w

.p s v t

a, f is 4 i-

,si g

0

'%~

~- " C . p ? C '! y'.O f,0?'I l l ', %f5 !! F C'+

~; _.,'j ;, (K

'aMi') CaDP' '/ IO 11607 t

s au

, a p. a u.

t c, q a gn.rn,,e,. ", o. ",. : r d, r D' ova (',on m, r v1 i,,t r t.

g

.n i

l l

I Ugnite Units Planned HL&P has four Pgn:te unas in the pianr:ng stage SJe X. ds it 4 ; not, caNd /, i have two 693-megawatt un ts schedu'ed fer corrp:eSon in 1999 and 19N at an est mated cost of near!y $19 b Son The 5gn.te am come from dwests near the p: ant Uthty Fue;s is expected to supp!y tne ! jn.te wJ.h a th-d pmty crg the ac?um m r og A c.tu for the pMt wil be announced :n 1931 Groundbreakng on :ne company s othe tao i go *e uNs is crNiuuJ for 1981 The Limestone Sectnc Generat og Stamn w : hace two 750c mga<catt gene cors sch-d-i s ed for comp!et on in 1987 and 19?,8 The Lmeshne p' ant s.to i~ :n L,me9 ne County.

about l'20 mRes namnest cf Houston.

Coal Unit Progressing l

A fculh co3!-f: red un,t at tre W A Par sh p> t couthe nt cf H;ustm :s on sch ds Un t 8. a GJGnygand!! unerato :s schedu'ed for corrpu on ' 1983 Ur ! 8 " : a "c-I trom the cther three coah' red uns ;n that :! un ha.e a f'ue gas dm.ut t en systen or 'scrutter ~

A!! ens Creek Making Headway O !Ong-awa ted Dub c hearing on ccostruct on of tra Wns D. ek n>

rgeo atng St'i on began danu3"/12.190I l

Service Area Map Popu!ation Scale

-TOMBALL

~*

HOUSTON OTY LIMITS.

WALLER_

'.SEALY D

SADENA 25 000 AND OVER 4

u 15 000 TO 25 000

~

. gAyyowy yy w

3>N'kg,..

10 000 TO 15 000 4,

f

&L 0MARCUE 5 000 TO 10 000

..,c-M l }.'

.)' #,_

M

<g'.

>:f A?

' ). :

-R GALVESTON 3 000 iO 5 000

/ <; y

-l '

[V

p

',,.g <Qi4 : ^ '

..g.,. [. A N

. 2 000 TO 3 000

. :/,[_ Nxf! g&g q&

J h 1000 TO 2 000 VM* 4D4N -

{dQ_

+?g h ~; HAW:. 3 -

M l

s '-.e 4r

- 500 TO 1.000

.) 43;~:y,

- ROSENBERG q %->

3,3 ~,

O TO MO w-gy

' MM

. IM

~

,,1

^

ANGLETON SE RVICE AREA

. LAKE JACKSON.

FREEPORT

\\

' TEXAS' l

l

e f

l i

l l

e 8

'{

4 y;

• y

'h s

.y J

s m

aI A k

D g

i k

, e gy :...

o.

e.

y

}

4".

g

, 1'-

m.

,;g s

y

..... s.

g t

9

.4

.7

~

e-g 4,:

9 ki

+

'y

.e-e.

r

• sp 7)'

..'s

. ' k

(

3

--, p,. '

'v.,

,4' v_

,s s.

'O y.

'.^

Y

. N' v

+

e

• +

T N

'* g,.

.. - - - Jw e

S e

g, 6-

_g, i

"(

~

q

^

'g r.

^ e c

a.

~

w..

,, (

..a s.

... g. '

'+'.

s

,j.*

.e y

A, g.

, m a k el ^'- N E

+

~

-~.

e

-q 1.

e 4

e.

f.'.

w.;

$v,.

g 4

a j

e e.,

9'

~

. 4..

~ -

1 1 ->

a 9,

g

.ve

~

g.

p.

p.

a 3

h'

.E's y

i :.

5.

.g 3

s T

6 9

4 y.

i-.

- 3

+

w t

c c,

f g

J i:.

,.L.

> j t,

4 w

,4 g

w.

, _ e g _ g'fi

{

• Y

?

v t

e '

g g

-. f9

.-. Wj;:. ;,

• g-t g

"e;

+-

I

- y g:

w '

4. -. 3,:_

s

. ;. _. n N

g 4

'T a-y ' \\f f'

. ~

~

+

g,

-e---

y-r ' '

y' e,

e-d' i

g 4

,e,Q s*

p(

g g-I,i I,

a W

I 1

a D

operatonal in 1984 and 1986 However, the vahd ty of these dates and STP's current est: mated comp'eted cost ye now ben] eva!uated, in hght of the effects the suspen-s on of work has had on the pro,ect. The study wd: be comp leted in mid-1981.

On Apn! 30 the NRC erdered HL&P to show cause why safety-rehted work shou!d l

not be stopped unt! the company add'essed NRC concems about the plant's quaSty assurance program.

The order was prompted by an NRC invest gat.on it made in late 1979 and ear 1980 of the effect;veness of the pro;ect s qualty assurance /quaMy contro! prograi '

The report stated that the program was not corrplying wth commiss:on standa*ds. As a re:utt. the NRC f.ned HL&P as holder of the construction bcense of the plant.

5100.000 wnch was pa:d May 23.

Dunng the invest:gaton HL&P and the plant's builder. Brown and Rect...L. vo!untar-cy sicoped comp!ex concrete pours a"er prob! ems were ident.f ted wth some pours.

Comp:ex concrete pours are p'acements in areas where at least 50 percent of the vol-ume is re:nforc,ng stee: Atter more review. safe'y-related structural and p pe weid:ng was atso vo!untanty ha3ed in Apni.

l e tre7:una is the c.m mar see pa:ec on t:,2 ci r~e tu:c va

/

- 1v 5

5l '

l l

i ff0 40 G

'd u

0 1

d-s s

Y p

~

34

, jr; ?%

-V

<r l ',

/

i -

p 1

m A

^

r R

I y g

I, A

..'s u -; c1 m-l I

A 1

i A

f,

/

f j f;

--ap

lf-

./

E

[,

Y

( '

=. -

1; 1

• [i+

es

>' jr' a

F

(

' pf -

s

' h E1 e

".P*

6.j'

• h 3

(b +

,9<

' H

+'(+

q

• p. '

6

• (6 4

J i

,p.

p I

'4' 4

• 94 4

~4

~ #

• U5

+o

s',.

• • 'i'

' i-1 dI. '

' 18 le

't'

' 1' H. wd' Si 9, e

6 g,

4,

~

.y1 a

t a

s -.\\

7:

} -

i l

\\

f 7~

t k

%+? _

l

ns, 6

y

.u y

['d 1

\\\\

~

\\v

\\~

Q*n a

a_iS L:

5 4

\\

/

W.

e We 4h i

[

f..

wu

• $4

$A6

• wo s

%{,

N S hk n

,g 9

.c y.3v, 4 2

J 6Swl x

,,.Vr*-

-+

• Ja 4

m-2 n n' b

e54 M

b g

(j '.c

'g.=

3e o*

4 T '.,E *f f '

., = + -

?l*W$h, ts W ' "-

',r 5i,,p,??

'E?v u%

www qu a c+s:.Q' :

~a M 1.g,'.'.,{u.,r? m-i 4,,. W,';(-,.;,. - n. -

'.I 2,%=-

.,f s

+

(~, p'. 1

+a 3,,wui,s -

s s,.

s.

- - - ~

_ ~_

Our Fuel Mix Is Chang:ng Rapid!y HL&P is mcving stead}y in its efforts to convert its fuel mix from one formerly based entre!y on natura! gas to cua!. hgnde and uranium The Fue! Use Act of 1978 pro-h b ts the company from using gas as a boder fuel af*er Dec. 31.1989 except where some exempt;ons app!y HL&P is strong'y support,ng leg s! anon to amend tre Act so natura! gas can be bumed in eust ng gas-f, red p! ants through their useful Lfe The projected fuel mix for l

1993 assumes that the Act wd be amended Coa l and bgnde are going to p!ay a greater ro!e in the fue! mix :n the 1980's HL&P bumed ready 5 8 mion tons of coa! in 1980 to account for 17 percent of.ts fuel mm In July Utey Fue:s began dewering coa! to HLSP trom a Spr:ng Creek Coal Comca-ny rnne near Decker. Mon!ana HL&P's other source of western low-su' fur coal is a Kerr-McGee mine near Gmene. Wyoming. When its fourth coa:-f; red un:t becomes operat: anal in 1983. HL&P expects to be burning about e:ght moon tons of coa! a year.

wh ch e d be 23 percent of the fuel m:x tnat year I

I HL&P Fuel Mix w, a e.an w

J J

.c n

N

.Y

)

18 bn. co Coal transportat on costs cont;nue to be of concern to HL&P Dunng 1980 coal hau!-

ing rates charged by Burhngton Nortnern radraad from Wyom:ng rose from $17.93 to 52170 a ton. a.most twice the cost of ine coa' at the m:ne. Bur!.ngton Northern was charg ng $22.73 a ton at the end of the year to haul the Montana coal in Februry tre company was denied a heanng by the U S Supreme Court on its appea' of increased rates imposed by Burkngton and approved by the Interstate Comrnerce Comm;ss!on.

The company's plans to use Texas bgnde at m:ne-mouth pl ants wdl provide some re'ief from h:gh coal hauhng rates When aN four lignite un:ts are operat;onal in 1990. HL&P expects tu be burning about 13 rrdon tons of hgn.te a year Togetner. coa! and Lgnite are projected to account for 38 percent of HL&P's fue! reautrements that year.

Ofs share of the fuel mix is nct expected to change s:gnificantly as long as ade-quate supphes of natural gas are avadab!e. Od wu represent a sma!! percentage of the fuel mix in the 1980's.

Uran;um wn! not become a factor in HL&P's fuel mix unt! 1984. By 1990 uranium is projected to represent a 6 perctri share of the fuel mix.

l The percentage of natural gas in fuel mmes of the 80s wdl gradua!!y decrease as other so! d fuel units are brought on line The average cost of fuel continued to rise in 1980. from $1.71 per moon BTU in 1979 to $2.06 in 1980 Fuel costs are expected to continue to nse in the 80's.

l We Must Buy Power in the SO's HL&P v.i!! have to purchase substantial amounts of pov,er to ma:nta:n acceptable reserve margins dunng most of the 1980's.

i This has come about as a resu:t of delays in scheduled complet'on dates of a num-ber of generat ng un:ts and the extension in the in-serwce dates of five of HL&P's generating units. The company has considered 15 percent an adequae resen<e to ensure rehabGty To mainta.n at least this lesel. the company has entered into purchased power agreements with two Texas utot:es in Juiy HL&P s;gned a contract v.;th City Pubhc Serwce of San Antonio to purchase varying amounts of generadng capacdy over a six-year period on an as-needed basis. HL&P can buy 200 to 500 megawans of capac:ty dunnq the years 1982 through 1987.

In December the City of Austin agreed to increase the generat:ng capacity avadab'e to HL&P from 500 megawatts stputated in an eart>er agreement to 800 megawatts, and to extend the former agreement two years through 1987. HL&P bought substantial amounts of energy from Aust:n dunng the record hot summer er aas

% oa 72% Gas i % os ss% ass r % ou m

J Q

m m5 w

19

/

3%

6%

W. Cw &

2n Cav

%ciear w ear L gMe 3% Cos Both contracts serve the same purpose as if the capacity were instaHed on HL&P's system. The company is now looking for more sources of purchased pov.er for the late 80~s.

Load Management is Atop Priority Pursu;t of an aggressive load management program has become critica!!y important to HL&P, in hght of the changes in its construction prograrn Successful load management and energy conservation programs can help ho:d down peak demand growtn whicn reduces construction costs and fwaing.

Recognizing this, a Load Management Department was formed in June to work fu!!

time developing programs to control peak demands beyond those the ccmpany has employed. The department is now actively considering 19 separate prcgrams for con-trolhng peak demands A voltage reduction program wiU be started in the summer of 1981. It wd! be imple-mented only dunng cotical load penods. Voltage reduction is expected to iower peak demands by 250-300 megawans The department has begun an experimental program called "SHED." Rad:o com-mands from H:.&P's Energy Contro! Center wi!! ra:se settings of set up/ set back tner-mostats instaHed in a test group of homes and businesses dunng hours of peak usage in the summer of 1981 to reduce air conditioning loads. Its effectiveness in iowenng demand wi:1 be evaluated after the summer

Dr s,

n 4

i,l 4

g, l

.g

,,.,j- -,

i

• e 9 +, y M-iI

-8.-.

i_e m

J')f *.

l$$

, J.j Y ^ -

, Q,

~3

<~ ??- - ~,.

i+'*

. ;g :..

, pe ;

s e w;; -

1 '.';

e E*4'O)F,fq'r;.g

.e

~

i: A% '%

.,.c ?4 p4: :Md

e n u.

e gg;^ m O

.,,.s

- hl A'lt" ' l!!w j 't $ th '. P.*,

h*

1 "t3' p

u I

'?

k

r y

s a

5,c t x

.f

~

'i~b

~

x P

-e %,

w:

,-3,

aw -.

%::

y e

c s.c.

'll

'g' hy y

g' g~ S

,l

? kN[E

' L v-

-~1, n;h

~

.t

~.

w.

a; A W-

-p id A. J 4

i

~ f 1

6

.F:

s

~%

I e

A,.rTJr 4-

-=

7,%.

-_,.p

.f S.-

e T :. %l p.

,..y...

N

$..M g..

.g N *

'd' n.

'l

• ~

.t c./g l

. ~

,+

6,-

c. 3,

+.

I e

• ,.6

'd

)

p s

g p.

1 5

'4; 9. 3 1

o,'+

6 h

s

,Q

.g

s....

- m 4

.:.. l O

I.

? -! +

4

.s..

g

-e

.g 4

.3

.u -.

h 4

• w

., t ',, 'E j

~

..l g

i. '.

,..t

.a'.

U'

.'.L.

og y

A

, *( A a

3 4

p.

• .,, -s

.. '$,'-lM[d.

a

. av

=,

','4

.s.i,,.

9

...:4

+,

,'.c o

7'

' s

.a 4 4

-.ks.

^

~

• g,

x...

I

.g g

i f

f

I

'?'

4 ~

<n

. g 2

Nt

,.e p.

1 A'

f'

..' ',.. W ~.++

e

! N tj i,

'f b

ge

.g

~,

vy. :;e h-

~

,, yy

=

[,7.

6

.g

,0 fc1

.A

v....

y EI

~3j

7. 5.,

g.-

N

-_.__a 1.-

^

J Mb

_y'

.9' sa;y@gg '-

me

, fG 3,*;f, 4

w n

~-by* fTQ(s

$$.., kj$-.

"w i:

n dy a,

y%

(

-4 o-

?%

sk u

[

yi b

+

sgg

~

_ m u

~

. g g iy gp t g'm..

, #"NG WE F

a@

J

.m

', t.N$@M; H[Wu, :bh1 D.

=

i

+-

Y mp%s j'" %

=

g kjhh$h l:8

~

T$

di$fM48 i

m

%o,,Q rfkkN

~~:

w

• +w_

f*

<a

.3 u

s k

m

~*Nhy:ji, x:

ylt',

b

~

^

l

+

n w

tb

~;\\

.l?$

'.,,y

_,fS&*'

s-m, -

x-gv Q' __.

y n*

• f^

v Sc ng N

-~.-

w..

d M

g e

y n.

Y%,

,y 6

u's 5"

i.

.. m

~

'O+ipl>l~'

, h Q

T j

,4 s

a.

s

.t.sg

- - - M Q'

i

.g g%

- te"g u

3<

jy:,

. x.r s

-=

w e

h B.

y "k' k GS e - [.

' or e K n,y n, ev.

V s% 3.v 7 ay.,

..dr T

Vf

~'

J

'2 3

~ -

.Q.

p 4

3 R

.+

A

=

x n

M

.s

~-*

b o

f,# ~

.?<w f'.a Wh' g-

'}.

f.

,,t

~~

74 ". *

• • 1 s

"}

,,g e,

,4 p-m.

t s ";

2; M eg Va**

4 g

s

• q

-p

.N, h 6

a-a

+

.w-sr '.

c rn +,'ty.sh<

4 a

Primary Fuels, Inc.

~

~

i:.f

~

.t l

v nmary Fue's' producton and earn:ngs were ct Mm 1979 PFfs yvenues were 540 4 rMon compare to $40 9 mRon in 1979 Net income was 53.7 m.aon con pared to $11.5.,iw 'a 1979 Th s was a conin-but.on of 10 cents to Hfs earnings per share compared to 34 cents per share the

-j prewous year.

~f Product.cn tota"ed 14 teon cub:c feet of gas and 204,000 barre's of cd and condon-fj sate. comcared to 17 bd.on cub:c feet and 227.000 barre!s in 19N Average daly pro-y duct or was down to 37 mnca cubic fee

• of gas frorn 47 mdon in :379

[

d Net income was down for severai reasons [ Depreciation. dep'eton and amortzation

ncreased $9 5 mSon Ths was the resu;t of a substantalinvestment in wels and

' ~

w equ pment in its pa inersn p w,th Shel Od Corroany.

s ~

PFi snvested $41 mNon in the SheH cartnersh:p in 1980 whJe revenue from produc-t,on was less than 5800.000. Th:s cispanty is due to the fac! that signbcant market-ing of od and gas cid not occur in1980 More wens and pipekne facd.t es must be 27 comp'eted tt start markedng of tne 11 neu fields discovered curing 1980

~..,]%

H gher cents of borrowing p'us more debt increasea in+erest expense by $1.7 m.

hon, whde c! der proport es and intaton increased operatng exoenses by $2.1 maan d

7 -

~

PFfs per share contr buton to Hfs earn:ngs was aQo down because of 'he 17 3.,

percent increase in the average number of shares culstand ng.

- - q.

Gas wa; Md dunng Decembe at an average pnce of $2 87 per thousand cubic m

Primary FtNis Net income (Millions)

AW

+.

L2 i

w k.,

/

i l

4 y

'd..i i

j n

a p

f.;

m 4

517 ws 174 56 '

t? S 1980 T979 1973 7977 1976

~

feet, a"er a!! transponatnn charges and otner ad;ustments 03 and condensate were seHg at 526 38 per barre! This compares Mh 52 29 and $14 07 resocctve!y for gas and od in Decerrner 1979 Gas and condensate from El Gordo the most product;ve of PFfs n;ne offshore f. elds. accounted for about 73 percent of its 1980 production

H:gher pnces boistered PFI s !ncome from :ov,er producton Primary Fuels renegoti-ated its contract effectrve Aon! 1 with Houston Pipe!a,e Company. v.hich buys au of El Gordo's natura! gas The amended contract enabtes PFI to obta:n the maxirnum price atov.ed by Federa! law for its gas Offshore Activity Primary Fueis has a 50 percent interest in a jo nt ot! and gas exp!crat:on and prcJuction venture be:ng conducted offshore a'ong the Texas Gu:f Coast. At tne end of the year.

33 of the 64 wSs drned since the venture began v.ere commercia! producers and 30

/.ere dry tc:es One wen was being dnu d e

At year's end. PFI had a 50 percent :nterest in apprommately 71.000 acres of offshore ! eases acau; red from the State of Texas and 5.800 offshore acres under l ease from the Federal government PFI acqu; red 11.600 acres of offshore ; eases in 1980 Aporommate!y 12150 acres Mi enre in 1981 Of the 1980 acreage about 25 percent

' as hefd by productior, Primary Fuels Gas Production (Billions of Cubic Feet)

I i

w tt O

57

))-

49 95 110 17 1 14 0 197E 1977 1978 1973 1960 Pnmary Fue:s has dnileo three we! s on the Federal tract Addtonal weMs and piat-fctms are p!anned for 1981 Product,on from C ear Fie'd began in March 1931 PFI has an active program for exp ;nng and deve!ap:ng the rema:ning State acreage The following table is based on reports made to ca.

Primary Fuels by Mi!!er and Lents, Ltd., independent condensxe oil and cas consultants.

Q'

[a u[c d

(MMCF)

(Barrels)

Prysed Developed and Undeseope : Reserve -

As of January 1.1979.

88.666 1.035.094 Revisions of Prevous Estirna'es 4 621 101.048 Extensons. Dscovenes t.d otner Additions.

4.613 771.353 Producton (17.064)

(227.071)

As of January 1.1980.

80.83_6 Proved Developed and Undeveloped ReseNes

-.. _ - -1 680_424 As of January 1.1980 80 836 1.680.424 Revisions of Prevous Escrnates.

(3.302) 98.549 Extensons. Dsco<enes and other Additons 5 895 172.832 Product;on (13 666)

(204 352)

As of January 1. Ld1 69.763 1.747.453 Proved Deveiced Reserves As of January 1.1979 88.666 1.035 094

{

As of January ?.1980 80.679 1.598.532 As of January 1 %1 45.378 1.538.001 l

l

i Onshore Activity Primary Fue:s signed an agreement wdh Shell in 1978 to be a 1:m;ted partner in She!Fs ed and ga; exploration and product:On in most of the continents U S At year's end, PFI had parti, ated in dn:hng 152 m ils with She:! Fony-fNe were commercial producers.

13 were beng tested 32 were be ng dn!led and 62 were dry noies The investment PFI made in the SheJ program in 1980 reflects the add t cnal money required to doi! s ery deep and d ft4cu:t prospects today.

PR beheves that the Shel prcgram provides access to good prospects that wai be very important to Pr: mary Fue!s in the ne<t few yea s. Therefore, despde the sub-stanDa! investment made in 19S0. PFI has exerc: sed its optron to rema:n :n the pro-gram in 1981 Primary Fuels Offshore Acreage n. xa

. r4h'y ~f',dk_'.JR424GiEK3i2L"PW

&Q HOUSTON g

l GAL.VESTON 29 s

Q VICTORIA -

8, l

\\

OO

.\\

f a

CORPUS CHRISTI p

D D t

D MATAGORDA O

' ISLAND a' D=

0 e'.

EP o

O D

5 o a D

mm k

6

- w,. _

me m

. m me w.

4

' MAW 3

~

• r j-

-b

_9

+

.c

-.4%

g?. '

.{

.-h ff r-r b

i

~4 j-

=

,c p ~.

' 6..,.

~%-

9

,2 c.

A ;/+.

L-

..p.

s

• ne I, 4

. 4'

Utility Fuels, Inc.

y t

• Ni

4 s

Ffs net income was S3 5 milhon, do,*.n f rom 1979's $4 8 mdon This was

"%. m.

a contrtuten of 9 cents to Hfs eam ngs per share compared to 15 cents per

~L share in ;979 To date UFl has operated priman!y as a suppher and tran-sporter of coal to HL&P under an agreement syned in 1978.

UFFs undertaking tnis funct on saves money for HL&P and its customers This is because :t can take advantage of f,nancing arrangements not avadable to HL&P because of its f.nancial requ;rements as a ut,l:ty In addition. UFls making the substan-t:a! investments needed to supply fueis recuces HL&P's capital requ:rements, wh:ch has a pos;tive effect on HL&P s f.nanc'a! viab;hty UF! began dehvering coa; to HL&P from Montana in July Uthty Fue!s has a 25-year J

contract w:th Spnng Creck Coa! Company for 181.1 mimon tons of coah in Anr;' t f

extended its contract witn Kerr-McGee Coal Corporat>on for 40 miihon tons et mal through 20rJ3 The contract v ou:d have exp; red in 1980.

Together tnese two contracts assure a supply of western low-sulfur coat for F SP's coal-f: red units through the turn of the century UFI delivered 5.8 m: hon tont i coa! to HL&P in 1980 Wren HL&P's fourth coa!-ftred unit is corrp!eted in 1983 Uthty Fuels e

4 expects " be sh;pping about 8 moon tons of coat a year to the W A. Pansh plant.

F Ut.tv F.

s is no.y bu;!d og add 1

onal coal handhng f acaties at the p! ant to accom-modo.e the fouth coal unit urider construction tnere. The coa! handhng facMes wn 31

~

cost about $42 mdon.

In October UFI como'eted !everaged lease agreements to acquae /20 ralcars and p!ans to acqu:re another 440 :n 1981 through add,tiona! l ease agreements. These acquis:tions vJ increase tne number of raucars in UFfs f,eet to 2.520 v.hich is almost 23 un;! tra!ns.

Whde western low-su;for coal represents al of Ur s fuel suppiy act; vites at th1s t.me.

Utsty Fuels w li actua1y be dehvenng more Lgnite than western coal when HL&P's four planned kgnite un:ts are on !.ne.

UFl Coal Deliveries (Millions of Tons)

Y 2:.d@;

m s,p 4&..g

~ eg.

e

..-a

. u,...,

=

. 4, y

{

Q am ti -

71978 06 58 28 1980 1979 i

UFl has a contract s, +n Nocre.estem Resources Comoany (NYM) for a supphe of ' g-1 n,te to fuel HL&P's Limestone E:ectnc Genera'ng Strcn. Work..c! tmg;n to 1981 on Ltmestene s tv.o un:ts. ".h:ch v.u! need about 240 m.on tons of Lgn te c er the:r ue e

NWR v. : do the mining and rec!amat:oq wrk for UFl U:. ty Fue;s v,0 spend about 511 mean dunng 1981-1983 for n*ng, transpa"%on an:1 fue! hand ;ng fac6 bes to sence L:mestone_

Uranium UFI has a sma9 uran,um m:n ng cperation cn an 80-acre ' case >n the Shir:ey Bas:n near Casper. Wyo:nna Nea4 80T000 pounds o's,elov. cake ha'.e teen maae ava ;at:0 to UFl from urara-

/

um ore nWed near tre m ne through tne end of 1980 The amount of gov. cake the comoany exoects to get from the pro,ect cou'd pro.:de the eau:% Jent cf inree years o' fue: re'oaas for a 1.200-megae.att nuc: ear p an' Utdity Fuels Operati'ns MONTANA SPRiJ3 CREEK WE KEPR *.fcGEE p.* ?.E v

WYO%NG x

URA=;'uv of *4E NEBRASKA

COLORADO, unsAs y'

niit Rcu!E l

w M

\\

OKl. AHOMA.

NEW MEX:CO j., 3 79,.g HOUSrON

,\\ A PARCH TEXAS PiANI 4

W

~.

1

(

Financial Section l

l 1

e i

l

Operatirog Statistics of HL&P Year Ended December 31, 1980 1979 1978 Operating Revenue (Thousands of Dollars):

Residential.

S 628,599 5 453,354 S 367,730

}

Commercial.

436,360 350.000 274,081 Industda!

951,546 790,715 593,251 4

Street Lighting - Government and Municipal 9,257 6,634 3,608 Other Electnc Utilities 98.353 78.898 57.359 Total 2,124,115 1,679,601 1,296,029 l

Miscellaneous Electric Revenues (158) 27,971 7.575 Total S 2,123,957

$ 1,707,572 S 1.303,604 l

Electric Plant Investment (Thousands of Dollars):

Gross Addibons.

678,646 532,619 491,107 Total Plant Investment 4,560,660 3,900,935 3,386,463 Accumulated Depreciation 678,717 591,465 512,604

% of Total Plant Investment 14.9 15.2 15.1 Generating Statistics:

Steam Electric Stations Economy -

Btu Per Net KWH Generated 10,284 10,285 10,223 Turbine Name Plate Capacity (MW) 11,607 11.056 11,056 Maximum System Load (MW)*

10,266 9,336 9,114 I

34 Electric Plant in Service Per KW of Maximum System Load ($)

323 305 296 General Statistics:

Kilowatt Hour Sales (000).

54,803,619 52.360,503 50,275,767 Number of Customers 1,035,023 968.291 891,509 Average Residential Use (KWH) 14,219 13,522 14,734 Average Residential Revenue Per KWH.

5.00*

4.09c 3 36(

Average Cost of Fuel (Million BTU) 205.9c 171.0c 126.2c

• Excluding interruptible demand

-v.-.

..r-l Five Ysar Comparison of Selected Financial Data Tne following 'able sets farth selected financial data with respect to the Company's consohdated financial condition and resu!ts of operat: ens and should be read in conjunction with the Consolidated Financial Statements and the rela.-

ed notes included elsewhere herein.

(thousands of dollars, except per share amounts)

Year Ended December 31, 1980 1979 1978 1977 1976

. Revenues.

$2.3G /,264

$1,854.159

$1,349,438 51,095.561 5 851,174

, Net !ncome 5 183,981

$ 161,846

$ 128,657 5 125.636 5 105.314 Earnings per share.

$4.71

$4 84

$4.21

$4.41

$4.01 Cash dividends declared per common share

$2.68

$2.36 52.12

$1.8G

$1.61 Return on average common equity 13.6 %

14 4 %

13.3 %

14.9 %

15.0 %

' At year-end:

Book va!ue per common share

$3514

$34.62

$33.04 S31.14

$28 27 Market price per common share

$ 28h S 29P8

$ 274

$ 30%

$ 31%

Market price per common share as % of book va!ue.

81 %

84 %

83%

98 %

112 %

' At year-end:

Total Assets.

54.432.938

$3.834,697

$3.314,671 52,719,865 52,289.982 Long-term debt of subsidianes

$1,604,337

$1,497,390

$1.377,646 S:,074.980

$ 950,310 Capitahzation:

Common stock equity 44 %

41 %

39%

40%

40%

Cumulative preferred stock 7

8 8

10 9

Long-term debt.

49 51 53 50 51 35 100 %

100 %

100 %

100 %

100 %

Total Capitahzation Capital expenditures:

Construction expenditures (excl AFUDC) 5664,843 5523,477

$498,482 5441,566 S309,775 Oil, gas and mining expenditures 5 66.975 5 39,879 5 32.102 5 24,690

$ 15,869 HL&P se!ected data:

Percent of construction expenditures financed interna!!y from operations 37 %

39%

39%

40%

49%

Ratio of earnings to fixed charges.

3.54 3 62 3.61 4.08 3.97 l

AFUDC as a percent of net income.

24 %

29%

24 %

20%

16 %

i

Management's Discussion and Analysis of Financial Condition and Results of Operation.

General However, Pnmary Fuels' eamings in 198r were adverseiy The Ccmpany's operatng results have been mixed over the affected by substantial expenditures in ; oil and gas explora-last three years because of the negatve pressures of increas-ton program without the estabhshment af significant proved ing construction expendaures dunng the periods of high in-reserves in December 1980, based on a January 1,1981 f!aton and errate e'ectnc sa!es due to uncerta'n economic reserve study of Primary Fuels' independent od and gas con-cond. tons, weather and energy conservation. Rate increases.

sultants, an adustment for depreciaticn, depletior, and amorti-which have been appmved and implemented aooroximate;y zaton of approximately $8.000.000 was charged against once each yeac, have atlowed HL&P to keep pace wth its ser-income. In addition, gas sa!es dId not keep pace with vice area's immediate needs for power, but its overa!! finan-ncreased opeutng expenses This factor coup!ed wth the cial cond, ton has detenorated since the mid 1970's.

increase in the Company's average shares outstanding.

The portion of HL&P's construction program that was caused Pnmary Fuels' contnbution to the Company's earnings financed from interna!!y generated funds from operations and in 1980 to d;p to 10F per Wre UtMy Fuels' contract wth interest coverage dechned dunng 1980, reflectng the 25%

HL&P is a cast-plus conte. a!!owing Utsty Fuels to recover increase in const uctan spending and the substantial its c_st p!us a fixed retu'n on its net investment. The reduction increase in interee! rTa HL&P's retum on average con N1 in Uthty Fuels' contnbuton is pnncipally due to the increase in equity has improved somewhat dunng the past two years the Company's average shares outstanding and less miscel-pnncipa!ly as a resuit of $89 mdhon of rate rehef rea!ized in laneous income than in 1979.

1979 and $106 milhon in 1980. Nevertheless, as discussed under " Supplementary Informaton to Disclose the Effects of Revenues. As shown below, the majonty of the increase in Changing Pnces', electnc rates have not kept pace wth inf '

electnc operatng revenues has been due to the recovery of tion. As a resu!!, HL&P has been unable to earn the returns on increased fuel costs through fuel adystment clauses.

common equity granted by the Utuy Commission in its rate

% of Revenue increase Arnoutable to orders HL&P's authonzed returns on common equity for 1979

~

Recovery of and 1980 were 13 8% and 15%, but the actual returns were increased Rate increased 131% and 13.4%, resoectvely.

comparatwe Penods Fuel Costs increases KWH Sa'es Another indication of the Company's general financial con-1978 v 1977 73 %

5%

22%

dition is the porton of net income attnbutaba to the a'!owance 1979 v 1978 63 %

2X 15 %

1%0 v 1979 m

2%

12 %

36 f r funds used dunng constructon (AFUDC). A!! hough AFUDC, a non-cash tiem, rose steaddy in 1978 and 1979 Increasing construct on expenditures to meet load growth because of increases in construction actvity and increased and comply wth federal requirements for the conversion to AFUDC accrual rates due to h:gher costs of capital, the a' ternate fuel sources, coupled wth inflationary pressures, has amount of AFUDC in re'aton tc net income dechned in 1980 required HL&P to seek rate increases more frequently As a i

due to the a:Iowance of larger portons nf construct;on work in resu!!, new rates have been placed in effect in each of the progress in rate base by regulatory authonties and the p'ac-past three years. KWH sa'es increases have averaged 6%

ing in service of tne W. A Pansh No. 7 coal-fired unit.

over the last three years, contnbutng to the growth in reve-Net income for 1980 wac 14% higher than for 1979, but nue. This growth ra'e is lower than expenenced histoncally due to a 17% increase in the Company's average common due to some conservation by customers and, in 1980, eco-shares outstanding, earnings per share decreased by 13 nomic cond1tions affecting the larger industrial customers.

Cents. HL&P's contnbution to the Company's per share earn-E,ecause of the widespread use of a!r condsoning, weather ings ref;ects a increase of 18 cents whde Pnmary Fuels' and also s:gn6 cant:y affects KWH sales in the HL&P service area, Utdity Fuels' coninbutors were down 24 cents and 6 cents primanly in the residential class. An unseasonably mdd sum-per share, respectively. To he!p finance new construction,6.7 mer negatively int!uenced 1979 e!ectric usage. However, ;.cl mdhon shares of additonal common stock were sold in 1980 extended heat wave in 1980 caused residentiel KWH usage with net proceeds of $175 mdlion and $100 miikon of First to attain record levels and average usage per residential Mortgage Bonds, resu!tng in part in the improvement at customer increased from 13.522 KWH in 1979 to 14.219 December 31,1980 in the Company's capitahzabon rabos KWH in 1980.

Gas sa!cs by Pnmary Fuels decreased by 20% dunng 1980 as a result of decreased demand and a normal dechne in Results of Operation productve capacity as compared with an increase of 54% in Earnings for HL&P increased in each of the last three years a 1979 over sales levels of 1978. Decreased sa!es in 1980, a result of sa!es growtt and rate increases, but were adverse-ly affected by rapid esca!aton in operatnn and maintenance however, were almnst comp!etely offset by increased pnces.

costs and nsing interest rates. Although fuel expense has Fuel & pense. These costs have nearly doubled since 1978.

nearly doub!ed since 1978, earnings were generally unaftect.

The increase in the pnce of fuel and, to a lesser extent, ed due to adystment clauses in the elecinc service rate increased KWH generation are the contnbuting factors. The schedu!es rapid increase in fuel costs has contnbuted to the increase in The contnbutons of Pnmary Fuels to the Company's earn-HL&P's average residential revenue per KWH from 3 4< in ings were 24c and 3* per share in 1978 and 1979, respec-1978 to 5 U in 1900 The increases in cost of coal sold for tive!y, pnmanly as the result of increased sales of oil and gas.

each year are due to larger coa! requirements by HL&P for its

W A. Pansh plant. HL&P brought new coal-fired units into HL&P expects to finance a portion of its construction pro-sennce in each of the years 1978 through 1980.

gram through funds generated interna!!y from operations "9

9"'"

Purchased Power Expense The increase in these costs capital requirements from intemal funds include regulatory

'eflects purchases of economy energy from other uthtes in practices a!!owing a substantial portion of construction work in Texas' progress in rate base, adequate depreciation rates, full recov-Operahng and Maintenance Expenses. Cperation and main-ery of the cost of fuel used in the generaton of e!ectricity and tenance costs have increased 58% over the last three years the opportunity to eam compettve rates of return. It is pres-because of general inflationary pressuren, the use of larger, ently estmated that during the next three years 30% to 35%

more compbcated generating and poHution control equtpment of HL&P's construction program can be financed through the and substantial increases in labor costs. Increased rehance use of interna!Iy generated funds from operations assuming on coa!-fired power plants has added significantly to the cost HL&P can obtain rate rehef on a tmely basis at a level

@f operaton and maintenance The employee work force has comparable to that most recently granted by the Public ocreased by about 21% over the last three yea's as a resu!t Ut:hty Commiss:on.

d increasingly complex construct:on and business activ?es, The remainder of HL&P's constructon program wi!! be Edditional government regulati3ns and the growth in the num-financed through proceeds received from the sale of com-ber of customers being served mon stock by the Company and the sales of preferred stocks and long-term debt by HL&P HL&P's capitalizaton rabos at Non-Operat,ng items. AFUDC is an amount represent.ng the December 31,1980 consisted of 48% long-term debt,7%

cost of funds used to finance construction projects and is preferred stock and 45% common stock and retained earn-capitalized as part of the cost of the asset. AFUDC is a non-ings with similar rabos expected to be maintained in the cash item of net income and represents a cost recoverable future. Pnncipally because of HL&P s large caprtal require-l rom customers through provisions for depreciaton in future ments, Moody's investors Service, Inc. lowered its rating of pencds Increases in amounts for AFUDC not only corre-HL&P's First Mortoage Bonds and Preferreo Stock in 1980 spond to increases in construcuan experires, but also to from double A to ' single A, however, two other ratng agencies ncreases in the AFUDC accrral rate a"d the level of invest-continue to rate HL&P's securites doub!e A. As a result of ment in corttructon that is not eaming a cash return. Since such downgrading, HL&P expects retabvely higher cap;tal January 1979 AFUDC has been computed on a net of tax costs in connecton with its future sales of long-term debt rate closely fo!'owing tne rising cost of capital. The AFUDC and preferred stock.

eccrual rates for 1978 through 1980 were 6 5% 7.5% and Utaty Fuels and Pnmary Fuels finance the:r respective capi-RS% respectvely Effectve January 1,1981 HL&P began tal requirements independent of HL&P Capital requirements tccruing AFUDC at a rate of 9 25%.

of Uthty Fuels are expected to be financed principa!!y throtgh in the Utity Commission's f:nal order relatng to HL&P s sales of long-term debt and from leveraged leases, both 1979 rate case, the recovery of its investment in a uranium involving guarantees by the Company Primary Fuels' exploration project was d:sanowed. As a result,58,9R000 expenditures for 1981 are expected to be met from intemally was charged aga:nst other income in December 1979.

generated funds, short-term borrowings and, possib'y, sales of producton payments.

Liquidity and Capital Resources For information regard 4ng bank knes of cred;t and short-The capital requirements for 1980 and as estimated for 1981 term borrowings see Note 5 to the Consohdated Financial through 1983 are as follows:

Statements.

millions of dollars 1980 1981 1982 1983 Construction and nuciear fuel (escluding AFUDC) 5637 5709 5783

$964 Radroad cars. coat handong facat es and hgve mtning and handhog fa:Mes 31 53 29 9

04 and gas e,pioranon and devercoment 53 71 Matunt;es of longaerm debt 8

28 8

17 Tota!

$729 5861 5820

$990 Constructon and nuclear fuel expenditures represent est-mated costs of HL&Ps constructon program. The estimated expend:tures for railroad cars, coal handkng facilities and lig-nite mining and handling facihtcs are planned e> pend;tures by Utility Foeis in connection with HL&P's major generating stat;nn projects. Primary Fuels' expend;tures for oil and gas exploraton subsequent to 1981 cannot be eshmated until the results of its 1981 exploration and development program are known.

l l

l l

l Statements of Consolidated Income (Thousands of Dollars) l Year Ended December 31 1980 1979 1978 Revenues:

Electnc

$2,123,957

$1.707.572

$1,303,604 Coal sa:es 202,953 105.686 20,823 Oil and gas 40,354

/0.901 25.011 Total 2.367,264 1.854.159 1,349,438 Expenses:

Electnc:

Fuel.

1,206,872 958.112 682,261 Purchased pcwer 29,995 8,440 4,753 Operattori and maintenance 301,065 245.368 190,110 Taxes other tnan income taxes.

80,856 72,853 62.251 Cost of coal so!d 180,373 82,170 15,489 Oil and gas operating expenses 8.883 6,755 5,449 Depreciation, depfetion and amort:zat:on.

129,483 109,445 81.010 Total 1,937,527 1,483.143 1,041.323 Ope,at:ng income 429,737 371.016 308.115 Other income:

Al!owance for other funds used during construction 32,735 31,928 17,029 Other - net 3,057 (3.792) 2,689 l

Tota!

35,792 28,136 19,718 Fixed Charges:

38 Interest on long-term debt 129,139 107,447 87,140 I

Other interest.

16.566 11,992 7,566 l

Allowance for borrowed funds used during construction.

(18,302)

(20,205)

(11,639) l Preferred dividends of subsidiary 20,042 19,765 17.330 l

Total 147,445 118,999 100,397 income Before Federal Income Taxes 318,084 280,153 227,436 Federal Income Taxes:

Current.

10,466 5,925 (3,074)

Deferred Liberabzed depreciation.

39,507 32.316 34.511 Investment tax credit - net.

43,685 57,758 50.833 Oil and gas 11,286 6.014 7,117 Other - net 29,159 16,294 9.392 Total 134,103 118,307 98,779 Net income

_S_ 1_83,981

_ _$ 161.846_

~$_128,657 Eamings Per Common Share

$d.II

~

$4.8d

$U1 i

Weighted Average Common Shares Outstanding (000) 39,075 33,437 30,590 1

See Notes to Consolidated Financial Statements.

l

! Statesseents of Osanges in Consolidated Financial Position (Thousands of Dollars)

Year Ended December 31, 1980 1979 1978 Sources of funds:

Operations:

Net income.

$183,981

$161,846

$128.657 Items not requiring an outlay of working capital:

Depreciation, depletion and amortization 134,009 110.462 82,303 Deferred federalincome taxes - net 79,952 54,624 50,929 Investment tax credit deferred - net.

43,685 49,634 44,380 Allowance for funds used dunng construction (51,037)

(52,133)

(28.668)

Total 390,590 324,433 277.601 Common stock dividends (105,148)

(78,637)

(64,458)

Reinvested funds from operations 285,442 245,796 213.143 Financing:

Sale of cornmon stock.

175,272 134,350 65,090 Sale of preferred stock 29,573 Sale of first mortgage bonds 100,000 125,000 225,000 Sale of secured notes and capitalleases 31,552 65,000 PoHution control revenue bonds 5,000 2,274 16,926 Change in notes payable and temporary cash investments 88,015 49,052 (44,496)

Reclassification to current matunty of long-term debt (29,605)

(7,530)

(3,930) 370,234 332,719 323.590 Other:

Decrease (increase) in working capital (exclusive of 39 notes payable and temporary cash investments) 73,180 (18,559) 3,563 Other - net.

2.962 3,400 (9,702) 76,142 (15,159)

(6.139)

Total

$731,818

$563,356 5530,594 Application of funds:

Construction and nuclear fuel expenditurec and lignite advance (net of allowance for funds used dunng construction)

$664,843 5523,477

$498,492 Oil, gas and mining expenditures 66,975 39,879 32.102 Total

$731,818 5563.356 5530.594 Increase (decrease) in working capital (exclusive of notes payable and temporary cash investments)

Current assets:

Cash in banks S

337

$ 2,084 S (1,657)

Customer accounts receivable.

20,394 5,614 16,675 Fuel stock and materia's and supplies (9,088) 32,142 27.217

__ 10,890) 3,348 6,782

(

Other Total 753 43,188 49,017 Current liabilities:

Accounts payable 26,509 7,037 35,660 Taxes and interest accrued 9,124 5,921 2,663 Couent portion of long-term debt 22,075 3,600 3,930 Other 16,225 8,071 10.327 Total 73,933 24.629 52,580 Increase (decrease) in working capital (exclusive of notes payWn

$ 18,559

$ (3,563) and temporary cash investments).

_$ (73,180)

See Notes to Consolidated Financial Statements.

l Consolidated Balance Sheets (Thousancs of Donars)

Assets December 31, 1980 1979 Property, Plant and Equipment - At Cost:

Plant-Pioduction

$1,881,347

$1,578,928 Transmisson 333,698 299,483 Distnbution.

879,551 779,741 Genera!

214,849 183.144 Construction work in progress.

1,143,102 972.526 Nucbar fuelin process.

104,947 83,947 Coa! hana:ing equipment.

109,835 81,358 Electnc plant acquston adystments.

3.166 3,166 Oil, gas and mirung property.

196,364 129,226 Total 4,866,859 4,111,519 Less accumulated depreciaton, dep!eton and amortization.

735,550 622.656 Property, piant and equipmerit - net 4,131,309 3,488.863 Current Assets:

Cash in banks 13 027 12,690 Temporary cash investments, at cost 2,000 52,129 40 Work:ng funds and special depos:ts.

5,382 5.269 Accounts receivable:

Customers 84,247 63.853 Others 22,652 22,578 Fuel stock:

Oil, at average cost.

66,364 47,843 Coal, at Lfo cost.

23,277 50,015 Matenais and supphes, at average cost.

32,107 32,978 Other 3.239 14.316 i

Total 252,295 301,671 l

Deferred Debts -

49,334 44,163 I

Total

$4,432,938

$3,834.697 i

I l

l i

l l

l l

[

l i

See Notes to Conschdated Financ al Statements.

l 1

Consolidated Balance Sheets (Thousands of Doitars)

Liabilities December 31, 1980 1979 Common Stock Equity:

Common stock, no par; authorized 75.000.000 shares; outstanding 42.644,520 shares at December 31,1980 and 35.952287 shares at December 31,1979 (1.097,999 shares reserved at December 31.1980 and 1.063,062 shares at December 31,1979 for conversion of SW% ccovert.ble debentures due 1985)

S 767,137

$ 591,865 Retained eamings.

731,406 652.573 Total 1,498.543 1,244,438 Preference Stock - no par; authonzed, 10,000.000 shares; none outstand:ng.

Cumulabve Preferred Stock of Subsidiary (statement on following page) 243,518 243,518 Sh% Convertible Debentures due 1985 (convert.ble into common stock of the Company at a rate of $35 98 a share at December 31,1980 and $37.55 a share at December 31,1979).

39.506 39.918 Long-Term Debt of Subsidiaries (statement on following page).

1,604,337 1.497.390 Total 3,385.904 3.025.264 Current Uabihties:

Notes payable 126,500 88,614 Accounts payabie 149,174 122.665 Taxes accrued 33,525 26,206 4

Interest accrued 31,110 29.305 Accrued liabihties to munic:pa!; ties.

45,557 36.008 Dividends declared 5,010 5.010 4l Current porton of long-term debt -

29.605 7,530 Other 23,147 16.471 Total 443,628 331,809 Deferred Credits:

Accumulated deferred f ederal income taxes 332,556 252,176 Unamortized investment tax cred:t.

244,704 202.148 Other 17,761 14.931 Total 595,021 469.255 Property insurance Reserve.

8,385 8.369 Commitments and Contingenaec l

Total S4,432.938 53.834.697 See Notes to Consclidated Financial Statements

Statenserats of Subsidiaries' Preferred Stock arid Long Terne Debt (Thousands of Dollars)

December 31, 1980 1979 Cumulatwe Preferred Stock - no par; authonzed 10.000,000 shares; outstand:ng (entitled upon invoiuntary liquidation to $100 a share)

Houston Lignting & Power Company:

54 series,97,397 shares.

S 9,740 9,740 S6 72 senes,250.000 shares 25,115 25,115

$7.52 series 500,000 shares 50,225 50,225

$9.52 series 400,000 shares 39,372 39,372 59.08 senes,400.000 shares 39,395 39,395 58.12 series,500,000 shares 50,098 50,098

$9 (M series 300.000 shares 29,573 29,573 Total S 243,518 S 243.518 Long-Term Debt Houston Light:ng & Power Company:

First mortgage bonds:

3%% senes due 1981 S

20,000 5

20,000 2%% series due 1985 30,000 30,000 3%% senes due 1986 30,000 30,000 4%% sones due 1987 40,000 40,000 3% series due 1989.

30,000 30,000 47/:% series due 1989 25,000 25,000 4h% series due 1992 25,000 25,000 5%% series due 1996 40,000 40,000 42 5%% senes due 1997 40,000 40,000 6%% senes due 1997 35,000 35,000 6%% series due 1998 35,000 35,000 7W% series due 1999 30,000 30,000 7%% senes due 2001 50,000 50,(Te0 7W% series due 2001 50,000 50!00 8%% series due 2004 100,000 100.000 10%% series due 2004 100,000 101,000 8%% series due 2005 125,000 175,000 8%% series due 2006 125,000 1;:5,000 8%% series due 2007 125,000 125,000 8%% senes due 2008 125,000 125,000 9%% series due 2008 100,000 100,000 11%% senes due 2009 125,000 125,000 12% senes due 2010.

100,000 Total 1,505,000 1,405,000 Pollution control revenue bonds:

7%% senes, due 2004 18,000 18,000 9W% series, due 1998 19,200 19,200 9.9 'o senos, duc 1998 5,000 Ut:hty Fue's. !nc.:

9% secured notes, maturing $7,200 annually through 1988.

54,200 61,400 Variab!e rate secured note, due 1983 9,800 Capitahzed lease obhgations 21,752 Other.

990 1,320 Subtota!

1,633,942 1,504,920 Less current maturities 29,605 7,530 Total

$1,604,337

$1,497,390 See Notes to Consolidated Financia! Statements.

Stateneents of Consolidated Retalened Earreirigs (Thcusands of Dollars)

Year Ended December 31.

1980 1979 1978 Balance at Beginning of Penod.

S652,573 5569,364 S505,165 Add - Net income.

183,981 161,846 128,657 Total 836,554 731,210 633,822 Deduct - Common Stock Dividends.

1980,S2.68: 1979, S2.36; 1978, $2.12 (a share) 105.148 78.637 64,458 Batance at End of Period

$731,406 5652,573 5569,364 See Notes io Consohdated Financial Statements.

Notes to Corisolidated Financial Statesseents For the Three Years Ended December 31,1980

1. Summary of Significant Accounting Policies Oil and Gas Property System of Acmunts The full-cost method of accounting is used for oil and gas The accounting records of Houston Lighting & Power Compa-operations. According!y, ai! costs of acquisiton, exploraton, ny (PlaP), the principal subsidiary, are maintained in accor-and development of properties are capitalized. Depreciaton, dance with the Federal Energy Regulatory Comrnssion's Uni-deptetion and amortzaton of these costs are determined on form System of Accounts which have been adopted by the the unit-of-production method based on the est mated proved 43 Public Utaty Commission of Texas (Utlity Commission).

reserves of oil and gas propertes. Depreciation, depleton and amortization amounted to $20,895,000, $11,350,000 and Principles of Consolidation

$5.737,000, or $1.40, S 62 and S 48 per equiva!ent unit-of-The consolidated financid stements include the accounts production for the years ended December 31,1980,1979 of the Company and its whally o.vned subsidiaries. HL&P, and 1978, respectvely.

Primary Fuels, Inc. (PFI) and Uthty Fuels, Inc. (UFI). Coal sales and related cost of coal sold represent UFl coal sales to Allowance for Funds Used During Construction HLaP and are not e!!minated because of the distinction for Prior to 1979, HL&P accrued AFUDC at a rate of 6W% on regulatory purposes between utlity and non-utAty operatons.

projects estimated to cost in excess of $50.000 and estimat-All other significant intercompany transactions and balances ed to require rnore than 90 days to constuct. During 1979, are eliminated in consolicEtion.

HL&P accrued AFUDC at a 7W% rate, net of federalincome taxes, on construction projects and nuclear fuel payments Plant except for amounts included in the rate base by regulatory Additions to electric plant, reduced by contnbutions in aid of authonties. Effective January 1,1980, the accrual rate was construction, betterments to existing property, and replace-increased to 8W%, net of federal income taxes. The borrowed mants of units of properly are capitalized at cost. Cost funds component of AFUDC, before federal income taxes, is includes the original cost of contracted services. direct labor reflected in the Statements of Ccnsolidated Income as a and material, indirect charges for engineenng supervision and credit to fixed charges and the other funds component is similar overhead items, and an allowance for funds used dur-shown as other income.

ing constructon (AFUDC)-

in 1980, UFl began capitalizing interest apphcable to qual-Maintenance of property and replacements and renewats ifying assets. Such amounts are included in the borrowed of items determined to be less than units of property are funds component of AFUDC in the Statements of Consoli-charged to expense. The actual or average book ccst of units dated Income.

of property replaced or renewed are removed from plant and such costs plus removal cost, less salvage, are charged to Revenues - Electric accumulated depreciation.

Revenues are recognized from the sale of electricity as bills HL&P and UFl compute depreciation using the straight-line are rendered to customers. Rate schedufes include fuel mathed. The depreciation prcvision as a percentage of the adjustment clauses wnich perrnt recovery of fuel expenses depreciable cost of plant was 3.6% for 1980 and 1979 and in the mona incurred.

3.3% for 1978.

Federalincome Taxes

$38.251,000 min > mum l ease payments at December 31 Since January 1979, the Company has followed a policy of 1980 is approximately $21,752,000, at an assumed discount comp:ehensive interperiod income tax a!!ocahon Pnor to Jan-rate of 7 4%

ua'y 1979. deferred income taxes were not recognized on the The issuab!e amount of HL&P first mortgage bonds is borrowed funds component of AFUDC which is deducted unkmited as to author zation, but hmited by property, earn-currently for federal income tx purposes.

ings, and other provisions of the mortgage and deed of trust investment tax cred:ts e.,e deferred and amortzed over the and the supplemental indentures thereto. Substa?tia4y all estmated hves of the related property.

properties of HL&P and UFl are sub;ect to hens secunng their long-term debt.

Property insurance Reserve The cost of replacing uninsured pr nt losses of HL&P, less

5. Short-Term Financing. The intenm financing requirements a

re!ated tax effects, are charged aga!nst the reserve when of the Company's operating subsidianos are met through incurred Effectwe January 1980, additional accrua!s to the short-term bank loans and the issuance of commercial paper, reserve have been denied by regulatory authonties The subsidiaries have bank lines of cred4t aggregating

$410.000.000 (as compared w:th $315,000.000 danny 1979)

Earnings Per Common Share wnich limit their total short-term borrowings and provide for Earnings per common share are computed by divid:rg net interest at the pnme rate. Bank loans and commercial paper income by the weighted average number of shares outstand-outstand;ng were $78.300,000 and $47,330,000 at December

ng dunng the respective penods. Common stock equiva!ents 31,1980 and $57.100,000 and $30,42000 at December 31, outstanding dunng the penods d:d not have a matenal ddutive 1979, respectively. Compensat.ng balances are not requirea effect on eamings per share under the lines of cred;t.

2. Common Stock. At the 1980 Annual Meeting cf Share-

6. Retirement Plan. The Company has a noncontnbutory holders, a resolut.on was approved to amcd the Art:cles of retirement p!an covenng substantia!!/ all employees. The incorporation to increase the authonzed common stock, with-pohcy of the Company is to fund pension costs accrued, which ot,: par value. from 50,000,000 to 75.000.000 shares. Com-includes amort:zation of pnor serxe costs, over a period of nu stcck issued Junng 1980,1979 and 1978 amounted to thirty to forty years.

6.692,233 shares,4 963,185 shares and 2,260,866 shares, The total cost of the Comparr/s rehrement plan for the respectively years 1980,1979 and 1978 was $7.563,000, $6.223,000 and

$4,773,000, respectively In 1979, the assumed return on plan

3. Preferred Stocn. Any part or a!! of HL&P's preferred stock investments was increased to 7% and the plan was amended M

may be redeemed at the option of the Company at the fo!!ow-to provide substantia!!y increased benefits for a!I plan partici-g per share poces. plus any unpa:d accrued dividends to pants. The net effect of the change and amendment wd :o date of redemption-increase prior service costs by $14.210,000 and pension

$4 Senes - $105 00 $6.72 Series: through July 31,1983 -

costs accrued by $1,400,000 for 1979. As of January 1,1980,

$103.51: thereafter - $102.51. $7.52 Senes. through October actuana!!y computed pnor service costs were $34,047,000. A 31,1%2 - $105 35; thereafter - $103 35 to $102.35. $9 52 comparison of accumulated plan benefits and plan net assets Senes: through September 30.1985 - $109 52; thereafter -

for the Company's retirement plan is presented below:

$105 00 to $10100 $9 08 Senes: through March 31,1981 -

Actuarial present value of accumulated plan benefits.

$109.08, thereafter - $105.00 to $101.00 $8.12 Senes.

tnrough November 30,1982 - $109 37; thereafter - $106 25 to

1. " 9 '-

$102.25. $9 04 Senes: through January 31,1984 - $109 04 1980 1979 thereafter - $105.00 to $101.00.

Vested

$49.280,000 549.139 000 Nonvested

_ 179 000 2.341,000 4

$53,459.000 551 480.000

4. Laag-Term Debt. At December 31, t980, sinking or

== -

= = = =

improvement fund requirements of HL&P's first mortgage

{3

"{3SgS

$67,272.000 550.680 000 bonds outstand.ng wdl be $27.850.000 for the year 1981,

=-

=

==

$28,700,000 in 1982 and $29,700,000 for each of the years 1983 through 1985 Of such requirements. $15.050,000 for

7. Commitments and Contingencies. Significant commit-the year 1981 and $14,850,C00 for each of the years 1982 ments have been incurred in connection with HL&P's con-through 1985 nay be satisfied ty certfication of property struction program and for nuclear fue purchases. The con-add:tions at 100% of *he requ:rements and the remainder svuction program (exclusive of AFUDC)is presently througn certification of such propeqy add,tions at 166%% of estima!ed to cost about $691 mdlion in 1981, $759 mdhon in the requirements. Sinking or improvement fund requirements 1982 and $947 mdlion in 1983 An addit,onal $60 mdlion for 1980 and poor years have been satisfied by certfication of is expected to be spent for uranium concentrate and nucle-property additions.

ar fuel processing services for HL&P's South Tem and Annual matunties of long-term debt are approximately Allons Creek nuclear ptws. Commitments in connection

$27.530.000 in 1981, $7,530,000 in 1982, $17,330,000 in with HL &P's construction program, principally for generat-1983, $7,200,000 in 1984 and $76.706.000 in 1985. At ing n! ants and related f acihties, are generally revocable by December 31,1980, the future minimum lease payments HL&P subject to reimbursement of manufacturers for under the UFl cap.tal leases are $2,075,000 for the year 1m1, expenditures incurred or other cancellation penalties. In and $2.334,000 for each of the years 1982 through 1985, and addition, dunng the 1981-1983 period, UFl expects to

$26,840,000 thereafter through 1997, The present va!ue of the sprod $79 milhon for coal handling equipment and railroad

ca s in order to serve HL&P's W. A. Pansh plant and $11

11. Supplementary Expense information mi!! ion for transportation equipment and lignite mining and Year Ended December 31 handing facihtes for HL&P's Limestone p; ant. PFI expects 1980 1979 1978 to spend approximately $71 minion on exploratory and development actvities during 1981.

Thousands of Dotars UFl has entered into fiaancing arrangements fc: Coal trane Taxes, othem, income portaton equipment which are treated as capital leases for taxes wrW to financ:al account og purposes. The Company has no other exPe" es-E n maWailease commitments.

Sta'e gross rece pts.

20,717 16 M4 12.686

8. Jointly Owned Electric Plant. H' &P is ptoject manager Payroil.

7.467 6.189 4 897 and one of four participants in the Soutn Texas Nuclear PUC assessment.

3.671 2.885 2.079 Pro;act which consists of two 1250 megawatt nuclear generat.

uscaana.

6.315 5 069 4 458 ing units. Each participant financs its ovm share of construc-Total.

80.856 72 853 62.251 Tax a in s N and tion expand:tures w:th HL&P's partcipating interest in the project being 30.8%. As of December 31,1980, HL&P's share

[ [ses 5.081 3.778 2.399 of expenditures included in constructon work in progress and Tota: taxes otner nuclear fuel in process were $450 mi!! ion and $39 milhon, inan income respectively taxes

_$85337___._s76.631_

___564 650

9. Regulatory Proceedings. As part of the Uthty Commis-deveiopment costs sion's f:nal rate order in January 1980, the Utlity Commission charged to e,penses

$12,146 s1032_

_s _8.77_5 disaHowed HL&P's re ;uest to amc tze its investment in a ura-nium explorabon project terminated in October 1978. As a

12. Unaudited Quarterly information. The foHowing un-result, $4,661,000 (net of federal income taxes) was audited quarterly financial informaton for 1979 and 1980 cha ged against HL&P's income iri the month of December includes, in the Company's opinion, a!! adjustments (wtlich 1979. A number of accounting changes were implemented compnse only normal recurring accruals) necessary for a by HL&P in January 1980 as a result of the Utdity Commis-fair presentaton.

sion's January 1980 order. Such changes include (1) the capitahzation of ac d, rem taxes related to construct:en Eamings work in progress (2) the capitalization of employee benefits Net per 45 and depreciaton of transportaton equipment related to N9 "h

Re e s-construct.on and (3) the d:scontnuance of accrua!s to the reserves for property insurance and injuries and damages.

Thousands d Donars March 31.1979 5385 216 $ 73 063 $30.755

$ 96 June 30.1979 448. % 2 85.599 36.E76 1.11

10. Federal Income Taxes. Effectrve federal income tax SepMber 30,1979 550 987 129.037 60.998 1 84 rates are lower than statutory corporate rates for each December 31,1979 468 994 83 317 33,417(o) 95 year as follows:

March 31.1980

.59.107 70.288 29 176

.78 June 30,1960 581.425 93.890 39.892 1.03 September 30,1960.

755.713 169.937 79239 2 01 Year Ended December 31 December 31.1980 570.817 95 622 36.674(c)

.86 1980 1979 1978 (a) Quarteriy earnings per common share are based on the weighted average number of shares outstanding during the quarter and the sum Irtcme before federat of the quarters may not equal annua! eamings per common share mome taxes

$318.084 5280 153 5227.436 Preterred dmdends or (b) See Note 9. Regulatory Proceedings" regarding the December.1979 subscary.

20.042 19.765 17.330 charge against HL&P's income Tota!

338.126 299 918 244.7E6 (ci See " Management's Discussion and Ana!ysis of Financial Cor.4 tion Statutory rate 46%

46%

48%

and Results of Operations" conceming the December,1980 charge Federal income taxes at against PFI's income statutory corporate rate 155.538 137 962 117.487

13. Reclassification. Certain amounts from previous years Reducion in taxes have been reclassified to conform to the 1980 presentation of gj the financial statements. Such reclassifications are immaterial and do not affect earnings.

funds used dunng cor struc9en 15.058 14.687 13.761 Other - net 6.377 4.968 4.947

14. Other. On January 5,1981, the Company's Board of Total.

21.435 19 655 19.708 Directors recommended a three-for-two stock split and an Federaanccme taxes

$134.103 5118.307

$ 98.779 increase in the authorized common stoch from 75,000,000 to E9ecve rate.

39f%

39'A%

AU 4g 125,000,000 shares. The stock spht and the authorization to

~

increase common stock are subject to shareholder approval at the 1981 Annual Meeting of Shareholders.

At Cacember 31,1960. the Company had an investment tax credit carryover On February 10,1981, HL&P issued $125,000,000 of of approximately $8.570.000.

13?'8% First Mortgage Bonds due February 1,1991.

On March 6,1981 (subsequent to the date of the aud: tors' such proceeds were not immedately so used, they were tem-opinion) the Company so:d 3,000,000 shares of common poranly invested in short-term interest beanng obhgations. As stock at a public offenng pnce per share of $25.25. The net a result of the safe, the conversion pnce for the outstandng proceeds of the sale were invested in the common stock of Sh% convertb!e debentures was changed from S35 98 to HL&P and were used by HL&P to defray the cost of its con-

$35 25 per share and the number of shares of common stock struction program including the repayment of short-term debt reserved for conversion for such debentures was increased incurred in connect:on with such program. To the extent that from 1,096.697 to 1,119.4N AUDITOR 5' OPINION Houston Industries incorporated:

We have examined the consolidated balance sheets and the statements of subsidiaries' preferred stock and long-term debt of Houston Industries incorporated and subsidiaries as of December 31,1980 and 1979 and the related statements of consolidated income, consolidated retained earnings and changes in consolidated financial positon for each of the three years in the penod ended December 31,1980. Our examinatons were made in accordance witn generally accepted audtng standards and, accordingly, included such tests c' the accountng records and such other audtng procedures as we considered necessary in the circumstances in our opinion, the above-mentoned consolidated financial statements present fairfy the financial positon of the Company and subsidiaries at December 31,1980 and 1979 and the results of their operatons and the (flanges in their financial position for each of the three years in the period ended December 31,1980, in conformity with generally accepted accountng pnnciples applied on a consistent brcis.

DELOITTE HASKINS & SELLS Hcuston, Texas February 16,1981 Supplementary Information to Disclose the Effects of Changing Prices (Unaudited) 46 Financial statements of business enterpnse, in accordance with generally accepted accounting pnnciples, reflect histoncal costs and do!iars of varying purchasing power and accordingly do not measure the effects of inflation. The fol!owing unaudited supplementary information is supphed in accordance with the requirements of Financial Accounting Standards Board (FASB) Statement No. 33, Financial Reporting and Changing Pnces, for the purpose of providing certain information regard >ng the effects of both generalinflation (constant dollars) and changes in specific pnces (current cost),

which are not reflected in traditional financial statements. Constant dollar amounts represent histoncal costs stated in terms of do!iars of equal purchasing power, as measured by the Consumer Pnce Index for all Urban Consumers (CPI-U).

Current cost amounts reflect the changes in specific pnces of property from the date the property was acquired to the present and may differ from constant dollar amounts to the extent that specific pnces have increased more or less rapidly than prices in general. This information should be viewed only as an estimate of the approximate effect of inflaticn rather than as a precise measurement.

The Company's principal subsidiary, HL&P, in common with other electnc utikty companies in general, continues to be adversely impacted by the effects of an inflationary economy. Certain effects of inflation such as higher interast costs associated with long-term bonds and increased operating and maintenance costs are reflected in traditiorW financial statements. Increased revenues to recover such expenses, however, tend to lag behind the actual incurrence of such increased costs. Electoc rates are established based on costs as of a specific point in time and are designed to al!ow the e!ectric utility to recover its operating costs and earn a fair rate of return on its investment in property, plant and equipment. However, in a highly inflationary environment, expenses have increased at a much greater rate than the increase in e!ectnc sales which has resulted in an erosion of return on invested capital it is unLkely that rates based on histon-cal costs can keep pace with increased costs dunng inf!ationary penods. This has resulted, in part, in the need for larger and more frequent rate increases.

There are a number of other effects of inflation which are not reflected in traditional financial statements and to which the accompanying supplementary information is intended to give offect. One major expense so affected is depreciation.

The cost of construct!ng and replacing property, plant and equipment has been escalating dramatically. Histoncal financial statements reflect depreciation based on the historical costs of assets and do not reflect the true economic cost of the asset "used up" and which must be replaced at substantially higher future values However: L substantial amount of such assets are financed with long-term bonds and preferred stock which effectively acts as a hec'ge against the impact of inflat on. Utikty plants financed from investment by common shareholders and retained earnings are not afforded such a hedge. While a certain amount of the impact on such depreciauon is reduced through higher returns allowed on the common equity investment in property when electnc rates are established, the end result of continuing inflation is an erosion of the common shareholder's investment when viewed in terms of real purchasing power.

I The Company has made signficant increases in the common stock dividend over the last several years. Actual annual cash dividends have increased from $1.61 in 1976 to $2.68 in 1980. However, when restated in terms of average 1980 dollars, the dividend increases appear much more modest, going from $2.33 in 1976 to $2.68 in 1980. It is significant that the common stock dividends, in real terms, have been able to keep pace with inflation over the last five years, a period of very high inflation. When restated in terms of average 1980 dollars, the last three years annual dividend rate was $2.68.

While this ind cates that no real growth has occurred in common stock dividends, the purchasing power of common dividends has been maintained.

Statsment of Consolidated Income Adjusted For Changing Prices For the Year Ended December 31,1980 Constant Current (in Thousands of Dollars)

Dollar Cost Conventioral Average Average Historical 1980 1980 Cost Dollars Dollars l

Revenues.

$2,367,264

$2,367,264

$2,367,264 Expenses:

Electnc.

1,618,788 1,618,788 1.618.788 Cost of coal sold.

180,373 180,373 180,373 l

Oil and gas operating expenses 8,883 8,883 8,863 Depreciation, depletion and amortization 129.483 227,942 239,251 i

income taxes 134,103 134.103 134,103 Fixed charges and other income - net 111,653 111.653 111,653 Net locome (excluding reduction to net recoverable cost)

$ 183.981 85,522*

74,213 Increase in specific prices (current cost) of property, plant, and equipment held dunng the year * *

$ 637,939 j

Less increase in cost of property. plant, and equipment adjusted 47 j

for changes in general pnce level 745,144 Excess of increase in general price level over increase in specific prices (107,205)

Reduction of utihty property to net recoverable costs (329,671)

(204,446)

Gain from dechne in purchasing power of net amounts owed 286.744 286,744 Net

$ (42,927)

$ (24.927)

• Including the reduction to net recoverable cost, loss on a constant dollar basis would have been $244,149 for 1960

" At December 31.1980. current cost of property piant and equipment, net of accumulated deprecia!>on was 57.022.944, whde histonCal Cost was

$4131,309 Property, p! ant and equipment as referred to in the accompanying data includes utshty plant in service, land land nghts and property held for future use, nuclear fuel in process, construction work in progress. Coal handhng equipment and oil, gas and I

mining property The constant dollar information was determined by adjusting histoncal amounts by the ratio of the average level of the CPI-U dunng the year the assets were acquired or constructed to the average CPI-U index for 1980. Current cost of utihty properties was determined pnmanly by indexing surviving plant by the Handy-Whitman Index of Public Uthty Construction Costs. Oil and gas properties were restated to current costs pnmanly by adjusting historical costs by externa!!y developed indexes for onshore and offshore properties. Current cost information does not represent the rep lacement cost of the Company's productive capacity since plant would not be replaced precisely in kind, but rather are an approximation of the current cost of existing assets.

The constant dollar and current cost provisions for depreciation were determined by applying the Company's historical depreciation rates to the restated property amounts. Restatement of depreciation, depletion and amortization of oil, gas and mining properties was computed by applying histoncal unit-of-production rates to the restated property amounts.

As allowed by FASB No. 33, items in the income statement, other than depreciation expenses, were not adjusted Tfie cost of fuel used in electric generation and operat;ng and maintenance expenses are essentiany stated in terms of average current year prices and therefore do not require restatement.

In accordance with FASB No. 33, federal income tax expense has not been adjusted. Currert federal income tax pohcy recog-nizes to a certain extent the effects of inflation. Uberahzed depreciation allowances and the investment tax credit accelerate capital recovery However, as the statutory federalincome tax rate has remained stable the effective rate has increased signifi-cantly as a result of the declining purchasing power of the related taxable income. The Company's effective federalincome tax rate in 1980, when adjusted for inflation, ic 56 percent under constant dollar and 59 percent under current cost, each of which exceeds its reported effective tax rate of 40 percent and the statutory rate of 46 percent.

=

vew- - -

.,e3 w-m.- - -,, -.

-m---,-.,-,,w

-www.-

-w

. w

--e'e

=."

Ffwe Year Comparison of Selected Supplementary Financial Data Adjusted for Effects of Changing Prices (in Thousands of average 1980 dollars, except per share amounts) 1980 1979 1978 1977 1976 Revenues Historical.

$2.367,264 $1.854,159 $1,349,438 $1,095.561 $ 851,174 Constant dollar.

2,367,264 2.104.905 1,704,408 1,489,722 1.232,081 Net income Histoncal.

$ 183,981 $ 161,846 Constant dollar.

85,522 102,284 Current cost 74,213 86,194 Earnings per share Historical.

4.71 $

4.84 Constant dollar.

2.19 3.05 Current cost 1.90 2.58 Common Stock Equity at year-end (including electric utility property only to the extent recoverable)

Historical.

$1,498,543 $1,244,438 Constant dollar.

1,490,689 1,374.477 Current cost 1,495.413 1,374,842 Gain from dechne in purchasing power of net amounts owed.

$ 206,744 $ 301,435 Excess of increase in general price level

, 48 overincrease in specific prices

$ 107.205 $ 304,527 Cash dividends declared per common share Historical

$2.68

$2.36

$2.12

$1.86

$1.61 l

Constant dollar.

2.68 2.68 2.68 2.53 2.33 i

Market price per common share at year end Histoncal.

$28W

$29%

$27%

$30%

$31%

Consant dollar.

27%

31 %

33%

40w 44 Average consumer price index 246.8 217.4

~55S4 181.5 170.5 Under the rate making prescribed by the regulatory authonties to which HL&P is subject, only the histodcal cost of plant is recoverable through deoreciation. Therefore the excess of the cost of utihty plant stated in terms of constant dollars and current cost that occurred as a result of inflation in the current year over the historical cost of utikty plant is not present / recoverable in rates as depreciation and is ref!ected as a reduction to net recoverable cost.

To property reflect the economics of rate regu!ation in the Statement of Income Adjusted for Changing Prices, the reduction of net property, plant, and equ;pment should be offset by the gain from the decline in purchasing power of net amounts owed.

During a period of inflation, holders of monetary assets suffer a loss of general purchasing power while holders of monetary liabilities experience a gain. The gain from the decline in purchasing power of net amounts owed is pnmarily attnbutable to the substantial amount of debt and preferred stock which has been used to finance property, plant and equipment. However, since the depreciation on this utility plant is limited to the recovery of histoncal costs HL&P does not have the opportunity to realize a holding gain, and is limited to recovery only of the embedded cost of such capital. Thus, to the extent that utikty plant is financed with debt and preferred stock the reduction to net recoverable cost and the holding gain essentially offset cach other.

As indicated above, the rates charged by HL&P are regulated. As a result it is not as free as a non-regulated enterprise to raise its prices in response to inflation. Further, except in the case of fuel costs the regulat:y process introduces a substantial time lag between the incurrence of operating and capital costs and the recovery of such costs. This is commonly referred to in the industry as

• regulatory lag

• and is one of the most significant factors contnbuting to the erosion of investor capital.

Compoundog the problem is the fact that the HL&P must compete in the same marketplace as a non-regulated enterprise for capital necessary to finance fs construction program.

.-_y,

~ - _ _.. - _.,,.

W

• ag a

INuston fruf stries incorporated Houston Lighting & Power Company

\\

s Dit'eclar's, s Willarci E.Walbridge (A D)

Officers E. A. Turner Vce President Consultant to Capital D'

S'=

O Cities Communications, Inc.

Pres den nd Chief Executive Fossil Plant Engineenng e

f H ustm, Texas

& Constructen Bracewell & Patterson',

Officer Houren. Teva 3 Joe C. Wessendorff (C,D)

G. W. Oprea, Jr.

J. R. Johnston

, W.[R. Brown ( A,C)

Ranching and Investments Execut!ve Vce President Secretary anu Richmond Texas Treasurer Member of Law firm of

+-

J. D. Cowart Phker & Botts &~. Genera' (A) Memt.er of Executive Group Vce President R. S. Letbetter

,uomptrol:er

' Counselof the Campany Comrnittee Administratrve J. S. Brian (B) Member of Finance Houston. Texas Comnuttee H. R. Dean

'R De n (5)

(C) Memoer of Executive ' ~' '

Group Mce President Assistant Getretary and Assistant Treasurer Vice President and Treasure,r Salary Committee Accounting & Finance s

o' the Company F. C. Gemar

• Houston. Texas (D) Member of Audit K. R. Hiieckley Assistant, Secretary and Assistant Committee Group Vce President John C. Echols (A,% \\, '

Corporate Planning &

ereasurer s

Cha:rman of the Board Officers Development Wm. R. Brown a" C E

Geneal W;nW D. D. Jordan Ct en n

st C A. R. Beavers resident and &et Executive Vce President Baytown. TN s

~

Otacer Purchasing & Se:. ices N

How:rd d Horne (8,D[ I FELEvans,Jr.

G. W. Oprea, Jr. _'

resident of The Hcme Vice President Vce President Companv Houston," Texas H.R. Dean Energy Supply Vic President and Treasurer R. M. McCuistion

~

D. D. Jordin ( A,B)

President r.*;d Chef Nutive J. R. Johnston Vce Presioent

- Officer of the Compen,.

Secretary and Ass'stant Power System Development 49

. Houston, Texas o

Treasurer C. L McNeese Thom:s B. McDade (8,C)

J. S. Brian Vce President &

Vce Civirman of the Board Assistant Secmary &

Assistant to the President Texas Commerce L%ocshares Assistant Treasurer D. E. Simmons s

Houston. Texas i

Wm. R. Brown Vce Presidert G'. W. Oprha, Jr. (B)

Generr.a Counsel System Engineenrg N

& Opsabms

, VeePre icent of Ae t Cupan/

D. D. Sykora s

i Tdjstore Texal Vce President ht: wart Orto.-]A,D)

Customer & Pub 4c Relai.ons l C' tar.ian of tN Board J. H. Goldberg N.

an

• C%ef Errutive Officer.

Mce nesident Nuclear Engineenng Fofe/s

/

HoustCh. Texas

~& Construction s

N 1

4' N

In e

b h

s

-s e

~.

~

~

~

\\

.1 4,

e g

s s

i

'4 s g

\\N

?,

s,.

s s

a 3

'K g

s k

4 4

a i

N" m

x

i Annual Meeting The annual meeting of shareholders will t - held May 13, 1981, at 10 a.m. in the Electric Tower,611 Walker, Houston, Texas. A formal notice of the meeting accompanied by a proxy statement and proxy form will be mailed to sharehold-ers on or about Apnl 10,1981.

Executive Offices Electric Tower, Houston, Texas Mail Address: 611 Walker, PO. Box 1700, Houston, Texas 77001 Telephone: (713) 228-2474 Stock Usting Houston Industries common stock is traded under the symbol HOU on the New York and M&est Stock exchanges.

Transfer Agent for the Common Stock Texas Commerce Bank National Association. Houston, Texas PO. Box 2558, Houston Texas 77001 Registrar for the Common Stock First City National Bank of Houston, Houston, Texas PO. Box 2557, Houston, Texas 77001 Trustee Under indenture for Convertible Debentures Bankers Trust Company, New York, New York Auditors Deloitte Haskins & Sells, Houston, Texas.

Counsel Baker & Botts, Houston, Texas Dividend Disbursing Agent for the Common S*.ock Texas Commerce Bank National Association Houston, Texas 50 Dividend Reinvestment for the Common Stock For the convenience of shareholders, dividends may be auto-matically reinvested in Houston Industries common stock. For information, contact Ms. Ann Cherry Texas Commerce Bank, PO. Box 2558, Houston, Texas 77001. (713) 236-4636.

ShareholderInformation Stockholder Records can help shareholders with inquiries about lost, stolen or destroyed cert ficates, nonreceipt of dividend checks, transferring shares and similar matters.

Any change of address also shcu!d be sent to tne attention i

l of Ms. Cherry FinancialInformation Prospective investors, analysts and representatives of fir an-cial institutions requiring information regarding Houston industnes should contact Jim Brian, Assistant Secretary &

Assistant Treasurer (713) 229-7248, at the executive offices.

l News Media Inquiries Members of the news med;a and others needing information regarding HL&P's corporate activities should contact Jim Parsons, General Manager of Public Affairs, (713) 229-7123, at the executive offices.

SEC Form 10-K A copy of the annual report to the Securities and Exchange Commission on Form 10-K may be obta!ned without charge j

upon written request to: J. R. Johnston, Secretary, at the t

Houston Industries executive offices.

l Design Graphic Desyner's Group l

Photography Peter Claussen l