ML20044G323

1992 Annual Rept, for River Bend Station,Unit 1.W/930525 Ltr

ML20044G323
Person / Time
Site:	River Bend
Issue date:	12/31/1992
From:	Booker J, Donnelly J GULF STATES UTILITIES CO.
To:	NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM)
References
RBG-38541, NUDOCS 9306020327
Download: ML20044G323 (54)

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. og GUCF STATES UTILITIES COMPANY H"v L R f1f N'J S' A7:ON POLT O'TK f HO A 220 ST 5EANClSWLL inUGANA 70 Dn AR[ A Cf0f bM t.36(. rs4 34t ttrb1 May 25, 1993 RBG- 38541 File No. G9.5 U.S. Nuclear Regulatory Commission Document Control Desk Washington, D.C. 20555 Gentlemen:

River Bend Station - Unit 1 Docket No. 50-458 Enclosed are ten (10) copies of the Gulf States Utilities Company 1992 Annual Report. This repon is being submitted in accordance with Section 50.71 of Title 10 of the Code of Federal Regulations and U.S. NRC Regulatory Guide 10.1.

The Cajun Electric Power Cooperative Annual Repon is not available at this time; however, it will be sent as soon as it becomes available.

If you have any questions or comments, please contact Mr. Leif L. Dietrich of my staff at (504) 381-4866.

Sincerely,

,k D J.E. Booker Manager - Safety Assessment and Quality Verification Enclosures b20073

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cc: U.S. Nuclear Regulatory Commission 611 Ryan Plaza Drive, Suite 400 -;

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NRC Resident Inspector P.O. Box 1051 St. Francisville, LA 70775 hir. E. T. Baker hi/S OWFN 13-H-15 U.S. Nuclear Regulatory Commission 11555 Rockville Pike  :

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1992 Points of Progress D After Gulf States Utilities Co. and Entergy Corp. announced their proposed combination in June, shareholders of both companies gave their overwhelming approval in December.

O rirst mortgage bond refinancings during 1992 resulted in interest costs savings of almost $26 million on an annual basis.

O Preferred stock dividends became current, all preference stock dividend arrearages were met and all outstanding preference stock was redeemed.

D The redemption of preferred and preference stock reduced dividend requirements from about

$62 million to about $40 million on an annualized basis.

O Kilowatt-hour sales were up 1 percent, continuing a five-year trend. Industrial sales rose 6 per-cent.

O The River Bend nuclear plant received a superior rating in one area of plant performance from the Nuclear Regulatory Commission and good ratings in the other six areas.

D Economic activity in tile service area continued to grow, with more than 9,600 new customers hooked up during the year, almost 7,900 of them residential customers. For the first time since 1983, every division in the company saw positive customer growth.

O OSU's aggressive economic development efforts resulted in announcements of 2,800 manufac-turingjobs during 1992 from 54 new or expanding industries.

O The Team City success story continued, with 87 communities remaining active in the economic development partnership. Twenty of these were recertified during the year.

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AB,OIR THE COVER ,

Changes that have rocked t! c electric uti!!ty industry in recent years have been reflected in oulf states Utilities co. The challenge ,

faced by OSU has 'A en one of transforming negative change to positive results.

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k; i- ' Oulf States Utfitties Co. genenutesik.ueie and acIls/ The comph owns'and operates m' natural gas niall *

' electricity to more than 588,000 customers in a 28,000 ' ' distribution system serving almost 85,000 customers in .

square rnIle area that spans the Gulf Coast between Hous- the Baton Rouge area.- j

. ton and New Orleans. _

~As part of the Southwest Power Pool, OSU has the abil-The territory served by Gulf States has a population of ~ lty to interchange electricity with 43 other members (29 -

about 1,540,000 and includes the northem suburbs of full members, which includes OSU, and 15 a==% mem-Houston and the mqior cities of Conroe, Huntsville, Deau- bers) in eight states in the South and Southwest. .

mont and Port Arthur in Texas and Lake Charles and Ba- In 1992 Oulf States had a peak load of 5,247 mega-ton Rouge in laulslana. watts. Normal dependable capacity and firm purchased in 1992, OSU provided whcksale service to s!x mu- power agreements totaled 6,709 megawatts at the time of nicipalities and three mral moperatives in both states and the peak on July 7.

supplied steam and electricity to a large industrial cus- OSU headquarters is located at 350 Pine SL, Beau-tomer though a cogeneration facility in Baton Rouge. Oulf mont. Texas.

States is a partner in a cogeneration project near Lake Charles, the Nelson Industrial Steam Co.

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O U L F S T A T E S U T I L I T I E S C O -

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c w Table of Contents Re po rt to S h are h ol d e rs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1 9 9 2 Yea r i n Re vi e w . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 D i re ct o rs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 - 9 Th e M e rg e.r Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . I 3 Financial Information ... . .... ...... . ..............................................14 Statisti cal S u m m ary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 9 Information to Shareholders ..... . ... . ......................................50 Officers .. . ......... . . .... ........ ....... ......... .... ... Inside Back Cover p Financial liighlights I992 199g Change Operating Revenues (000) $ 1,773,374 $ 1,702,235 4.2 Operating Expenses and Taxes (000) $ 1,439,272 $ 1.356,255 6.1 Net income (000) $ 128,157 $ 102.283 25.3 Income Applicable to Common Stock (000) $ 78,455 $ 39,213 100.1 Earnings per Average Share of Common Stock Outstanding $ 0.69 $ O.34 102.9 Dividends per Sharc of Common Stock Average Common Shares Outstanding (000) 114,055 114,055 -

Number of Electric Customers (end of year) 588,312 578,693 1.7 Total Kilowatt 4 tour Sales (000) 29,27;.738 29,069.349 .7 System Peak Load - Megawatts 5,247 5,224 .4 m

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Joseph L. Donnelly Chairman of the Board, President and Chief Executive Officer for the second year in a row we have been able to report to you positive camings on your investment. l'amings per share of common stock more than

Dear !,

ellow Shareholders: doubled from last year - to 69 the largest and most successful cents .in 1992, up from 34 cents hile political can_ utilitics in the country. This was per share recorded for 1991.

didates talked monumental change for a Contrast that with the 99-cent

~ of change in company tectering dangerously loss in 1990 and the $1 loss we 1992, Gulf States on the brink of bankruptcy just recorded in 1989.

j Utilitics and its a few years ago.

cmployees were expen.enang it.

ales have in-Significarit changes impacted GSU continued to battic creased for the the electric utility industry itself, back in 1992 from the financial fifth consecutive as well as GSU's executh e lead. morass that mired this company year. Industrial ership, its financial standing during much of the last decade. sales lead the way, and the economy of its service The financial liighlights in this showing a 6 percent growth over area. Even without the June 8 report show a company making the previous year. Overall kilo-merger announcement,1992 significant strides. Gone are the watt hour sales increased mod-was destined to be a year domi- negative numbers that dotted estly during the year to 29.3 nated by the per>cc.ss orchange. Our financial statements with billion kilowatt-hours from the such dire regularity. Replacing 29.1 billion in 1991. Modcr-1992 was a vcar that began them are upward trends in ate weather during much of the year resulted in a slight de-with major change and ended camings and sales.

with the company poised .in crease in residential sales an entirely new direction - to- unng . a n as a whole, ward becoming part of one of wmr, our sales point to an improved economic climate in the area we serve.

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ur financial position been overwhelming. At a special Sweeping changes buffeted shareholders meeting in mid- our industry in recent years with O rallied to such degree last year that December, a 98 percent of the GSU shareholders voting challenges never faced before.

Many of them have been

[ we were able to pay approved the pmposed merger. brought about by deregulation.

f $ the preferred divi-derid arrddrages and to resume This is a gratifying vote of At every turn - in the gen-regdIar dhidend payments on confidence from you, our cration, transportation and sale prefe'rI6d stock. We also paid shareholders. The merger will be of elecificity- Gulf States has the preference dividend completed once a series of been at the forefront of the arrearages and redeemed the regulatory approvals have been windstorm of change blowing outstanding preference obtained. through this business.

stock. The one dark spot re-maining in this otherwise espite the progress As this new age of the brighter financial picture is that made in OSU's utility industry evolves, com-we have been unable to re- hard-fought struggle panies will be Judged by how sume payment of common }l for financial stabil- well they perform in the stock dividends. Our aim re- [ }Q ity, we came tocompetitive marketplace. We mains to resume common stock recognizey that a merger are working diligently to make dividends as soon as practicable, was tite fastest and best way the merger with Entergy a reality.

to create' shareholder value and But in any event, Gulf States The biggest change - to ensure a stable future. By Utilities is poised to grow and possibly the biggest in Ihe joining forces with a finan- impmve as this decade unfolds.

company's history - came in cially secure company such as June with the announcement of Entergy Corn , we will be better a proposed rnerner between Gulf able to cope with the uncer. Sincerely, States Utilities and Enterny Corp. tainty of today's competitive The favorable reception has environment. Shareholders and customers alike stand to j g

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benefit by this move. Chairman of the Board, President and Chief Executive Officer February 12.1993 5

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mmc ~n,mm-w Listedin this section are the Residential sales in 1992 had interest rates from 10.125 events that a/Tectedyour were slightly less than in 1991, percent to 16.8 percent. The company during 1992. reflecting modcrate weather company estimates it will save conditions in both the summer about $25.9 million in an-and winter. Industrial sales nual interest costs from refi-were about 6 percent higher nancing the bonds.

than in 1991, but were some-ulf States Utilities Co. reported 1992 what offset by decreased sales ome of the pro-camings of 69 for resale. cceds from the e G cents per share of There was considerable April first mortgage b S common stock, financing activity during 1992 bond issue were h N compared with 34 as Gulf States took advantage also used to pay a centEper pharc for 1991, of lower interest rates to signifi- portion of the preference stock licsults for 1992 benefited cantly reduce future interest ex- dividend arrearage and to retire from reduced interest charges, Penses. all $100 million of preference reduced preferred and prefer- GSU sold $1.2 billion of stock outstanding, resulting in ence dividend requirements first mortgage bonds during the annual dividend savings of and a reduction to the liability year, issuing $300 million in $16.5 million.

previously recorded for the January, $600 million in April in 1992 and early 1993, l

settlement of a purchased and another $300 million in the company refunded $65.7 power dispute. November. The interest rates million of pollution control Kilowatt-hour sales were on the new bonds range from bonds issued in 1982 and 29.3 billion in 1992, a 1 per_ 6.67 percent to 8.94 percent 1983. The August refunding re-cent increase from the 29.1 while the $982 million of first placed 10.375 percent bonds billion in 1991. This marked mortgage bonds retired with with an issue of 6.75 percent the fifth year in a row that the proceeds of the new bonds bonds, and the proceeds from electric sales increased. a January 1993 issue of 6.7 s

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percent bonds will be used to responsibility for coordinating Ronald M. McKenzie, who retire 9.5 percent bonds its the proposed business combi- had been vice president of the nation with Entergy. Port Arthur Division, was named March 1993. Annualinterest savings from these two Additional organizational vice president of information ,

refundings total more than changes took place in Novem- services. What had been the

$2.2 million. ber. Port Arthur and Beaumont Divi-Calvin J. Hebert, senior sions were combined as the inally, Gulf States vice president, assumed re- Southeast Texas Division in retired $55.9 mil- sponsibility for division opera- December 1992.

lion of preferred tions, including operations, Employees continue their stock, including customer service and market- same activitics, and service remains at the same high level.

i sinking fund ing activities throughout the In fact, because of our service

[ arrearages, at par company.

in 1992."jA;mual dividend sav- James C. Deddens, who people, the clerks who take ings are estimated to be about had been senior vice president customer payments, the

$5.9 million. of the River Send Nuclear employees who provide energy A major part of the change Group, was named sintor vice inforrr.ation to individuals and at Gulf States during 1992 president of special projects. to schools and organizations, came at the top of the corpo- tie is rctiring this spring. more than 91 percent of rate ladder. Joseph L Donnelly, customers surveyed have a who had been elected chief hilip D. Graham very good or good opinion executive officer of GSU in was promoted about Gulf States.

January, became chairman of from plant man- During 1992, Gulf States the board in March and presi- y ager at River became current on all its dent in July. h Bend to vice preferred stock dividends and Donald M. Clements Jr. h president and paid all dividends in arrears on was named vice president of Joseph [. ghlppert, an assis- its preference stock.

strategic projects in July with tant plantmanager, succeeded Graham as plant manager.

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[ area before fizzling'out in IT 7 y ^ m Etme tdmming workert including other OSU empteyd When Andrew crossed the Florida peninsulaL ees; contract workers and empeoyees from nearby tdiFMi and entered tiie Gulf of Mexico, OSU began mar . ties, d 1

= shalling its forces, having employees and contract . Damage to the company's transmission and L workers leady to move wherever help was needed.= distribution system totaled more than $22 million,; ,

When it became apparent the evening of Aug.' but this expense was covered by insurance and by a

25 that touisiana was Andrew's target, OSU began storm damage reserve maintained by OSU.

moving crews from its far western reaches to in communicating with employees after the Beaumont where they waited for the brunt of the storm, chief executive Joseph L Donnelly called the hunicane to pass so they could safely enter the restoratJon activitjes "a true team effort" by those ac-stricken areas. tually testoring power and those working behind the Although about 180,000 customers in the scenes serving meals, fielding phone calls and other Lafayette to Baton Rouge area were without powor important, but sometimes overlooked, tasks.

In the wake of the hurricane, service was restored 7

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g .L t g Preferred and preferrence dividend obligations have been The Baton Rouge federal stock dividends had not been met in each of the subsequent district judge presiding over current since the fourth quarter quarters. The coinpany also the lawsuit Cqlun Electric Power of 1986. became current on its preferred Cooperative filed against Gulf stock sinking fund obligations States in 1989 appointed a in April. mediator in March. The two dividends were In June, OSU paid all parties began discussions with Common suspended after gf']the second quar-stock preference stock dividend arrearages and redeemed the the mediator, a retired federal appeals court judge, in July.

g ter of 1986 and stock. Part of the proceeds of havepot been resumed. a first mortgage bond sale, he electric co-op, Unfortunatyly, Oull States is plus general corporate funds, a 30 percent still noiinea financial position covered the $90.3 million owner of the River to pay common dividends, of dividends in arrears and W Bend nuclear although resumption of this the $118.3 million cost of jf power plant, con-class of dividends remains the redemption. tends, attiong other things, that company's highest priority. Through redemption of its OSU mifepresented the plant's The preferred dividend preferred and preference stock, consthhn costs in order to ,

payment of $115.7 million the company reduced its pre- entice Cajun to participate in made on March 15,1992, ferred and preference divi- the project. The company be-representing nine quarters in dend requirement in 1992 lieves the lawsuit is without arrears and the current quarter, from about $62 million to merit.

made the company current about $40 million on an annu- ,

on this class of stock. The alized basis.

June 15,1992, payment rep-resented the first regular quar-terly payment and preferred P R 4 .

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h bi former dormon d the Board and CEO, First Csy Temos, Bryan, Texas 2

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• Joseph L Donnel!y, eledad 1986, Chainnon d the Bood Pai- 4 dont and Chief Executwe O&er

• Rolwt H. Barrow, eleded 1984, General, Retirad Commandant i

Unbed States Marine Corps, St. Francisville, to.

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c t in November, two mem- to periodically reconcile their n late January bers of Cajun Electric filed suit fuel costs and to change fuel 1992, the Imulsiana in federal court in Lafayette, factors to reflect the actual Public Service Com-La., to dissolve Cajun's 30 cost of fuel. The company T mission percent interest in River Bend. expects to have a decision 6 reconfirmed-with They contend Gulf States failed sometime during the first half modifications-a deregulated to get an allegedly required of 1993. asset phn covering the River LPSC approval of the joint in October, the 3rd District Bend captstruction costs disal-operating agreement. The Court of Appeals in Austin lowed by the corrmission in company believes this suit also heard oral arguments on OSU's December 1987.

is without merit. appeal of a 1988 PUCT decision The plan allows sharehold-In January 1992, Oulf in the River Bend rate case. ers and ratepayers to benefit States filed an application with The issue on appeal is whether equally from any revenues _

the Public Utility Commission the original River Bend case, above a certain amount realized of Texas to reconcile all its fuel decided in 1988, should be from off-system sales from the and purchased power costs remanded to the PUCT since deregulated portion of River through September 1991 and the regulators failed to make a Bend. No write-down had to be to establish a new fuel factor, decision regarding $1.4 bil- taken for the deregulated As 1993 began, the case was lion on a systemwide basis of portion of the plant, but an still pending. the plant investment. increase in deferred taxes if the PUCT approves OSU's The three-judge panel has caused a net $7.1 million charge application, there will be little no deadline for handing down a to net income in 1991.

impact on customers' bills. Fuel ruling.

costs are passed on directly to customers, with Gulf States making no profit The commis-sion requires Texas utilities

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Eugene H. Chven, eleded 1989, Chairman el the Board and Chief 4 Execuhve Officer, Owen & White inc,Boton Rouge, La.;

l i;h William F. Idousing, elected 1991, Retired, I Senior Vic

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t In 'ly the company uring the planned In its report the regulatory returned to customers half of a outage, workers agency did point out that the

$24 million LPSC. ordered refund chemically extended refueling and mainte-representing return on equity overcollections. The remaining

[9 cleaned the ser-vice water system nance outage during the assess-ment period " stressed your half will be paid in July 1993. and cdnv ed it from an open programs and, in some cases, The year was not a normal to a chs loop system. This affected overall performance.'

one for the River Bend nuclear will res ve corrosion prob- The NRC informed OSU in power plant near St. Francisville, lems in the system. Workers late December 1992 that it La. Historical *y, the unit has also repaired a cracked weld in proposed to fine the company operated at or above industry a feedwater nozzle attachment $100,000 for violations of NRC standards, but an extended The Nuclear Regulatory radiation protection require-outage for refueling, repairs Commission issued its System- ments related to two incidents and routine maintenance alic Assessment of Licensee involving mishandling of radio-meant the plant was out of Performance, or " report card," active material which occurred .

service for half the year-from on River Bend in November during the fourth refueling March to September. giving emergency preparedness outage. Both incidents were a Category 1, or superior reported by OSU to the regula-real positive from rating. The six other plant tory agency.

the plant's fourth performance categories The NRC acknowledged A~,# refueling outage was that the com-received good ratings-Category

2. The report covered the that the company took immedi-ate action to restore compil-pany was able to period of April 1,1991, through ance and assure safety, and load o gh fuel to extend the Sept. 26,1992. has taken comprehensive next c .3[c by about two action to eliminate radiation monthd,$until March 1994. protection program weaknesses and ensure against a recurrence -

of these violations.

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Oulf States paid the fine ne of the units, CITOO PetJoleum Corp., Conoco in late January. Sabine 4, tumed Inc. and Vista Chemical Co.

In the best perfor- Gulf States operates the

, canwhile, Gulf 7 mance in the sys- facility which uses new fluid-States' fossil- # 5 tem, with a ized-bed combustion technology.

fueled plants, capadty fapr of 83.4 percent, Locally produced fuel-grade Y

7 considered the whichhs the plant's actual petroleum coke serves as the j backbone of the generalloN stated as a per- primary fuel.

systein rformed like champi- centage of its maximum capa- Gulf States' contribution ons,d ing their reliability, bility. to the project was two of its avail;Mli

• d n heat rate goals. In addition, the fossil existing generating units at the '

The natural gas- and system was available for ser- Nelson site. The three indus-coal fueled power plants gen- vice 86 percent of the time in trial partners financed the con-erated 21.3 million megawatt- 1992, the best in 25 years. version of the umts to burn the hours of electricity during The Nelson Industrial coke.

1992, a 4 percent increase Steam Co. dedicated its $220 Because of NISCO, the over the previous year and the million cogeneration unit at industrial partners will be able most mwh generated since Gulf States Utilities' Nelson to maintain and expand their 1984 when a long-term very Station near Izhe Charles, l.a., operations in Southwest Louisi-low cost gas contract expired. in September. The facility has ana and Gulf States, by retain-been running smoothly since ing these three large customers, beginning operation. is able to offer more competi-The four-partner joint Live electric rates to all of its venture was formed in 1988 to other customers, generate electricity for sale to OSU and to supply steam to some of the industrial partners.

Members of the group are OSU,

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reasons seul undetemdned,M twenher power piant near addoelOty; Texas /on Jan.! (

}j o 5(1995, died at~a Oalveston hospital on ' exploded (critically injuring all four. ,

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' At the times this report was wdtten,-

Plags in all company facilities were the three injured employees were making .

flown at half-staff the day of her death. slow recoveries from their bums at -

The last OSU fatality at a company Hermann Hospital in Houston. They are power plant occurred 20 years ago at the Jeff Hollis, equipment operator, and Nelson Station in Westlake, La. Larry Sam and Allen Daniel, first class A 12-year Gulf States' veteran, Mrs. electricians.

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OSU's first natural gas when prices are low for use air employment storage facility in Beaumont's when fuel costs escalate or policies assist historic Spindletop Oil Field when demand for electricity is OSU in develop-went into operation in October high. Ing its human re-1992, with a second one Plans call for the 1.3 bil- }

sources to serve scheduled for completion by lion-cubic-foot cavern com- our cu [ 1ers more effectively.

July 1,1994. Work began on pleted in 1992 to be enlarged G5 d the International the project in November 1991. to more than 5 bcf by mid- Brothek d of Electrical Work-1996. Work is now underway ers, Local 2286, reached agree-abine Oas Transmis- on the second storage cavem, ment on a new three-year a 5 bcf-plus facility. contract effective June 21, S sion owns the Co. storage fa-of Houston mployment prac-1992.

f3 tility and is under Under the provisions of

" contract to provide tices for the 4,841 the agreement, a 3 percent OSU with transportation and

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Gulf States employ- wage increase became effec-swing service of natural gas to q, q ces are guided by tive immediately and was fol-the nearby Sabine power plant. g , the principles of lowed by a 2 percent increase With the storage facility, Gulf eqtlitt opportunity for all. It is on Dec. 20. Subsequently, 2 States can purchase natural gas paM percent increases are sched-tichr%,through rams that theaffirmative com- uled ac- for June and December pany Yas been able to hire until the expiration of the con-skilled personnel from all com- tract on June 24,1995.

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hslftratimador stepiniths'comtd7 ment of the rsscr and the proposed snation of Outf States Ut!Rties col amendment to Entergy's' system" agreement f  : to include Gulf States..

[ and Entergy Corp. was taken inJ fH mid-December when sharehold- . . .

The Nuclear Regulatory Commission Iers of both utilities voted overwhelmingly in -

on Jan.~ 13i 1993, was asked to consent to If:.vor of the merger.

the change in control of Oulf States and to Applications for approval have been amend the operating license for River Bend 5

filed with Texas and Louisiana utility regula- to permit an Entergy nuclear subsidiary to tors, asking them to declare the merger in the operate the plant on behalf of Gulf States public interest. Filings have been made with and Cajun Electric Power Cooperative, the the redcral Energy Regulatory Commission plant's owners.

and other federal agencies. Status of the pro-ntergy made application for ap-ccedings at the end of January was:

proval of the merger in August to the Securities & Exchange Com-mission under the Holding Com-S everal ducted byrounds the louisianaof hearings Public vice Commission during the last Ser- were con-pany Act.

quarter of 1992 with additional wked the In-OSU and Entergy I' hedngs scheduled for early 1993. A deci- (der stating the ternal Revenue Service fo:

sion could come in April 1993. transfer of stock will be tax :ce, in Texas, the merger hearings are Still to be filed is an application under scheduled to qct undenvay March 8. GSU and the Mart / Scott /Rodino antitrust provisions Enterqy have hisked for a decision by mid_

1993I The Public Utility Commission staff in with the Federal Trade Commission and the Department of Justice.

January 1993 filed testimony recommending the PUCT find the proposed merger to be in The major elements of the proposed the public interest with some minor qualifiers. combination, announced June 8,1992, call Intervenors who filed testimony did not op- for GSU shareholders to receive $20 per pose the merger on its face, but did list a share in cash or stock once the merger is number of conditions they felt should be met completed. lhere are protisions for adjust-before the merger is de< lared to be in the ments to the price, depending' upon whether public interest. These (onditions related pri- OSU ag c omnon Wck dividends prior marily to the sharing of projected sasings be- to completion of the merger or if the transac-tween ratepavers and shareholders. tion is not finished by June 5,1994.

The t'ederal Energy Regulatory Com- ccording to testimony filed with mission issued an order on Jan. 27,1993. in-  %

structing the administrative law judge to have { regula!c$rs, nhing of about the$ merger 1 billion will result a rec ommendation by Aug. 31. The IT.RC de- oser ten years. This includes cided that hearings only needed to be held on lower fuel costs which would go

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the proposed merger's ef fect on operating into effect immediately, plus operating cost costs and rate les els. the ac c ounting treat- sasings realized through the combincki op-crations of the systems. In addition, base rates will be capped at current lesels for at least fis c years. ;3 l'

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i Financial Information i IMSCI AI. 51 CilON Contents g , :s : 'n ' m,, ;5 M a ".. n ; > e a , t .e: '

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Q U L I" 5 T A T E S -

U T I L I T I E S C 0 .

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4 Coopers & Lybrand, independent accountants, is en-Managernent Responsibility for g ged to audit, in accordance with generally accepted Consolidated Financial Statement.s auditing standards, the consolidated financial state-ments of the Company and issue their report thereon, Management is responsible for the pr aration, integ- which appears on page 48. Coopers & Lybrand con-rity, and Objectivity of the consolidated financial state _ ducts a review of internal accounting controls to the ex-ments of Gulf States Utilities Company. The statements tent required by generally accepted auditing standards have been prepared in conformity with generally ac- and performs such tests and procedures as they deem cepted accounting principles and, in some cases, re- necessary to amvc at an opmion on the faimess of the flect amounts based on estimates and judgement of c ns lidated financial statements presented herein.

management, gising due consideration to mater 5fity.

The Board of Directors, through its Audit Committee, The Company maintains an adequate system of inter- has genera: oversight of management's preparation of _

nal controls to provide reasonable assurance that trans- the consolidated financial statements and is responsi-actions are executed in accordance with management's ble for engaging. subject to shareholder approval, the authorization, that the consolidated financial state- independent accountants. The Audit Committee, com-ments are prepared in accordante with generally ac- prised entirely of outside directors, reviews with the cepted accounting principles, and that the assets of the independent accountants the scope of their audits and Company are properly safeguarded. The system of inter- the accounting principles applied in financial reporting.

nal controls is documented, evaluated, and tested by The Audit Committee meets regularly, both separately the Company's intemal auditors on a continuing basis. andjointly, with the independent accountants, repre-No internal control sysicm can provide absolute assur- sentatives of management, and the intemal auditors, to ante that errors and irregularitics will not occur due to review activitics in conncction with financial reporting.

the inherert limitations of the effectiveness of internal The independent accountants have full and free access controls; however, management strives to maintain a to meet with the Audit Committee, without manage-balance, recognizing that the cost of such a system ment representatives present, to discuss the tcsults of should not ext ecd the benefits derived. their audits.

Conunon Stock Prices and Dividends Per Share for the years ended December 31 Psigh Law f*a P 1991 fligh low Pa 1992 first Quarter $ 13 % $10% $- First Quarter . $ 12 % $ 10% $-

Second Quarter . 16 % 12 % -

Second Quarter . 12 S74 --

Third Quarter . 16 % 15 % -

Third Quarter . 10 % 9% -

Tourth Quarter . 16 % 15 % -

Fourth Quarter . 1o% 8% -

The Common Stoch of the Company is listed on the New York. Midwest, and Pacific Stock bchanges. The number of common shareholders of record on December 31,1992, was 48,721.

15

F i N A N C 1 A I I N F O R M A T I O N Rgy3pMff9)py?@9fp W ypg g ggy % 9(r7ppgpJpm m Selected Consolidated Financial Data (in thousands except per share amounts and ratios) for the Years Ended December 31 IM2 1%1 1990 1989 1988 Opera ting Re venue . .. . . . . . . . . . . . . . . . . . . . $ 1,773,374 $ 1,702,235 $ 1,690,685 $ 1,607,406 $ 1,520,477 Income (less) Before Extraordinary items and the Cumulative Effect of A ccou nting Cha nges . . . . . . . . . . . . . . . . . . 133,787 122,449 (44,282) 13,251 117,512 N et Incom e ( tos s) . . . . . . . . . . .. . . . . . . . . . . . 128,IS7 102,283 (44.282) (45,573) 103,143 Income (loss) Applicable to Common Stock................................... 78,455 39,213 (l07,024) (l08,412) 40,079 Earnings (toss) Per Average Share of Cornmon Stock Outstanding Before Extraordinary Items and the Cumula-live Effect of Accounting Changes ... .74 .52 (.99) (.46) .50 Earnings (toss) Per Average Share of Common Stock Outstanding.......... .69 .34 (.99) (l .00) .37 Dividends Per Share of Common Stock. - - - - -

Return on Average Common Equity .... 3.93% 1.99% (5.44)% (5.29)% 1.95%

As of December 31 To tal A sse t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,858,494 $6,91 1,492 $6,863,269 $6,807,894 $6,941,531 Long-Term Debt and Preferred Stock Subject to Pf andatory Redemption ... 2.629,028 2,656,562 2,512,743 2,801,860 2,990,934 Capital Lease Obligations (Current and

!% on-Cu ri en t ) . . . . . . . . . . . . . . . . . . . . . . . . . . . 206,611 138,133 161,065 180,552 98,852 Sook Value Per Share . . . . . . . . . . . . . . . . . . . I7.30 16.77 16.81 17.80 18.80 Capitalization Ratios:

Common Shareholders' Equity ....... 41.6% 41.1% 41.2% 39.8% 39.3%

Preferred and Preference Stock ...... 8.3 12.2 14.4 12.9 11.7 fo n g -Term De b t . . . . . . . . . . . . . . . . . . . . . . . 50.1 46.7 44.4 47.3 49.0 100.0 % 100.0 % 100.0 % 100.0% 100.0%

Sec Notes 3 and 4 to the Consolidated Financial Statements regarding contingencies, current rate matters involving possibic disallowances and write-off s, and accounting standards.

16

O U L F S T A T E S U T 1 L 1 T I E S C O

, %Q f i  ; - ( p qq Management's Discussion and Analysis of As of December 31,1992, the Company has not recov-Tinancial Condition and Results of Operations cred a significant amount of the investment or received any retum associated with the portion of River Bend included in reviewing Management's Discussion and Analysis of fi- in the deregulated asset plan in Louisiana and the portion nancial Condition and Results of Operations and the Consol- of River Bend placed in abeyance as part of the Texas rate idated financial Statements of the Company, attention order entered on May 16,1988, and which went into effect should be given to the disclosure in Notes 3 and 4 to the on July 23,1988. Future camings will contmuc to be hm-Consolidated financial Statements that certain litigation ted as long as the limited recovery of the mvestment and and regulatory contingencies exist and the possible conse- lack of retum continues.

quences if such contingencies are ultimately resolved ad-versely to the Company. For the year ended December 31,1992, the Company re-c rded revenues resulting from the sale of electricity under Froposed Entergy Corporation / Gulf States the deregulated asset plan of approximately $40,000,000.

Utilities Company Business Combination Operations and mamtenance expenses, including fuel, On June 5,1992, the Company entered into an Agrec- were approximately $38,108,000 and depreciation ex-ment and Plan of Reorganization with Entergy Corporation pense associated with the deregulated asset plan invest-(Entergy). The common shareholders of the Company and ment was approximately $ 16,597,000 for the year ended Entergy approved the business combination at special December 31,1992, for the year ended December 31, shareholders meetings on December 17,1992. The busi- 1992, the Company recorded non-fuel revenue of ness combination remains subject to certain conditions, in- $30,637,000 (included in the $40,000,000 of total deregu-cluding among others, the receipt of necessary orders or lated asset plan revenue discussed abos e) which, absent other actions by the Public Utility Commission of Texas the deregulated asset plan, would not have been realized.

(PUCT). louisiana Public Service Commission (LPSC), the The operations and maintenance expenses and deprecia-Federal Energy Regulatory Commission (FERC), the Nucicar tion expense allocated tc, the deregulated asset plan as de-Regulatory Commission (NRC), the Securitics and Ex- tailed above, however, would have been incurred at River change Commission, and clearance under applicable fed- Bend with or without the deregulated asset plan. Future im-cral anti-trust statutes- pact of the deregulated asset plan on the Company's re-Siq, nificant fuel and non-fuel savings are expected to re- sults of operations and financial position will depend on suit from the combination of the companics. The Plan of River Bend's future operating costs, the unit's efficiency Reorganization provides for a five-) car cap on the and availability, and the future market for energy over the Company's base rates after consummation of the transac- remaining life of the unit. The Company anticipates that fu-tion, ture revenues from the deregulated asset plan will fully re-cover all related costs.

Due to the numerous regulatory actions, which could take until at least late 1993 or early 1994, the risk ofinter . Future results of operations could be adversely affected v,enmg matenal adverse events, and other numerous condi- by substantial additional write offs or write-downs of the tions and rights of terminations, there can be no assurance Company's investment in River Bend and related deferred

• P business combination agreed upon will costs, which may result from regulatory actions, judicial ac-nsu c. tions, pricing energy below the full cost of service to mect Results of Operations competition and the associated application of accounting Net income for 1992 increased, w hen compared to 1991, Principles, or from periodic reevaluation of the deregulated asset plan in Lomsiana. See Note 4 to the Consolidated fi-due primarily to increased res enues (as detailed below), re.

nancial Statements for potential exposures. Substantial duced interest charges, and reductions to the Southem wnte-offs or write-downs wo Company settlement liability. Increased operations and any ca maintenance expenses offset in part the increases dis.

cussed above. Earnings per aserage share of common Comfmanc}mg,pacity to cont,uld adversely a tain mue to pay dividends and ob-which could in tum affect the Company's li-stock increased during 1992, whon compared to 1991, due guidity. See " Liquidity, financings, and Capital Resources" to the increases in net income discussed above, in addition below.

to reduced preferred and preference dividend require-ments.

Kate Matters Net income and camings per shaic of common stock out- Texas RetailJurisdiction (Regulator -

standing for 1991 increased when compared to 1990, due PUCT) primarily 1o rate actions in Texas and louisiana during the first quarter of 1991, increased kilowatt hour sales, and re- In the May 1988 rate order, Docket No. 7195, the PUCT duced interest charges. The increase was offset in part by a set aside in abeyance $1.4 billion of the system wide River

$23.064.000 rescrsc (net of taxes), including interest. re- Send plant investment and $157,000,000 of related Texas corded in 1991, for a refund resulting from an April 1991 retailjurisdiction deferred River Bend operating and carry-Louisiana Supreme Court ruling. and the increase in de- ing costs with no finding of prudency. The PUCT stated the ferred taxes resulting from the discontinuation of regula- ultimate rate treatment of such amounts would be subject tory accounting principles for the louisiana deregulated to future demonstration by the Company of the prudency portion of Rher Bend. of such costs. Additionally, the PUCT affirmed its prelimi-17 1

F 1 N A PL C I A 1. I N F 0 R M A T I O N

"% ]fUp$ 7 C Wlli10' ~ W ! {} W Wl9# y WQ53{ g' < ^ ' *g nary rulings in February 1988, to disallow as imprudent mately $161,000,000, net of taxes, as of December 31,

$63A68.000 of the Company's system-wide Riser Bend 1992. River Bend cost deferrals which were allowed in rate plant costs. The Company appealed the order and also base in Texas were approximately $ 101,000,000, n;t of tax-filed a s2parate rate case (Docket No. 8702) in which it es, as of December 31,1992. At December 31,1992, the asked that the abeyed Rher Bend plant cost be found pru- Company estimates it had collected approximately dent and included in rate base. Intervening parties filed suit $111,000,000 of revenues as a result of the previously or-in district court to prohibit the proceedings in Docket No. dered rate treatment of these deferred costs and currently 8702. The district court's decision in that suit was ulti- estimates that it collects approximately $2,300,000 monthly, mately appealed to the Texas Supreme Court, and the or $28,000,000 annually, of revenues associated with such Texas Supreme Court ruicd that the prudence of the costs deferred costs from ratepayers in Texas. Deferred costs asso-purported to be held in abeyance by the PUCT in its May ciated with Big Cajun 2 Unit 3 totaled approximately 16,1988 order could not be relitigated in a separate rate $4,312,000 (nct of taxes) as of December 31,1992, of which proceeding such as Docket No. 8702. The Texas Supreme approximately $1,823,000 (nct of taxes) were included in Court's decision stated that all issucs relating to the merits rate base by the PUCT. The remaining $2,489,000 (nct of tax.

of the original order of the PUCT, including the prudence of es) of deferred costs were included in the appeal of Docket all Rher bend related costs. remain to be addressed in the No. 7195 before the court.

7195. On Octo-pending ber 1,1991, district court a district appea!

court down i No;ts decision in On August 26,1992, the court of appeals in the El Paso of Docket handed .

case handed down its second opinion on rehearing modify-the Company's appeal of the May 1988 rate order. The deci- ng its previous opinion on defened accounting for El Paso sion stated that, w hile it was clear the PUCT made an error (which had been relied upon by the district court in the Gulf in assuming it could set aside $1.4 billion of the total costs States case). The court's new opinion distinguishes between of Rn-cr Bend and consider them in a later proceeding, the deferred carrying costs and deferred operating and mainte-PUCT, nesertheless, found that the Company had not met nance costs, concluding that the PUCT may lawfully defer op-its burden of proof related to the amounts placed m abey-crating and maintenance costs and subsequently include ance. The court also ruled that deferred costs associated them in rate base, but that the Public Utility Regulatory Act with Kiser Bend and Big Cajun,2 Unit 3 accrued after the prohibits such n te base treatment for deferred carrying umts wcre placed m commercial operation, but prior to rel- costs. The court stated, however, its opinion would not pre-evant rate orders, should not be mcluded m rate base un-clude the recovery of defened carrying costs without rate der the 1991 decision regardin ElIaso Elecinc base treatment. The court of appeals opinion has been ap-Company s (El Paso) similar de erred costs. The court re-pealed to the Texas Supreme Court.

manded the case to the PUCT with instructions as to the proper hand ling of the deferred cost issues. The if the August 26,1992 court of appeals opinion is applied Company's motion for rehcaring was denied, and on De- to the Company by the courts and the PUCT permits recov-cember 18,1991, the Company filed an appeal of the Octo- cry through amortization of the deferred carrying costs, the __

ber 1,1991 district court order. The PUCT also appealed possible write-off of $ 101,000,000 of deferred River Bend ~

the October I,1991 district court order, which served to costs cunently allowed in rates would be climinated, and pos-supersede the district court's judgment rendering it unen- sible refunds would be reduced. At December 31,1992, the forceabic under Texas law. On October 21,1992, oral argu- Company estimates it had collected approximately ments were made betore the Third District Court of $53,000,000 of revenues as a result of the current inclusion Appeals on the Company's appeal. No assurance can be of deferred carrying costs in rate base. The Company col-given as to the timing or outcome of the appeal. lects approximately $ 1,000,000 per month as a result of such current rate base treatment.

As of December 31,1992, on a Texas retailjurisdictional basis, the disallowed Ris er Bend plant costs were approxi- The October 1,1991 district court order also four.d that mately $ 18,000,000. and the Ris er Bend plant costs held in the PUCT crred in reducing the Company's deferred costs by abeyance totale:I approximately $404,000,000, both net of $ 1.50 for cath $ 1.00 of res enue collected under the interim accumulated depreciation and related taxes. As discussed rate increases authorized in 1987 and 1988. Elimination of in Note 4 to the Consolidated Financial Statements, on Jan- the reduction of deferred costs from rate base could reduce uary 1,1993, the Company is required to changc its ac- the potential refund of amounts described in the preceding counting for income taxes due to the adoption of paragraph by amounts ranging from approximately Statement of Financial Accounting Star.dards (SPAS) No. $ 15,000,000 to $36,000.000.

109. Included in the STAS No.109 accounting change is an No assurance can be given as to the timing or outcome of increase of deferred taxes associated with the disaliowed and abc)cd River Bend plant irnestment. Accordingly, on jhc appeals destnbcd above. Pending further developments in these cases, the Company has made no write-offs for the January 1,1993, after recognition of the SPAS No.109 cf.

Ris er Bend related costs discussed above. Management be-fcct, the disallowed Riser Bend plant costs will be approsi. lieves, based on aduce from Clark, lhomas, Minters & New-mately $14,000.000, and the River Bcnd plant costs held in abeyance will total approximately $315.000.000, both net ton, a professional corporation, legal counsel of rctord in ._

the appeal of Docket No. 7195, it is reasonably possible that of accumulated depreciation and related taxes.

the Company will prevail on appeal of the district court or-The River Bend cost deferrals associated with the portion der and the case will be remanded to the PUCT, and that it is of the insesiment held in abeyance amounted to approti- reasonably possible that the PUCT will be allowed to ex-18

~^

l pressly rule on the prudence of the abeyed River Bend 2. Sandlin Associates' analysis which supports. the plant costs. Upon remand of Docket No. 7195, the PUCT prudence of substantially all of the abeyed can choose from several options. It can reexamine all as- construction costs.

pects of the case, reexamine only a portion of the case, 3. Historical inclusion by the PUCT of prudent take additional testimony, or rely on the existing record,in- construction costsin rate base.

ciuding the report of the three administrative lawJudges that heard the extensive testimony filed in the case; or, the 4. The analysis of the Company's intemal legal staff, PUCT can take some action that may lead the parties to set- which has considerable experience in Texas rate case (le the case without additional extensive litigation. At this litigation.

time, management and legal counsel are unable to predict Additionally, management believes, based on advice the amount,if any, of the abeyed and previously disal- from Clark, Thomas, Winters & Newton, a professional cor-lowed River Bend plant costs that may be ultimately disal- poration, legal counsel of record in the appeal of Docket lowed by the PUCT. A write-off as of December 31,1992, No. 7195, that it is probable that the deferred operating ra ng ro $0 0 22 000, could be required based and carrying costs discussed above will be recovered in rates as allowable costs. However, assuming the August 26, Management believes that it is reasonably possible that it 1992 court of appeals opinion in the El Paso case regard-will recover, in rate base, or otherwise throagh means such ing deferred costs, as discussed above, is upheld and ap-phed to the Company, and the deferred River Bend costs as a deregulated asset plan, all, or substantially all, of the abeyed River Bend plant costs. Management believes that currently held in abeyance, related to the $404,000,000 of the abeyed River Bend plant costs were prudently incurred. abeyed plant costs, are not allowed to be recovered in However, management recognizes that it is reasonably pos. rates as allowable costs, a write-off of up to $161,000,000 sible that not all of the abeyed River Bend plant costs may could be required. In addition, future revenues based upon ultimately be recovered. the deferred costs previously allowed in rate base could also be lost; and no assurance can be given as to whether in prior proceedings, the PUCT has held that the original or not refunds (up to $53,000,000 as of December 31, cost of nuclear power plants will be included in rates to the 1992) of revenue received based upon such deferred costs extent those costs were prudently incurred. Based upon previously recorded will be required.

the PUCT's prior decisions, management believes that its Adverse resolutions of these court appeals or subse-River Bend construction costs were prudently incurred.

quent regulatory proceedings,if remanded, could have a As part of its direct case in Docket No. 8702, the Com- material adverse effect on the Company.

pany filed a cost reconcillation study prepared by Sandlin Associates, management consultants with expertise in the Loulslana KefallJurisdiction (Regulator -

cost analysis of nuclear power plants, which supports the LPSC) reasonableness of the Rwer Bend costs held in abeyance On January 28,1992, the LPSC ordered that the previ-by the PUCT. This reconciliation study determined that ap- ously ordered deregulated asset plan be retained, subject proximately 82 percent of the River Bend cost knease to certain conditions. Such conditions include changing the above the amount included by the PUCT m rate base was a sharing mechanism for incremental revenue derived from result of changes in federal nuclear safety requirements off-system sales from the previously ordered 60 percent for and to ed other support for the remamder of the ratepayers/40 percent for shareholders to a split of 50 per-cent for ratepayers/50 percent for shareholders. According-There have been four other rate proceedings in Texas in- ly, the Company applied the provisions of SPAS No.101, vohing nuclear power plants. Investment in the plants ulti. Regulated Enterpnses - Accounting for the Discontinua-mately disallowed ranged from 0 percent to 15 percent for tion of Application of TASB Statement No. 71, which re-three of the companies. A disallowance of approximately quired no write-down of the deregulated portion of River 25 percent was ordered in the other case, however, approx. Send: however, the application of STAS No.101 did require imately 66 percent of that disallowance was recently over. an increase in deferred taxes and other adjustments of tumed by a district court, which results in a net 9 percent $20,166,000 ($.18 per share of common stock). Due to the disallowance. Each case was unique, and the disallow. Company's net operating loss carryforward position for lou-

- antes in each were made on a case-by-case basis for differ. islana state income taxes, a previously unrecorded offset-ent reasons. Appeals of most,if not all, of these PUCT ting state tax benefit of $13,100,000 l$.12 per share of decisions are currently pending. common stock) is included in " income Taxes - State.

The following factors support management's position Liquidity, Financings, and Capital Resources that a loss contingency requiring accrual has not occurred, funds and its belief that all, or substantlahy all, of the abeyed ating actbrovided by the sale of first mortgage bonds, oper-tles, and plant costs will ultimately be recovered: mary source of t~unds during 1992, while the retirement of

1. The f act that the $1.4 billion of abeyed River Bend plant first mortgage bonds and preferred and preference stock, costs have never been ruled imprudent and disallowed along with the payment of preferred and preference divi-by the PUCT. dends, west the primary uses of funds during 1992.

19

~ .

i in 1991, cash provided by operations and the sale of The following table shows selected cash flow items for debentures were the most significant source of funds, the years 1992,1991, and 1990:

while the retirement of long-term debt and payment of pre-ferred dividends were the primary use of funds.

1992 1993 1990 (in thousands) runds Provided By fiet operating activities . . , $ 365,125 $470,147 $363,788 issuance of long-term debt . . . . 1,234,225 200,000 -

r Alsting cash and cash equivalents . 95.320 -

930 Other. 33,464 14.141 2,513 Total . , . $ 1,728,134 $684.288 $367.231 '

runds Used for Capital expenditures. . . . ...... . ... ... . ..... ...... . $ 97,377 $ 87,470 $ 73,020 Retirement of long-term debt, including redemption premiums, and deferred River Bend construction commitments ... . . . . - . .... .... I,194,878 333,082 219,454 Retirement of preferred and preference stock, including redemption premiums. 174,226 - -

Payment of lease obligations .. .. .... .

I8,544 36,890 44,110 Payment of preferred and preference dividends . 237,369 127,398 -

Investment in cash and cash equivalents . - 96,473 -

Other. 5.740 2,975 30,647 Total . , $ 1,728,134 $684,288 $367,231 As of December 31,1992, the Company had available gage bonds which the Company may issue, based upon in-

$ 100,000,000 under a bank credit agreement, as described terest coverage for a period of twelve consecutive months in Note 1 I to the Consolidated financial Statements, which within the fifteen months prcceding a new debt issuance.

will expire March 15,1993. The agreement contains nega. Based upon the results of operations for the year ended live covenants which, among other restrictions, restrict pay- December 31,1992, during such fifteen month period, the ment of dividends on and acquisition of common stock. Company believes it could issue $812,000,000 of addi-tional first mortgage bonds, in addition to the amount pres-As discussed in Note 3 to the Consolidated financial ently outstanding (assuming an interest rate of 9 percent Statements, on January 4,1993, the Company paid the for additional first mortgage bonds).

any $ 111,329,000 to retire promissory -

Southern notes and paid Comp $6,471,000 under a common stockThe price Company's Restated Articles of Incorpomtion, as differential agreement. The unpaid $48,671,000 of promis. amended, place camings coverage limitations upon the is-sory notes and $2,829,000 of the common stock price dif. suance of additional preferred stock. On the basis of the ferential is payable on the earlier of the January 1st as of results of operations for the year ended Decemoer 31, which the Company has " adequate cash" or January 1, 1992, the Company believes it does not have the ability to 1999, or earlier at the Company's discretion upon five days issue additional preferred stock. There are no such limita-notice. In addition, there are $20,000,000 of pollution con. tions on the issuance of preference stock.

trol bonds that are secured by a letter of credit which ex-pires in April 1993. If the letter of credit is not renewed or Significant Litigation, Risks, and replaced, the Company plans to remarket and cause the pol- Environmental issues lution control bonds to remain outstandmg. If the Com-pany is unsuccessful in these actions, the pollution control As discussed below. ind more fully in Note 3 to the Con-bonds will be redeemed, solidated financial Statements, significant litigation and other risks exist. The risks which management believes to The Company's funds provided from operations, along be the most significant are discussed below.

with available lines of credit, are expected to be sufficient to provide for the Company's cash requirements. However, Cajun flectric Power Cooperative, Inc (CfEO) if and to the extent other external funds are needed in the Litigation. As discussed in Note 3 to the Consolidated ri-future, access to extemal funds could be adversely affected nancial Statements, CEPCO has filed suit seeking recovery by economic or banking conditions, or adverse develop- of its alleged $ 1.6 billion investment in River Send as dam-ments with respect to contingencies to which the Company ages, plus attomeys' fees, interest, and costs. Two member >

ls subject. cooperatives of CEPCO have brought an independent ac-tion to declare the River Send ownership agreement void, The Company's Mortgage Indenture contains an interest based upon failure to get prior LPSC approval alleged to be coverage covenant which limits the amount of first mort- necessary. The Company believes the suits are without 20

. . . _ . . _ . . _ _ _ _ 1

O U L F S T A T E S U T I L I T I E S C O ,

y e :~ wmmmm m.

merit and is contesting them vigorously. No assurance can Operating Revenue be gh'en as to the outcome of this litigation. If the Com-pany were ultimately unsuccessful in this litigation and Operating res enue increased in each of the years 1992, were required to make substantial payments, the Company 1991, and 1990 as follows:

would probably be unable to make such, payments and , _ ,,m ,,,3 er== rrwr icar would probably have to seek relief from its creditors under the Bankruptcy Code. ma mi mo On tinousands)

/Yuclear Risks. Ownership and operation of a nuclear change in base rates. $ 3s4 $ 46,927 $ 12.894 generating unit subject the Company to significant special Provision for rate refund -

risks. No assurance can be given that the amount of insur. touisiana . 24,143 (24,143) -

ruct cost recovery 42.871 (21,842? 19.824 ante carried as to various risks will be sufficient to meet 50.s6I potentialliabilitics and losses, sales volurne and other . 3,77i , Io,608

$71,139 $ 11,5s0 $63.279 fnvironmentallssues. The Company tas been notified ** 3* **

P**"t8"e^$* **' Pd ' F**' -

by the U. S. Environmental Protection Agency tEPA) that it has been oeslanated as a potentially responsible party for the c!canup of sites on which the Company and others Rates. The changes in base rates shown above reflect have or ha Je been alleged to have disposed of material des- rate orders, settlement agreements, and rate changes imple-Ignated as hazardous waste. The Company is currently nc- mented during the period from 1989 through 1991. The gotiating with the EPA and state authorities regarding the Company implemented permanent rate increases in each cleanup of some of these sites. Several class action and of theyears 1989 1991.

other suits have been filed in state and federal courts seek-ing relief from the Company and others for damages As discussed in Note 4 to the Consolidated Financial caused by the disposal of hazardous waste and for asbes- Statements, in 1991, the Company recorded a tos-related disease which allegedly occurred from expo. $24,143,000 reserve for a refund to the Louisiana retailju-sure on Company premises. While the amounts at issue in risdiction.

the cicanup efforts and suits may be very substantial sums, management believes that its financial condition will not fuelCost Recovery. Puel cost recovery revenue in-creased (decreased) as detailed above, due primarily to be materially aficcted by the outcome of the suits.

changes in fuel and purchased power costs discussed Detailed below are the cu nulative amounts accrued and below.

cxpended, through December 31,1992, for the cleanup of sites at which the Company has been designated as a poten.

Rllowatt-flourSales. K!!owatt-hour sales changes for tially responsible party,in addition to the remaining esti. the years 1992,1991, and 1990 in total and for the three mated liability as of December 31,1992. major kilowatt-hour sales categones are as follows:

• • • I Amount Aumount I""frma Nr tear I A m ued Empendeel 8Lemminta pu t[31.

s tm2 Da td S t.

tw2 tIr St.

m2 Residential . . (1)% 1% 6%

cornmercial . - 1 4 On usoumanas)

Industrial . 6 2 8 r,rwironmental deanup Total . 1 - s (six sit eM . $25.s68 56,240 $ 19,328 The Pcdcral Clean Air Act Amendments of 1990 im- See the Statistical Summary for additional information on pose new requirements to permit, measure, and control kilowatt-hour sales and related revenues by customer air pollution cmissions from the Company's generating class.

plants and will require additional capital expenditures for pollution control and measurement equipment and in. Industrfa/ Sales. Cogeneration projects developed or creased operating expenditures and permitting fees. Cur. considered by certain industrial customers over the last sev-rent estimates of expenditurcs to meet new requirements eral years have resulted in the Company developing and se-total approximately $22,000.000 over the next three to curing approval of rates lower than the rates previously four years. Based upon the outcome of ongoing Com. appros ed by the PUCT and LPSC for such industrial custom-pany studies and depending upon pollution control stan. ers. Such rates are designed to retain such customers, and dards to be set by the EPA and state environmental to compete for and develop new loads, and do not pres-agencies, it may be determined that additional capital ex. ently recos er the Company's full cost of service. Sales to penditurcs will bc required above the Dresent estimates. those customers qualifying for such rates remained at virtu-ally the same level dunng 1992, when compared to 1991, after relatively large increases over the prior several years.

The pricing agreements at non-full cost of service based rates fully recover all related costs but provide only a mini-mal return. Substantially all of such pricing agreements ex-pire no later than 1997. Kilowatt-hour sales, changes in 21

~

F 1 N A N C I A 1. I N F O R M A T I O N N hhD h% fh 8 N! r

] AP hfy MP y kilowatt- hour sales, and related revenue within the indus- lower natural gas prices and from greater utilization of trial class are detailed below: lower priced nuclear generation.

ia2 inn im Purchased power expense decreased 15 percent for

• u,===oo 1992, when compared to 1991, due to the reduction in ca-pacity costs associated with the buyback, w hi,ch ended in ruEc5sIseNicIt ased rates. .... I o.948.865 1o.188.808 10.265.998 June 1991, of a portion of CEPCO's share of River Send gen-non run cost or sense cration,in addition to a reduction in the cost of kilowatt- -

based ates. 3.447.811 3 423.389 3.065.774 hours purchased, offset in part by increased kilowatt-hours lotallndustrial . 14.396.676 13.612.197 13,331,772 purchased.

Purchased power expense decreased 18 percent for

'"'Onb,W7'

1991, when compared with 1990, due primarily to the re-im im im duction in capacity costs associated with the bu)back, channes ia automatt-hour saie. -- which ended in June 1991, of a portion of CEPCO's share run wst of senic e based rates . 7% (1 j% 1% of River Send generation, in addition to a reduction in kilo-non run wst of service based rates . I 12 45 watt-hours purchased during 1991, when compared to Total Industrial . 6 2 8 1990.

The cost per kilowatt hour of fuel consumed and pur-

• ""*""* chased power and the breakdown of electric energy requirc-ac.cooe run wst of sen ke based ments are detailed below:

rates . ... . $53o.599 $475 976 $ 480.230 Non full wst of senke based rat es . 109 995 1o4.947 97.156 Cost of fuel consumed cents per hwm totalIndustrial . $64o,s94 $s80.923 $577 436 atu al gas . 2 Nuclear . 1.64 1.24 1.28 The Company anticipates t b" dustrial sales and full cost ofhatIndustrial n,on fullsalescostwill of re- cos,[,rcNsNI' service in- power kents pe Utti.

service main near the 1992 amounts during 1993; howes er, the '* 8" '" .

potential exists for loss of additional load in the future to other competitive sources of power, and further pricing be-

• """4"*"""*"""

g-N'*e 9"du"heam depart- ~

low the full cost of scnice may be necessary to meet com- ment electric generation) . 24.577.833 2s.233.164 24.782.548 petition in order to prevent such loss. f%rchased power . 4.934.937 4.010.461 4.230.143 Total ciectric encrgy re-Irholesale Sales. Competition for wholesale sales re- quirements . 29.512.770 29.243.625 29.012.691 sulted in the Company and a majority ofits wholesale cus-tomers reaching agreements during 1989 for rates that im im mo wcre lower than the then existing approved rates for the net generation (excluding steam Company's wholesale electric senice and,in some cases, department electric generation >

lowered the energy and pow er requirements from those pre- natural ;;as. 63% 57% 61 %

viously contracte'd for. The rates agreed to in contracts run, c at . 13 13 11

""**' # '3 ning' until 1996-2000 do not recos er the full cost of service.

83 86 85 I'"h^d P **'- '7 '" 35 The city of College Station, Texas ceased purchasing its cncrgy requirements from the Company when its contract 10tal ciectric energy requirements . 100% 100 % 100%

cxpired on December 31,199! . Non-fuel related revenues from sales to College Station were approximately Other Operations and Naintenance Dpense. Operations

$11,500.000 and $11,200.000 during 1991 and 1990, re. and maintenance expense increased for 1992, when com-spectively. pared to 1991. The increase resulted from additional costs associated with the refueling outage completed in Sep!cm-5er 1992 at River Send and other River Send related pro-Operating Expenses and Taxc5 jects, as well as increased Company-wide payroll.

heland Archased romer. fuel expense increased 6 As discussed in Note 3 to the Consolidated financial percent during 1992, when compared to 1991, due to an Statements, the Company made certain repairs and im-mcrease in average fuel cost caused primarily by higher pros ements to the service water system and repairs to a natural gas prices, offset in part by a decreased use of feedwater nozzle at River Send during the refueling outage.

Company-owned generating units. These repairs and improvements extended the refueling outage beyond previous outage periods. The Company re-Tuct expense decrcased 2 percent for 1991, when com- ccited a letter from CEPCO dated Septembcr 3,1992, that pared to 1990, due to a reduction in the as crage fuel cost. alleged the operating and maintenance costs for River The reduction in as crage fuel cost resulted primarily from Send are far in excess of industry averages and stated their 22

O U L T S T A T E S ti T I 1. I T 1 f S C O

.;.g m

• W P W M" :y 7 ,f y intention to fund a maximum of $700,000 per week under able to Southem issued as part of the litigation settlement.

protest during the remainder of 1992, or until CEPCO is sat- This decrease was offset in part due to interest expense on isfied regarding these costs. Due to the Company's funding the notes payable to Southern recorded subsequent to the of CEPCO's share of certain of these repair costs and the issuance of the notes on November 7,1991. The Company funding of CEPCO's share of refueling outage costs in ex- recorded the notes at the discounted present value on No-cess of $ 10.600,000 and of costs in excess of the limited vember 7,1991, and then recorded Interest expense on funding by CEPCO proposed by its September 3,1992 let- the notes through January 1,1993.

ter, all without waiver of the Company's rights, operations Interest charges on short-term debt and other increased and maintenance expense resulting from these items in' for 1991, when compared to 1990, due to interest expense creased b approximately $14,392,000 during 1992, when accrued on the estimated Southern settlement, recorded compare to 1991. p,ior to the consummation of the settlement.

Operations and maintenantc expense increased for

(.rtraordinan/ /tems 6Yet oftncome TaAes). Loss on the 1991, when compared to 19% The increase resulted from Cxtinguishmerit of Debt. The Company recorded losses on additional payroll, costs, and increased outage accruals and thc following debt retirements during 1992:

maintenance at River Bend.  %

Tacs. federal income taxes charged to operating ex- E*"Wch,h'd d*& Mi 3

penses increased in 199L w ben comparcd to 1991, as de- (tot 3oo.,oo,,

tailed in Note 5 to the Consolidated financial Statements. January 1992 first mortgage rederal income taxes charged to operating expenses de. tend retirement . ........ S 3.046 s1,036 52.01o ng bon creased in 1991, when compared to 1990, as detailed in M",{.,3[m[E 3 2J97 0 66 Note 5 to the Consolidated financial Statements. State in- August 1992 poinution controi come taxes decreased due to the book recognition of tax toond retirement . 786 267 519 benefits of state tax net operating loss carryforwards. December 1992 first mortgage bond retirement . 4.245 1.443 2,802 Non-Operating Iterns $i4.54o 54.943 $9.597 Southem Company Settlement and Related Income .

Discontm.uat. ion of Regulatory Accounting Pn. naples. See Tares. See Note 3 to the Consolidated financial State-ments for a dcscription of the dispute and settlement re. N te 4 to the Consolidated Tinancial Statements for a de-scription of the increase in deferred taxes associated with garding purchased power contracts with the Southern applymg STAS No.101 to the deregulated portion of River Company, Bend dunnq 1991.

Other- Net. Other - net increased for 1992, when Cumutative f/fect ofAccounting Change (Net of tncome compared to 1991. During 1992, the Company reversed

$38,100,000 of the common stock guarantee liability to 7 axes). As discussed in Note 4 to the Consolidated finan-the Southern Company. The liability ret crsal resulted from cial Statements, the Company changed th,e accounting for an increase in the highest five-day average price of the power plant materials and supphes effective January 1, 1992, and recorded the cumulative effect of the change Company's common stock. which increased net income $6,510,000 before related in-Other- net increased for 1991, when compared to come taxes of $2,543,000.

1990, due to franchise tax refunds the Company was al-lowed to retain as part of the rate case settlement in New Accounting Standards Docket No. 8702 in Texas, as discussed in Note 4 to the in Tebruary 1992,the TASB issued SFAS No.109, Account-Consolidated financial Statements. ing for Income Taxes which significantly changes account-Interest Charges. Totalinterest charges for 1992 de- ing for income taxes and supersedes almost all existing creased, when compared to 1991, despite an increase of authoritative accounting literature on accounting for in-approximately $74.000,000 in the average lone term debt come taxes. STAS No.109 evises the computation of de-outstanding. Interest savings from the refinancing of higher ferred income taxes so that the amount of deferred income cost debt provided for the reduction of totalinterest taxes on the balance sheet is adjusted whenever tax rates char,qcs. desplic the incicased levels of long-term debt. or other changes of the income tax law are enacted. STAS The increase in long-term debt was used primarily to pay No.109 also prohibits net of tax accounting and reporting preference dividend ancarages and to retire all outstanding and requires recognition of defened tax liabilitics for tax preference stock, including redemption premiums. benefits previously flowed through to ratepayers. Adoption f SfAS N .109 is required in 1993. The adoption of SFAS Interest expense on the notes payable to Southem has N .109 may be recorded by restating pnor years financial been classified as long-term interest since the consumma- statements or by recording the cumulatwe effect of the tion of the settlement in November 1991. Prior to that the change in the 3 ear of adoption. The Company presently interest on the Southern obligations was classified as other plans to record the adontion of SFAS No.109 by restating gnterest expense. 1990,1991, and 1992 dnancial statements. Detailed below Interest charges on long term debt decreased for 1991, are the estimated effects on the Company's results of oper-when compared to 1990, due to the net decrease of ations and financial position resulting from such restate-

$ 133,082.000 of debt during 1991, excluding the notes pay- ment:

23

t l 1990 $ RAS Mo. 1990 As Reported 109 cRect As Restated income (loss) Sefore Extraordinary items and the Cumulath'e Effect of Accounthg Change . $ (44,282)(in$thousands) 7,683 $ (36,399)

• Cumulative Effect of the Adoption of STAS No,109 on Years Prior to 1990. - (96,494) (96,494)

Net Loss . . . . . . . . . . . ......... (44,282) (88,611) (132,893)

Loss Applicable to Common Stock . . . . . ................... ...... (107,024) (88,61 l } (195,635)

Camings (loss) Per Average Share of Common Stock Outstanding Before Extraordinary items and the Cumulative Effect of Accounting Change . (0.99) 0.07 (0.92)

Loss Per Average Share of Common Stock Outstanding . (0.99) (0.82) (1.81)

T otal Assets . . . . . ...................... ................. .... 6,863,269 589,510 7.452.779

'Iotal Capitalization and Liabilities (Excluding Retained Eamings) . 6,152.632 678.121 6,830,753 Retained Earnings . . 710.637 (88,61I) 622,026 1991 $ RAS Mo. 1991 As Reported 109 eficci As Restated (in thousands)

Income Before Extraordinary items and the Cumulatite Effect of Accounting Change . $ 122,449 $ (10,058) $ 112,391 Net inc ome . . . . . . . . . . . . . . ......... 102.283 9,747 112.030 Income Applicable to Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 39,213 9,747 48,960 Lamings rer Average Share of Common Stock Outstanding Sefore Extraordinary items and the Cumulative Effect of Accounting Change.... ... 0.52 (0.09) 0.43 Eamings Per Average Share of Common Stock Outstanding. O.34 0.09 0.43 Total Assets . . . . . ........... ........... ................. ... 6.911.492 557,317 7,468,809 Total Capitalization and Uabilities (Excluding Retained Eamings) . 6.164.735 635.181 6,800,916 Retained Earnings . 746,757 (78,864) 667,893 1992 SPAS Mo. l992 As Reported 109 effect As Restated (in thousands)

Income Before Extraordinary items and the Cumulative Effect of Accounting Change . $ 133,787 $ 5,691 $ 139.478 Net income . . . . . . . . . . . . . . ......... 128,157 5,691 133,848 inc ome Ap;)licable to Common St och . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 78,455 5,691 84,146 Eamings Per Average Share of Common Stock Outstanding Before Extraordinary items and the Cumulative rffect of Accounting Change....... . 0.74 0.05 0.79 famings Per Average Share of Common S,toch Outstanding . 0.69 0.05 0.74 Total Assets . . . . . ....................... ............... .... .. 6,858.494 537,085 7.395.579 Total Capitalization and Wabilitics (Excluding Retained Eamings) . 6.153,859 610,258 6,764,117 Retained Eamings . . 704,635 (73,173) 631.462 l

If the Company elected to not restate prior 3 cars' finan- charges for postretirement benefits under the provisions of cial statements, the adoption of SfAS No.109 would result SPAS No.106, including the amortization of the transition in a charge to net income in the first quarter of 1993 of obligation, are currently estimated to increase by approxi-l $73,173.000. mately $15,800,000 in 1993. Amounts ultimately recorded in accordance with STAS No.106 kill be influenced by, Mana'lement believes it is probable that the future in-among other things, the actuanal assumptions used by the crease in taxes payable, resulting from the revetsal of tax Company and the regulatory treatment of the costs re-benefits previously Lwed through to customers and other cerved by the Company.

temporary diderences, will be recovered from customers through future rates and, therefore, the Company kill re- The TERC recently established guidelines in order to de-cord a, regulatory asset pursuant to STAS No. 71 upon the fer the difference, as a regulatory asset, between the cur-adoption of STAS No.109, as detailed above. Rate actions rent cash payments and the accrued amounts resulting of a regulator can reduce or eliminate the value of an asset. from STAS No.106. Such guidelines include making cash if the LPSC or PUCT cAcludes all or part of the future taxes deposits to an irrevocable external trust, filing a rate case recorded as a regulatory asset from allowable costs and it seeking inclusion of such costs within three years, and am-is not probable that the regulatory asset will be included as ortizing the regulatory asset over a period not to exceed an allowable cost m a future pen,od, the carrying amount of twenty years beyond the STAS No.106 adoption date.

the regulatory asset would be reduced if such assets have been impaked. In November 1992, the FASB issued STAS No.112, Em-STAS No.106. Employers' Accounting for Postretirement ployers' Accounting for Postemployment Benefits. STAS Benefits Other Than Pensions, requires the Company, begin- No. I 12 requires the Company to recognize the obligation ning in 1993, to change the method of accounting for such for providing such benefits as disability-related benefits, sev-benefits to the accrual method. The Company estimates erance benefits, and supplemental unemployment benefits.

that it will have an unrecognized accumulated post- The adoption of STAS No. I12 is required in 1994, hower-retirement benefit obligation of $128,000.000 as of Janu- er, the Company believes the effect of the adoption will be ary 1,1993. The Company has elected to amortize the immaterial on the Company's results of operations and unrecogn! zed transition obligation over twenty > cars. Total financial position.

24

--- J

Consolidated Statement of Income (Loss)

FOr the years ended DeCernber 3I (in thousands except per share arnounts) 1992 -1991 1990 Operating Revenue Electric . . . . . . . . . ... . .. ... ..... . .... ... ... $ 1,694,536 $ 1,623,959 $1,596,635 Steam .. ... . .. . . . . .. ....... . ....... . .. 60,315 46,418 61,052 Oas ... . .. . ... .. . ... ..... .. ... . .. . 28,523 31,858 32,998 I,773,374 1,702,235 1,690,685 Operating Expenses and Taxes ruel ... . .. .. .. . ..... .. ... .. .... ..... ..... 471,873 446,543 457,503 Purchased pcwer .. .. . .. . ... ....... .. . . . 136,716 161,374 197,764 Other operations .. . . ... . . .. ..... ....... ... 293,948 267,592 256,951 Maintenance ..... . . . . . . .. ...... ....... 161,080 142,098 131,775 Depreciation and amortization . . .. .. ... .. .... 188,393 187,936 186,451 Deferred revenue requirement - River Bend phase-in plan ... 2,290 5,575 (41,515)

Amortization of deferred River Bend costs . .. . ... ... 50,656 32,661 21,631 income Taxes rederal . .. .. .. . .. . . ..... ... ... .. 43,833 39,140 46,640 State .. . . .. .. .. . .. . .. . .. .... . . .. (1,257) (15.066) I1,323 Other taxes .. . .. ... .... . ... .. . .. .. .. ... 91,740 88,402 88,929 1,439,272 1,356,255 1,357,452 Operating income .. .. .... .. ............. .. .. . .. 334,102 345,980 333,233 Other Income and Deductions Allowance for equity funds used during construction ........ . 1,226 608 640 Southern Company settlement .... .. . .. .. ...... ... - - (205,015)

%uthern Company settlement related income taxes ... . . - - 80,834 Other - net . . .. . . .. ... ... .. .. .... ... .., 45,928 35,829 21.513 Income Before Interest Charges . . . .. .. ... . .. . 381,256 382,417 231,205 Interest Charges Long-term debt . . .. . ......... ..... .. ......... ... . 239,341 234,418 259,186 Short-term debt and other . ... .. .. . . .. ........... 9,075 26,038 16,811 Allowance for bonrowed funds used during construction .. .. . (947) (488) (510) 247,469 259,968 273,487 income (Loss) Before Extraordinary items and the Cumulative Effect of Accounting Change ..... ... . .... .. 133,787 122,449 (44,282)

Extraordinary items (net of income taxes) (Note 4) . . . .. ..... (9,597) (20,166) -

Cumulative Effect of Accounting Change (net ofincome taxes) (Note 4) .. .. .. .... ... . ... .. . .. ..... . . 3,967 - -

Net income (less) . ... . .. ... ... . . . ..... .. .. .. 128,157 102,283 (44,282)

Dividends on Preferred and Preference Stock ...... ......... .. 49,702 63,070 62,742 Income (Loss) Applicable to Common Stock .. . . ..... $ 78,455 $ 39,213 $ (107.024)

Average Shares of Common Stock Outstanding . . .. .. .. . ... I14,055 114,055 108,055 Earnings (loss) Per Average Share of Common Stock Outstanding Before Extraordinary Items and the Cumulative Effect of Accounting Change . .. .... .... ... $ .74 $ .52 $ (.99)

Earnings (toss) Per Average Share of Common Stock Outstanding .. . .. .. . . . .. . ....... . .. ..... ... $ .69 $ .34 $ (.99)

Dividends Per Share of Common Stock . ..... . . ...... ... . $ - $ -

The accompanying notes are an integral part of the consolidated financial statements.

25

t

, j 7 [

m Consolidated Statement of Cash Flows For the years ended December 31 (in thousands) 1992 1991 Im operating Activities Net income (loss) . .... .. . .. $ 128,157 $102,283 $ (44,282)

Adjustments io reconcile net income (loss) to net cash from operating activitics:

Provision for rate refund - Loulslana . . .. (12,988) 24,143 -

Deferred fuel and purchased power expense - net 4,483 23,374 1,899 Amortization of nuclear fuci . .. 18.580 42,172 35,454 Depreciation and amortization . .. .... .. 192.749 187.521 188,885 Defened River Bcnd expenses and revenue requirement . .. 2,290 5,575 (41.515)

Amortization of accumulated deferred River Bend costs . 50,656 32,661 21,631 Deferred income taxes - net . 57,477 36,540 (16,169)

Investment tax credits - not . . (2,200) (4,308) (4,286)

Allowance for funds used during construction . (2,173) (1,096) (1,150)

Southern Corppany settlement , . . . (20,797) 12,565 213,885 Extraordinary items (nct of income taxes) .... . 9,5)7 20,166 -

Cumulative effect of accounting change (nct of income taxes) (3,967) - - a.

Other (24,204) (19.022) 16,439 Changes in:

Receivabics 4,373 (12,503) (1,897) ruel inventories . . (4,152) 10,422 (3,155)

Materials and supplies . . (2,254) (146) (919)

Prepayments and other current assets 6,969 (9.825) 2,173 Accounts payabic - trade . (1,17I) (6,912) 9,959 Customer deposits , 996 1,258 1,031 Taxes accrued . . (2,634) 753 (1,601)

Interest accrued . . (15,276) 3,211 (10,927)

Other cunent liabilitics (19,386) 21,315 ( ) ,667)

Net cash flow provided by operating activitics . 365,I25 470,147 363,788 rinancing Activities issuance of long-term debt .

. I,248,96f 200,000 -

Discount and expense on long-tcrm debt . . (l4,740) - -

Payment of defened River Bend construction commitments . - (12,429) (15.437,! - - -

Payment of lease obligations . (18,544) (36,890) (44.110)

Retirement of long tcrm debt . (I,124,863) (320,653) (202.654)

Redemption pt imiums on long-term debt . (70,015) - -

Retirement of preferred and preference stock (155,926) - -

Redemption premiums on preference stock . .. (18,300) - -

Payment of prefened and preference dividends . (237,369) (127,398) -

Net cash flow used by financing activitics . (390,792) (297,370) (262,201)

Investing ActivRies Construction expenditures . . . . (97,377) (87,470) (73,020) '

Sale of utility plant . .. ... . . 12,460 - -

Allowance for funds used during construction . . 2,173 1,096 1,150 Refund of (deposit to) escrow account . . . 18,831 (2,975) (11,463)

Other property and investments . . . . (5,740) 13,045 (19,184)

Net cash flow used by investing activities . . (69,653) (76,304) (102,517)

Net change in cash and cash equivalents (95,320) 96,473 (930)

Cash and cash equivalents at January I . 293,061 196,588 197,518 Cash and cash equivalents at December 31 . . . .

$ 197,74I $293,061 $ 196,588 St;pplemental Cash riow Disclosure Cash paid during the period for:

Interest , $ 239,607 $227,506 $267,529 c, 8,000 5,700 6,359 o Income taxes . . .

increase in nucicar fuel lease obligations . . 18,074 13.958 24,623 Increase in gas storage Icase . . . . 68,948 - -

The accompanying notes are an integral part of the consolidated financial statements.

26

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t Consolidated Balance Sheet j December 3I r (in thousands) 1992 '1991 Assets .;

Utility and Other Plant. at original cost .

- Pla n t i n se rvice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,970,683 - . $6,673,767  !

Less: Accumulated provision for depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,172,719 2,024,351  !

4,797,964 4,849,416 .

Construction work in progress . . . . . . . . . . . . . . . . . . . . .. .......... ....... ... 32,305 36,538 l N uclear fuel, net of accumulat ed amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,565 107.071 i 4.936,834 4,993,025- i Other Property and Investments . . . . . . . . . . . . . . . . . . . .... ........ ........... . 36,225 50.200 U Current Assets '

Cash and cash equivalents .. ... .. ... . ................... ..... .. ..... 197,741 293,061 Receivables  ;

Customers ... ... ................. ... ...... .. . ....... ........... 124,214 121,897- t Other .............. ........ . ......... .... .......... .. . ..... ... 18,405 25,095 - i Puel inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . .... ........ 21,159 ' 17,007 4 Materials and supplies (Note 4) .. ..... . ............ .. ... .. .... ...... 86.972 8,097 Prepayments and other . . . . . . . . . . . . . . . . . . . . ... . ... .... .. .... . ... .. 38,314 45,283; ,

486,805 510,440 Deferred Charges and Other Assets Accumulated deferred income taxes . .. ..... ......... . . .. . ....... 179,985 190,438 Deferred River Bend costs . ............... .. .... .. .......... ... ...... 814,263 891,568- .-

Other ..... .. .. ..... . . ...... ...... , .... ..... . .... ............ ... 404,382 275,821 l 1,398.630 1,357,827  !

$6,858,494 $6,911,492 ,

Capitalizat3orn and Liabilities i Capitalization (See Statement of Capitalization) l Common shareholders' equity (Note 4) .... .. .. . ........ .. .............. $ I,972,874 $2,021,673 -  !

Preference stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ......... ...... .. - 100,000 /

Preferred Stock ,

Not subject to mandatory redemption . . . .. . . . .. .. . . .. .... ........ .. 136,444 136,444 -1 Subject to mandatory redemption . .. .. . . . . . .. .. . ... . . ........ ..... 254,570 362,580 (

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . ... ... ..... ...... .... 2,374,458 2.293,982  :)i 4.738,346 4,914,679 l Current IJabil! ties Long-term debt d ue wit hin one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160.000 - 94,003  ;

Preferrr d stock and long-term debt sinking fund requirements ...... ....... . 15,242 .52,205 l Accounts payable - trade . ........ ... .. .... .. ................... ...... 101,513 102,684  ;

Customer deposits .... . . ... . .. .... .. .... ..... ..... ........... .. 21,152 20,156 . ,

Taxes accrued . . . . . . . . . . . . . . . . . ........ . . ... ...... .......... ......... 19,092 21,726 i I nt erest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . .... .... 62,013 . 77,289' l Capital leases - current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,688 21,328 i Southem Com pany settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,300.

65,025-75,718. '[

Other.................................. ................ ............ ....

505,025 465,109 [

Deferred Credits and Other Liabilities ~

i investment tax credits . . . . . . . . . . . . . . . . . . . . . . . . . ...... ...... .. . ..... 94,690 96,889 -

Accumulated deferred income taxes .... ...... ... ......... .... .... ..... 852,302 807,678 Capital leases - non-current . . . . . . . . . . ....... .... ........ . . .. . ..... 154,923. 116,805' .!

Deferred River Bend financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... 131,123 155,482-  ;

Southem Company settlement . .... ...... .. . . .. . .. .. ..... .... . - 47,400- t

.... .............. 382,085 307,450 '

Other..............................................

1,615,123 1,531,704-  ;

Commitments and Contingencies (Note 3) . . . . . . . . . . . . . . . ........... ... . ...

$6,858,494 $6,911,492 [

i The accompanying notes are an integral part of the consolidated financial statements. 'l -

27 t 5

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l Consolidated Statement of Capitalization December 3I (in thousands) 1992 1991 Common Shareholders' Equity Common Stock Authorized 200,000,000 shares without par value Outstanding 114,055,065 shares . . . . . . . . . .. . ... .............. $ 1,200,923 $ 1,200,923 Premium and expense on capital stock.... . .. . .. .... . . ...... . (10,535) (4,155) i Other pald-in capital . . . . . . . . . . . . . . . .... .. ..... ... ............. 77,851. 78,148 j i Retained earnings (Note 4) . .. . . ...... ... . . . .. ... .......... 704,635 746,757 1,972,874 2,021.673 $j Preference Stock Authorized 20,000,000 shares, without par value, cumulative 4,000,000 shares outstanding at December 31,1991 Shares Redemption Outstanding Price as of December 31, December 31.

Dividend Series 1992 1992

$ 4.40 . ... . ..... .. . . .. .. .. -

$ - - 50,000 3.85 . .. .. .. ... . . .. - - - 50,000

- 100,000 I* referred Stock Authorized 6,000,000 shares, $100 par value, cumulative Outstanding 4,058,311 and 4.617,568 shares Shares Redemption Outstanding Price as of December 31, December 31.

Dividend Series 1992 1992 Not subject to mandatory redemption

$ 4.40 . . . . . . . . . . . . . .. .. 51,173 $ 108.00 5,117 5.117 4 .50 . . . . . . . . . . . . .. .. .... 5,830 105.00 583 583 4.40-1949 .. ... ..... . .. . . -1,655 103.00 166 166 4.20 . .... . .. . . 9,745 102.818 975 975 4.44 . . . . . . .. .. .. . . . .. 14.804 103.75 1,480 1,48C 5.00 . .... ... ... ,, . . 10,993 104.25 1,099 1,099 5.08 . .... ... . . . . . 26,845 104.63 2,685 2,685 4.52 . . . . ....... . . . .. 10,364 103.57 1,056 1,056 6.08 . . ........ .. .. . .... 32,829 103.34 3,283 3,283 7.56 . . . . . . .. .. . . . . 350,000 101.80 35,000 35,000 8.52 . . .. .. .. . . 500,000 102.43 50,000 50,000 9.96 . .... .... ... .. . .... 350,000 104.64 35,000 35,000 136,444 136,444 Subject to mandatory redemption S 8.80 . . . . .... . ..... .. .. 260,275 103.00 26,027 30,103 9.75................... .. . 24,598 103.00 2,460 2,963 8.64..................... . 224,000 103.00 22 400 30,247 11.48........................ .... . 340,000 103.00 34,000 48,000 13.64 . . . . . .... .. .. ..... .. . - - - 4,000 12.92 . . . . . . ......... . .. .. . 510,000 105.00 51,000 60,000 1 1.50 . . . . . . . . . . . . . . . . . . . . ... .. . 712.500 105.00 71,250 75,000 l

Atijustable rate-Series A . ... . .. ... 240,000 103.00 24,000 30,000 i Adjustable rate-Series B . ... . .. 382,500 103.00 38,250 45,000 l Preferred dividends in arrears . . . . . . .. . . .. .. .. .. .... . ..... - 80,477 l 269,387 405,790 Preferred stock sinking fund requirements ... ... .. . .. .. ... (14,817) (43,210) <

254,570 362,580  !

(staternent continued on following page.)

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1992 1991 Long-Term Debt first mortgage bonds Maturing 1993 through 1997-16.8% due September 23,1993 . . ... . . . .. . . ... - 17,150 13%% due March 1,1994 .. ... .. .. .. ... .. . . .. .... - 100,000 5% due January 1,1996 . . . . . . . . . . . . . . . . . . . . .. ... ... .. . .. 20,000 20,000 6.67% due November 1,1996 .. . ... . . . .. .... . ... . . . . 75,000 -

5%% due Tebruary 1,1997 .. . . .... . . . . ... . .... 35,000 35,000 ,

6.99% due November 1,1997 .... . . .... ... .. . . .. . .... 75,000 - ,

Maturing 1998 through 2002-6%% through 8.21% .. ... . ... 510,000 210,000 Maturing 2003 through 2007-8%% through 10.15% . ... . . . ... 530,000 270,000 Maturing 2008 through 2012-10%% through 15% . .. .. ..... - 325,000 Maturing 2013 through 2017-11%% through 13%% . . . ........ ... - 500,000 8.94% due January 1,2022 .. ... . .. .. .. . . .. .. ... 150,000 -

300,000 '

8.70% due April I,2024 .. . . . . ... . . . .. . ... .

first mortgage bond sinking fund requirement .. . .. .. .. .... .. -

(8.570) 1,695,000 1,468,580 ,

Pollution control and industrial development bonds  ;

7% due 2006 ... .. .. .. .. . . . .. .. . . ..... 24,575 25,000 5.9% due 2007 . . ... . . .. . .. .. .. . .. . .. 23,000 23,000  !

6.75% and 10%% duc 2012 . . . .. .. . . . . ...... 48,285 48,285 9%% due 2013 ..... ... . .... . .. .... . .. ... ... . 17,450 17,450 30%% due 2014 . .. .. . . . . .. . .. . . ... 50,000 50,000  ;

12% due 2014 . . . . . .. . . .. .... .. 52,000 52,000;  ;

. 7.7% duc 2014 . . ..... .. .. ... .. . .. .. ... 94,000 94,000  !

7%% due 2015 . . . . . . . . .. . . .. .. ... .. 41,600 -

7% due 2015 . .. . . . . ... ...... .. . ... . 39,000 - 'l Variable rate due 2015 . . . .. .. ... . . . . ...... .. . 28,400 109,000 9% duc 2015 . . . . .. . .. . . .. . . ... . .. ... ... .... 45,000 45,000 Variable rate due 2016 . .... . ...... . .. . .... .. .. .. ... 20,000 20,000-Pollution control and industrial development bond sinking f und requirements. ... .. . .. .. .. . .. . .. ... . ... .. ... . (425) (425)

Debentures-due 1998--9.72 % ... . . .. . . . .... . .. 200.000 200,000 ,

Notes payable-Southern Cornpany ... . . ... . .. ... .. ...... - 142,697 e Other long-term debt . ... . . .... . .. . . .. . . ... . .. .. 2,718 2,038- +

2,380,603 2,296,625 Unamortized premium and discount on debt-nct . . . . .. . . ... . ...... (6,145) (2,643) 2,374,458 2,293,982-

$4,738,546 $4,914,679 [

Tiie accompanying notes are an integral part of the consolidated financial statements.

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i Consolidated Statement of Changes in Capital Stock  !

and Retained Earnings Per the years ended Decentber 31 (in thousands)

Preferred Stoch Preminan and Prefesence  ! C #tal P n stoom nedempuen stoca st cm capitas hetained.

earnino Balance: January I 1990.. . . . .. $ 100,000 $414,651 $ 1,195,148 $ (3,936) $26,173 $ 789,965 Net loss - 1990 . . . . . . . . . . . . . . . . . . (44,282)

Preferred stock sinking fund  !

requirements .. .. . ... ...... (11,066)

Dividends in arrears on preferred stock subjcct to mandatory i redemption . . ... . .. .. . 35,046 (35,046)

Balance: December 31,1990 . . 100,000 _438,631 1,195,148 (3,936) 26,173 710,637 Net income - 1991 . . . . . . . . . .. 102,283 issuance of common stock: i Southern Company settlement (C,000,000 sharcs) . . . . . . . . . 5,775 (200) 51,975 Preferred s.ock sinking fund requirements ........ (14,816)

Dividends in arrears on preferred .-

stock subject to mandatory '

redemption . . . . . ...... .... . 35,374 (35,374)

Dividends declared on preferred stock ...... . . (96,609) (30,789)

Capital stock expense. .. . .

(19) '

Balance: December 31,1991. . .. . . 100,000 362,580 1,200,923 (4,155) 78,148 746,757 l

Nr.t income - 1992 . ......... . 128,157  :

Dividends declared on preferred and preference stock ... .. . . (80,477) (158,547)

Preferred stock sinking fund requirements . . . . . . ...... (27,533)

PreferTed and preference stock redemption . . . . . . .. (100,000) (6,373) (297) (11,732)

Capital stock expense . ..

(7)

Balance: December 31,1992 . .. .. $ - $254,570 $ 1,200.923 $(10,535) $77,851 $ 704,635 i

The accompanying notes are an integral part of the consolidated financial statements, f

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' "~ i Gulf States Utilities Company i"" R i d M M ' i'i . .. 1 ll:M' Notes to the Consolidated O !:!"LZ?m"A'3?ki:. . . . . !!:n  !

Financial Statements sevenue, ruet. and rurchasediswer. The Company re-  ;

l cords revenue as billed to its customers on a cycle billing  :

1. Summary of Significant Accounting basis. Revenue is not recorded for energy de'ivered and )

Policies unbilled at the end of each fiscal penod. The Company's '  !

wholesale and Louisiana retail rate schedules provide for  !

System o/ Accounts. The accounting records of the Com. adjustments to substantially all rates for increases or de-pany are maintained in accordance with the Uniform Sys. creases in the costs of fuel for generation, purchased pow- .

f tem of Accounts as prescribed by the rederal Energy er, and gas distributed. The Company's Texas retail rate Regulatory Commission (FERC) and adopted by the touisi. schedules include a fixed fuel factor approved by the PUCT,  :

which remains the same until changed as part of a general i ana Public Service Commission (LPSC) and the Public Utij.  !

ity Commission of Texas (PUCT). rate case or fuel reconciliation, or until the PUCT orders a reconciliation for any over or under collections of fuel cosi.

• i Ut/ Illy Plant and Depreciation. Utility and other punt is Reconcilable fuel and purchased power costs in excess of

, stated at original cost when first dedicated to public ser- those included in base rates or recovered through fuel ad-  ;

vice. Costs of repairs and minor replacements are charged justment clauses are deferred (or accrued) until such costs to expense as incurred. The original cost of depreciable util- are billed (or credited) to customers.

ity plant retired and cost of removal, less salvage, are Inventories. The Company's fuel inventories are com-charged to accumulated provision for depreciation. The, pro- prised of fuel oil and natural gas, valued at weighted aver-vision for depreciation is computed using the straight-hne age cost, and coal, valued at last-in, first-out cost. Materhis method at rates, approved by the regulatory commissions, and supplies are valued at weighted average cost, which will amortire the unrecovered cost of depreciabic 3

plant over the estimated remaining service life. Income Tares. The Company and its subsidiaries file a consolidated federal income tax retum. Income taxes are ,

Composite depreciation rates were as follows: allocated to the individual companies based on their re- #

spective taxable income or loss and investment tax credits, 1

tw2 wa imo subject to the limitations, for recognition of net operating l c  % .% loss carryforwards and investment tax credits.

cas . . . . . . 3.33 333 ses The Company follows a policy of comprehensive .

Total Company 2.'71 2.7o 2.72 i interperiod income tax allocation where such treatment is Decommissioning. The Company is accruin the permitted for ratemaking purposes by regulatory bodies. ,

Deferred incorne taxes result from timing differences in the .

decommissioning costs of River Bend in accordance with

' recognition of revenue and expenses for tax and account-the regulatory commissions' orders over a 38 to 40-year ,

Ing purposes.

period.

Investment tax credits have been deferred and are being

, Allowancefornmds lisedDun.ng Construction (An!DC) amottlzed ratably over the useful lives of the telated

, and Capitalization o/ interest. The accrualof ArUDCis a property.

utility accounting practice calculated under guidelines pre- i scribed by the FERC and capitalized as part of the cost of See Note 4 for information regarding a change in account-utility plant representing the cost of servicing the capital in- ing forincome taxesin 1993.

vested in construction work in progress (CWIP). Such ArUDC has been segregated into two component parts - Subsidiary Companies. The Company accounts for the 4

borrowed and equity funds. That portion allocated to bor- 0.perations and financial position of its wholly-owned sub-  ;

1 rowed funds is reflected as an adjustment to interest sidiary companies, Varibus Corporation (Vanbus), Pruden-

' tial Oil and Oas, Inc. (Prudential), and GSG&T, Inc.  ;

charges, while that portion applicable to equity funds is shown as a source of other income. Both the equity and (OSG&T) on a consolidated basis.

l the borrowed portions of AfUDC are non-cash items which ConsolldatedStatement ofCash nows. For the pur-have the effect of increasing the Company's reported net poses of the Statement of Cash flows, the Company consid-Income. When the related utility plant is placed in service, e.s all highly liquid investments with original maturities of

j. a retum on and recovery of prudently incurred costs have three months or less to be cash equivalents. .

. been permitted by regulators in determining the rates charged for utility service. Unamorfiredhoject Cancellation Costs. During 1984, '

the Company began amortizing the cost of the River Bend In 1987, due to the construction interest capitalization Unit 2 cancellation applicable to its Texas retail operations  !

provisions of the Tax Reform Act of 1986, the Company be- over 15 years. In 1989, the Company began amortizing the gan accruing ATUDC at pre-tax rates. These rates were as cost of the River Bend Unit 2 cancellation applicable to the ,

follows: Louisiana retailjurisdiction over 10 years. ,

31-  ;

F I N A N C I A I I N F O R M A T I O N W, f'h h8W W W V W W W"$YW- h, &WW3l%w ,

2. Proposed Entergy Corporation The transaction is also subject to certain rights of termina-(Entergy)/ Gulf States Utilities tion by each party, including. among others, rights of termi-n ti n in the event that required regulatory action is denied Company Business Combination or not received withm a stated penod of time or certain After negotiations with respect to merger opportunities other conditions are not satisfied. In the event of termina-available, the Board of Directors determined at a meeting tion, provisions are made for certain fees and expenses to on June 5,1992, that it would be in the best interests of be paid by one party to the other, depending upon the cir-the shareholders and the Company to enter into an Agree. cumstances, in certain events, if the transaction is terminat-ment and Plan of Reorganization, dated as of June 5,1992, ed, the Company will be required to pay a significant sum between Entergy and the Company (Reorganization to Entergy if the Company enters into a similar transaction Agreement). with another party within tweh>e months after termination.

The Reorganization Agreement provides for the combina- The Reorganization Agreement provides tne Company tion of the two companies in a transaction in which the hold- the right to continue to operate its business in the ordinary ers of common stock of the Company would receive at and usual course in a manner consistent with past practice closir<g. at their election, either shares of common stock of and sound utility practice and in which an independent pub-a new holding company or cash, subject to a limitation of lic company would conduct its business and operations.

$250,000,000 (less the amount payable for fractional While certain limitations are imposed upon interim actions shares) on the aggregate amount of cash available for such of the Company, such as a limitation upon the amount of electing shareholders. If elections for cash exceed such common dividends payable during the period prior to con-amount, provisions are made for proration of the available summation of the business combination, the Company be-cash. The new holding company would in turn become lieves that the rights reserved to it to operate its busmess owner of all the outstanding common stock of the Com- and continue its financing program are adequate to enable pany and would also own all of the common stock of or be the Company to pursue those courses of action it presently successor to Entergy. Under the Reorganization Agreement, expects to be appropriate during the pendency of the regu-the common shareholders of the Company would receive latory process.

at closing a number of holding company common shares or amount of cash equivalent to $20.00 per share of the Due to the requirement of numerous regulatory actions common stock of the Company, less the aggregate amount which could take until at least late 1993 or early 1994, the per share of any dividends on the Company's common risk of intervening material adverse events, and other nu-stock declared between June 5.1992 and the consumma- merous conditions and rights of termination, there can be tion of the transaction. In addition,if the transaction were no assurance that the proposed business combination consummated after June 5,1994, the price per common agreed upon will be consummated.

share would increase by an amount representing a propor-tional amount of the dividends that had been declared on in June 1992, three complaints wcre filed in a district the outstanding common stock of Entergy after such date court seeking class action on behalf of all persons owning through the datr+iclosing but in no event less than $0.25 common stock of the Company. The complaints allege, per share per quarter. among other things, that the r er offer price was below recent estimates of a merger p,. .e and that the Company's The Board received an opinion from .ts i financ.ial adv.iser directors breached their fiduciary duties. Management be-Goldman, Sachs & Co., to the effect that the proposed con'- lieves these actions are without merit, and the Company in-sidera!!on wou d be fair to the common shareholders of tends to oppose them vigorously.

the Company.

The preferred stock, first mortgage bonds, and other secu-3* Commitments and Contingencies nties of the Company which are outstandmg at closmg will remain outstandmg securities of the Company. UnancialCondition. Although the Company received On December 17,1992, the common shareholders of the partial rate relief relating to its Rh er Bend Unit 1 (River Company and of Entergy approt ed the proposed transac- Bend) nuclear unit, the Company's financial position was tion at special shareholders meetings. In addition, the trans- strained from 1986 to 1990 by its inability to cam a retum action is subject to certain conditions, including among on and fully recover its investment and other costs associ-others. the receipt of necessary orders or other actions by ated with River Bend. The Company's financial position has the PUCT, the 1.PSC, the TERC, the Nuclear Regulatory Com- continued to improve: however, issues to be finally re-mission (NRC), the Securities and Exchange Commission, solved in PUCT rate proceedings and appeals thereof, com-and clearance under applicable federal anti-trust statutes. bined with the application of accounting standards, may The transaction will also be subject to receipt of other nec- result in substantial write-offs and charges that could result essary consents and approvals, the absence of material ad- in substantial net losses being reported in 1993, and subse-verse developments prior to closing, receipt of appropriate quent periods, with resulting substantial adverse adjust-assurance that the transaction will be treated as a tax-free ments to common shareholders' equity. Future camings transaction to the extent of shares of the new holding com- will continue to be adversely affected by the lack of full re-pany recei\ ed by shareholders of the Company, and other covery and return on the investment and other costs assGci-customary conditions. ated with River Bend.

32

Southern Comp . MSouthem). Beginning in 1986. the ing station, a 532 megawatt gas-fired facility owned by ompany and Southent litigated disputes relating to cer- 05G&T, and a pledge of the cunmon stock of GSG&T.

ten purchase powcr contracts providing for purchases by '

the Company of capacity and energy from Southem. Cajun Electricibwer Cooperatke, Inc. (CEPCO). The Com-pany has significant business relationships with CEPCO, in-ScrnamT. On November 7,1991, the Company and cluding co ownership of River Bend and Big Cajun 2 Unit 3.

Southern consummated a settlement of the longstanding The Company and CEPCO own 70 percent and 30 percent litigation m accordance with the terms and provisions of a of River Bend, respectively, while Big Cajun 2 Unit 3 is previous settlement agreement executed as of December owned 42 percent and 58 percent by the Company and 21,1990. In 1990, the Company recorded a charge to cam' CEPCO, respectively.

Ings of $205.015,000 before the related income tax bene-fits of $80,834,000 (which includes $11,129,000 of state On June 26,1989, CEPCO filed a civil action against the tax benefits) representing management,s estimate of the Company in the U. S. District Court for the Middle District of settlement costs. Due to the state net operating loss posi- tonisiana. CEPCO stated in its complaint that the object of tion the Company is in, an offsetting state tax expense,,of the suit is to annul, rescind, terminate, and/or dissolve the

$11,129,000 was included in ' income Taxes - State in Joint Ownership Participation and Operating Agreement en-1990. tered into on August 28.1979 (Operating Agreement) re-In accordance with the settlement agreement, during lated to River Bend because of fraud and error by the 1991 Southern received the following: Company, breach of its fiduciary duties owed to CEPCO, and/or the Company's repudiation, renunciation, abandon-(a) appmximately $75,000,000 plus interest camed ment, or dissolution of its core obligations under the Oper- ,

smce Acgust 31,1990, which includes all funds pre- ating Agreement, as well as the lack or failure of caust tiously deposited by the Company in a court-con- and/or consideration for CEPCO's performance under the trolled escrow account in lieu of certain payments Operating Agreement. The suit seeks to recover at least under the purchase power contracts and the inter- CEPCO's alleged $ 1.6 billion investment in the unit as dam-est camed thereon (the Company paid approxi- ages, plus attomeys' fees, interest, and costs. On March 31, mately $6,590,000 in addition to the escrow funds): 1992, the district court appointed a mediator to engage in

. settlement discussions and to schedule settlement confer-(b) $ 160,000,000 non-interest bean.ng promissory entes between the parties. Discussions with the n ediator notes due on January 1,1993, subject to the Com' began in July 1992, however, the Company cannot predict pany having " adequate cash" at Jcauary 1,1993, what elTect, if any, such discussions will have on the timing as destnbed below; or outcome of the case. A trial date hac not been set. Two '

(c) 6,000,000 shares of the Company's common stock, member cooperatives of CEPCO have brought an indepen-which Southern will have the right to vote only in dent action to declare the River Bend ownership agreement the event of bankruptcy of or default by the Com. void, based upon failure to get prior LPSC approval alleged pany (at December 31,1992, Southem owned a 10 to be necessary, tal of 3,157,600 shares, registered as holders of record and held by nominee);and The Company believes the suits are without merit and is contesting them vigorously. No assurance can be gn en as (d) $9,300,000, determined based on a common stock to the outcome of this litigation. lf the Company were ulti-price differential agreement, due January 1,1993, mately unsuccessful in this litigation and were required to subject to the Company having " adequate cash" at make substantial payments, the Company would probably January 1.1993, as discussed below. be unabic to make such payments and would probably hase to seek relief from its creditors under the Bankruptcy Pursuant to the settlement agreement, the Company Code, would be deemed to have " adequate cash" at the time it declares or pays cash dividends o,n its outstanding com- The Company has been informed that CEPCO has had se-mon stock or to the extent its projected minimum available rious financial problems but that the Rural Electrification Ad-

cash balance cach year exceeds $35,000,000. ministration (REA) has restructured CEPCO's outstanding ,

On January 4,1993, the Company paid Southem debt. Additionally, one of CEPCO's member cooperatives

$111,329,000 to retire promissory notes and paid has previously filed for bankruptcy. CEPCO's weak financial

$6,471,000 under the common stock price differential condition or its bankruptcy could have significant adverse agreement The unpaid $48,671,000 of promissory notes effects on the Company, including, but not limited to, possi-

• a'nd $2,829,000 of the common stock price differential will ble NRC action with respect to the operation of River Bend accrue interest at the prime rate plus I percent and is pay. and a need to bear additional costs associated with the co-able on the earlier of the January Ist as of which the Com. owned facilitics. During 1993, and for the next several pany has " adequate cash" or January 1,1999, or earlier at years,it is expected that CEPCO's sharc of River Bend-re-the Company's distretion upon five days notice. lated costs will be mIfthe

$75,000,000 per year. the range Companyof $60,000,000 were require to, d to The Company's obligations under the settlement are se- fund CEPCO's share of costs, h would expend cash that cured by a first mortgage lien on the Lewis Creek generat- would otherwise be available for other uses, and there 33

i can be no assurance that such payments could be pany were to not prevail in its appeal to the courts, the Com-recovered. pany estimates, based on certain assumptior.s and limited ,

data from CEPCO, it would owe CEPCO approximately  !

in July 1992, CEPCO notified the company of its intent to $46.000,000. The interpreted amounts are exclusive of a only fund up to approximately $10.600.,000 of costs re- $7,300,000 payment by CEPCO on December 31,1990. In lated to the fourth refuehng outage at River Bend, com-a letter agreement dated December 20,1990, the parties pleted in September 1992. The Company belictes that agreed that while the $7,300,000 payment was to be ap-CEPCO is obligated to pay its full share of such costs under plied to the dis uted transmission service charges, the the terms of the applicable contract. Company's an CEPCO's positions at the PERC would re-CEPCO has not funded its share of the costs associated main unaffected by the $7,300,000 payment Pending the with certain repairs and improvements to the service water PERC's ruling on the May 1992 motions for rehearing the system and repairs to a feedwater nozzle at River Bend com- Company has continued to bill CEPCO utilizing the histori- l plcted during the refueling outage. The Company is paying cal billing methodology and has booked underpaid trans-  ;

the costs associated with such repairs and improvements mission charges, induding interest, in the amount of l without waiving any rights against CEPCO. The Company be. $ 122,872,000 as of December 31,1992. Such amount was lieves that CEPCO is obligated to pay its share of such recorded on the balance sheet as a long-term account costs under the terms of the applicable contract. CEPCO receivable, which is induded in " Deferred Charges and l has filed a suit seeking a dedaration that it does not owe Other Assets-Other" and an offsetting amount m dispute,  ;

such funds and seeking injunctive relief against the Com- which is included in " Deferred Credits and Other Liabilities pany. The Company is contesting such suit and is reviewing --Other" with no effect on net income. .

Its available legal remedies. [

hu&ar Ow ,

On September 4,1992, the Company received a letter 9.cncrating unit subj nershipto and operation ects the Company significant special of a nuc from CEPCO (dated September 3 1992) alleging that the  !

operating and maintenance costs' for River Bend are "far in nsgher Bcnd for property damage and decontamination in R excess of industry averages" and that "it would be impru-liability to employees and third parties, and incremental re-  ;

dent for CEPCO to fund these excessive costs." CEPCO fur- '

Placement power costs, as described below tiowever, po-ther stated that until it is satisfied regarding the costs, it tential llabilities to which the Com any may be subject, would fund a maximum of $700,000 per week under pro- including but not limited to liabiilt es relating to the release test for the remainder of 1992. The Company believes that r escape of hazardous substances into the emironment, CEPCO's allegations are without merit and is considering m y n t be insuiable, and the amount ofinsurance carried its legal and other remedies available with respect to the underpayments by CEPCO. The total resulting from as to the v,arious nsiss may not be sufficient to meet poten- l tial liabilities and losses. While the Company carries insur- j CEPCO's failure to fund the senice water and feedwater re-ance, the availability, amount, and coverage thereof is <

air projects CEPCO's funding limitation on the fourth re-fueling outag'e, and the weckly funding limitation by CEPCO limited and may become more limited in the future. The  ;

vahaNe insurance W not mer a4 pes or amonts of was $28'400'000 as of December 31' 1992' loss which may be experienced in connection with the own-l The Company and CEPCO are parties to PERC procced. ership and operation of River Bend. Although the Company a ings regardmg certain longstandmg disputes relating to has no reason to anticipate a serious nuclear incident at  :

transmission senice charges.11carings before the PERC River Bend, if such an incident did occur, it could have a  ;

were completed in December 1988. On May 11,1989, an material but presently undeterminable adverse effect on administrative lawjudge issued an initial decision. On April the Company's financial position. l 10,1992, the PERC issued a final order that affirmed the  :

ruling of the administrative lawjudge in part, reversed the Public liability in case of a nuclear incident at any li-mling in part and also denied an earlier request for rehear- ccnsed nuclear facility in the United States is currently lim-ing by the Company in a related docket (No. ER88-477- lied to $7.8 billion under provisions of the Price-Anderson  ;

000). In May 1992, both the Company and CCFCO filed Act (Act) which was renewed and revised in 1988, and ex- i motions for rehearings which are pending consideration by tends through August 1,2002. The Company insures River j the PERC. On June 8,1992, the Company also filed a peti- Bend for this exposure through a combination of private in- i tion for review in the United States Court of Appeals, regard- surance and the industry-wide secondary financial pro- ]

Ing certain of the issues decided by the PERC in Docket No. gram. The changes to the Act necessitated modifications to ,

ER88-477-000. The PERC order as issued does not state an the secondary financial protection, such that the Company j amount found to be payable by one party to the other, will be subjected to a potential retrospective assessment of ,

Based on certain assumptions, the Company interprets the approximately $66,150,000 per incident with a maximum  !

order to mean that CEPCO owes the Company ar>proxi- amount of $10,000,000 per Incident payable in any one  !

mately $900,000.The Company estimates that IIlt prevails year for losses in the event of a nuclear incident at its facil- i on the items appealed in its motion for rehearing and on sty or any other licensed nuclear reactor facility in the  !

the items appealed in its petition for review before the United States. The 1988 revision to the Act also states that  ;

Court of. Appeals, CEPCO would owe the Company approxi- the NRC shall adjust the potential retrospective assessment j mately $107,000,000. If CEPCO were to prevail on the not less than once each nye year period in accordance with j ltems appealed in itaction for rehearing and the Com- the aggregate percentage change in the Consumer Price in-  ;

i 34  :

i

.t.+ . -.

}

O U L F S T A T E S U T I L 1 T I E S C O WM_ N] t q l

, dex. The adjustment must be completed by August 1993. The Company has received approval from the PUCT, At this time, the Company does not know what the amount LPSC, and TERC to collect in rates amounts necessary to

of the adjusted potential retrospective assessment will be. decommission River Bend when it reaches the end of its Any retrospective assessments pertaining to this liability service life. Decommissioning costs are subject to the '

are subject to the 70/30 percent ownership interest in 70/30 percent ownenhip interest in River Bend between River Bend between the Company and CEPCO. the Company and CEPCO.To provide for the Company's  !

share of future decommissioning costs, the amounts col-The Company maintains $500,000.000 primary property lected through rates from customers are placed in a master damage insurance and $800,000,000 of excess insurance tmst fund, which is estimated to provide, with eamings, suf- I for River Bend from the private insurance. market. Addition- ficient funds to decommission the plant at the end of its ally, the Company has acquired $ 1,325,000,000 of excess estimated service life. Contributions, most of which qualify ,

property insurance coverage on River Bend through partici- under Section 468A of the Intemal Revenue Code as an an-pation in the Nuclear Electric Insurance Limited (NEIL) 11 nual tax deduction, were derived from a site-specific engi-program, with $250,000,W0 of this NEIL 11 policy desig- neering study of the cost to decommission River Bend. >

nated to cover decommissleing liability instead of prop- which is estimated to be $206,000.000 in 1992 dollars. A crty damage. Under NEIL II, the Company is subject to a more recent 1991 engineering study, which has not yet -

maximn assessment of approtimately $13,000,000 in been entered into Company rates and used as a basis of ,

any c c policy year. Although the Company has continued funding, indicates decommissioning costs may be  :

to increase the limits of such insurance as capacity be- $290,000,000 in 1992 dollars. The Company feels that re-comes available, no assurance can be given about the ade- cent changes in the laws will tend to allow annual contribu-quacy of such insurance limits in the event of a major tions to the trust to remain at current levels of funding and accident. The property damage insurance policy limits are offset or mitigate the increase in decommissioning costs, '

substantidly less than the replacement cost of the River as indicated in the 1991 engineering study. At December Bend facilities. 31,1992, the balance in the decommissioning trust fund ,

was $14,102,000. There can be no assurance that the The NRC has adopted a rule applicable to nuclear gener- amount being provided fc,r will be adequate, ating facilitics which establishes an overridmg pnority and requires,in substance, that if there were an accident at The Nationul Energy Bill, which was signed into law in Oc- i Riser Bend's reactor and the estimated costs of stabilizing tober 1992, established a Uranium Enrichment Decontami-and decontaminating the reactor exceed $100,000,000, nation and Decommissioning rund (rund) in order to  ;

the proceeds must first be dedicated to such purposes. The decontaminate and decommission older facilities engaged Company's roticles on such property have been endorsed in the enrichment of nuclear fuels. The rund will in part be to comply witn such rule. This has the effect of reducing funded by annual assecaments to utilitics based on past en-the amount of proceeds which would be available to re- richment services provided to the utilities. The Company is pair, replace, or restore the property or otherwise be avail- currently unsure as to the amount it will be assessed, but ,

able for mortgages, trustecs, and other loss payces. curnt estimates indicate that the Company's share could '

be in the range of $650,000 annually. The National Energy ,

The Company maintains a Nuclear Workers' Liability pol- Bill stated that any assessments levied for decontamination icy which covers liability for tort claims by on-site workers and decommissioning of enrichment facilities shall be >

first employed at a nuclear facility after January 1,1988, deemed a necessary and reasonable current cost of fuel for non-catastrophic nuclear related injury such as the ex- and shall be fully recoverable in rates in the same manner I i posure to long-tenn, low-level radiation. Nuclear-related as the utility's other fuel costs.

claims by workers emplo)ed in a nuclear facility prior to Jan-uary 1,1988, will continue to be covered under the Nuclear Dividend Matters Energy Liability policy provided the claim is made by De- "

cember 31,1997. Under the Nuclear Workers' Liability poli- Patrtrutto Stocx On March 15,1992, the Company paid cy, the Company is subject to a maximum retrospective $ 115,692,000 of preferred stock dividends and on April 2, t l premium assessment of approximately $3,159,000. 1992, paid $30,643,000 of preferred stock sinking fund re- i i

quirements. With those payments, the Company became "

Some extra expense for River Bend replacement power is current and has since continued to stay current with re-insured through the NEIL 1 program. Under the NEIL I pro- spect to all preferred stock dividend and sinking fund re- ,

' gram, the Company is subject to a maximum annual retro- quirements. 4 spective assessment of approximately $1,299,000.

I Patrrm9ce Stocx in Tebruary 1987, the Board of i j Disposal ofSpent nuclear lhel and nuclear Directors omitted dividends on the Company's preference  ;

l Decommissioning. As provided in the Nuclear Waste Pol- stock to have been payable in March 1987. The Company i l icy Act of 1982, the Company has entered into contracts continued to omit preference dividends through April witn the United States Department of Energy (DOE) for dis- 1992. On April 24,1992, the Board of Directors authorized 3 i

posal of spent nuclear fuc! from River Bend. The Company a portion of the proceeds from a sale of first mortgage  !

pays a quar *erly fee to the DOE equal to one mill per net bonds, together with cash from other sources, to be used kilowatt-hour generated by River Bend. The Company is cur- to pay cumulative preference stock dividend arrearages rently recovenng such costs in alljurisdictions. and redeem the outstanding preference stock, including re-  !

t 35  !

-- F I N A N C I A 1 i N F O R M A T I O N

@ WQRIEggppqffp MpyTy y ))pgqggg g demption premiums. On June 4,1992, the Company paid will require additional capital expenditures for pollution

$90.340,000 of prefercnce stock dividend arrearages and control and measurement equipment and increased operat-accrued dividends, and redeemed $ 100.000,000 of out- ing expenditures and permitting fees. Current estimates of standing preference stock, plus redemption premiums of expenditures to meet new requiremen2 total approxi-

$ 18.300,000. mately $22,000,000 over the next three to four years.

Based upon the outcome of ongoing Company studies and CoMMo,51ocq. At its meeting in August 1986, the Board depending upon pollution control standards to be set by of Directors omitted any dividend on the common stock of

%e EPA and state environmental agencies, ;t may be deter-the Company to have been payable in September 1986. N mined that additional capital expenditures will be required dividend on common stock has been declared smce then: above the present estimates.

Under the terms of its short-term bank credit agreement dis-cussed in Note 11, the Company is restricted from paying The Company is also involved in litigation arising in the dividends on its common stock. The Company's ability to normal course of business. While the results of such litiga-declare and pay dividends is also restricted by provisions tion cannot be predicted with certainty, management be-of its Restated Articles of incorporation (Articles), the Mort- lieves that the final outcome will not have a material gage Indenture, the Reorganization Agreement with adverse effect on its financial condition.

Entergy, and state and federal law.

The Company's ability to pay dividends and redeem and 4. Rates and Accountin_q purchase outstanding stock (as is necessary to meet its pre-ferred stock sinking fund obligations) has been and may be Rate Matters further adversel) aff ected, and poss,ibly foreclosed for an Texas - Docket No. 7195. On May 16,1988, the PUCT mdeterminate penod of time, by wnte-offs and write-downs granted the Company a pennanent increase in annuai reve-which have resulte;d and may hereafter result from regula- nues of $59,900,000. The increase was based on including tory actions or penodic reevaluation of the deregulated as' in rate base approximately $1.6 billion of the Company's set plan in Louisiana,or other significant charges which , stem-wide River Bend plant investment and approxi-may result from contingencies facmg the Compan . Poten-tial changes in accountin standards could also a ect the mately $182,000,000 of related Texas retailjurisdiction de-

! requirement for a wnte-o or write-down of the deregulated ferTed River Bend costs ruled prudent. Additionally, the asset and the amount thereof. PUCT affirmed its preliminary mlings made in february 1988, to disallow as imprudent $63,468,000 of the Other Contingencies. The Company has been notified Company's system-wide River Bend plant costs and placed by the U. S. Environmental Protection Agency (EPA) that it in abeyance approximately $1.4 billion of the Company's has been designated as a potentially responsible party for system-wide River Bend plant investment and approxi-the cleanup of sites on which the Company and others mately $157,000,000 of Texas retailjurisdiction deferred has e or have been alleged to have disposed of material des. River Bend operating and carrying costs with no finding of ignated as hazardous waste. The Company is currently ne. prudency. The PUCT affirmed that the ultimate rate treat-gotiating with the EPA and state authorities regarding the ment of such amounts would be subject to future demon-cleanup of some of these sites. Several class action and stration by the Company of the prudency of such costs.

other suits have been filed in state and federa! courts seek. The Company, the Office of Public Utility Counsel, the Attor-ing relief from the Company and others for damages ney General, and the intervening municipal groups ap-caused by the disposal of hazardous waste and for asbes- Pealed the PUCT order in Docket No. 7195. The Company tos-related disease w hich allegedly occurred from expo- also filed a separate rate case (Docket No. 8702) in which it sure on Company premises. While the amounts at issue in asked that the abeyed River Bend plant cost be found pru-the cleanup efforts and suits may be very substantial sums, dent and included in rate base. Intervening parties filed suit management believes that its financial condition will not in district court to prohibit the proceedings m Docket No.

be materially affected by the outcome of the suits. 8702. The district court's decision in that suit was ulti-mately appealed to the Texas Supreme Court, and the Detailed below are the cumulative amounts accrued and Texas Supreme Court ruled that the prudence of the costs c3 pended through December 31.1992, for the cleanup of purported to be held in abeyance by the PUCT in its May 4

sites at which the Company has been designated as a poten- 16,1988 order could not be relitigated in a separate rate tially responsib!e party, in addition to the remaming esti- proceeding such as Docket No. 8702. The Texas Supreme mated liability as of December 31,1992. Court's decision stated that all issues relating to the merits 4 =o== ^= = =t of the original order of the PUCT, including the prudence of

$%"'$ YC",$' Ef$"J all River Bend related costs, remain to be addressed in the

• *g 3 ' "",$' 8 ' * *Q' 3, ' pending district court appeal.

On thousands) On October 1,1991, the district court handed down its i "N[$"S" $25.568 set 240 $ 19,328 decision in the Company's appeal of the May 1988 order from the PUCT. The decision stated that, while it was clear The federal Clean Air Act Amendments of 1990 impose the PUCT made an error in assuming it could set aside $ 1.4 new requirements to pennit, measure, and control air pollu- billion of the total costs of River Bend and consider them in tion emissions from the Company's generating plants and a later proceeding, the PUCT, nevertheless, found that the 36

I

, O U L P S T A T E S U T I L I T 1 E S C O yMR" ' ~

%7 @ IN#%W %j pg g 7 FM r Company had not met its burden of proof related to the (w hich had been relied upon by the district court in the amounts placed in at,eyance. The court also ruled that de- Gulf States case). The court's new opinion distinguishes be-ferred costs associated with River Bend and Big Cajun 2 tween deferred carrying costs and deferred operating and Unit 3 accrued after the units were placed in commercial maintenance costs, r_oncluding that the PUCT may lawfully operation, but prior to relevant rate orders, should not be defer operating and maintenance costs and subsequently included in rate base under a 1991 decision regarding El include them in rate base, but that the Public Utility Regula-Paso Electric Company's (El Paso) similar deferred costs. tory Act prohibits such rate base treatment for deferred car-The court further stated that the PUCT crred in reducing the rying costs. The court stated, however, its opinion would Company's deferred costs by $ 1.50 for each $ 1.00 of reve- not preclude the recovery of deferred carrying costs with-nue collected under the interim rate increases authorized out rate base treatment. The court of appeals opinion has in 1987 and 1988. The court remanded the case to the been appealed to the Texas Supreme Court.

PUCT with instructions as to the proper handling of the de-If the Auaust 26,1992 court of appeals opinion is ap-ferred cost issues. The Company s motion for rehearing Ptied to the Company by the courts and the PUCT permits was remed, and on December 18,1991, the Company filed recovery through amortization of the deferred carrying an appeal of the October 1,1991 district court order. The c sis, the possible write-off of deferred River Bend costs cur-PUCT also appealed the October 1,1991 district court or-rently allowed in rates ($ 101.000,000) would be elimmat-der, which sen cd to su70rceable under Texas law. ed, nd possible Onersede refunds the district would be reduced. At December court'sjudg-ment rendering it unen 31,1992, the Compani estimates it had collected approxi-October 21,1992, oral argcments were made before the mately $53.000,000 of revenues as a result of the tunent Third District Court of Appeals on the Company's appeal.

inclusion of deferred carrying costs in rate base. The Com-No assurance can be given as to the timing or outcome of Pany collects approximately $ 1,000,000 per month as a re-the api > cal' sult of such current rate base treatment.

As of December 31,1992, on a Texas retailjurisdictional

' The October 1,1991 district court order also found that basis, the disallow ed River Bend plant costs were approxl.

mately $ 18,000,000, and the River Bend plant costs held in the PUCT erred in reducing the Company's deferred costs abeyance totaled approximately $404,000,000, both net of tenm by $1.50 for each $1.00 of revenue collected under t rate increases authoiized in 1987 and 1988.

mma- Eh,he accumulated depreciation and related taxes. As discussed below in " Accounting Developments-STAS No.109," on tion of the reduction of deferred costs from rate base could January 1,1993, the Company is required to change its ac. reduce the potential refund of amounts described in the pre-

. counting for income taxes included in the Statement of fi. ceding paragraph by amounts rangmg from approximately

$15,000,000 to $36.000.000. ,

nancial Accounting Standards (SFAS) No,109 accounting change is an increase of deferred taxes assmiated with the No assurance can be given as to the Lmg or outcome ,

disallowed and abeyed River Bend plant investment. Ac- of the appeals described above. Pending further develop-i cordingly, on January 1,190., after recognition of the ments in these cases, the Company has made no write-offs STAS No.109 etTect, the disallowed River Bend plant cost for the River Bend related costs discussed above. Manage- "

will be approximately $ 14.000.000, and the River Bend ment believes, based on advice from Clark, Thomas, Win-plant costs held in abeyance will total approximately ters & Newton, a professional corporation, legal counsel of

$315,000,000, both net of accumulated depreciation and record in the appeal of Docket No. 7195, it is reasonably related taxes- possible that the Company will prevail on appeal of the dis-The River Bend cost defenals associated with the portion trict court order and the case will be remanded to the of the im estment held in abeyance amounted to approxl. PUCT, and that it is reasonably possible that the PUCT will mately $ 161.000,000, net of taxes, as of December 31, be allowed to expressly mie on the prudence of the abeyed 1992. Rh er Bend cost deferrals which were allowed in rate River Bend plant costs. Upon remand of Docket No. 7195, base in Texas were approximately $ 101,000,000, net of tax. the PUCT can choose from several options. It can reexam- '

es, as of December 31,1992. At December 31,1992, the ine all aspects of the case, reexamine only a portion of the Comwy c timates it had collected approximately case, take additional testimony, or rely on the existing rec-

$111,000,000 of revenues as a result of the previously or- ord, including the report of the thice administrative law '

dered rate treatment of these defened costs and currently judges that heard the extensive testimony filed in the case:

estimates that it collects approximately $2,300,000 month- or, the PUCT can take some action that may lead the par-fy, or $28:000,000 annually, of revenues associated with ties to settle the case without additional extensive litiga- .

such deferred costs from ratepayers in Texas. Deferred tion. At this time, management and legal counsel are costs associated with Big Cajun 2 Unit 3 totaled approxi. unable to predict the amount. if any, of the abeyed and pre-mately $4,312,000 (net of taxes) as of December 31,1992, viously disallowed River Bend plant costs that may be ulti-i of which approximately $1,823.000 (net of taxes) were in. mately disallowed by the PUCT. A write-off as of December cluded in rate base by the PUCT. The remaining $2,489,000 31,1992, ranging from $0 to $422,000,000, cculd be re-(net of taxes) of defened costs were included in the appeal quired based on the PUCT's ultimate ruhng.

of Docket No. 7195 before the court. Management believes that it is reasonably possible that it On August 26,1992, the court of appeals in the El Paso will recover, in rate base, or otherwise through means sucii case handed down its second opinion on rehearing modify- as a deregulated asset plan, all, or substantially all, of the ing its previous opinion on deferred accounting for El Paso abeyed River Bend plant costs. Management believes that 37

F I 'N A N C I A 1. I N F O R M A T I O N ,

p ( (WRQ}fl Q KMV

• qqn QQq -

,y the abeyed River Bend plant costs were prudently incurred. abeyed plant costs, are not allowed to be recovered in However, management recognizes that it is reasonably pos- rates as allowable costs, a write-off of up to $161,000,000 sible that not all of the abe)cd River Bend plant costs may could be required. In addition, future revenues based upon ultimately be recos cred. the deferred costs previously allowed in rate base could '

also be lost; and no assurance can be given as to whether in prior proceedings, the PUCT has held that the original or n t refunds (up to $53,000,000 as of December 31, cost of nucicar power plants will be included in rates to the ,

extent those costs were prudently incurred. Based upon

)o enn received based upon such deferreo costs previously recorded w,ill be regmred.

the PUCT's prior decisions, management believes that its River Bend construction costs were prudently incurred. Texas - Docket no. B702. On March 21,1989, the Com-As part of its direct case in Docket No. 8702, the Com. ny filed with the PUCT and Texas municipalities a request f r dditional rate mcreases. The Texas Supreme Court is- i pany filed a cost reconciliation study prepared by Sandlin Associates, management consultants with expertise in the sued a ruling on September 12,1990, that prevented the s cost analysis of nuclear power plants, which supports the PUCT fro,m conducting, further heanngs in Docket No. 8702 4

reasonableness of the River Bend costs hela in abeyance concermng the Texas,lunsdictional portion of the $1.4 bil-by the PUCT. This reconciliation study determined that ap. lion of River Bend costs placed in abeyance by the PUCT in proximately 82 percent of the Ris er Bend cost increase Docket No. 7195; On April 22,1991, the United States Su-above the amount included by the PUCT in rate base was a Preme Court demed the Company's petition secking review result of changes in federal nuclear safety requirements of the Te.xas Supreme Court ruling. Based on the Texas Su-and provided other support for the remainder of the Preme uurt decision, the Company pursued a permanent abeyed anounts. increase on the non-River Bend port,oni of the case on which the PUCT could proceed.

i There hat e been four other rate proceedings in Texas in-volving nuclear powcr plants. Investment in the plants ulti. On March 20,1991, the PUCT, by a 2-1 vote, approved

! mately disallowed ranged from 0 percent to 15 percent for rates consistent with the terms of a Joint Recommendation three of the companie's. A disallowance of approximately offered by most of the parties to the Company's rate case.

25 percent was ordered in the other case, however, approx. Under the rates set by the PUCT, the Company impic-I imately 66 percent of that disallowance was recently os cr. mented a $30,000,000 increase in annual base revenue turned by a district court, which results in a net 9 percent and retained approximately $ 16,800,000 in franchise tax re-disallowance. Each case was unique, and the disallow. funds. The Company increased its annual fuel revenue by ances in cach were made on a case-by-case basis for differ- $ 17,500.000. The Company also agreed not to file a new ent reasons. Appeals of most,if not all, of these PUCT base rate request for two years, subject to certain excep-decisions are cunently pending. tions. The order was appealed by certain parties.

l The following factors support management's position On December 13,1991, the 53rd Judicial District Court t i that a loss contingency requiring accrual has not occuntd. of Travis County considered arguments on the appeals. In a .

and its belief that all, or substantially all, of the abeyed judgment dated May 6,1992, the District Court issued its *

plant costs will ultimately be recovered: order, which reversed and remanded to the PUCT the fed- '

1 eralincome tax issue and ordered a reconsideration of all

1. The fact that the $1.4 billion of abe)cd Rn.er Bend of the findings of the PUCT's order. The District Court order

plant costs have never been ruled imprudent and generally followed the Court of Appeals decision in PUCT

, disailowed by the PUCT. vs. GTLSW as it related to the calculation of federal in-

2. Sandlin Associates' analysis which supports the pru. come taxes for regulatory purposes. In that case, the Court

• dence or substantially all of the abeyed construc- of Appeals applied an " actual taxes incurred" methodol-tion costs. ogy for the allowance of federal income tax expense in-cluded in cost of service and allocated to the utility's

3. Ilistoricalinclusion by the PUCT of prudent construc* ratepayers the tax benefits of certain operating expenses tion costs in rate base. which had been disallowed in rates. The Court of Appeals

4. The analysis of the Company's intemal legal staff, did indicate that it was not ruling with respect to the proper which has considerable experience in Texas rate trcatment of certain capitalexpense items,w;hich may case litigation' be an important issue in any further consideration of the I Company's case by the courts or the PUCT. The Company's l Additionally, management believes based on advice case is currently in the process of being appealed, and the l from Clark. Thomas, Winters & Newton, a professional cor. GTLSW case was appealed to the Texas Supreme Court.

poration, legal counsel of record in the appeal of Docket On December 31,1992, the Texas Supreme Court refused 1- No. 7195. that it is probable that the deferred operating to accept the GTDSW case. OTDSW has filed a motion for

] and canying costs discussed abot c will be recovered in rehearing with the Texas Supreme Court. At December 31, rates as Jiowable costs. Mowet er, assuming the August 26, 1992, the Company estimates it had collected approxi-

1992 court of appeals opinion in the El Paso case regard- mately $42,000,000 of revenues as a result of the disputed ing deferred costs, as discussed above, is upheld and ap- income tax calculation since the Company implemented j- plied to the Company, and the defened River Bend costs an interim rate increase in December 1990, and currently currently held in abeyance, rela'ed to the $404.000.000 of estimates that it collects approximately $1,700,000 58

i G LL_ L F S T A_ T E S IL T I L 1 T 1 E 5 C O . j myc mgpq- pp yn py

y y I

)

l l

monthly of revenues associated with the disputed income Tctas -fuelReconciliation. On January 21,1992, the tax calculation. Company applied with the PUCT for a new fixed fuel factor i The PUCT recently applied a broader interpretation of the and requested a final reconciliation of fuel and purchased .l i disputed income tax calculation to another Texas based util- p wer costs through September 30,1991 The Company ity. The PUCT ruling may be review ed by the Intemal Reve- proposed to recover net underrecoveries and interest (m-nue Senice, and may be found to be a violation of the ciuding the underrecoveries related to NISCO, discussed ,

Intemal Revenue Code, w hich may result in the PUCT chang, above) over a twelve month penod, which at December 31, ing its application of its methodology in future cases. The 1992 was $21,563,000,11eanngs began on October 8, Company estimates it has collected approximately 1992, and continued through November 6,1992. No assur-  ;

$41,000,000 of revenue subject to the Company's interpre- ance can be given as to the timing or outcome of the tation of the PUCT's broader application since the interim Proceedings.

rate increase in December 1990, in addition to the louislana. Previous rate orders of the LPSC have been

$42,000,000 discussed above. The application of the appealed, and pending resolution of various appellate pro-I'UCT's methdology is subject to several uncertainties not ceedings, the Company has made no write-off for the disal-addressed in the GTDSW decision, and it is unclear how lowance of $30,563,000 of defened revenue requirement this methodology might be applied if Docket No. 8702 is that the Company recorded for the period December 16, remanded to the PUCT. Accordingly, the ultimate result and 1987 through February 18,1988.

impact on the Company of the GTf SW decision and the .

PUCT's recent ruling cannot be determined at this time, but toutsiana Supreme Court Ruling. On April 5,1991, >

the outcome could be a reduction of rates and requirement the toutstana Supreme Court reversed and set aside a Feb-of a refund of prior collections. There can be no assurance ruary 18,1988 district court order which mcreased the

, as to the timing or ultimate outcome of such appeals. Company's aHowed rate of retum on equity from 12 per-cent to 14 percent during the first year of the phase-in plan.

Teaas - Joint l'enture. In 1986, the Company filed with The Supreme Court decision stated that the total amount in i

the PUCT a request for recovery of the costs of purchasing dispute with regard to the rate of retum issue was approxi-power from the Ncison Industrial Steam Company (NISCOL mately $20,000,000 in revenue collected by the Company thejoint venture with three industrial compames and the from february 18,1988 to March 1,1989.

Company, which now owns Nelson Units I and 2. The PUCT ordered that purchased power costs in excess of the in the second quarter of 1991, the Company recorded a Company's avoided costs be disallowed and that 83 per. reserve of $20,000,000 for a possible refund based upon cent of the proceeds from the sale of the units by the Com. the rate of return issue. On January 28,1992, the LPSC or- ,

pany to the t enture be allocated to ratepayers. The PUCT dered a refund of $34,945,000 (representmg retum on eq-  !

disallowance rcsulted in approximately $12.000,000 to uity-related os crcollections of $24,143,000 and

$ 15,000,000 of unrecovered purchased power costs on an $10,802.000 of interest) instead of the $20,000,000 previ-i annual basis. On April 3,1991, the Supreme Court of the ously mdicated in the Louisiana Supreme Court order and -

State of Texas, in the appeal of such order, ordered the resened forin the second quarter of 1991. Accordingly, j PUCT to allow the Company to recover purchase power pay. the Company recorded an additional refund resen e, includ-ments in excess of its avoided cost in future proceedin ing interest, of $ 14,945,000 in the fourth quarter of 1991.

the Company established to the PUCTs satisfaction t tha'gs, if Approximately one-half of the $24,143,000 ,

the payments are reasonable and necessary expenses. If Pal was refunded in July 1992, and the remamder will be the Company is able to satisfy the PUCT that the costs in refunded in July 1993. Interest wzs recorded and contin-

• excess of avoided costs arejustified, the Court stated that ucs t,o accruc as credits to the deferred River Bend revenue the PUCT should then determine what portion of the costs requirement associated with the phase-in plan.

are reasonable and necessary for the ratepayers to bear, louisiana DeregulatedAsset Plan. On January 28,1992,

, git en the distribution of benefits from the project to the rate- the LPSC ordered that the previously ordered deregulated payers and to the shareholders. The Court further found asset plan be retained, subject to certain conditions. Such that the PUCTs decision to allocate 83 percent of the sale conditions include changing the sharing mechanism for in- '

proceeds to the ratepayers was not reasonably supported cremental revenue derived from off-system sales from the -

by substantial evidence in the record and rcmanded the is-previously ordered 60 percent for ratepayers/40 percent sue to the PUCT for further consideration. Whether the Com- for shareholders to a split of 50 percent for ratcpayers/50 i pany will be allowed to recover purchased power costs in percent for shareholders. Accordingly, the Company ap-excess of the Company's avoided cost will depend upon plied the provisions of SFAS No.101, Regulated Enter-  ;

the outcome of the fuel reconciliation discussed below. As prises- Accounting for the Discontinuation of Application of December 31,1992, the Company had recorded, with of FASB Statement No. 71, w hich resulted in no write-down 4

no effect on net income, $66,619,000 of unrecovered pur' of the deregulated portion of River Bend: however, the ap-chased power costs and deferred revenue (including inter ~ plication of STAS No.101 did require an increase in de- ,

est), based upon the court order, pending the deter' ferred taxes and other adjustments of $20,166,000 ($.18 mination of the reasonableness and necessity of the costs per share of common stock), w hich was recorded as an ex-in a new proceeding- traordinary item in 1991. Due to the state net operating The issue regarding the treatment of the sale proceeds dis- loss carryforward position the Company is in, a previously cussed above will be addrcsse .i ln a future rate proceeding. unrecorded offsetting state tax benefit of $13,100,000 from 39

F i N A N C I l. I N F O R M A T I O N 7 p p' ] ?q {M y M! [ g- #

• p p ,

p%%g@] p.

operations-related tax loss carryforwards ($.12 per share of representing the portion of the Compa y's operations allo-common stock) is included in " income Taxes - State." cable to the Texas and Louisiana retail urisdictions, and be-gan to amortize that amount over the i fe of the new debt Louisiana Management Audit. On October 22,1991, a sold to retire the existing debt. The remaining net of tax majority of LPSC commissioners voted by a 3-2 vote not to loss of $9,597,000 ($.09 per share of common stock) was ,

tum the management audit into a rate proceeding. In No- charged to income in 1992 as an extraordinary item.

vember 1991, the Company filed its implementation plan ]

with the LPSC. The Company has engaged in negotiations louisiana Rate Order. In accordance with the rate order with the ifSC's counsci and consultants to refine such in Louisiana effective March 1,1991, the LPSC required the plan. After consideration of such plan, the LPSC will deter- Company to modify its treatment of certain flow through mine whether any further action will be taken based on the benefits related to AfUDC recorded on capital expenditures audit. Prior to 1986. Accordingly, the Company increased net util-ity and other plant and accumulated deferred income taxes Accounting Developrnents by $62,967,000. The rate order requires the Company to mortize the increase in pl ntin senic Accounting forIbwer Plant Materials and Supplies. Dur- mately 35 years, the estimated remam,e m life of River over approx ing the first quarter of 1992, accounting procedures were Bend, and to amortize the mcrease m d rred taxes over ch'anged to include in inventory power plant materials and approximately seven years. This will result in the Company supplies reviously expensed or capitalized as plant in serv- recording less Operating Expenses and Taxes for the amor-ice. The ompany believes this change provides a better tization penod of those deferred mcome taxes, thereby in-matching of costs with related revenues. The change re- creasing riet income for that period.

sulted from recommendations during recent audits by the FERC and LPSC, in addition to a general change in industry STAS no.109. In February 1992, the FASB issued SFAS practice. The pro forma effect of retroactive application on No.109, Accounting for income Taxes which significantly any period prior to 1992 is not determinable as, per to changes accounting for income taxes and supersedes al-this change, the Company did not perform the physicalin- most all existing authoritative accounting literature on ac-ventory counts necessary to determine inventory bahnces counting for income taxes. STAS No.109 revises the in prior periods. The effect of the change was to increase computation of deferred income taxes so that the amount materials and supplies by $76.621,000, of w hich of deferred income taxes on the balance sheet is adjusted '

$41,124,000 associated with the Company's Texas and lou- whenever tax rates or other changes of the income tax law islana retailjurisdictions was deferred and to decrease are enacted. SFAS No.109 also prohibits net of tax account-alaounts previously capitalized, primarily plant in service, Ing and reporting and requires recognition of deferred tax by $28,987,000. Amounts defened for the Louisiana retail liabilities for tax benefits previously flowed through to rate-Jurisdiction are currently being amortized to incon c over payers. Adoption of SFAS iio.109 is required in 1993. The approximately seven years, through February 1998, w hile adoption of SFAS No.109 may be recorded by restating amounts deferred for the Texas reta'! Jurisdiction will be am- prior years' financial statements or by recording the cumu-ortized to income in future years. The cumulath e clicct of lative effect of the change in the year of adoption. The Com-this accounting change as of January 1,1992, which re- pany presently plans to record the adoption of SFAS No.

lates to the operations on which the Company has discon- 109 by restating 1990,1991, and 1992 financial state-tinued regulatory accounting principles, amounted to ments. Detailed below are the estimated effects on the

$6 S10,000 before the related income tax effect of Company's results of operations and financial position re- '

$2,S43.000 ($.04 per average share of common stock). sutting from such restatement:

STAS No.101. In December 1988, the financial Account- ,, ,jrg ,

,,,u. tea ing Standards Board trASB) issued SFAS No.101, which acported terect ne.t i specifies how an enterprise that ceases to meet the criteria on tnon a.

for application of SFAS No. 71, Accounting for the Effects 8" g g gg g *u S j'*$

of Certain Types of Regulation, to all or part of its opera- cn.n9e . . . . . . . . . . . . . . . . . . _ .

tions should report that even,t in its general-purpose exter- cumycyect g ,pof t,he ^*jugn or srAs. . . . . . . . . . s a u s2) s r

nal financial statements. Dunng 1989, the Company net im . . . . _ . . . . . . . . . . . . . . . . a u M2) (88.61 O 0 32.893) discontinued regulatory accounting principles for the whole- t= ^pputde to common stoa .

0 07.024 (88 M D 095A salcjurisdiction and steam department. As discussed in " mnary

• Eitem.

%.ndMthe$cumaiatwe ^ $ ,f h"reear ofN

" Rate Matters - Louisiana Deregulated Asset Plan" above,

^ "" o7 a92>

. the Company d,iscontinued regulatory accounting princi; gg,g'gCK9g;g;mg,,g #99' pics to the Louisiana deregulated portion of River Bend m Outstanding . (O 99) (0.82) (1.81)

Total Awets .. 6.863.269 589.510 7,452.779 j gg ], . . . . . . . . . . . .

Total Capitatization and tlabilitics Loss on the hiinguishment ofDebt. During 1992, the f*yfy',^,'"ed '*'"*** *y'*y *yy, 'QQ' Company extinguished $1,030,435,000 of long-term debt, through refinancings. A loss of $81,763,000 was recorded associated with the extinguished debt. In accordanct with ,

generally accepted accounting principles for regulated en-terprises, the Company defened $67,222,000 of the loss, 40 ,

i O U L F S T A T E S U T I L l~ T I E S C O .. ;

y._pgWW*MYM !} W W f f f +& % Q &~ f h~?!wW ?, ,,  ;

.i i

i99: As 0 59 1993 As No. 7195" for subsequent rate action regarding Texas ac-aep-ted_ ta= t meat =ted counting order deferrals.

(la thousands) income aerore extraordinary nema and the Detailed below are the components of Deferred River C"""5""" E" ^ $ 122 449 St 10.058) $ 112.391 Net income . . . . .". . . . . . .""""". ."n Ch*"ge . . . . . 102.283 9.747 112.030 Bend costs included in DEFERRED CHARGES AND OTHER t Intome Appikable to Common 5tock .. 39.213 9.747 48.960 ASSETS:

Famingh f"er Average Share of Common Changes for the 1 ear Stot k Outstanding Before Entraordinary Ended Decembec 31.  !

items and the Cumulative Effect of Accounting Change . . . . . . - . 0.52 (0.09; 0 43 De est t 31. Decent 31.

1991 Retund Amortization l992 Famings Per Average Share of Common ,

Stoc k outstandmg . . O.34 0.09 0 43 pg,,tRRtD REVENUE Total Assets .. . . . . . . . . . . . . . 6.911.492 557,317 7A68.809 Total Capitalization and L.labilitica REQUIREMENTS --

fattAst,33 pt,A3 g Itactuding Retained tamings) . 6. l f,4.735 636.181 6.800.916 Louislana retait Retained tamings . 746.757 (78.8643 667Ji93 junsdu.tlon . $305.157 $(2 290) $(27,167) $ 275,700 ACCOUNTING'ORDr.R 1992 As f Reported ERett 1992 As Restated f,

. dittum f l income Defore tatraordinary items and the Cumulative Erect of Attmunting Change $ 153 787 5 5.69) $ 139 47ts Amo ra o f' i deterred River Net tneome . . . . . . . . . . . . . . . . . . . . . 128.157 5.691 133,848 bend costs . (20A62) -

(9.078) (29.540)

Income Apputable to Common 5 tot k . 78,455 S.691 84.146 Louisiana retail tamings Per Average Share of Common furtsdiction Stock Outstandmg tsefore Extraordinary wfened River 400.375 400.375 items and the Cumulauwe Effect of Accounting ChanDe . . . . ...... 0.74 0.05 0 79 n[jD. - -

Yamlngs Per Average Share of Common ocierred Kher Dend costs . u 62.455; -

(38.770) (201.225)

Stock Outstanding. . O 69 0.05 0 74 Total A.neta . . . . . . . . . . . . . . . . . 6.8Sft.494 537.085 7.395,579 StsbA l l -

147.848 538.563 Total Capitahzation and 1.lablilues DtrtRRED RIVER itaciuding Retained tamings) . 6.153J159 610.258 6.764.117 5tND COSTS . 6891.568 $(75,015) 5814.263 Retained [amings . 704.635 (73 173) 633.462 --$(2.290)

If the Company elected to not restate prior years' finan- The dcferred income taxes related to the amounts de-clat statements, the adoption of SFAS No.109 would result tailed above at December 31,1992 and 1991 of in a charge to net income in the first quarter of 1993 of $211,562,000 and $232,038,000, respectively, are in-

$73,173,000. cluded in " DEFERRED CREDITS AND OTHER LIABILITIES -

Accumulated deferred income taxes" on the Consolidated Management belkxes it is probable that the future in- Balance Shect.

crease m taxes payable, resulting from the reversal of tax benefits previously flowed through to customers and other betailed below are the components of Deferred River temporary differences, will be recovered from customers Bend financing costs included in DETERRED CREDITS AND through future rates and, therefore, the Company will rec- OTHER LIABILITIES:

, ord a regulatory asset pursuant to SFAS No. 71 upon the chanaea for the adoption of 5TAS No.109, as detailed above. Rate actions A**lfgl8,y,,

of a regulator can reduce or eliminate the value of an asset, ga"{J,"j,, 1992 g*yJ,"3,, '

l If the LPSC or PUCT excludes all or part of the future taxes 899: Amartaatan i992 .

I recorded as a regulatory asset from allowable costs and it on ta===*=ds!

I is not probable that the regulatory asset will be included as T@cM"$'"

I an allowable cost in a future period, the carrying amount of 7exas retau

• 93 5 $ 78.9s4 the regulatory asset would be reduced if such assets have gf,a"g ,

50 4.2c2>

been Irnpalred. Judsdiction . 62.326 (10.157) 52.169 RiverSend Cost Dc/errals. Pursuant to accounting or. ntrtRReo Rnt.R rstnD ders received in 1986 from the LPSC and the PUCT, the Com- m e C 575 . uSSA82 s(24m sim 23 pany deferred recognition, for financial reporting purposes, of the retall portion of the operating costs associated with Recovery of Costs - Amortization o/ Accumulated De- ,

River Bend and costs of purchasing capacity from CEPCO's /enedRiverSend Costs. The Company was ordered by the portion of the unit incurred subsequent to the unit's com- LPSC, as part of the December 15,1987 rate order, to amor-l mercial in-scrsice date and accrued carrying charges upon tire the deferred costs and accrued can3ing charges re-l the retail portion of both the cash portion of the deferrals lated to the accounting order over a 10-I and the investment in the unit not included in the Company is amortizing approximately $ year 182,000,000 of de-period. The -

Company's rate base. The deferral of costs and accrual of ferred costs and accrued carrying charges associated with i l carrying charges associated with River Bcnd was termi- the portion of River Bend ruled prudent by the PUCT over a -

I nated in the Louisiana retailjurisdiction on December 15, 20-year period in accordance with the March 22,1991 1987, upon receipt of the permanent rate decision and ter- Texas rate order. Approximately $187,000,000 of Texas re-minated in the Texas retailjurisdiction on July 23,1988, tailjurisdiction deferred River Bend costs are not being am-the effective date of rates authorized by the PUCT rate or- ortized pending the ultimate outcome of the appeals of der of May 16,1988. See " Rate Matters - Texas - Docket Docket No. 7195.

41

F I N AN C I A I I N F O R M A T I O N AffW$ %MQ}fQ% W yf ff f}Q W QWQTm ,g i

a i

5. Federal Income Taxes Timing differences exist for which federal and state  !

defened taxes have not been provided and, therefore, have i The provisions for federal income taxes (benefits) were not been recovered through rates. The cumulative amount i different from the amounts computed by applying the statu. of timing differences for which no federal deferred taxes tory federal income tax rate to net income (loss) before fed. have been provided was approximately $74,000,000 at De- '

eral income taxes. The reasons for these differences are as cember 31,1992. The tax effects of the Company's federal follows: tax loss carryforwards have been recorded as reductions of 1992 1991 1990 deferred taxes. Investment tax credit Carryforwards have On thousand. not been recorded for book purposes. At December 31, net income now before vederanna,m,

' "* P' P=""' 4 1992, for tax purposes, the Company had federal tax loss ines . . . . S B6.8% S i60 e.83 $ mo,78: > carryforwards of approximately 5785,000,000 and invest- ,

Statutory reaerai tn rue . 34

• 34

• M% ment tax credit carr)foncards of approximately rederannt ome tucut.enents, m ,tatauo $ 181,000,000. These will be used to reduce income tax pay.

63 5'" 54 " 3 '2

• ments in future years and, if not used, will expire through A$u'"isdanone af?deriiincorn, ines resuionu from the year 2004, tu.tusion of Kwcr Dend carrying r harges from taxatdc income . . . . . . . . 8.a.e 9 8.tA3 8139 ,

i items rapitalired for book purpow.s but 6. Retirement Plan and Other expensed for tn purposes . . . (10.127) (10.3191 (9.235)

Non-defened depredatum dHferetur.s . 966 3.412 11.058 PO5temployment senefits A4}ustment for prior yrars tancs and other

• '8 ' 7' '2 " " 57' RetirementI7an. The Company has a noncontributory nl,nNINrIn*c"cIof nonatity sunudu,nes . . . . . . . . . . . 4s4 573 (900, pension plan which covers all employees meeting certain L Deferral or nudear fue savingo . . . . . $ 1.894)

(1.9206 (I.573i a e and. serviCC requirements. 6cnefits are based on years Amormston of inveAtment tas tredit . t 4.3561 64.308) (4.266) ence of sr As no. joi . o 99, 6.300 i443, o semce and the highest five consecutive years of employ-other nemt . 2.8 i 7 (82 > i .ss4 ees' compensation during the last 10 years of service. All Totai federai intome ines menchts) $ 58337 $ 58.402 $ll6.499) of the Com any's eligib!c employees are entitled to retire- i rnectwe tederai mr ome tu rate . 31.4% 36.3 % 27.i% ment bene is upon completion of 10 years of service and aller reaching age 50. The Company's policy is to fund the The components of federal income taxes are as follows: actuarially computed pension contribution annually, Past i 1992 1993 l'M and pnor service costs, which are due primarily to retire- t a

,,,y ment plan amendments, are being funded by the Company Charged to operatmg c apenses. over penods of up to 40 years. .;

C.unent federal in ome In provision

uenemy . $ i.45a $ 3.558 $ ts 084, The Company's pension provision for the years onded ,

orferred rederai inc ome ia.cs - rm, hmW 31, IW, IWI, M 1M e M512,M, t teu on denn esimaumhment net of

$5,110,000, and $3,025,000, respectively. Of such amornianon . . 22.3:4 - - amounts, $3,293.000, $4,552,000, and $2.693.000, respec-Tan depreciatkm . 33.376 3L576 49.773 tirely, were charged to income with tbc balance of such

• • • *'I costs for each period charged to construction and other YuNu"nnNe"[a " So$I./ n net or 3 amortuatton . . (2,3%2) (2.352) 12.383; accounts. .

fbel and purchased power costs iattnwd6 15776 i4.012) (673) tapene de<crred for in parrows . 2.B io 44 525, o .240, The components of the pens,on i pron,s. ion for 1992, j in net o;mu noss m airryiorward . 9702 59473 i 7.9s i 1991, and 1990, are summarized as follows:

Mnct Eknd operaung ex;ienses deferred for l

1992 1991 1990 fbnandat reporting capenwd int tan pur.

l po m (17.846) O 2.780) 7.11] Onthousande) 701 5cW mt. . . . . . _ . . _ _ . . ~ . $12 M H OM $ W UnblHed revenues . 2 491 66 632) # ""

i Income detened fot botA purposes.

F rovimon fo rate ref und - toumana .

1602J (12.152) 4.416 48209) -

4696) k"[g , , ((

Unre rogntred net gam noss) . 3.928 h 8h8 37.349 (25.520) 5 Ancrnatne mintmum tat credit.. (8.1971 (5.5951 (3.632) Arr. rtizauon of net gain m . . . . . .

- - 11,212)

Other . :806; (1.569) (3.333) Amortir.ation of prior twrvite tost .. . 1.3h5 1.385 t ,385 '

I lotal deterred federal irg.ome Iames -

i net , 44.583 39.890 $6.010 Net per.sion cost.. $ 3.S12 $ 5.13 0 $ 3.025 Investment ta credits - net . (2.20'n (4.308: (4.28Q 4 Total federal Iru ome tues t harged to operatmg eApenses . 43833 39340 46.640 Southern Compin) metucment . - -

469305)

Chargr d to other inc ome - nct 4 17.633 12360 6.566

. Charged to catraordmary ttemL. t4.943) 6,502 -

4 Charged to tumulathe cPect of at countm)s (hagte . 2_2 ] 4 - -

Total tederal int ome tues ibenefits) . $ 58.737 $58 402 $t 16.4991 42  ;

t 0 U L P S T A T E S U T 1 L I T I E S C O .

g B W F K R W kW } h?fR f ,.

"f f  ;

The obligations for plan benefits and the amount recog- . In addition to the net pension cost detailed above, the nized in the Company's Consolidated Balance Sheet at De. Company recorded $662,000 of expense related to the cember 31,1992,1991, and 1990, are reconciled as 1986 carly retirement plan and 1990 workforce restructur-follows: ing for the year ended December 31,1992, in accordance

,,,2 ,,,, ,,,, with regulatory treatment of this expense,

""""""*4 Other/bstemployment Bene /its. In addition to the pen.

nouanai nmn vaiue or nenent on v uone sion plan, the Company provides retired employees and ,

au umuiaic.:ornentot,np uon. their families with hfe and health care insurance benefits. >

's"[$Uo*$[$Y21 **** All of the Company's employees may become eligible for '

respecuvely . $ 219.086 6 192.692 $ 74.789 benefits upon retirement. The Company currently records nuicctro benent onnaatw,n. . saco 9aan 5:24n 817 sc228.328) the cost of such benefits as claims are actually paid. The nan aswis. at rair rnaract value. . 306 soo 290.211 233.671 cost of such benefits was $5,340,000, $5,514,000, and  !

nan ama in =ss of proicoco bene- $4,722,000 for the years 1992,1991, and 1990, .

ni ormaauon . . . . . . i s.e72 4i.39. 7.3

res clivelvJ'  ?

tmreugnlied rrt gain . . . . . . . . (27 A)Si (48.930) (13.417)

Unrecognlied net asnets, being amor- ,

unco over i s >ca,. . . . . . . . . . . . . n9.o99, <2 iaa7. <23.a7*) SPAS No.106, Employers' Accounting for Postretirement unreuyntico pnor servwe cost .. 24.c7 i 26.s73 25.7 t 7 p gg gg g ggg ,

Au. rue 4 pension liabiltty . 6 (3142; $ (2,150) S (4.231) g g ggg gg g gg g g ggg benefits to the accrual method. The Company estimates The accumulated benefit obligation is the present value that it will have an unrecognized accumulated post-of future pension benefit payments and is based on the retirement benefit obligation of $128,000,000 as of Janu-

. plan's benefit formulas without considering expected fu- ary 1,1993. The Company has elected to amortize the ture salary increases. Assumptions used to determine net unrecognized transition obligation over twenty years. Total >

pension cost are as follows: charges for postrttirement benefits under the provisions of -

1992 8991 1990 STAS No.106, including the amortization of the transition l Dm ount rate . . ..m.,.. . . , 6.30% 7.23% 7.23% obligation, are currentiy estimated to increase by approxi-  !

r npected long-term rate of return on aw.ets . 8 50 8.50 7.50 mately $15,800,000 in 1993. Amounts ultimately recorded i aver >9e future saiarneveiinacase . s.7s s. io s' in accordance with 5fAS No.106 will be influenced by.

At December 31,1992,63 percent of plan assets were among other things, the actuarial assumptions used by the invested in equity securities,31 percent in bonds, and 6 per. Company and the regulatory treatment of the costs re-cent in cash or cash equivalents. cerved by the Company.

7. Jointly Owned Facilities As of December 31,1992, the Company owned undivided interests in three jointly-owned electric generating facilities as detailed below (dollars in thousands):

Rivet Beted Roy S. Nelson Big Cajun 2  !

Unit i Unit 6 Unit 3 Company Share of Investments: ,

Plant in service . .., .. . . . . . . . .... $3,070,947 $389,551 $219,811 l Accumulated depreciation ... . .. . ..... . . .... 486,504 123,866 ~ 61,868 Total plant capability. . . . .. ... . . ... ... . . 931 MW' 550 MW 540 MW Puel source . . . . ... . .. . . .. . .. .... Nuclear Coal Coal Ownership share . .. .. .. . .. .. . . . . .. . 70% 70% 42%  ;

The Company's share of operations and maintenance ex- ment between the Company and a participant in Nelson Unit 6.

pense related to the jointipowned units is included in operat-ing eApenses. See f1ote 3 ror information regarding unpaid

• The total plant capability has been decreased by 5 MW until re- l amounts by CITCO for their share of River fiend costs during placement of turbine rotors are made, which are currently sched-1992. See Note 12 for information relating to a buyback agree- uled for March 1994.  !

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43 1

F i N A N C 1 A I I N F 0 R M A T I O N QR@@$$% $"MF@"g@%% qR%m, y

8. Leases preferred stock sinking fund requirements, have priority over the payment of cash dividends on common stock.

The Company has existing agreements for the leasing of certain vehicles, coal rail cars and other equipment, build. hadNemdauthon, ings, nuclear fuel, and the storage of natural gas. lease zedStock. At December 10,000,000 shares of 31,1992, the Company preferred stock with-charges were $54,275,000, $73,554,000, and out par value (none issued) and authorized 6,000,000

$65,984,000, for the years ended December 31,1992, shares of preferred stock $100 par value (4,058,311 is-1991, and 1990, respectively. Of such amounts, sued). Limitations based on the ratio of after-tax camings

$53,356,000, $72,976,000, and $65,114,000, respectively, to fixed charges and preferred dividends are imposed by were charged to income. the Articles upon the issuance of additional preferred stock. Based upon the results of operations for the year Puture minimum lease payments under noncancellable ended December 31,1992, and existing circumstances, the capital and operating leases for each of the next five years Company believes it is unab!c to issue any additional pre-and in the aggregate at December 31,1992, are estimated ferred stock, to be:

Minimum During 1992, the Company retired $55,926,000 of Lease rayments Preferred stock through sinking fund requirements, includ.

(in thousands) ing $28,393,000 of preferred stock sinking fund arrearages I993. $ 82,730 as of December 31,1991. The Articles provide that, at the 1994. 68,465 Company's option, all or part of its preferred stock may be  ;

1995. . 64,564 redeemed at stated prices.

1996- 33,577 The series of preferred stock subject to mandatory re-1997., 21.436 demption are entitled to sinking funds which provide for Remaining years . 196,304 the annual redemption of shares (varying in amount from 3

$467,076 percent to 5 percent of the number of shares originally is-sued) at $100 per share. At December 31,1992, minimum i The Company is leasing the Lewis Creek generating sinking fund requirements amount to $14,816,700 for each station from its w holly-owned consolidated subsidiary, of the ) cars from 1993 through 1997.

GSG&T.

Preference Stock. On April 24,1992, the Board of Direc-

9. Capital Stock and Retained Earnings t rs authorized a portion of the proceeds from a sale of first mortgage bonds, together with cash from other sourc-The Company offers its common and preferred sharehold_ es, to be used to pay cumulative preference stock dividend ers the opportunity to reinvest their dividends and to make arrearages and redeem the outstanding preference stock, additional cash payments to acquire shares of the including redemption premiums. On June 4,1992, the Com-Company's common stock through its Dividend Pany paid $90,340,000 of preference stock dividend arrear-Rein esiment and Stock Purchase Plan (DRIP). a es and accrued dividends, and redeemed $100,000.000

" "g re ente stock, plus redemption premi-Common Stock and Retained famings. The Company mso 3 offers all employees meeting designated service require-ments the option to participate in benefit plans which pro- Payment of dividends on preference stock is subordinate vide an opportunity to obtain common shares of the to payment of dividends on preferred stock and preferred Company. At December 31,1992, the Company had re- stock sinking fund obligations. There are no limitations in served 5,562,503 unissued shares of common stock to be the Articles on the issuance of authorized preference issued in connection with its DRIP and employee benefit stock.

plans. Beginning in June 1987, the Company has acquired ,

the DRIP and employee benefit plan shares of common 1O. Long Term Debt l stock in the open market rather than offering unissued i shares, a hich would have a dilutive effect on camings per The Company's Mortgage Indenture contains sinking l share and book value. fund provisions which require, generally, that the Company Certain limitations on the payment of cash dividends on make annual cash deposits equal to 1.2 percent of the great-common stock are contained in the Articles, Mortgage In- est aggregate pnncipal amount of first mortgage bonds (,ut-denture, loan agreements, the Reorganization Agreement standing or, in lieu thereof, to apply property additions or with Entergy and applicable state and federallaw. Under re cquired first mortgage bonds ,or that purpose. The Com-pany has satisfied the mortgage requirements in past years the existing limitations, as discussed in Company may not pay dividends on such stock. If s Notes 3 and 11'uch and re- to meet current and future requirements by cer-expects strictions did'not exist, the most restrictive limitation at De- tifymg atallable net addibons to the trustee.

cember 31,1992, as to the amount of such dividends Certain series of the Company's first mortgage l which might be paid, was contained in the Articles. Based bonds and pollution control and industrial development  !

on such limitation the retained camings available for pay- bonds require cash sinking funds. Sinking fund require-  :

ment of dividends as of December 31,1992, amounted to ments, along with long-term debt maturities, for each of

$696.000,000. Preferred dividend requirements, as well as the next five years are detailed below:

44

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i Sinking rund Requirements long-Term Debt Maturities [

Satisfled by 11rst Mortgage 110tes Payable-Property Bonds and Southern Cash Additions Debentures Company i

(in thousands) _

1995 . . . . . . . . . . . . . . ....... .............. $ 425 $21,240 $ -

(a) 1994........................................ 425 21,240 - -  :

50,425 21,240- - - l 1995......................................

1996. . . . . . . . ...... ...................... 50,425 20,100 95,000 - .

1997....................................... 50,865 18,780 110,000 - .

(a) As discussed in Note 5, the Company paid Southem $ 111,329,000 to retire promissory notes and paid

$6,471,000 under a common stock differential agreement on January 4,1993.The unpaid $48,671,000 of promissory notes and $2,829,000 of the common stock price differential are payable on the earlier of the Janua ist as of which the Company has " adequate cash" or January 1,1999, or earlier at the Company's .j discret on upon five days notice.

The Company's Mortgage Indenture contains an interest respectively, whose principal and interest were guaranteed t

coverage covenant which limits the amount of first mort- by AMBAC.

gage bonds which the Company may issue, based upon in-in August 1992 and January 1993, the Company refi-terest coverage for a period of twelve consecutive months n nced the $48,285,000 and $17,450,000 of pollution con-within the fifteen months preceding a new debt issuance. }

trol bonds, respectively. The principal and interest on the -t Based upon the results of operations for the year ended De-new pollution control bonds are not guaranteed by AMBAC. 6 cember 31,1992, during such fifteen month period, the fiotes that had previously been issued to AMBAC were can-  :

Company believes it could issue $812,000,000 of first mort, celed, and amounts previously placed in reserves in accor- ,

gage bonds in addition to the amount presenUy outstand.

dance with agreements between AMBAC and the Company  :

ing (assuming an interest rate of 9 percent for additional were retumed to the Company. j first mortgage bonds).

Letters ofCredit. The Company has various outstanding l 1992 Debt Re#nancings. During 1992, the Com ny series of pollution control revenue bonds (bonds) which - i refinanced $1,030,435,000 of high cost long-term bt as are collateralized by inevocable letters of credit. The let-detailed below. '

ters of credit are scheduled to expire before the scheduled  :

New Debt Retired maturity of the bonds. Detailed below is a maturity sched-  !

Issued Debt ule of the bonds and reiated ietters of credit.

I'et Cr Hl January 1992 rirst Mortgage Bond Refinancing . $ 300,000 $ 282,878 On thusande April 1992 First Mortgage Bond " "

Refinancing . . .. . .. . 600,000 382.272 Y"[ 2016 .. $20,000 April 27,1995 August 1992 Pollution Control lo%% due May 1,2014 . 50,000 May is,1994 l Bond Refinancing . . 48,285 48.285 variable rate due i November 1992 rirst Mortgage Decernber I,2015. 28.400 December 28,1995 i nond Refinancing . . 300,000 317,000 If the letter of credit that expires in 1993 is not renewed

$ 1,248,285 $1,030,435 or replaced, the Company plans to remarket and cause the pollution control bonds to remain outstanding. If the Com-The debt issued during 1992 has an average interest rate pany is unsuccessful in these actions, the pollution control of 8.1%, while the debt retired had an average interest rate bonds will be redeemed.

of 12.5%.

At various times during 1992, the Company remarketed a 11. Short-Term Lines of Credit j total of $80,600,000 of pollution control bonds at fixed in-

' terest rates.The bonds, which had previously carried varl- .As of December 31,1992, the Company had agreements

' with banks and banking institutions which provided for j able interest rates, were secured by letters of credit which '

short-term lines of credit totaling $113,400,000 of which were scheduled to expire in 1992' $ 100,000,000 is collateralized as described below. Interest ,

American Municipal Bond Assurance Corporation rates associated with these 11nes are based on the prime '  ;

AN54C). In 1982 and 1983, the Company issued rate. Commitment fees on the collateralized line of credit i

($48,285,000 and $17.450,000 of pollution control cost bonds,

% of I percent of the amount of available credit. Com-45

i mitment fees on uncollatera; ired lines of credit cost % of 1 The industrial participants are supplying the fuel for the percent of the amount of available credit. In lieu of commit- units, while the Company operates the units at the discrc-ment fees on the uncollateralized lines, certain banks re- tion of the industrial participants and purchases the electric-quire a nontestricted cash balance be maintained equal to ity produced by the units. The Company is continuing to 10 percent of the commitment. sell electricity to the industrial participants.

Included in the total short-term lines of credit is a for the years ended December 31,1992,1991, and

$ 100,000,000 bank credit agreement which is due to ex- 1990, the purchases of electricity from the joint venture to-pire on March 15,1993. The short-term bank credit agrec- taled $37,792,000., $61,316,000, and $62,028,000, respec-ment contains negative covenants which, among other tively.

restrictions, restrict payment of dividends on and acquisi-tion of common stock, sale of assets and mergers (with cer-tain exceptions), and requires satisfaction of a minimum 13. FinancialInstrurnents I net worth test as a condition to new borrowings. The pro-posed business combination with Entergy is a permitted Tf*POra"3 C ash Investments. At December 31' 1992 transaction under this short-term bank credit agreement. and 1991, the Company had $ 197,021,000 and One condition to having the ability to make new borrow- $291,845,000 of temporary cash investments mvested in re-ings under the agreement is the absence of material ad- purchase agreements or high grade short-term corporate in-verse changes since December 31,1991. vestments, with six and mne banks and investment banks, respectively. The repurchase agreements are collateralized The Company had no short-term debt outstanding with by U. S. Govemment securities or high grade short-term cor- l banks and banking institutions during the three-year period porate investments. The Company has not experienced any ended De ember 31,1992. losses on its temporary cash investments.

Accounts Receluable. The Company's service area of I2. Purchase Power AgreernenLS Southeast Texas and Southwest Louislana !s heavily depen-dent on the petrochemical and related industries. The Com-As of December 31,1992, ihe Company has an agree- pany maintains reserves for doubtful accounts, based on ment with Sam Rayburn Municipal Power Agency to buy past experience, back declining amounts of its share of the capacity of Nel-son Unit 6 tbrough the end of May 1996. The Company had Disclosures About fair Value offinancialInstruments.

a five-year agreement with CEPCO, which expired June 15, The following methods and assumptions were used to 1991, to buy back declining amounts of their share of the estimate the fair value of cach of the Company's f.nencial ,

capacity of River Bend. The variable costs associated with instruments, such buybacks are composed of fuel costs and operations and maintenance expenses, while the fixed costs are based Cash and Temporary Cash Investments - The carrying upon gross plant investment and other factors. amount approximates fair value due to the short maturity of those instruments.

1992 1998 1990 no,% investment Securities - Decommissionmg and Self Insur-

)

Nelson Unit 6 ance rund's - The fair value of the investments included ,

variabic costs . $4.956 $ 7,679 $7,469 n ng an s nsuraKe bnh am rhed costs . 6,322 8,184 9.568 based on the quoted market prices.

Long-Term Debt and Prc Based upon cunent information, the Company estimates tory Redemption - The fa,ferred Stock sSubject to Mand that the annual fixed costs incurred in connection with the ir value of the Company long-Nelson Unit 6 buy 5acks will range in declining amounts term debt and preferred stock subject to mandatory from $4,700,000 in 1993, to $1,200,000 in 1996. redemption is estimated based on the quoted market prices for the same or similar issucs or on the current rates i99: 1990 offered to the Company for debt of the same remaining ma-on mou a. turities.

River Bend .

Variabic costs . $ 6,499 $ 14,940 The estimated fair values of the Company's financia!in- '

rtxed costs . 23,280 50.312 struments are as follows:

I992 Metson IndustrialSteam Company (iYlSCO). In l988, the raw Company entered into ajoint venture with a primary tenn tagn

^ " "'

of 20 years with Conoco, Inc., Citgo Petroicum Corpora-tion, and Vista Chemical Company (the industrial partici- Cash and temporary cash investments . $ 197 7 97,74I Decommissioning rund - 14,102 14.s46 pants) whereby the Company's Nelson Units I and 2 (106 seit insurance rund . 20,95o 21.5s i MW each as of December 31,1992) were sold to a partner- Long-term debt . 2.541,028 2.622.953 ship (NISCO) consisting of the industrial participants and Preferred stock subject to mandatory 4 the Company. redemption . 269.587 279,530 46

0 U L P S T A T E S U T 1 L I T 1 E S C O Nf F m E f [ jf Y @

• fl N I [ m[

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14. Quarterly Financial Information (Unaudited)

(in thousands except per share amounts)

Earnings (less) I Per Average Share income of Common Stock Before Out. standing Extraordinary Before Earnings items and the Extraordinary (Loss) Per Cumulative items and the Average ,

Effect of Cumulative Effcct Share of Operating Operating Accounting Net Income of Accounting Common Stock 1992 Merenue Income Change (Loss) Change Outstanding First Quarter ... $403,279 $ 69,144 $21,248 $23,205 $.05 $.07 Second Quarter. 417,365 78,436 31,179 26,9I3 .I5 .I I Third Quarter... 517,899 119,070 68,970 68,451 .51 .51 +

Fourth Quarter . 434,831 67,452 12,390 9,588 .03 -

1991 First Quarter . . . . S 390,538 $ 72,317 $ 24,448 $ 24,448 $ .08 $ .08 .

Second Quarter 399,960 68,662 10,758 10,758 (.05) (.05)

Third Quarter . . . . 499,508 125,121 67,247 67,247 .45 .45 Fourth Quarter .. 412,229 79,880 19,996 (170) .04 (.I4)

See Note 4 for Information regarding extraordinary items recorded in 1992, due to the extinguishment of debt and for information regarding the cumulative effect of a change in accounting for power plant materials and supplies.

5cc Note 4 for information regarding the extraordinary item recorded in the fourth quarter of 1991, duc to the discontinuation of regulatory accounting principles to the deregulated Louisiana retail portion of River Bend.

47 [

t

Report ofIndependent Accountants To the Sharcholders of Gulf States Mucicht Generating Plant (River Bend) cxcced Utilities Company: those costs currently being recovered through rates. At December 31,1992, approximately We have audited the accompanying consoli- 9,751 million is not currently being recovered dated balance sheets and statements of capitaliza- through rates. If current regulatory and court or-tion of Gulf States Utilitics Company and ders are not modified a write-off of all or a portion subsidiaries as of December 31,1992 and 1991 of such costs may be required. Additionally, as dis-and the related consolidated statements of in- cussed in Note 4 to the consolidated financial come (loss), cash flows, and changes in capital statements, cEier rate-related contingencies exist stock and retained earnings for each of the three which may result in a refund of revenues previ-years in the period ended December 31,1992. ously collected. 'ine extent of such write-off of These consolidated financial statements are the River Bend costs or refund of revenues previously responsibility of the Company s management. collected, if any, will not be determined until ap-Our responsibility is to express an opinion on propdate rate proceedings and court appeals these consolidated financial statements based on have been concluded. Accordingly, no provision our audits. for write-off or refund has been recorded in the  ;

We conducted our audits in accordance with accompanying consolidated financial statements.

generally accepted auditing standards. Those stan- As discussed in Note 3 to the consolidated finan-dards require that we plan and perform the audit cial statements, civil actions have been initiated to obtain reasonable assurance about whether against the Company to, among other things, re-the financial statements are free of material mis- cover the co-owner's investment in River Bend statement. An audit includes examining, on a t, cst and to annul the River Bend Joint Ownership Par-basis, evidence supporting the amounts and dis- ticipation and Operating Agreement. The ultimate closures in the financial statements. An audit also outcome of these proceedmgs cannot pr2sently includes assessing the accounting principles used be detennined. Accordingly, no provision for any and significant estimates made by management, liability that may result from the ultimate resolu-as well as evaluating the overall financial state- tion has been recorded in the accompanying con-ment presentation. We believe that our audits pro- solidated financial statements.

vide a reasonable basis for our opimon.

As discussed in Note 4 to the consolidated finan-As discussed in Note 2 to the consolidated cial statements, the Company changed its financial smtements, the Company has entered method of accounting for power plant materials into an agreement, subject to regulatory approv- and supplies in 1992 and adopted Statement of als, to be acquired in a business combination. Financial Accounting Standards No.101 for por-In our opinion, the consolidated financial state. tions of its business in 1991.

ments referred to above present fairly, in all mate-rial respects, the consolidated finantlat position of Gulf States Utilitie.s Company and subsidiaries '

4 V4 as of December 31,1992 and 1991 and the con-solidated results of their operations and their cash flows for cach of the three years in the pe- 11ouston, Texas riod ended December 31,1992 in conformity with February 12,1993 generally accepted accounting principics.

As discussed in Note 4 to the consolidated financial statements, the net amount of capital-Ized costs for the Company's River Bend Unit 1 48

O U L F S T A T E S U T I L I T I E S C O i

.v gHpm'j? y '"f g y [ l98 9f)

Statistical Summary For the years ended December 31 1992 1991 1990 1989 1988  !

Et,ECTRIC DEPARTMENT Number of customers at year end:

Residential . . .. . 513,819 505,927 498,672 492,054 486,993 Commercial . . . 64,387 63,522 63,044 62,469 61,958 Industrial . . .... 4,551 4,538 4,581 4,511 4,563 Temporary construction . 2,629 2,011 1,805 1,638 1,477 Other. . . . . 2,926 2,695 2.636 2,605 2,585 Total Customers 588,312 578.693 570,7"8 563,277 557,576 Sales - Kilowatt-hours (thousands).

Residential . . . 6,824,670 6,924,649 6,833,920 6,473,021 6,326,089 Commercial 5,474,432 5,460,326 5,388,449 5,197,35S 5,023,755 Industrial . . ...

. .. 14,396,676 13,612,197 13,331,772 12,321,905 12,072,078 Temporary construction 15,775 17,144 15,399 10,759 13,133 Other... 842,034 1,343,545 1,464,586 1,191,720 1,482,652 Total Sales . . 27,553,587 27,357,861 27.034.126 25,194,761 24,917,707 Revenue - (thousands):

Residentia! . $ 560,552 $ 547,147 $ 523,911 $ 487.972 $ 452,538 Commercial . . 400,803 383,883 378.253 357,568 331,178 Industrial . .. ... 640,594 580,923 577,436 539,944 510,354 Temporary construction . I.704 1,645 1,492 1,075 1,130 Other. . 90,883 110,361 115,543 115,315 120,513 Total Revenue . $ 1,694,536 $ 1,623,959 $ 1,596.635 $ 1,501,874 $ 1,415,713 Average Annual KWil Use Per Customer:

Residential . . 13,382 13,786 13,795 13,228 13,029 Commercial 85,538 86,238 85,761 83,513 81,339 Ind ustrial . . . . . . . . . . . 3,164,105 2,978,599 2,944,946 2,703,951 2,717,101 Revenue Per KWii-(cents):

Residential . . 8.21 7.90 7.67 7.54 7.15 Commercial . . 7.32 7.03 7.02 6.68 6.59 Industrial . . . . . . . .... 4.45 4.27 4.33 4.38 4.23 Electric Energy Output -Thousands....

of KW11:

Net Ocncrated ....... .... .. 25,917,055 26,581,935 26,102,741 23,955,660 25,146,780 Net Purchased and Interchanged . 4,975,260 4,027,771 4,277,621 5,352,485 3,570,812 #

_30,892,315 30,609,706 30,380,362 29,308,145 28,717,592 System Peak Load - Including Interruptible Load - Megawatts . 5,247 5,224 5,388 5,040 4,910 Total Capability, including Contract Purchases at Time of System Peak Load (MW) . . 6,709 6,471 6,553 6.609 6,866 Load Factor ......... ......... 67.0 % 66.9 % 64.4 % 66.4% 66.6%

STEAM PRODLICTS DEPARTMENT Steam Revenuc (thousands) ... $ 50,315 $ 46,418 $ 61,052 $ 69,200 $ 70,728 Electric 5 ales - KWil (thousands) 1,722,151 1,711.488 1,930,373 2.271,428 2,278,884 Steam Sales - millions of pounds . 12,682 13,686 13,204 11,398 10,494 OAS DEPARTMENT Gas Revenue (thousands) . . . $ 28,523 $ 31,858 $ 32,998 $ 36,332 $ 34,036 Numt>cr of Customers at Scar end 84,901 84,005 83,164 82,681 82,510  ;

Output - MM cu. ft. of natural gas .

purchased .... .. 6,861 6.786 6,215 7,826 7,320 S tics - MM cu. ft. . 6,985 6,746 6,652 7,072 7,134 WEATt1ER DATA Cooling degree days (normal 2,703). . . . ... . 2,596* 2,877 2.948 2,816 2,742 Perrentage change from normal... . f4.0) 6.4 9.1 4.2 1.4 Ilcating degree days (normal 1,841). ... ... . . .. 1,643' 1,662 1,616 1,684 1,812 Percentage change from normal ( 10.8) (9.7) (12.2) (8.5) (1.6)

• Estimated.

49

h 4 Shareholder Questions Lost Certificates Transfer of Stock Shareholders having ques- If a OSU stock certificate is Whenever it becomes neces-tions about their company or lost or stolen, written notification sary to change the registration on about their holdings may contact should be sent immediately to the a OSU stock certificate, a transfer Shareholder Services personnel at company's Shareholders Service of the stock is required. Changes the corporate office in Beaumont Department so that a "stop" can in registration are necessary, for during normal business hours. be placed against the missing cer. example, when a gift of stock is Shareholders' calls made within tificate. Your notification should made, the stock is to be co-regis-Texas are toll-free at 1(800)392- contain as much information as tered with another person, a name 1032, while calls from sharehold- possible describing the certificate, change is made or for a number of ers outside Texas are toll-free at including exact registration, certifi- other reasons.

1(800)231-9266. cate number and date of issue. There is no single stock Prospective shareholders After a "stop" has been transfer procedure which will cover may also use these numbers to re- placed, which prevents the stock all possible circumstances. Some quest financial or other informa- certificate from being traded, an transfer situations require support-tion, affidavit may be requested from Ing documents to be transferred, Notice of Annual Meeting the transfer agent in order to ob- while other might require only the The 1993 Annual Meeting of tain a replacement certificate. The signature of the shareholder autho-Shareholders will be held at 2 affidavit must be completed, rizing the transfer to be guaran-p.m. Thursday, May 6, in the signed, notarized and returned be- teed by either an officer of a company's headquarters,350 Pine fore replacement will be made, commercial bank or a stockbroker.

Street, Beaumont, Texas. Formal An irrevocable indemnity bond is The company's Shareholder notices of the meeting, proxy. required in most cases. Services Department may be con-statements and proxles will be The transfer agent should be tacted to determine the correct mailed to all shareholders on or notified promptly if a missing cer. procedure for each type of about March 26,1993. Share- Lificate is located, transfer.

holders are invited to attend, but if they cannot, they are urged to fill out and return their proxies.

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Gulf States Utilitics Co. Bulk Rate P.O. Box 2951 U.S. POSTAGE Beaumont, Texas 77704 PAID - f Houston, Texas Permit Numter 8080 '

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Vice President &

Secretarv Chi <f Financial Officcr g 132157 (11) 54 l ,

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Donald hi. Clements .;

Vi< e President ,' ','l,E '"' John W. Conley Strategic Projects Vice President j4,39 (I4143 Western Division (34) 61 f f, /j

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k Civde W. hicBride ~ k. ' ~

' Ronald 31. Alchen:.se

• Vice President Vice President Strategic Planning James D. Watkins information Services (JS) to Vice President (26152 Baron Rouge Divisic.1

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(Ayy Hilliam J. Jefferson

\ Vice President Rates & Regulatory Affairs Aho Available Or: (12) 63 Aperture Card

.p' Gulf States Utilities Company Officers

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Chairman of the Board.

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~i' s Ca!rin J. fichert Edward 31. Inggins l & CecilL Johnson nior Vice l'rcsident Senior Etccutive Vice President

.rision Operations Vice President LegalServices

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$.-f 'N R Ronald W. Cirsic!

J. Lee Afiller James E. Afoss Vice President Vice President Vice President Computer Applications Human Resources A fd'E'ti"R (18)40

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s Philip D. Graham

} Amery J. Champagne ** Vice President

< J. Ted Afcinscher Via Pwsident Mwr Bend Vice President i Enngy Resources Nuclear Group Inke Charles Division (19)49 (12) 43 ~

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Other Officers:

1Villiam E. Barksdale Geoffrey G. Galow

Vice President - Engineering Arden D. laughmiller Assistant Treasurer Vice President & TechnicalServices (12) 35 Southcast Tetas Division (3516:

(3]) 54 Timothy L Aforris

. , Assistant Secretary (13141 d

' Jasper F. \Yorthy Vice President Gcncral Services ( ) Years ofScrrice Age bf hf .

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' Mincipal Offices  ;

350 Pine St. i Beaumont, Texas 7770i Dhisions i 285 Liberty Avenue 3 Scaumont, Texas j 77701 9425 Finecroft The Woodlands. Texas 77380 ,

t 446 North Boulevard i Baton T.ouge, Louisiana  !

70802 314 Eroarl Street Lake Charles, Louisiana i 170601 ,

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