Text

Forwards Petition for Leave to Intervene & Comments of Util on Proposed Transfer of Control & Antitrust Issues
	ML20065H798
Person / Time
Site:	Palo Verde
Issue date:	04/13/1994
From:	Spector B; SOUTHWESTERN PUBLIC SERVICE CO.
To:	Oliu W; NRC OFFICE OF ADMINISTRATION (ADM)
Shared Package
ML17310B200	List: ML17310B199; ML17310B210; ML20065H798;
References
	FRN-59FR11813 NUDOCS 9404150154
	Download: ML20065H798 (1)
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BY HAND DELIVERY Mr. Walter Oliu Mr. Anthony Gody Chief, Regulatory Publications Branch Chief, Inspection and Office of' Administration Licensing Policy Branch

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. U.S. Nuclear Regulatory Commission Office of Nuclear Reactor Philips Building, Room P210 Regulation-7920 Norfolk Avenue U.S. Nuclear Regulatory Bethesda,-MD Comreission One White Flint North L

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11555 Rockville Pike Rockville, MD 20852 Re:

NRC Docket Nos. STN 50-528,

.i STN 50-529 and STN 50-530 --

Arizona Public Service Co..

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Dear Messrs. Oliu and Gody:

Enclosed for filing, in accordance with the Commission's'. notice published March 14, 1994 (59 Fed. Reg. 11813), is the original, for Mr. Oliu, and a copy, for Mr. Gody, of the Petition for~. Leave to Intervene and Comments of Southwestern Public Service Company on Proposed Transfer of Control and Antitrust Issues in the above-' referenced docket.

We have enclosed an additional copy of-the foregoing pleading, which we. request that1you file stamp and return to our messenger for..

delivery to us as proof of filing.

Finally, we have enclosed a-

. notice of entryLof appearance on behalf of counsel for

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Southwestern.

L Thank you for your attention to this filing.

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UNITED STATES OF AMERICA BEFORE THE NUCLEAR REGULATORY COMMISSION In the Matter _of

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Docket Nos. STN 50-528 ARIZONA PUBLIC SERVICE CO.

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STN 50-529

)

STN 50-530 Palo Verde Nuclear Generating

)

Station, Units 1, 2,

and 3

)

Transfer of Control of Operating Licenses NPF-41 NPF-51

)

Ownership of License; and NPF-74

)

Antitrust Issues

)

PETITION FOR LEAVE TO INTERVENE AND COMMENTS OF SOUTHWESTERN PUBLIC SERVICE COMPANY ON PROPOSED TRANSFER'OF CONTROL AND ANTITRUST ISSUES I.

INTRODUCTION AND

SUMMARY

i t

Southwestern Public Service Company (" Southwestern")

submits this pleading in response to the Nuclear Regulatory Commission's ("NRC" or " Commission")' notice, published in the-Federal Register on March 14, 1994, seeking (1) comments on-the proposed transfer of control of El Paso Electric Company's

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("EPEC") interests in the Palo Verde Nuclear Generating Station

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to Central and Southwest Corporation ("CSW") and (2) " comments or information relating to antitrust issues believed to be raised by this transfer request."

59 Fed. Reg. 11813.

Southwestern is vitally'affected by_the competitive consequences of the proposed transfer of control.

The combina-tion of CSW and EPEC, including the combination-of their nuclear plants and transmission facilities, and the transfers of power, including nuclear power, between and among EPEC and the operating L

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C companies of CSW, will significantly hamper Southwestern in.

competing with CSW and EPEC.

As discussed in detail below, the

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I merger and transfer of control will maintain and exacerbate a situation inconsistent with the antitrust laws regarding competi-tion throughout the Southwest and for sales to Mexico.

i Because CSW and EFEC are hundreds of miles from each other, they plan to implement their merger by transferring power i

and energy, including Palo Verde power and energy., across South-western's low-cost transmission system.

In so doing, CSW and EPEC will tie up all available transmission capacity so that othern, particularly Southwestern, can no longer compete with them.

At the same time, following their merger, CSW and EPEC-will largely curround Southwestern and control all of the viable transmission paths for the sale of Southwestern's bulk power in the Southwest.

CSW and EPEC also will control virtually all of the transmission paths between the U.S.

and Mexico.

Southwestern is an actual and potential competitor to CSW and EPEC for sales throughout the Southwest and to Mexico.

But, CSW and EPEC's enhanced control over transmission and substantial market power following the merger, as well as their ability to exercise it, as they have done in the past, will preclude Southwestern's competi-tion.

The Atomic Energy Act ("Act") directs the Commission to investigate the competitive aspects of its licensing actions, including obtaining the advice of the Attorney General regarding antitrust issues, and to remedy "a situation incorsistent with '

the antitrust laws."

At this stage, CSW and EPEC have not even submitted to the Commission the antitrust information required by the NRC's regulations regarding transfers of licenses.

The Commission therefore should dismiss or hold in abeyance the application, pending the receipt of that information.

Further, the Commission should forward the transfer application, and any-supplemental antitrust information it receives, to the Attorney-General for her advice, as required by the Act.

The Commission should take no further action pending receipt and publication of that advice.

In no event should the Commission approve the transfer based on the bare submission currently before it, as the applica-tion requests.

As the Commission recognizes, the Federal Energy Regulatory Commission ("FERC") also is investigating the proposed acquisition.

Two applications are pending at the FERC.

In the first, filed in November 1993, CSW and EPEC have asked the FERC to compel Southwestern to provide firm transmission capacity to them for the indefinite future so that they can integrate their i

1 distant systems. 1/

Because this will tie up Southwestern's I

transmiasion capacity and obstruct Southwestern's ability to H

compete, 19 parties, including the Public Utilities Commission of 1

Texas, the New Mexico Attorney General, and customers of CSW, j

EPEC, and Southwestern, have protested or otherwise raised

)

concerns with the application.

CSW and EPEC also have sought the Commission's approval of their merger, through an application 1/

See Appendix V to EPEC's Application to this Commission..

l fil'ed in January, 1994. 2/

Twenty-nine parties, again includ-ing numerous regulatory authorities, state attorneys general, and customers of CSW, EPEC and Southwestern, have intervened in that proceeding, raising a host of issues including the anticompeti-tive lessening of competition the merger;would produce.

The Commission should take no final action until, at a minimum, the FERC investigation is complete.

At that time, the Commission may utilize the FERC's findings, if appropriate, as supplemented by its own findings, to address the antitrust issues under the Act.

Importantly, the Commission may not abdicate its own independent antitrust responsibilities under the Act; it must take its own appropriate remedial action regarding the transfer of control.

Therefore, following receipt and publication of the Attorney General's advice and any findings of the FERC, the NRC should solicit further comments regarding the license transfer and adopt any necessary conditions, consistent with the NRC's antitrust responsibilities.

In their effort to stampede the transfer application through the Commission, CSW and EPEC have submitted to the NRC their application and related evidentiary submissions to the FERC.

See Application at III-11, n.

22.

In light of this, Southwestern is submitting to the Commission its response to the FZRC application, in relevant part.

Specifically, Southwestern is submitting its preliminary evidentiary affidavits, submitted to the FERC in opposition to CSW/EPEC's application, which detail 2/

See Appendix IV to EPEC's Application to this-Commission.

_4

the significant and substantial issues in dispute regarding the competitive situation.

Southwestern reserves the right to supplement its submission to the NRC, as the FERC proceedings progress and after they are completed.

Southwestern requests the Commission to impose remedial antitrust conditions, if the transfer of control is approved, which will ensure its ability to compete on fair and equal terms with EPEC and CSW after the merger.

The requested conditions are set forth in Section V, infra.

These remedies are the minimum necessary to fix the present anticompetitive situation and the situation which will prevail following the merger.

The persons designated pursuant to 10 C.F.R. S 2.708 (e) to receive service of pleadings, orders, and other documents in connection with this proceeding on behalf of Southwestern are:

Gerald J. Diller Alan J.

Statman Vice President, Rates Wright & Talisman, P.C.

and Regulation 1200 G Street, N.W.

Southwestern Public Service Suite 600 Company Washington, D.C.

20005 P.O.

Box 1261 Amarillo, TX 79170 II.

SOUTHWESTERN'S INTEREST IN THE PROCEEDING.

Section 189(a) of the Act provides that the Commission "shall admit" as a party to a proceeding "any person whose interest may be affected by the proceeding."

Act, S 189(a), 42 U.S.C. S 2239(a).

Section 189 (a) expressly applies to proceed-ings regarding an " application to transfer control."

Id.

The Commission's regulations further provide that "[a]ny person whose interest may be affected by a proceeding and who desires'to

participate as a party shall file a written petition for leave to intervene."

10 C.F.R. S 2. 714 (a) (1).

Southwestern clearly has an interest in this proceeding justifying its intervention and full participation.

Southwestern is interconnected with both EPEC and two of CSW's operating companies, and the merger, as proposed, is predicated on CSW and EPEC integrating their operations across Southwestern's transmis-sion system.

There will be a substantial effect on Southwestern of any order in this proceeding since CSW and EPEC's power and-energy, including Palo Verde power, will be flowing across Southwestern's system if the merger and transfer of control are approved, as proposed.

See 10 C.F.R.

S 2.714 (d) (1) (iii),

Moreover, the merger and transfer of control will enhance the market power of CSW and EPEC and their abilities to control Southwestern's off-system sales.

CSW and.EPEC will largely surround Southwestern and control the outlets for-its power.

Southwestern's evidence regarding the. competitive situa-tion is crucial to the Commission's developing a sound record and exercising its antitrust responsibilities under-the Act.

See.10 C.F.R. S 2.714 (d) (1) (i).

Southwestern competes extensively with CSW and EPEC for sales to wholesale customers in the Southwest and Mexico.

With its low-cost, largely coal-based generation, Southwestern is the region's most significant competitive force.

Thirty-two percent of Southwestern's sales are to wholesale customers, many beyond i

the borders of its traditional service-area.

(See attached I :l j

1 affidavit of David T.

Hudson, at 2.)

Without conditions, the i

merger and transfer of control would severely restrict South-western's access to markets in which it can compete, warranting Southwestern's intervention to protect its interests.

See 10 C.F.R. 5 2.714 (d) (1) (ii).

III. THE ACT REQUIRES THE COMMISSION TO OBTAIN ANTITRUST ADVICE FROM THE ATTORNEY GENERAL REGARDING ANY LICENSE TRANSFER AND TO REMEDY "A SITUATION INCONSISTENT WITH THE ANTITRUST LAWS."

A.

The Act Requires The Commission To Obtain The Attorney General's Advice Regarding Antitrust Issues.

Section.1 of the Act declares that "the development, use, and control of atomic energy shall be directed so as to 1

strengthen free competition in private enterprise."

Act, S 1 (b), 42 U.S.C.

S 2 011 (b).

In furtherance of this goal, section 105 of the Act provides that the Commission "shall promptly transmit to the Attorney General a copy of any license application," so that the Attorney General can " render such advice to the Commission as he determines to be appropriate in regard to the [ antitrust) finding to be made" by the Commission under section 105.

Act, S 105 (c) (1), 42 U.S.C. S 2135 (c) (1)

(emphasis added).

The Commission must give "due consideration" to the Attorney General's advice and any other evidence provided 1

to it, and "make a finding as to whether the activities under the l

license would create or maintain a situation inconsistent with j

'l the antitrust laws."

Act, $105 (c) (5), 42 U.S.C.

S 2135 (c) (5).

j Under the terms of the Act, the only exception to the foregoing procedures is in the case of an application "for a license to ope. rate a production facility for which a con-struction permit was issued," since, in that case, the Applicant would have already undergone an antitrust examination by the Commission.

Act, S 105 (c) (2), 42 U.S.C. S 2135 (c) (2).

In that event, the Commission proceeds with its antitrust review only if "the Commission determines such review is advisable on the ground that significant changes in the licensee's. activities or proposed activities have occurred subsequent to the previous review by the Attorney General and the Commission in connection with the const.uction permit for the facility."

Id.

This single exception under the Act, however, is inap-plicable here.

CSW was not part of any previous antitrust examinations regarding the Palo Verde plants.

Only EPEC has undergone such review.

As a transferee of control of the Palo Verde facilities, CSW stands in the same position as would an added co-owner of a facility, under which circumstances the Commission has plainly stated that, "[w]ithout exalting form over substance, it is clear that these applications are within the scope of the phrase 'any license application' for antitrust review purposes within the meaning of S 105 (c) (1). "

Detroit Edison Co.

(Enrico Fermi Atomic Power Plant, Unit No. 2), 7 NRC 583, 588 (1978).

To construe the statute otherwise would per-mit a utility with no antitrust problems to undergo an antitrust review and obtain an unconditioned construction permit, and then sell an ownership interest to another monopo-lizing utility.

Such an unequal treatment-of applicants, insulatino from prelicensino antitrust review those who came in later by way of amendments would subvert the Conoressional intent and purpose of S 105 (c). "

Id. (emphasis added).

See also _ Continental Ore Co.

v.

Union Carbide &

Carbon Corp., 370 U.S.

690, 695, 702-08 (1962); United States v.

Itoh & Co.,

1982-83 Tr. Cas. (CCH) S 65,010 (W.D. Wash 1982);

Foreign Trade Antitrust Improvements Act, 15 U.S.C. S 6a(provid-ing explicitly for jurisdiction over conduct that "has a direct, substantial, and reasonably foreseeable effect on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States").

Furthermore, the North America Free Trade Agreement

( "'NAFTA" ), with its objectives to reduce " distortions to trade"-

and to " promote conditions of fair competition" in trade between the U.S.

and Mexico, NAFTA, Article 102, 11, underscores that the national energy policy to promote competitive forces in bulk power markets applies with full force to cross-border trade.

In light of the commitments undertaken by the U.S.,

and the recipro-cal commitment of Mexico to liberalize its electric peser mar-i kets, the Commission ought not to put CSW in a position to dictate the terms of access by U.S.

power to Mexico, and deny other U.S.

exporters any benefit from that liberalization.

The Commission must remedy the anticompetitive situation, and not allow CSW and EPEC to sell their power, including nuclear power, to Mexico, while excluding competitors from the market..

.. ~..

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V.

THE. COMMISSION SHOULD ENSURE THAT ITS OWN CONDITIONS, ALONG WITH ANY CONDITIONS' IMPOSED BY OTHER AGENCIES, REMEDY THE ANTICOMPETITIVE SITUATION.

The broad antitrust inquiry which the Commission must undertake pursuant.to Section 105 (c) of the Act is paralleled by:

broad authority to remedy potentially anticompetitive situations that may arise from or be exacerbated by the~ requested: license f

transfer.

Section 105 (c) (6) provides that where the Commission finds a situation inconsistent with the antitrust laws, it has the authority "to issue a license with such conditions as it.

deems appropriate."

The Licensing Board has elaborated upon the scope of this remedial authority:

The Commission has wide discretion in~fash-loning ' appropriate' license conditions

'where necessary to rectify anticompetitive situations.'

'(N]o type of license _ condition

-- be it a requirement for wheeling, coordi-nation, unit power access, or sale of an interest in the plant itself --'is necessari-ly foreclosed as a possible form of relief. '

And the license condition need not be con--

fined in its application to activities under the license.

Alabama Power Co. (Joseph M.

Farlev Nuclear Plant Units ~l'and'2),

[

13 NRC 1027, 1099 (1981) (footnotes omitted).

As shown above, the transfer of control over EPEC's Palo Verde interests, and the. proposed and potential changes in the use of Palo Verde generation,~will create,xcontribute to,Eand exacerbate a number of anticompetitive: situations,_ including unreasonably blocking Southwestern from access.to the Artesia tie,-increasing CSW and EPEC's monopsony control relative to Southwestern, and monopolizing transmission to Mexico. h k

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Despite the suggestion of Applicants'. competition i

witness, these anticompetitive situations are not mitigated by 1

EPEC's offer to provide "open" transmission access on its system.

EPEC's proposed transmission tariff does not mitigate the. market power of the entire post-merger company, and even as to EPEC,.the tariff still allows EPEC substantial discretion to block competi-tion.

EFEC's tariff specifically excludes transmission service to a " foreign country",

i.e.,

to Mexico.

See Exh. APP-6 at 11.

As previously shown, notwithstanding the tariff, CSW and EPEC plan to occupy the EPEC-Southwestern interconnection with coordi-nation trades and to block competitife firm sales by Southwese-ern.

Moreover, CSW and EPEC seek to preserve their post-merger market power by maintaining barriers to sales by others into ERCOT.

To effectively mitigate that market power, the terms and conditions of access by others to ERCOT markets should be no different from the conditions CSW imposes on itself when it transmits its subsidiaries' power and energy for sale into ERCOT.

Accordingly, the Commission'should impose the following conditions, which are the minimum necessary to remedy these anticompetitive situations:

1.

The Commission should require CSW and EPEC to provide firm transmission access through the'Artesia tie and EPEC's system for at least 80 MW (corresponding to the difference between CSW's planned maximum firm use of the Artesia tie and its full capacity) at a transmission rate based on the average embedded cost of the CSW transmission system..

2.

To counterbalance CSW's increased monopsony power over Southwestern, CSW should be required to provide open access transmission on all of its utilities' systems, including those in ERCOT, with a single-system tariff and a single rate based on the average embedded cost of the CSW transmis-sion system.

3.

To prevent the anticompetitive abuse of EPEC and CSW's monopoly control over the transmission gateways to' Mexico, the open transmission access should specifically include-access to Mexico.

4.

The Commission should order such further conditions as it finds necessary to remedy the anticompetitive situations.

VI.

CONCLUSION For the foregoing reasons, Southwestern requests that the Commission (1) grant Southwestern leave to intervene; (2) either dismiss the Application or hold it in abeyance pending the-submission of the antitrust information required by 10 C.F.R.

S 50.33a; (3) promptly transmit the Application and any subsequent submission of antitrust information to the Attorney General for her advice; (4) take no final action on the application until the ' l

+

FERC has completed its review and then, to the extent necessary, j

convene an antitrust hearing; and (5) impose the remedial condi-i tions discussed above.

Res ully submitt If

!s h t

Alan'J. Stjitatanj/ '

Barry S.

Spector Paul M.

Flynn WRIGHT & TALISMAN, P.C.

1200 G Street, N.W.

Suite 600 Washington, D.C.

20005 (202) 393-1200 souwest\\1077-017.179 ATTACHMENT 1 Excerpts From Central & Southwest Corporation's 1993 Annual Report and Slide Presentation (6 pages)

P The electric utility

'~ industryfaces a restructuring result-ingfrom competition that will cause dramatic changes in the way it does business. In this new competition, some utilities will wm, and some will lose.

reshap.mg Centra anc Southwest Corporatici to w.

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Central and South West Corporation k

1993 AmnalPaport

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~.x tapending ser more esty basinese tagending eer nos.amtr besimesses Pusehs Amencinfinitiatives CSW is committed so even4ng its CSW has been carefully diverufysag One o(CSW's (undamental strategi elecme utility bunness through strategic inso A-My reised non-uohey is to==une the 6aancial element: 4 acquisioons. In 1993 it acquired two '

baaaat ance the mid-1980s and now.

the corporanon in search a(ways tha.

small utilines and made substantial has a portibbo of actmeias that build on could produce a pro 6 or reduce its o,

progtess toward adding El Paso Electric its core marleu and skills.

Raancialinitistms produced increas 0" " #

Company e the syneen Transok, Inc., an intrascate natural ps CSW's Sos,1-.e Electre Power tranarmanon company, serves all four l In 1985 CSW became the 6rst utilit))

Company subsidiary completed its pur.

CSW enseme utihty subsuhanes, CSW estabhsh a capave Snance company, ; t chase a(Bosser Elecine Membership Ensegy, Inc., and other cusemers. Since CSW Cmdic, Inc. CSW Cmdic punch i Corporation (BR.EMCO), which was 1990 it has more than doubled its the accenna acervable from both

=g=,ar e SWEPCCYs southern dmmon pipehne syneem to.yywastely 6,400 afiliased m=W and non-asiliate :

in L w aa. BR.EMCO served iniles and its annual ps throughput so usabast Because c(diferences in thej 12,500 cuar-ners, who saw their cost 60 bilban cubic feet. The "kyst nannaal structures and cost of mon. >

emi" between unhaes and Anance compar for electncity dechne from 9.7 cents to' assural gas processor in SWEPCO's price o(6.7 cents per kilo-

"Ransak owns and opersees eight ps this peacoce can lower costs for utilic waa-hour.

psocummag plantt 'nansak produced

-and it can result in a pro 6t for C$l 35 nulhon phons o(natural sesimpads Cmht. In 1993 CSW Creds 'added a :

Puble h Compriy dOklahorru*

in 1991 compared so 125 nulbon yllons new unbry client-its laryst-. who_ q anodier CSW subodiary, W h in 1990.

doubled the base a(its business.

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, adding 225 CSW Energy, Inc., develops, operases, CSW also continued unnsacing its' cuseomers.

In898F8 8c95N5 "C#-u#INY Pour debt a tale admunge db ined The most important acquisition ever P'*P'cu At the end d 1993, it had a rases. Dunns 1993, the C5W symem 1 underaken by CSW is in pending cognunal f*cu"Y n oPemma in canpanus msnanced. 5708 millioni '

i merger with El Paso Elecmc. CSW Cahforma and three expected so begin debt to achiese annual ineswer naving ;

announc d the merpt in W N The

^ (517 radhon. with a net present va j

Persting in 1994, one in Florida and o

miul e is e be two in Colorada CSW Enersv owns savmss o(568 nulhon, These transac about $2.2 bdlion.O(6ppracmuerly 8PProximately half oreach o(those pro-tions reduced CSW) embedded cost 5770 million is expected so be paid in jects, which couecavely will primde debt (rom 8.3 percent at the end of !

the form o(CSW common senck. The nearly 500 mepwam o(elecinc power.

1992 ao 7.8 percent at the end o(IS l balance would be new secunnes usued by El Paso Electric as part o(its bank-CSW is actmly purnaing a series o(new in 1993 CSW expanded a cost-efee -

ruptcy reorgani+ Jen or cash.

ventures in sechnologus that are directh source o(capital by modifying its wtand a dw capomen's expame dmdend winmanent planJThe su in December 1993 the US. bankruptev and core marisrts in 1994 CSW hopes a

. plan, named PbwerShan" was ope court m du El Pm h

"*8m *PPrwal (mn du Secunnes e au CSW mnplopes and misses as case connemed the utility's plan o(roor.

and Exchany Coennussimi for a new.

. e in inility cumamers and odier mi6 pnizanon, which incorporsers du.

selecanmumcatens subednary CSW is dihe four uses whom CSW subudis merger agnement widi CSW. The pro-SPonming a pnyct e insull 6ba.cyoc opnam. PbwwShan paroespants will i powd acquisioon now must be appnmd telecommunicanons as a sent in one of be able so reiment'all or any pornon 1 by state and feden! W w us utility service areas. The purpose a(

their dmdends in CSW comnson By addang El Paso Eleeme,CSW will be diis prepet is a W g* esi-mock. Bund on de' ' - m daim -

able e unprow its symemwide eficien-cwney for our utilwy cussomen, wah am-plans. CSW expec ; w 1 pescern to cies, it also will expand us camecuans enciru miscom-umu capeuy preau din-wiH pnict wuh elecmcity snarien in the usern available e third pernes. Other venaam providing signi6 cant amounts o(nes i Umted States and with Mexico, which nuy inwkade reviewableg and equity is a straanpeally important market for emironmenal d%

both CSW's utilities and in (unctionally related non-utility activiews. CSW remaim interested in other strategic acqumnom uf unlities.

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se Because the federal Energy Ibhey Act of1992 gave enen,=nh like CSW Energy much wider latitude in the types of power projects that they can pursue, we see this unit as a long-term investment with significant growth pt M

Other non-utility activities that we are investigating involve new technologies related to our customers or our areas of expertise, such as 6ber-optic tele-communications, renewable and other energy technologies, and environmen-tal services.

The openmg of our office in Mexico City represents a sigmficant milestone in developing the long-term potential for our non-utility activides. It comes k

as a result of our long history of cooperative acovities with Mexico's Conusi6n Federal de Pietricid=A We have been doug business with Mexico since 1916. Today, the i-=e1 for a more menave involvement has never been greater. Under President Cados Sahnas de Gortan, the Medean economy has been rapidly @ing, Mexico is now one of the fastest growing economies in the wodd, with projected I

growth in electricity use of more ti.an 55 percent a year. De country is q+2ei to add 17,000 megawatts of capacity by the year 2000.

The passage of the North American Free Trade Agreement, which we actively supported, should help to make it possible for Amencan firms no be far more active in the Mexican electne pcmer market. We see the w sty to help plan and build power plants and cogeneration facilities, to expand our transmission ties and to provide bulk power sales and backup power to industry and the gow.mcat. Moreover, free trade with Mexsco should help the m of South i

Texas, where our Central Power and Light suh=Aisry operates.

Our M+n initiatives are not designed for any dramatic short-term benefits.

ney will require persist:nce and patience, as Merirsn==-ie policies and -

the trade relationship between our two countries evolve. f%h== are great in foreign markets; many international companies are w+;ing 6ercely ibr these growth opportunities. But over the long term, our historic relationship with Mexico and our geographic location will prove in be among our greatest i

assets.We intend to make the most ofit, for the bene 6e of our cunent areas of operation, the economy of Mexico and our shareholders and cuseorners.

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. In 1993 CSW conunued its Mexico initisave that began in 1992. The Corporation's j

goal is no paracipate in prtwhng the country's future elecincay needs. Memco is J

projecung growth in elecincuy requstements of nume than 15% per year over abe next decade. De geograpiucal locanon of the CSW Synem osers +;ws so premde bulk power sales to Memca in addnion, the Corporation ineendt to paracipase in the aci,-- = of tranmusnan facihnes, iP' power proyects and cogeneramon in Memca Recent changes in Memean statutes and regulations now pernut pareraa :

g in such ventures. The opemng of an ofEce in Memco City allows CSW grenser access e nry Memean ind== rial and governmental od5cials, permanns the Catparation to more renddy evaluate opportunines as they become avadable. De passage of the North Amencan Free '&nde Agreement in 1993 should enhance the potential for the Corporation so become far more acts in the Memean elecine power market.

Omerimaiseres To sneet its strategic goals the Corporation will canonue so search for poemble electnc utilities e acquut and will canonue evaluaang oppornanoes ao punne E=L- ='y related non-uulity bunneeses. De Cwh is, for azample, explanns opportunees in eclecommurue=nani energy, the ermronment, and other sechnologies. Fwi cre, the Corporation has broken ground for the most comprehensm renewable energy project in the Southwest, encompasang phaeovoimases, wind turbsnes, rooftop notar penais, and innovnave solar duh suding engines.

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STRATEGIC VALUES OF EL PASO MERGER e Consistent with CSWs Strategic Plan f

e Desirable existing customer base and service territory with excellent

. growth opportunities e Provides access to rapidly growing Mexican Market i

e Enhances opportunities for sales to Mexico f

e Provides transmission access to Western U.S. Bulk Power Markets e Enhances opportunity for additional ~ acquisitions opportunities e Allows participation in Mexico's distribution system q

_

ML20065H798

Text

Dear Messrs. Oliu and Gody:

SUMMARY

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