ML20050D336

Annual Financial Rept 1981

ML20050D336
Person / Time
Site:	River Bend
Issue date:	12/31/1981
From:	GULF STATES UTILITIES CO.
To:
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ML20050D334	List: ML20050D332 ML20050D336
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NUDOCS 8204120130
Download: ML20050D336 (38)

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l Gulf States Utilities 1981 Annual Report l

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Description of Ilusiness Gulf States Utilities was incorporated in 1925 and is primarily in the business of generating, transmitting, and distributing electricity to 517,000 customers in Southeast Texas and South 1.ouisiana. The service area extends 350 miles westward from llaton Rouge, l.a., to a point about 60 miles cast of Austin, Tx. The service area encompasses the northern suburbs of Ilouston and major cities such as Conroe, lluntsville, Port Arthur, Orange and Beaumont, Tx.: I.ake Charles and llaton Rouge, l.a.

GSU also sells electricity to municipalities and rural electrical cooperatives in both Texas and I.ouisiana, in llaton Rouge, GSU supplies steam and electricity to industrial customers through a cogeneration facility and the company owns and operates a natural gas retail distribution system serving 86,000 customers.

As a member of the Southwest Power Pool, the company has the ability to interchange electricity between the 41 members serving seven states in the South and Southwest. The company had a peak load of 5,542 megawatts in 1981 while it had installed capacity and firm power purchase agreements totaling 6,745 megawatts, providing a 21.7 percent margin.

The company also has a wholly-owned subsidiary, Prudential Drilling Company, engaged primarily in oil and gas exploration. Prudential is expanding its operations and has been authori/cd by the board of directors of Gulf States to spend about $10 million per year for the next four years in scarch of oil and gas. Additional funds could be made available for development and production of discoscries resulting from this I search.

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Financial Highlights im i. .o Total Operating Revenue (000) 5 1,221,714 5 1,005,226 21.5 Operating lixpenses and Tases ((XX)) 5 991,421 5 836,367 18.5 Net income (IXX)) . . 5 150,931 5 117,189 28.8 Income Applicable to Common Stock ((XX)) . 5 120,550 5 92,309 30.6 liarnings per Share of Common Stock llased on Average Shares Outstanding $2.24 52.05 9.3 Assuming Conversion of Convertible Debentures. 52.20 $ 1.96 12.2 Dividends per Share . .

51.48 51.39 6.5 AscraFe Common Shares Outstanding (0(X)) . 53,H51 44,987 19.7 Number of lilectric Customers (cnd of year) . 516,812 500.043 3.4 Total Kilowatt-llour Sales ((XX)) 30,697,020 30,585,482 0.4 System l'eak I.oad - Kilowatts . . .

5,541,600 5,604,400 ( 1.1 )

• Sce Note 7 to the Financial Statements for the pro-forma effect of the change in accounting for fuel cost.

Contents Chairman's and President's 1.ctter. . . 2 l'inance in 1981 5 Rates information . . 7 l'articipation in Construction . 7 Construction . 8 Operations . , 10 Shared Goals. .

13 1inancial Section . . 15 Statistical Summary. . 33 Directors . 34 l Olliccrs . . .

35

! General Stockholder informatien . . 36 The Cmcr A workman on the cauling tower for the nearly complete Nelson 6 coal.

hred power plant is dwarfed by stack of the 540-meFawatt umt.

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Dear Fellow Shareholders:

Gulf States Utilities showed solid progress in a Disregarding the 14 cents contributed by the lignite number of important areas in 1981 as well as good sale,1981 results were satisfactory in the face of operating results despite the economic burdens of inflation, high interest rates and a faltering economy.

innation and extraordinarily high interest rates. Despite the 1981 gyrations of the economy,it is Unfortunately, the pleasure those results should alford gratifying that Gulf States can report major progress us is diminished by the medical retirement of former on our two largest construction projects. The 940-board chairman W. Donham Crawford on March 1 megawatt River llend I nuclear generating unit under 1982. construction north of Baton Rouge, La., went from about 26 percent complete at the beginning of the year

. Don Crawford's career in the electric utility industry, to nearly 44 percent complete by year s end. In more including four years as GSU's chairman, can be human terms, and considering the incredibly elaborate characterved as one of attacking problems with safety and quality control procedures that are going mielligence and hard work. lie continues that attitude into River Hend, the progress in 1981 is the work i as he fights a rare nerve disease equivalent of building 6,000 homes that are as close to J that caused him to take human perfection as possible.

medical leave from the .

!! company last August. Our E.quaHy s.ignificant were the construction gains at the

' prayers and wishes are with 540-megawatt coal fired Nelson 6 generating unit being built near I.ake Charles, La., which went from about Don and his famd.y as he 47 percent to better than 92 percent complete in 1981.

continues treatment. We have equity partners in both of these units and A measure of his character is they are discussed in detail in the " Participation" reticcted in the fact that Don section of this report on page 7.

Craw ford developed an The etTort and dedication in both these projects have h

w. Ihmham cra rord excellent management team during his tenure as chairman.

been immense and it is a tribute to the men and women of both GSU and the constructors - Hechtel Power Co. at the Nelson unit, and Stone and Webster As board members during this period, we have at her Hend participated in the fundamental decisions made by this company's management and have admiration and the Another significant achievement was in the area of utmost confidence in the management group. maintenance and operation of our generating units.

Our goal is to hase as many of our 34 generating units Their achievements and those of 4,600 dedicated operating as much of the time as possible during the employees are chromeled ,m the operating results of peak electric use months each summer. In 1981, the 1981. diligence and perseverance of our operations and I!arnings for the scar were $2.24 per share of maintenance employees gase us peak months' common stock and 'the dividend on common reached avail bility withm a fraction of 80 percent, which is an

$1.48 per share. The regular quarterly dividend was outstanding achievement. Th,s i ava,d abihty rate allowed us to seu power to other utihties and etTectively raised again this l'ebruary from 37 cents to 39 cents I wered our customers fuel charge for several months and that produces an annual rate of $1.56 which puts last fall.

the company in a more competitise position to olTer an I attractive rate of return to investors who have many I other imestment opportunities in today's high interest l rate market.

l The $2.24 per common share earnings included a cash payment of $12 million to a GSU subsidiary as part of an eschange of lignite coal reserves between the subsidiary and another company. The gain from the eschange is the equivalent of 14 cents per share.

Suneyor calculates distances from the top of the reactor sessel at the Riser Hend nuclear plant site.

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in these times of economic pressure, we are forging a in a fundamentally different vein, but still in pursuit i new partnership with our customers and we are of an attractive return for our investors, the company exploring all avenues of customer assistance to help recorded a solid achievement in the purchase of minimize increasing energy costs on the customer's Prudential Drilling Company last year. It is part of a budget. The benehts of energy conservation are clearly continuing effort to develop earnings not regulated by a portion of this program and conservation is being utility commissions. Purchased entirely out of strongly endorsed by the company. This area is stockholders' equity with 588,000 shares of GSU comprehensively explored in the " Shared Goals" common stock representing less than $7 million, l portion beginning on page 13. Prudential has now embarked on an oil and gas exploration program that we intend to fund at the level I. rom the viewpoint of being able to earn on our  !

of about $10 million annually in venture capital investment, we are pursuing an aggressisc program to through 1985. A number of promising joint drilling  !

establish rates that are fair to our investors and projects are already underway and the potential for the I accurately reflect the cost of doing business. new, wholly ow ned subsidiary looks bright. Any oil or I Unfortunately, this entire area is hamstrung because natural gas deseloped by Pru'dential will be sold on the I l

the data we submit to regulatory bodies, according to i

open market and not be used for fuel by Gulf States.

l their own rules,is from eight to 18 months old when I

evaluated by the commissions. Regulators simply must Another reflection of the solid achievement in 1981 1 l resp (md faster and have more recent data that reflect was the virtual completion of lidison Plaza, the current prices. To oversimplify, it is like trying to buy a e mpany's new headquarters in downtown Beaumont, 9-year old child shoes based on the siic he wore when Tx. Edison Plaza consolidates 1,200 employees, who he was 7b have been working in five ditTerent Beaumont buildings, into a modern and highly etlicient work environment.

,w wer-m in essence,1981 appears to have harbored the type

! of events that will continue to be crucial to the l company this year and next. Resourceful management n- -

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T' in financing, construction, obtaining adequate electric service rates, providing for the most economical operation of the company and minimiring the etTeet of higher rates on customers will continue to hold our

, utmost attention. And with the skilled etTorts of our 4,600 employees, we will succeed.

Sincerely, y \Q. . to Paul W. Murrill Chairman of the Board Paul W. \turnli Ocit h %rman R. I ec- and Chief Executive Ollicer (44nt2.W --

Norman R. l.cc President and Chief Operating Ollicer i

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Finance While the company continues to mose away from

• December, first mortgage bonds, $100 million, increasingly expensive natural gas and oil as its main at 17.5 percent interest. GSU drew $60 million of generating fuels by building coal-fired and nuclear the total in December and the remainder in fueled power plants,it was nonetheless arduous to January,1982.

linance this construction program in 1981. An additional financing vehicle used in 1981 was The company was obligated to finance during periods the $200 million revohing credit agreement between of extraordinary interest rates with the vast majority of GSU and a consortium of nearly two dozen major these funds being devoted to cash requirements of American and international banks. This intermediate-construction financing of the 940-megawatt, $2.5 term agreement, under which GSU borrowed $30 billion, Riser llend I r uclear unit; the 540 megawatt, million in 1981 had a year-end outstanding balance of

$438 million, Nelson 6 coal unit; and GSU's 42 percent $190 million. Negotiations are presently underway with interest in Cajun filectric Power Cooperative's $430 sescrat of the participating banks to create a larger million Ilig Cajun 2, Unit 3, a 540-megawatt coal-fired revolving credit facility of $800 million which will unit planned to be in operation in 1983. include the $190 million outstanding balance.

1he capital markets provided about $391 million in To maintain the company's llexibility in financing, funds to the company in 1981 including about $109 GSU sought and received consent by holders of the million through the sale of equity securities, $24 company's 7% percent comertible debentures to modify million through the conversion of debentures and $258 the trust indenture under which they were issued. The million in debt financing. modification was to climinate the indenture's interest cover ge covenant and increase GSU's financing in summary, the 1981 financing program was as flexibility. To encourage the modification, the company ggi;g agreed to reduce the price at which the debertt.res can e April and May, first mortgage bonds, $75 be converted into common stock. The conversion rate million, at 14.75 percent interest. was lowered from $14.85 per share to $13.25.

= july, common stock, five million shares worth A financing of a ditierent nature took place in 1981,

$ 53,275,000. when the company began an aggressive program to e September, first mortgage bonds, $60 million at diversify into potentially profitable areas that are not 16.8 percent interest. GSU drew $33 million of the under the jurisdiction of utility regulatory authorities.

total in September and $27 million in January. GSU exchanged 588.000 shares of Gulf States common 1982.

stock for all the outstanding shares of Prudential Drilling Co. of Ilouston. After Prudential became a e October, liuro debentures,560 million, at 17.5 wholly-owned subsidiary of GSU, Gulf States began percent interest. carrying out a plan made last year to fund the e December, common stock, three million shares, subsidiary with about $10 million annually over the

$ 35,385,000. next four years in the exploration and development of oil and natural gas properties.

A number of joint venture agreements between Prudential and other oil and gas exploration companies have been signed, drilling has commenced, and some preliminary results should be available by the end of 1982.

A portion of the new tax laws enacted by Congress in 1981 has direct benefit to Gulf States' stockholders.

It is a tax relief program that allows stockholders to reinvest their common stock dividends in additional common shares of Gulf States and to defer income taxes on the reinvested dividends until the stock is sold.

M7 An individual can defer up to $750 each year in

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reinvested dividends ($1,500 on a joint return) from i

1982 to 1985. The gains derived from the sale of shares receised from disidend reinvestment during this period will be taxed as a capital gain if the shares are held more than onc year before being sold.

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{;_ " Financing at the lo uest cost po.ssible is an  !

absolute oblixation to customers and stockholders. "

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Rates then though the GSU management is dedicated to the future that expensive coal and nuclear power plants the most economic operation of the company pnsible will be funded by consortiums of utilities that are and is actively seeking new ways to cut costs, it is only geographic neighbors and share similar needs for added through rate increases that the company can cope with generating capacity.

the effects of high conuruction costs, high interest rates in GSU's case the company is sharing the and inflation. construction cost and output of three power plants with I he company recogni/es that higher electric service other utilities.

rates place additional burdens on customers, but it is These major projects are:

equally clear that if customers are to ha$e adequate . River Bend I, a 940-megawatt nuclear supplies of electricity in the future the company must powered generator being built about 30 miles maintain a rate of return that will hold existing north of Baton Rouge, l.a. Cajun filectric investors and attract new ones during a perimi that Power Cooperative (CliPCO) began funding requires an extensive construction program. Toward its 30 percent ownership portion of that plant that end the company pursued rate increases in both in earls 19M1. During the > car Cl!PCO

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Texas and I.ouisiana last year. brought its ownership portion to parity by in Ntay, the company filed for a 5131.5 million rate funding 53MX million and now GSU and the increase in its Texas jurisdiction. Two mecks of mid. co-op fund at the 70/30 percent rate monthly.

summer hearings before the Public Utility Commission Another utility operation, the Texas based of lexas led to a commission decision to grant GSU a Sam Rayburn G&T (SRG&T), had planned 563.7 million annual increase in resenue. The decision, to begin funding a seven percent portion of the which was put into cifect in October but is under River Bend unit in 1981. Ilowever, SRG&T's appeal by several municipahties, allows the company to participation must be approved by the Rural carn 16.5 percent on equity and includes 76 percent of filectritication Administration (RiiA) and the Construction Work in Progress (CWIP) in rate base. company understands the Rl!A presently does CWIP is money the company has invested in new plant not intend to approve SRG&T's participation.

that has not begun operating. lifforts continue to be made to get the At the end of October, the company filed for a approval. The upshot of that is that if the 5217.8 million rate increase in 1.ouisiana. In that filing company does not get SRG&T participation, the company included a request for interim rate relief kl "III have to bear additional construction knancmg until completion of the unit.

from the 1.ouisiana Public Service Commission (1.PSC). Iloweser, the 1.PSC denied the company's e Nelson 6, a 540-megawatt coal-fired generator request for $46 million in interim relief. The company being built a few miles west of 1.ake Charles, is providing uplated data on the total request to the I.a. Sam Rayburn N1unicipal Power Authority I.PSC as early in 1982 as pnsible to give the I.PSC an (SRN1PA) and SRG&T will become 20 and opportunity to hold orompt hearings on the total 10 percent owners respectively of the nearly-request. completed unit. Both SRNIPA and SRG&T are aMato of Sam Rayburn Dam I!!cctrie

'Ihe compan3 is completing a case for filing with the ooperative, which serves a number of liast l l~cderal linergy Regulatory Commission to increase {fesas coopaathes, communities. and the town rates for the companis w hoksale and transmission of nton, La. Both participants base reached service customers in isoth Texas and I.ouisiana. parity with GSU on funding. The unit was I

Participation within eight percent of completion at year's en an se ule commac opa tbn

'I he extraordinan capital demands of new pmer m N1ay of 19S2.

plant construction hase led many companies, includm.g Gulf States, to consider joint ownership in such a Big Cajun 2. Unit 3, a 540-megawatt coal tired generator being built by Cajun Electric projects. In fact, it will probably hold true for years in Power Cooperative near New Roads, l.a. GSU began funding its 42 percent ownership in early 1981. 'I he company is scheduled to hase funded the unit to parity by early 1982 and then will fund its 42 percent of the est; spetulnis, underwrners construction outlays. I he unit is scheduled f,or and attorneys complete stak ule sloung in 's,ew Yor k. completion in 19X3.

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l Construction j Construction progress on Gulf States' new power Work on River llend 1, the 940-megawatt nuclear plants was massive, sustained and highly successful in generator now under construction near llaton Rouge, 19M 1. 1.a., progressed excellently in 1981 not only from the Most visible was the progress on the 540-megawatt standpoint of actual construction completed, but also Nelson 6 coal-fired generator under construction near from the quality standpoint that is under constant I.ake Charles, l.a. It is the company's first coal fired review by Gulf States, the prime contractor Stone &

facihty, and, at the beginning of the Scar, was nearly Webster, and the Nuclear Regulatory Conimission half complete as a massive steel framework stood ( N RC).

surrounded by mounds of excavated carth. At year's liighlighting the year's construction, w hich went end the land was returning to normal and the entire from 26 percent complete to nearly 44 percent project was within a few percentage points of complete, was the placement of the reactor sessel in completion. mid-> car. The reactor vessel serves as the boiler in a nuclear power plant and is a key point in construction.

As for quality, the Nuclear Regulatory Commission's on-site resident inspector and other NRC inspectors, who made periodic visits to the site, turned up no major violations of construction quality or operational safety during the year.

Since August,1979, the NRC has issued 30 f- inspection reports on River llend representing 2l00 man hours of review. Only 23 violations have been noted in those reports. The most serious was a 1.evel IV. The NRC ranks violations from I to VI, I being

, the most serious.

, in that regard, the NRC unconditionally rejected a request by the Union of Concerned Scientists (UCS) to halt construction at River llend. The anti nuclear UCS cited anonymous sources claiming " dangerous practices" at River llend. A 10-month NRC investigation concluded that all UCS allegations had already been discovered and remedied by GSU and Stone & Webster.

Another extremely complex facet of River llend is the licensing procedure that is required by the NRC.

1.ast year the company filed a 20-volume,9,000-page To fuel the unit, one train after another, each application for a River llend operating license. After a carrying about i1,000 tons of coal, began arriving in four-month review by the NRC to establish if the October in preparation for the start-up. Ily December, application was sulliciently complete, the NRC said the IM-stor>-high boiler was test-fired with oil. Plans there was enough documentation to docket the called for test operations and de-bugging to continue application and begin the safety review. In all, the through the spring with commercial operation expected licensing procedure can take as much as two and one-in May. half years to complete.

When Nelson 6 is in full operation the unit will desour more than 300 tons of coal an hour which will be supplied by five 110-car trains in a constant shuttle between the Gillette, Wyo , mine and the Nelson unit.

Almost in the shadow of the giant coal-fired generator is the much smaller, but significant, Nelson 7 gas-fired turbine generator.

~Ihe moon hosers alue the The 90-megawatt unit, capable of running on natural nearh complete Nchon 6 gas and light oil, was 65 percent complete as the year coal.hred power riant.

ended and will be used beginning this summer to proside peaking power when hot weather air conditioning demands begin cutting into the company's resene margin of generating capacity.

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,.g Work continued at River llend under the innovative

Nuclear Construction Stabilization Agreement. It is a labor agreement ihat calls for no strikes or slowdowns 9 and provides streamlined methix!s for settling craft disputes. An agreement under this concept calls for one 1700 member shift to work four consecutise 10-hour days and then be replaced by a second 1700 member work force for the next four dass. Now in its third scar of use, the " Rolling 4-10's" continue to provide excellent productivity and an amicable work climate.

While the construction and administrative aspects of River llend continue in excellent fashion, present economic conditions are hampering our very aggressise completion schedule. The company notified the NRC in November that funding limitations of the project will control the rate of completion. Iligh interest rates and inflation base forced the company to finance River llend at a rate that will complete the project as quickly ,

.5 years. The new building, ow ned by N,ew i,ork-based as possible, yet not jeopardu.e the company.s hnancial Statmont, Inc., and leased by Gulf States will house integrity. liased on that management decision and almut 1, 00 employees who Iiave been scattered updated construction cost estimates that have raised ilmugh hse hwntown buildm, gs. The glass and the projected cost from $1.7 billion to $2.5 billion, the aggregate-pancied building adds a litting addition to company will fund the project at a rate that moves the commercial operation date back from mid-1984 to late du- owntown are that is going through a period of

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1985. A factor in this decision is the Rural lilectrification Administration's indication that it will Operations not support the application of the Sam Rayburn G&T Operationally the company achieved marked success to become a sesen percent partner in the project. If in 1981, mmed', forward on a series of programs to give that n the case, GSU will have to provide additional customers superior service, and recorded a decrease in linancing in 1982.

peak load for the first time in more than a decade.

Despite this setback, the percentage-complete figure lloweser, that drop was more of a statistical after 24 months of construction compares favorably to aberration than a trend.

current industry patterns and the company anticipates l'or several years the company had been supplsing bringing River llend on h,ne faster than most smular more than 250 megawatts of energy to a 1.ouisia'na nuclear pimer plants.

cooperatise. In late June, responsibility for this load One construction project that is in the final phases of was assumed by the co-op when a new generating unit completion is the company's new 17-storied I headquarters in downtown lleaumont, Tx. Know n as I!dison Plata, the spacious 462,000 square foot building is more than three times as large as the conserted hotel which GSU has been using as a headquarters for about 10

f was brought into operation. On June 22, just before the A major improvement in 1981 was the comp!ction of load was dropped, GSU hit a peak of 5542 megawatts a 345-kilovolt transmission line that now links GSU which left a 21.7 percent reserve margin and turned with Southwestern lilectric Power Co. This tie, at the out to be the generating peak in 1981. It was 62 west end of the GSU system, allows power to be megawatts less than the 5604 megawatt-peak recorded interchanged between the companies and improves during the heat wave of 1980. reliability for both. On the castern end of the Gulf lilectric sales in 1981 showed modest but stable States system, work is beginning on a 500-kilovolt growth. The company recorded one percent kilowatt-intertie between GSU and the Southern Company. A hour sales increases in residential and industrial classes unique advantage to this transmission hne is a of customers and a fisc percent increase for commercial commitment by the Southern Company to sell coal-customers.

fired electric power over it to Gulf States at rates which will benefit all GSU customers.

While the residential customer group grew by four A management reporting program was started m.

percent, a much cooler summer in 1981 compared to 1980 caused sales to grow by only one percent. The live which line crews and service crews are measured for percent growth in commercial sales was created productivity against a base standard. If needed, time saving techniques or speciabred training may be primarily by the addition of new customers, and the I mm! cst increase of one percent among industrial suggested to improve a particular crew s etliciency.

customers is credited to a strong economy in the first in a parallel effort, some crews have been reh>cated half of 19M1 that started turning sour in the second to areas that are closer to where the work is actually half. needed and that minimizes travel time.

Ilaving as many power plants as possible operating N1 ore supervision is being given by GSU during the summer months -- when load is highest - management to contractors that are doing work for the is important if GSU is to asoid having to buy expensisc company to assure ellisienc) of operation.

power from neighboring utilities to meet customer New concepts in tree trimming are being explored to demand. A 19M1 commitment of money and manpower minimize cost as well as getting the most out of each to increasing peak months' availability paid otr last dollar spent.

summer when availability reached a very respectable 79 percent compared to 73 percent the previous scar. Increased emphasis is being placed on keeping

. delinquent bills from becoming uncollectibic bad debts.

At the same time availability was going up, GSU's I)espite higher electric rates and a faltering economy, use of its most expensive generating fuel - o_l- i was bad debts comprised less than .4 percent of 1981 poing down. Only two percent of the primary energy resenues and attention in that area continues.

GSU used to make electricity in 1981 was oil; the rest was cheaper natural gas.

7 l Iloth availability of generating units and the etTorts to use cheaper fuel are part of a major program to gise customers the best possible senice. In a period when customers will inevitably see their electrie bills increase, it is important to continue to provide top-i notch service and find areas for inprovement in the economy of company operation. Toward that end a number of programs were established to maintain quality and imprme economics.

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linergy - its use, its cost, its availability, its politics ConserVallon

- has been the focal point of international debate for .

.The simplest way to keep clectne bills down is to use nearly a decade. And for the most energy intensive less, and that is the way conservation is viewed by country in the world,it has become a national obsession. *d "Y. ".I ""' '"""** 9"II N'"'C P'im rily t hrough our division ollices and Consumer Serv. ices department

]

Since 1974, energy cost and availability have and advertising, is actively showing customers how to changed the way we live, the cars we drive, how warm conserve in many different areas.

J we are in the summer and how cold we are in the We have classroom demonstrations on energy winter. lincrgy costs make pink panthers walk across ion. We work with city governments

our telev,sion i screens telling us to insulate and

. developing energy etlicient building codes. We sponsor television announcers breathlessly try to squecie m the workshops and classes for electrical contractors and i line that ,'these estimates will vary dependmg on how builders on etlicient operations of equipment and 4

you drive. Mileage w,ll i be lower m Caliform.a.

weatherizing homes.

Einergy cost and availability have direct consequences Trained GSU cmployees visit customers' homes on to Gulf States Utih, ties and its more than 517,000 request and go over the home from top to bottom to l customers Simply put: lilectricity takes an increasing point out wap to saw electncity. Lau year we

! share of the customer's budget. It is true for a expanded the program to melude mobile homes which I chemical plant or a neighborhood grocery or a family. are a growmg segment of our service area housmg.

llecause electricity is such an integral and important linergy Stores are operated by the company in part of our social fabnc, Gulf States is committed to a shopping malls in both llaton Rouge and Beaumont.

smgle goal we share with our customers. The stores provide a convenient location where The goal is to have affordable electricity provided by customers can stop by, talk with qualified GSU an etlicient and reliable company. It certainly is not representatives, and learn in minutes ways to cut their new, and it does not sound particularly profound, but it electric bill. Einergy Information Centers, with wide is a goal that becomes elusive as primary energy costs ranging information kits, are operating in most increase. company business ollices.

We are developing programs in many areas to meet

, Public Awareness

, th,is goal. Several have been discussed in prior sections of this report and they relate to fuel diversity, financial liven though the need for conservation is obvious, l

i integrity and operational elliciency. But there is more many customers do not reali/c that for little cost they that needs attention and we are moving rapidly to can conserve without changing their lifestyle

{ drastically. To demonstrate cost savings through fulfill our responsibility to customers and stockholders.

conservation, GSU division ollices across the company's T.hese programs m. elude: 28,000 square mile service area are actively working i . Conservation with civic clubs and social service agencies to show the simplicity of energy conservaton. Also, weatherization

. Public Awareness demonstrations in workshops or educational programs

. Alternate linergy Sources are going on almost daily.

, . Rates and Rate Design The company's advertising in 1981 stressed conservation and the many conservaton services the l

company otTered. Additionally, a series of commercials were developed and aired showing low cost or no cost conservation practices.

Alternate Energy Sources Gulf States' interest in alternate energy sources is aimed at practical applications of technology that could be cost competitive with existing fuels. The focal point is on sescral new uses of coal that could be compatible with existing natural gas-fired power plants, but Adding attie insulation expands into several applications becomes conunonplace as energy costs increase.

13

- _ _ _ _ = .

^

Rates and Rate Design Two forms of coal use are under study including Rates that olTer customers the chance to sase money i gasification and mioonization. In a joint project with by shifting their use of electricity to "off-peak" hours Westinghouse and funded by the Department of show promise for the future. The idea is to ofter lower

! I!nergy (DOli), the company is completing the costs per kilowatt hour for late night and very early preliminary engineering on a project that would take morning use of electricity. The incentive to the low sulfur Western coal and process it into a form of customer is obvious - a lower electric bill. The natural gas that would be used to power existing advantage to the company is that if customer demand boilers. If this proves to be successful and economic, for late summer afternoon electricity can be avoided, such a coal gasification plant could be in operation by GSU will not have to construct very expensive new 1986. generating capacity to meet that peak demand.

A second gasilication project,in conjunction with The concept appears simple, but it is a complex Combustion lingineering and, again, funded by DOI.i. process to reduce peak demand and create cost has fallen victim to government cost cutting. This incentives to customers that are effective while not i project was to develop a gasification plant that would damaging the company's cash flow. Preliminary results t

use higher sulfur liastern coal. Preliminary engineering of a year-long study conducted with the aid of about was about 50 percent complete when the funding was 100 customers in the Beaumont, and Port Arthur, Tx.,

curtailed. area indicate 85 percent of these customers are willing Micronization of coal is a process in which chunks of t shift their energy use if the cost incentives are great coal are reduced to nearly microscopic size and enough. While this is encouraging, more research is potentially can be burned in existing boilers now fueled necessary before the company can seek authorization to by natural gas Gulf States and several industries are institute such rates.

pioneering this attempt, and if test results in 1982 are encouraging, a demonstration project using an existing industrial boiler could be attempted next year.

The company's solar applications are moving beyond the experimental stage in one area. A demonstration project was authorized in 1981 which has the goal of selling 100 solar water heaters in the Beaumont, Tx..

area in 1982 83. The units will be sold and guaranteed by GSU. Gulf States employees will check construction installation for quality.1.ater the project will be evaluated by a team to determine if there is a future business opportunity for GSU. .

Wind power, an indirect form of solar energy, has been under study for nearly a year by GSU. A 25-kilowatt wind generator was installed at a beachfront location on the Texas coast last 3 car to accumulate data on wind potential. While the initial results tend to show that it is not economical in this area, tests will continue and other locations may be explored.

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,. , . - - , . - . _ _ - - - - . - . - - , , , . g.- - - - , - . - - - - - - ------,.,----- - - -- - - . - .-

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1 .

l Financial Section Contents 15 Management Responsibility for Financial Statements . .

. . 16 Selected Financial Data. . . . .

16 Common Stock Prices and C,ah Dividends Per Share .

Management's Discussion and Analysis of Results of Operations and Financial Condition . 17 19 Statement of Income . . . .

I Statement of Sources of Funds Invested in Utility and Other Plant. 20 21 Halance Sheet . . .

22 Statement of Capitalization .

Statement of Changes in Capital Stock and Retained Earnings . . 23

. 24 l Notes to Financial Statements . . . .

32 Auditors' Report .

. 33 Statistical. .

Management Responsibility for Financial Statements Management is responsible for the preparation, internal accounting controls, tests of transactions, integrity, and objectivity of the financial statements and other procedures sutlicient to provide of Gulf States Utilities Company. The statements reasonable assurance that the financial statements have been prepared in conformity with generally are neither materially misicading nor contain accepted accounting principles applied on a material errors.

consistent basis, except for the change to deferred fuct accounting (see Note 7 to the Financial The Board of Directors, through the Audit Statements) and, in some cases, reflect amounts Committee of the Board, has general oversight of based on estimates and judgment of management, management's preparation of the financial giving due consideration to materiality. statements and is responsible for engaging, subject to shareholder approval, the independent j

The Company maintains a system of internal controls designed to help give reasonable assurance accountants. The Committee reviews with the that the books and records properly reflect the independent accountants the scope of their audits transactions of the Company and that established and the accounting principles applied in financial policies and procedures are followed. Internal reporting. The Audit Committee meets regularly, control systems are subject to inherent limits in both separately and jointly, with independent recognition of the need to balance their costs with accountants, representatives of management, and the benefits they produce. The Company's the internal auditors, to review activities in management strives to maintain this balance. connection with financial reporting. The l independent accountants have full and free access Coopers & l.ybrand, independent certined public to meet with the Audit Committee, without accountants, are engaged to examine, in accordance with generally accepted auditing management representatives present, to discuss the standards, the financial statements of the Company results of their examination and their opinion on and issue a report thereon, which appears on page the adequacy of internal accounting controls and 32.Such auditing standards include a review of the quality of financial reporting.

15

Selected Financial Data l'or the years ended I)ecember 31 fin thousands estept per share amounts, ratios and h%Il sales) 19MI 19MG 1979 197N 1977 Electric Sales (millions of INil). 30,697 30,585 29,742 28,892 26,537 Operating Revenue. $l,221,714 $1,005,226 $ 864,338 5 717,958 5 587,760 Net income

• 150,931 117,189 84,181 70,146 65,650 Income Applicable to Common Stock . 120,550 92,309 68,559 59,156 55,074 Earnings l'er Share of Common Stock:

liased on average shares outstanding 2.24 2.05 1.74 1.73 1.69 Awuming conversion of convertible debentures 2.20 1.96 1.65 1.62 1.65 I)isidends l'er Share of Common Stock I.48 1.39 1.36 1.24 1.15 Total Awets . 3,343,419 2.925,701 2,439,345 2,059,425 1,758,574 1.on::-Term Debt and l' referred Stock Subject to

.\landator> Redemption 1,642,894 1,444,505 1,066,938 877,097 805,656 Capitalisation Ratios:

Common Shareholders' Equity ... 34.4 % 32.6'3 35.6'J 37.47r 33.4 l' referred Stock (not subject to mandatory redemption) . .. .... 5.0 5.8 7.3 7.4 11.5 l' referred Stock (subject to mandatory redemption) . . 6.5 7.5 4.0 1.9 -

1.ong-Term Debt . 54.1 54.1 53.1 53.3 55.1 Return on Aicrage Common l' quit 3 14.21 12.94 10.91 10.93 11.53 lhwik Value l'er Share, end of year . $ 15.41 $ 15.60 $ 15.53 5 15.50 $ 14.89

• Sec Note 7 to the l'inancial Statements for the pro-forma etTeet of the change in accounting for fuel cost.

Common Stock Prices and Cash Dividends Per Share For years ended December 31,1981 and 1980 Cash Cash Diiidends I)iiidends l' aid l' aid 19NI liigh law I'er Share 19M0 liigh I.ow I'er Share l'ourth Quarter. $12% 510 % 5 37 Fourth Quarter . 511% 510% S.37 Third Quarter . 12% 10 % .37 Third Quarter. 12% 10 % .34 Second Quarter 12% 10 % .37 Second Quarter 13 % 9% .34 Iirst Quarter. 12 10 % .37 First Quarter. 11 % 9 .34 The Common Stock of the Company is listed on the New York, .\lidwest and Pacific Stock Exchanges. The approximate number of common shareholders on December 31,1981 was 81,000.

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1980, while the remaining $50.2 million was placed Management'S DISCt1Ssion and Analysis Of , m effect in November,1980. A $22.9 million Results Of Operati0ns and h,.nancial increase approved by the Commission was placed Condit:0n in etTect in .lanuary,1979.

On a kilowatt hour basis, sales volume increased Results of Operal.lons less than 1% in 1981, and approximately 3% in Net income increased $33,742,000 or 29% both 1980 and 1979, when compared with the during 1981, as compared to 1980, while earnings previous years. Increases in commercial and industrial sales of 57 and 19. respectively during per share of common stock increased 9% despite the dilutive etTect of having 204 additional average 1981, were offset by an i1% decrease in sales for resale. The increase in kilowatt hour sales during shares outstanding. The increase in net income was 1980, was attributable to a 10'7o increase in sales to primarily the result of increased rates placed into etreet in 1981, and the latter part of 1980, as well residential customers, which was partially offset by as increased subsidiary earnings during 1981. The a 1% decline in sales to industrial customers. The increase in subsidiary carnings resulted primarily increased demand of the industrial customers in from a gain realized by Varibus Corporation 1979, was the major cause of the increase in sales (Varibus) on an exchange of lignite leases and a volume m that year.

change by Varibus in the method used to account Operating Expenses for its oil and gas operations (see Note 8 to the The Company's primary operating expenses are l'inancial Statements). See Note 7 to the Financial Statements for the clicct on income of a change in fuel for power generation and purchased power, the Company's method of accounting for fuel and During the three year period from 1979 to 1981, these two expense items amounted to purchased power costs.

approximately 58% of electric operating revenue.

Operat,ing Regenue Increases in the unit costs of fuel used for generation was the primary reason for the 27%

Operating revenue, of which approximately 90g ,

increase m fuel costs durmg 1981, as compared to was derived from sales of electricity, increased 1980. The increase in purchased power expense 227,169, and 20% during 1981,1980, and 1979, during 1981 as compared to 1980, is primarily respectively. The primary causes of these increases attributable to increases m the unit price paid for were increased rates, increased fuel costs which are billed through revenue, and increased sales volume, energy purchased. Delays experienced by the ,ts Company ,m the construction of generatmg um as detailed below: have also resulted in the Company having to '

19MI 19M0 1979 purchase additional amounts of power. ,

tin thousand4 The increased availability of lower cost natural General Rate gas and the Company's own generating units, increases $120,036 5 61,771 5 31,804 including the Company's Sabine Unit 5 which Net Changes became operational in December,1979, resulted in in Fuel a 15% decrease in purchased power costs during Cost 1980 as compared to 1979. Increased Company- 3 Reemery 77,519 57,536 79,167 owned generation, along with an increase in the Sales Volume 18,933 21,581 35,409 unit cost of fuel for generation resulted in a 19%

$216,488 $140,888 $146,380 increase in fuel costs during 1980 as compared to

~~ ' ~ ~ ~ ~ - -

1979.

Operating and maintenance expenses have The major rate increases granted to the increased steadily over the past five years.

Company base been in electric retail rates. In October,1981, the Company placed into effect a Operating expenses have risen primarily due to

$63.7 million increase granted by the Public Utility increases in gas purchased for resale, labor and material costs, and general administrative costs Commission of Texas (PUCT). The PUCT resulting from intlationary pressures and increased approved and the Company placed into etTect a

$44 million increase in retail rates in October, demand for energy services. Maintenance expenses 1980, and a $24.9 million increase in November, have increased primarily due to the performance of scheduled maintenance of generating units to 1979.

improve their availability and unscheduled outages The Company currently hr.s a petition before the of certain generating units.

l.ouisiana Public Senice Commission (1.PSC) Depreciation expense has .mereased primarily requesting an increase in retail rates of due to increases m utdtty plant m service.

approximately $218 million. An order from the l.PSC is expected in 1982. The I.PSC ordered an The decrease in federal income taxes during electric rate inercase of $77.3 million in November, 1981 was primarily the result of recording certain 1980. Of this amount, $27.1 million was placed adjustments in accordance with regulatory agency into etTect as an interim rate increase in March, instructions.

17

Other taxes, primarily property and resenue- additional short term indebtedness, and (3) the related taxes, have increased in the past several issuance of debt and equity securities.

> cars and are expected to continue 'a rise in the future as a result of growth and ud.artur.. 1)uring 1981, the Company generated 33'J of its construction expenditures (including Al'UDC)

Non-Operating llems from operations. It is currently estimated that approximately 359 of construction expenditures increases in allowance for hp used durinF (including A1:UDC) will be generated from construction ( Al UleC) are prenarily due to the increases in the rate used to compute Al UDC, operations during 19M2 and 1983. The remaining requirements )vne been and will centinue to be such increases in turn being due to continuit"3 increases in the Conipany's cost of capital. Thew ' obtained through external financing. During 1981, the Company raised approximately 5367 million increases have been oliset in part by mereased amounts of construction work in progress included through the issuances of long-term debt and equity securities. The Company repaid $45 million of in the rate base, as allowed by the i.I'SC and the l'U CT. long-term debt, including the Tur-Gen Trust obligation, during 19SI. Additionally, the in 19S1, the increase in Non-utility subsidiary Company liquidated the Gideon Trust obligation operations" resulted primarily from th'e gain on January 4,1982 (see Note 4 to the l'inancial realized by Varibus Corporation on an exchange of Statements). Average daily short term borrowings hynite leases and a change by Varibus in the for construction and general corporate purposes method used to account for its oil and gas totaled approximately $82 million during 1981, operations. (See Note 8 to the l'inancial down 279 from last year. (l'or information Statements). regarding bank lines of credit and short-term borrowings of the Company, see Note 5 to the increases in interest charges on long-term debt grinancial Statements).

are attributab!c to m' creased borrowings at substantially higher interest rates. Ihe Company's Mortgage indenture places limitations on the amount of first mortgage bonds l#inancino ard Capital Resources which the Company is allowed to issue. Ilased on Since 1976, th total assets of the Company ty resuhs of opaations at December 31.1981, hase doubled as e r< ulti .f the extensive on-going adjusted to give elfects to the issuance of $27 construction prograni wI ch is expected to miHion,16.M'i $, cries,11rst plortgage lionds and continue into the near future. In addition to P rmHion,17.59 Series, Iqrst Mortgage lionds fundine the construction program, the Company . sued by private placement m January,1982, (see must Mso periodically retire maturing securities .N te 12 to the 11nancial Statements) such (debentures, bonds, and trust obligations) and pay mdenture would allow the Company to issue dividends to holders of shares of its outstanding appnnimately $177 nuHion of additional first preferred stock. m rtgage bonds (assuming a 17.59 rate for such bonds).

The Company's constructim expenditures for 1981, and as estimated for 1982 and 1983, are as U"N"E. anuary,1982, the Company completed gg g ,' modiheation of the Trust indenture under which its 39gg g932 3933 7%9 Convertible Debentures due 1992 were issued (in thousands)

(see Note 12 to the I inancial Statements). The Construction modification climinates the Indenture's interest expenditures coverage covenant thereby increasing the (including Company's financial llexibility. Prior to the Al UDC) . $427,000 $517,000 5602,000 modification, the amount of tirst mortgage bonds Nuclear fuel and and other funded debt which the Company could issue was limited by the more restrictise Trust nonutility plant . 10,000 6,000 3 ,000 Indenture. With th'e completion of the 5437,000 $523,000 5630,000 modification, the issuable amount of first mortgage

'~

bonds is limited by the less restrictive Mortgage l'unding of construction expenditures by the Indenture, while inoenture limitations on the participants in jointly-owned facilities (see Note 6 issuable amount of other funded debt hase been to the l~inancial Statements) totaled approxinately removed.

' n pi ish utl for nst u t on ur n he

} #d'*

ad it I f r ed kb I an's Restated Articles of Incorporation. Ilased'on the The Company's ability to obtain adequate results of operations of the Company as of amounts of cash for its operational and December 31,1981, and adjusted for the issuances construction needs is directly related to (1) detailed above, the Company would not be able to resenues generated by sales and the su5 sequent issue any additional preferred stock, due to the collection of such amounts (2) the incurring of current high disidend and interest rates.

I8

Statement of Income l'or the three 3 ears ended December 31 tin thousands cuept per share arnantu 19M1 19ko 1979 Operating Heienue Electric . $1,106,522 5 904,871 5769,415 Steam . 77,624 69,346 68,278 Gas 37,568 31,009 26,645 1,221,714 1,005,226 864,338 Operating thpenses and Tases l'ucl (Note 7) 481,285 378,794 318,494 Purchased power (Note 7) . 150,463 136,261 160,882 Other operations . 133,647 111,928 92,631 Maintenance 70,867 57,155 46,700 Depreciation and amortization 78,194 73,422 62,887 Taxes income (Note 10)

Current . 9,343 8,199 (7,163)

Deferred - net . (6,252) 16,000 16,911 Investment tax credits - net 32,029 19,972 28,446 Other 41,845 34,636 29,240 991,421 836,367 749,028 Operating income 230,293 168,859 115,310 Other income and Deductions Allowance for equity funds used during construction 40,741 40,590 27,260 Non-utility subsidiary operations (Note 8) . I I,498 (1,398) (1,283)

Other - net 1,996 (3,621) 3,088 income liefore Interest Charges 284,528 204,430 144,375 Interest Charges '

1 ong-term debt 151,427 99,198 68,784 Other 17,698 20,954 17,539 Allowance for borrowed funds used during construction . (35,528) (32,911) (26,129) 133,597 87.241 60,194 Net income (Note 7) . 150,931 117,189 84,181 Dividends on Preferred Stock 30,381 24,880 15,622 income Applicable to Common Stock . $ 120,550 $ 92,309 $ 68,559 Average Shares of Common Stock Outstanding. 53,851 44,987 39,310 Earnings Per Share of Common Stock (Note 7) liased on aierage shares outstanding $ 2.24 5 2.05 5 1.74 Assuming conversion of convertible debentures 2.20 1.96 1.65 The accompanying notes are an integral part of the financial statements.

19

Statement of Sources of Funds Invested in Utility and Other Plant For the 3 cars ended Decernher 31 tin thousando 19xl 19xu 1979 Prmided I' rom Operations Net income . $150,931 S I 17,189 5 84.181 Principal income items not requiring current funds Depreciation and amortization. 78,194 73,422 62,887 Deferred income taxes - net (6,252) 16,000 16,911 Investment tax credits - net . 32,029 19.972 28,446 I!quity component of allowance for funds used during construction. (40,741) (40,590) (27,260)

Total provided from operations . 214,161 185,993 165,165 Dividends Preferred dividends (30,3811 (24,880) (15,622)

Common dividends (79,379) _(62,299) (53,846)

Reinvested funds provided from operations 104,401 98,814 95,697 Prmided 17 tom l'inancing Sales of securities Common stock . 132,762 71,422 50,103 Preferred stock not subject to mandatory redemption - -

35,000 Preferred stock subject to mandatory redemption. -

100,000 35,000 1 irst mortgage bonds (principal amount). 168,000 175,000 150,000 Guaranteed debentures . 60,000 - -

Net change in short-term borrowings . 120,433) (39,579) 8,162 Reduction of long-term debt (41,970) (17,133) (11,992) liquipment purchase obligations (16,181) 8,811 9,784 Revolving credit agreement 30,000 160,000 -

Total provided from financing . 312,178 458,521 276,057 Other Sources and Uses Provided from sales of nuclear fuel and other property 2,823 6,379 10,818 Temporary cash imestments (3,300) -

33,000 Other - net (including changes in working capital) (20,158) 39,844 (25,419)

Total provided from other sources and uses. (20,635) 46,223 18,399 I:spenditures for Utility and Other Plant 395,944 603,558 390,153 I!quity component of allowance for funds used during construction. 40,741, 40,590 27,260 imested in I tility and Other Plant $436,685 5644,l48 $417.413 The accompanying notes are an integral part of the financial statements.

20

Balance Sheet thember 31 (io thousandu i9xi l9xo Assels Utility and Other Plant, at original cost 151 ant in service ... ......

$2,140,180 $ 1,978,622

1. css: Accumulated provision for depreciation 743,730 674,450 1,396,450 1,304,172 Construction work in progress (Notes 6 and 9) 1.595,005 1,335,237 Nuclear fuel (Note 9) 98,259 87,934 3,HM9,714 2,727,343 Other Property and investments Non-utihty subsidiary companics (Note 8) . 32,474 22,099 Other 1,960 1,655 34,434 23,754 Current Assets 1,20M 1,153 Cash (Note 5) . .

Temporary cash investments . 3,3tH) -

Receivables Customers 73,794 68,519 Notes 13,333 8,300 Other . . . ..

14,967 5,087 Materials and supplies, at average cost 17,545 15,574 I uct stock, at average cost . 39,127 34,677 Prepayments and other. 11,425 5,379 174,699 138,689 I)cferred Charges Unamortired debt expense. . 6,716 5,463 Unamortired project cancellation costs 17.307 21,158 Other 20,549 9,294 44,572 35,9I5

$3,343,419 $2,925,701, Capitalisation and I.iabilities Capitalization (See Statement of Capitalization)

Common shareholders' equity 5 933,3M3 5 763,196 Preferred stock Not subject to mandatory redemption . 136,444 136,444 Subject to mandatory redemption. 175,553 175,553 1.ong-term debt 1,467,341 1,268,952 2,712,721 2,344,145 Current I.iabilitics 1.ong-term debt due within onc year (Note 4) 63,691 61,948 Notes payable (Note 5)

Itinks ..

- 20,000 Commercial paper . 34,745 35,178 Accounts payable Trade . 65,384 56,213 Subsidiaries 761 2,984 Taxes accrued . . 16,770 13,789 Interest accrued. 33,127 27,484 Other 57,134 47,397 271,612 264.993 I)eferred Credits Insestment tax credits 145,3M9 113.354 Accumulated deferred income taxes. 175,444 163./. (

Other _ 11,037 15,2 o 331,M70 292,170 Proceeds from Sale of Nuclear i uct (Note 9) 27,216 24,393 Commitments and Contingencies (Note 9) . - -

$3,343,419 $2,925.701_

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

21

Statement of Capitalization December 31 (in thousando 19MI 4 19MO  %

Common Shareholders' Equity (Note 2)

Common stock Authoriicd 100,000,000 shares without par value Outstanding 60,574,877 and 48,907,824 shares, respectively $ 602,305 5 469,543 Premium and expense on capital stock (2,088) (2,169)

Other paid-in capital 25,876 25,847 Retained carnings . 307,290 269,975 933,383 34.4 763,196 32.6 l' referred Stock (Notes 2 and 3)

Authorized 6,000,000 shares, $100 par, cumulative Outstanding 3,I19,970 shares.

Current Disidend Shares Redemption Series Outstanding Price Not subject to mandatory redemption 5 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 9,745 102.8I8 975 975 4.44 14,804 103.75 1,480 1,480 5.00 10,993 104.25 I,099 1,099 5.08 26,845 104.63 2,685 2,685 4.52 10,564 103.57 1,056 1,056 6.08 32,829 103.34 3,283 3,283 7.56 350,000 106.80 35,000 35,000 8.52 500,000 109.95 50,000 50,000 9.96 350,000 111.60 35,000 35,000 136,444 5.0 136,444 5.8 Subject to mandatory redemption 8.80 371,835 107.00 37,183 37,183 9.75 33,697 107.00 3,370 3,370 8.64 350,000 108.64 35,000 35,000 11.48 500,000 111.48 50,000 50,000 13.64 500,000 113.64 50,000 50,000 175,553 6.5 175,553 7.5 1.ong-Term Debt (Note 4p l'irst mortgage bonds N1aturing 1982 through 1986 -

3'i'i due December 1,1982 -

10,000 3h'i due December 1,1983 10,000 10,000 4%'i due September 1,1986 . 15,000 15,000 N1aturing 1987 through 1996 -

4'1 to 17h'3 . . ....... 385,000 217,000 N1aturing 1997 through 2006 -

5 %'I to 10.15'T ........ 455,000 455,000 N1aturing 2007 through 2011 -

S h'i to 12.3'i . . ........ ...... ... ...... .. 285,000 285,000 Pollution control and industrial development bonds -- duc 2006 and 2007 --- 5.9'i to 7'i ... ,..... ...... 48,000 48,000 Convertible debentures - due 1992 - 7%'J . 20,483 44,623 Guaranteed debentures -- duc 1988 - 17%'4 60,000 -

liquipment purchase obligations -

25,754 Revolving credit agreement _ 190,000 160,000 1,468,483 1,270,377 Unamortired premium and discount on debt - net . (1,142) (1,425)

I,467,341 54.1 1.268,952 54.1

$2,712,721 100.0 $2,344,145 100.0 The accompanying notes are an integral part of the financial statements.

22

Statement of Changes in Capital Stock and Retained Earnings For the years ended December 31,1979,19NO, and 19NI (la thousands of dollars)

Preferred Stock Not Subject Subject to Other to Mandatory Mandatory Common Premium Paid-in Retained Redemption Redemption Sanck lisw Espensel Capital Earnings llalance: January 1,1979 . , $117,936 5 30,534 5348,018 5 350 $ 19,297 5226,038 Net income - 1979 84,181 Preferred stock:

Public offerings (700,000 shares) . 35,000 35,000 (1,431)

Preferred stock recapitalization (16,492) 10,019 6,550 Common stock sold:

Public olTerings (3,500,000 shares) 38,546 Other issuances (919,454 shares) . I1,557 (13)

Dividends declared:

Preferred stock (15,622)

Common stock (53,846)

Balance: December 31,1979 136,444 75,553 398,121 (1,094) 25,847 240,751 Net income - 1980. . . . . . .. I17,189 Preferred stock sold (1,000,000 shares) 100,000 (1,045)

Common stock sold:.......

Public offerings (5,000,000 shares) 57,400 Other issuances (506,868 shares) . 14,022 (30)

Dividends declared:

Preferred stock (24,880)

Common stock (62,299)

Capital stock expense. (786) llalance: December 31,1980 136,444 175,553 469,543 (2,169) 25,847 269,975 Net income - 198) . 150,931 Common stock sold:

Public olTering (8.000,000 shares) . 92,375 Other issuances (2,041,481 shares) 16,596 81 29 Conversion of Debentures (I,625,572 shares) 23,791 Dividends declared:

Preferred stock (30,381)

Common stock (79,379)

Capital stock expense. (3,856) llalance: December 31,1981 5136,444 5175,553 5602,305 $ (2,088) 5 25,876 5307,290 The accompanying notes are an integral part of the financial statements.

23

1 l

Notes to Financial Statements

1. Summary of Significant Accounting on a cycle billing basis. Revenue is not recorded Policies for energy delivered and unbilled at the end of Sprem of Accounts. The accounting records of e ch fiscal period. Rate schedules of the Company the Company are maintained in accordance with provide for adjustments to substantially all rates the Uniform System of Accounts as prescribed by f r increases or decreases m the costs of fuel for the l~cdcral Energy Regulatory Commission Eener tion, purchased power, and gas distributed.

(I'liRC) and adopted by the 1.ouisiana Public I uel nd purchased power costs in excess of those Service Commission (I.PSC) and the Public Utility included m base rates are deferred until such costs C,ommission of Texas (PUCT). are billed to customers. If costs fall below the levels included in base rates, the ditTerence is Utility and Other Plant. Utility and other plant accrued and subsequently credited to customers.

is stated at original cost when first dedicated to public service and the amounts shown do not Income Tares. The C,ompany and its represent reproduction costs or current values. subsidiaries file a consolidated federal income tax Costs of repairs and minor replacements are return. Income taxes are allocated to the mdividual charged to expense as incurred. The original cost c mp nics based on their respective taxable income of depreciable utility plant retired and cost of r I ss nd investment tax credits.

removal, less salvage, are charged to accumulated The Company follows a policy of comprehensive provision for depreciation. The provision for interperiod income tax allocation where such depreciation is computed using the straight-line treatment is permitted for ratemaking purposes by method at rates w hich will amorti/c the regulatory bodies. Deferred federal income taxes unrecovered cost of depreciable plant over the result from timing differences in the recognition of estimated remaining service life. revenue and expenses for tax and accounting Composite depreciation rates were as purposes. These deferred income taxes are charged rgjig, y to income and concurrently credited to i9xi 19xn 1979 accumulated deferred income taxes.

lilectric . 3.70 9 3.72'7, 3.76'7r Investment tax credits have been deferred and Steam . 2.80 2.77 2.79 are being amortized ratably over the useful lives of (ias . 3,50 3.57 3.49 the related property. The Company claims the Total Company 3.68 3.69 3.74 additional 1 Mi. investment tax credit, as provided A//owanccfor Funds Used During Construction by the Internal Revenue Code, under the provisions and Capitalization ofInterest. Aliowance for of the Employee Stock Ownership Plan (ESOP).

funds used during construction ( Al'UI)C) is a non- Non-Utility Subsidiary Companies. The cash item which is calculated under guidelines Company has made investments in and advances to prescribed by the I liRC and is capitalized as part non-utility subsidiary companies and accounts for of the cost of utility plant representing the cost of its investments on the equity basis.

sersicing the capital invested in Construction Work Fmp/wce Benefits. The Company has a in Progress (CWIP). EtTective April 1,1981, the contributory pension plan covering all employees rate used to compute Al'UDC was increased to a meeting certain age and service requirements. The 9'i net rate compounded semi-annually from the accrued cost of this plan is being funded. Past and 8.59 net rate in etTeet since January 1,1981. The prior service costs are being funded and amortized rate used in 1980, was 8.09 (net) compounded by the Company over a thirtuycar period, semi-annually and 7.69 (net) compounded effective July 1,1979. Prior to July,1979, the Company arnings Pa arc. E rnings per share are based on the weighted average number of common used a net rate of 7.5'i (simple). In January,1982, the rate used to compute Al UDC was increased to shares outstanding during the period. Earnings per y ' 5,., share assummg conversion of convertible debentures are based on the weighted average Such Al:UDC has been segregated into two number of common shares outstanding plus the compiment parts - borrowed and equity funds. shares which would have been issued if the That portion allocated to borrowed funds is outstanding convertible debentures had been reflected as an adjustment to interest charges. converted on the date of original issue, after giving Interest incurred by certain trusts (see Notes 4 and elTect to the climination of related interest expense,

9) is included in interest expense in the statement amortization of bond discount, and expense of issue of income and a corresptmding amount is included (net of related income taxes). The number of as part of the borrowed funds component of shares for the latter computation was A l:U DC. approximately 55,231,000,47,992,000 and Revenue, Fuel and Purchased Power. The 42,600,000, for the > cars 1981,19S0 and 1979, Company records revenue as billed to its customers respectively.

24

2. Capital Stock and Retained Earnings additions or reacquired first mortgage bonds for that purpose. The Company has satisfied the At December 31,1981, the Company had mortgage requirements in past years by certifying authoriecd 10,000,000 shares of no par preferred "available net additions" to the trustee. Sinking stock (none issued) and 20,000,000 shares of no fund requirements on the first mortgage bonds par preference stock (none issued). The Company's which the Company currently plans to meet by Restated Articles of Incorporation places certifying "available net additions" to the trustee limitations on the issuance of additional preferred for each of the five years subsequent to December stock. For information with respect to the amount 31,1981, are as follows:

of preferred stock currently issuable subject to this limitation, see "N1anagement's Discussion and 1982 -- $ 10,704.000 Analysis of Results of Operations and Financial Condition." There are no limitations on the 1983 - 510,584,000 issuance of preference stock. 1984 - $10,464,000 At December 31,1981, the Company had 1985 - 510,464,000 reserved 2,398.097 shares of common stock to be issued in connection with its employee benefit plans 1986 - $10,284,000 and dividend reinvestment plan.

Certain limitations on the payment of cash The Company's N1ortgage Indenture contains an dividends on common stock are contained in the interest coverage covenant which limits the amount Company's Restated Articles of Incorporation and of first mortgage bonds which the Company may indentures. The most restrictive limitation is issue. For information with respect to the contained in the Trust indenture, dated as of additional amount of first mortgage bonds which September 1,1977. llased on such limitations, the the Company is currently able to issue subject to retained earnings available for payment of this limitation, see "N1anagement's Discussion and dividends as of December 31,1981 and 1980, Analysis of Results of Operations and Financial amounted to approximately 5212 million and $171 Conditions."

million, respectively (see Note 3 for restrictions on At December 31,1981, the 7%% Convertible common dividends under the sinking fund Debentures could be converted into the Company's provisions for preferred stock). common stock at a price of $14.85 per share (see 3, Preferred Stock Subject to Mandatory Note 12 for information concerning indenture Redemption modification). The closing market price of the Company's common stock at December 31,1981 The Company consummated, in January,1979, was $111 an exchange of certain series of its preferred stock During 1978, the Company entered into two not subject to mandatory redemption for shares of greements whereby the Company assigned its its 58.80 and 59.75 Dividend Preferred Stock right to purchase turbine generators to certain subject to mandatory redemption, with the result of an increase in other paid in capital. The 58.80 and trusts (the Gideon Trust and the Tur-Gen Trust).

The agreements provided that the trusts would 59.75 Dividend Preferred Stock are entitled to m ke required payments to the turbine generator,s mandatory sinking funds sufficient to retire 37 of manuf cturers and the Company would purchase the shares of each series beginning in 1984. The such generators from the trusts for an amount 58.64, $11.48, and $13.64 Dividend Preferred equal to the payments made plus certain carrying Stock are entitled to mandatory sinking funds costs, including interest which varied with the sullicient to retire 4% of the shares of each series beginning in the sixth year after the date of E""""' ' I"'

issuance. The aggregate sinking fund requirements During N1 arch,1981, and January,1982, are approximately $1,217,000,52,617,000, and respectively, the Company liquidated the Tur-Gen 56,617,000 in 1984,1985, and 1986, respectively, and Gideon Trust obligations upon payment of Preferred stock sinking fund provisions restrict the $27,583,000 and $53,760,000, respectively. Interest payment of common stock dividends and the on the trusts totaled approximately 510,212,000, purchase of such stock by the Company unless the 58.013,000, and $6,126.000 during 1981,1980,and sinking fund requirements are met. 1979, respectively.

4. l.ong-Term Debt During N1 arch,1980, the Company entered into a revolving credit agreement which bears interest The Company's N1ortgage contains sinking fund at the prime rate (15%% at December 31,1981).

prosisions which require, generally, that the Under the terms of the agreement, the Company Company make annual cash deposits equal to 1.2% can borrow up to $200,000,000 in principal of the greatest aggregate principal amount of first amounts of $5,000,000 or more until September, mortgage bonds subsequently authenticated and 1982. Such borrowings are payable over a five-year delisered or, in lieu thereof, to apply property period beginning in 1982.

25

5. Short-Term Borrowings Cajun 2 Unit 3 in April,1981, and will continue to s untH its cumulah condutions reach its As of December 31.1981, the Company had ,

pf n te are e ts f umt. W agreements with banks and banking institutions L mp ny will then fund its share of the costs.

which provided for committed lines of credit CEPCO is the project manager and will operate totaling approximately $250,000,000. Interest rates umt.

associated with these lines range from the prime rate to 108% of the prime rate; London Interbank Participants in River Hend Unit I are CEPCO OITering Rate (LlHOR) + %% to LIBOR + %% with a 30% ownership share and SRG&T with a or a mutually agreeable rate to be determined at proposed 7% ownership share. CEPCO began the time of borrowing. Commitment fees range funding total construction costs in January,1981, from % of 1% to % of 1% of amount of available and continued to do so until November,1981, credit. In lieu of commitment fees, certain banks when such funding reached CEPCO's require a cash balance be maintained equal to 5% proportionate share of total construction costs.

l to 10% of the commitment. CEPCO then began funding its proportionate Information regarding short-term debt outstanding is as follows: SRG&T's participation in River Hend Unit 1 is sul two subject to approval by the Rural Electrification on shamandu Administration (REA). The Company has been Ntaximum amount advised that the REA presently does not intend to outstanding at any one approve SRG&T's pending application for time $159,035 $168,225 participation in River Hend Unit 1. Therefore, the Average daily outstanding 81.712 I I I,984 Company intends to seek further consideration by Weighted average interest the REA relative to such participation. No rate for amount assurance can be given to if and when the actual outstanding at year-end 13.28 % 16.75% approval might be granted. If SRG&T does not Weighted average annual participate in the unit and the Company is unable interest rate (a) 17.74 % 13.69 % to obtain other participants, the Company would assume SRG&T's ownership share.

(a) Calculated by dividing the sum of the effective interest for the year by the average The Company expects to utilize all of the energy daily short-term debt outstanding. generated by its share of the capacity of Hig Cajun 2 Unit 3 at the time this unit is placed in service.

6. Jointly-Owned Facilities ,

In addition, the Company has various agreements The Company owns undivided interests in with the participants in Nelson Unit 6 and River certain generating units currently under Bend Unit I whereby, after each unit goes into construction as detailed below: commercial operation, the Company will be company's obligated to purchase a portion of each rfi e rompan, Ihare l* participant's share of capacity of each unit. In the cenerniina session pare share' gpenditures first year of commercial operation of the units, the on homando Company has agreed te purchase 100% of the Roy S. Nelson Unit 6 1982 70% $348,865 participants' share of the unit's capacity.

(Coal- 540 N1W) Thereafter, the Company is obligated to purchase gh )""540 1983 4 I .595 declining amounts for periods ranging from three 1 V) to 14 years. The fixed costs applicable to the buy-River Hend Unit 1 1985 70 892,400 backs of power are based in part on final unit costs (Nuclear - 940 N1W) and other variable factors and are not determinable Participants in Nelson Unit 6 are Sam Rayburn at this time. The variabic costs associated with Alunicipal Power Agency (SRN1PA) with a 20% such buy-backs will be composed of fuel costs and ownership share and Sam Rayburn G&T operations and maintenance expenses.

(SRG&T) with a 10% interest. SRG&T funded total construction expenditures from June,1980 7. Change .in Account.ing for Fuel through September,1980, and have since funded in June,1981, at the urging and authorization of their proportionate share of the costs. SRN1PA the I.PSC, the Company changed its method of began funding all construction costs, except those accounting for fuel and purchased power costs in funded by SRG&T, in July,1981, and continued 1.ouisiana. The change, efTective January 1,1981, to do so until November,1981, when such funding results in the Company deferring or accruing on its reached its proportionate share. SRN1PA has since books any under or over recovered fuel and funded its 20% ownership share. purchased power costs in excess of those included in base rates until such costs are renected in The Company began funding total costs of billings to customers pursuant to its Louisiana fuel Cajun Electric Power Cooperative's (CEPCO) Hig adjustment clause. The cumulative etreet of the 26

l ,

i -

change on prior years is immaterial and included stock assuming the conversion of convertible in income for 1981. The cifect of the change for debentures were increased $.07 due to the change the year 1981 was to decrease net income by $4.8 in accounting method.

million (5.09 per share). The pro forma clTects of On September 11,1981, Varibus and the change in accounting for fuel, assuming the Northwestern Resources Company exchanged new method were applied retroactively, are shown certain lignite holdings in Central and liast Texas.

below . Varibus acquired lignite property in liast Texas 3* 3" 3* and received cash consideration of approximately lin hr, ands cueps per share anumntsi $14 million (of which $2 million was received in Net income $150,931 $117,189 $84,181 1980) in exchange for lignite properties in Central I!arnings per Texas. For 1981, the exchange transaction had the share based on elTect of increasing net income and income ascrage shares applicable to common stock by approximately $7.6 outstanding . 2.24 2.05 1.74 million and both earnings per share of common liarnings per stock based on average shares outstanding and "ssun ing the conversion of convertible debentures u kg b}

conversion of convertible 9. Commitments and Contingencies debentures 2.20 1.96 1.65 in 1978, the Company sold a portion of its

, Pro brma uranium inventory to the Uranos Trust for i amounts assuming change in approximately $55,836,000 (the Company's book accounting for value). The Company may repurchase the uranium fuel costs applied inventory for an amount equal to the trust's cost retroactively: plus interest and other costs incurred to the date Net income $150,931 $ 113,571 $87,696 the options are exercised. The balance sheet at liarnings per December 31,1981 and 1980, included sharc - $27,216,000 and $24,393,000, respectively, based on recorded in " Utility and Other Plant, at original average cost - Nuclear Fuel" and " Proceeds from Sale of shares Nuclear Fuel." Interest costs for the years ended outsta nding . 2,24 1.97 1.84 December 31,1981,1980, and 1979, were liarnings per $2,823,000, $5,994,000, and $8,320,000, share 7 respectively.

assummg conversion of in 1980, the Company sold a portion of the convertible uranium oxide inventory previously held by the debentures 2.20 1.88 1.74 trust. These sales reduced the level of" Proceeds from Sale of Nuclear Fuel"in 1980 approximately

8. Non-Utility Subsidiary Companies $47,100,000. A total or 927,000 pounds and 216,000 pounds of the inventory was sold to

! On July 28,1981, the Company acquired Prudential Drilling Company (Prudential), through participants in River llend Unit 1, CI!PCO and SRG&T, respectively (see Note 6). SRG&T an exchange of 588,000 shares of Gulf States purchased the uranium oxide using funds from a common stock for all of the common stock of

$70 million interim financing. If SRG&T does not Prudential. The Company accounted for this obtain, by mid-1982, a long-term loan guaranteed transaction as a pooling-of-interests. Both i Prudential and Varibus Corporation (Varibus), the by RIiA sullicient in amount to pay all of its cost of purchasing such concentrates, the Company has Company's other wholly-owned non-utility agreed to purchase the concentrates owned by subsidiary, are engaged primarily in the SRG&T at the cost to SRG&T plus its carrying exploration, development, and operation of oil and charges.

gas properties.

Since June,1980, SRG&T has been using the During 1981,in order to conform to the method balance of the funds from the interim financing to used by Prudential, Varibus changed its method of accounting for oil and gas operations to the full pay construction costs of Nelson Unit 6 in order to carn its co-ownership interest in the unit (see cost method of accounting. Due to the immaterial Note 6). If SRG&T does not secure the necessary effcet on prior periods, the cumulatisc effect of the loan guarantecs, the Company would be required change is included in income for 1981. liarnings to purchase SRG&T's ownership interest in Nelson per share of common stock based on average shares Umt 6.

outstanding and carnings per share of common 27

~

l The 1982 construction program is currently Deferred income tax expense results from timing estimated to be $523,000,000, including difTerences in the recognition of revenue and approximately $83,000,000 of AFUDC. This expens:s for tax and accounting purposes. The amount has been reduced by the participants' sources of the differences between book and tax funding of their interests in the units under income which were used to reduce the Company's construction (see Note 6). In connection with the current tax liability for the respective years were:

construction program, the Company has incurred 1981 19n0 1979 substantial commitments, some of which arc <;, % g related to 1983 and subsequent years. Excess of accelerated Various state and federal laws require tax depreciation over governmental permits prior to construction and straight-line operation of certain facilities. Substantial depreciation . .$ 7,231 $10,865 5 8,955 expenditures and commitments are made prior to items expensed for tax b

obtaining such permits. Unless and until events occur making such permits unobtamable, n pu{,Qut ,,

depreciable plant for provision is made in the financial statements for book purposes (4,634) 4,891 5,762 possible losses which could occur if such permits Excess of accelerated should not be obtained. amortization of Construction of River Bend Unit 2, a 940 MW pollution control boiling water nuclear reactor unit has been facilities over deferred pending the completion of River Bend dep i 2,373

. 2,371 2,377 Unit 1. Total Company expenditures on this unit Cancellation costs of through December 31,1981 were $63.9 milh_on proposed nuclear excluding $20 million of AFUDC. units expensed for

10. Income Taxes tax purposes in 1978, to be amortized for The provisions for federal income tax were less book purposes (1,659) (1,594) (136) than the amounts computed by applying the Fuel and purchased federal income statutory tax rate to pre-tax power expense income. The reasons for these di!Terences are as deferred (accrued) follows: f r book purposes . (7,270) - -

1981 1980 1979 Items expensed forbook Statutory Rate. ... 46.0% 46.0% 46.07 purposes but deferred increases (decreases) for tax purposes (2,300) - -

resulting from: Other 7 (533) (47)

Exclusions from taxable income of 5 (6,252) $16,000 $16,911 A FU DC . . . . . . . . (17.3) (15.9) (17.4)

Items capitalized for .

book purposes, but The Company was abic to reduce its income tax expensed for tax liability for the years 1981,1980, and 1979 by purposes (1.6) (2.4) (2.0) utilizing investment tax credits. At December 31, EITect of excess book...... 1981, the Company had accumulated tra ht-e depreciation .

( 3.5 carryforwards of investment tax credit of

$40,800,000. These carryforwards expire through 4.0 6.5 Adjustment for prior 1996, and will be used to reduce income taxes in years taxes and other future years. The investment tax credit utilization regulatory limit is increasing progressively, from a maximum adjustments ...

(7.2) (1.3) -

"" of 70% of the income tax liability (before no -uti ity application of the investment tax credit) in 1980 to subsidiaries . (2.9) .4 (.1 ) 80% in 1981 and 90% in 1982 and subsequent Other items (2.1) (.6) (2.1 ) years.

EITective Tax Rate 18.4 % 30.2% 30.9 %

1 28

l .

I 1. Employee Benefits 12. Subsequent E ents - Financings The total costs of the Company's contributory in accordance with prior commitments, the pension plan for the years ended December 31, Company sold $40,000,000 principal amount of 1981,1980, and 1979, were $6,696,000. First N1ortgage Bonds,17%'I Series, and

$5,393,000, and $3,730,000, respectively. Of such $27,000,000 principal amount of First Niortgage amounts, 54.245,000, $3,506,000, and $2,447,000, Honds,16.8'4 Series, by private placement on respectively, were charged to income and the January 13,1982 and January 14,1982, balance of such costs for each period were charged respectively. The proceeds from both issuances to construction and other accounts. were used to reduce outstanding loans under the Company's 5200 million revolving credit facility The valuation date of the latest pension information is January I of the subsequent years and short-term debt mcurred primarily in, connection with the Company s construction for each plan year ended December 31. The program.

information for the plan years 1980 and 1979,is shown below. Such valuation information is not yet During January,1982, the Company completed available with respect to plan year 1981. modification of the Trust Indenture under which its i,go i,7, 7%'I Convertible Debentures due 1992 were un thousands escept issued. The modification climinates the Indenture's percentu interest coverage covenant thereby increasing the Actuarial present value of Company's financial flexibility. In return for the accumulated plan necessary consents of two-thirds of the debenture benefits: holders, the Company reduced the price at which Vested . . . $41,742 538,798 the debentures could be converted into common Nonvested 2,573 2,531 stock from $14.85 to $13.25 per share.

Present value of accumulated plan benefits $44,315 541,329 Net assets available for benefits . $59,008 $50,027 Assumed rate of return in determining actuarial present values of plan benefits . 9% 8'J

13. Quarterly Fiaancial Information (Unaudited)

(In thousands escept per share amountsl Earnings Per Share of Common Stoclo Hased Gn Assurning Coniersion Operating Operating Net Aierage Sharn of 19MI Reienue income income Outstanding _ Comertible Debentures First Quarter . $266,123 $47,986 $27,333 S.40 $.39 320,607 53,023 32,994 .50 .49 Second Quarter .

373,116 74,724 61,415 ,97 .95 Third Quarter 261,868 54,560 29,189 .37 .37 I ourth Quarter .

3 9"'!

First Quarter . 227,873 27,685 20,279 .34 .33 Second Quarter . 242,539 42,125 29,424 .54 .52 297,511 54.378 45,292 .85 .81 Third Quarter .

Fourth Quarter . 237,303 44,671 22,194 .31 .30

• Individual quarterly amounts may not add to annual amounts since the per share amounts are based upon the average number of shares outstanding during each quarter.

In June,1981, the Company changed its method share). The financial information presented for the of accounting for fuel and purchased power costs first quarter of 1981, has been restated to reflect etTective January 1,1981 (see Note 7). The clTect this change in accounting method.

of the change on the first quarter of 1981, had the See Note 8 for details concerning the exchange new method been in etrect, would have been to of lignite leases between Varibus and a third party increase net income by 56,824,000 ($.14 per during the third quarter of 1981.

i 1

29 l

.__l

M. Supplemental Information schedules to actual costs. For this reason fuel on Changing Prices (Unaudited) inventories are effectively monetary assets.

The following supplementary information is As prescribed in SFAS No. 33, income taxes supplied in accordance with the requirements of were not adjusted.

the Statement of Financial Accounting Standards (SFAS) No. 33 for the purpose of providing Under the rate-making prescribed by the certain information about the effects of changing regulatory commissions to which the Company is prices. It should be viewed as an estimate of the subject, only the historical cost of plant is approximate etTect of inflation, rather than as a recoverable in revenue as depreciation. Therefore, precise measure. the excess of the cost of plant, stated in terms of e nst nt ys r current cost, over the historical Constant dollar amounts represent historical costs stated in terms of dollars of equal purchasing c st pl nt,is not presently recoverable in rates power, as measured by the Consumers Price Index as depreciation, and ,si reflected as a reduction to for all Urban Consumers. Current cost amounts net recoverable cost. While the rate-making reflect the changes in specific prices of plant from pr cess gives no recognition to the current cost of the date the plant was acquired to the present, and replacing util,ty i and other plant, based on past ditrer from constant dollar amounts to the extent pr ctices, the Company believes it will be allowed that specific prices have increased more or less to carn on the increased cost of its net investment rapidly than prices in general. when replacement of facilities actually occurs.

The current cost of utility and other plant, which To reflect properly the economics of rate includes land, land rights, nuclear fuel, plant held regulation in the statement of income adjusted for for future use, and construction work in progress, changing prices, the reduction of net utility and represents the estimated cost of replacing existing other plant should be otTset by the gain from the plant assets and was determined by indexing decline in purchasing power of net amounts owed.

surviving plant by the llandy-Whitman Index of During a period of inflation, holders of monetary Public Utility Construction Costs. The current assets suffer a loss of general purchasing power

> car's provision for depreciation on the constant while holders of monetary liabilities experience a dollar and current cost amounts of utility and other gain. The gain from the decline in purchasing plant was determined by applying the Company's power of net amounts owed is primarily depreciation rates to the indexed plant amounts. attributable to the substantial amount of debt Fuel inventories, the cost of fuel used in which has been used to finance utility and other generation, and gas purchased for resale have not plant. Since the depreciation on this plant is been restated from their historical cost in nominal limited to the recovery of historical costs, the dollars. Regulation limits the recovery of fuel and Company does not have the opportunity to realize purchased costs through the operation of a holding gain on debt and is limited to recovery adjustment clauses or adjustments in basic rate only of the embedded cost of debt capital.

30

Statement of Income Adjusted for Changing Prices (Unaudited)

Consentional Constant lluHar Current Cost

' llistorical Aterage Aserage Cost ml lloHars M I I)oHars For the year ended December 31,19NI lin thousands:

Operating revenue . .

51,221,714 51,221,714 $1,221,714 Fuel 481,285 481,285 481,285 Purchased power . 150,463 150,463 150,463 Other operations, maintt.ince, and gas for resale 204,514 204.514 204,514 Depreciation and amortization. 78,194 171,516 184,691 i ,

76,965 76,965 76,965 Taxes .

Other - net . (54,235) (54,235) (54,235)

Interest charges 133,597 133,597 133,597 1,070,783 1,164,105 1,177,280 Net income (excluding reduction to net recoverable cost) . S 150,931 5 57,609' S 44,434 increase in specific prices (current cost) of utility and other plant held during the year ** $ 145,274 Reduction to net recoverable cost 5 (154,325) 107,835 Effect of increase in general price level (394,259) i Excess of increase in general price level over increase in specific prices after reduction to net recoverable cost . . . .

(141,150)

Gain from decline in purchasing power of net amounts owed . 164,547 164,547 Net . $ 10,222 5 23,397 i

• Including the reduction to net recoverable cost, the loss on a constant dollar basis would have been

$96,716 for 1981.

0* At December 31,1981 current cost of utility and other plant, net of accumulated depreciation was

$4,808,815 while historical cost or net cost recoverable through depreciation was 53,089,714.

i l

1 l

! 31 1

Five Year Comparison of Selected Supplementary Financial Data ,

Adjusted for EITeets of Changing Prices (Unaudited) i Years Ended December 31 1 1981 1980 1979 197M 1977 tin thousands of aierage 1981 dollar 9 Operating revenue . . ... .. 51,221,714 51,109,496 $ 1,083,007 51,000,879 5882,126 Ilistorical cost information adjusted for general inflation:

Net income (excluding reduction to net recoverable cost) ... .. . 57,609 41,603 27.078 Net income per common share (after dividend requirements on pre-ferred stock) ... .51 .31 .19 Net assets at year-end at net recover-able cost . . . . . . l.029.054 947,987 947,856 Current Cost Information:

Net income (excluding reduction to net recoverabic cost) ... 44,434 22,179 6,888 income (l.oss) per common share (after dividend requirements on preferred stock and excluding reduction to net recoverable cost) .26 (.12) (.32) lixcess of increase in general price level over increase in specific prices after reduction to net recoverable cost . ... (141,150) (227,198) (214,379)

Net assets at year-end at net recover-able cost . 1,029.054 947,987 947,856 General Information:

Gain from decline in purchasing pimer of net amounts owed 164,547 207,132 198,790 Cash dividends declared per common share. ... $ l.48 5 1.53 5 1.70 $ 1.73 5 1,73 Ntarket price per common share at scar-end . ... I1.49 12.25 13.03 15.77 20.31 Aicrape consumer price index 272.4 246.8 217.4 195.4 181.5 To the Shareholders of Gulf States Utilities Company:

We have examined the balance sheet and statement of capitalization of GUI.I' STATliS UTil.lTiliS CONIPANY as of December 31,1981 and 1980, and the related statements of income, sources of funds invested in utility and other plant and changes in capital stock and retained earnings for cach of the three > cars in the period ended December 31,1981.

Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the financial statements referred to above present fairly the fmancial position of GUI.I'STATliS UTil.lTiliS CON 1PANY as of December 31,1981, and 1980, and the results of its operations and sources of its funds invested in utility and other plant and changes in capital stock and retained earnings for each of the three years in the period ended December 31,1981, in conformity with generally accepted accounting principles applied on a consistent basis except for the change, with which we concur,in the method of accounting for fuel costs as described in Note 7 to the financial statements.

COOPl!RS & l.YHRAND llouston, Texas l'ebruary 2,1982 32

Statistical Summary For the years ended December 31 19N1 19NG 1979 197H 1977 Electric Department Number of Customers -

lind of Year Residential . 455,160 438,560 423,850 407,761 391,031 Commercial 52,955 52,731 50,807 48,892 47,352 Industrial 3,852 3,414 3,386 3,392 3,379 Temporary construction . 2,871 3,354 3,279 4,304 4.389 Other. I,974 1,984 1,873 1,790 1,690 516,812 500,043 483,195 466,139 447,841 Sales -

Thousands of KWil Residential . 5,717,715 5.682,016 5,147,436 5,198,421 4,789,630 Commercial 4,178,126 3,969,390 3,759,289 3,738,114 3,486,193 Industriai 15,066,330 14,870,419 14,961,211 I4,447,417 13,216,824 Temporary construction . 50,306 37,691 44,059 42,358 23,017 Other. 2,797,761 3,098,910 2,638,490 2,452,228 2,025,933 27,810.238 27,658,426 26,550,485 25,878,538 23,541,597 Steam 2,886,782 2,927,056 3,191,464 3,012,993 2,995,619 30,697,020 30,585,482 29,741,949 28,891,53i 26.537,216 Average Annual KWil Use Per Customer Residential . 12,786 13,173 12,374 13,009 12,480 Commercial 79,558 76,529 75,291 77,472 74,875 Industrial 4,095,224 4,340,461 4,402,946 4,221,922 3,858,927 tilectric linergy Output - Thousands of KWil Net Generated . 28,115,700 27,775,374 25,381,996 28,299,011 26,295,869 Net Purchased and Interchanged 4,411,795 4,507,245 5,871,615 1,985,508 1,603,807 32,527,495 32,282,619 31,253,611 30,284,519 27,899,676 Peak Load, including Interruptible Load -

Kilowatts 5,541,600 5,604,400 5,229,300 5,137,700 4,656,800 Total Capability, including Contract Purchases at Time of Peak Load -

Kilowatts 6,745,(HH) 6,602,000 6,169,000 5,737,000 5,734,000 Annual Load Factor . 67,0 % 65.27 68.2% 67.3 % 68.4 %

Steam Department Steam Sales - Niillions of Pounds 12,209 14,906 14,796 15,787 16,987 Gn Department Number of Customers - I!nd of Year 85,664 85,218 83,910 82,391 80,116 Sales - NICF 8,598,822 9,097,207 9,891.822 10,207,194 9,865,995 1

33

Directors Alvin T. Raetzsch, Sr.

• John W. Ilarton Retired Assistant to the Vice President and President Jack's Cookie Company General Manager- U.S. Chemical Division of Ilaton Rouge, La. (1970) PPG Industries, Inc.

Lake Charles, La. (1975)

W. Donham Crawford i rnier h e li cuti liccr .1 dic I doctor and partner-The Surgical lleaumont, Tx. (1977) Clime flaton Rouge, La. (1975) lidwin liiam .

investment Adviser l.orene L. Rogers Iloston, Mass. (1959) President timeritus, The University of Texas at Austin Dr. Frederic A. Ilolloway Austin, Tx. (1976)

Consultant Retired lixxon V. ice President - Science and *Nathaniel S. Rogers Technology President - First City llancorporation of Ilaton Rouge, La. (1979) Texas, Inc.; Chairman of the lloard -

First City National llank of Ilouston William 11. Lelllanc, Jr. Ilouston, Tx. (1978)

President -Ilaton Rouge Supply Co.. Inc.

Itaton Rouge, La. (1974) *11 smark A. Steinhagen Partner -Steinhagen Oil Co.

Norman R. l.ec licaumont, Tx. (1974)

President and Chief Operating Olliccr Ileaumont, Tx. (1967) James 11. Taussig 11 Real listate Developmera

• Paul W. Murrill Lake Charles, La. (1975)

Chairman of the lloard and Chief lixecutive Ollicer licaumont, Tx. (1978)

• lixecutive Committee

( ) Year filected i

34

l .

Officers Fred C. Repper (3) [54]

Vice President - Public Affairs Paul W. Murrill (0) [47] Edward J. Serwan (3) [60]

Chairman of the Board and Chief Executive Vice President - Production Otheer Aubrey D. Sprawls (32) [53]

President Vice President - Consumer Services Norman R. Lee (33) [571 Summa L. Stelly (33) [56]

President and Chief Operating Ollicer Vice President - Louisiana Operations Executige Vice Presidents J. Gary Weigand (4) [46]

Joseph E. Hondurant (24) [52] Vice President - Nuclear Operations Executive Vice President - Operations Jasper F. Worthy (26) [53]

Joseph L. Donnelly (3) [52] Vice President - General Services fixecutive Vice President - Finance Edward M. Loggins (23) [5))

Executive Vice President - Administration and I)itision Vice Presidents Technical Services John W. Conley (24) [50]

Senior Vice Presidents Division Vice President - Western Thomas 11 Hurbank (3) [60]

, James E. Moss (23) [46]

Senior Vice President - Accounting Services Division Vice President - Baton Rouge and Rates Arden D. Loughmiller (21) [44]

n r cc I resident r llend Nuclear Group J. Ted Meinscher (31) [49]

Division Vice President - Lake Charles E. 1.. inn Draper (3) [40]

Senior Vice President - Engineering and Ronald M. McKen/ic (14) [41]

Technical Services Division Vice President - Port Arthur Vice Presidents James R. Aldridge (2) [51]

Vice President - lluman Resources Other Officers

1. ' # ( I William 11. Harksdale (24) [50] ##'# 'Y Vice President - Technical Services Hobby L Willis (20) [46]

Philip T. lhxrger (3) [57j Controller Vice Pres,i dent - I oss,li Proj.ects Jack L. Schenck (I) [43]

James ll. Derr, Jr. (41) [61]

, Treasurer Vice Pres,i dent - Power Plant Engineering and Design Roy E. Eyler (23) [57]

^" "" ## "'I Anthony F. Gabrielle (2) [54]

Vice President - Computer Applications Jon P. Trevelise (1) [36]

^"*"I "I'"" '

Charles D. Glaw (32) [53)

Vice President - Texas Operations Clyde W. McBride (4) [30]

^" "" # "'"

Calvin J. liebert (19) [47]

Vice President - Financial Services William J. Jetrerson (2) [52]

Vice President - Rates and Regulatory AtTairs ( ) years of service [] age 4

4 ,y h

35

1 Principal Offices Form 10-K I 350 Pine Street The Form 10-K Annual Report to the Securities Beaumont, Texas 77701 and Exchange Commission will be available Alarch D. . .IVISlonS 31,1982. Copics of Form 10-K and GSU's 1981 Financial and Statistical Report can be obtained 2851.iberty Avenue without charge from Leslie D. Cobb, Secretary, Beaumont, Texas 77701 P. O. Box 2951, Beaumont, Texas 77704.

1540 Ninth Avenue Port Arthur, Texas 77640 Notice of Annual Meeting liighway 75 North The 1982 annual meeting of shareholders will be Conroe, Texas 77301 held at 2 p.m., Thursday, Niay 13,1982, in the company headquarters, 350 Pine Street, 446 North Boulevard Beaumont, Texas. Formal notices of the meeting, Baton Rouge, l.ouisiana 70802 proxy statements and proxies will be mailed to the 314 Broad Street common shareholders about April 2, 1982.

Lake Charles, l ouisiana 70601 Shareholders are invited to attend, but if they can-

" they re urged to fiH ut and nturn their Stockholder Information .

proues.

Stock Listing Gulf States Utilities Company is traded under the symbol GSU on New York, Niidwest, Philadelphia and Pacific Stock lixchanges.

Stock Transfer Agents Texas Commerce Bank Beaumont, N.A.

Beaumont, Texas N1 organ Guaranty Trust Company New York, New York First National Bank of Chicago Chicago, Illinois Registrars First Security Bank of Beaumont, N.A.

Beaumont, Texas N1 organ Guaranty Trust Company New York, New York Northern Trust Company Chicago, Illinois Disidend Reingestment Agent Gulf States Utilities Company P. O. Box 167i Beaumont, Texas 77704 36

i Iluik Rate Gulf States Utilities U.S. POSTAGE PAID P. O Ilox 2951 llouston. Tesas licaumont, Texas 77704 l'ermit Numlier 8t148 f

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