ML20043H630
| ML20043H630 | |
| Person / Time | |
|---|---|
| Site: | South Texas  |
| Issue date: | 12/31/1989 |
| From: | Borchelt M CENTRAL & SOUTH WEST CORP. |
| To: | |
| Shared Package | |
| ML20043H620 | List: |
| References | |
| NUDOCS 9006260210 | |
| Download: ML20043H630 (58) | |
Text
{{#Wiki_filter:__ . . _ . . _ _. _ _ _ _ . . __- __ . _ _ . _ _ _ _ . __ _ _ _ _ _ - _ . __ _ . - CtWTML AND SOUTH WEST CMPOMTION 1988 ANNUE REPORT I I t i , l I I , 1 i i F i i ' I i i i r i 4 i j i b , i j ! l i ) l l l R E L i A B i L l t y 1 1 r l I {q006260210900621 DR ADOCK 05000499 1 PDC ! l 1 -,- ...,- ,,. _..-w.-..-ww-..mcs.-,--we.e..-,,,, . . . . . . . - ~ , . . , _ . - . , _ _ _ , . . _ . . . - . - - - .
% &tjN dMLaWMD
@ _h&Of(~jM f[& &&whf,fW hGh%;&
M jdQ hy ';f! a
,b E. ~ @ A~ l @
W@pspag n y g l S p e a b a @ maman Q am m e m psh r e ads hx
, ,. .e:.m ;es m mw+4ame Qf ,'g ;g sg yJ,QW 3ea Wjgcg6W y & M 4:3. g , m9s yy.,O
}>qu[@S O N d% M S W M M IM W8me,% MMM % 5W $6 YIUdk, gy y ;f.[i[4h $,MMNyh w., EmWths#eagresummayhmWW,seppemann a.. s m 1,es o , o y yp w:# g ne tJ _a ye% A %iWWam:u W ixWh#[ yy @MUMMMMMMWOMW d abakeraquenapauseasWseemahWaf N ,. ausessWeskrenagenho. = yy%@g y j %(pWW WTb i Q yfi W .I T2 h
. . . , s-a.
""iM M' M hW 6 A & W 6M W et W E
% s a m onem a ..L i.. - 4 m s_ , heWM(MP 'M7 & 'Wk
&, > $a s@ m
'( o [J e.d 4W# meestpeerassageengt.atearmyasdeakneemb,est#meesa f my MN)cM moussesamme,%
+, y wnam w wnm M M % M ilb M M; % mW&M~,8R59W D h SWijjb Mb[ N @ sag wa n/ qcw .. g yat w , esp 4 yawn w g .w u a y[ m 3l,Th ghi'Mkdhfj$
a ahaa l 4 8.. _ .,_.W . .se .Osessem. M. ~ a - m;nxmawa i ~wzs o n 3.p m.e m u .m % & ppewww kd WW eammareesmana===-e 4WW he4 m Wem m a-sesmemameavWMan D M Ai~Ly$4 ;a,. M Wb.RM mw=uu@@ny.w +fC g, w, w w= n, p. eww,py w ewyn m ~ w~p 9w a s ,e .,,
. +
t hh o+ bh n
- wg , w , m h kk h,hh h hjb y ,
w m,y xw mm . u.hkN h.ca "khjh m v. e _a ,e wm 4e h w um wwa, cwgww, . m[.. r o. s %, a n 1o4 g [y om ,#ncm 39 m wryw e$wsm 6MtWad pi 4)g%jp m 4,N)a n; hf hh,b
,m%m w w, e- .1 wom#o hP i
4 Me
'G y H Qi V ; g $ g d"M
'1 .
d r% W *M d *N y M 6
@,mwnyg womwN i M i g $ @g ggg% g. W $ Kmg$y
, Q qwbg Q gny u[g; c<Wpg ' j< J gyn M m%' 'J %~F%=Mif$qp w% w g wM gpp w4 mCpyw ;y %a %g y ngW
% q q p pa uq hm @ m @ mM y 4: M g ; gg am- s 9p, .z *%
4, M m n Ang ww W g n
~e ~> M- e. a y , Mn 4 - y x vA n:m C wno p N lo:qp'@fqp%
rf,W ,aes m kgj r -cg 1,ygm,7;% me o;m7N p&.~v w, y m% d u % &w %y: iWw%-Mpg S & m a rjdje ys p g mn
# a h t v e w.g t QSQ '
Qf Je%;. l mm ,s 14( w h w)
<4<n ,am!i,614 q wyy@g wgm.p@m s w ,a wM N g, l~ y ~W ugg d
Q a^he, m
,+~
s 7v:. y t . ya my n kL;Q n y m f pqf9p 4 p g,ip k g gm , q y dp p Q M%gmyp,4h,a. g gg-+ y < Lm :m,n ; ;4:sm, 4; p, r~ e%p; 4c ny 4, w 4 y gff, 4 q wa g m.y,p e cm ,+ pm.pp xqq Qc g g -?m.
; s J . m 11 o g p: jk my h-[o
.r ,:. . ,.f .M@k m. c,s t,[m,W;; f;pllr q Jm6 3 - ly gr q% ghl,1 ;, .lq 3 4Y t . ,1
,lV i ffQ&Q.
~
ff Q jj &d g&p u pp p g!JN f ~fQMj p p g(:f if f fg e.w gwgm
@~ ~p i W h @p u 4 hM) n+
% a% m n@ ;M ~f %nn.g
$ g .
g@ l Ap , %[Q hMMf , 4 ,.wm;&n; Y wn
. kY yh .h M Q My(h h hkb _h$hkNY .
~
j$ MMYhhhhf h kam
> Abif~ TMMw, ohm Qh i[wpm.%@@Am]h@hw Mhatg[00 MEN 8\leb+ m< q '
$[M, N e,$[hh f.am bNMk
,m % w g m ,< <s c.
*y m ,
a sm , w- ay
./ ay m,, m ,W 'i g.P~a . f j- o )4 <.b)A n@o npy
)~$pynigm he,) W d, s, Q> le
- Sj gbpW~4/,@E .
wA.s,"m' e %s r p# u m % @ em. w
$ ,) /.gy m p +:1? kva4,J;:44 ; g gmd g%a!?. d a
- d;y ,wo- w a Y W,.;
m Uu g- @+@, ' M~ m
.tt vi;); a ! . ye 9 "f l1 7j v
@, yJg M" bhp Qut'$h..gholderg f :M i hj-M i-hhh 3MF% ' ;
%$ hd i h
&M.1.b P M.!tM[ RW@]h hMDM[hh ni fWyQ.$q[ NWk [gre q h m Pn,fo,m.nce wM S M w W F a p s
'yW yw9 3 @g ggqe Q pw% ,a%geme;h#eW o ani.co ion.a Ly,;.t no.nu .u,r mw o@m ww mnW o s%a%ww%psFMa, m&ge n...aa,as.a .uaan,a ..,,,,, m m m e .w a m A e a yg@pw&gggpo mW w co,,,oua.,,a 4n. con opna. n,,,,s.i a,,,,,,, s,.a.,,,,,mpwdr.gwp m
m m .Maggy a wa yeheggggme%ggp%gcomp.,,.au.p M n
,9,3,.,i,,w.a n,aou %,,w a , .a a, a muwoonwi,@e*sppwg w S p& fS h bh&w? Wbj 9th w: k eww k } ? h h penes,+ m(N os.,
m ,w m & 9**td olas
*wwm Director'J w k
?
.a m m &w& m; w ggH n.v w m a esu. 4; e a %:y w%p!4 -m. m, p %p> w%7, t umm n q , . = u
. , , way.s ynwb g/ ^ i.In..D wnd gyMn 1
AtenW;r& , $n 4Elb p%> agvlrkh
~N c ik Im e g ,@3q'q ' M - /4 o o gm v
, w~ gi . . ,en
~w' mn% 1%l Ul*gW -idFnquh A '
i..t.
M' ML% W(?
$aNNt ,, ; 'i h i. ,
1 (; qg iW tW ,yf-MT D , sf W ? d f i W 4 'Mg g'W' } i .. 'l y ' - N. . e < t .Nu- Y' ;0 c r s'\f
% W W:yt E
'%m ,
ot m v. 9 N m m W qQ W QcQ{W d i y f,f ' M:li W M "w'W, ' ' ,N' s- W-!
.g:nCW %e%gn; w A v q:m 4 1 a, m W +, >g g;& QWymp q dhG q;f %u %pQQy m ;m i /;y , nl:y3 ;m;,3 m wwu mp a - c m ymp +@e ~w%,m;~,
pm , y ty..llw e : n. w .p w m ww Oly - sm a - q~ ,--eA:v3q fE aa , p .m+v .D
~- Z' L, u
"' w,g *"(
+
f f.j$y.g ;QGg!(g(&y%y hj/aQ w wwMN -Q}&a&sw yf J W W Q wNfq!Q.*r+yG p.;)N>'g"YllW QTQP% N, u d m yhMMMh5N)d.ply&gfis3MM a h N 9 4si; % h,Cu $e +;Uj ;v Y ;aa MYMN, ry "'Q,^y;N n k}M a M +w [a g$+$ y
- i. %., W h'~
4[ MEb, ~$.OD,M@4n$n'I hfN,$y$ ., v y! M es J I sw n we m{Qfi h dj U' O G y% pppg ,.
"d '
- 4. o; a d ; h ,i b 4
, 44 4 M[u:. +
i r i Pl * } d
,n' m.
^%p"A n '"
y .q# w 3 ;w%s.nym . mw 1m . e y n.wLw m ~ yM; y[m w[dk}4m.M{yu[d}y w w', m(mMgs
, a. eo u;%w sawl[~fmp%A s, e m~ ; a m m.o n u r' ,.
4c %~
/s th - e j ?w> . $9 K2 j f ,',%.>Fc d', N f 9 th M D a$m. . NM m1 n, @ :- 7. qmp- h.-
t i,d -y,, s
,3 n . e-S. t t ., y
-, -s' t'
3 hh k!(( m -hjhhhkhh~p[w[hh 44 ET-) } T'@mh hM- hh@ [ , ml, ,1 g g <,h )~[i f- Q ,' $ [x q ~k h w w w%c ap s s L -
' n ;,, n a y, +,. .w>, g p; 24t M why w& m , hw" ,umy % w w @x pw %q;4 g a.& g>v$ w a %g
,, :y (v ;:u x
o g; % n . _
. _. 1 n
t '~
PfluflLt Central and South Wnt Corporation is a public utility holding company with four electric subsidiary companies.1hese four subsidiaries provide ekctricity to more than 4 million people in a widely diversified service area covering 152,000 square miles. This area is one of the largest served by any electric utility system in the United States. Central Power and 1.ight Company operates in south 'llxas. Public Service Company of Oklahoma operates in castern and southwntern Oklahoma. Southwestern Electric Power Company operates in northwntern Loui-siana, northeastern Texas and wntern Arkansas. West Texas Utilitin . C4nnpany operates in central and west 'lixas. Approximately 61 percent of the Central and South West systemt 1989 electric revenues were earned in Texas,24 percent in Oklahoma,9 percent ic louisiana and 6 percent in Arkansas, in addition to its four electric subsidiary companies, Cxntral and South West owm six other subsidiaries. Transok, Inc., is an intrastate natural-gas gathering and trammission - t company that provides gas transportation servien for Public Service Company of Oklahoma and for non-affiliated companies. Central and South West Services, Inc., performs, at cost, accounting, engineering, tax, legal, financial, electronic data proecssing, centralired economic dispatching of electric power and other services for the corpora-tion and its subsidiaries. Central and South Westi other four subsidiaries are dhersification ven-tures. CsW Credit, Inc., purchases the accounts receivable of the Central and South West operating companies and of other electric utilities. GW 1:inancial, Inc., owns tax benefit transfers. Csw trasing, Inc., a joint venture with a subsidiary of Manufacturers llanover Trust Company, invests in leveraged leases. CSW Energy, Inc., pursues cogeneration projects and other energy ventures. Central and South West Corporation and its subsidiary companies at the end of 1989 had 8,423 employees. liAh4
' k tgf idi""
1 Q(b h
. t,m ds w rainti @etan w y e l%W % mat (.ewpate of Okla%ma e %uthmtevo lkom huert (annram a be ha. Wiie rs ( *erany e t'mpsnaie Ihti kpmim - 14!!m e ilium %ul Jur, fleekpwires i
d
- - - ~ ~ - ~ ~ ~ ~ ~ - - ^ ~ --- - ' ' - ~ ~
HIGHLIGHTS G ntvaland South West Corporatmn Percent 1989 1988 Change l'inancial Data (nullions) Operating itetenues 52,549- 52412 1.3 l'uel and Purchased Power 1,019 1,006 1.3 Other Operating 17.xpenses and Taxes 896 933 (4.2). l'rderal Income Taxes , _142 - _,i12 26.8 Operating income -492 459 7.2 Allowance for Funds Used I)nring Construction and Other 136 183 -(25.7) Fixed Charges .,f22) .,_(318) 1.3 Net income for Common Stock 5 306 5 324 (5.6), Connnon Stock I)ata l'.arnings per Share . 53.25 53.43 (5.2) Dividends Paid per Shore $2.60 52A4 6.6 Average Common Shares Outstandii- (millions) 94.2 94.6 (.4) ; lleturn on Average Common Stock lyuity 11.7% 12.8 % MarLet Price Itange ! liigh '540 % $34% inw 29 % 29 % l'.nd of Year 40 % 32 liook Wlue per Share, F.nd of Year 528,13 527.49
?
h r I L tawnsi and tweenes Per shes ikon m _.
**".~ .
Ik 6 _r g . ti m I les 14 Jm 2 le 3 mt .I lu 4 IM e f.etmne tief Weg a lhu.knd. per Wei I .g
TO DUR SHAH [HDLDERS 1 in January 1990, the board of directors raised the quarterly dividend on j our conunon stock to 69 cents a share. This increase of 4 cents a share .
; marked our 39th consecutive year of annual dividend increases. Our -
record of consecutive increases is exceeded by only four other corpora-tions out of the 1,700 listed on the New York Stock Exchange. ' Considering the decline in our 1989 earnings, the board's decision to I maintain a 4 cents a share quarterly increase shows the confidence that both the directors and management have in Central and South West's future. Why do we feel so strongly? There are five reasons. ; First, the decline in our earnings is a short ternt problem. It has been caused by the lack of rate relief for the South Texas Project. STP, a (' nuclear power generating station in which our subsidiary Central Power 3,,3 g m,,g,g,,y g,,,,,,,m,g and Light Company owns 212 percent, is the largest capital investment a,g ,.y.m,,, yg y, ,y c,.,,,,a ,,,,a ever made by our system. CPL has invested $2.3 billion in STP and has w,ai. wcu c,,,p .,.um,,. annual operating expenses for the plant, including depreciation, of
$140 million. a l CPL has earned no cash return on the majority of this investment and has had no cash recovery of its operating expenses. Although this problem is nearing resolution, CPL's contributions to Central and South West's consolidated earnings have dropped off severely since STP began *
- commercial operation in 1988.
Second, once CPL's rates reflect STP, our carnings should imprmue. CPL filed in February 1989 for a rate increase to begin recovering its STP costs. The hearings on the rate case before the Texas Public Utility Commission have been long, complicated and contentious. Yet the conduct of the case has been quite rational. Compared to the regulatory witch hunts that have crippled utilities with nuclear investments in other states, CPL's rate case has progressed well, l For example, the Texas PUC has granted CPL $39 million of annual ( interim rate relief, which went into effect in September. l The PUC also has permitted CPL to use deferred accounting treatment i for Unit 1 of STP. Deferred accounting lets CPL postpone recognizing its current carrying charges and operating expenses for the plant. These costs are being accumulated until CPL is allowed to charge higher rates to reflect its investment in STP. In essence, deferred accounting delays the recognition of STP expenses until they are recovered from customers in the future. Deferred accounting on Unit I helped reduce current charges against income during 1989. It also added $28 million, or 30 cents a share, to
- our earnings from 1988 deferrals that were recognized in 1989 results.
4
, . . , - . ._ ~ _ , _ _ , - - . , - . - - - , . . - .-..-,m -- 7,. . -,~ , ,
b , in February 1990,e Texas PUC administrative law judge issued an , s interim order allowing CPL deferred accounting treatment on Unit 2. i Deferrals for Unit 2 contributed $24 million, or 26 cents a share, to our 1989 net income for common shareholders. The most encouraging news, however, has been the signing of a settle- , ment agreement with the majority of intervenors in CPL's rate base. The $cttlement,if approved by ths Texas PUC, wotild provide CPL with
$105 million a year of additional revenues starting in March 1990. CPL would fde for an additional $120 million rate increase to take effect in
, January 1991, and all the intervenors that have Ligned the settlement y~
would support this increase. CPL's rates then would be frozen through ; the end of 1994. Its full investment in STP would be added to its rate - base with no disallowance. s This shttlement was signed by CPL and 10 intervenors in February and was filed with the administrative law judge at the Texus PUC. Five other - ! intervenors refused to sign it because they wanted special' concessions. They now are trying to disrupt the settlement through legal ~ challenges, 4 and we are opposing them because their demands are unfair to the vast majority of CPL's customers, in the meantime, the rate case hearings are 1 continuing. We expect the full commission toict on the settlement late , this year after the hearings are completed. l The strength of this settlement agreement, couplefwith the responsible ! actions by the Texas PUC in granting deferred acco mting and interim rates, leads us to expect that CPLi rate case will be esolved equitably. Third, Central and South West is positioned for contimted growth. Our - kilowatt-hour sales to all our retail customers grew in 1989. The largest : improvement was in our sales to industrial customers. This growth was . accompanied by an increase in the number of residential customers our system serves. These are encouragim; agns about the improving econ-omy of our service territory. \ t Although our sales for resale were down in 1989, we see future oppor-tunities to sell in the wholesale market. Several potential new wholesale customers have expressed interest in switching to us for service. ' l We have adequate capacity to meet our customers' needs and to help other utilities meet their needs. With our fuel diversification program
- now completed, we are able to take better advantage of the most -
economical fuels available. We also are less dependent on any one - fuel source. _. The completion of our maior construction program also me ..ns we are ; entering a period of lower capital expenditures, Operations should provide more cash than is needed for new construction. Our goalis to : invest these shareholder funds wisely.
?
\ g
, ~ py y
~
' We have prepared a plan to invest more in 'Iiransok, our naturd g:s - nascam w;teinmar
*~~"""""*'"'"""
pipeline subsidiary, to help cut our fuel costs. And we have begun
- reassessing how CSW Energy might use additional funding to develop cogeneration projects or other ventures related to electric utilities. ,
P""MT"K I [@"y~@N w We also are interested in acquiring other electric utility properties if the
- purchase can benefit our customers and shareholders alike. For exam- ' hg[%j plc, during 1989 our subsidiary Public Service Company of Oklahoma Q tequired the municipal electric utility of the City of Chelsea. This purchase provided benefits to the citi' tens of Chelsea and better electric 6
/ ~
service for the customerb in the area.
%rlslWh l ;
Fourth, we h.we a strong record as a relialde supplier of electricity for e &,,(>Mi;g3 g. , our customers and as a reliable investment for our owners. For more than 10 years, we have compared the performance of our four electric
/
hQ&Qfl i oper: ting subsidiaries with that of other investor. owned electric utilities i f@MMygbF C 'U
~
in the Southwest. - s.A 7 mnunu n h M .rM e o . We have found that our system has one of the best records of overall '""""*"'***"'"* c
. performance-and one of the most consistent. oumac"o .n reaxe ireadiost da blon utt bow ranted farm tivn Ifw Take, for example, the two key measures of performance: the price of .u nay, ma fo, em ,m,on cmnear -<
electricity to the ultimate customers and the return on average common / nun IC9 to W lhe top undl+ equity for the shareholders. Our system has been among the companies '""' #d Ird "rd> >'= de ram!' "/ 1 with the lowest rates in the region, but also with an above-average "S"I " '""'" " di "'"""x "" """ \ on ned utshtws on Ibc huuthunr. ( sth return on equay. m ,,, % ,,,, ,,,,,g m y y,,,,,,3 Why has our system been so successfuli' Our operating expenses, ex- """"*'""""'d"I*"""* clusive of fuel, hve been far below the regional average. And our investment charges-for production, transmission and distribution-have been lower than the regional average, in short, we have a con-servative operating philosophy, and it has served us well. E,"'""" 2' As the utility industry evolves in the 1990s, we expect to face more vmmpmr y jW competition. To prepare for it, we are emphasizing performance mea- n sures and are setting measurable goals to link the compensation of our g - -@N_ f Wi employees to the specific resuks. We are committed to reliability- yf reliable electric service at a reasonable price for our customers and " < reliable growth with a better-than average return for our shareholders. o Finally, we h.we experienced management in key positions and a prd. w A gram to develop our best future leaders. As part of our management succession plan, the board of directorr named E. R. Ilrooks to become Ah f6 lkb hhrC.fk
?
president and chief operating officer of the corporation on January 1, 7 1990. Mr. Ilrooks had been executive vice president of Central and ' ,iW* NA South West since 1987. In 1988, he also was named president and chief executive officer of our Central and South West Services subsidiary and 5 b jgndMhdNOh@Mfk d . was elected to the parent corporation's board of directors, w a nun u nwvo a ( nual arul be u ne e Reneiwul Awrast (lrntral and huuth Wnth tcturn tut i connnon cquoty from l474 to l4% ; rwrded the rceronalaavray on cu;ht out of the 10 yrars, Uuv rclutny bslY buf]hl$5cd tl1oc ik Hl.1$l U/NQ t mentornavncJ ein trn utshtin m the kulbuv51 lhe range nl returns Is shoum bettvern the sh n. led pras. p. a
r-An electrical engineer by training, hir. Ilrooks has managed both the technical and operational areas of our business. He joined our subsidi.
; ary West Texas Utilities Company in 1961 and worked in supervisory
, and executive assignments in WTU's engineering department before
' ~
,,.- being named vice president of customer services in 1980. In 1982, he
~~(J'~ transferred to Central Power and Light Company as vice president of cngineering and was named senior vice president and chief engineering
< /,e ,, j$,$/ ((tr$1,[. officer of CPL a year later. He became president and chief executive south west corpo,simn. officer of cpl. in 1986.
The board also promoted Thomas V. .Shockley,111, to senior vice president of the parent corporation and president and chief executive officer of Central and South West Services. He had been president and chief executive officer of CPL.
' ~~ '
hlr. Shockley also is an electrical engineer who has managed many 4~ areas of our business. He joined CPL in 1970 in system planning and E W later worked in industrial marketing and fuels. Ile became executive g assistant for special proiccts in 1983 and executive director of fuels and nuclear in 1984. He was named 'a CPL vice president in 1985 and a year
' Q'- later became CP!/s chief engineering officer and senior vice president.
tbo,nas e shoalcy. ilt, a un,"' Ile succeeded hir. Ilrooks as president and chief executive officer of CPL sue purudent of centraland suurb West Capo, anon; he also serves as in 1987* p,cusrut aus soci cmuinr otti.c' Corporate leadership, of course, begins above the management level; it of unt,at u a soun. wea senees. originamis du board of directors. We have benefited over the years from an astute and active group of directors who have guided Central and South West's successful growth.
'Ib protect the board's strength and flexibility, the directors will present for shareholders' approval at the 1990 annual meeting a set of anti-takeover measures. These measures are designed to defend the interests j of both our customers and shareholders. They are discussed in detail in i the proxy statement for the annual meeting. l At our 1989 annual meeting, Sherman ht. Hunt retired from the board I at the mandatory retirement age of 72. Mr. Hunt had served as a director since 1980. We thank him for his long and valuable service to Central and South West.
At this time next year, I, too, will retire as chairman and chief executive officer after nearly 42 years with the Central and South West system. In the year remaining, I will be working to further develop our strategy, to advance our management development program and to ensure a seam - less transition to my successor, i
/ "
l
!s)
Merle L. Borchelt Charrinan and ChiefI;xecutist Officer lebruary 21, I900 ; l
s 4
, f , ,
; joesPtaronnumet ,
,' ]
Reliability is our business. Our stochin trade is providing depoidable U
' clectricity f6r our 1.5 million customers. We serve a total popula. ion of -
"l
-- more than 4 million people in Texas, Oklahoma, l.ouisiana and Atkan- q
, sas. Our service territory, covering 152,000 square miles, ranks as he l third largest geographically'in the United $tates. Out of 149 invest ( r- 1 owned electrie utilities in the' U.$!, we are among the top t e interstare ! systems in all measures of utility operations. ' q ! l
; Electrkity sales rise, in 1989, our custhniers used a record 48.2 billimi j
-kilowatt hours of electricity. That's about 14 percent of all the electricity sold in the four states where we operate. It's about 2 percent of the total
- kilowatt-hours sold in this country. -. seniennwema .
omu m as Our total sales of electricity increased 1.5 percent, with retail sales . ; growing 2.9 percent to 42.8 billion kilowatt hours, industrial sales went : - h.a 4% q up 4.1 percent and.necounted for more than half of our sales growth. . Medm J. l Commercial sales rose 2.8 percent; nther sales went up 1.9 percent; and f** d' ^ residential ' sales were up 1.7 giercent.' Only our sales for resale declined, 'i, dropping 8.0 percent to 5.4 billion kilowatt hours. . , j d'd k' "/ CI""kh 7 *' i We rate of forecast thatduring 2.8 perceni a year ourtheretail kilowatt next decade. hour Our systemt peaksales willg grow at a j,$# compound ' ""'] demand should gr6w at 2.4 percent a year during the same period. = .ain pryna,ay a,e to muninpstaju, These growth rates were revised upward slightly in 1989 to reflect the :; it iproving economic conditiom in our service area and the accompany : i
'il g growth in electricity consumption. =l C ustomers receds met. Our customers' highest demand for electricity 5 daring 1989 ocum ' on August 28 at a peak of 10,008 megawatts, !
Tha peak, howe. Al not exceed our all time record nf 10,243 'l megawatis set in Iw. -; i Tb meet our customers' demand, our four electric operating subsidiaries l own all or portions of 104 generating units. These plants have an - installed capability of 14,132 megawatts, ranking us 10th among the [ investor owned electrie utility systems nationwide. .j
-l At the time of peak demand, our system had 13,537 megawatts of capacity available. Our capacity margin was 27 percent, slightly above the industry average of 23 percent. Adequate reserves provide a safety factor to meet our customers' needs at all times and under all condi - ~
tions. They help prevent forced outages like those that have occurred in other regions of the country as well as in neighboring utilities' systems. Our system's highest daily output in 1989 was 192,134_ megawatt hours on August 31t it was 2.1 percent below our record daily output of
~
our entandornenJmur saln in m f 196,187 megawatt hours in 1986. rose i.5 /<n ent as prudt o/gamt m [ all tour rategorun of our ret.UI sa!n. l mienemw m, .na. ... saisi,u,, n
,, i as -
57 e
$$ - ^w
#1 1 10 ll . 20 24 M If 40 , 41 Est 9 hewJesia.A e temime,t.J e huhisestal a kr 41e e (pi w, l
d
l x -
.g.
s . i; 9 s i .,.
~
t. A
}
t; e i- '
?
'h * . .
f 1.-
+
_ ;. s ;
+
t u - s .
.E. -
t-
.g .
i 2
. .. -- , n At 6 a m rehaJihty for most people means an alarm clock that goes oIIon hme. But no matter what hme of the di y electric apphances provtde convenience and comfort throughout the home WIth the growing use of computer chtps in apphances-in VCRs. microwave ovens, heahng.and-cooling equipment. securily systems and even collet makers, rehable electricity es more essenhal than ever
L l
- 1 i
- 1. ' Mild weather during the past three summers, coupled with the area's )
1 recovering economy has kept our system from setting new tecords fut ! peak use. Nevertheless, a harsh winter storm in December proved how l ) unpredictable the need for generating reserves can be, The unexpected l f cold weather plunged temperatures in the Southwest to below vero and caused the demand for electricity to rise suddenly. l Each of our four electric operati 9g subsidiaries set new records for i wintertime use, with our systernwide demand reaching 8,897 mega. , watts on December 22. Central Power and 1.ight Company, our largest operating company with the most southern territory, set a new all time i [ peak use of 3,145 megawatts-topping even its all time summer peak. [ Asture capacity planned. Our system owns sufficient generating capacity : , to meet our forecasted demands for many ya.s to come. Therefore, we
- do not expect to add any large generating plants during the 1990s. !
1 instead, we will rely on two other 6c,urces for future capacity: repower. l j ' ing existing generating units and installing combustion turbines. i Repowering is the refurbishing of older gas fueled generating plants to ' give them extended operating lives, greater efficiencies and more gener. , l ating capacity. Our electric operating subsidiaries will repower seven i units during the next decade to gain 670 megawatts of new capacity. . , .We also plan to add a 135 megawatt gas fueled combustion turbine by 4 . December 1999. This smaller plant can be constructed with a shorter , schedule and can be sited more readily than a larger base-load plant. It j also wH! provide a smaller increment of new generating capacity. This ' l [ help our electric operating subsidiaries lhep pace with their customers' ' ] demands without having to add a large amount of extra capacity. j l STI' Unit 2 begins commercial operation. On June 19, Unit 2 of the i South 'lixas Project began commercial operation. STP is a two. unit, . I
- _ 2,500 megawatt nuclear power plant near llay City,'lixas. Unit 2 is the rhaouth ina3 %u, u ,b,laa last major generating unit our system cApects to add this century. '"dl* F'"7'"# I'Id"' ""' O*" l t
wellad,itbk unlury WIl' Untt ?
- Central Power and 1.ight Company owns 25.2 percent of STP, which is bo
- an w""unoah warnin t en lunn i equivalent to 630 megawatts of capacity. CPIA installed cost for its U"" l t""+ Iced n> li'o m" "I
{ portion of each unit is 53,622 a kilowatt, including allowance for fu,,& """'d'"l 1 used during construction its total investment in STP is $2.282 billion """b"'""'?"""""
"'" Id""' A"*"d ?"h l the largest single investment ever made by our system. i
- 3
- t' nit I of STP completed its first year of commercial operation with well
- abt.ve average performance. When the unit was shut down for refueling )
in Argust,it had operated at full power 69 percent of the time its
)
L capacey factor surpassed the average performance of 61 percent for all ! U.S. nuclear plants during the same 12 month period, according to the l' Nuclear Regulatory Commission. 4 l 1 I i. P 1 I .E
\'
llectract!y is Itquired 10? pumping walet and running sanilalton systems Ilpowers fans in gas tur-naCes I0r homes. stores and factorits And ilprovedts the entipy for the Irleph0ne sysitm and long-diSlanCt mlCrowsvt netw0fts iht fact is, tVen Other utilllits 7tquirt ftliable titClitCity 10 09t1500
, . < ~ ' ' '}
~ l p
+ -
10 . ,. . 4 9 ! "[ . k' * '. Jh l 4 , n
. \= , ' ,
- . .- f - .
, f!. _
f.' j ! - 4 -
'1
.~h
'n . . . ; , _j
.t
,g >
4
.e/
5 .
.
- M e ' >.
. y# -
;- . . (' ,
, g_ g.
u ' . 'l W _ 4 : , s ['
. ' ' L: ,y
_N
.-. . q' u.
.-g *
, >s A ~.
- y. g T(f r-s ,. g
% 1 -
m&*W~i.3gg(gl 9 And 6 l
.s Construction charges for STp made up 8 percent of our sy tem's $389 million consolidated cash construction expenditures during 1989. These expenditures went down 5.2 percent from the $305 million invested in 1988. Since 1984, when our system spent a record $751 million, our cash construction expenditures have declined steadily. -
We forecast that our construction expenditures will remain at about the. current level of spending during the next three years. As a result, our operations should provide more funds than are needed to pay for capital projects during this period. Our long-term financing was limited to selling hree series of first mortgage bonds, totaling $265 million. The pr >cceds from these sales were used to refund $228 million of four existi1g bond issues that had high coupon rates, in addition, the interest rate on $112 million of collaterali7ed pollution control bonds was fixc( at a lower rate until-maturity, The net present value of the savings fr un these financing activities was $42 million. Our embedded cost of long term debt de-
. clined from 9.46 percent in 1988 to 9.23 percent.
Fnci diversification prograrn completed. The commercial operation oI u STp Unit 2 marked the end of the largest construction program ever undertaken by our system. We began this program in the early 1970s when world prices for oil and natural gas began rising. Our goal was to cut our 99 percent dependence on gas for boiler fuel by adding plants that were fueled instead with coal, lignite and uranium. To accomplish this goal, our four electric operating subsidiaries have ' invested $4.5 billion to build eight coal fueled units, two lignite fueled units and the two nuclear-fueled units at STp. Their investments have doubled our utility plant assets and have increased our system's total generating capability by 60 percent. l Moreover, only 43 percent of our kilowatt hours in 1989 were gener-
)
ated using gas. \Ve used coal for 43 percent, lignite for 9 percent and nuclear for 3 percent. In the future, this diversity will help us better Z,$ , ,,,,,, prevent fluctuations in our energy supply cost and continue to provide *** htm e our customers with reliable electricity.
. %, n Fuct costs remain stalde. Using more low cost nuclear emergy helped [,""2, m kcep our average fuel cost from rising. Our average ci m per million litu . n.,i m was $2.01 in both 1989 and 1988. We spent two fifths of our operating revenues-$1.019 billion-for fuel and purchased power, liccause fuel is so critical a cost in our operations, our system is making N hel >* mi ro vnnarnie extensive efforts to control this expenditure. We are working to better '""'r '" " $ '"'" w'd d" " "'E balance our fuel purchases hetween long term firm contracts and spot- "' '*""# d * """" '" d' #"'
market purchases. We are studying ways to obtain multiple suppliers for some power plants and to contract for systemwide supplies of fuel rather than separate supplies for each plant. We also are renegotiating many existing fuel and transportation contracts to obtain better terms or lower costs. I I
~
Nesearchers are making advCnces on inany screntthe tranhers But Done are more exctkop than the achievements in medscent Sophishcated electricalinstruments now are used to scan the body for diseases, powerfullasers are used for dehcate surpery on the eye and the bram and heart tung machmes enable recovetoes that were impossible a decade ago in each case, rehable electrocoly is essenhal not only to power the instruments but also to ensure the success of the procedure l
.p. m'
'N*'
hI g .
. p.
e g ;
'y c q ti . .
, ~ i
. _g-6
.,, g. r . ,
- . . j .s _ _
}
; 1
. s .
' T '
. c., . .
{' 4
- g
- s. . .
e-< t r ' 1 1 .. 7..
4 a e ! l.ow cost fuel is essential to keep the cost of our electric utility service l competitively priced. Equally important, our plants must burn the fuel ; cfficiently. .<
, : In 1989. Public Service Company of Oklahoma's Comanche Station was named for the second time as the most fuel efficient fossil fueled electric . l generating plant in the nation, based on 1988 data.1uel efficiency is measured by heat rate-the number of British thermal units, or Etu, y a required to produce a single kilowatt hour of electricity. Comanche 1 Station had a heat rate of 8,884 Btu per kilowatt-hour.The station also . ?
ranked first in fuel efficiency in 1986. t cpl. rate case filed. in February, Central Power and 1.ight Company . y ' requested higher rates to pay its operating costs for STP and to carn a rcturn on its total investment in the plant. CPL asked the Public Utility a e Commission of Texas to raise its rates initially by $154 million it also proposed three future rate increases during the next nine years, t Related to the rate case, the Texas PUC granted cpl. deferred accounting i treatment on Unit I of STP in April. Deferred accounting treatment lets - . a utility defer operating expenses and carrying costs for a new plant y from the time the plant goes in service until its costs are reflected in rates. The deferred costs are recovered through rates during the remain- ! ing life of the plant. .i An administrative law judge of the Texas PUC issued an interim order 'I allowing CPt. deferred accounting treatment on Unit 2 in February . , 1990. CPtA 1989 deferrals for Unit 2 added $24 million to Central and ! South West's consolidated net income for common shareholders. 1 1 The Texas PUC also allowed CPt. an interim increase in is base retes of !
$39 million a year. cpl. began collecting the higher ratt., " - to i refund,in September. At the same time,it reduced its fue! n ecs by j
$32 million annually.
Settlement proposaladvanced, cpl. officials met many times during 1989 with the intervenors in its rate case to seek ways to settle the case t as soon as possible. in January 1990, a preliminary basis for a full settlement was reached in J the rate case. CPt. and intervremrs representing the majority .of its j customers signed a definithe settlement agreement in February 1990 ) and filed it with tVic as PUC. If approved by the PUC, the settlement would resolve the present rate case.
]'
The proposed settlement represents a compromise-one that would be ! advantageous for both CPL and its customers. It would eliminate a - 7 lengthy phase-in of new rates, which would add considerably to the i
. total costs customers would pay over time for STP. In turn, cpl. would !
put new rates into effect much sooner to improve its financial condition. ( I i I f P
,I
~
} {
y it w . l s [ . n
'n o -
14 j i e
. L,
. l W .
g_ t y
- s ,
.: , 1 i.
,_Y' v..?
= -
D
~ *
, w g - * '
e o " y _ h ,'!
- 4,. e -'
The world is being tumed inside out by mome.:fous political and social changes To keep up to date. the 4 millson people in our service area rely on 31 television stations,216 radio stations and 327 newspapers To deliver information around-the-cloch, the news media depend on reliable electricity
t The senlement would increne CPIA base rates in March 1_990 by 5105 million. The $39 million of interim rates that already have been approved i by the Texas PUC would become permanent rates, and all prudence issues conecrning STP would be resolved. . CP1. would file for an additional $120 million rate increase to take effect in J:nuary 1991. All the intervenors that have signed the settlement
! would agree in. support this increase, cPla base rates then would be ,
froren through 1994, barring any extraordinary event. llowever, the ,'; fuel portion of customers' bills would continue to be adjusted after >
; review and approval by the Texas pUC.
3 1 cpl. would be allowed to continue deferred accounting treatment on : both units of STP until March 1990. Then,it would be allowed to defer l-a return on Unit 2 of STP until the second rate increase went into effect in January 1991. , Five of the 15 intervenors in CPIA rate case have not signed the ' j , settleinent agreement because they oppose the terms of the settlement. . t Therefore, the rate case is continuing before the Texa6 PUC. We expect :
- the commission will issue a formal rate order on the settlement al'ter the 'a l rate case is concluded, i
For more information about the proposed settlement in CPla rate case i and details about the South Texas project, please read Note 10 to the financial statements, beginning on page 39. f
. Marketing programs help Imild sales. Our service territory \ economy is i continuing to rebuild after the severe downturn that followed the cob lapse of world oil prices in 1984. A number of key indicators confirmed the improvement in our area's economy. ,
Our system added 10,000 new residential customers. This amount was ' about one-third of the average number of residential customers added ' cach year from 1979 to 1986. Yet, the 1989 increase was a welcome r improvement over 1988 when our system added just 6,000 residential customers and 1987 when we added only 1,000. , Housing completions in our service area declined 18 percent to 7,690 ! single and multifamily dwellings. Despite that low total, our marketing - t programs won an increased market sh,rc through more installations of clectric heat pumps, in 72 percent of the completions, electric heating ! was installed. Of those,47 percent included new heat pumps. Ily com- ; parison, heat pumps accounted for only 17 percent of the market just four years ago.
~
Gains also were made from customers buying heat pumps to replace old ' -l air conditioners and heating units. These " retrofit" installations totaled r nearly 2,400 units, llecause of the large number of housing completions in the early to middle 1970s, retrofits offer many opportunities for our ;
, system to increase its share of the residential energy market, j i
4 h t
-.t
_ _ _ _ . ~ _ ,_
+ -
g, , l >
, 4' .s W
jT s.
~ .; ' ' -
y , . j# , 4
- y 9
? f- + .
*3 * . e,. .
9- ., M i
'- .. c- . ..
i. x 3 .
~ '
4' . w h, Stop! Don I walk. derve, try or inove Without electricity our society screeches to a hall Trathe control dev6ces doro I wort Arrknes can't issue hchets fYokilton knes shut down flehable electittily is essenhal to turn the wheels of commerce
!. j L
7tv Acquisition made in Oklalunna. Public Servicb Company of Oklahoma acquired the former mumcipal electric system of the City of Chelsea, Oklahoma,in April. The $2.2 million purchase added 888 customers.
.'Ib guide our acquisition efforts and out overall strategy, we have formed a new corporate development division. A key objective of the division is to analyre how changes in the electric utility industry could
- alicet our system.
Management development progrant accelerated. One of our maior cor* potate goals is to identify our best people and to prepare them for future leadership positions in our system. During 1989, nine senior . managers and many more middle managers moved to new jobs as part of our corporation \ human resources planning and development program.
*lhe program \ oblectives are: to broaden skills and knowledge, to -
q provide development and challenges to retain top quality employees, to " develop a pool of qualified candidates for key positions, to encourage ' the transfer of knowledge among our companies and to provide support for our corporate growth and expansion. This program eventually will , . afIcet all employees.
'lFansok results improve. Transok, our fifth operating subsidiary, con-tributed $5 million to our net income for common shareholders. The-company had a $4 million loss in 1988 as a result of taking losses on property, which improved its profitability in 1989 and for the future.
Transoki main business is gathering and delivering natural gas to Public.- 1 Service Company of Oklahomai gas fueled generating stations 'Ib do this, Tramok operates the second largest intrastate pipeline system in 1 Oklahoma. , Transokt future activities will be linked more closely to our entire electric utility system, its objective will be to help each of our four electric operating subsidiaries obtain the gas supplies it needs at the - most competitive prices. ' At the same time, Transok will increase its efforts'to help pso be the most competitive energy supplier in Oklahoma. It also will work to maximize to enues from gas sales and transportation for other cus-tomers, such as interstate pipelines. Transok is a strategic and valuable part of our system. We believe it can i . benefit our other operating subsidiaries as well as make its own individ-ual contribution to our future carnings. i
-d
SELICTED HMANCIAL DATA , Central and South West Corporation
%c following r.clected financial data for each of the five years ended December 31 are provided to :
highlight significant trends in the financial condition and results of operations for the Corporation. 1989 1988 1987- .1986 1985 (millions except per share amounts and ratinsh - Operating Revenues $2,549 $2,512 $2,443 $2,555 $2,711 Net income . . 337 356 402 389 376, Preferred Stock Dividends 31 :32 30 34 36 . Net income for Common Stock - 306 324 372 355 340 ! Total Assets 8,347 8,110 7,877 7,314; - 7,014 f Common Stock Equity 2,647 2,594 2,514 2,359 ~ 2,206 Preferred Stock Not Subject to Mandatory Redemption 291 291 207 309- 235 Subject to Mandatory Redemptkm 106 105 158 133 150-long term Debt 2,537 2,514 2,410 2,343 2,269 g Capitalization Ratios Common Stock I'.quity 47.4 % 47.1 % 47.5% 45.9 % 45.4 % Preferred Stock - 7.1. 7.2 6.9 8.6 7.9 . Long-term Debt 45.5 45.7 45.6 45.5 46.7-l'arnings per Share of Cornmon Stock $3.25 $3.43 $3.92 $3.75 $3.61 Dividends Paid per Share of Common Stock 2.60 2.44 2.28 2.14 .2.02 COMMON STOCK PRfCE RANGE AND DMDENDS PAID PER & HARE l i 1989 1988 l hlarket Price Dividends __ hiarket Price Dividends ljii _ tow Paid _ liigh low Paid l'irst Quarter $32% $29% 65v $34% 529 % 6te-i Second Quarter 34 % 30 65 33% 30 61 ,
%ird Quarter 36 % 34 65 32%_ 29% 61 l'ourth Quarter .
40 % 35 65 32% 30% 61 i l l l I
\
i
t MANAGEMENTS DISCUSSION AND ANALYSIS Of FINANCIAL CONDITION AND FIESULTS OF OPERAT10NS Central and South West Corporation i Overv6ew Central and South West Corporation \ (Corporation) financial condition remained strong in 1989 ; despite the second consecutive year of declining income. Earnings declined from $3.92 per share in : 1987 to $3.43 per share in 1988 to $3.' per share in 1989. The return on average common stock equity declined to 11.7% in 1989 compared to 12.8% in 1988 and 15.4% in 1987. The primary factor affecting the decline in earnings in both 1988 and 1989 has been regulatory lag associated with placing the South Texas Project (STP) nuclear power plant in service. STP Unit 1 was placed in service in August 1988, and STP Unit 2 was placed in service in June 1989. The Corporation's subsidiary Cemral Power and I.ight Company (CPL) is a 25.2% owner of STP. CPL) rates currently provide for recovery of only a small portion of its investment in STP. CPL was ; allowed to defer operating expenses and carrying costs associated with STP Units 1 and 2 and ; allowed a small interim rate increase in 1989 which provided partial recovery of CPL) STP related : costs. However, these events were not adequate to offset the severe effects of regulatory lag on the Corporation's carnings in 1989. A settlement was reached with the majority of intervenors in CPLt t retail rate increase request in February 1990 which, if approved by the Public Utility Commission of Texas (Texas Commission), would allow cpl. to increase rates in 1990 and 1991 to reflect its investment in STP. See discussion under Rates and Regulatory Matters and Note 10 of the Notes to s Consolidated Financial Statements. # Despite the decline in earnings, quarterly common stock dividends were ircreased in January 1989 by 4 cents per share, and were increased again in January 1990 by 4 cents t er share. These dividend increases continued our dividend policy that has resulted in 39 consecutive y:ars of dividend increases. Construction Espenditures The Systemi construction expenditures, net of allowance for funds used during construction, were $289 million in 1989. Construction expenditures have declined steadily over the past five years as the System has completed a major construction program. The f n constructed eight coal fueled, two lignite fueled and two nuclear fueled generating units since 976 and increased generating capability by 60%.The completion of STP Unit 2 marked the end of this construction program. Another base load generating unit is not expected to be placed in service until after the year 2000. The need for additional generating capability is primarily affected by the growth in annual peak load. Current capability levels will allow us to meet peak load requirements through 1995. We expect to retire 269 megawatts of generating capability during the next ten years.This fact, combined with current estimates of annual peak load growth of 2,4%, will require the System to add approximately 800 megawatts of new capability between 1995 and 1999. System requirements for new capability during this period will be supplied through repowering existing natural gas fired generating units and constructing a gas. fired combustion turbine. Existing natural gas fired generat-ing units will be repowered by converting them to combined cycle units, which will increase capability and life expectancy comparable to a new unit. The installed cost of this capability is i Construthen wun , num c. ; 8' mie ll.-. l: :
. - m, . .. . . - -
3 Q*4tMisum Itremldurn G hHemd (st,ttf etMm
expected to be f:r less th n the cost to build c new combined cycle unit or a coal unit due to the use
. of existing capability that would otherwise be retired. Klinimal construction expenditures for new generating capability will be required during the next three years due to the s'wrter construction period required for repowerings and combustion turbines. l Constructiem expenditures during the next three years will primarily be for improving and expand-ing transmission and distribution facilities. These improvements will be required to meet the needs of new customers and to satisfy changing requirements of existing customers. Construction expen-ditures, excluding Al'UDC, are projected to be $299 million, $290 million and :,.280 million during .
1990i1991 and 1992. The financing for the construction program, as more fully discussed under , Financing and Capital Resources, is expected to be provided primarily by funds ! um operating activities. The estimates for future construction expenditures are affected by many factors, which can cause the actual amounts to differ materially from our estimates. The construction program is monitored, -[ reviewed and adjusted to reflect changes in estimated load growth in the System's service art ;. Variations in prices of alternate fuel sources; the cost of labor, materials, equipment and capital; and - other external factors. Rates and Regulatory Matters CINIRAl. POWTit AND 1.lGHT COMPANY , a Deferred Accounting . In April 1989, cpl. was granted deferred accounting on STP Unit i by the Texas Commissioni. The Texas Commission's order allows CPt. to defer operating and maintenance expenses, taxes, deprecia-tion and carrying costs, including an equity return, for Unit 1. The equity return cannot be reported as income during the deferral period under accounting rules. cpl.can defer Unit I costs from the
, time it went into commercial operation until February 15,1990. cpl. has requested Texas Commis-sion approval to continue to defer STP Unit I costs after February IS,1990, until rates reflecting STP ;
Unit I become effective. 3 CPL requested in its retail rate filing that the Texas Commission grant deferred accounting on STP Unit 2 in the same manner allowed for STP Unit 1. On February 8,1990, the Administrative Law ' Judge (Alsi) issued an interim order which allows CPt. to defer carrying costs and operating expenses for STP Unit 2 from June 19,1989, the commercial operation date, until rates which reflect STP Unit 2 are in effect. Various appeals have been filed concerning the deferred accounting on S'ir Units I and 2. If orders granting deferred accounting on STP Units I and 2 are ultimately reversed upon appeal, cpl. would experience a significant adverse effect on the results of operations. hlanagement believes , that the deferied accounting orders will be upheld. l l Rate C,nc Settlement l CP!. requested the Texas Commission to approve a Stipulated Agreement (Settlement) to settle all i !. issues in dockets currently before the Texas Commission involving CPIA investment in STP. These i dockets incorporate all issues before the Texas Commission involving STP prudence, deferred accounting and CPIA request to increase retail rates. The Setilement was entered into by CPt., the l ! Texas Commission Staff (Staff) and nine of t'ne other fourteen intervenors in the STP cockets I representing the majority of CPIA customers. The Settlement would allow CPt. to increase base rates in Alarch 1990 by $105 million,in addition to the $39 million of interim rates placed into effect in September 1989. CPt. would file in 1990 for an additional base rate increase of $120 million to become effective on January 1,1991. CPIA base rates would then be froren through 1994, subject to ctriain force majeure events. The fuel portion of customers' bills will continue to be adjusted after review and approval by the Texas Commission. ; i l l , i r
Assuming a h1 arch effective date for the first rate increase, deferred operating expenses and carrying costs in 1990 on STP Unit I would be approximately $15 million or 5.16 per share. Deferred operating expenses and carrying costs on STP Unit 2 in 1990 would be approximately $70 million or $.74 per share. Additionally, the Settlement provides for the Texas Commission to allow an accounting procedure which defers interest charges for STP to the extent of actual interest costs incurred during the deferral periods. This accounting procedure would allow the Corporation to recognize approx-imately $95 million or $1.01 per share in 1990 as income in lieu of equity carrying costs atributable to 1988 and 1989. The Scttlement would utilize a rate-making technique ca4cd Alirror CWIP. hiirror LWIP assumes that CWIP included in rate base was a temporary loan from customers which would be repaid after the plant was placed in service. The temporary loan is repaid through lower rates over a time period which approximates the period during which it was collected through higher rates. Consequently, cpl. would capitalize $360 million of carrying costs as original construction costs and establish a liabihty to customers for a like amount to be amortired to income from 1991 through 1995. l Since all parties have not agreed to the Settlement, hearings in cpl!s retail rate filing will contmue. The Alj may ask for hearings on the Settlement before sending a recommendation to the Texas Commission. The 'lexas Commission must issue an order approving the Settlement before it { becomes effective. A final order is expected late in the third or fourth quarter of 1990. The Staff antiintervenors entering into the Settlement have petitioned the Texas Commission to I allow cpl. to place Settlement rates in effect in h1 arch 1990, on an interim basis smbiect to refund, until the regulatory process is completed. Hearings on the need to place Settlement rates in effect on an interim basis will be conducted in early hlarch. The Alj will make a recommendation on the interim rate request in mid March to allow the Texas Commission to issue an order on the request before the end of March 1990. T!.e Settlement would allow CPI the opportunity to earn on its total STP investment during the period settlement rates are in effect. Further, management believes that the Settlement is in the best interests of both CPEN ratepayers and the Corporation's stockholders. Reference is made to Note 10 of the Consolidated Notes to Financial Statements for additionalinformation concerning CPI regulatory matters. PUltLIC SERVICE COMPANY OF OKl.AllOMA (PSO) in January 1989, the Corporation Commission of the State of Oklahoma (Oklahoma Commission) l issued an order granting PSO recovery of certain taxes paid, which had not been a prt of the ; previously approved terminated plant recovery mechanism. The result of this action during 1989 { was an increase to net income of $3.7 million. The recovery of the terminated plant balance cubinated effective August 1,1989, for all retail customer classes. SolfrHWESTERN ELECTRIC DOWEK COMPANY (SWEPCO) Under rules established by the Texas Commission, electric utilities recover fuel costs as a fixed component of base rates, in June 1989, the Texas Commission petitioned that SWEPCO's fuel cost be reviewed and reconciled. SWEPCO received rapproval to expand the scope of the proceeding to j include the redetermination of its current fixed fuel factors. The filing requests the Texas Comnus-sion's approval to collect from its Texas retail customers $15 million for under recove,ed fuel costs and interest. The under recovery occurred during the period July 1986 through Octuoer 1989. The Staff filed testimony in early 1990 which, to the best of SWEPCO's belief, recommends the reclassification of certain items from recoverable fuel cost authorized in a prior fuel docket to base rates amounting to $60 million and disallowance of certain historical fuel costs amounting to $30
.uillion. SWEPCO filed rebuttal testimony to the recommendations related to the fuel reconciliation.
l t
Y s After a hearing in February 1990 before an Alj, the lixas Conumssmn will issue its order. Thi-
. order is expected no earlier than mid.1990, Although there is no assurance that SWLPCO will ~
; prevail in'either of these material matters, the Staffk current position is in conflict with earlier 'lixas' Commission rulings as to the appropriate operation of SwhPCO's fixed fuel factors. Further, there i can be no assurance that the full amount of the under. recovery will be allowed. sWl:Pco intends to : ;
pursue this matter and believes that the ultimate resolution will not have a material effect'on the. ; results 6f operation; Financing and Capital Resources : The System does not expect to require funds from the capital markets other than the sale of bonds - dev:ribed below to finance its construction program for the next several years; This is due to ; l continued declines in plant expenditures, modest amounts of maturities of long-term debt and ; preferred stock, and increases in the amounts of funds provided from operations, However, additionallong-term financing could be required if CPL does not receive adequate rate relief on al .
' timely basis. The financial st'rength of the System companies should allow access to funds from the .t
' capital markets if required I We intend to maintain a strong capital structure and to maintain strong credit ' ratings, recognizing . i that these financial chjeahrs are important to the Systemi ability to obtain funds from the capital ' markets if neW. Achieving tie c objectives will also allow us the flexibihty to pursue other - businus endeavors and to react to changing economic and financial markets.
-n Internalu neration .
One measun :,t the System's financial strength is the amount of construction expenditures financed ' with funds froni current operations. Internal sources of funds, comprised of cash Dows from : 7' operating activities,less common and preferred stock dividends, provided a substantial amount of the System's financing requirements for construction expenditures in 1989,'1988'and 1987. We expect internal funds to exceed our needs for construction expenditures during the period t 1990-1992. The results and timing of CPIA rate relief will affect the total amount of internal funds -l provided during that period. The earlier CPL is permitted to place new rates in effect renecting STP, the more positive the effect on. internal generation. l s We continually evaluate the best use of the funds that will be provided from operations during the' ; period of lower sonstruction expenditures. One option that has been selected is to purchase Central a and South West conunon stock in the open market. During 1989 and 1988, the Corporation . purchased 299,000 and 458,000 shares of its common stock at average prices of $31.80 and $3l A2
?
a share. ; Another use for these funds being considered is acquiring other electric utility property. For any L major acquisitica, additional funds from the capital markets would probably be required. Some of the other uses of excess funds from operations we have identified include acquiring other energy-related assets and investing in debt arid equity securities. The Corporation needs the .[
. authorization of the Securities and Exchange Commission under the Public Utility Holding Coni L pany Act of 19.35 to invest in any additional business venturesi !
Long-term Financing . During the first quarter of 1990, CPL intends to issue $50 million of collateralized pollution control 1
' bonds. The bonds will be used to finance certain pollution control facilities for STP. Unit 2.
Otherwise, we do not expect to require any long. term financings for existing utility operations during the next three years assuming the receipt of timely rate relief by CPL ; i 1 I .
r
.i f
A summary of the Systems capitd market transactiores during the past three years is provided in the Financing Section of the Statements of Cash Flows. During 1989, the Systemilong term financing . consisted of refinancing high cost debt with lower cost debt for Cpt, SWEpCO and MTU. The table -
'summarites these transactions.
Debt Issued ~ _ Debt Reaguired Amount , Rate _ Maturitp Amount' _ Rate _ _ Maturity , (millmm) ' ' (millions) Cit - -$150 9%% 2019 - .$68 L11%% 2015 68 12 % 2013'
$nK:0 - -50 9%%' 2019 54 11 %%. 2015-WTU 65 9%%- 2019 39 11%% 2015 ";
i Additionally, Cpt fixed the interest rate on its Series T adjustable rate bonds at 7%E The interest -i rate on the bonds had been 9E The refinancings and fixing the interest rate on first mortgage l bonds resulted in $42 million of present value savings over the term of the bonds. Other long-term securities activities during 1989 included retiring $14 million of long-term debt at<
]
4- maturity. The funds to redeem these securities primarily came from current operations. The early: redemption of losig term debt helps us keep the System's cost of long term financings as low as possible.The System reduced its embedded cost of king-term debt from 9.46% to 9.23% as a result - ,
- of its debt . management activities in 1989. We continually monitor the capital markets for oppor- _
tunities to refund other long-term securities if market conditions allow us to lower capital costs nl through such refinancings.- Short term Debt . _ Short term debt now is primarily used to meet fluctuations in working capital requirements due to- , the decline in construction costs. One of our goals is to maintain high ratings on commercial paper and to keep adequate bank lines of credit to provide maximum flexibility and safety.- The System uses a money pool to coordinate its short term debt requirements. The primary source - 'f of short term borrowings for the money poolis the issuance of the Corporationi commercial paper. , llank lines of credit aggregating $241 million are maintained by the Corporation. F CSW Credit issues commercial paper, which is secured by the assignment ofits receivables, to meet t its financing needs. CSW Credit maintains a revolving credit agreement aggregating $430 million. The maximum amount of consolidated short-term debt outstanding was $547 million in July _1989 3 and represented 10% of total capitalization at December 31,1989. This amount included $319 million of borrowings by CSW Credit. The average amount of short term debt outstanding dunng- J 1989 was $432 million, of which $269 million was applicable to CSW Credit. The weighted average , cost of short-term debt was 9.3% in 1989. CSW Credit CSW Credit, a wholly owned subsidiary, purchases, without recourse, the accounts receivable of our [ operating companies and those of other non affiliated electric companies. CSW Credit's capital structure contains greater leverage than that of our operating companies; consequently,it lowers the i System s cost of capital.
- t vm.m .
$9 __ _SSee '
31 aseen 5' A6 _amese di 0 N N MI to leM3 9 L.styt-lerm Dcht w PrVfttryd Mk 8 (4emm $to k Iqmt? I a i
L Csw Credit's purchase of System companies' receivables in 1989 resulted in average and year ciul
- amounts of receivables outstanding of $275 million and $253 million. During 1988, the average and -
year-end amounts were $264 million and $236 million. 16ew Accounting Standard ;
- Reference is made to Note 1 of the Consolidated Notes to Financial Statements-New Accounting ~
Standard for a discussion of Statement of Financial Accounting Standards No. 96, Accounting for Income Taxes, which has not been adopted by the System. 1 Proposed Accounting Standard . The Financial Accounting Standards lioard (IASii) is presently reviewing the accounting for Other Post Employment lienefits (OPEih). OPElk primarily relate to medical and death benefits paid to employees after they retire. Currentiv, the System accounts for these benefits on n ' cash basis. The - IAstiis considering changing the accounting requirements to an accrual basis.This would result in f ' a significant increase in the amount of benefit expense on the consolidated income statement and; the recognition of a significant liability on the consolidated balance sheet. The cffects would be mitigated to the extent that such cost increases could be recovered through the rates of our regulated operating companics. lissults of Operations . The Corporation's consolidated net income for common stock declined to $306 million in 1989
. from $324 million in 1988 and $372 million in 1987. Earnings per share in 1989 were $3.25 N compared to earnings per share of $3 A3 per share in 1988 and $3.92 per share in 1987.The decline -
in earnings in 1989 and 1988 was directly attributable to CPL % placing STP Unit 1 in service in August 1988 and placing STP Unit 2 in service in June 1989 without higher rates in effect to recover i the costs of the units.. CPL did receive approval to defer operating expenses and carrying costs of STP Unit I from the in.- service date through February 15,1990, and of STP Unit 2 from the in-service date to the date. rates j are placed into effect which reflect CPLiinvestment. As a result, $86 million or $.91 per share of . l STP Unit I costs and $24 million or $.26 per share of STP Unit 2 costs were deferred in 1989. - . 3 Additionally, deferred STP Unit I costs of $28 million or $.30 per share attributable to the period ' from August 25,1988, when STP Unit I went into commercial operation, through December 31, ! 1988 were included m 1989 net income for common stock. However, equity carrying costs deferred cannot be recognized in inconic for financial reporting purposes under current accounting rules. Equity carrying charges will be reported as earnings, to the extent the Texas Commission allows y their recovery, as they are collected from customers in the future. See Rates an'd Regulatory Matters
~ l for additional information on CPL regulatory proceedings. i Electric operations contributed 95%,97% and 96% of total earnings in 1989,1988 and 1987, while accounts receivable purchases, gas operations, leveraged leasing and ott.:r activities contrib.
uted the remainder. ; Operating Revemees . 1 Revenues increased 1.5% in 1989 and 2.8% in 1988 after declining 4.4% in 1987. The 1989 and - : ) 1988 increases primarily were due to rate increases and higher fuel cost recoveries. The 1987 decline . ) i i y l 1 1
y, . n
,= '
} ' J. Q -
1 4
, L,y q
+
e
~
m l, principally was due io. Idwer fuel costs; The effects oti revenues of these items and the effects of / x , fj c changes in rates are as follows, u l' , i increase (liccreak)J j 51' rom Prior Year.(. ,
...t 1989 1988^ 1987; i j
.(milliond >
1 Rate increaws $ 15- 5 33 ' 5 L 6f * , , j Rate decreases = ' (1) (29) ' j(8): 4
~ luel cost recovery ' , ; 13 : 39: : (117) ; '
Kwh saln und other- , L IO : ' 6 :- . "7l , , l
.'5'37 5 69' 5(I12)" 'd
~
9 Total kilowatt-hour (Kwh)' sales increased 1.5% iti 1989 and 3.9%'in 1988 after a slight decline in ' j
'1987. Kilowatt hour sales increased iri 1989 and 1988_fot the residential; commercial arid industrial l.
customer classes as shown in the follOwing table.: , , fincrease'(DecreaE); l' rom Prior Year' g $.f
'f
. 1989 J 1988 ' 1987 Jo J Rnidenti,1 ' '
' l.7% 3.8%' IJW , 'l Commercial ~- 2.83.0, 1.6 ,
s; Industrial ~ , 4.1 { J 2.9 (SJ); -M-! ' Sales for resale . (8.0) ' 8.91 .10.8 '[
'Ibial sales 13 -: .t.9 L ;(,2) ,
]
~
' Residential and commercial sales were up in 1989 primarily due th an increase in the total number ,
,:e of enstomers and increased usage per customer which is primarily weather related. The 1988 :
increase over 1987 was primarily due to unusually' warm summer weather in' our service territory..
)l The increase in industrial sales in 1989 and 1988, after declines in 1987, reflects an improvenient'in i
-14 the economy throughout our service territory.
Kilowatt hour sales in 1987 declined as a result of cogeneration by industiial customers. That year, . y CPL lost approximately 500,000 niegawatt hours of sales to cogeneration; cpl. responded by.. y3 offering incentive rates for large industrial customers. These rednced rares will remain'in effect , ' b ' until new rates are set in CPLi retail rate increase that is pending. As a condition of receiving at > s y discounted rate, an industrial customer had to agree to purchase firm power from CPL until 1991. j As a result,10 of the 16 eligible customers took part in this program. Each of our electric companies 3 continually strives to develop new business and to retain existing customers in the face of increasing H compeutton, j Sales for resale decreased 8.0% in 1989 as compared to 1988. The decrease is due en milder 9 f temperatures and smaller fuel price advantages which ~ reduce the opportunity for economy sales.
~ 4' Sales for resale were up in 1988 and 1987 as increased sales were realized due to colder than normal:
January 1988 weather in the Midwest, and hotter than usual weather in both the summers of 1987 - 1 and 1988 in the hiidwest and South. '! 1; Changes in retail base rates also affected 1989 revenues. CPLY $39 million interim rate increase 1 which was placed into effect in September 1989 added $15 million to 1989 revenues. k q l: , .g 1 ni 1 i 2 i L. 4 N a g (, .$. >,
Gas and other revenues reflect the operations of Transok and Csw Credit. The 19N9 decline is due to the loss of nonaffiliated customers by CSW Credit. This decline was offset, in part, by improved gas sales at Transok. The 1988 dechne is primarily due to Transok's reduced sales of natural gas and reduced transportation revenues. This decline was partially offset by increawd revenues from Csw Credit. Our future revenues depend on receiving adequate and timely rate increases from the regulatory bodies that regulate our operating companies, the general economic conditions in our service territory and, in the longer-term, our ability to maintain competitive prices in an increasingly competitive marketplace. cpl. presently needs significant rate relief. None of the other System companies has any retail rate fihngs in progress, and none is expected for the next few years. Our expectations for future rate fihngs are based on many assumptmns, such as inflation rates, tax rates, load growth and regulatory requirements. These assumptions can change and alter our current expectations. Economic conditions in our service territory are expected to continue to improse at a slow pace in 1990. We now project a 2.8% long term growth rate in sales, which is faster than the rate experienced during the last lew years, but slower than historical long-term growth rates.
]
Inel and l'urchased l'ourr Expense During 1989,1988 and 1987, the System's electric companies genciated 96% of our electric energy l requirements and purchased the remainder. Total fuel and purchased power expense increased 1.3% 2e in 1989 and 7.2% in 1988 af ter having declined each of the past three years. The increase in 1989 was due to increased kilowatt hours generated and purchased. Factors contributmg to the 1988 mcrease were increases in unit fuel costs and kilowatt hours generated. { Increaw (Decreaw) I rom Pnor Year Change m: 1989 1988 1987 (nulhons) Unu cost of fuel 5 (H $34 5 (89) Kwhs generateil 19 34 (41) Omt of Kwhs purchawd (9) 4 (l1) l Kwhs purchawd 6 (4) -
$ 13 $68 $(141)
The umt cost of fuel was $2.01 per million litu in 1989 and 1988 and $1.94 per million lito in 1987. The 3.6"4, mercase in unit luel costs in 1988 was attributable to higher spor market gas prices and to higher coal prices, resulting from increased Federal royalty taxes and contractual escalations. liigher unit costs of gas m 1989 were offset by mereased generation with low-cost nuclear fuel at STP. l.ower unit costs in l987 resulted from lower gas prices due to spot market purchases at attractive prices. Also contributing to lower unit costs in 1987 was the addition of more lower cost coal-fired capacity. The cost of nuclear fuel for s'IP was 53 cents per million litu for 1989. This cost was substantially l less than the System's average tuel tost m 1989 of $2.01 per milhon litu. The effects of the savings ) trom nuclear fuel wdl increase in 1990 when both units are in service for the entire period. We expect STP to provide approxunately 7% of total System annual generating requirements in 1990. Umt Fuel Costs ! n.m~ r u m.. m., ce 4 s~ ,w m : <. , [
]
w II Costs per million litu by fuel source, and percent of total lituVconsumed were: _ .. - _u.. ._u.f 81.a_198 8 - 118L Gai - ' 52.42 ,41 % 52.29 46% 52.18. 4R% Coal' I,96. 41 I 1.96 = 41 - 1.87' 43-
- 1. ignite : 1.27 9 l.2H - 9 1,i 1 - ' 9 Nudcar 53 5 .54 2- - -: "i Aurap unit cost 2.01 2.01 1.94; Other Operating Expenses and litxes y liigher operating expenses, including depreciation and taxes other than income, primarily reflect the costs associated with the two nuclear units being placed in service. The total increase in operating L .
and maintenance costs, however, was offset by the deferral of operating expenses, depreciation and > > taxes on STP Units 1 and 2. Taxes other than Federal income decreased in 1989. The decrease is due -! y to cpl., SWEPCO and WFU receiving Texas franthise tax refunds totaling $22 million. Thi, was i offset in pan by increased ad valorem taxes on STP Units 1 and 2 since their in service d'.tes. I inflation rates, as measured by the Consumer Price Index, have averaged about 4.4% c'aring the-three years ended December 31; 1989. We believe that inflation, at these levels, does n,t materially < affect the Corporationi results'of operations or financial position, However, under ensting regula; tory practice, only the historical ' cost of plant is recoverable from customers. As a rest it, cash flows , designed to provide recovery of historical plant costs may not be adequate to replace ; lant in future years. ~ n The increase in Federal income tax expense in 1989 is due to a much smaller amount of pre tax income being composed of nontaxable equity AFUDC. The 1988 decline in Federal income tax expense primarily was due to the lower 34% income tax rate under the Tax' Reform Act of 1986 _,
- and lower taxable income.
Deferred Carrying Costs Deferred plant carrying costs in 1989 reflect the deferred accounting orders on STP Units I and 2. The decrease in deferred plant carrying costs in.1988 resulted mainly from WTut 1987 deferral of
$25 million of carrying charges associated with its deferred accounting order on the Oklaunion -
Power Station. Wnts deferral of costs ended _in December 1987 when it implemented higher rates. ;; Interest Expense and Preferred Stock Dividends 1btal interest expense increased in 1989,1988 and 1987. Interest on long. term debt went up due to the issuance of additional longterm debt by cpl. In 1988c Short. term interest rose because of increased short term debt outstanding primanly due to the need for rate relief at cpl., Preferred stock dividends decreased in 1989 reflecting the reilemption of preferred stock'in the latter half of 1988. The increase in 1988 reflects CPLi issuance of auction preferred stock during the year. Allowance for Funds Used During Construction, A The declines in the amounts of AFUDC were dite to STP Units 1 and 2 going into service in August - 1988 and June 1989. With the continued reduction in the construction program, we expect relatively lower amounts of AIUDC. O , t
- t i
_, y .)!
CONSOUDMID STATEMENT 5 Of INCOME Central and South West Corporatmn a { hir the Years Ended Detember 31 Operating Revenues INNN I4KN I9KI on mns cucpt per share amounts) Electric 1(esidential 5 921 5 911 5 857 Commercial 673 657 635 Industrial 567 553 554 Sales for resale 179 181 170 Other 120 120 134 Gas and other 89 90 93 2,549 2,512 2,443 Operating Expenses .und *laxes iuel and purchased power 1,019 1,006 938 Other operatmg 458 4')9 376 hiaintenance 155 133 124 n Depreciation and amortiration 277 254 248 laxes, other than Iederal income 130 140 130 Deferred plant operating expenses (124) (1) (7) 1:cderal income taxes 142 112 175 2,057_ 2,053 1,984 Operating Ituwne 442 459 459 Other income and Deductions Allowance for eqmty funds used during construction 26 97 105 Deferred plant carrymg costs 85 3 25 Other 9 22 9 120 122 139 Income Hefow Interest Charges 612 581 598 Interest Charges
~
Interest on long term debt 236 233 221 Interest on short term debt and other 55 53 42 Allowance for borrowed tunds used during construcuon ( 16) (61) ( 67) 275 225 196 Net income 337 356 402 Preferred stock dividends 31 32 30 Net income for Common Stock $ 306 $ 324 $ 372 Average Common Shares outstanding 94.2 94.6 94.8 Earnings per Share of Common Stock $3.25 $3.43 $ 3.92
-~-
Davidends Paid tier Share of Conunon Stock $2.60 $2.44 $2.28 C9t'WT"'Tr P SIMLME Ni$ W 9!RINED i ARNINGS hir the Years Ended December 31 1989 1988 1987 (nulkons) Retamed Fantntys at Hegmnmg t>/ Year $ 1,412 $ 1,319 $ 1,165 Net income for common stock 306 324 372 Dc/.uw Conunon stock dividends 244 231 216 bedue Preferred stock redemption costs - - 2 Retamed I arnings at End of War $ l.474 $ 1.412 ;2 Ihe anompensmg notes to eunwhdated finanaal statements a e an mtegral part of these statements.
-m-....- .. . .
t , [m CONSullDATED STATEdf NTS OF CASH TLOWSl Centraland South West Corporation, _ _ . __._._,1- - for the Years Ended December 31 = = 1989; 1988 1987 i (milliom) . Operating Activities Net income $337 5356 ~$402' - Non-cash items included in net income Depreciation and amortization 305 273 264 Deferred income taxes and investment cax credits- 106 :52- 130 3
~ Allowance for equity funds ~used durirg construction (26) (97) (105) q , Deferred plant costs (209) (4) -(32)
Changes in assets and liabilities ' Account's receivable: ' (29) (25) . (S I)-- ; Prepayments and other (26) (10) -(2) l Accounts payable 24- 3 .(3) { Accrued interest (Il) (14) 8'
.Other
_J37) ip0) - - .,J24) . E
._434 106- -.587 investing Activities ' .>
Construction expenditures (289) (305) - (390)l Allowance for borrowed funds used during construction - .(16) -(61) (67) .q Non-affiliated accounts receivable purchases 87- . (39) . (78) 1 Other - 5 -
-2 J213) _(405). - (533)
Financing Activities a i Proceeds from issuances of 1.ong term debt - ^270 150 100- j Preferred stock Sale (purchase) of Corporation common stock 85 40 l (9) . (13) 1 1 lletirement of 16ng te m debt (14)- (62) (31)1 ;j lleacquisition of long term debt (253) (23) j (54) lledemption of preferred stock - (54) . (118) ; Proceeds from p<,llution control bonds held in trust 5 5 60 { Change in short term debt 72 36 210 'I Payment of dividends (275) i
-@63) (246)
_@S4)' 113 ?) _.98) . Net Change in Cash and Cash Equivalents 17 (38) 16 l Cash and Cash Equindents at Beginning of Year 16 54 38 } Cash and Cash Equindents at End of Year 5 33 $ 16 $ 54 A I l The accompanying notes to consohdated finanaal statements are an integral part of these statements.
)
)
4
- A j. . ,
;It h
,r s
F R.
,.. -i
- CONSOLIDATED BALANCE SHiETS ' .
~ Centraland South West Corporation {
9 J; __s ;-_. .~4 ;
* - As of December 3I 1989; 1988- ,j j (milliom) .
^
! ASSisl3 -
~ ' . Utility Plant -
lilectric . Production . - 55,653 ' 54,932-
- Transmission . .1,085 1,049 .
. Distribution 1,879 '1,763" ,
i. General s $15' 1490. '
' Construction work in progress ,
115j L746- -; Nuclear fuel 122' :117- -
- Gas - .265: <
273'
. 35% 35U . !
A
' Less- Accumulated depreciation 34_48 _2,219-
'g
. 7 2186, l ,,Z1,l_51,1 -
Current Assets .. Cash and temporary cash investments- 33 ~ le - ' Accounts receivable :353E '411 Materials and supplies, at average cost 59 44 -l Fuel inventory, substantially at average co. 177 il92
, Prepayments and other _;56-
'704' 719 q
-Deferred Charges and Other Assets i Deferred plant costs 240' 35 ;
Other 217 - 205.. , 4=
.. -457 ' J 240 -- >i
- $ 8,347 - $8,1 10.
H t l}
.l i
-: [
ji i-
'f ,
i i !
^( , ,
Tie accornpanying notes to consolidated Snancial statenuents are an integralpart of tirese statements. z r [1'-l. :i ,
a ll. 4 , I
- 4 -
I u... . .~ a .
._.y . -- ~ -. : s; -
As of Decemtwr .11 , w 1989; 1988 (nnllisns)'.
' t CAITIAllZATION AND 1.lAllll.ITil3 L Capitalikation - . .
Conunon stock, $3.50 par value, authorized 120,000,000 i, hares; . t issued and outstanding 94,095,000 and 94,361,000 shares 5; 32,9 $1330-Paid-in capital y_ , 844- -852. Retained earnings! L . Id74. . J.3,4_12 7btal Common Stock Equity; .,2,647 . 2,594' Preferred stock Not subject to manitatory redemption 291 '291 Subject to mandatory redemption -
~
106- 1051 l.ong-term debt 2 537 2,5141, Tbtal Capitalizatim: ' _S,581-S,504; ,, .i Currnit I.sabilities . 1.ong term debt due within twelve months -3 14 s Short term debt -247 126-Short term debt - CSW Credit '229- ,1 278-c . Accounts payable '184 160s L Accrued taxes + 56: 50- -f Accrued interest 58' 69 ; l Other 121 136 l 898 : 8.3_3. : Deferred Credits < Unbilled customer accounts 83 - o8I .\ . Income taxes .1,388 '1,279 l Investment tax credits 397- 413
-...lJ68 ' _,12]3,-
l- $8,347 -- $8,110 - ' l t 4 l l l l l
?
k 4 k a
^
.p ,
NORS TO CONSOUDARD flMANCIAL STATEMENTS Centraland South West Corporation
- 1. Summary el Sign.icent Accounting Policies .
Central and South West Corporation's (Corporation) four electric subsidiary companies-Cratral ~ 9" Power and Light Company (CPL), Public Service Company of Oklahoma (Pso), SouthwestEti i
. Electric Power Company (SWEPCO), and West Texas Utilities Company (Wru)'and the Corpora- .
tion's gas gathering and transmission subsidiary company, Transok, Inc. (Transok) feSow the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commisson.The Aiore - , significant accounting policies are summarized belowi i
\
Principles o[ Consolidation. The consolidated financial statements include the accounts of the . , Corporation and its subsidiary companies (System). All significant intercompany items'And transac-s . tions have been climinated. Utility Plant. Utility plant is stated at the original cost of construction, which includes the cost of j j ' contracted services, direct labor, materials, overhead items and allowances for borrowed and equity , funds used during construction. , c ,
, \ 1 r
, y' Allowance for Funds Used During Construction. The allowance for funds used during construetion'i
' l (AFUDC) is the result of an accounting procedure whereby amounts, based upon the level ofi <
construction work in progress'(CWIP), representing the interest on borrowed funds niid a return on at equity cdpital used to finance construction, are reflected as credits on the stat'e ments of income and ; charges to CWIP. AFUDC does not represent a current source of cash funds; Under established : . regulatory rate practices, a return on and recovery of such costs is permitted in determining the s rates charged for utility services. The gross composite rates averaged 11.7% for 1989 and 11.9% for f
' 1988 and 1987. The tax effect applicable to the debt component is recorded as a charge to deferred i e income tax expense.The System excludes from the calculation of AFUDC that portion of CWIP c ?
included in rate base for iate-making purposes. ,. ; 1 , Depreciation. For financial reporting purposes, provisions for depreciation of utility plant are : computed using the straight line method, generally e individual rates applied to the v'arious' classes. of depreciable property. The annual consolidated composite rqtes averaged 3.2%; 3.3 Wand 3 A% - for the years 1989,1988 and 1987. Nuclear Decornmissioning. CPLh portion of the estimated cost of decommissioning the South; ' i Texas Project (STP) nuclear power plant is'5138 million in 1989 dollars. This~ cost estimate will be reviewed and updated periodically. CPL is requesting recovery of decommissioning expen'ses over the : life of STP in its retail rate filing. %e funds received from customera applicable' to decominissioning will be paid to an irrevocable external trust. CPL will begin recognizing this cost upon the receipt of-an order by the Public Utility Commission of Tnas (Tuas Commission) authorizing the recovery . ~ q from its customers. j Electric Revenues and Fuel. Electric revenues are generally recorded at the time billings are made to customers on a cycle-billing basis, and the cost of fuel is charged to expense as c'onsumed. The cost of nuclear fuel is amortized to fuel expense based on a ratio of the estim'ated 11tu used a'nd , available to generate electric energy, and includes a provision for the disposal of spent nuclear fuel.
?
r i ! !. x; L N_
?f ,
* +
s
=~
Y ' it' w f;E w ; CPL, SWF.PCO and WTU recover fuel custs in Texas as a fixed component of base rates. The difference between fuel revenues billed and fuel expense incurred is recorded as an addition ta or a . >
. reduction of revenues, with alorrespo:Jding entry to accounts receivable or other current lia )ilities,' (
as appropriate. Over recoveries of fuel are to be refunded to customers; under recoveries may be - l billed to customers after Texas Commissmn approval. P50 uses a method 'of deferred fuel accounting in Oklahoma. The difference between fuel reienue a bil. led and fuel 4xpense incurred is recorded as a reduction of or an addition to fuel expense, vrith a:
~
corresponding entrp to a'ecounts receivable or other current liabilities, as appropriate Deferred fuel! ; costs are applied'to customers' billings as a portion of the fuel adjustment clause the second months - subsequent to the month in which 'the u'nder.recoveried or over recoveries occurred. > 3
-s:~ ti .
Unbilled Customer Accoim,t;s. Unlih'ed customer accounts arise from CSW Credit, Inc.'s (CSW- . ,
- Credit) purchase of System cbmpatues' accounts receivable for electriciervice provided, but not yet , 'r billed, to custoniers. 1 7l CSW Credit. A wholly odned subi,idiary of the Corporation, CsW Credit purchases, without . 4 recourse, the accounts receivable of the electric subsidiary companies, Transok and non affiliated , companies. At December 31,1989 and 1988, CSW Credit had total assets of $290 million and $352 c i milhont its net income ivas $8 inillion, $13 million and $9 million for the years 1989,1988-and 1987.E <
Statements of Cash Hors. For these statements, cash equivalents are considered to be highly' liquid ;n
~ '
. debt instruments purchased with a maturity of three months or less. Accordingly, the System's -l '
temporary cash investments are considered cash equivalents. , The following amount _s of interest (net of amounts capitalized) and income taxes were paid for cakh of the three years ended December 31. ;
- 1989 _ 1988 1987
' (nullions) interest $285 $229 $182. s Income taxes 43 - 80 69 ,
Y ' Restatements. During 1988, the System adopted Statement of Financial Accounting Standards (SFAS) ! No. 95, Statement of Cash Flows and SFAS No. 94, Consolidation of All Majority-owned Subsidii \ aries. As a result, financial statements for prior years have been restat'ed, consistent with these new: \ standards.These changes in accounting policy had no effed on common stock equity or net incolme. t.._ , New Accounting Standaid, in December 1987, the Financial Accounting Standards lloard (FASB) ; I' issued SMS No. 96, Accounting for Income Taxes. This staridard requires a change in the accounting , and repornng for income taxes from a deferral method to a liability approach and will be hdopted by the System no later than 1992. The change on the consolidated balance sheet will result in increases to (" the accumulated deferred income tax liability, to a regulatory obligation and to a regulatory asset.= 1 The adoption of this standard will not have a material effect on the consolidated results of operations. Reclassification. Certain financial statement items for prior years have been reclassified in order to conform to the 1989 presentation, j
- 2. FederallncomeTaxes The Corporation fi!rs in consolidated Federal income tax return. The tax liability is allocated among ( l the subsidiary companies generally on a basis consistent with their separate company taxable income i and tax credits.
.b
<q l
a- . c e.
3
\
\
Details of Federalincome taxes are as follows.
. .. 1989 198N 1987
' (millions) -
Included in Operating lixpenses and Taxes Current - $'48 $ 63 $ ' 80 - Deferred income taxes J T, Deferred STP cost., 70 -: . iJ Depreciation differences 67 56- 49= ,
- Alternative minimum tax - -- (51): + (3) J -
. Deferred fuel 'j. 13) 3' (1) -
- Unbilled revenues ' (9) - (12) (9)-
Reacquired debt costs : 7 .(2): (1) ? Repair allowance f 6; -6 e10= AIUDC- tmtrowed 4 20 25' Amortization of termin.ited plant ; i (1)5 (7). (12) property dnposition ;
- -9 !
Other- '4 ,; {2). 1,7, :- j _ 110 J H7
-{
Deferred investment tax credits - , provision
~
~ '. : 24 Amortization ' jl6): ,J10)jl,6) il % _lL9 8 Dl42- 112173 -
. Included in Odoer Income and Deductions \
Current : (12)' L(3)' (36)
- [
Deferred income taxes - d I. casing transactions and other . _9- 3 J- , (3) -' J}). ' l
- $139e$112 $172 a
. , . . r . . 'i Generally, taxes deferred in prior years are credited to income when book deductions exceed the - I related tax deductions. Investment tax credits (lTC) deferred in prior years are generally included in - i income over the lives of the related properties.
l Total income taxes differ from the amounts computed by applying the statutory Federal income tax . rates to income before taxes. The reasons for the differences are as follows; 4 i
=1989' % 1988 *4 .1987' %:
(millions) l 1 Tax at statutory rates $162- 34 $159 ' 34 J $229 40 i Differences 1 AFUDC - equity ' '(9)E(2)^ -(34) (7) (42) ~ (7) !
; Amortization of IK '(16) (3) ;(10) .(2) . (16). (3) ~ .
i Other _,2. j _QI ]l) M ; - -
$139 29 $112 24 $172 30 At December 31,1989, the cumulative net amount of income tax timing differences for which - i deferred incote taxes had not been provided and the related tax effect amounted to approximately-
$88 million and $30 million. i 8
i:l
' 1 h'
A 4
L I ' _, ' 4,. jab Laneionn DeM q iThe long-term dbbt of the subsidiary companies outstanding as of the end af the last two years was ' as follows, p hiaturities Interest Rates = December 31 - 'i From - 'Ib From - 'Ib - 19E9 1988 ,
< , , - (millions)
First mortgage bonds' _. . 1990' 1994 4%%' -9%%1 . $ 148 ' $ ~ 148 1995 ' 1999 ~5 % 9% 495. 495 , 2000 2004. 17 ' 9%' 254- '255. j 6.21 : 9% 2005 "2009 !429 1429-7%- 7%- " 2010 ~2014- 112 112 2015 2019- 8.85 ' = 11 % 623 ;319 ! ' Debentures , , 2015' 2015 12 ' 12- 17 - ' 85 '
; lbilution conmil bonds -
2000 2004 7%. 7% 22' ~ ~ 22 , 2005' 2009- 5.9. '6 83' 83 ,
=2010- 2016' '
7% 12 % . 415 410 ; ; Notes and lease obligations f 1993 ' 2008 .6%. 9%: . 83 Unamortized discount . . (60) -(56) ~
- i Unamortized costs of reacquired debt .. (88)J .(71) r t
' I
$2,537 - $2.514 -
f The mortgage indentures, as amended and supplemented, securing first mortgage bonds issued byJ 'r the electric subsidiary companies, constitute a direct first mortgage lien on substr ntially all electric utility plant. , ;l
~
Annual Requirements. The annual sinking fund requirements are generally lb of first mortgage i bonds'ontstanding. These requirements may be satisfied by the application et net expenditures for .! bondable property in an amount equal to 166%% of the annual requiremerts. 1 t At December 31,1989, the annual sinking fund requirements for each of thi next'five years were ;- l
$19 million; the annual maturities of long term debt, including sinking fund requirements were $22 million, $31 million, $23 million, $64 million and $174 million for the years 1990 through 19N. f i
- 1. imitations on Diriidends. The subsidiary companies' mortgage indentures, as amended and supple- .
mented, contain certain restrictions on the use of retained earnings for eash dividends on their '. common stocks. At December 31,1989, $951 million of the subsidiary companies' retained earnings s of $1,251 million were not available for the payment of cash dividends to the Corpor,ttion. These ' restrictions do not limit the ability of the Corporation te pay dwidends to its shareholders. Reacquired I.ong term Debt. During 1989,' 1988 and 1987, the electric subsidiary companies - , reacquired $253 million, $23 million and $54 million of long-term debt, including reacquisition premiums, prior to maturity. The premiums and related reacquisition costs are recorded as a = reduction to long-term debt on the consolidated balance sheets and are being amortized over ten to - 30 years. 4 j a h
. , .F i . * *
- 4. Preferred stock The preferred stock of the elecinc subsidiary companics outstandmg as of the end of the last two years was as follows. j 19H9 Current Shares Dnidend Rate December .I' Redemption Ou standnyg f rom 'lo 19H9 1988 Pnces (millums) t rom 'lo Not sut ect to mandatory redemption 592,900 4% 5% $ 59 $ 59 5102.'5 5109.00 760,000 7. I 2 N.72 76 7ei iOl/ i 102.91 600,000 a' coon 160 160 10n iM6 100.00 l*s ance expenses and unamor.
ti ed redemption costs (4) (4)
$291 $291 Subpret to nundatory redemptmn 650,000 6.95 % 7.25 % 5 65 5 65 5106.95 5107.25 500,000 10.05 10.01 50 50 104.76 104.76 j issuance expemes and unamor.
tued redemption costs .(9) (10) 5106 5105 N The outstandmg preferred stocks not subject to mandatory redemption are redeemable at the option of the electric subsidiary companies upon 30 days notice at the current redemption price per share. cpl's auction preferred stock totaling $160 million may also be redeemed on any dividend payment date at par. The System's authorized number of shares of preferred stock at December 31,1989 and 1
'l988, was 6.4 million.
1 ~~ Redemption prices of certain preferred stocks decline at specified intervais in future periods. The { preferred stocks subject to mandatory redemption are refundable at various times during the period l 1990 through 1995, i The minimum annual sinking fund requirements of the preferred stocks are $3.5 milhon, $8.5 million, $9.7 milhon, $9.7 million and $9.7 miliion for the years 1990 through 1994. The dividends on CPI A $160 million auction 1. referred stocks are adjusted every 49 days, based on current market rates.The dividend rates averaged 7.77%,6.43% and 5.16% during 1989,1988 and 1987. During 1988 and 1987, the electric subsidiary companies redeemed $54 million and $118 million of preferred stock, including redemption premiums. The premiums and redemption costs, except at PsO, are recorded as a teduction to preferred stock on the consolidated balance sheets and are being , amortized from five to 38 years. During 1987, PSO\ $2 million of premiums and redemption costs from the purchase of its preferred stock were recorded as a reduction to retained earnings. , f
- 5. Common stock in December 1989, the Corporation received an extension of its order from the 5ccurities and Exchange Commission, under the Public Utility Holding Company Act of 1935, allowing it to repurchase up to 10% of its outstanding common stock in open market and negotiated transactions as authorized by its board of directors. Common stock purchased and cancelled was 299,000 shares at an average price of $31.80 per share in 1989 and 458,000 shares at an average price of $31.42 -
per share in 1988. During the years 1986 through 1989, the Corporation issued a total of 87,000 shares of common stock pursuant to its Restricted Stock Plan for an aggregate cmount of $2.6 million. In accordance ! I k j l ( 1 i-- --um- =i= i i
p m $ 4 k wittiprovisions of the plan, deferred compensation totaling 5.7 million as of Decemiker 31,1989,- T has been recorded,'which reduces paid.in capital on the consolidated balance sheets. At December
- 31,'1989,24,000 of these shares were still restricted.
t JThe Corporation has a stock option plan, which provides for options to be granted at exercise i
. prices equal to market value on the date the option is granted. The plan also provides for the
; granting of stock appreciati<in rights (SARs), which permit the option holder to receive from the Corporation cash,~or shares of common stock with a fair market value equal to the appreciation in:
value of the shares. Under the plan,1,361,000 shares of common stock are available for grant as of. a
' December 31,1989. Information with respect to shares under options during 1989,1988 and 1987 1i' is summarized below,'
~
I __, s _ _ ,39,89 1988 19871 , Outstanding options at the begmning of the year l 142,300~ 184,175 l 16,800 7
' Options granted at $32.50 per share . -- -- 73,000 '
Options exerciwd at $32.25 to $32.50 (15,500) - > Options suttendered upon exercise of SARs - . (6,875) - - - -' - l Optiom lapped and cancelled J3 2700) (41 875) (5.625). j Outstanding stock options at end of year I16,225 142.300 184.175 :j
- The options outstanding at the end of 1989 were exercisable at $32.25 to $32.50 per share. At : 1' December 31,1989 and 1988,1,478,000 and 1,500,000 shares of common stock were reserved for.
options outstanding and for options which may be granted in the future. H
- 6. Short Term Financing The System has established a money pool to coordinate short-term borrowings and to make borrowings oiitside the money pool through the Corporation's issuance of commercial paper and i from bankscThe System maintains bank lines of credit aggregating $241 million.
j csW Credir, which does not participate in the money pool, issues commercial paper that is secured j by the assipiment of its receivables. It has a revolving credit agreement aggregating $430 million, y The lines of credit generally require an annual fee, d
- 7. Benefit Plans !
j The Corporation has a non contribntory defmed benefit pension plan covering subst!intially all ' l System employees. Ilenefits are bned on employees' years of service, age at retirement and compen. .i sation. The Corporation's funding policy is based on actuarially determined contributions, taking into account amounts deductible for income tax purposes and minimum contributions requinkl by i the limployee Retirement income Security Act of 1974, as amended. Pension plan assets consii -L primarily of common stocks and short term investments. The components of net pension cost are as follows. f l 1989 1988 1987-
- (millions)
Service cost $15
^[
$15 $16 Intereu emt on projected benefit obligation 38 36 34 Actual return on plan anets (71) - (47) (25)
Net amortization and deferral '33 15 (6) q
$15 $19 $19 Anumptions Discount rate H,3 % 8.3% 7.5%
Long tenn rate of compensation increase 6.2 6.2 6.2 Rate of return on plan aucts . H5 8.5 8.5 .
.i d
o ,
-h
A reconciliation of the funded status of the plan to the amounts recognized on the consohdated balance s heets is shown below, 1989 1988 (milhons) Plan awets, at market value $581 $509 Actuanal present value of Accumulated benefit obhganon for i,ervice rendered to date 420 396 Addmonal benefi' for future salary levels 88 _ H6 Preiceted ben: fit obhgation 508 482 Plan anets in exci n of (len than) proiccted benefit obhgation 73 27 Unrecognized net gain (98) (70) Unrecognized prit r service cost 16 22 Unrecognued net obhganon 23 27 Prepaid pensem cost Q $ 6 i The vested portions of the accumulated benefit obligations at December 31,1989 and 1988, were j
$377 milhon and $355 million. The unrecognized net obhgation at the time of implementation of j si:As No. 87 is being amortired over nine years. Prepaid pension cost is included in other deferred l 3 charges on the consolidated balance sheets. I in addition to the pension plan, the Corporation has medical and death benefit plans for substan-tially all active employees and employees who retire from the System. The Corporation's cost of providing those benefits was $30 million in 1989, covenng 8,231 active employees and 3,573 retirees; $23 milhon in 1988, covering 8,329 active employees and 3,729 retirees; and $20 million i in 1987, covering 8,811 active employees and 3,084 retirees.
A. Jelnuy Owned Electric UtHity Plant The electric subsidiary companies are parties to various joint ownership agreements with other non-affiliated entities. Such agreements provide for the joint ownership and operation of generating stations and related facilities, whereby each participant bears its share of the protect costs. The consolidated statements of income reflect all operating costs associated with plant in service. At I December 31,1989, the companies have undivided interests in five such generating stations and related facilines as shown below. cpl. STEPCO SWI.PCO South Ihnt STEPCO Dolet system Texas Creek Pirkey t hlls Okl'ausuon Nuclear Coal lagmte L. ignite Coal Plant Plant Plant Plant Plant (dolhrs in milliom) { Plant m service $2,2H 2 5 76 $429 $225 $400 Accumulated depreciation 68 28 68 26 35 Plant capacuy - mw 2,500 480 650 650 666 Partiapation 25.2 % 50.0 % H5.9% 40.2 % 78.1% Share of capacuy
- mw 630 240 559 262 520
- 9. Deterred Plant Costs i
Wru receive 6 approv d f.om the Texa3 Commission in 1987 to defer operating expenses and carrying costs from the December 1986 commercial operation date of the Oklaunion Power 5tation (Oklaunion) ! until December 1987 when retsil rates which included Oklaunion in WrU's rate ha e became effective. ! The deferred plant costs are being amortized over the hfe of the plant. I l 1 l 1 ( I 1
,. i
, See Note 101.itigation and Regulatory Proceedings- Dcferred Accounting for the discussion of CPIA deferred accounting orders on STP Units 1 and 2.
. 10. Litigslies and Regulatory Proceedings !
- CPlc IN'lRODUC7 TON. CPL owns 25.2% of STP, which is located near liay City, Texas, in addition to CPL, llousten I.ighting & Power Company (III.P), the project manager, owns 30.8%; the City of San Antonio (San Antonio) owns 28.0%t and the City of Austin ( Austin) owns 16.0L >
l'ROJECT COST AND SCilEDULE. The Texas Commission has issued final orders confirming - August 25,1988, and June 19,1989, respectively, as the dates that Unit I and Unit 2 were in commercial operation in accordance with its rules. CPIA cost of STP at December 31,1989, was -
$2,282 million inchiding AruDC of $881 million.
- RATE CASE SE7TLEMEN1; On February 8,1990,- CPL requested the Texas Commission to approve a Stipulated Agreement (Settlement) to settle all' issues in dockets currently before the Texas Commission invdving CPIA investment in STP These dockets include: (1) CI'Li request for a retail rate increase to reflect its investment in STP in rate base (See Retail Rate Filing),-(2) the prudence .
and efficiency of the construction of STl.' and CPIA prudence in participating in the project (See '
' pr_udence Review), (3) CPIA request for deferred accounting treatnient on its investment in STP Unit --
2, and (4) the extension of deferred accounting treatment on STP Unit I (See Deferred Accounting). 'l The Settlement has been entered into by CPL, the Texas Commission Staff (Staff) and nine of the u other fourteen intervenors in the STP dockets representing a _significant maiority of CPIA customers, which include the maior cities in CPIA service territory, industrial customers and others. Certain : intervenors including one industrial customer, a coalition of low-income ratepayers, South Texas Cotton Ginners, the Office of public Utility Counsel (OPUC) and Texas State Agencies have declitied to enter into the Settlement and oppose it, The Settlement _would allow cpl. to increase base rates in March 1990 by $105 million on a total company basis, in addition to the $39 million ofinterim rates placed hito effect in September 1989. d Fuel revenues were decreased $32 million annually when the interini rates were placed into effecti CPL would file for~an additional base rate increase of $120 million on a total company basis to . become effective on January 1,1991. Staff and the signing intervenors agree to support this filing as part of the Settlement. CPla base rates wouhl then be frozen through 1994, subject to certain force majeure events including double digit inflation, major tax increases, extraordinary increaus in - operating expenses or serious declines in operating revenues. Generally, force maicure provisions would not apply unless annual revenues at expenses have changed liy more than $25 million. After 1994, CPL may file for increases in base rates as needed. However, any increases in base rates in ; excess of 5% annually would be reduced by the excess, subject to maximum deductions of $25 million for 1995-1996 and $10 million for 19971999. Thr fuel portion of customers' bills will l l continue to be adjusted after review and approval by the Texas Commission. ; L i The Settlement would fully resolve all issues pertaining to the reasonable original cost of STP Units l- I and 2 and to the appropriaie amounts for inclusion in rate base.The original cost of STP would be included in rate base if the Settlement is approved by he Texas Commission. The Settlement also provides for operating expenses t nd carrying costs on STP Unit I to be deferred l until the first rate increase is placed into ef fect. CPL w ould defer costs on STP Unit 2 from June 19, ; 1989, the commercial operation date, until the effective date of the second rate increase when it - would be reflected in rates. Deferred accounting, from the commercial operation date until the first rate increase becomes effective, would include both operating expenses and carrying costs on CPIA investment in Unit 2. After the first rate increase becomes effective, CPL would only defer carrying costs on its investment in STP Unit 2. ! l l l hI
~
l Additionally, the Settlement provides for the Texas Commission to allow an accounting procedure which defers interest charges for STP to the extent of actual interest costs incurred during the deferral periods. This accounting procedure would allow the Corporation to recognize approx. imately 595 million or $1.01 per share in 1990 as income attributable to 1988 and 1989. Accounting rules do not allow the deferral of equity costs to be reported as income until such costs are collected from customers. CPL would forego recovery of equity carrying costs not recognized for financial .
- reporting. Such accounting procedure cannot be adopted for financial reporting purposes entil an order is received approving the Settlement.
The Settlement calls for the use of a rate-making technique called Mirror CWIP. Mirror CWIP assumes that CWIP_ included in rate base was a temporary _ loan from customers which would be repaid after the plant was placed in service, The temporary. loan is repaid through lower rates over a time period which approximates the period during which it was collected through higher rates. Consequently, CPL would capitalize $360 million of carrying costs as original construction costs ; and establish a liability _ to customers for a like amount to be amortized to income from 1991: < through 1995. Since all parties h'an not agreid to the Settlement, hearings in CPLt retail rate filing will continue. De Administrative Law judge (ALj) then may ask for hearings on the Settlement before sending a recommendation to the Texas Commission. The Texas Commission must issue an order approving , the Settlement before it becomes effective. The Texas Commission will have until the fourth quarter: j
.e - of 1990 to issue an order on the Settlement under current statutory time limits. However, the Corporation anticipates receiving a final order before the end of the statutory period.'If the Settlement does not proceed, continuation of hearings in the rate filing would culminate in a final order in the same time frame.
The Staff and intervenors entering into the Settlement have petitioned the Texas Commission to f ; allow CPL to place Settlement rates in effect in March 1990, on an interim basis subject to refund,i t until the regulatory process is completed. Hearings on the need to place Settlement rates in effect on' . an. interim basis will be conducted in early March. The Ay will make a recommendation on the interim rate request in mid-March, to allow the Texas Commission to issue an order on the request ' before the end of March 1990. ;j The approval of interim rates on a timely basis is a vital element of the Settlement'as well as final r.pproval by the Texas Commission. Intervenors not entering into the Settlement are expected to use alllegal means at their disposal to disrupt the Settlement process in order to gain additional
}
concessions from CPL. Although management cannot predict'whether the Settlement tvill ultimately ' I
. be approved by the Texas Commission, every effort will be used to obtain such approval.- ,
Management believes that the Settlement is in the best interests of both CPLs ratepayers and the i Corporation's stockholders. -i . RETAlt RATE HLING. CPL filed in February 1989 with allincorporated cities it serves that have ] retained original jurisdiction and with the Texas Commission for an increase in its retail rates (Docket No. 8646). The request reflects the commercial operation of STP Unit 1. The filing includes [ a four-step phase-in plan over nine years. CPL's total STP investment would be included in rates after the implementation of the fourth step. In the first year, rates would increase by 16% or 5125: i i million, net of $29 million in reduced fuel costs. CPL then would seek permission to increase rates in each of the following three years by 10%,10% and 5% respectively, based on current estimates. q Under present sales forecasts, rates would be unchanged for the remaining five years. Costs deferred l under the plan would be recovered over the last six years. ! 1 BROWN & ROOTSE7TLEMENT. As the result of the sett!cment of litigation filed in December ; 1981, each of the STP owners received a pro rata share of $750 million from Ilrowti & Root, Inc. (15rown & Root), the former architect-engineer and constrwtor of the project, payable in quarterly payments over seven years, without interest. CPL clected to receive 5146.8 million, the present value ' ; of its share of the settlement, in December 1985. This amount was recorded as a reduction in the . cost of STP.
+
1 H
w I
. PRUDENCE RIWlEW ' .
Texas Commissioril'roceJdings . . In 1985, the Texas Commission hired 1.ubow, McKay, Stevens & l.cwis (Lubow) to review the _ prudence and efficiency of the construction of STP. In June 1986, Lubow submitted a report to the Texas Commission, covering the period from 1973 through January 1983. Lubow claims in its _ . report that $1.1 billion to $1.3 billion of direct costs were spent irnprudently on STP by all owners. ;
. According to 1.ubow's report, these amounts do not include Al UDC or rate effects that, Lubow .
concluded, substantially. offset each other. The amounts also do not take into account the proceeds - a froni the llrown & Root settlement. The report recommends that the Texas Commission decline to review the merits of the llrown & Root settlement and concluded "that it was not unreasonable for the STP owners to settle the litigation on the terms they did." In 1986, the Texas Commission' opened Docket No. 6668 for the purpow of determining the 4 prudence and efficiency of planning, ma'nagement and construction of STP, The accounting treat-
-ment of the llrown & Root settlement proceeds will also be determined in this docket.
In June 1989, Ernst & Young (1:NY), previously Ernst & Whinney, which was appointed by the
- Texas Commission to review HLP's prudence related to STP, issued its report relating to the prudence of management and the reasonableness of costs associated with STP. The report concluded that there were 37 months of unreasonable delays associated with Unit I and 22 months of unreasonable delays associated with Unit 2. l The ENY report found total project costs of $1.565 billion to be unreasonable. These costs includ'ed 81 '
h the effects of delays and AFUDC of $1.218 billion, computed at HLPk AIUDC rate. The total _ unreasonable costs are net of the $502 million that ERY determined to be the proceeds received from the llrown & Root settlem'ent of litigation with STP owners. F&Y reported that unreasonable activities, consisting mainly of mismanagement during the llrown
& Root era of construction and the unnecessary expendit'ures during the transition to a new architect engineer and constructor, cost the project $460 million, including associated AFUDC and'-
net of an allocation of $206 million of the llrown & Root settlement.The report further stated the :i unreasonable delays cost the project $1.105 billion in fixed costs and escalation, including associated AFUDC and net of an allocation of $296 million of the lirown & Root settlement. i The reporth final phase was a revenue requirements analysis which quantified the rate effects resulting from unreasonable activities and unreasonable schedule delays. The revenue requirements analysis of unreasonable schedule delays indicated that the delays did not ultimately increase costs to HLP's ratepayers. Rather, the results showed that the benefits of delay exceeded the costs of delay and consequently there is no disallowance for delay costs. Although the report further stated that i the benefits of the delay more than offset the unreasonable activity-related costs, ENY did not - recommend offsetting the benefits of the delay against the unreasonable activity costs for d ratemaking purposes. In August 1989, CPL requested that ERY calculate the effect of its recommendation on CPL As a i : result, ENY filed a response to that request in October 1989 which stated that $113 million of CPL's investment in STP Units I and 2 should be excluded from rate base. CPL has filed testimony, as ; discussed below, indicating that its ratepayers were not harmed by the delay. l In January 1989, the Texas Commission appointed Resource Management International, Inc. (RMI), j to review CP!/s management decisions regarding S1P. In June 1989, RMI issued its review of events ; during the 1973-1982 period in which it found, with one exception, no reasonable basis for disputing the prudence of CPLs management conduct. This exception concerned CP!/s prudence in i its evaluation of the continued viability ofits participation in STP due to a lack of timely analysis of 4 announced budget increases and schedule extensions. RMI did not associate any increased STP cost to such conduct. 'i I l l l f L
, i
4
. IrIlewenor Testimony l ,
.in August 1988, OPUC filed testimony in Docket No. 6668 calling for a disallowance of certain ;
costs of STP after taking into account the $cttlement with lirown & Root, in October 1988,'OPUC supplemented its prior testimony asserting that $1.050 billion or.42% of its estimated cost of CPIA share of STP should be deemed unreasonable and excluded from any rates charged by CPL Ol'UC indicated that it did not consider the reasonableness of the costs incurred subsequent to the
,, replacement of the former architect engineer and that the recommendations contained in the testimony are preliminary and subject to change based upon final' costs and commercial operation
' dates for STP Units 1 and 2. .
In September 1988, a group of cities served by CPL filed a consultanti report in Docket No. 6668 L with the Texas Commission. The report, after taking into account the settlement with lirown & Root, recommends a disallowance of $1.105 billion, or 53% of its estimated cost of CPla share < of STP. . I CPL Testimony . i\ CPL filed in l'ebruary 1989 in Docket No. 6668 and m its reta I rate filing with the Texas Commission an extensive report prepared by The Nicisen Wurtter Group, Inc.] Nielsen' Wurster). The report, done at the request of CPLA counsel, reviews all aspects of the reasonableness of project ; planning, design, construction, start.up and licensing of SI P. Unit I was examined from pre-construction through the co.nmercial operation datet Unit 2.was examined from pre construction
-a : throiigh September 1981. The report reviews all phaws of the development of STP to' determine the' cause of schedule delays and increased costs related to any,tinreasonable performance. The report quantifies for all of STP.a total of $1.043 billion of unreasonable costs, including Al:UDC at CPIAl rates, before giving effect to the llrown & Root settlementi The report finids that of the 94.4 months of delay from the initial date of scheduled commercial'-
operation,64.9 months was unavoidable and uncontrollable delay due to regulatory m'atters,- ! industry environment and other circumstances. The remaining 29.5 ' months delay results in total ! foreseeable costs due to unreasonable decision making or performance of $767-million. The report , also finds $276 million of non. delay costs attributable to unreasonable performance. { The report finds that CPL was prudent in its activities as a member of the STP Management Commntee. The report also concludes that lirowii & Root, as architect engineer and constructor, was responsible for $814 million of the unreasonable costs and that ill.P, as project manager, was 'i responsible for the remaining $229 million of unreasonable costs.The report concludes that the' 1985 llrown & Root settlement of the STP litigation reasonably compensated the STP owners for lirown & Rooth performance failures. g cpl. fded additional testimony in Dockets No. 6668 and No. 8646 of Morris li. jacobs, a principal
)
of ENY, previously Arthur Yoimg & Company.Jacobs used the Nielwn. Wurster findings to-determine if any adjustments to STP costs were necessary. Jacobsloncluded that, based on an economic analysis of the net present value of revenue requirements, the pre 1983 project delays did not harm CPLA ratepayers. l'urther as to post.1983 delay costs and the mircasonable non delay costs , found by the Nielwn. Wurster report,Jacobs concluded that the proceeds received from the lirown ' j
& Root settlement exceeded the unreasonable expenditures and that no adjustment to STP costs is- q necessary. ;
CPL previously filed a report in Ichruary 1988 in Do'cket No. 6668 prepared by Drs. Dyer and Ashley of the University of Texas. This report was suppleniented in February 1989 and additionally was filed in Docket No. 8646. The report reviewed aspects of CPIA management decisions and monitoring activities regarding STP. Dyer and Ashley reviewed CPIA activities based on the use of appropriate corporate objectives and information available at the time decisions were made. The p report concluded that CPla management decision making and processes related to STP were ' reasonable and prudent. I
-l t
1 y
-l
' DETERRED ACCOUNTING. In April 1989; CPL was grtnted deferred accounting on STP Unit 1 by; >
the Texas Commission /The Texas Commission's order allows CPL to defer operating and m'aintcJ nance costs, taxes, depreciation' and carrying costs, including an equity return, for Unit 1. The : equity return cannot be reported as income during the deferral period under generally accepted accounting principles. CPlican defer Unit I costs from the time it went into commercial operation ;
- until February 15,1990. CPL has requested Texas Commission approval to continue to defer STP.
- Unit I costs after February 15,1990, until rates reflecting STP Unit i become effective.
Deferred accounting has an immediate positive effect on net income, but cash earnings will not
- increase u_ntil new rates go into effect reflecting STP in service. The Texas Commission will .j
' determine during CP!A rate case the extent that such costs are prudent, reasonable and necessary and can be charged to customers. The Texas Commission will also determine the period over which 1 costs can be recovered.- g q CPL requested in its retail rate filing that the Texas Commission grant deferred accounting on' STPf _
Unit 2 ir. the same manner allowed for STP Unit 1. In August 1989,'the ALJ in CPIA retail rate filing -
, ] t granted a motion by CPL to sever deferred accounting on STP Unit 2 from thiretail rate case into a separate phase of the proceeding. Hearings were held in December 1989. On February 8,1990, the ALJ issued an interim ordet allowing CPL to defer carrying cmts and operating expenses for STP9 Unit 2 from the date the unit was placed in service u6til the date rates which reflect STP Unit 2 'are '
in effect. 1 Thb following amounts were deferred pursuant to these orders in 1989 and ar'e reflected in the ' 4:
-consolidated statements of income.
STP Unit i . STP Unit 2 :i (millions) _ 1 Operating expenses $100. $24' ; Carrying costs , 72 12! -
- 172 -- 36 Federal income taxes _58 - 12[
Net income $114' $24 1 Deferred STI' Unit I costs of $28 million attributable to the period from August 25; 1988, when STP Unit I went into commercial operation, through December 31,1988, were included in 1989 net income for common stock. CPL recorded equity carrying costs for regulatory purposes of $120 , million, net of tax, for STP Unit I and $24 million, net of t'ax, for STP Unit 2 which are not reported . in the consolidated statements of income. In July 1989, OPUC and Exas State Agencies filed appeals in the district court of the Texas' Commission's final order approving deferred accounting for STP Unit 1. These appeals are still j
.t pendin'g before the district court. OPUC and Coastal Refining and hlarketing, Inc. have filed appeals I to the Texas Commission of the AIJ interim order allowing deferred accounting for STP Unit 2; j
If orders granting deferred accounting on STP Units I and 2 are ultimately reversed upon appeal, tlIe . .l Corporation would experience a significant adverse effect on the results of operations hlanagement i believes that the deferred accounting orders will be upheld = ! VIAL 3fLITY REVIEW. In hiarch 1985, Docket No. 6184 was initiated for the purpose of gathering. j evidence concerning the economic viability of STP Unit 2. Initial hearings were held in January = i 1987, and final phase hearings were held in October 1987. This docket was dismissed in June 1989. i. HLP SUIT CPL and the Corporation were served in January 1988 a prition (Petition)Jwhich HLP ' filed in Dallas County in the 101st judicial District, asking the Court for authority to add CPL, the -s Corporation and San Antonio as parties to a suit (Austin Suit) between HLP and Austin. The Caurt
-l n
I
...........-.,,m.
granted it!.Pi motion. The Auntin Suit was filed m January 1983 and the status is discussed below. The Court, in a subsequent hearing, severed for a separate trial lit.Pilawsuit against cpl., the Corporatmn and San Antonio. Hl.P also has filed another original petition in Matagorda County against cpl., the Corporation and San Antonio requesting the same relief as requested in the Austin Suit, which remains pending subject to a plea in abatement. No other action has occurred in the Matagorda County lawsuit. ill.P has asserted in the Petition that if it is liable in Austin for any damages in the Austin Suit, litt is entitled to contribution or indemnity from cpl., the Corporation and San Antonio because all the activities complained of were decisions or activities of the sTP Management Committte, which had members from all STP participants, rather than Hlf t sole decisions as project manager, or that lit.P was acting as an agent for the other panicipants and, therefore, all participants are liable for the actions complained of by Austin. Hl.P bas alleged that the Corporation is a proper party to this suit j because it participated through control of and direction of cpl. m all major STP decisions. l Management believes that 111 P does not have a sustainable claim for coninbution or indemnity i against the Corporation or cpl.. l Hl.P also is seeking a declaratory judgment construing the STP Participation Agreement to the effect { that lit.P, as proicct manager, has no liability to Austin, San Antonio, cpl. or the Corporation for its actions relating to any matter complained of in the Austin Suit. Ill.P also has requested the Court l to direct implementation of alternative methods of dispute resolution as authoriicd by Texas law, y such as non bindmg arbitration,in order to settle the disputes related to STP, in March 1988, pursuant to the STP Participation Agreement, cpl. and San Antonio called for binthng arbitration of the disputes with Hlf. The arbitration call stated that til P as project manager has breached its duties and obligations to the other STP participants and is liable to cpl. and San Antonio for damages and that cpl. and San Antonio have no liability to Hi? for any portion of the damages alleged against til P by Austin. Also on that date, cpl. filed with the Court { l its response to the Petition. In that response, which was filed subject to arbitration, cpl. requested the Court to abate both of lit.P's petitions until the conclusion of arbitration, limit all action to the , arbitration procedure and compel arbitration in accordance with the STP Participation Agreement in the event tilf refuses to arbitrate. Subject to its request for abatement, CPL has counterclaimed i agamst Hl.P lor damages in an unspecified amount related to Hi P; breach of duties and obligations ) pursuant to the STP Participation Agreement, requested that all relief sought against cpl. and the Corporation m the Pention be denied, requested that the Court enter a declaratory judgment ( t construing the sTP Part cipation Agreement and declare tilf liable to cpl. for breaches thereunder and stated that the Corporation is not a proper party to the action. In April 1988, Hi P filed a brief contending that the Corporation's and cpl?s request for arbitration l is improper because the issues raised and the relief sought by the Corporation and CI" are not I subject to arbitration under the STP Parncipation Agreement. In December 1989, because of the result reached in the Court in the Austin Suit, HIf filed a motion for summary judgment alleging that the doctrine of collateral estoppel and related doctrmes precluded any recovery by cpl. against lilt. The Court has not ruled on this motion. AUSTIN Surt. Originally in January 1981, Austin filed suit against Hlf and its parent company, Houston Industnes incorporated (Illi), alleging that HI P had misrepresented the capabilities of the ongmal arclutect engineer and constructor of the project and had failed to properly perform its duties as protect manager. In July 1989, a state district court jury found for HL P and Hll in the Austin Suit. Austin appealed , the decision of the state district court jury and other pre. trial decisions of the trial judge to the i Dallas Court of Appeals in January 1990. Management cannot predict what effect these decisions and appeal will have on the vanous actions between cpl. and Hl.P. SUAIA! ARK Although management cannot predict the outcome of the vanous STP proceedings, management beheves that CPIA participation in $1P and its perlormance have been prudent and its l
w 3 t investment in STP is recoverable through rates 6r from IIEP. However,if any significant costs of STp? < 3 i are not recovered; there would be a material adverse effect on the Corporationi and CPEt results of operations.' SWEPCO
'In April 1989, the Texas Commission requested that STEPCO provide additional selected financial :
information by June 26,1989, in order to assess the impact of recent changes such as the Tax - 1 Reform Act 'of 1986, major plant additions and other matters on SWEPCO s Texas itirisdictional cost of service. The Staff reported to the Texas Corumission, based upon information previously . furnished by SWEPCO, that SWEPCO does not appear to be over-carnieg. The Texas Commission - 1 c has taken no further action on this matter. Under rules established by the Texas Conunission, electrie utilities rscover fuel costs as a fixed component of base rates subject to reconciliation._ in June 1989, the Texas Commission petitioned that SWEPCOk fuel cost be reviewed and reconciled. SWEPCO received approval to expand the scope. of the proceeding tn include the redetermination of its current fixed fuel factors. The filing requests the Texas Commission's approval to collect from its Texas retail customers $15 million for under-recovered fuel costs and interest. The under recovery occurred during the period July 1986 through
' October 1989 The Staff filed testimony in early 1990 which, tolthe best of STEPCOt belief, recommends the m ;
reclassification of certain items from recoverable fuel cost ainthorized in'a prior fuel docket to basef rates amounting to $60 million and disallowance of certain historical fuel costs amo'unting to $30 ( , #' million. SWEPCO filed rebuttal testimony to the recommenc. . ions related to the fuel reconciliations; ' H Af ter a hearing in February 1990, before an AEJ, the Texas Commission will issue its order.The j order is expected no earlier than mid 1990. Although there is no assurance that SWEPCO ivill = j ultimately prevail in either of these material matters, the Staff's current position is in conflict with ; carlier Texas Commission rulings as to.the appropriate operation of SWEPCOk fix d fuel factors. ; Further, there can be no assurance that the full ammint of the under-recovery will be allowed. q SWEPCO intends to pursue this matter and believes that the ultimate resolution will not have a - 0 material effect on the results of operations. GENERAE EITIGATION 11 i PSO and, in some cases, Transok, which senes as Psoi agent for acquisition of gas supplies, have : q been named defendants in complaints filed in Federal and state courts of Oklahoma and Texas in 1984 through early 1990 by gas suppliers alleging breach of certain gas purchase contracts. Cases ' d currently pending seek approximately $28 million.'The plaintiffs seek relief including acttial' damages through the filing dates as well as attorney fees and interest from the dates of the alleged breaches to the date of judgment, in 1989 and early 1990, as a result'of settlements among the . . 1 parties, certain plaintiffs dismissed their claims with prejudice to further action.The settlements did. 1 not have a significant cffect on pSO's or Transok's results of operationis. The remaisiing suits are in : 1 the preliminary stages. hianagement cannot predict the outcome of these proceedings. However, management believes that Ps0 and Transok have defenses to these claims and intends to pur- 4 sue them and that it is unlikely the ultimate resolution of the remaining stilts will have a material
'j adverse effect on pSO's or Transok's results of operations. '
In March 1988, the Supreme Court of the State of Oklahoma (Oklahoma Supreme Cotirt) issued its
-}
decision in Golsen et al. v. ONG Western, in its ruling, the Oklahoma Supreme Court concluded . that the Corporation Commission of th~ e State of Oklahomai(Oklahoma Commission) ratable take
- rules were directed only to purchasers of gas and did not serve to constrain the volumes of gas that ]ld1 a producer could lawfully produce. PSO filed a brief in support of a petition for rehearing stating- >
that this deterinination is inconsistent with the Oklahoma Commission's orders related to the : j ratable take rules and represents an impermissible collateral attack upon the Oklahoma Comnus-1 sion's orders, in June 1988, the Court, without comment, denied rehearing. It is PsO's position,- { however, that the Oklahoma Commission is nevertheless under a mandatory duty imposed by J l i a _ I
e >
) .-
t< a 1
.x
,, . q y!
}l statute to reduce'the amount of gas that can be lawfully produced 'when market demand is less than j
, available supply. If it is ultimately determined that there were no constraints upon the volume of gas J"
'which could be lawfully produced, Pso could be exposed to significant additional take or pay claims. Ps0 instituted proceedings before the Oklahoma Commission seeking a determination with -
respect to this issue. In hiay 1989, the Oklahoma Commission dismissed these proceedings on :
- jurisdictional grotindsj.md this decision is currently tinder review by the Oklahoma Supreme Court. 3 hianagement cannot predict the outcome of these proceedings. However, Pso believes that it has ti additional defenses to these clairm based upon Pso's own contracts with producers and intends to.
. pursue them and that it is unlikely the ultimate resolution of these procedures will have a material.-
t ,; adverse effect on P50's results of operations. e P50 has been named defendant in complaints filed in Federal and state courts of Oklahoma in 1984, 1985 and 1986.The complaints allege, among other things, that some of the plaintiffs and the- n j property of other plaintiffs, were contaminated with polychlorinated biphenyls and other toxic by- _ 5 products following'ccrtain incidents, including transformer malfunctions in April 1982, December L , 1983 and hiay 1984, htore than half of the complaints also named the manufacturers of the electrical" ;! equipment as defendants. The komplaints include claims for both actual and punitive damages qi totaling appmximately $1.1 billion.To.date, approximately $67 million of claims have been dismissed, certain of which resulted from settlements among the parties. The settlements did not; have a significant effect on Psov results of operatio.ns, in addition, potential dismissals of approxs a C imately $12 million are currently pending. Discovery with regard to the remaining 44 complaints is d 1 in the early stages, hlanagement cannot predict the outcome of these proceedings. However,- management believes that the Company has defenses to these claims and intends to pursue them : and that it is unlikely the ultimate resolution of the remaining claims will have a' material adverse j effect on PSO's results of operations. , j ;
- 11. Commitments and Contingent Us6ilities It is' estimated that the System will spend approximatcly $304 million for construction purposes in 1990, including AFUDC of $5 million. Substantial commitments have been made in connection with i ;
the construction program. In connection with the lignite mining contract for its Henry W. Pirkey Power Plant, SWEPCO has - agreed, under certain conditions, to assume the obligations of the mining contractor as incurred up . to a maximum of $91 million. As of December 31,1989, the total of the obligations outstanding, a- -[ ' portion of which is iricluded in the mining contractor's monthly billing, was $74 million. Nuclear Insurance. In connection with the licensing and operation of STP, the owners have purchased l the maximum linuts of nuclear liability insurance, as required by law, and have executed indemnifi- 4 cation agreements with the Nuclear Regulatory Commission (NRCh in accordance with the financial protection requirements of the Price-Anderson Act. The Price Anderson Act, a comprehensive statu:ory arrangement providing limitations on nuclear i liability and governmental indemnities is in effect until August 1,' 2002. The limit of liability'under the Price-Anderson Act for licensees of nuclear power plants is $7.541 billion per incident. The ' , owners of STP are insured for their share of this liability through a combination of private insurance: ; and a mandatory industry-wide program for self insurance. The maximum amount that each licensee may be assessed under the industry wide program of self-insurance following a nuclear ' ; incident at an insured facility is $66.15 million (which amount may be adjusted for inflation) for ? cach licensed reactor, but not more than $10 million per reactor for each nuclear incident in any one 3 ' year. cPt. and each of the other STP owners are subject to such assessments, which CPL and the other owners have agreed will be borne on the basis of their respective ownership interests in STP. For purposes of these assessments, STP has two licensed reactors. NRC nuclear property insurance regulations require licensees of nuclear power plants to obtain on-site property damage insurance in a minimum amount of $1.06 billion. NRC regulations also ; require that the proceeds from this insurance be used first to ensure that the licensed reactor is in a 1 4 ! safe and stable condition and can be maintained in that condition so as to prevent any significant ' risk to the public health or safety. Further, NRC regulations require that any remaining insurance - j 1 l' ) l
't i i1 .
procseds be used fi st to complete' any decontamination operations that may be ordered by the NRC. On November 6,1989, the NRC published a notice of proposed rulemaking which would, . ! among other changes, climinate from nuclear property insurance regulations the requirement that j ' post accident insurance proceeds be paid to a special trustec The owners of S'It currently maintain on-site property damage msurance m the amount of $1.585: I billion provided by American Nuclear Insurers and Nuclear Electric insurance Limited (NEIL).' Policies of insurance issued by NEIL stipulate that policy pmceeds.must be used first to pay ' f decontamination and clean-up costs, before being used to coser direct losses to property. CPL and j 1-il.P are niembers of NEIL and are subject to annual assessments, which could amount to approxi-mately $9 million for the current policy year November 15,1989, to November 15,1990, in the . event that property losses as a result of a covered accident at a nuclear facility of any NEIL insured - exceeds the accumulated funds available to NEIL. CPL and the other owners of STP have entered into an agreement that provides for the total cost of decontamination liability and property insurance for STP (including premiums and assessments) to be shared pro rata based upon each owner's respective ownership interests in STP. In 1989 CPL purchased, for its own account, extra expense insurance under the NEIL I Extra Expense Program. This insurance would reimburse CPL for extra expenses incurred to generate or : purchase power lost as the result of a covered accident that shuts down production at STP for more than 21 weeks. The weekly indemnity for each of the two operating units at STP is $.6 million. The , maximum amount recoverable for each of the units is $66 million. CPL is subiect to assessments, .p which could amount. to approximately $2 million for the current policy year, November 15,1989,to' November 15,1990,in the event that losses as a result of a covered accident at a nuclear facility of any NEllIinsured exceeds the accumulated funds available under the NEIL 1 Extra Expense Program.
- 12. Quarterly information (Unaudited) ..
The following unaudited quarterly information includes, in the Corporation's opinion, all adjust-ments (consisting only of normal recurring adjustments except for the 1988 effect of CPLi deferred-accounting order on STP Unit I recorded in the quarter ended March 31,1989, as discussed in Note
- 10) ne.essary for a fair presentation of such amounts. .
Earnings Operating Operating Net perShare Revenues ' income Income of Common _ Quarter Ended _ (millions) Stock 1989 March 31 $576 $100 $ 80 $.77 June 30 598 = 117- 78 .75 September 30 764 176 134- 1.34 December 31 611 99 45 .39 , _19P March 31 $559 $ 88 $ 74 5'.70 June 30 590 106 88 .84 September 30 794 183 160 1.61 December 31 569- 82 34 .28 Operating income, net income and earnings per share were restated for the quarter ended September 30,1989, to reflect the Aldiinterim order approving CPL's deferred accounting request on STP Unit y 2 as discussed in Note 10. Operating income and net income for the quarter ended September 30, 1989, were increased $5 million and $12 million from amounts originally reported as a result of the restatement. Earnings per share of common stock for the quarter ended September 30,1989, l' increased $.12 per share as a result of the restatement. information for quarterly periods is affccted by seasonal variations in sales, rate changes, timing of fuel cxpense recovery and other factors. ,
l o EllEPORT DF INDEPTNDENT PUBUC ACCOUNTANT $ To the Shareholders and licard of Directors of Central and South West Corporation: We have audited the accompanying consolidated balance sheets (4 Central sud South West . j Corporationi (a Delaware corporation) and subsidiary companies as of December 31,1989 and
- 1988,; and the related consolidated statements of income, retained earnings and cash flows for each .c of the three years in the period ended December 31,1989. These financial statements are the - l responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally' accepted auditing standards. Those stan-
= dards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, .
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by' management, as well as ; evaluating the overall financial statement presentation. We believe that our audits provide a :- reasonable basis for our opinion.- lIn our opinion, the finiancial statements referred to above present fairly, in all material respects,' -
- the financial position of Central and South West Corporation and subsidiary companies as of <
December 31,1989 and 1988, and the results of their operations and their cash flows for each; 4 of the three years in the period ended December 31,' 1989,in conformity with generally accepted ; accounting principles. ., 1
&?a;{ J M d.
Arthur Andersen & Co. ; Dallas, Texas, , February 21,1990. LF a I s L a 1 l r l
,f 5 ~
l _1-
- 1 r
i
'(
1
m. REPORTS OF MARAyur21 AND MDli COMMifitt hapert ellearnement hianagement is respon<ible for the preparation, integrity and objectivity of the consolidated financial statements of Central and South West Corniration and subsidiary companics as wril as all other information contained in this Annual Report. The financial statements have been preparnl in conformity with generally accepted accounting. principles applied on a condstent basis and, in some cases, refleet amounts based on the best estmain and judgments of management, giving due consideration to materiality. Financial information contained elsewhere in this Annual Report is consistent with that in the financial statements. He Corporation, together with its subsidiary companin, maintains an adequate system of internal controls to provide reasonable assurance that transutions are executal in accordance with manage-menti authorization, that financial statements are prepared in accordance with r,enerally accepted accounting principles and that the assets of the companies are properly saf guarded.%e system of internal controls is documented, evaluated and tested by the Systemi internal auditors on a continuing basis. No internal control system can provide absolute assurance that errors and irregularities will not occur due to the inherent limitations of the effectiveness of internal controls; however, management strives to maintain a balance, recognizing that the cost of such a system should not exceed the bene'its derived. No material internal control weaknesses have been reported to management. Arthur Andersen & Co. was engaged to audit the financial statements of the Corporation and ,, subsidiary companies and issue reports thereon. neir audits were conducted in accordance with generally accepted auditing standards. Such standards require a review of internal controls, examination of selected transactions and other procedures sufficient to provide reasonable assurance that the financial statements neither are misleading nor contain material errors. He Report of Independent Public I Accountants does not limit the responsibihty of management for information contained in the financial statements aral elsewhere in the Annual Report.
- 2 Merle L. llorchelt E. R. linoks i Chairman and Chief hecutiw of6cer President ami Chief Operating Of6cer ,
i b, ko b Gleun D. Rosilier Vice President, hnance Report el Audit CommHies
%e Audit Committee of the Itoard of Directors is compowd of five outside directors. ne members of the Audit Committee are: Arthur !!. Rasmussen, Chairman, T. J. liarlow, James L. Ibwell,J. C.
Templeton and Samuel W. White,Jr. %e Committee held three meetings during 1989 The Audit Committee oversees the Corpomtioni financial reporting process on behalf of the Itoard of Directors, in fulfilling its responsibility, the Committee recommends to the lloard of Directors, subject to sharehokler approval, the selection of the Corporationiindepenant public accountants. %c Audit Committee discusses with the internal auditors and the independent public accountants the overall scope and specific plans for their respective audits %e Committee also discusses the Corporationi consoli-dated financial statements and the adequacy of internal controls. The Committee meets regularly with the Corporationi internal auditors and independent public accountams to discuss the results of their audits, their evaluations of internal controls and the overall quality of the Corporation's financial reporting. %e meetings are designed to facilitate any private communication with the Committee desired by the internal auditors or independent public accountants. A w +cA.- Arthur E. Rasmussen Chairman, Audit Cwnmittee i
)
T i 1
h COWnRAIM ETATISilCAL AND HNANCIAL RECORD Central and South West Corporation ;. , 1989 1988 1987 1986 1 Sales (kiloscatt hours in millions) Residential 14,268 '14,036 13,518 13,33 I Commercial 11,993 11,663. 11,319 11,256 ' 'l Industrial 15,181 14,578' 14,168 14,99/ Sales for resale - 5,448 5,920' 5,435 ,4,907 . Ocher 1,308 1 -1,25 9 1' l 48,198 3 7/,284 5I ~4,.(61( . ' M,479 N: ! Operating Revenues (millions) j Electric ;
. Residential . $ 921 5 911 5 857 $ . 885
. Commercial 673 657? 635 666 Industrial 567 553' 554 651 -
Sales for resale 179 181- 170 -175 Other 120 120 134 111. l Gas and other - 89 _ 90 93- 67 ; g _12 549 . $ 2,512 $ 21 43 $_2,555 .j Atvrage Number of Customers y (thousands) Residential 1,308 1,298 i,292 :1,291 Commercial 190 189 188 ' 18 A Industrial 25 25 25 25 Other 12 11' -11 12 i j,535 11 523 1,516 1,515 ; Number of Customers at End j 1,546 1,531 1,523 1,518 ; o/ Period (thousands) ResidentialSales Asvrages . . i Kilowatt hours per customer 10,908 10,814 10,464 10,328 Revenue per customer $ 704 $ 702 $ 663' $ 685 Revenue per kilowatt. hour 6.46e 6.49c 6.34r 6.64v i 7btal Electric I:esvnue per , Kilonutt. hour 5.10e 5.104 5.14c, 5.44c } Generating Capacity at Time of Peak (meganutts) 13,537 13,176 13,150' 13,049 l System Coincident Peak Load (megauwtts) 10,008 10,138 L 9,668 -10,243 : Fuel Data .
+
Average Biu per net Kwh 10,474 10,340 10,367. 10,414 l Cost per million Btu $ 2.005 $ 2.013 $ : 1.941, $ 2.162 P Cost per Kwh generated (mills) 21.02 20.83 20.16 22.52 I Tbtal Utility Pla'st (niillions) . Original cost $ 9,634 $ 9,370 ' $ 8,961 $ 8,441 -
- Annual'additions 327 466 562 676 _:
Accumulated depreciation 2,448 2,219 2,015 1,827 Capitalization (millions) Common stock equity $ 2,647 $ 2,594 $ 2,514 ' $ 2,359 i Preferred stock 397 396 365 442 - Long term debt .!,537 2,314 2,410 2,343' l
.i l -' * ;;
~
.'4 F
d F'. ? 1985 1984 1983. 1982 1981' 1980 1979 13,321 12,853 12,134 12,175 .11,469: 11,718 -10,27.8 - 11,004 10,464 9,846 ' 9,673 8,990.- -8,688 8,' J27 ; 15,591 1%587 14,580- 14,108 14,457 13,749 11,500 6,391' 7,78 . 8,671 9,195 11,710 11,528 10,027 1,333, 1 1,295 1,286 1,224. 1.260 1,1791
~47,54U ~4W,321,009 ~45226 ,,46,43_7_ ~47,83d 15,94L ]4[sfQ5 - j
$ 894 5. 864 ~ $ 803 $' 745 - $ 595 $ '536' $' 427 ii 672 650 601 549 451 -386 312. ,.
i 734 -768 716 633 549 ~458- 386 _. l 288: '232 ?- 138 305' 326'- 320 335 1 116 129: 114' 100 125' 63 - $2 57 50 53' c42' 41 51 ^22 :
. 5 2,711 $ 2,766 ' ' $ 2 t6131 ; $1389 $ 2f)96 - $ 1,782 - $.1,431 '
g Ll t 1,28i' 1,259 1,225 1,196 !,159 ' 1,134 . '1,094 '- r q 184 179 174 169~ 163 159 153 25 25 24 24 24 23 :21 ? 12 11 11 11 11 10 10; 4 J 502 1,474 1,434 1,,00 3 4 j,35,7 J,326 ,_1,278 !! 1 1,515 1,494 1,456 1,419 1,381 1,338 1,300 1 i
- 10,398 10,208 9,902 10,181 9,894 10,332 9,352 5 69h $ 623' $ 514
$ 686 5 656 - $ 473 $ -390-6.71 c 6.72e 6.62v 6.12c '- 5.19e 4.58e - 4.17e >
.i 5.57c 5.66v 5.50v 5.06v 4.30e 3.690 3.27v
-i 12,729 12,217 12,167 12,066 11,528 -11,075 9,569 ,
9,802' 9,830 9,567- 9,154 9,157 ' 8,913 '7,838 l 10,365 10,377 10,380 10,328 10,228- 10,267 - 10,166 ,
$ 2.483 $ 2.726 5 2.689 $ 2.511 $ 2.085- .$ 1.835 - $ 1.645: i 25,74 28.29 27.91 25.93 21.33 18.85 16.72: ;-
$ 7,911 $ 7,361 $ 6,486 $ 5,758 $ 5,133 $ 4,826 .$ 4,259 '
85I 910 756- 661 518 589 . 643 1,703 1,544 1,397 1,255. 1,119' '984 873 ;
- $ 2,206 $ 2,030 $ 1,849 $ 1,659 $ 1,468 $-1,366. 5 1,184 ,
385 428 428 313 315 315 -235 i 2,269 2,169 1,886 1,757 1,679 1,515 1,285 ' i k s
.i l
i
.v
, .- - ..-, , , ~ , . - .- - . . , , ,, ,, e.- -+ ,, r
W '
- m. c,
,ih
< f,,
y
; y '
s t i
+
- 'j ' ) f, *h.. 'f. [I E l[- IE il0ARD D DifiECTOH8 ' ,
J; ,! L T. J. ti.:! w : Ceaunimees elthe $ased elDieseless ' =i Retered Chairnun and > l. 'the' And!t umimitin recom- U Chw/ lhecutin of4ccr nwnds to the board of directors the , Anderson, cf.tyt<m & Co., lloustcm indeprodent pubhc accountants'to - r be appointed subicci to shart-
' G. lenn B. -iggs.
y holder approval. 'the Audit Com. a Consultant L mince inic ws with the indepen- . L'liggs & Coi, Aan Antonio ' dent pubhc accountann and the' . ;[
- Ahric L Ikirchrit 0"lxwationiintenyal amhtors the Gainnarr and Chwfluecutin offcer scope of estunal and mternal aQ Centraland South Wut Corporation = f din and the adequacy of, and the . _ ;
compliance 'with, the Onpotationk . E.R.Mrsku . sperm of inactnal anonnting '
. President andChief Operatmg OfScer controls. ' i .
Centraland South West Curportation ^ Durwood Challer - .04nmitter inicws bcnctit pro-Retired Cidrman. President and.- gram, und management sunession J Li Choef thecutiw Offcer - programs and determines the wm. Centraland $Uutb West U#poration' - pcH%ation of checutive ofl$ctn.-
- a Joeli. lit. 3.1he Nominating Committee tr-Attorney 'tiews the mmposition vi the boed . :
- Dramall & patterwn, llouston of dantors and treommends can; : ?
' M" I"' '"""I"
. Jamn M. Moronry, Jr. P'.
Clornnan o/ tis laemt,w Commatee - 4. 'Ihr Policy Conunittee inicws - and Reined Chairnun of the lkurd and maLn rnommendations to the A. fl. Nelo Corporatum. :)all.a board of directors concerning mac [ Janws ! Powell. - jor pohcy inucyonden on a . ;
'""0"" "Y " " ' ' '""'Y " """ ';
Ranching and Inwstments twt Aftliawtt,1rras '""""""dI" "i""'"h#' board of directs s and its comnnt. k Arthur E. Rasmunen .
. tecs; and reviews nisting corporate' !
pohdes and rnom ucrwis chatiges ; : RetiredChairman and Chic / liecutin Offher a d Chairman of , when appropriate, the lhecutiw Committee Ilousehold Internatumal. Chicago N'*b'*\".P "' 'h"' '* **I" I* i as follown
- l. C. Templeton l
'Prnident and Chatnnan of the Ituard
- b' ""* UI (AI a TGX Corporation, Homton Glenn Nggs (2)(3)
.[
Samuel W. White, Jr. Retned Agri Ilusmess Consuhant Mule L lkgchelt (4). j Chainnan of the Policy Committee hysm. North Carohna l jor 1-1. liw (3) (4) I John 11. Williams Chairman es % Nomhea!ing i ' Inwstments. lidsa Comnntter Jamn M. Moroney, Jr. (2) (3) .; James L Powell(1)(3)- j Arthur E. Rasnmwen (l)(4). r Chauman of the AuJul Committee J. C. Templeton (1) (2) y Saniucl W. White, Jr. (1) (3) [ John 11. Wilhams '(2) (4) f 1: Charnnan of the lhecutnr Compen. salmn Committee ,
)
t i r
.f g
OFrittR$ imitraland leuth West Corporation Central and South West Services. lac. Aleric L Ikirchele Merle L Ikirchelt Ganman and Ouefl.secutnr Offh er Cl> airman E. R. itrools Thomas V. ShmLley, til President and Chsef Opesatntg Offia r President and Cinefl'accutnw Officer Thomas V. Shockley, til l erd. C. Meyer, Jr. Senior Voce President Yh e l' resident and General C<nonsel I crd. C. Meyer, Jr. Jack C. Wells Vice President and General Ononsel Senior Yuce Punident Glenn D. Rosiber jamn A. liruggeman Yue trusdent,)unance Vur ProtJent, I.ngineering I'hibp 1. McCoimell %omas M. llagan Corporate Secretary Vice President. Gourrnmental Affairs
$tephen J. Md)onnell G. Iloiman Ning 'locasurer Vice President. Corporate Paul l'. Douty, Jr. Destlopment Assistant Treasurer Nenneth C. Rancy,Jr.
Verla R. Campbell Yue President and Assistant General g,y,y,,.; Assistant Secretary Waher A. Itatchff Vice President. Iluman Resources Glenn D. Rosilict Vice President, hnance Philip I. Mr;Connell CentrolPower and Ll0ht Company Corporate Secretary and Senior Robert R. Carey Attorney President and Gief Isecutist Offia er Public Service Company elOklahoma 'licasurcr Martin E. l' ate,fr. . ' President and Cinct Is es utit e Officer U#*0 G' C"'P'"'" Assistant controller and I)nector Southwestern Electric Power Company of Accountmg ilarry (). Mattimn l Praident and Cl.iel Isecuritt ofth er Y'"I I' U"*'Y' b'- Assistant *heasurer and Direciar West Texas Utilities Company of Im.ince Glen D. Churchill Presidentand GiefIsecutur Officer YId N' CA Pb 'II Assistant Secretary Transek. Inc. I Joseph liccraft President and Cinef Ikecurier Officer
)
LNF0FIMATl0N FOR SHAllEHOLDI.ll$ Commen 8took List 6ag $leck 1renster . If your stod is registered in a joint Central and South West Corpora- Central and South West Services, aaount,it is imgertant to tell us tioni conunon stod is lated on Inc.,is the transfer agent and regiu the taxpayer ta number of the first the New Wrk Stock Exchange un- trar for Central and South West person listed. If you are a custo-der the trading symbol C$lt it aho Corporationi conunon stod and than for a minor or act as trustre is lated on the Abdwest Stod for the preferred stods of the Cor- on an account, pleaw pnnide the INchange. porationi subsidiary companics, beneficial owneri iax identification number. This will ensure that your Wu can obtain stod iluotations % transfer your stock to another dividends are reported under the from the New Wrk Stod Ex- name, write the new name, adJte" correct name, address and taxpayer change trport in most daily news- and tax identification number on n> number. ; papen under the inting CrusoW. the bad of the certificate and sign your name exactly a6 it appears on if you have not >ct given us your Comme Steet Wdeds the tront. Then, have your signa- taxpayer in number, pleaw contact Dividends of 65 sents a share were ture guarameed by a comnu nial our shawholder services depart- ; paid in cach quarter of 19H9. All bad or a smdbnk r whose finn ment to request a W 9 l'orm. Com-dividends paid by the Corporation is Innd on du New Wd Smd pletc the form, sign it and return it represent taxable income to sbarc- Ikhnge. Signatun s cannm be a soon as ponible. holders for federalincome tax guaranteed by a notary public. ! purpows. Duplicate Annuel floport Mailings :,
. Wur stod certificate should be We are required to mail an annual
.the Corporation's imard of direc' wm m our sbwimider wrvius de apon to all of our shatchulders.
H tors in,lanuary 1990 mcreased the ' pmnu m by ngiskred or cenitied Wu wiH ncrive duphcate snaihngs quarterly dividend rate to 69 sents mail, from us if there are two or more a share, payable on lic hruary 2H, sbwholders at the same address or ! 1990, to shatcholders of record on if you have questions about trane if your shares are registered in dif-Icbruary H,1990. The increaw ferring your shares, you can wnte ferent, but similar, names, marked the 39th conwcutiic year or call oar shareholder services de-of higher dwideuds paid by the partment. The addren and toll frce To chminate duplicate mai!ings, Corporation. This is a record that number are listed on the adjoining please tell us the name of the ac-is exceeded by only four other cor- page. counts you want climinated and paranons listed on the New Wrk the name of the account that you Tempeyer ID 16 ember Stod Luhange. want your maihngs addreswd to, , federal law requires cach share' Send )our request to our share. Traditionally, the Corporation \ holder to provide a taxpayer identi- holder w vices deparunent, board of direviors has dedared div- fication number for all shareholder idends to be payable on the last accounts, f or individual share- Proxy end Dividend Mellings busineu day of lebruary, Atay, holders, your ID number is your Duplicate mailings of proxies and August and November. Social Security number, dividend cheds cannot be climi- i nated unico the registration is the Lost D6vidend Checks or Wu must provide your to number sanu for all of your acomnts. Stock Certificates whenever you open a new account ' if you do not receive your dividend in our stod, even if )ou already if your account registrations are ched or stod certificate, or if they own stod in existing accounts in identical, notify our shareholder are kat, destunrd or stolen, pleaw your name,11 you do not provide services department that >ou want call our sharehohler services de- the tu number, the Corporation is to combine your accounts. If your partment immethately. Our toll
- required to withhold 20 prn:ent account registrations are different free telephone number is listed on federalincome tax fnun your and you want to combine your ac- .
the adjoining page, dividends, counts, all certificates must be is-sued in the one registration you prefer. % hase your certificates re-
. issued, follow the instructions un-der $tod Transfer.
e 1990 Annual Meet 6ng Additionalinformation Security Analyst Contact
'!he 1990 annual meeting of share- We will be pleamt to send you Security analysts should contact: " holders is scheduled for April 19. It aJ(htional copin of this annual Paul 1:. Douty, Jr.
will be held at the Shreveport Con- unitt, Also available is a Trn-) car Assistant 'Irrasurer vention llall,600 Clyde l' ant Park- ImancialandStatuticalRecien of Central and South West way, Shreveport, l.ouisiana 71101, the CentralandSouth West Corporation The meeting will begin at 10:43 System. 214 754-1208 a.m., Central Time, if you will not be attenJmg the meeting, please }he Corporation is subject to the if you would like to be included on vote your sharn by signing and re- mfonnational requkeniems of the out investor relanons madmg bt turning your proxy card as soon as Secuotin and bchange Act of to rneive news releases and other pnsible. 1934 and liks reports and other corporate information, please con-information statements with the - tact our sharehohler services Dividend lleinvestment and Stock Securities and I:xchange Commis- department. Purchase Plan sion. Thne reports may be in-The Corporation offers its share- spected at the SEC and at the New holders a convenient way tu pur- York and Midwn: Sto(L chase additional sharn of coinnu.n tuhangn. stock through its Disidend Rein-vntment and Stock Purchise Plan. We will provide copies of ihne re-ports without charpe to any share-Shareholders may reinvnt auto- holder, if you would like to reedve na matically all or a portion of their a report, please write or call our (ash dnidends. If only a part of shareholder services department. your dividends is reinvnted, you will continue to racise cash divi, Shareholder Sentices dends on the sharn that art not in Our shareholder services staff is the reinintment plan, available from H a.m. to 5 p.m., Central Time, Monday through ; Shareholders also may purchase l'riday to answer any questions you ' adJitional sharn of common stock may have. Please write to: I by making monthly payments of at least $10, but not more than $5,000 Central and South Wnt Corporation a quarter. Purchasn of additional Shareholder Services Department shares are entirely optional; share. P.O. Box 660164 holders may choose this option Dallas, Tnas 75266-0164 whether or not they reinvest their dividends. or caib 1 800-527 5797 Wside W 1800-4421718 (In Tnas) l We recommend that you send stock certificates by either regis- { tered or certified mail. ' <v . I l 1 6 l i i
m x. w
' +
i , ..; 4
..w )3[5'~ \ % js ; kh e ; ,
- p - (' . s P 'i ,Q . g. , in . ' ' , (p, 'D :': , ,
i . ' ,d. 46 - os e.
' ^
' t' ,..: -,3' , . . - . , , - - 5 ., , .,,1 i y s ,',
" l
' CfWiML AND SOUTH WEST CORPOMil0C <
J
, ' Inhorporatedin 1925. ~ , i. *
~*
s l thuler the I.aus of Delauwe J i , , s
... ,i[ . ,. . . L i
a, ? 2121 San JAcinto Strcet. Suite 2500 .
-r I'
;l'0, lh 660164 i ,.
ti .- . Dallas, Texa's7$266-0164 : , F., ' '
- 214 734-1000 1 ,
1 1 g
,>J_'_ .O ..+3_-
- l. - '
gp h Central Power and Iight Company l ' - 4
' . . . _ . .. __ < , t-
' Pubhe Senic Clunpany id Oklah<sma - ' *
, o r
i 4 Southwestern I.lectric Power Ownpany '
. . . m. . t a
, . ... West 'lixas Util$ies Company, g . 3 h.' l c
#2 % i 3
' g i
zl , Iransol inc? , 6 ' Central and50uth ' est Scrilces,Inc.' W .j y --J J
" ' - ' ; - ef V CSW Crnlit. incl-1 -
. .l
.c m;
i l # CSW Energy, Inc, , < C3' , , t-_C , c 1 CSW l'inancial, Inc. , < 4 , .. , . CSW leasing, Inc. - '
~
* M n ,
- Et I: qual Opportunity 1:mplo.yer ' M t',
m a i
- . 4
,,-g' l .
f, .i, b b t J .2
, , ., l ' . . .g
' i 'I,n, _
'. I d -'-
g, t i a
.ff L[
r _4. m . t.; 4 't'
,{
~, -
.-(
Li iE ., c ( 9 I -.}'$ y :; t' ! a. I g .m , a
.. 's E,b 'L ., 6.,; *
')
.J j
- q. '
4 q y a 1 y .] 3 n.;
.;, p a
g f
,2 -kkepiti ummefbd Ikupti, lfE + ,,1
-,.r
((
$4$5 fi h$Q
~
p $,' I # x il-k
--- A_, .
",'l
> ,6 i:
1
- )
es . . F g gg. j 3 I j .!
, 'i gA:4
' , O '; Q' .L. j ) .t l- (l
* + ~', e' uj .
, , .o
, ..r
,.-i.. . ,. ,' ,, 4 ,
,}}