ML20072V192
| ML20072V192 | |
| Person / Time | |
|---|---|
| Site: | South Texas  |
| Issue date: | 12/31/1993 |
| From: | Brooks E, Mattison H, Rosilier G CENTRAL & SOUTH WEST CORP. |
| To: | |
| Shared Package | |
| ML20072V165 | List: |
| References | |
| NUDOCS 9409190249 | |
| Download: ML20072V192 (141) | |
Text
_ - --
ff The electric utility industrypces a restructuring result-ingfoni competition that will cause dnunatic changes in the way it does business. In this new conipetition, sonic utilities will win, '
and sonic will lose.
reshap. ng Centra and Southwest Corporat'on to w'n."
Central and South West Corporation 1993 AnnualReport
$k $O0$k $o$o09s I _
pnn.
T:ble of Contents Highlights 1 Company Profile 2 Chairman's Letter 5 System Map 20 Operational Profile 22 Selected Financial Data 24 Management's Discussion and Analysis of Financial Condition and Iksults of Operations l' Consolidated Financial Statements 38 Notes to Consolidated Financial Statements 42~
Glossary of Terms 62 Ikport ofIndependent Public Accountants 63 Report of Management 64 Ikport of Audit Committee 65 Comparative Statistical and Financial ikcord 66 Management Profile 68 Iloard of Directors 70 OtTicers 71 Information for Shareholders 72 l
I 1
l l
l l
I 1
l
)
f I
Highlights Market Price Ranges Central and South 111st Corpwarion *'"'"I'""
! Percent 35
( Rnancial Dzta (millions) 1993 1992 Change
'" l 4
Operating Revenues Fuel and Purchased Ibwer
$3,687 1,209
$3.289 1,035 12.1 3 lg r
16.8 Gas Purchased for Resale 396 306 29.4 20 r Other Operanng Expenses 1,3 03 1,043 24.9 Taxes 322 317 1.6 is Operating Income 457 588 (22.3)
Other 93 82 13.4 Fixed Charges (288) (288) -
3 l
Cumulative Effect of Changes in Accounting Principles 46 - -
o 89 90 91 92 93 Net Income for Common Stock $ 308 $ 382 (10. 4) =cw Common Stxk Dita Earnings per Share $ 1.63 $ 2.03 (19.7)
Dividends lhid per Share 1.62 1.54 5.2 Average Common Shares Outstanding (millions) 188.4 188.3 Return on Average Common Stock Equity 10.6% 13.5%
w wh cesiiw Market Price to market Price High $34% $30 "'"F"**
Low 28% 24 % 3,,
End of Year 30 % 29%
Book Value per Share, End of Year $15.55 $15.54 3o i 2s All common stxk data hair been adjusted to refect a two-for-one common stxk split, efected by a .
100% stxk dividendpaid on March 6,1992, to shareholders of record on ik bruary 10, 1992. 20 The Corporation changed its method of accountingfor unbilled restnues in 1991 Proprma amosmts ..}
assuming that the change in accosmtingpr unbilled resvimes had been adopted retroactingly are not
,5 y g -
I materially ds]erentfrom
] amounts previously reportedfwprior 1rars. 1o 5
0 89 90 91 92 93 5 Wrket Prue m hok Wlue l
1 J
1
= ,
- Our strategic goal n*-* - - *= *=
Centml and South liest Corporation is a . , CSW's four electric utilities are the core _;
public utility holding com;uny that owns aU is to produce for ofin craati , saving ts naion of the common stock offur electric operating customers in four states and providing subsidiaries: Central Power and Lught Company, Public Service Company of Central and South the 83 ccac~ ofia re-nucs. w-vrove.
earnings ofits electric utilities as
=^- s~a- ~~ ri~<do* "
Company and 11Est Texas Utilities West shareholders petitiindmuy the bemmes inaeasinh wm-
'e, CSW is working to reduce ,
Company. These companies povide electric g (q{g(g {hgk glll opaaeng msu and to inacamala service to more thanpur million people I In 1993 CSW took a major step toward
'" " "iddr *-"*d """ *"'"e "2eoo continue to compare the,esoaiswithafunaamentairestruc- !
square miles. Tlus area is the second-largest ~
turing ofits electric utility businesses.
""" 6""r d"'"' ""^'r 'r""" '" d" Urdted Stata favorably with that The f-r eraases usset wili n- !
focus on customer service, marketing and - '
oa>- "+ '"6de "" ~~d 6r d" --
. poration are Transok, Inc., an intrastate of other leading economic development. All other activi-ties, including power plant operations, .
'"~' e > " """'ed"" -"r="r cs"'
Energy, Inc., which dewlops non-utility electric utilities in administrative emd=aion and ansmissioa ->si eains.
services and marketing l r""" r*" cs"' c"*' '"< "" the country. To planning, will be the responsibility of l bags the amounts imimble of the CSil' centralized units serving all four electric ,
"' ?" **""
".','"w"hich c'"' ""s mwsts m lewraged leases; achieve and our goaI we ""a" . .
1 i
Inc Central and South !!Est Services, Inc, ^'"E * ' "" ###l '#*i'#*#"* E' E'**
Y
.ha p,,,,d,,, ,, ,,,,, p,, .are focusing on annwnced late m the year, this restruc- ;
'"'""*r~"""""'".f,,,,,,,,,,,,,,,,
tunng wul result m sigmficant cost s the following four savie ss threush i m eroved erriciencies. j
~
A strategI es-wh ic h a,dditionalediciencyimprovements e seing achieved th,eugh the nusiness ;
Improvement vlan, which brings Comb.m e 10 giVe employees fmm throughout the system !
together to develop new procedures us our Competit,Ve I and approaches, to standardize tasks and i to improve productivity. ;
ge. The goal ofincreasing saies is being .i pursued by maintaining low rates and I placing even greater emphasis on customer service. In late 1993 and early 1994, settlements were achieved with three major fuel suppliers. These settle-ments will result in savings that will ,
be passed through to customers.
]
Sales of electricity grew 4.9 percent in 1993, largely because of the improving economy and increased weather-related demand by residential customers.
CSW's system hit new peaks three times during the summer, the last being a peak of11,464 megawatts on August 18. ;
i l
1 I
fe~5 n &
B Expanding our core utility business Expanding our non-utility businesses Pursuing financialinitiatives CSW is committed to expanding its CSW has been carefully diversifying One of CSW's fundamental strategies electric utility business through strategic into functionally related non-utility is to examine the fmancial elements of acquisitions. In 1993 it acquired two businesses since the mid-1980s and now the corporation in search ofways that small utilities and made substantial has a portfolio of activities that build on could produce a profit or reduce its costs.
progress toward adding El Paso Electric its core markets and skills. Financial initiatives produced increased Company to the system. benefits in 1993.
Transok, Inc., an intrastate natural gas CSW's Southwestern Electric lbwer transmission company, serves all four - In 1985 CSW became the first utility to Company subsidiary completed its pur- CSW electric utility subsidiaries, CSW establish a captive fmance company, chase ofBossier Electric Membership Energy, Inc., and other customers. Since CSW Credit, Inc. CSW Credit purchases Corporation (BREMCO), which was 1990 it has more than doubled its the accounts receivable from both ad,jacent to SWEPCO's southern division pipeline system to approximately 6,400 affiliated companies and non-atliliated in Louisiana. BREMCO served miles and its annual gas throughput to utilities. Because of differences in the 12,500 customers, who saw their cost 490 billion cubic feet. The second-largest fmancial structures and cost of money for electricity decline from 9.7 cents to natural gas processor in Oklahoma, between utilities and (mance companies, SWEPCO's price of 6.7 cents per kilo- Transok owns and operates eight gas this practice can lower costs for utilities watt-hour. processing plants. Transok produced -and it can result in a profit for CSW Public Service Company of Oklahoma, 355 million gallons of natural gas hquids Cardit. In 1993 CSW Credit added a another CSW subsidiary, acquired the in 1993, c mpared t 125 million gallons new utility client-its largest-which in 1990. doubled the base ofits business.
Chelsea Municipal Authority, adding 225 customers. CSW Energy, Inc., develops, operates, CSW also continued refmancing its The most important acquisition ever iranages and acquires non-utility power debt to take advantage oflower interest undertaken by CSW is its pending pr jects. At the end of1993, it had one rates. During 1993, the CSW system merger with El Paso Electric. CSW c generati n facility in perati n in companies refmanced $708 million in announced the merger in May 1993. The California and three expected to begin debt to achieve annualinterest savings total transaction value is expected to be perating in 1994, ne in F1 rida and of 517 million, with a net present value about $2.2 billion. Of that, approximately tw in Colorado. CSW Energy owns savings of $68 million. These transac-
$770 million is expected to be paid in 3PPmximately half of each of those pro- tions reduced CSW's embedded cost of the form of CSW common stock. The jects, which collectively will provide debt from 8.3 percent at the end of balance would be new securities issued nearly 500 megawatts of electric power. 1992 to 7.8 percent at the end of 1993.
by El I aso Electric as part ofits bank- CSW is actively pursuing a series of new In 1993 CSW expanded a cost-effective ruptcy reorganization or cash. ventures in technologies that are directly source o'f capital by modifying its In December 1993 the U.S. bankruptcy related to the corporation's expertise dividend reinvestment plan. The new court overseeing the El Paso Electric and core markets. In 1994 CSW hopes to plan, named IbwerShare", was opened case confirmed the utility's plan ofreor- receive appr val fr m the Securities to all CSW employees and retirees and ganization, which incorporates the and Exchange Commission for a new to its utility customers and other residents merger agreement with CSW. The pro- telec mmunicati ns subsidiary. CSW is of the four states where CSW subsidiaries posed acquisition now must be approved sp ns ring a pr ject t inst 11 fiber-opuc operate. IbwerShare participants will by state and federal regulatory agencies. tdecommunications as a test in one of be able to reinvest all or any portion of its utility service areas. The purpose of their dividends in CSW coimnon By adding El Paso Electric, CSW will be this project is to improve energy etli- stock. Based on the experience of similar able to improve its systemwide efficien-ciency for our utility customers, with any plans, CSW expects that 1 percent to 5 cies. It also will expand its connections excess telecommunications capacity percent ofits customers will participate, with electricity markets in the western available to third parties. Other ventures providing significant amounts of new United States and with Mexico, which may include renewable-energy and equity.
is a strategically important market for environmental technologies.
both CSW's utilities and its functionally related non-utility activities. CSW remains interested in other strategic acquisitions of utilities.
3
i
" Electric utilities are undergoing the rnost fundarnental changes to occur in the past half-century. !
First, the growth
- rate in the use 7 i
of electricity has slowed consider-i ably during the '
past two decades.
Second,the .
boundaries defining the services offered by electric utilities are rapidly disappearing. In 1993 we i focused rnuch of our attention on l improving the competitiveness of our core electric business."
E R. Brooks, Chairman, President and Chief Executive O'ficer of CSW 4
t ?? 9 SS 7k Competitur E@r Chairman's Letter The electric utility industry faces a restructuring resulting from competition that will cause dramatic changes in the way it does business. In this new competition, some utilities will win, and some will lose.
We are reshaping Central and South West Corporation to win.
13ecause of all the changes taking place in the industry and in CSW, we are changing the emphasis of this annual report. We are focusing it almost exclusively on reviewing our corporate strategy for succeeding in the new electric utility -
environment and on discussing three milestones in 1993 that illustrate the progress we are making in implementing our strategy.
Our strategic goal is to produce for shareholders a return that will continue to compare favorably with that of other leading electric utilities in the country. In line with this goal, our board ofdirectors inJanuary 1994 declared the corpora-tion's 43rd consecutive annual dividend increase. The indicated dividend for 1994 is $1.70, which is 4.9 percent higher than the $1.62 dividend paid in 1993.
We are one of only four companies on the New York Stock Exchange to have such an uninterrupted history ofdividend increases.
Net income for common stock in 1993 decreased to $308 million from $382 million a year ago. Our earnings per share declined by 40 cents a share to $1.63, compared to $2.03 in 1992. That decrease resulted primarily from two unusual developments in 1993:
= Our decision to restructure our electric utility business to make it more competitive and to recognize the costs of early retirement and related expenses-about S100 million-in 1993 earnings.
. The outage of the South Texas Project, the nuclear power generating station partially owned by our Central Power and Light Company subsidiary.
Our restructuring is expected to begin producing savings by the second halfof 1994, allowing us to recover all costs by the end of 1995. STP Unit 1 is expected to restart in the first quarter of 1994, and Unit 2 is expected to restart in the second quarter of 1994.
"To continue achieving the same financial results, electric utilities raust expand their base of customers or expand the services they offer."
5
9k9N
'Dw Cmpetiner Ehr in the future, we should feel the full effect of the earnings potential of our operating units. In particular, our operating companies are becoming even more efBcient, low-cost energy producers that are well positioned to compete success-fully in the increasingly competitive environment.
Milestones of 1993 To continue meeting our goals for shareholder returns in the future, we are refocusing our operations even more sharply on customers. We are dedicated to keeping our current customers, recognizing that they may have other options for their energy supply in the years ahead. We also are adding new customers by acquiring utilities and by expanding into related business areas.
The year 1993 provided clear evidence of our commitment to implementing this strategy. As I see it, three milestones for the year stand out:
= We began restructuring our entire core electric utility business. This will relieve our four operating utilities of the responsibility for power generation and administrative activities and will allow them to focus totally on-and be accountable for-customer satisfaction, marketing and economic development.
= We reached agreement with El Paso Electric Company for a merger that will make El Paso Electric a subsidiary of CSW. We also successfully navigated the complex process of gaining confirmation from the federal bankruptcy court for El Paso Electric's reorganization plan, which provides for the merger, and began the regulatory approval process.
m We opened an ofEce in Mexico City, symbolizing our growing emphasis on our non-utility activities. The long-term potential ofincreased business with Mexico complements our portfolio of other non-utility businesses, including gas pipelines, cogeneration and independent power projects, and fmancial activities. To assure that we will be able to compete etTectively in these non-utility areas, we began an important, new esort to modify the Public Utility Holding Company Act of 1935, which now requires us to gain the approval of the Securities and Exchange Commission before we can begin any new venture or initiate most new financings. ;
l i
i l
The Compesaive Edge Re-Inventing Electric Utilities Electric utilities are undergoing the most fundamental changes to occur in the past half-century. Two major factors are driving these changes.
First, the growth rate in the use of electricity has slowed considerably during the :
past two decades. In the 1960s, the use of electric power grew by 7 percent to .
8 percent a year, giving utilities a steady increase in earnings and an ability to pay healthy, growing dividends. Now the growth in usage is only about 2 percent a year. This means that, to continue achieving the same fmancial results, electric utilities must expand their base of customers or expand the services they offer.
Second, the boundaries defining the services offered by electric utilities are rapidly l
l disappearing. Historically, utilities had exclusive franchises and the responsibility for generating all the electric power that their customers needed. Those ground rules are changing.
The greatest change so far has come with the Energy Iblicy Act of 1992. It gave ,
wholesale users of electricity-such as municipalities, rural electric cooperatives I and government agencies-the right to choose among electric power suppliers. l The Federal Energy Regulatory Commission now has the added authority l to order utilities that own the transmission lines to transmit the power from the l supplier to the wholesale customer. The act also provided exemptions from federal regulation for many independent power producers. As a result, utilities that have been serving municipalities, for example, now must compete with independent power producers and other utilities for that business.
These two fundamental changes in the industry-the declining growth in electric demand and the increase in electric power supply-led us to develop our four-part strategy, which we first described for you in our 1990 annual report:
a Enhance our core electric utility business.
= Expand our core electric utility business. l
= Expand our non-utility businesses.
= Pursue financial initiatives.
"The fundamental question that we I addressed in 1993 was how to organize j our system to be successful =" l l
l i
l
.a 4
(
Harry D. Mattison, Executive Vice President of CSW and President and Chief Executive Officer of CSW Electric
~
- "h fj , y bll- : l, j%
' #"~
Mi;
' "~
. g ;. , y g P 1* . -
%g mt ;-
d e r f 3
s
~
"g,, - ~ "
egh ' S .; ,f , , *
~
c.wa wll6 (%Q:T;Q' -N E _
pg.m%,b I b f h k $ M 5TIL
- ; %g ; Myk .
Ihh' ;d u.~:fhk~(([
@y;
.g.fg # 9 C p} f" %
Efff% ? P - T "
~.l%g$gt z, K . _ _ . . ,
g g Od,. .
- w4,4.,m,l(7 7"g fiQ,hp;, wy,is e
h s +t. m ,.
, Jgx
- c. .
.s -
, b?$6j6*=*:
f
?";' W, .
? *);f.' $;$ (.;;
'j,3lf' @'W-y.g <
hW ' f ?;'
, a
^*
f ?" ~ l 'Y h&;. . -
a .- .'",
- ~
J f.
I
- 4 -
(
- X ! f p:[
4 -
%P '
4, ) -
s ,
. u y :, ' . ,,
- ^m 7 ~ '
i .
+ i
+ 4 + :.,-
,3
/ ,, .. .- it ?! ^a u+ * -
New work methods and equipment are part of our Business improvement Plan.
Using a graphical computer pad in the -
field, an engineer can design or update an installation to meet the customer's exact needs. As a result, our customers will get faster semce at a lower cost-producing higher customer satisfaction.
L _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
? ?? 9 ?S l
The Compentive EJy l l
i This is the strategy that we have been systematically following for the past four years. It has led to the major changes now taking place throughout Central and !
South West. It gives us our competitive edge.
Reorganizing Our Electric Utilities In 1993 we focused much of our attention on improving the competitiveness of j our core business-made up of our four electric utilities. l Our utilities must retain our existing customers, including those that can shop among electric power suppliers, and must expand the services we provide. I We realized that two factors will determine the success of our utilities: First, j we must produce and provide low-cost electric power, compared to other com-petitors. Second, because price differences may not always be significant, our l customers must prefer to do business with us-they must like us. 1 The fundamental question that we addressed in 1993 was how to organize our system to be successful. In mid-year, we began examining different organizational i structures to determine which would enable us to achieve our earnings targets i and customer goals.
]
The concepts that guided us in our decision werefcus and auountability. We wanted our utilities to be able to focus exclusively on-and be accountable for- ,
1 understanding our customers, satisfying them and learning how we can help ;
them with a wider range of services.
To make this possible, we decided to eliminate duplicate functions. We shifted i the operation of our power plants, our engineering activities and our administra-tive and support functions from our four utilities to our centralized service '
company unit, Central and South West Services, Inc. Under the new organization, l of which some aspects may require approval by the Securities and Exchange Commission, our four utilities and the service company comprise a new business unit called CSW Electric. Executive Vice President Harry D. Mattison has assumed the additional title of president and chief executive officer of CSW Electric.
I With this new structure, we believe we will be able to lower our costs, as both the utilities and the power production department concentrate on becoming more competitive. We also will be able to enhance our relationships with our customers and better understand their needs.
l s
i The Cmpetitwe Edy This will result in a wider range of services and options that we offer customers-perhaps innovative pricing to help them lower their costs or new programs to make their use of electricity more efHeient. Services like these will add value to our electric power, which is increasingly becoming a standard commodity, and will recast our utilities as energy service providers, notjust distributors of electricity.
Fortunately, we are making this fundamental reorganization from a position of strength. For many corporations, restructuring has been a response to crisis.We are taking these steps to avoid a crisis, which we believe will be inevitable for any electric utility that has not reshaped itself for the new competitive era. Our reshaping will continue with additional consolidations and efficiencies as we hone our competitive edge.
We have kept the needs and interests of our ernployees in mind throughout this process. Before implementing our reorganization, we are offering an early retirement program with enhanced retirement benefits for eligible, long-term employees. We believe this program fairly and prudently balances our employees' needs as individuals with ours as a business.
Acquiring D Paso Doctric Our goal of expanding our core utility business means that we are actively looking for other electric utilities to acquire. These acquisitions typically may be of small municipal electric systems or rural electric cooperatives-and we did add two small utilities to our system in 1993. But when we have the opportunity to add a major utility in our region-when it furthers our long-range strategies and offers value to our shareholders-that becomes a top priority.
Our pending acquisition of El Paso Electric Company is an ideal example. It will add to our system 255,000 new electric utility customers who are located in a rapidly growing area. It also will make our position stronger as a gateway to sell power in the western states and Mexico.
"For many corporations, restructuring i has been a response to crisis. We are taking these steps to avoid a crisis."
10-
,, f ., ,
~~"
. . , > J,..
Glenn D. Rositier, Senior Vice President and Chief Financial Officer of CSW 7 y, - --
. q.g 4,
h; t, -
,f k >
$k ,
c
+ y
.! . - d .. 'r >-
i
- g. 3 + a
- ; [p.4;.,' l> '
Q l.
r.><1<
l ?: i $ay
-k
!. +.;
i'}: 7 -
4.
- , $h;, . . ,.
j$_
- T Ac a,p' ,
ll., g,.,',
p_ ir.:E gy 4 ,z.
~
1l; ; g :N J-
_-{ -sc-e <'. Y y
. ;+ .;.. [
.g 4
E. .
"D.urireorganizatioWanisdiversification adivities ReimedKmeetinnincreasedicompetition;will? .
1l bssfitscustomerssemployees andpommunitiesF
- 9 .i. ,7 a
' - , , = ,. - -
,', ' l A
n <r
, h. j 1
3 t4 4 I~~' '
,* _ ;. .3 : (. * , ' . _
^
}
- , .,e . ;, , , . ,
,t. ~> f
. . L ;,,; . ._. " *. ~. " , . *;
1*
s ,.
L'
, + '.'*- .- $ ! J, '
. * ' .,m g.. ft ._' '. '. (.y.^.'_,f:-._.,, ' ....:.. l., . .- . .
- g. _. . [ _ . .: _ _ ,
.. .. ,.f +-
_:~[
.- 1 o .
, , , . . _ . *, .. . _: n' '
.;3
- '_ 'y /., .: ._ _: , .;w
- ._( ' . , . . ' r..k'.
<': *.. . . : * ..+,
- ,, * $ ~; ' '. . - . . ; . , ',, '
,,s;) 'l' g((.g ,;
. ',-.. ' , [ ]a *].{h
- . . , .- . - . - .. 41
. .. . , p u ,; g,
- t ' /.:: ;
e , ,, . ', 7, . 7 : .
- .. , . . , . g7
.;,_- .g _..,.7
,; ;._g
.g,. _ } .,'_.. -: - :d Lu ll;l -l
_[',
. " T -) q -
.; g;- . ; .. . .
Y t
.V .F . . .
(, .. . ,
^','L..'.;.[
.,e .,' , '._, #] M
.ly 5 ' '
Nh g,y,. ." ' }C 2
, + [ ', '.* -
. e
.F -.'^::'
, $.. ~- ?;
y ,;.
,- , % - s-
- (. [ 3 ,. ..
.,-^ -' ' ' '.,*:.fy.
g3 ; _< ..<, :.. - ._. ', .
( . 1.
l,. "
. gi
- -I-
'.g'
, :, ', ; ' ,'[ ,.'.7 '. {. $' [:- '
.' ;f .. . , ;. ' ,[ .
. ',.. .I - '
'(f ' "
. _-._; , h.! ,' -' , , _ * '
r.
L_ ', , ,, ; 3 _
y ',, ' ' '
. ,' ;f. ;k ,. : .ce
' . {. J '. . . .
- '. ;l. * , \- , , ;. ' ? ' =' * .;f,
- 9 -
.- * . . ,} .- . - ..
,
- h .; , '
, l ,, .
- (. ', . ., "
.",.:t..
l .! , ' . I .( '
. . , ' *',' ; ._. ,, x ;- .':: ', ' *
'y' ;
}' ,.% '_J
,y
',.,. + : ,
s - ' , ; . 4, l. . -
, ,, .5 .
'f. . ,' (. #[ ,' s ' ', '
- . i,- [ '., ,. , . , , . ,:;. _
[.. f :, '_ -; ' , 5:, * ,, ;
- ,, 'y/k ;[ * *,$ .
N
- _ _ , .,, .,[ggg,j,,
.to s.m,.sva . ***** * * ' * * * * '
- 1"*"#***~'" .. L *y . % -. .;.
.
- I -
_l 3:i.:,.,; y ^
'v.- :;
. llJ [.[<y ~~ e_. , y: }- T:;.' Y :.:.L.y.. . y_ Q ' ;_. i ; , : ' [ . ., :[ . ; :;- . _'
.; .n. . m. 5 7. , :. . . y . p; y . - . . . ~ , eK.,: . ,. g, y. ;sq. .1 r f7..:./ .. q.., . . .t.1, ., m .. . .,- ; ?,
- y _7
- , _ , .' .a . ,; _.. . ~ , ,, _
[,: ,.; l,, .f, ,9 ., [v;. ,. .. 3; o; p ,, . ~ ;
~.,._
y . . . . .. .
_ . . . 3. .: .
.;. ..,;; , .a , 9 _,_._.;
. ,4 . . . . .
.9 _l ; .. .. ; - . .., .:; - . . ... . , p. .,.y. ,.7,.,;;;p y . J :_
.x . s :s:y .
. . . . , +. _
. -.m* .,;..
-:.. +
.~...- *
~
I
. _ "...;_', .. :;.. . ?: '. 'l:' , y~.,,
- --[b'.
..
- 4W.. .I * . f .T ;. ,- , ., . N*:'. . . '
',~;_.....
/ ,'; . ..; .'_...,.9 1 .:
(* -Q ., 3. , ':' _ .l , ;;f. . y,* ' ,.
.,1*?,*' -;i;e ,'
, ' + .- ' __..'[W y*',', .
Q .j '; ' .:, .l :: A *
.. :: . . . . f,[ , : :. 2 ~ ^ ?
.. .c .y .: ew , x ; . . ;2 . . .:...
' C .: ' - L .m .a;. Ql V , *:. ; 7n .'~ '
- . ;:.:.f.;;;.s . .' ,.}. . :
1 ~' -' ' [.
.u.
y s m. ..g.1 1;
.. - - . . - . < . :- . +, . .
(_ ,_ _
^ *
[. .. ,:^. . [ ll ' . ( . ., .
',? '[ ;
1' s
.+ .. . ;;
:.' 't t, -. . - .. . ,
.,s.-
*'...- , 1,J - . j . . ; * ;. . . . ,
.e.,
.. * ,.-_m...'. - ..:;.z... . , .. , r; - .
- p. ..
'.. ...o. .. if
)
.~ _ _;j.;, . 3:;j _'. : . d.
.v
n.; :..v ; J .; _ ;. ; 7. % _. . . . . . .
q- ' 7; '.:,_.,:;.
- .c c ._
.s : .. a.
- n m.
_g ; ,
,'; .:- S w; .;g E h h. i ?lpy '.' - J 'Y .' ?
. . ;.L l ' N.;. ' *
- q . Y.. . ^*l' : ? ; ; ! .A' Y:' N G 3;
'. h y. h :
.- l
~ .llT:
- f. -. .,f".,j ; :;l.,' F :
- A . 's. [ i. ', . .j ; - .f [.; };;. :.' ^
' ~ s :{l
' [. . ,[ .: 3 ; L '; } ' j. j p. ~: [. . r.~ ; ..
m . . . ;_ :- . . m. ; y.y y , . :.[.
; m. .
* :. .: ,.:.. ..,_.s.r ._:; .-
.v . .. .,
,. .;/.:.w p .;;
1 y..
; 7. _ r
.. . _ . v .; , . _ , . . . , . , . , _ -
. g .,. -
- e
- comemmeswu' mmaneeen- . .-
-.1=
h.sbedeuredessedWWiedenN- ' - * ' ' f
- uant e sig aav u tane % W s
'. . ~ .
l- . 25s m W Jines h pans.
- 3wenamennenwensaisdese D 7 . . ,
siscasusWw mass . .. - . ..- 1 Casa'enierenthe ', . ... ; .
.l _....;
, ' . ,, . [,
i
. q. .'-. ' . ' , ' . . . .
- 1 s, , .. . ,
l l
, c.
Glenn D. Rositier, Senior Vice President and Chief Financial Officer of CSW m~ -,. ,m p,g -
\ %, g yr +;
wA . 5fS
-_; 7 j g$bb:
oi g i s c . t i' b :;4 {?
!%h j .g -A
' ,j ll[ q
~
n, ~) + r a
. .e j * ?f -
4 y. n -
+5%l &;
4-5 ns#1 ' 3; . kY I. .y._.-: I. i
;s. aq;
. 4
.n, 4
-o ' '
s l
T YT $ hh
& Competitwe EJge i
We already have six interconnecting transmission lines with Mexica By adding El Paso Electric, we will increase that number to eight, and our service area - ; will include even more of the Texas-Mexico border, from Brownsville to El Pasa Adding El Paso Electric also will provide interconnections with Arizona, . California and the West. El Paso Electric's energy costs are not as low as our existing utilities', and it will . not add significantly to our earnings per share in the near-term. But because - of El Paso Electric's strategic value and because we expect to be able to make , the acquisition with little, if any, short-term dilution of our earnings, we are confident that this merger will provide excellent long-term value for our share-holders and customers. In 1993 the merger progressed on schedule. Late in the year, we received the confirmation we needed from the federal bankruptcy court. We' now have begun the regulatory processes at the federallevel and in Texas and New Mexico. We still face several major hurdles but expect to complete the acquisition by , mid-1995. Diversifying in the U.S. and Mexico We have kept the goal of expanding our non-utility activities tightly focused. , We do not intend to stray far from our core expertise and markets. This means a strict defmition of the types of activities we will pursue as non-utility businesses. Currently we are looking at opportunities in telecommunications, energy, environmental services and technologies related to our core business, largely in the southern and western states and Mexico. ' Under our recently announced restructuring, all of our non-utility activities {' have been organized into a business unit named CSW Enterprises. Executive . Vice President Thomas V. Shockley, III, has assumed the additional title of president and chief executive officer of CSW Enterprises, which also oversees strategic planning, corporate development, and mergers and acquisitions.
"Our historic relationship with Mexico :
and our geographic location will prove-to be among our greatest assets." ) t 12
9 T9 O. $$ ne Compaisive Edge Our principal non-utility businesses are Transok, Inc., our intrastate natural gas pipeline subsidiary, and CSW Energy, Inc., our non-utility unit that builds and operates cogeneration and independent power projects. Transok contributed lower earnings in 1993, largely because oflow oil prices that depressed prices for natural gas liquids.13ut Transok did an excellentjob of serving our utility subsidiaries in meeting their needs. It also made substantial progress toward positioning itself as a premier gas gathering, processing, storage, marketing and transmission company. It continued to integrate several recent acquisitions and to build new pipelines to serve the CSW companies and strengthen its position as a major west-to-east transporter. CSW Energy lost $6 million in 1993 because of operational problems at its Oildale facility and continuing costs to develop new projects. It is expected to begin contributing to earnings in 1994, when three ofits new cogeneration projects should go into operation: a 117-megawatt gas-fired project in Florida; a 272-megawatt project in Colorado, composed of five gas-fired turbines; and a 68-megawatt gas-fired project in Colorado. CSW Energy has two other projects under contract and 10 in intermediate stages of development. Although we are considering projects in other parts of the world, for the most part, CSW Energy currently intends to pursue projects in North America. Y _.,. ,
, j.
g- \
,_y ,/ (
f f , , , Y' s
"{ " - , . , .
. .syyn \ ,
> - , ?. ,
Fort Lupton e e Brush N ~" i. r %
. ll I
, m -- a )
.w :,- ,
V 'l
,.._--,( ~
r ~~ t )'
; q, .
g . hWherry
. .q monterre, e >
Non-Utility Businesses of CSW Enterprises " * * * ~ Tranwk ihydnes ! e C. sit'Enngy1%jats 13
1 1 i I 1 Thomas V. Shockley,Ill, Executive Vice President of CSW and President and Chief Executive Officer of CSW Enterprises [] f' [*y*l ,,: [ '] # j ? /.(ll'l ' . Y *. """.".Y'./ ' ) j ; ,' '(( .] t ' . V.% l, ; 7e ) M&LWF ' "'"" '" 9[ t Q,r'( gp pi=y%,j'pfS ( - ( ,,0.- g'# .k[-]!.,[ , ' '
- .1 7 !} e ' , .;' . u y .
0,,i, ,iy,4,Y '. l , 3 - .. is',- -
, - e
< y,}{ ., , . , . 3 , . , , .( g.'.'.1 '-
.t, c. .' M y 't
' * ', Q h,,'{..j [/
.' . e
~
, . {, .'! , :' y". '. / ,' : [ . . ' , : * . J. ' '- ' ,l o*. p . , g *- ? ..' ... ' " . , , , ., - < . -
'- ' h' ' ' ' - ' ' '
~
b ',%. * /. .. 'r. ,l* g',' . N ', h S, a , % * < ' ' . * .-.'
','.#--'/.[i ,t,,g
,< ' . , .: ,, . .' f$-
'I.. , " . y ,
. ' -,,> , .E N. , - ,
' g , ,. y S ,. f. . s
.g.
g,,,.
. ,. .( n ' )'.,
. , , , , - - - - . ; .L -[ .% l 1
'l ' - ., ' > ' ' . . ' ' ' . ' . ' '_;... ,
O' / ,,'; n
* , , . ' ... , '[ ~
t ,-
. ~ .'. - .
.n. . ; ' , - .L - t i.
, . v. '?
s ,[ ' . .l ,..
': . . ' ' l . ,' : , .'
,_ ;l ( . .' - , . . . ' ,. . , ' ', ,
,^.
[./,';.',? l [. ,' , ..* ' - ' .
' .. ' : ?
u .- . .
- p. l.' - . . . _.... . . . ,
y N%m J. L. Q . , .1
. . ,,". ,'A' .-.: . . 5.._ .y
.h % - ' a ,
.. % y
. . . . ' . .- ., - .., , /. 4 ^x . , -
* . , . ' .. ..* [' . -
;),,
-'. ;%%'jy .. . , .
s 3,, x- -
, o * , , *
..c.,, . ., ;; . .,..q. ,y .
. f :'.
- h., .
_' q . -
,, ,s , . .. , 7 -
[. . . j_ - - . ' ,, e p s
.,gm is
, 9
-r
- h. . . g ., 7 { ' . ' ',- '
r
'7 3, , ,
, . . . .a .
. %Q .. Q ::;;Q i"M ' .[ _' __ _ -
j
-t ,. y: e. ., _. g'.' 1 y . y, % > ;, , . - _ . .
q 4 : g, M 'k.?,
g. '. - ' - . .
3% ;; ,.,.* .' f . y ., , ; s .
, [,, : . . ' , , , . . ,
'( .,, , &'s .g ,if ^., , .- ' .-
;. . .. . . . . 3 . , s . ..~
.y, y. ,. .;.,
's,, ' **.,
N 3, , g;, '
~.g. . , . , ~.
N,,
'e*F,_'.,?.k*
- - o., .-,, .. , . , . 3, c qy . .. - e '.
. ... l.f, 4.5). yy, . :; . . . .. .e n si..b.
3; 3:4 , L .# '
,..s
'.1%;, . . . . ,> ..
s . .
.,..: -.- ..,,,y_
. , . ., 9- <
,7 .
..J. i .. ',, j . 4'l . 5
;,.. ." J, f ' . f * # .a ,; %, ,
- h.g#
m ., /j . - f .Q.- ; . ' . .~7,. 3 I h,/ <' ' / Iw 1,a e'V
- , ;" _ .: ' l } , . . ,_ /. j 2
- . f, . (>. .r .. :
m . ~ . j, , 8 . L. .. . ., . g* s ', y
- i ..
- , . y- f, eq M'.." ~sj y;M. -
. he.g)AlIK. e*. *
.$'. - - p ,5 4 + '
.ia y<
'['q. * "
- 4. ( fs y
. ..u yt
. , N* j s'- ,.
. . ' . .*, , , ,. . - 5 4ep ;
'a.-',,."l'- , ,
, g, . #,, '/, f.l t j.x E ,?.
. ng'*% ' S.. .;' y, J.,*. y:. :,-
';,,..,;...- Q.
,.\
. ) ' $! ,' , ' ,. .AI r.' . . . - -
- q .,. s '.
,, )[. .y'h
.c, ...
; . z . p, - L .
i' A-l?. . *..
. d ' . ; b z .? ,., l f. _.
.b 4 -
.:: ::... . .:. . ,E, ;;. H*. rM,g:Rle.G. ,' c.3 Q .
...,p, - . , y ".
s d ' ;, . . .~; _. .; j (. hm? ' h, f,[ ,. , ; ; %,, #p .: -. , {, ' .
'i ' p,'_,,
% {g'4( .u e;;
,a :~ :- '.p . . - , ... . -
;.l,f l.; . :f ..
l ,' j }l
- I*.13' J:ny.f ? , ,..y . Why e j
. f:m M;: . y.;y%a,t:>g-l.scw..Q:@h ;%p
.y y.
2
.,4vy., &. .v .;:., . . _;4 3 W s -
, /
,p = u
- f n % % j%vp g::.w.
4, n,A. . ;p.w ; .
<,. %:\y :f'^'* L.,
- l
* ~
/
w w_ w_ ,m_hs e.v,e' ' n_ y, . sz
.m m m_ m.s,.
~ . . . y . . . . . .
K:: f' . (. b ;
. ghy . , ... +?'? 'N Y 'l
* * =*
fj l !* h) j . M.. Il s. $~ ' 0- ' '( v. f'l.{ bh 1 - . g' k( g} g i $ sp 4 t - 3 4
, y
- p 4
g s , 1 y .= , l J . g]M , A. E* cn;a
.a o c3 , ,
1. 1 5 e ;y e . i F. 4 9 : . :.
,a g . .l e a
p ;,, ..
. ; , ' ;k ( , q,t y , .,; $ '9: ;
. T ?...u..
/y,
,,' f W .Y
. . y. .
m.: ..~: .:. v.w. . ;; . : ;, . :. - .- s v. - .,: : ~w:: w.;;. , . .
. . ..,;..r. :. . .+ . x ; . 7. w n :. 7 >
> y. .
.a: : ,: c:5::;
; w :: . ;> ^ " . . - J . 7 . *: n. :g ~. (n ' x, : ' : . ..i
.: . L ;; ~ ;:;: . .-,.
; ;;; .;. ..; .p.;. : ..: ~ i, _ .. .;~, yy:,Q .: L_".;. ;;. _ ,;. .,}G , . . . i :, 7.';. . .' [:;.'. ;2' .; ...;'-g'_.l . . ,, . }. . (; ; ([;; ': . , ; ; . . ; . '; :;. . <;; J,"++.g.:%.
x: n-.?. . a: - .;' .:,3 . .:: '. . )y t.:. .n .. . -.
- ~. :. n: ~.,'.c. *,.s.,_.
.x:, . : , : : :. ; . . ~ :mi .
. ; . ,7 .
yc n. ; A . \;,. , . , ; : ':
, . L ., .,7 ;. _ ._:;l_ .
.,_ ,ll k : 2.' c:. : - ^ .? * . ~ ' "
.. u : . :' f ." ., y n ? :. w; p,i: s. ' -: .- :J.:. ': ; :m : a- s.
^ L. <.; -: : x..^n:-
':., . :l . v ....[ .i . *.:}AYl . l' .. , .' _': .-
- ll, ' ; N '; ' , . ( !.. . .hl [ ,;& . .
,Y:' , .._Ol _ + - . E * '
. Y.: Y . . ? ' . Y *-l-_ ' -ln .Y ; f ' : .ly *
} '?; f.7..l.7.l.l f.l; ll_l.l [$ l_ j.l-ll.l,l . j; (.{.~[J; yl\l:lL
... } "
lf,.h.:. f'I':.L ,: b;$f*l l .llO: n. l=.'. J.:..T ..j u. .:,
.y J .,l. .:. ?. .~".;:' . _ . , 2: .'f'. > :.;.u:; : .;. ch;f -'[ ; ;
. .: .: g .. . ., .. . . . ,~ u :. . ;.3..p :
.. . .+. ; ....~ .
[:.9 : .v:.:. 2. ~.<t. : . -;s. .;.:j: J
. :;.:+...f.;b.9
. '. .. -J .
. . . . ...m .. .
.; ..w .. , .: :.
. ..., . . .c . . . . .. ..
. . . . . . ~ . . . . . . . ., ; . :.v Q:,,7. f ;. ,. . .'./.. , j;O....; :( X . '".. . .....'.'s Zl ; .[* . . ' ) ~ ,j .. :' ' 'f.. .-. -.c. .,,~.:: . _;; ,.2.. '..,... ..;C;:..'-~.':.:,'.":'....,.,....':;.._ ,! ^
- ... . . ... 'w . . . . . . ..
. .-u.. . , . . . , . . , , ' ., . s ~:
.s, w , ,r Y.~'. ' :s :. ' '
. .::.r- e= .' . .
5...ey. ' . . .a -' .7- ./
.i . . . . . . -
~.. < . T 2. , '. - , v i + J , ;: '.}, .. ; .' ' . _...:.'-
y, f:l. '.' .fj z _.'.t. ; c,n"' *
- _ ., ? :: 'N A
..._...:, ; 7 _ _. ,:._ :)
..,..v.. c..._ 1, ~ >;.
~ , . . .
;.: . . ' l* .',,'y'.'.f,...
l . !+,
~ ' ' L; . . 'n
...,..'....,.g....'s....}'.* , J. l..p.",.'
7 y. . ~ , _._; . . .. ..
. ,'..,./'
~-
. 'y
;,(
- e W.'.,_.c'._.: ,;g .;* ';;. ,__
,._,y'.: ,','* *}
,..s_,'.i*,
^
,s .
ll
" .; h .. L,' . !*. q: ' 9 ;; ; , : - . . ., ' ' t ;- ..
. ;u y-i.: .. :: ..:' ;7 .g . . " . . "~...",...R....... ....;,.,,.g.._,.,y__,,..~.t
- ~_: . ;,
, . 3.. ;
.L ' ,'. _ ..
- f.. ,....,..,
. , , ., y.,.. .. ;:
, , " ., ., ..t , . _ . , . .
. , , . .-.,.ly.I f ?.:::x, ;,. , . _ ., 2:.,; /. %, .; . ;[ ; '.* . l . [' ; ' b ':rI
,u: ,.:
.af. . . . .*:.;.*; ' , f.,~ .~.),l.Y. *:. . . > - .. ; 'a f.~.. '..' T, ,' l, , n. . . %:, a'.._ ;. Q,I ... . . ;x ' :
"... y : ~ -
- : _..*,. . '; . ;_ 1-
'_,'.*....,u. . ' ,'
,Q..., _ .;. ,: [ '
' *;_._ [..,_
.. - ** .: '. l.- y .;- : >, #
..,_,7
- ^. _
- G.L- L:v f ' _: ['
'~.'w. _
.g , _ , . .l , . };, . _* ; :: .; ; ;..k , b,.. _,
,, e::
. z . .: ;* :- . . . c.
!. . .n.: ;;. ;. ..7 h p ., ;_ ;
. :: , . :. '_.:. ~ . . n. .c.
- c,. . ..<. ; . -. .~ ._ :y,
.. ~ . . . . -.;. . ;; .,..,.:.;'3 "z.
. _. ,:_ : . . u;- ' .y:. ..f ,:.;...,...:..
- ,, . ..' . . . . : : . .. ; , ,a.\"..
.,..,3:.; . : . :- , . ,._.. ,; ' .' .,:; ,i. w_
. p?$ v^.~7.' <( ; f./ * :. .
. t . . ....:
m'l. J ' t.ll .). +. ': .j .
- . k
'V.- ; ..,:*
[.*.*' . .;: _ ;. .}. )- - ~b f ' l ; * ' , _,.
..v;., -
. *~g.
. ; . 7 . . e.' .
,, . - ... .'.,'.:. .' . , , ; ; i,':. ; l: . , ,
l. - - -
. ' [. ,. . . _ .:, .3 n
4
.:..,J..l'*,..'.'.', 'z.- i ' i 'l ". .. . . .
N'.. 1.v ' , _ T '
'.:'.l* , l.T ' ?
- s- !* '- '
. . , .'_.,.*.'**,'"1'
- 9 .'. 3..;.
^
*_ v. : ; ' .( .,
' '.' ~' ' ' .":
. ' , ' . ' ,: c_.4..*.~.',,,,*_ .: }. " ; .;g.;/ ._ } ~ :*'.:..';.*L:'.':'.,.'
.n . ,yv l:: K .,; f.. '.,.;.,. ' ' . ,..,..,._;
. . . . '. a. :.
,-^
*, ' ; ; ' q
- _~"...
Y. , ;. . y . ' . ..
.f _ ,
' y. .,e ...l _ f ':. ';:. '-. .: ., .f,' %4.'7; .n -: ;: ;: _* ___ . . .- : ; ' L I. . ' '
~ Y, . .
iG..L'? . ' ;:J ll; l.h 8.- l3:.:;.
~~ l ' b. l;;; ' f.~3 .
; . ..:: 3 . ;. ';'I l. c : ~ ; ; .. . L -.-
.; y ' 'L;" . ..:,'.
. , ', . . :: : . . . ._ ; .c.,.x , ; .
., .:.: .. . . . . ~u; .; . . w:
; : ::2 .: . p m. ;a. . - - :: :
- ..: ... ; 7 , . _
y._..,.:.y. _ ~;. .:: ; a.. . : .. :
; : r: : ;;.. :
, . , , ; ,( . . _ ._ 3; ..
. ;y' .;n '; - . e m. .. .x ~ ..
~_3. . . ., . .. :;:a r.. .. . . . . _ .,.
,,3._....s.
. ; -'. .. :., :: *: . .: Q, . .: .
, .- -a _ .c :, . <- .:. . .
7:
' _: . : ;.y ~; _ , _ _ ;,._'.;.'.'.. _
. .; 7 _ . u
. '.. :" \ *
~,4
? : ".; - . . ..
g . . .%- -
; w ', r ' ':. : ' .. . . . '
. . ..; [ , . ,'.. . .'. ,;f .-. . ':., ' i s.: . .g....,-P' % f3y ,;. ,; , - .- { M:. .. .,.' ; .
- v v . n,.. > c . .* . . ' . ...w .
...'....; -.v.:.
5
- . 3. . : . ..
- . Vm n.. g ;
- '. '..;,,
^, ,..;." :
,~ _ ;
~
! ..l' - - * ? _ '. .J. y ;
.,a...'. . .:; j a ' ;, .
;' '.} : ; ' .l; '.;,
f: ;y ;. v - (,', ' 9. > ' [ 'l . . [ , _ ~ ' . ,; :. . ;. ,,[ y , , . ; ; (.(, . ^
- j. f. .. j . : ; : :
. a.:::: :- m:n.: . :. . n . .. : n. . ,, ., . .. - (n p.
- e , ~ w
. . ,.; .... .,,s v
.e . .. .; .,,.. :y u [. /
. . ~ . ~ ,.n : ..-..1- .
. . .: . ../. . ,::c a .:. . ;~ : a. .: -..
)' :;[. e. . . ;; ,
. ; w. , '. .- , . .+ . . :. . n.:. ;, . . . . :. r;. ..; . :
[: '. - u.*l-&x:s
. : . ; '...*p._'l~'.,%.:,.
c . , a.;.';:v*%, . , u. ;;. : f'.f 3 ..;, A.';[' .,:\' . < , ; ; . :. ( ; _~ ( ';:'; ., f_,,
' [y . '. . . _ , ,
~ : ../.~. ;:. .. a..e-y , :,
. w' ,: ' , ;-
o . _ g;;'*p. ' ' . & _'.-...c.:._.'. h ' ' f. '. vN.E . b - ..~:'., ': ~ . , 'n' ..".;.':...
,'.'..'rl.'.
l . i y. : . r.: ' +:*
- f..h.! , ! il '.;$ " {.,? h ' v0.,
_. . , ..: l . l', .; ". '~ _* \', ' ,,: * .:l;* q .- ( ' l .f:
'_ [ '
}. .l f.{:bj .,(k . f .} .f!_ffl.f. :ffll
).
' l f G f..;.Q.ll:.,:[.3 % ;.} f;;;H:l. .n_,j~
,QX:g::hyQ::-Qdylj'lQ,b.fQ.Q :' f;- {,'y.[ ;[:l] . ;.:lk?
h .h F. ? _.}}}f ' k, .f.?;. k' - k.(..,+,f,N . .. .). 'h f il.l N I < D h
.e...r....c 'l;f.f; , . :;.
.. yf.hl:; s...+.+~ ;hhl.ll
. . .: , . .e.: . .
&s Y.
l .. :. ...:,.. k. .. . . [;[f.:[- ff. $ . :.)f f. .f. w.. W.. l?
. q3.; yam .f:.g.f.I$ f : 4 O f.f,f,,s. . .?N':L.h: . ' l ; i}. ll{T. .
p.w;?' .. y.Y^. b.Y l: .. :: :- 2 ;.H._ . ;._: _. ; ~ c ..y ;
- ._3 ;;t l' .,'wm x.: u;
. y f. , W C : :". ;'. ' .' - ?.:v: ... i. .
- . l .m
.% . .q;3.;. ; '. 7:v: Nhf. h:6.
7 ;.y:9 f k3%:. 9:._m : ;. '?.~>.: u : ..L;.; 7 3..
- : s ;. , ~ " n . :t -
W' a J. . z:;. y '; 9 :.. 0, . ,: V. . 7 ,, . . . a ,:. c ): ,y - . ; ' .. .: c . :..c. n. .;;;. ?, 4.q:V...m. L G ! .,? : .r %;
;c ..u. ..
' . <;2:: )3.4.g.$q..
. lN. &
"~. ". .z L 'c.;-
5;% 'v
;,";. , _ y 5~ :. 8 ...s._::.; . .- +..k.2.;/ -
m, .: ;;. j.) Q: .:: . 3e.... r -
..: py?;c: p.w.;f... ,
.N... 1.s Q 3;_ .
. g:y + :q
. :.: + t.
- . ..z :
~hyL : L:y~ L c,.. >y-.* :, .. y_! V2,hyQ, ,4 gh h .;
. .; ,; c. . ;. ; , . < . p , .: ;... .. .: .-
c l.....-ly.w'.yl
- ' : . ... .- t :,
;7.;u:x.af....g 4 7;:lW. - . q.:. _ .
.'- .:) .Y 'y
.u. :. T: '. 4 %;. ly'.b fy '
; .L % ': ? -l . 4f; $7 L '
b" . M
& y w; a, .' /pl:' ..][:, .
- n. a. p : Q:.W[) '
q.,_. W. : .-
\ 7 7. ~. % ,q;:.f;
- p . W ~.v.W;&w%y .[.i.
= ..x- Q .:..
y g.) < .9 : .i. i.'gL-;;[ .. [.
- Q 7l; ' :3:/ - l, ; :;'Q 'Y -;. ^..? p ../ /.. .' A
.g:;;. ,c. . !; . .. ~ :: . . . . , c a.
, . ;;. . . ;n:a ry;;, '
- r... ;
V y x :m , . .. ; - c ,,. . L : . i q , :. ,;.. p .
' . a . :.. n ~ v
.~...:...
.,e .~ .
}:G.;.l
, 3: .,R
. .. y p . ,. y . g. ... ;' . .;.;
. : ;,9... , . : :.K *:.% 1,y:m. ::, ?.'*;:$ ,;",. ;.y
. v
. ; : .; '.a:.. ; y ::: .?.; ; .; . _. .. {
. . ;, ..).
;; '.:;.f.' l. :< 7 i:T l:
.. . . ; , m :
y .f. :: , u ph; . y.; &.;; ..';. p y;._N:'[.: .. . . .,m 3y.L _ , y .,,
- y. _; .;..:. .; . ; ,. .
;-;. ff f . . .e 3 y,..kf- p ._ y f.,
f f.' ,Y. ?:h .!. $ f.lkf::: k: $, f. .j . . $$. .Y:.c.: [ ..? DMi$ ? ($l.X;.I,fjn l: i' jdb;f .f ?!%)h.k."S[ lM 3.h ) ; . (;. ' .@py } in.$ ?".9,; EU 'E.i. .$.b 1:3.17.h'..W" T . '. : . Centra!Powerand UL&t Capny W p .O pDet tuting fitiepoptincan to hdp ^ ' l. . 2,%0 catomers tder uselect&E . n.g h caMk rknds p&ingnam2m to f;*
. the cateer sad on sigadappbces :P ,
to cycle on and ofL Centml ud Sw!h 1. hst aim is sechMg to enter penstMy Q-MecommambatJa, mturesthat land . ewen fiber capacity fw other mes .w
.?
) .' *.
K L1:6.d1 - _
- n ..
~ '
I h hh 71w Comperisiw Ehe Because the federal Energy Policy Act of1992 gave companies 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 potential. Other non-utility activities that we are investigating involve new technologies related to our customers or our areas of expertise, such as fiber-optic tele-communications, renewable and other energy technologies, and environmen-tal services. The opening of our office in Mexico City represents a significant milestone in developing the long-term potential for our non-utility activities. It comes as a result of our long history of cooperative activities with Mexico's Comisi6n Federal de Electricidad. We have been doing business with Mexico since 1916. Today, the potential for a more extensive involvement has never been greater. Under President Carlos Salinas de Gortari, the Mexican economy has been rapidly improving. Mexico is now one of the fastest growing economies in the world, with projected growth in electricity use ofmore than 5.5 percent a year. The country is expected 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 American firms to be far more active in the Mexican electric power market. We see the opportunity 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 government. Moreover, free trade with Mexico should help the economy of South Texas, where our Central Power and Light subsidiary operates. Our Mexican initiatives are not designed for any dramatic short-term benefits. They will require persistence and patience, as Mexican economic policies and the trade relationship between our two countries evolve. Challenges are great in foreign markets; many international companies are competing fiercely for these growth opportunities. But over the long term, our historic relationship with Mexico and our geographic location will prove to be among our greatest assets.We intend to make the most ofit, for the benefit of our current areas of operation, the economy ofMexico and our shareholders and customers. 15
T. YT h h$ M CompnnsE & J Managing Today's issues i While we plan for the future, we must remain successful in the present. Several current initiatives will help us meet our performance goals through the transition ; period of the next several years. SEC Rg ulation. One priority issue we are addressing as part of the transition to a 1 fully competitive electric power industry is, ironically, how to contend with regula-tion that hinders our ability to compete. Central and South West is a registered - public utility holding company as defined by the Public Utility Holding Company Act of 1935. As such, we are closely regulated by the Securities and Exchange Commission. Only nine other electric utility systems have this designation. Other large electric utilities that are not regulated under the 1935 Act-including many that operate in more than one state-can make their own decisions about diversification, reorganization or non-utility activities after approval by their state regulatory commissions. But those designated as 1935 Act holding companies must also apply for and receive approval from the SEC for any new venture and most new fmancings. This severely limits our ability to act quickly. As our industry evolves, this will become a more serious restraint on our ability to compete. ' We have begun a major etTort to encourage Congress to reconsider the most onerous provisions of the 1935 Holding Company Act. Specifically, we are advocating an amendment that would allow companies under this law to commit up to 15 percent of their assets to functionally related businesses without SEC approval. That would allow us to get involved with telecommunications and other projects related to our core business without special approval. We hope that all i our friends and shareholders will work with us toward this important goal. l PSO Rate increase. In late December, our Public Service Company of Oklahoma subsidiary received approval from the Oklahoma Corporation Commission for a permanent S14.4 million base rate increase. This represents a 2.3 percent increase over 1992 revenues. PSO agreed that it would not file for another general increase beforeJune 30,1995.
]
"We began an important, new effort i to modify the Public Utility Floiding l Company Act of 1935."
/
l 16
Y k 9 hh n cc.nraian ur South 7exas Project. We took action in 1993 to enhance the management of our share of the South Texas Project, the nuclear power plant ownedjointly by our Central Power and Light Company subsidiary and three other utilities and operated by Houston Lighting & hver Company. We hired a new vice president of nuclear activities to increase our level of participation in STP's management. i In February 1993, both of STP's generating units were taken out of service because major plant components failed to operate properly. In June, STP was placed on the watch list by the U.S. Nuclear Regulatory Conunission because ofseveral management concerns. As a result, HL&P conducted a major reorganization of its nuclear management. Unit 1 of STP is expected to restart in the first quarter of 1994,' and Unit 2 is scheduled to restart in the second quar:er. For 1994 we expect that STP will , experience lower operating and maintenance expenses than in 1993. 'After 1994 ) the operating costs should stabilize, but at a level higher than in the years before . I 1993. Our goal and expectation for STP is that it will return to its position - I among the top 25 percent of nuclear power plants in the country, in terms of I both performance and cost.
]
One priority at STP has been to clear up a backlog of engineering and mamte- l nance projects. This initiative resulted in approximately $29 million in unexpected expenses for CPL in 1993, causing a reduction in our earnings. 1 With the new STP management organization, the plant's improved condition, l our increased oversight and the resolution of the NRC's concerns, we believe i STP will remain a reliable and cost-effective source of electric power for decades into the future. 77:e Em>iromncut. In 1993 we continued implementing our formal environ-mental policy and procedures that we adopted in 1992. Our efforts resulted in two environmental awards:
= The Nature Conservancy of Texas presented its first North Texas Corporate Conservation Leadership Award to CSW for our wide-ranging commitment to protect and preserve the natural resources of Texas. = The National Institute for Urban Wildlife honored CSW with its Outstanding Conservation Award for our commitment to the conservation of wildlife and our natural resources as evidenced by the many and diverse activities and programs of our subsidiary companies.
i 17 ~ - - _ _
R. . WW .
;u
,b .
4
, gr
- f. ;
? n ,
l s . y
,g i I
% -'- in .?r;
..Q _,w . nm Mn -l. . , :
94,. -. y ;i y t . . $[%1MYR y2!?$ T % 7 ,,, , , n 3[ m il j?.ff }+,l u .n:; 4% e=,, e w n $&~&&$.,w.$h$ ;
~
n r. . >: . i';;
-3 !
s& m#% ?. jr M,B...my$g
= f, y yay ? ..
L
- l %q
.f g .
m w+wo x r&am
*~ ' .
~ . :L';::% N$W .7 1 ; h?l b ?!- [ l::'ll . - %.?.f!h.
- h'W l .
w
.1 ..
%44Q3My L
- a M,
.. A' '
' ,* .:, '].A. ..[Jl, 2 N ' J g
's .$. - . " -
; .Y
,o _ . .
^_
R
- 9 f
d
.**' aY
, c pr , ~
pp . a.w[ mu. y_ g L. t
'/c ..
w pgs$$$ h{
#eg4
.. ~
4 ,: N- .- - l
- l. .?
q:n a s x vg a m u m e e:e :n m w w m aesageseg m&w pwp munww.yhsW jeph kmW%p as denaww#Mly.:j .; kpf Gw.93m,ws%4%m . %'3 S!. M M b? Q TL M . 0 a py.agg. p
- Q% v.nw.&4&mg4)pQ .
, 4@;% g%~..A
- qpy g Rj p p?Q Q;y QgggsfyQ y m_:g ( K gm(
Q Fyksykm.edwygay+x W m,i',
? %. k??yupg hL 'V: ' V g jy O' nygw%.h&g?@y; gig $ p% Mpf y y u u p} kgM& m A % % r g
y k m 'py
,g : .
;g~g ; gypby :
y:{.. Q
- w i:n m x' a f
r x ;. ;
.i v.w #'
,.y:p,
- z. y ' >
' .,,,t
,> - 2 , a.
i +f b. ! /. '-
%.. .., af; .- ; w & - !*
a~ m,:,r v. &
~ J,,p!) s e ;
g o [j , Vu[.f L il..}F p'
) ,g"&g, ;(
- m <c.m gs u sa m[h ,;ma m wm www
The Competitive Edge In accordance with ont corporate environmental policy, we also began planning an increased information outreach program to educate the public about our views on environmental protection and the effects of our activities on the environment. Our commitment to the environment and to ecologically sound energy technolo-gies led to a major development in 1993. In November we broke ground for the CSW Solar Park, part of the most comprehensive renewable energy program in the Southwest and one of the largest in North America. It is located in the Davis Mountains in far West Texas because of the area's ideal wind and solar resources. The overall renewables program being established there will be a $17 million, five-year test of several different solar and wind technologies. Our goal is to understand how they may become competitive in cost with conventional electrical generation. One of the projects, a new wind-turbine technology, attracted a total of S5 million in cooperative funding from the U.S. Department of Energy and the Electric Power Research Institute. Other projects in the prograrn include photovoltaics, a solar-powered water pump for a youth soccer field, two solar-dish Stirling engines and several rooftop solar panels. The steps we took in 1993 demonstrated our commitment to winning in the new era of competition. We will continue to seek new customers aggressively and to streamline our company's operations as we work to shape external conditions that affect us. With the strategy we are pursuing and the continued strong support of our employees, we are well prepared to compete and to win-by increasing the level ofperformance that both our customers and shareholders have come to expect from Central and Suth West. E.R. Brooks Chairman, President and ChiefExecutix Ofcer February 25,1994
" Steps we took in 1993 demonstrated our commitment to winning in the new era of competition."
19 O
y ,nyn77mm m ~ *? O y W.9 n.wp ,, s y . . , t-~y~.y.,,,,,,,
. , ,, _ y ,
7, E; s e s [- n'. !- -L.' s e l.A , 9
, 3: A t.
mk , ggggggg i ,- Reismourl
.t.
7_
. ; } ?-
- }
p= ; ~;wy ,. . 3,in, ,;
'..:.:7yp
-{ e t
; 4 4. . ._, a +A - &i n s-WM&
J.j[ J.1, Fayettevills: [h s! - i y} : [^- 3 3 e
.]l
*~
'f.-j_.
? k[ h g f
New R5esdos ,., M f ]# est di t-F. ,
? W Nh[l[q.[hd '
l .- . ,, 3: [ '~ , y( ^ U~ j;pn.. ~ . : .. m;N;y,i . jpyd? 6" gig'.' ;
-a
[ n: ' tH , r . > l y' . r
~.
gb' [Q" pu,,t : i .l , 'f J %p yp exarkaha/ f
.: q ,;a 6- .g 1 s j{i '
b:p, ; y +--~~~~~~~.
,A c . e Las Cruces x! ' 4'
+.& W.>
SHRE k[g ^ "- AVh %.x _,; - A [F -
,yp hABNENE1
. y .g* 1
> ,c u k .
~
% V- ...-_,. ,.
'r
.g ly?}'ff,'f.N.;f'c . ?' M'
~
M :f L. d ,#. - T fA #d% 7 ;M ~' ,iyM sam' }is "-
. ^
~ >
' ,. ;w<3 ,
' , : f- . '
,g.& .w. nn . +
, - > m,a . .,
D4 J j- g
& L'7 ppw g-:p y , .
-~ g% '7
;jq 3,
- . 1 ..
c%& , ^;Q. ' > r u
;. ~ e j ayi y
C' igen Doctric UtWLy Service System Transak System e Central skun and Laght Company - Thychnes e 1%blic Smke Company of Oklahoma e 1%xessing 11 ants a Soushurstem Elutnc 1%n Company a Transok Headquanm-Tulsa e iht Texas Utihtnes Company
- Cmporate Headquanm-Dallas a Electric Subsidnary Headquartm A System insmonnections unth Other Utihties
~
"CSW's four electric utilities are the core of its operation, selving 1.6 million custorners in four states and providing R 83 percent of revenues.
~
; To improve the earnings of 1 its electrie utilities as the incustry becomes increas-ingly competitive, CSW is working to reduce operating costs and to increase sales. In 1993 CSW took a major step toward these goals with a fundamental restructuring of its electric utility business."
Operational Profile Unit Year Operating Not luceme Earnings Returu en Average ~ PM Reties Reveamos 8 for Ceaunen por Canunen Stock Common IWrned m mdium m mdlum C$W Shstei Eeulty % Equity % 5tak % Ekbt% Central and South !!'est Corporatinn, a 1993 $3,687 $308 $1.63 10.6 49 6 45 public utility holding company, owns 1992 3,289 382 2.03 13.5 49 6 45 four electric operating subsidiaries, 3,047 1.99 13.6 49 7 44 1991 375 an mtrastate gas pipehne subsidiary and four other subsidiaries. ! Central Pouer and Light Company 1993 51,224 $158 $ 0.84 11.1 47 9 44 j provides electricity to 589,000 cus- 1992 1,113 202 1.07 14.2 47 9 44 tomers in south Texas. 1,099 1.05 13.7 47 9 44 1991 197 I%hlic Sen ice Company of Oklahoma 1993 $708 $46 $ 0.24 10.5 51 2 47 provides electricity to 466,000 cus- 1992 622 45 0.24 10.5 50 2 48 t mers in eastern and southwestern 46 1991 651 52 0.28 13.0 52 2 Oklahoma. Southurstern Electric Pourr Company 1993 $837 $79 $0.42 '12.0 50 4 -46 ! provides electricity to 396,000 cus- 1992 778 91 0.49 14.4 53 4. 43 l tomers in northwestern Louisiana, - 1993 761 93 0.49- 14.6 51' -4 45~ northeast Texas and western Arkansas. It'est Texas Utilities Company pro- 1993 $346 $29 $ 0.16 10.9 59 1 40 vides electricity to 182,000 customers 1992 315 34 0.18 12.9- 54 3 43 in north-central and west Texas. 44 1991 319 35 0.18 13.2 52 4 Year Operating Not income Earnings Return en Average Throughput Treneportellen Revenues for Ceaumes per Ceaunen Stock in 6dlwas m hdluwu m mdtwas in milhons CSW Shere 8 Equity % ofrubkfert ofruhirfert Transok, Inc., an Oklahoma intrastate 1993 $705 $19 $0.10 8.8 490.3 323.7 natural gas gathering. transmission 1992 543 20 0.11 11.3 448.2 299.3 and processing company, delivers gas 1991 277 18 0.09 21.4- 298.5 227.1 for system compames, predomi-nantly Public Service Company of Oklahoma, and for non-afliliated customers;it aho operates gas process-ing plants and sells gas to markets across the United States.
- Adjusted to reflect a tuv-for-one common stak split efected by a 100% stock dividend paid on March 6,1992, to shareholders of record on February 10,1992.
s ne Corporation chanyd its method of accountingfor unbilled revenues in 1993. proforma . amounts assuming tf at the chany in accountingfor unbilled revenues had been adopted retroact. f ively are not materially dn erent,from amounts previously reportedfor prior years. 22
leawan-hour nessaue per Generating Peak Average Fuel RIhr Number of Nunter of itelle of seine neeldestiet cepehmtr' Domend FuelCast H ofkilonit40un 6yfurf rype Customers Empisynes Customers in billw,u laenett4mur in megauutu in megaatu per md!wn Btu Gas Coal Ligmte % lear in thousands to Employeen 54.4 7.29g 14.316 11,464 $2.11 46 44 9 1 1,633 8,707 51.8 7.17 14,184 10,606 1.92 40 43 9 8 1,599 8,595 51.8 7.10 14,156- 10,203 1.87 41 44 8 7 1,577 8,581 17.6 8.45g 4,410 3,518 $2.17 65 33 2 589 2,299 256:1 17.2 7.99 4,414 3,347 1.70 50 25 25 577 2,308 250:1 16.9 7.96 4,415 3,291 1.73 54 25 21 566 2,330 243:1 14.2 6.28r 4,058 3,147 $2.38 54 46 466 1,970 237:1 13.4 6.24 3,907 3,010 2.34 55 45 462 2,035 228:1 13.5 6.27 3,878 3,080 2.17 50 50 458 2,041 224:1 18.4 6.65 g 4,464 3,651 $1.94 16 55 29 396 2,033 195:1 16.8 6.73 4,464 3,237 1.93 11 60 29 379 - 1,982 191:1 16.2 6.59 4,464 3,200 1.87 10 63 27 374 1,959 191:1 6.6 7.92 1,384 1,201 $1.91 60 .40 182 1,239 147:1 6.0 7.93 1,399 1,118 1.82 60 40 181 1,249 145:1 6.2 7.79 1,399 1,097 1.73 60 40 179 1,294 138:1
- Indudes 719 megawatts in long-term storagefor 1993 and 1992, and 861 megawatts in long-term storagefor 1991.
1993 Electric 1993 Operating Revouses nevenees by state tw eueinese sesment i Texas 63% Electric H3% Arkansa 6*4 Other 1% Loutuana 8% ~ Gas 16% OkLhoma 23% m
i Selected Financial Data Centraland South It'est Corporation The folkming selected financial data for each of the fne years ended December 31 (""d them g M ""' are provided to highlight significant trends in the financial condaion and results of operations for the Corporation. 1993 1992 1991 1990 1989 35 (nulhons except per share arnounts and ratsos) 30 : Operating Revenues $3,687 $3.289 $3,047 $2,744 $2,549 404 386 337 ! 3
- Net Income 327 401 i ,y , Preferred Stock Dividends 19 22 26 30 31
~
2
/ Net Income for Conunon Stock 308 382 375 356 306 i Total Assets 10,623 9,829 9,396 9,074 8.347 "' "} 2,930 2,927 2,834 2,743 2,647 i Conunon Stock Equity s
n
.j .
B IJ g l,l Preferred Stock Not Subject to Mandatory Redemption 292 292 292 291 291
'5 97 106 Subject to Mandatory Redemption 58 75 103 m w u e u ecw Long-term Debt 2,749 2,6 47 2,518 2,513 2,537
[$,, Capitalization Ratios
- n+vm csume Conunon Stock Equity 48.6% 49.3% 49.4% 48.5% 47.4 %
Pn t .cred Stock 5.8 6.2 6.8 7.0 7.1 1,"g-term Debt 45.6 44.5 43.8 44.5 45.5 Earnings per Share of Conunon Stock $1.63 $2.03 $1.99 $1.89 $1.63 Dividends Paid per Share of Common Stock $1.62 $1.54 $1.46 $1.38 $1.30 Comrnon Stock Price Range and Dividends Paid per Share
$H 1992 Market Price Dividends Market Price Dividends High Low Paid liigh Low Paid First Quarter $33% $28% 40.5v $27 % $25 38.5r Second Quarter 34 % 28% 40.5 28 % 24 % 38.5 Third Quarter 33 % 32 % 40.5 30 28 38.5 Fourth Quarter 33 28 % 40.5 29 % 27 38.5 All commim stock data hans leen adjusted to nflect the two-pr-one common stock split, effirted by a 100% stak dividend paid on Manh 6,1992, to shareholders of nrord on lichmary 10,1992.
*1he Corpor.aion ihanged in method of amnmtingpr unbilled rnvmus in 199.1 Proprma amounts assuming that the change in aavantingpr unbilled rnrnnes had been adopted retroactitvly are not materially ditTerentfrom amounts previously reportedpr prior years.
24 i
l l 1 1 1 Management's Discussion and Analysis of Financial Condhion and Resuits of Operations Central and South West Corporation Overview I i
- The electric utility industry is changing rapidly and beconung more compennve. ,
- Several years ago, in anticipation ofincreasing competition and fundamental changes l l in the industry, the Corporation's management developed a four-part strategic plan.
This plan is designed to help positwn the Corporation to be competitive in the rapidly changing environment that the CSW System currently faces. The four-part strategy is: o Enhance the Corporation's core electne unlity business. 4 o Expand the Corporation's core electric utility business. o Expand the Corporation's non-utility business. I o Pursue financialinitiatives. Since the introduction of CSW's strategic plan in 1990, the Corporation has undertaken
- initiatives in each of these areas that are important steps in the implementation of the l overall strategy. These initiatives were marked by three events in 1993 that were extraor- j dinary in nature and are discussed below as well as other sections of this report.
Such events include the proposed acquisition of El Paso Electric Company and the reorganization of the Corporation's core business. In addition, the Corporation has
- faced some operational challenges during the past year with the outage at STP l Proposed D Paso Merger ;
The Corporation and El Paso have entered into a Merger Agreement under which ! El Paso would emerge from bankruptcy protection as a wholly owned subsidiary of l the Corporation. All classes of El Paso's creditors and shareholders ha /e approved the Modified Plan which sets forth the consideration to be paid in connection with the l merger. The total value of the Corporation's offer to acquire El Paso is approximately %wm l
$2.2 billion. The aggregate number of shares of CSW Common to be issued pursuant per shwe !
l to the Modified Plan cannot be determined at this time due to certain contingencies, i including the future price of CSW Common, future dividend rates on CSW l 2m Common and the timing of the effective date of the Modified Plan. While the total number ofshares of CSW Common ultimately to be issued cannot be determined, I the value of the shares issued is expected to be approximately $770 million based on 2m ! the anticipated etrective date of early 1995. Depending on the number ofshares ) issued and the outcome of other matters discussed below, existing holders of CSW g g Common may experience short-term dilution in earnings. The Corporation has requested authority from the SEC under the Holding Company Act to engage in certain ( i y M y i
- Q I hedging strategies designed to minimize potential dilution. The Corporation has $ Q %
l also requested authorization to hedge the interest rates to be borne by certain of the Q k $ debt securities to be issued pursuant to the Modified Plan, which calls for the interest o.so [M h y rates to be set at or about the effective time of the merger. There can be no assur-h ances, however, when or if the SEC will authorize the Corporation to engage in hedging tramactions. h@ fg i y y y l Completion of the merger is subject to various conditions, including receipt of neces- " De sary regulatory approvals. The Corporation and El Paso have initiated the process """" of seeking regulatory approvals, but there can be no assurances as to when, on what terms or whether the required approvals will ne received. The efTectiveness and ; success of the merger is also dependent upon certain assumptions. The financial assumptions underlying the Modified Plan assume, among other things, that El 1%so will secure regulatory approvals necessary to implement acceptable rate treatment. ! i A glossary ofcertain tmns used in this discussion is on page 62. t 2s t
l i r Other contingencies which could impact the success of the merger include the risk of competition in serving key portions of El Pasds service area, financial risk arising out of changes in interest rates and the price of CSW Common, regulatory risk principally related to approval of the merger and El Paso's request for a rate increase, and operating risk associated with the ownership of an interest in the Palo Verde i nuclear facihty. STP , in February 1993, Units 1 and 2 of STP were shut down by HLP, the Project i Manager, in an unscheduled outage resulting from mechanical problems relating to : two auxiliary feedwater pumps. HLP determined that the units would not be restarted until the equipment failures had been corrected and the NRC was briefed on the causes of these failures and the corrective actions that were taken. The NRC formalized that commitment in a confirmatory action letter, which was supplemented , after subsequent NRC impections. ! The NRC announced in June 1993 that STP was placed on its " watch hst" of plants with " weaknesses that warrant increased NRC attentiors" Plants on the watch list , are subject to closer NRC oversight. STP will remain on the NRC's watch list until both units return to service and a period of good perfonnance is demonstrated. ; During the outage, the necessary improvements have been made by HLP to address the issues in the confirmatory action letter, as supplemented. On February 15,1994,the NRC agreed that the confirmatory action letter issues had been resolved with respect to Unit 1, and that it supported HLP's recommendation that Unit 1 was ready to restart. Unit 1 restarted in late February 1994 and operated at low power for three days. The Project Manager then shut down Unit 1 due to a problem with a steam generator feed-water valve and a steam generator tube leak. The Project Manager expects to make the necessary repairs and restart Unit 1 in late March 1994, although additional delays may occur. While many of the corrective actions taken are common to both units, HLP must demonstrate to the NRC that these issues are also resolved with respect to Unit 2 , before it is restarted. HLP estimates that Unit 2 will restart during the second quarter ' of1994. The outage has not affected CPUs ability to meet customer demands because of existing capacity and CPUs ability to purchase additional energy from affiliates and nonaffiliates. As discussed below under "Results of Operations," the outage resuhed in an additional
$29 million ofoperating, maintenance and other costs. CPL is expected to continue to experience increased STP-related operations and maintenance costs but at a level significantly knver than 1993 expenses.
During the outage, CPL's fuel and purchased power costs have been, and are expected to continue to be, increased as the power normally generated by STP must be replaced through sources with higher costs. It is unclear how the Texas Commission will address the reasonableness of higher costs associated with the STP outage. At January 31,1993, before the start of the STP outage, CPL had an over-recovered fuel e balance of S5.2 million, exclusive ofinterest. AtJanuary 31,1994, CPP, under-recovered fuel balance was $55.7 million, exclusive ofinterest. This under-recovery of + fuel costs, while due primarily to the STP outage, was also afTected by changes in , fuel prices and timing differences. CPL cannot accurately estimate the amount of any future under- or over-recoveries due to the unpredictable nature of the above factors. . Although there is the potential for disallowance of fuel-related costs, such determina-tion cannot be made until fuel costs are reconciled with the Texas Commission. t If a significant portion o rfuel costs were disallowed by the Texas Commission, the , Corporation could experience a material adverse effect on its consolidated results of i operations in the year of any disalh>wance. CPL is required by the Texas Commissiods rules to file a reconchiation ofits fuel costs by May 1,1994. However, the Texas Commission Staffi<. proposing a revised fding deadline that would not require CPL { to file before the fcurth quarter of 1994. 2s i
Management believes that the operating outage at STP will not have a material efTect on the Corporatiorn financial condition or on its consolidated results of operations. See Note 10 Litigation and Regulatory Proceedings of the Notes ihr additional information related to STP. Restructuring The Corporation recently announced a management restructuring and early retire-ment program designed to consolidate and restructure its operations in order to meet the challenges of the changing electric utility industry and to compete effectively in the years ahead. The underlying goal of the restructuring is to enable the Electric Operating Companies to focus on and be accountable for serving customers. The initial phase of the restructuring will involve certain changes at the Corporaticzn service company, CSWS. CSWS will be realigned into two primary units-Operation l Services and Production Services. Operation Services will provide administrative ser-vices that can be performed centrally to benefit the CSW System. Production Services l l will focus on consolidated fuel and generation planning for the Electric Operating Companies and also prov;de engineering and other support for CSWE. Certain aspects t of the restructuring may be subject to SEC approval. To implement its restructuring program, the Corporation will comolidate and centralize its operation services and production services. The Corporation is expected to reduce the size ofits work force and incur cmts associated with an early retirement program, severance packages and relocation. An early retirement program has been offered to 726 eligible employees. Since the restructuring is not expected to be completed until the end of1994, it is not possible at this time to predict the number of employees who will take the early retirement program, be granted severance packages or be relo-cated. The total cost of the restructuring is estimated to be $97 million befbre taxes, and was expensed in 1993. The severance and reh> cation costs will be paid from general corporate funds in 1994 and early retirement costs from pension and postretirement benefit plan trusts. Rmnm by cim Savings from the restructuring are expected to begin in the second half of 1994. lly M ei m ia the end of 1995, initial costs should be fully recovered through operations and maintenance cost savings. ** The Corporation established a Ilusiness improvement Plan in 1991 to identify, analyze .s.s o and implement the best business practices as part ofits efforts to align the CSW l lg System strategically to meet competitive forces. The IllP program will be incorporated 3M l as part of the reorganization. Any additional costs are expected to be otTset by future savings from the benefits provided through the implementation ofIl!P reconunendations. 5} , l
'n a > d Results of Operations d b
um s Own'iew of Results The Corporatioin earnings declined to $308 million or 51.63 per share in 1993 as IS" ' fj!$ $fl[h compared to 5382 million or 52.03 per share in 1992 and $375 million or SL99 per share { i in 1991. The return on average common stock equity was 10h% in 1993 compared to , ) 13.5% in 1992 and 134% in 1991. Electric operations contributed approximately i 100% of total earnings in 1993,95% in 1992, and 96% in 1991. o l r> w vi 92 m Earnings in 1993 were below 1992 levels due to additional costs primarily associated , g with the outage at STP; higher benefit costs as a result of the adoption of SFAS n c_,,,.ma No.106, Employers' Accounting for Postretirement llenefits Other Than Pensions; e uma
- 5d" '"' ""*
higher taxes other than income as a resuh of school fundmg tax increases in Texas; and s one twm the increase in the Federal tax rate from 34% to 35%. These items were partially , cm og ofTser by higher kilowatt-hour sales due to '993 weather which was more favorable than weather in 1992. 21
In addition, earnings in 1993 were significantly affected by items described below: (nulhons, after-nx) Restructunng charges 5(63) Mm of n=n-How, Rec gnition of unbilled revenues 49 Early adoption of SFAS No.112, Employers' g Accounting for Postemployment lienef2ts (9) Adoption of SFAS No.109, Accounting for j Income Taxes Establishment of reserves for fuel and 6 g other properties (11) Prior year tax adjustments (18) l ! 30 i The increase in earnings in 1992 over 1991 was primarily the result of positive eco-2o nomic growth in the service territories of the Electric Operating Companies, as well as
, lower expenses, taxes and interest charges which combined to more than offset the io ! l effect of mild weather in 1992.
Operating Resnues 8 y p Revenues increased 12.1% in 1993,7.9% in 1992 and 11.0% in 1991 from the previous E Rendentul Y "b o cmommi Revenue increase (Decrease) From Prior Year 1993 1992 1991 (mik m) liase rate changes 5 8 5 - $127 Fuel costs 168 - 8 Natural gas 107 255 110 KWH sales 93 (25) 81 Other 22 12 (23) 1993 Fuel rex $398 $242 $303 Coal 44% ma,a Ilase revenue increased slightly in 1993 due primanly to the rate increase granted to bena, n PSO. As part of a stipulated agreement reflecting its recent rate increase, PSO agreed
- c, u.s that it will not file for an increase in base rates until after June 30,1995. In general, the Electric Operating Companies currently have no plans to file for increases in base rates in the near future. As part ofstipulated agreements, CPL has agreed to freeze gy <
base rates fromJanuary 1,1991, through 1994, subject to certain force maieure events,
- j. s 3 including double-digit inflation, major tax increases, extraordinary increases in 1' t i operating expenses or serious declines in operating revenues. CPL may file for increases in base rates, which would be efTective after December 31,1994, subject to certain Q limitations. During December 1993 andJanuary 1994, several Cities in CPL's service l territory exercised their rights to require CPL to file rate cases to determine if CPL's I rates are fair,just and reasonable. I 1
For additional information on these proceedmgs and others, see Note 10 Litigation and Regulatory Proceedmgs. j Higher fuel costs resulted from increased generation due to higher KWl-1 sales and i a higher unit cost of fuel, primarily due to higher natural gas prices and the need to ) replace nuclear fuel with higher cost fueh during the STP outage. l i Revenues from natural gas increased 22% in 1993 due primanly to an increase in sales i volumes and to a lesser extent an increase in sales prices. Transok continued to increase volumes and revenue on gathering, transportation, and sales of natural gas and natural gas liquids. A portion of this increase is attributable to the acquisition of the NGC Anadarko Gathering System in 1993. Revenue increases in 1993 from the sale of natural gas liquids and increases in sales volumes are primarily attributable to acquisitions. Revenues from natural gas increased 106% in 1992 due to the acquisition I 28 i 1
of gas gathering systems from Reliance Pipeline Company. In 1991, increases were due to the acquisition of the gas gathering, transmission and marketing business of TEX / CON Oil & Gas Company, and the remaining interest in the Western Anadarko Gas Gathering System. combined cooEng Desree Days The perrentage chango in KWH sales for the three years were as follows: KWH Sales Increase (Decrease) i t.soo From Prior Year i 1993 1992 1991 ( 13 3
- Residential 9.0% (4.2)% 2.5% , a Commercial 4.8 (1,1) 1.6 I $
l *"""' Industria! 5.5 3.1 4.8 joyg Sales for resale (6.6) 5.4 7.5 , 4.9 0.1 3.5 i Total sales , l i 10p m 7
'I l h l KWH sales to retail customers increased in 1993 from 1992 as a result of more normal !
1993 weather compared to the mild weather experienced in 1992. Also contributing to the increase in 1993 was an increase in customers due to the acquisition by SWEPCO of a neighboring electric cooperative, The increase in 1991 was due primarily to 9.wo 0 Il3 l' ]l * { 89 90 91 92 93 increased usage per customer, which was mainly weather,.related. The continued increases in industrial sales over the last three years reflect the increased marketing efTorts by the Electric Operating Companies and the continued improvement in the economy throughout their service areas. Sales for resale decreased in 1993 because plants in the CSW System were producing power to replace the power normally produced at STP and increased in 1992 due to increased marketing efforts. j The Electric Operating Companies have maintained competitive rates in an increas-ingly competitive marketplace. Efforts have increased at each of the Electric Operating Companies to attract new customers while efficiently serving all customers. Economic conditions in the service areas of the Electric Operating Companies are expected to continue to improve in 1994. em Heaung Desroe Days Fuel and Pwdtased her Expense During 1993, the Electric Operating Companies generated 91% of their electric energy joyo requirements. During 1992 and 1991 they generated 94% and 96%, respectively. Total g , fuel and purchased power expense increased 17% in 1993, and was unchanged in 1992. joyg g i j In 1993, the reducion in electric energy requirements generated by the Electric Operating Companies described above and the increase in purchased power expense 9,3, . was due primarily to the need to replace nuclear power during the STP outage. 8 The average unit cost of fuel per milhon Btu was $2.11 in 1993, $1.92 in 1992, and $1.87 939 in 1991. The increases in unit fuel costs are attributable to higher gas costs as well as f the need to replace lower cost nuclear fuel with coal and gas during the STP outage. 8.sw i The expected restart of STP Unit 1 in the first quarter of 1994, the anticipated t a> restart of Unit 2 during the second quarter of1994 and settlements with fuel suppliers suo k achieved by SWEPCO and WTU should contribute to lower fuel costs in 1994. kp 7l $ '[,
,'sm e e a , r.
Cas Pmrhasedfv Resale 89 90 91 92 93 Gas purchased for resa'e ,ncreased 29% in 1993 and 171% in 1992 due to the increased pipeline capacity that resulted from Transok's acquisitions and an increase in otT-system sales. Other Operating and Maintenance Expenses and Ttxes Other operating and maintenance expenses increased in 1993. CPL incurred $29 million in additional non-fuel costs associated with the STP outage. Other increases included $16 million from expenses associated with SFAS No.106. Employers' Accounting for Postretirement Benefits Other Than Pensions; $17 million in lignite and other property reserves; $15 million in increases in corporate expenditures; and $15 million in additional administrative and general expenses including higher medical costs, pension costs, and legal expenses. 2e
l Federal income taxes were lower in 1993 than 1992 due to lower taxable income offset i in part by tax adjustments and the increase in the corporate tax rate from 34% to 35% ! effective retroactive to January 1,1993. Taxes other than Federal increased in 1993 and i capitMxpenditures 1992 due to school ftmding tax increases in Texas. IMI.m m M;llhms Annual inflation rates, as measured by the national Consumer Price Index, have averaged 7(o about 3.3% during the three years ended December 31,1993. Management believes that inflation, at these levels, does not materially affect the Corporation's consolidated , uo g results of operations or financial position. However, under existing regulatory practice, i i only the historical cost ofplant is recoverable from customers. As a result, cash flows 5' " i designed to provide recovery of historical plant costs may not be adequate to replace o f plant in future years. ( Mimw CIi7P Arruwtizatiors
. In 1990. CPL deferred carrying costs for STP Units 1 and 2 and established a 3 corresponding liability to customers recorded in Mirror CWIP liability and other.
CPL is amortizing this Mirror CWIP hability in declining amounts over a five year a period, including non-cash earnings of 576 million in 1993, $83 million in 1992 and $97 million in 1991, with $68 million and $41 million remaining for 1994 and 1995, respectively. W Capual Expe,uinure, Interrst 13apense
' ha""AC"a - a '
Interest expense on long-term debt decreased in 1993 due to continued refinancings,
"^"'""""'
lowering the Corporation's embedded cost oflong-term debt from 8.3% in 1992 to 7.8% in 1993. Interest expense on long-term debt increased in 1992 primarily due to the issuance of $140 million in medium-term notes by Transok which was partially offset by the refinancing of higher cost long-term debt. Short-term interest expense increased in 1993 due to increased borrowings attributable to the expansion of CSW Credit's business, interim financing of CSWE's projects, and the financing of various corporate initiatives, partially offset by lower interest rates. Short-term interest expense decreased in 1992 due to lower rates. 1993 Capital Structure Cwmdative lykct qf Charges m Aaountion I%wijdes tonvrenn tar 4ss In 1993, the Corporation implemented SFAS No.112, Employers' Accounting for Ibst Preferred Stak 6% Employrnent lienefits, SFAS No.109, Accounting for income Taxes and changed the
- ctmmmn stut tytury 4%,
inethod of accounting far unbilled revenues. These changes are presented as a net
$46 million cumulatiu effect ofchanges in accounting principles. '
t
! c Uguidity and Capital Resources Qg Omriew gy# The historical capital requirements of the CSW System have primarily been for the ff construction of electric utility plant. Large capital expenditures fbr the construction of new generating capacity are not planned through the end of this decade. Accordingly, internally generated ftmds should meet most of the capital requirements of the Electric Operating Companies. However, the Corporation's strategic initiatives may require additional capital. Primary sources ofcapital are long-term debt and preferred stock issued by the Electric Operating Companies, common stock issued by the Corporation ;
and internally generated funds. In addition, the non-electric subsidiaries used new sources of capital in 1993 includmg a private medium-term note program at Transok and various forms ofnon-recourse financing at CSWE. The Corporation, in order to strengthen its capital structure and support growth from time to time, may decide to issue additional shares ofits common stock. Productive imestment of net funds from operations in excess of capital expenditures ; and dividend payments are necessary to enhance the long-term value of the Corporation for its investors. The Corporation is continually evaluating the best use of these funds. The Corporation is required to obtain authorization from various regulatory bodies in order to invest in any additional business activities. . 30
i l Capital Experulitures Capital expenditures totaled $508 million in 1993.13ased on projections of growth in , peak demand, the CSW System will not require significant additional generating l capability through the end of this decade. Planned construction expenditures for the l Electric Operating Companies for the next three years are primarily to improve and expand transmission and distribution facilities. These improvements will be required to meet the needs of new customers and the growth in the requirements of existing customers. Capital expenditures without regard to capital required for acquisitions by CSW or its subsidiaries, if any, are expected to be $535 million, $466 million, and
$487 million during 1994,1995, and 1996, respectively. Approximately 13% of the total for the three-year period is for expected expansion of Transok's gas pipeline system.
The CSW System facilities plan presently includes projected coal- and lignite-fked ) generating plants for which the CSW System has invested approximately $140 million in prior years for plant sites, engineering studies and lignite reserves. In 1993, as part of l an analysis ofits facilities plan, the Corporation rejected certain lignite leases and wrote down its lignite related imestment by approximately $14 million. Should future plans exclude these plants for environmental or other reasons, the Corporation would j evaluate the probability of recovery of these investments and record appropriate reserves. Long-kn Rnancing During 1993 and the first two months of 1994, the majority of the CSW System's long-term tinancing consisted of refinancing high cost debt with lower cost debt, l summarized as folknvs: Debt issued Debt Reacquired Secunty Anmunt iUte Macunty Secunty Amount Rate Matanty i (numons) (nulhons) CPL FMIP $ 25 7 h% 1999 FMB* $ 25 8&& 2000-4 FMIP 115 7% 2002 FMll 40 9h 2(K)4 FM11" 75 8% 2008 Entmided Cost FMB* 50 6% 2003 FMil 46 8 2003 of Long-Term Debt FMB 75 7% 2008 FMll 75 8% 2007 f%, FMB 100 6 2000 FMB 150 9% 1998 FMIP RK) 7% 2023 m PCRll 120 6 2028 PCRll 70 10 % 2014 PCRB 50 9% 2015 PSO FMIP 35 6% 2003 FMB 31 8% 2004 FMB 100 7h 2023 FMB 100 9 2016 9 FMB 50 6% 2005 FMB 50 8% 2005 SWEPCO PCRB " 54 7.6 2019 PCRIP 54 10 2013 FMB' 55 6% 2003 FMB 51 8 85 2016 9% " l FMIP 45 7% 2023 FMB 42 2019 FMB' 45 5% 2000 FMB 20 7 1997 l FMB 23 7% 2001 I FMB* 80 6% 2025 7 WTU FMB" 40 6% 2004 FMil 23 7% 2003 85 86 87 88 89 w 9192 91 FM B* 12 7% 1999 TRANSOK MTN* 60 6.6-7 h 2003-2023 ! l l m Reacquisition amrred in 1993 with pnveeds.from the issuance ofF3fus in 1992. The l Jimds twidpr these reacquisitions urre nflected on the Decernber 31,1992 comolidated balance sheet in special deposits.
- Issuance and reacquisition xcurred in 1994 and are not sc0ccred on the Decernher 31,1993 coruolidated fulance sheet.
- The prxceds remaining after the nwquisition of debt were usedprgeneral corporate purposes.
- Prxecds urre used to npry short-tena debt.
l 31
i The 1993 refinancings lowered the CSW System's embedded cost oflong-term debt , from 8.3% in 1992, to 7.8% in 1993. The CSW System continually monitors the capital ( markets for opportunities to lower its cost of capital through refmancing. Certain Electric Operating Companies have fded shelf registration statements with ; the SEC for the sale of first mortgage bonds. CPL and WTU currently have $360 l and $60 million remaining under their respective shelf registration statements. In 1993, Transok sold an aggregate of 560 million ofmedium-term notes, completing its $200 million private medium-term note program. Proceeds from the sale of these notes were used primarily to repay interim fmancings provided by the Corporation for acquisitions by Transok in 1991. - The Electric Operating Companies and Transok may issue additional debt securities, subject to market conditions and other factors, to refund debt, to meet capital expendi- , ture needs, and for other general corporate purposes. The Corporation is considering acquiring other electric utility companies or other electric utility properties. For any major acquisition, additional funds from the capital markets, including the issuance of common stock in underwritten public offerings, in the acquisition transaction itself, or otherwise, may be required. In connection with the proposed El Paso acquisition CSW plans to issue new shares , of CSW Common. As discussed above, the aggregate number ofshares of CSW Common to be issued pursuant to the Modified Plan cannot be determined at this time. ' The total value of such shares is projected to be approximately $770 million. In 1993, the Corporation modified its IbwerShare dividend reimestment plan. The new plan is available to all CSW shareholders, employees, eligible retirees, its utility customers and other residents of the four states where the Electric Operating Companies operate. Plan participants are able to make optional cash payments and reinvest all or any portion of their dividends in CSW common shares. Ilased on the experience of similar plans, the Corporation expects that 1 to 5 percent ofits customers will partici- . pate, providing an estimated $25 to $50 million ofnew common stock equity a year. The Corporation strives to maintain a strong capital structure and credit ratings for each company in the CSW System to provide the flexibility to pursue other business , endeavors, the ability to obtain required funds from the capital markets, and the ability to react to changing economic and fmancial conditions. SIwrt-tmn Debt Short-term debt, except for CSW Credit, is used primarily to meet fluctuations in working capital requirements and other interim capital needs. The primary source of short-term borrowings is the issuance of the Corporation's commercial paper, of which $769 million was outstanding at December 31,1993.13ank lines of credit aggre-gating $797 million at year end were maintained by the Corporation to back up its commercial paper program. Strategic goals include high ratings on commercial paper and adequate bank lines of credit to provide maximum flexibility. The maximum amount of consolidated short-term debt outstanding in 1993 was
$1,465 million in September which represented 24% of total capitalization at December 31,1993. The average amount of short-term debt outstanding during 1993 was $1,219 million, of which $683 million was attributable to CSW Credit. The weighted average cost of short-term debt was 3.4% in 1993. Short-term debt outstand-ing increased due to increases at CSW Credit due to the addition of a significant customer, the interim funding of certain CSWE construction projects and continued expenditures for new corporate initiatives.
32 s
i I i CSil' Energy At December 31,1993, the Corporation had loaned $209 million to CSWE on an interim basis for the purpose of developing and constructing cogeneration facilities. Repayment of these amounts to the Corporation is expected to be through funds obtained from third party non-recourse project fmancing in late February 1994, CSWE ! closed permanent project financing for its 50% owned Mulberry facility, which is I described below, and repaid $94 million of the interim financing provided by the Corporation. In addition to the amounts already expended in 1993 for the development of projects, CSWE has authority from the SEC to expend up to $102 million on ; future projects. ! CSlY Credit CSW Credit purchases without recourse the accounts receivable of the Operating l Companies and certain non-afliliated electric companies. CSW Credit's capital structure j contains greater leverage than that of the Operating Companies, consequently lower- i ing the CorporatiorA cost of capital. CSW Credit issues commercial paper, secured by the assignment ofits receivables, ! to meet its financing needs. CSW Credit maintains a revolving credit agreement ] which aggregated $960 million at December 31,1993 to back up its commercial ! paper program. l Recent L ' ; :sts and Trends l Cornyetition and Industry Challerzges i The Corporation's business has been, and will continue to be affected by various I challenges that confront the electric utility industry generally. The CSW System . currently faces competition for power sales in the wholesale market. In the future, the l Corporation may face similar competition for retail sales from other utilities, j independent power producers or alternative sources of electricity or other energy. ! To date, the CSW System has been successful in meeting the competition. l In 1993, PSO and SWEPCO filed with the FERC tariffs under which they make generally available firm and non-firm transmission services for other electric utilities on the combined PSO and SWEPCO transmission systems in the Southwest Ibwer l Ibol. The FERC accepted the tariffs for filing on November 4,1993. The tariffs will expose the CSW System to some additional risk ofloss ofload or reduced revenue 1 resulting from competition with alternative suppliers of electric power. Other industry-wide issues confronting the Corporation and its subsidiaries include current and proposed stringent nuclear, environmental and other regulation and deregulation. In addition, the Corporation and its subsidiaries are continuing to manage ; costs and rates and focus on new initiatives, including non-utility initiatives, in ! order to maintain its financial strength and reach its financial targets. Holding Cornparty Act l The Holding Company Act generally limits the operations of a registered holdmg company to a single integrated public utility system, plus such additional businesses as i ! are ftmetionally related to such system. Among other things, the Holding Company j Act requires the Corporation and its subsidiaries to seek prior SEC approval before effecting mergers and acquisitions or pursuing other types ofinitiatives. Pervasive reg-ulation under the Holding Company Act may impede or delay the Corporatiorn efforts to achieve its strategic and operating objectives, including its pursuit of non-utility l initiatives. The Corporation is continuing its efibrts to modify the Holding Company l Act in order to provide the flexibility to compete within the changing environment. Litigation and Repdatory Ikoceedirtes PSO has been named a defendant in complaints filed in federal and state courts in Oklahoma alleging, among other things, that some of the plaintiffs and the property l of other plaintiffs were contaminated with PClis and other toxic by-products ; 1 1 l i i I i 33 < l \
following certain incidents, including transformer malftmctions. Ti> date, complaints representing approximately 5735 million (including compensatory and punitive dam-ages) of claims have been dismissed, certain of which resulted from settlements among the parties. The settlements did not have a signi6 cant efTect on the Corporatiors consolidated results of operations. Remaining complaints currently total approximately
$396 million, of which approximately one-third represents punitive damages.
Although management cannot predict the outcome of these proceedings,it believes that PSO has defenses to these complaints and intends to pursue them vigorously. Moreover, management has reason to believe that PSO's insurance may cover some of the claims. Management also believes that the ultimate resolution of these cases will not have a material adverse efTect on the CorporatiorA consolidated results of operations. Four pendmg lawsuits, naming CPL as one of the defendants, allege that property damage and health impairment afTects residents near the industrial Road and Industrial Metals site in Corpus Christi, Texas. This site was used by several metal salvage companies for the sahage ofvarious materials purchased from electric utilities. Although management cannot predict the outcome of these procedings, based on the defenses that management believes are available to CPL, management believes that the ultimate resolution of the pending lawsuits will not have a material adverse etTect on the Corporation's consolidated results ofoperations. Reference is made to Note 10 Litigation and Regulatory Proceedings, for additional information relating to litigation and regulatory proceedings during 1993 imrolving the Electric Operating Companies. Corudidated Titxes The Texas Commission has historically allowed recovery in rates of an income tax component based on the Federal inconic tax incurred by a utility as ifit were a stand-alone company. However, in two recent rate determinations, the Texas Commission reduced another Texas utility's tax losses and other items. The Texas Supreme Court has agreed to review the decision of a court of appeals which determined that the Texas Public Utility Regulatory Act requires the Texas Commission to reduce rates by the tax benent oflosses of an unregulated affiliate. The Corporation believes that Federal income taxes should be determined on a stand-alone basis for ratemaking purposes. Presently, this issue does not have a significant effect on the Corporation. Em ironments The operations of the CSW System, like those of other utility systems, generally involve the use and disposal of substances subject to environmental laws. CERCLA, the federal "Superfund" law, addresses the cleanup ofsites contaminated by hazardous substances. Superfund requires that PRPs fund remedial actions regardless of fault or the legality of post disposal activities. Many states have similar laws. Theoretically, any one PRP can be held responsible for the entire cost of a cleanup. Typically, however, cleanup costs are allocated among Plu's. The Electric Operating Companies have been named as responsible parties under federal or state remediallaws thirteen times, and have resolved seven of those claims without a material adverse effect on the Corporation. The Corporation does not anticipate that resolution of the remaining six claims, individually or in the aggregate, will have a material adverse effect on it. Ahhough the reasons for this expectation difTer from site to site, factors that are the basis for the expectation for specific sites are the volume and/or type of waste allegedly contributed by the Electric Operating Company, the estimated amount of costs allocated to the Electric Operating Company and the participation ofother parties. l 1 l 1 l l
Contaminated former MGPs are a type of site which utilities, and others, may have to remediate in the future under Superfund or other federal or state remedial programs. Gas was manufactured at MGPs from the mid-1800's to the mid-1900's. In some cases, utilities and others have faced potential liability for MGPs because they, or their alleged predecessors, owned or operated the plants. In other cases, utilities or others
- may have been subjected to such liability fhr MGPs because they acquired MGP sites !
after gas production ceased. SWEPCO is investigating contamination at a suspected MGP in Marshall, Texas. Although it has not been determined whether a cleanup will be required at this site, preliminary estimates of potential response costs indicate that such costs would not be material to the Corporation. As more information is obtained about the site, and SWEPCO discusses the site with the TNibCC, the pre-liminary estimates may change. If a cleanup is required, SWEPCO intends to seek contribution from other PRPs. Under the Clean Air Amendments of 1990, beginning in the year 2000 the Electric , Operating Companies will be required to hold allowances in order to emit sulfur dioxide. The Corporation believes, based on the CSW System facilities plan, that its allowances are adequate to meet the needs of the Electric Operating Companies . at least through 2008. These amendments also direct the EPA to issue regulations governing nitrogen oxide emissions. Currently the Corporation anticipates spending 3
$15 million on continuous emission monitoring equipment from 1993 through 1995.
In addition, these amendments require government studies to determine what controls, if any, should be imposed on utilities to control air toxic emissions. The impact that the nitrogen oxide emission regulations, and the air toxics study, will have on the Electric Operating Companies cannot be determined at this time. Research is ongoing whether exposure to EMFs may result in adverse health effects or damage to the environment. Although a few of the studies to date have suggested certain associations between EMFs and some types of adverse health effects, the research to date has not established a cause-and-etTect relationship between EMFs and adverse health effects. The Corporation cannot predict the impact on the CSW ; System or the electric utility industry if further investigations or proceedings were to establish that the present electricity delivery system is contributing to increased risk or incidence of heakh problems. hd Setdements During December 1993, two major disputes imuh-ing litigation with long-term con-tract coal suppliers were settled. One dispute related to a coal supply contract between WTU and Exxon Coal USA, Inc. and the other to a coal supply contract between SWEPCO and Amax Coal Company. In each case, the prior contract was replaced with ; a new or amended and restated coal supply agreement. Iloth settlements are expected to result in reduced fuel costs both now and in the future. InJanuary 1994, SWEPCO entered into a settlement with Delhi Gas Pipeline Ccx of litigation between the parnes regarding a gas supply contract. The settlement provided for termination of the existing gas supply contract, which otherwise would have expired in March 1995, and a new four-year gas supply contract between the parties. The settlement is expected to result in a reduction of SWEPCO's gas costs now and in the future. , The benefit of these settlements will be passed through to customers of WTU and SWEPCO through fuel costs adjustment mechanisms. I I l 35
I Non-Utility insbatrves Tranwk Transok is an intrastate natural gas gathering, transmission, marketing and processing company that provides natural gas services to CSW System companies, predominately PSO, and to non-afTiliated gas customers throughout the United States. Transok's natural gas facilities are located in Oklahoma, L.ouisiana and Texas. h operates gas pro-cessing plants and markets natural gas liquids produced from those plants to variou2 markets. In 1993, Transok completed the purchase of the NGC Anadarko Gathering System, which included a processing plant and approximately 350 miles of gathering facilities. Transok also completed a new pipeline connecting the 125-megawatt San Angelo power station owned by WTU to Northern Natural Gas Company. The 34-mile connection will create an opportunity to reduce WTU's fuel costs and improve its reliability by otTering easier access to competitively priced interstate gas, especially in times of peak usage. Transok also began building a 41-mile pipeline in Oklahoma, to connect its Wynnewood line to its Comanche processing plant. When completed in 1994 it will serve PSO by alleviating constraints on other Transok pipeline facilities. CSW Enemy CSWE was reactivated in 1990 for the purpose of developing business opportunities primarily in the area ofindependent power and cogeneration.This wholly-owned subsidiary of the Corporation is authorized to develop various non-utility generation projects and to own and operate such projects, subject to further regulatory approvals. At December 31,1993, CSWE had made equity investments ofs28 million and currently intends to make additional equity investments of $30 million in 1994. CSWE has an interest in two facilities which have achieved commercial operation. The 40-megawatt facility at Oildale, California, has 23-year agreements to supply steam to Witco Corporation's oil refmery and to sell electricity to Pacific Gas and Electric Company. The second project, which began commercial operation onJanuary 17,1994, is a 68-megawatt, gas fired plant in Brush, Colorado. The project provides steam and hot water for a 15-acre greenhouse and sells electricity to Public Service Company of Colorado. Two other plants are expected to be completed during 1994. CSWE's 50-percent owned Ft. Lupton facility, a 272-megawatt gas-fired plant in Fort Lupton, Colorado, will provide steam and hot water for a 20 acre greenhouse and will sell electricity to Public Service Company of Colorado. The other facility is CSWE's 50-percent owned Mulberry facility, a 117-megawatt gas-fired cogeneration plant in Polk County, Florida. This facility will provide steam for a thermal host and will sell electricity to Florida Power Corporation and Tampa Electric Company. The CSW System is providing engineering, procurement and construction management services for the Mulberry project. CSWE's operating and maintenance division will operate this project. In late 1993, development commenced on a 102-megawatt, gas-fired plant in Florida that will provide thermal energy to an orangejuice processor and will sell electricity to Florida Power Corporation. In addition, construction will begin on a 148-megawatt plant near Sacramento, California, which will have an ethanol plant as thermal host and will supply electricity to the Sacramento Municipal Utility District. In addition to these projects, CSWE has another ten projects totaling more tlun 3,000 megawatts in various stages of development, mostly in atTiliation with other developers. All of these projects are subject to further negotiations and regulatory approvals. as
1 I i l Mexico In 1993 CSW continued its Mexico initiative that began in 1992. The Corporation's goal is to participate in providing the country's future electricity needs. Mexico is projecting growth in electricity requirements of more than 5.5% per year over the next decade. The geographical k) cation of the CSW System ofTers opportunities to provide ! bulk power sales to Mexico. In addition, the Corporation intends to participate in the l development of transmission facilities, independent power projects and cogeneration in Mexica Recent changes in Mexican statutes and regulations now permit participation . l in such ventures. The opening of an office in Mexico City allows CSW greater j l access to key Mexican industrial and governmental officials, permitting the Corporation to more readily evaluate opportunities as they become available. The passage of the North American Free Trade Agreement in 1993 should enhance the potential for the Corporation to become far more active in the Mexican electric power market. j Other laitiatwes l To meet its strategic goals the Corporation will continue to search for possible electric l utilities to acquire and will continue evaluating opportunities to pursue functionally l related non-utility businesses. The Corporation is, fbr example, exploring opportunities j in telecommunications, energy, the environment, and other technologies. Furthermore, i the Corporation has broken ground for the most comprehensive renewable energy project in the Southwest, encompassing photovoltaics, wind turbines, rooftop solar panels, and innovative solar-dish Stirling engines. l l l l i l l l 1 I l l l l l l l l l 37 l
Consolidated Statements of lacome Central and South if'est Corporation For the Years Ended December 31 1993 1992 '1991 Operating Retenues (nulbons except per share amounts) Electric Residential $ 1,160 $ 1,046 $ 1,081 Commercial 832 773 778 Industrial 736 659 632 Sales for resale 179 177 173 Other 148 135 139 Gas and other 632 499 244 3,687 3,289 3,047 Operatitzg Expenses and 1txes Fuel and purchased power 1,209 1,035 1,035 Gas purchased for resale 396 306 113 Other operating 679 562 531 Restructuring charges 97 - - Maintenance 197 170 181 Depreciation and amortization 330 311 291 Taxes, other than Federal income 197 175 163 Federal income taxes 125 142 167 3,230 2,701 2,4 81 Operating ina>me 457 588 566 Other income and Deductions Mirror CWIP liability amortization 76 83 97 Other 17 __{1 ) 8 93 82 105 income Bepre interest Charqcs 550 670 671 Interest Charges Interest on long-term debt 219 230 224 Interest on short-term debt and other 50 36 46 269 26_6 270 Income bepre Cumulatisv Efect of Changes in Accounting Principles 281 404 401 Cumulative EfTect ofChanges in Accounting Principles 46 - - Net imome 327 404 401 Preferred Stock Dividends 19 22 26 Nct Incomefor Common Stock 5 308 5 3H2 5 375 Average Common Shares Outstanding 188.4 l88.3 188.3 Earnitzqs per Share of Common Stak befbre Cumulatiur Efrt of Clunges in Accounting 1% ciples $ 1.39 $ 2.03 $ 1.99 Cumulative Effect of Changes in Accounting Principles .24 - - Earnings per Share qf Common Siock $ 1.63 $ 2.03 $ 1.99 Dividends Paid per Share of Common Stotk $ 1.62 $ 1.54 5 1.46 Consolidated Statements of Retained Earnings For the Years Ended December 31 1993 1992 1991 (milhom) Retained Earnings at Beginnirte ofibar $ 1,751 $ 1,659 $1,570 no .ecom,,,, ring nota to Net income for common stock 308 382 375 censondated ananew state. Deduct: Common stock dividends 306 290 275 monts are an latesral part of Preferred stock redemption costs - - 11 tsene etasemats. Retained Earnitzqs at End qf \ car $1.75 3 $1.751 $1.659 as \__.._____ _______ _
Consolidated Statements of Cash Flows
. Central and South IVest Corporation For the Years Ended December 31 1993- 1992 1991 (miniom)
-Operating Activities Net income - $ -327 5 404 5 401
- Non-cash items included in net income Depreciation and amortization 366 -351 -326 Deferred income taxes and investment tax credits - 94 71 62 Mirror CWIP liability amortization . (76) (83) -(97).
Restructuring charges 97 - -- Cumulative effect of changes in' accounting principles (46) - - j Changes in assets and liabilities . Accounts receivable (64) (52) (46) . -) Unrecovered fuel cost (63) -(4) 16 ) Accounts payable '27 _
.53 54- .l Accrued taxes 45 (41) - 10 i Other (13) (13) (22) -
694 '686 704
. Imtsting Activities l
Capital expenditures -(508) (422) '(322) Acquisitions (106) (27). (261) Non-affiliated accounts receivable purchases (314) 11' 3 CSW Energy projects. -(127) -(37) - Other (14) (8) (8) ( __1,069) (483) (588) Financing Activities Proceeds from issuances oflong-term debt 904 1.009 30-Retirement oflong-term debt (50) (4) (11) Reacquisition oflong-term debt (987) (652) (30) -i Special deposits for reacquisition oflong-term debt 199 (199) - l Redemption of preferred stock (17) (13) (13) l Change in short-term debt and other 603 19 225 Payment of dividends (325) (312) (301) 327 (152) (100)
- i. l Net Change in C.nh and Cash Equimlents (48) 51 16 Cash and Cash Equivalents at ikginning of War 110 59 43 Cash and Cash Equimients at End of War 5 62 5 110 $ 59 i
Supplementary Inkrmation Interest paid less amounts capitalized $ 260 $ 268 $ 271 - ; income taxes paid S 53 $ 108 $ 129 l The M ashes to i em anancist state. snents are au integral part of these statemisats.
]
y
-)
Consolidated Balance Sheets Central and Smth IL'est Corpration As of December 31 l 1993 1992 l (millions) ASSETS Plant Electric utility lYoduction $ 5.775 $ 5,756 Transmission 1,228 1,177 Distribution 2,362 2,182 General 709 628 Construction work in progress 371 264 Nuclear fuel 160 153 Gas 752 666 11,357 10,826 Less-accumulated depreciation 3,550 3,265 7,807 7,5 61 Current Assets Cash and temporary cash investments 62 110 Special deposits 2 206 Accounts receivable 813 435 Materials and supplies, at average cost 149 144 Fuel inventory, substantially at average cost 102 136 Gas inventory / products for resale, substantially at LIFO 28 10 Unrecovered fuel cost 70 7 Prepayments and other 53 33 1,279 1,0 81 Deferred Chages and Other Assets Deferred plant costs 518 519 Mirror CWIP assets 332 342 Other non-utility investments 253 135 Income tax regulatory assets 182 - Other 252 191 1,537 1,187
$10,623, 5 9,829 b aCCompaMHg D0tet 10 conudidated financial state-monts ass an lategral part of these statements.
40 u
i Centraland South it'est Corporation As of December 31 1993 1992-CAPITALIZATION AND LIABILITIES (milliom) Capitalization Common stock, $3.50 par value, authorized 350,000,000 shares in 1993 and 1992; issued and outstanding 188,405,000 shares in 1993 and 188,371,000 shares in 1992. $ 659 $ 659 Ibid-in capital 518 517 Retained earnings 1,753 1,751 Total Common Stock Equity 2,930 2,927 lYeferred stock Not subject to mandatory redemption 292 292 Subject to mandatory redemption 58 75 Long-term debt 2,749 2,647 7btal Capitalization 6,029 5,941 Current Liabilities Long-term debt / preferred stock due within twehe months 26 246 Short-term debt 769 483 Short-term debt - CSW Credit 641 326 Accounts payable 306 279 Accrued taxes 98 53- l Accrued interest 55 59 Accrued restructuring charges 97 - Other 168 116 2,160 1.562 Dekned Credits income taxes 1,935 1,660 Investment tax credits 335 350 Mirror CWIP liability and other 164 316 2,434 2,326 510.623 $ 9,829 l The accompanying notes to consolidated financial state-ments are an integral part of these statements. l 4I l.
Notes to Conso!! dated Financial Statements j Central and South It'est Corporation } L Summary of Significant Accounting Policies )
)
Public Utility Re,culation Central and South West Corporation is sutiect t to regulation by the Securities and Exchange Commission as a registered holding company under the Public Utdity Hokling Company Act of 1935. CSW's Operating Companies are also regulated by the SEC under the Holding Company Act. The Corporation's four Electric Operating Companies-Central Ibwer and Light Company, Public Service Company of Oklahoma, Southwestern Electric Power Company, and West Texas Utilities Company-are subject to regulation by the Federal Energy Regulatory Commission. The Electric Operating Companies are subject to further regulation for rates and other matters by state regulatory commissions. CSIf' Credit, Inc. A wholly-owned subsidiary of the Corporation, CSW Credit, purchases, without recourse, the billed and unbilled accounts receivable of the Flectric Operating Companies, Transok and certain nonafrdiated companies. The more signi6 cant accounting policies of the Corporation and its subsn ; aries are summarized below. Principles of Conwlidation The consolidated financial statements include the accounts of the Corporation and , its subsidiary companies. All signincant intercompany items and transactions have been eliminated. Plara Electric utility plant is stated at the original cost of construction, which includes the cost of contracted services, direct labor, materials, overhead items and allowances for borrowed and equity funds used during comtruction. Gas plant acquisitions are stated at fair market value based on the purchase price while other gas plant is stated at original cost of construction, which includes the cost of contracted services, direct labor, materials, overhead items and capitalized interest. Depmiation Provisiom for depreciation of plant are computed using the straight-line method, generally at individual rates applied to the various classes of depreciable property. The annual consohdated composite rates averaged 3.2% for 1993,1992 and 1991. Nwicar Decornmissionirre CPL's portion of the estimated costs of decommissioning STP is $85 million in 1986 dollars based on a site specinc study completed in 1986. CPL will continue to review and update this cost estimate and a new study will be completed in 1994. CPL is recovering decommissioning costs through its rates over the 38-year life of STP. The ,
$4 million annual cost of decommissioning is reDected in the income statement as other operating expeme. The funds received from customers applicable to deconunis-sioning are paid to an irrevocable external trust and as such are not redected on the Corporation's consohdated balance sheets. At December 31,1993, the trust balance was approximately $15 million, At the end of STP's 38-year life, decommissioning will be accomplished using the decontamination method, which is one of three techniques acceptable by the NRC.
Using this method the decontamination activities occur as soon as possible after the end of plant operation. Contaminated equipment is cleaned or removed to a permanent disposal location and the site is generally returned to its pre-plant state. A.glssary ofccriain ternu wed in this disansion is on pay 62, 42
Electric Rewnues and Fuci Itior toJanuary 1,1993, electric revenues were recorded at the time billings were made to customers on a cycle-billing basis. Electric service provided subsequent to billing dates through the end of each calendar month became part of operating revenues of the next month. To conform to general industry standards, the Electric Operating Companies changed their method of accounting to accrue for estimated unbilled revenues. The etTect of this change on 1993 net income was an increase of 549 million ($Q26 per share), net of taxes of $26 million. If this change in accounting method was 1 applied retroactively, the efTect on consolidated net income for 1992 and 1991 would I have been immaterial. This adjustment was recorded in 1993 as a cumulative efTect of l change in accounting principle. '! The Electric Operating Companies recover actual fuel costs through fuel recovery mechanisms. The application of these mechanisms varies byjurisdiction. Fuel costs regulated by Oklahoma, Louisiana, Arkansas and FERC are adjusted automaticalh Fuel costs in Texas are recovered as a fixed component ofrates whereby over-recoveries of fuel are payable to customers and under-recoveries may be billed to customers after Texas Commission approval. See Note 10, Litigation and Regulatory Pmceedings, for further information about fuel recovery. Defrred Plant Costs in accordance with orders of the Texas Commission, WTU and CPL deferred oper-ating, depreciation and tax costs incurred for Oklaunion Ibwer Station Unit 1 and STP, respectively, subsequent to their commercial operation dates until retail rates which included Oklaunion and STP in rate base became effective. The deferred costs ! are being amortized and recovered through rates over the lives of the respective . l plants. See Note 10, Litigation and Regulatory Proceedings, for further discussion of WTU's and CPL's deferred accounting proceedmgs. Statements of Cash Ms Cash equivalents are considered to be highly liquid debt instruments purchased with a maturity of three months or less. Accordingly, temporary cash investments are considered cash equivalents. Accounting Changes EffectiveJanuary 1,1993, the Corporation adopted SEAS Na 106, Employers' Accounting for Postretirement Benefits Other Than Pensions and SFAS Na 112, Employers' Accounting for lbstemployment Benefits (See Note 8, Benefit Plans). The Corporation also adopted SFAS Na 109 Accounting for income Taxes (See Note 2, Federal Income Taxes). In addition, the Electric Operating Companies also changed their method of accounting for unbilled revenues (See Note 1, Summary of Significant Accounting I Policies, Electric Revenues and Fuel). ! The adoption ofSFAS Na 106 resulted in an increase in 1993 operating expenses of
$16 million. The adoption of SFAS No.109, SFAS Na 112 and the change in account- I ing for unbilled revenues are presented as cumulative effect of changes in accounting j principles as shown below: l Pre-Tax Tax Net income EPS EtTect Effect Effect Effec t l (mhons, encpt I.Ps) I SFAS No.109 $- 56 $6 $0.03 l SFAS No.112 (13) 4 (9) (0.05) j Unbilled revenues 75 (26) 49 0.26 Total $62 5(16) 546 $0.24 Pro forma amounts, assuming that the change in accounting for unbilled rewnues had been adopted retroactively, are not materially different from amounts previously reported for prior years.
1 43 l I i
RedassiBcation Certain fmancial statement items for prior years have been reclassified to conform to the 1993 presentation.
- 2. Federalincome Taxes The Corporation adopted the provisions of SFAS No.109 effectiveJanuary 1,1993.
The net effect on the Corporation's earnings was a one-time adjustment to increase net income by $6 million ($0.03 per share). This adjustment was recorded as a , cumulative effect of change in accounting principle. The benefit was attributable to the reduction in deferred taxes associated with the Corporations non-utility operations previomly recorded at rates higher than current rates. For utility operations, there is no effect of SFAS No.109 on the Corporatioris earnings. As a resuh of this change, the Corporation recognized additional accumulated deferred income taxes, from its utility operations, and corresponding regulatory assets and liabilities to ratepayers in amounts equal to future revenues or the reduction in future revenues required when the income tax tempo 2ry differences reverse and are recovered or settled in rates. As a result of a favorable earnings history, the Corporation did not record any valuation allowance against deferred tax assets at December 31,1993. The Corporation files a consolidated Federal income tax return and participates in a tax sharing agreement. Components ofincome taxes are as follows: 1993 1992 1991 (nulhom) included in Operating Ihpenses and Taxes Current . $ 28 $ 64 $105 Deferred 112 95 77
- Deferred investment tax credas (lTC) (15) (17) (15) 125 ~
142 167 Induded in Other Inwme and ikductions Current (3) (7) (5) Deferred J) 7 (4) (8) ~ (9) Tax cfects e,(cunndarin e efect ofchanecs in Acamntin.g 1%nciples 14' _- -
- _$1 $_ $158 lotal income taxes differ from the amounts computed by applying the statutory income tax rates to income before taxes. The reasons for the differences are as follows:
1993 % 1992 % 1991 % (Julian in milhom) Tax at statutory rates $160 35 $186 34 $190 34 Differences Arnortization ofITC (15) (3) (15) (3) (14) (3) Mirror CWIP (23) (5) (25) (4) (29) (5) 13enefn of tax settlernents - - (10) (2) - - Pnor penod adjustments 18 4 - - - - Cumulative etTect of change in method , of accounting for ' income taxes (H) (2) - - . - Other (1) - 6 1 11
._2
$131 29 $142 26 $158 28 Investment tax credits deferred in prior years are included in income over the lives of the related properties.
44
l The significant components of the net deferred income tax liability are as follows: December 31, January 1, ) 1993 1993 ! (nuihong j Deferred Tax Liabihties: I l>roperty related book / tax ; basis ddTerences $1,547 $1,396 I 1 Mirror CWIP asset 116 116 Deferred plant costs 181 177 income tax related regulatory assets 239 232 Other 234 227 Total Deferred Tax Liabilities 2.317 2,148 Deferred Tax Assets: Income tax related regulatory habilities (177) (203) Mirror CWIP liability (38) (63) Altemative minimum tax carryforward (68) (52) Other (105) (88) Total Deferred Tax Assets . (388) (406) Net accumulated deferred income taxes - total 1.929 1.742 ] Net accumulated deferred income taxes -- noncurrent 1,935 1,790 , Net accumulated deferred income taxes - current (6) (48) 1 Net accumulated deferred income taxes total $1.929 $1.742 ; i
- 3. Long-Term Debt ,
The long-term debt of the Operating Companies outstanding as of the end of the last i two years was as follows: Maturities Interest Rates December 31 From To From To 1993 1992 (nuthung First mortgage bonds 1994 1998 5%% 9h% $ 253 $ 423 1999 2003 5% 8 656 475 2004 2008 6.2 8% 478 509 l 2014 2018 7% 9% 144 349 2019 2023 7% 9% 503 312 2024 2028 6% 6% 80 - l'ollution control bonds 2004 2008 5.9 7% 104 105 2009 2013 8.2 8.2 17 17 2014 2018 7% 10 % 274 344 2019 2023 7.6 7.6 54 54 2024 2028 6.0 6.0 120 - Notes and lease obligations 1995 2023 3.16 9% 273 216 Unamortized discount (22) (28) Unamortized costs of reacquired debt (185) (129)
$ 2.749 $ 2.647 45
1 i The moitgage indentures, as amended and supplemented, securing first mortgage l bonds issued by the Electric Operating Companies, constitute a direct first mortgage I lien on substantially all electric utility plant. ! 1 The Electric Operating Companies and Transok may ofter additional ftrst mortgage bonds and medium-term notes subject to market conditions and other factors. j i Anrmal Requirements Certain series ofoutstanding first mortgage bonds have annual sinking fund require- - ments which are generally 1% of the amount of each such series issued. These ) requirements may be, and have generally been, satisfied by the application of net expenditures for bondable property in an amount equal to 166-2/3% of the annual requirements. At December 31,1993, the annual sinking fund requirements average approximately -
$5 million for the next five years and the annual maturities oflong-term debt are below
$36 million except in 1997 when the maturities are $258 million.
Dividends The mortgage indentures, as amended and supplemented, contain certain restrictions on the use of trtained earnings fbr cash dividends on their conunon stocks. These , restrictions do not limit the ability of the Corporation to pay dividends to its share-holders. At December 31,1993. 51,131 million of the subsidiaries' retained earnings were available for the payment of cash dividends to the Corporation. Reacquired Long-term Debt During 1993,1992 and 1991, the Electric Operating Companies reacquired $987 million, $652 million and $30 million oflong-term debt, respectively, including reacquisition premiums, prior to maturity. The premiums and related reacquisition , costs are included in long-term debt on the consolidated b.tlance sheets and are being amortized over 5 to 35 years, consistent with its ratemaking treatment. Reference is made to Management's Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources, for more information on tracquired long-term debt. The weighted average cost oflong-term debt was 7.8% for 1993,8.3% for 1992 and 9.0% for 1991.
- 4. Preferred Stock The outstanding preferred stock of the Electric Operating Companies as of the end of the last two years was as follows:
1993 Current Shares Dwidend Rate December 31 Redemption , Outstandmg From To 1993 1992 Prices (nuthom) t rom To Not subject to mandatory redemption f 592,900 4% 5% $ 59 $ 59 5102.75 $109.00 760,000 7.12 8.72 76 76 101 00 102.91 , 1.600,000 auction 160 160 10n.00 100.00 l Issuance expenses and unamortized redemption costs _ 3) ( (3) ( $292 $292 Subject to mandatory redemption 364 On0 6.95 % 6.95% $ 37 5 47 5104.64 $104.64 l 223,750 10.05 10.05 22 29 104.76 104.76 issuance expenses and unamortired redemption costs J) J)
$ 58 $ 75
i The outstanding preferred stock not subject to mandatory redemption is redeemable at the option of the Electric Operating Companies upon 30 days notice at the current I redemption price per share. CPL's auction preferred stock totaling $160 million may also be redeemed at par on any dividend payment date. The CSW Systenn authorized number of shares of preferred stock totaled 6.4 million at December 31,1993 and 1992. Redemption prices of certain preferred stock decline at specified intervals in future periods. The preferred stock issues subject to mandatory redemption are reftmdable at various times during the period 1994 through 1998. The minimum annual sinking fund requirements of the preferred stock are 59 million in 1994 and average $5 million in each of the years from 1995 through 1998. The dividends on CPI's $160 million auction preferred stock are adjusted every 49 days, based on current nurket rates. The dividend rates averaged 2.72%,3.59% and 5.48% during 1993,1992 and 1991. During 1993,1992 and 1091, the Electric Operating Companies redeemed $17 million,
$13 million and $13 million, respectively, of preferred stock, including redemption >
premiums.
- 5. Common Stock On March 6,1992, the Corporation effected a two-for-one split of the Corporation's common stock by means of a 10UK stock dividend paid to shareholders of record on February 10,1992. All references to number of shares outstanding, to per share information in the Consolidated Financial Statements, and to the notes thereto have been adjusted to reDect the stock split on a retroactive basis.
The Corporation has a restricted stock plan and a stock option plan. Under the stock , option plan,2,707,000 shares of common stock are available for grant and 491,000 shares are reserved for exetvise of options which were outstanding at December 31,1993.
- 6. FinancialInstruments The following methods and assumptions were used to estimate the fair value of each class of fmancial instruments for which it is practicable to estimate fair value.
Cmh and tem; wary cash imestments The carrying amount approximates fair value because of the short maturity of those instruments. Short-tmn imrstments The carrying amount approximates fair value because of the short maturity of those instruments. Short-term investments are classified in accounts receivable on the consolidated balance sheets. Short-tenn debt The carrying amount approximates fair value because of the short maturity of those instruments. Long-term debt The fair value of the CSW Systens long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Corporation for debt of the same remaining maturities. 47
l 1 1 Prckntd sta sudject to mandatory redemption The fair value of the Electric Operating Companies' preferred stock subject to manda-tory redemption is estimated based on quoted market prices for the same or similar issues or on the current rates ofTered to the Corporation for pre' . red stock with the same or similar remaining redemption provisions, The estimated fair values of the Corporation's financial instruments are as follows: 1993 1992 Carrying Fair. Carrying Fair Amount Value Amount Value (milhom) Cash and temporary cash investments $ 62 5 62 $ 110 5 110 Short-tenn investments 13 13 30 30 Short-tenu debt 1,436 1,436 1,055 1,055 Long-term debt 2,749 2,947 2,647 2,772 Preferred stock subject to mandatory redemption 58 61 75 77 i The fair value does not affect the Corporatioris liabilities unless the issues are redeemed , prior to their maturity dates.
- 7. Short-Tenn Financing The CSW System has established a money pool to coordinate short-term borrowings and to make borrowings outside the money pool through the CorporatiorA issuance of commercial paper. At December 31,1993, the CSW System had bank lines of credit aggregatmg 5797 million to back up its commercial paper program.
CSW Credit, which does not participate in the money pool, issues commercial paper that is secured by the assignment ofits receivables. CSW Credit maintains a revohmg credit agreemem which aggregated $960 million at December 31,1993, to back up its commercial paper program.
- 8. Benefit Plans Defined Benefit Ikion Plan The Corporation maintaim a tax qualified, non-contributory defmed benefit pension ,
plan covering substantially all of the CSW System employees. Participants in the plan F during 1993 included approximately 8,300 active emphyees,3,600 retirees and benefi-cianes and 900 terminated employees with vested benefits. Ilenefits are based on ' empkryees' years of credited service, age at retirement, and final average annual earnings with an ofTset for the participant's primary Social Security benefit. The Corporatiuts funding policy is based on actuarially determined contributions, taking into account amounts which are deductible for income tax purposes and minimum contributions required by the Empkryce Retirement income Security Act of1974, as amended. Contributions to the plan for the years ended December 31,1993,1992 and 1991 were
$32 million, $29 million, and $22 million, respectively. lYnsion plan assets consist ,
primarily of common stocks and short-term and intermediate-term fixed income investments. i 48
The components of net periodic pension cost and the assumptions used in accounting for pensions are as follows: 1993 1992 1991 (dolbn in nnibung Net Periodic Pension Cost Senice cost $ 20 $ 18 $ 15 Interest cost on projected benefit obbyation 56 50 43 Actual return on plan assets '68) (43) - (95) - Net arnortization and deferral - (20) 44
$ 8 $ 5 57 Assumptions _ ,
Discount rate 7.75 % 8.50 % 8.50% ! Long-term salary increase 5.46 5.96 5.96 Return on plan assets 9.50 9.50 9.50 j l A reconciliation of the funded status of the plan to the amounts recognized on the consolidated balance sheets is shown below: December 31, 1993 1992 (nubns) Plan assets, at fair value 5790 $721 i Actuarial present value of I Accumulated benefit obligation for senice { rendered to date 649 549 Additional benefit for future salary levels _1333 122 Projected benent obligation 782 671 Plan assets in excess of projected benefit obligation .8 50 Unrecognized net gain 62 (5) Unrecognized prior service cost (8) (8) Unrecognized net obbgation 17 18 Prepaid pension cost 5 79 $ $5 The vested portion of the accumulated benefit obligations at December 31,1993 and 1992, was $586 million and $499 million respectively. The unrecognized net obligation is being amortized over the average remaining service life of employees, 17 years. Prepaid pension cost is included in other deferred charges on the consolidated balance sheets. In addition to the amounts shown in the above table, the Corporation has a non-qualified excess benefit plan. This plan is available to all pension plan participants who are entitled to receive a pension benefit from the Corporation which is in excess of the limitations imposed on benefits by the Internal Ibenue Code through the quali; d plan. The Corporation's net periodic cost for this non-qualified plan was $1.8 million in 1993 and $0.5 million for each of the prior two years. 49 l
Ibstrctirement Benefits Other Than Ihtsisms The Corporation adopted SFAS No.106, Employers' Accounting for Ibstretirement Benefits Other Than Pensions, January 1,1993. The adoption resuhed in an increase in operating expenses of $16 million for 1993. The Corporation's accumulated postretirement beneGt obligation was $207 million. The transition obligation was $180 - million and is being amortized over twenty years. In prior years, the Corporation accounted for these bene 6ts on a pay-as-you-go basis. Expenses for 1992 and 1991 were
$10 million and 58 million, respectively. The Corporation's funding policy is based on actuarially determined contributions taking into account amounts which are deductible forincome tax purposes. Contributions for 1993 were approximstely 531 million.
The Texas Commission approved a rule allowing full recovery of costs related to SFAS No.106 with the amortization of the transition obligation over a period of twenty years, provided the costs are funded and recovery is allowed in a rate case. The rule requires all amounts received in rates to be held in an external trust. The Arkansas Commission approved a rule allowing full recovery of costs related to SFAS No.106 with anwrtization of the transition obligation over a period of twenty years. The Louisiana Commission voted to remain on a pay-as-you-go basis. Pursuant to an order of the Oklahoma Commission, the Corporation has deferred a portion of the difference between pay-as-you-go benef t costs and the benefits costs determined under SFAS No.106, and established a regulatory asset of S5 million in anticipation of future recovery through rates. The components of net periodic postretirement benefit cost and the assumptions used in accounting for postretirement benefits are as follows: 1993 (milhom) Net Penodic Postretirement Benefit Cost Service cost 5 8 Interest cost on accumulated postretirement benefit obligation 17 Actual retum on plan assets (1) Amortiration of transition obligation 9 Net amortization and deferral _2) (
$ 31 A reconciliation of the funded status of the plan to the amounts recognized on the consolidated balance sheets is shown below:
December 31, January 1, 1993 1993 (dollars m mdbons) Accumulated Postretirement Ilenefit Obligation Retirees $146 5121 Other fully eligible participants 30 35 Other active participants 64 51 Total APilO 240 207 Plan assets at fair value (51) _2]) ( APDO in excess ofplan assets 189 180 Unrecognized tramition obligation (171) (180) Unrecognized gain or (loss) _(18) - (Accrued)/ Prepaid Cost 5 - O Assumptions Discount rate 7.75 % 8.50% I Return on plan assets 9.Of M 9.00% Tax rates fbr taxable trusts 39.Nr% 31.0(N 50
Health Care Cost Trend Rate. Assumptions Pre-65
Participants:
1993 Rate of 12.50% grading down .75% per year to an ultimate rate of 6.5% in 2001. Post-65
Participants:
1993 Rate of12.00% grading down .75% per year to an ultimate rate of 6uX in 2001. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the APBO as of December 31,1993 by $28 million and increase the aggregate of the service and interest cost components of net postretirement benefits by $4 million. Ibstemployrnent Benefits in November 1992, the Financial Accotmting Standards Board issued SFAS No.112, Empk>yers' Accounting for Pbstemployment Benefits. This statement requires the accrual method of accounting for certain types of postemployment benefits provided to former or inactive employees after employment, but before retirement. This new . standard requires that the expected costs of these benefits be accrued during the period employees render service to qualify for benefits. The most significant costs for the Corporation are the continued medical and salary benefits during long-tenn disability. EfTectiveJanuary 1,1993 the Corporation adopted SFAS No.112 and the efTect of the change on 1993 income was $9 million ($0.05 per share), net of taxes of $4 million, reflected in cumulative effect of changes in accounting principles. In 1992 and 1991, while recording these expenses on a pay-as-you-go basis, the Corporation incurred expenses of $0.7 million and $0.9 million, respectively Restnuturhg Charecs The Corporation recently announced an early retirement program as a part of the corporate restructuring etTorts in order to streamhne operations and reduce future costs. It is anticipated that this restructuring will afTect employee benefit costs incurred by the Corporation in future periods. Due to the timing of the implementation of the program, many variables regarding specific costs cannot be identified until mid-1994. As a result, no adjustments have been made to the employee benefit cost data presented above.
- 9. Jointly Owned Dectric Utility Plant The Electric Operating Companies are parties to variousjoint ownership agreements with other non-affiliated entities. Such agreements provide for thejoint ownership and operation of generating stations and related facilities, whereby each participant bears its share of the project costs. At December 31,1993, the companies have undivided interests in five such generating stations and related facilities as shown below:
CPL SWEPCO SWEPCO SWEPCO CSW South fhnt Pirkey Dolet System Texas Creek Lignite Hills Oklaunion Nuclear Coal Plant Lignite Coal Plant Plant Plant Plant biollars in nulhons) Plant in service $ 2.340 $ 78 5 429 5 225 5 398 Accumulated depreciation 5 318 5 37 5 121 5 55 5 80 Plant capacity - mw 2,500 480 650 650 676 Participation 25.2 % 50.0% H5.9% 40.2% 78.1% Share of capacity - m u 630 240 559 262 528 51
- 10. Litigation ad Regulatory Proceedings CPL Intuluaion CPL owns 252% of STP, a two-unit nuclear power plant which is located near 11ay City, Texas. In addition to CPL, HLP, the Pr sect Manager, owns 30.8%, San Antonio owns 2m%, and Austin owns 16.0%. STP Unit 1 was placed in service in August 1988 and STP Unit 2 was placed in service in June 1989 Final Ordm in October 1990, the Texas Conmtission issued the STP Unit 1 Order which fbily implemented a stipulated agirement filed in Tvbruary 1990 to resohr dockets then pend-ing before the Texas Commission. In December 1990, the Texas Commission issued the STP Unit 2 Order which fidly implemented a stipulated agreement to resohe allissues regarding cpl?s imestment in STP Unit 2.
The STP Unit 1 Order allowed CPL to increase retail base rates by $144 million. This ! base rate increase made permanent a $105 million interim base rate increase placed ! into e&ct in March 1990 and a $39 million interim base rate increase placed into effect in September 1989. The STP Unit 2 Order provided for a retail base rate increase of
$120 million c&ctiveJanuary 1,199L The STP Unit 1 Order also provided for the deferral of operating expenses and carrying costs on STP Unit 2. A prior Texas [
Commission order (see " Deferred Accounting" below) had authorized deferral of STP Unit 1 costs. Such costs are being recovered through rates over the remaining life of STP Also, the STP Unit 1 Order authorized use ofMirror CWIP, pursuant to which CPL recognized carrying costs as deferred costs, and establhhed a corresponding liabihty to customers trcorded in Mirror CWIP liability and other deferred credits on the balance sheets. In compliance with the order, carrying costs collected through rates during periods when CWIP was included in rate base were recognized as a loan from customers. The loan is being repaid through lower rates from 1991 through : 1995, which approximates the length of time during which the carrying costs were collected from customers. The Mirror CWIP liability is being reduced by the recognition of non-cash income during the period 1991 through 1995. The STP Unit I and 2 Orders resolved allissues pertaining to the reasonable original costs of STP and the appropriate amount to be included in rate base. Pursuant to the Tixas Commission orders, the original cost of CPI's total investment in STP is included in rate base. As part of the stipulated agreement, CPL has agreed to frecre base rates fromJanuary 1,1991, through 1994, tubject to certain force majeure events including double-digit inflation, major tax increases, extraordinary increases in operating expenses or sericas declines in operating revenues. CPL may file for increases in base rates, which would be eflictive after 1994 and subject to certain limitations. The fuel portion of customers' bills is subject to adjustments folknving the normal review and appnwal by the Texas Commission. The stipulated agreements, as discussed above, were entered into by CPL, the Texas Commission Staff and a majority ofintervenors including major cities in cpl?s service ; territory and major industrial customers. These intervenors represent a significant , majority of CPL's customers. CPL and the TSA reached agreements, which were subsequently approved by the Texas Commission Staff and other signatories, whereby , TSA agreed not to oppose the stipulated agreements in any respect, except with regard to defctred accounting and rate design issues in the STP Unit 1 Order. I OPUC and a coalition oflow-income customers declined to enter into the stipulated ! I agreements.
)
i i i $2
1 InJanuary 1991, the TSA,' OPUC and the coalition oflow-income customers filed , appeals of the STP Unit 1 Order in District Court requesting reversal of the deferred j accounting for STP Unit 2 and other aspects of tlut order. In March 1991, the TSAi l OPUC and the coalition oflow-income customers filed appeals of the STP Unit 2 Order in the District Court requesting reversal of that order. These appeals are pending before the District Court. If these orders are ultinutely reversed on appeal, the stipulated agreements would be nullified and the Corporation could experience a significant adverse effect on its consolidated results of operations. However, the parties to the stipulated agreement, should it be nullified, are bound to renegotiate and try to - , reach a revised agreement that would achieve the same results. Management believes i that the STP Unit 1 and 2 Orders will be upheld. j Dckrred Accwntirg . . _ CPL was granted deferred accounting for STP Unit 1 and 2 costs by Texas Commission orders. These orders allowed CPL to defer post-in-service operating and maintenance costs, including taxes and depreciation, and carrying costs until these _j costs were reflected in retail rates. Deferred accounting had an immediate positive l effect on net income in the years allowed, but cash earnings were not increased until. rates went into effect redecting STP in service (see "STP Final Orders" above). The total deferrals for the periods affected were approximately $492 million with an after-tax net income effect of approximately 532S million. This total deferral included approximately $270 million ofpre-tax debt carrying costs. Pursuant to the STP Unit [ 1 and 2 Orders, CPI's retail rates include recovery of all STP Unit 1 and 2 deferrals . over the remaining life of the plant. InJuly 1989. OPUC and the TSA fded appeals of the Texas Commission's final order i in District Court requesting reversal of deferred accounting for STP Unit 1. In September 1990, the District Court issued a judgment aflirming the Texas Commission's order for STP Unit 1, which was subsequently appealed to the Court of Appeals by OPUC and the TSA. The hearing of CPL's STP Unit 1 deferred accounting order was combined by the Court of Appeals with similar appeals of HLP deferred accounting orders. In September 1992, the Court of Appeals issued a decision that allows CPL to include STP Unit 1 deferred post-in-service operating and maintenance costs in rate base. However, the Court of Appeals held that deferred post-in-service carrying costs could not be included in rate base, thereby prohibiting CPL from earning a return on j such costs. After the Court of Appeals' denial of each party's motion for rehearing of the decision, CPL and the Texas Commission in December 1992 fded Applications for Wcit of Error petitioning die Supreme Court of Texas to review the September 1992 decision denying rate base treatment of deferred post-in-service carrying costs by the Court
- of Appeals. Additionally, the TSA and OPUC filed Applications for Writ of Error
! petitioning the Supreme Court ofTexas to reverse the Court of Appears decision, , challenging generally the legality of deferred accounting for or rate base treatment of 1 any deferred costs. In May 1993, the Supreme Court of Texas granted CPL's applica- l tion for writ of error. CPL's case was consolidated with the deferred accounting cases of El Paso and HLP. Oral arguments were heard in September 1993 and the Supreme Court's decision is pending. If CPI's orders granting deferred accounting were ultimately reversed and not favorably j revised, the Corporation could experience a material adverse efTect on its results of J operations. While management cannot predict the ultimate outcome of the deferred accounting appeal, management believes CPL will successfully receive approval of its deferred accounting orders or wdl be successful in renegotiation ofits rate orders, so that there will be no material adverse effect on the Corporation's continuing consolidated results of operations. I l 53 l
l Outze . In February 1993, Units 1 and 2 of STP were shut down by HLP, the Project Manager, in an unscheduled outage resulting from mechanical problems relating to two auxiliary feedwater pumps. IILP determined that the units would not be , restarted until the equipment failures had been corrected and the NRC briefed on the causes of these failures and the corrective actions that were taken. The NRC formalized l that commitment in a confirmatory action letter and sent an Augmented Inspection , Team to STP to review the matter. In March 1993, the NRC began a diagnostic evaluation of STP. Conducted infrequently, diagnostic evaluations are broad-based : evaluations of overall plant operations and are intended to review the strengths and : weaknesses of the licensee's performance and to identify the root cause of performance ! problems. During and subsequent to theJune 1993 completion of the evaluation, the NRC supplemented its confirmatory action letter to identify additional issues to be .
~f resob d and verified by the NIC before restart of STE Such issues included the need to reduce backlogs of engineering and maintenance work and to simplify work processes which placed excessive burdens on operating and other plant personnel. The report also identified the need to strengthen management conununications, over- l sight and teamwork as well as the capability to identify and cortect the root causes of problems.
The NRC announced in June 1993 that STP was placed on its " watch list" of plants , with " weaknesses that warrant increased NRC attention." Plants on the watch list are subject to closer NRC oversight. STP will remain on the NRC's watch list until both units return to service and a period of good perfornunce is demonstrated. During the outage, the necessary improvements have been made by HLP to address the issues in the confirmatory action letter, as supplemented. On February 15,1994, > the NRC agreed that the confirmatory action letter issues had been resolved with - respect to Unit 1, and that it supported HLP's recommendation that Unit 1 was seady to restart. Unit I restarted in late February 1994 and operated at low power for three days. The Project Manager then shut down Unit 1 due to a problem with a steam
- generator feedwater valve and a steam generator tube leak. The Project Manager expects to make the necessary repairs and restart Unit 1 in late March 1994, although ,
additional delays may occur. , While many of the corrective actions taken are common to both units, HLP must , demonstrate to the NRC that these issues are also resolved with respect to Unit 2 before it is restarted. HLP estimates that Unit 2 will restart during the second quarter l of 1994 after the completion of refueling, which began in March 1993 but was delayed in order to focus on the issues discussed above. The outage has not affected , CPL's ability to meet customer demands because of existing capacity and CPUs ability to purchase additional energy from affiliates and non-affiliates. During 1993, the NRC imposed a total of $500,000 in fines against HLP in connection ; l with violations of NRC requirements that occurred prior to the February 1993 shut , down. No fmes have been imposed for activities subsequent to the shut down. CPL ; has paid its portion (25.2%) of the costs of fmes. ! CPUs share ofincreased non-fuel operation and maintenance costs in 1993, related to the outage at STP, necessary to afTect the needed improvements were approximately
$29 million, and were expensed as incurred. Included in these expenses were detailed inspections of both units' steam generators, and the acceleration of certain mainte-nance activities from 1994 to 1993. This acceleration is expected to eliminate the need for any planned outages for either unit in 1994. The 1994 budgeted STP non-fuel operation and maintenance expenses are expected to be significantly lower than the 1993 actual expenses; but even though lower, they are expected to be sufficient to j continue enhancements that will result in improved long-term performance of STR -
Pursuant to the substantive rules of the Texas Commission, CPL generally is allowed to recover its fuel costs through a fixed fuel factor. These fuel factors are in the nature , l l
h of temporary rates, and CPUs collection ofrevenues by such factors is subject to > adjustment at the time ofa fuel reconciliation proceeding before the Texas Commission. , The difTerence between fuel revenues billed and fuel expense incurred is recorded as an addition to or a reduction ofn venues, with a corresponding entry to unrecovered fuel or other current liabilities, as appropriate. Any fuel costs, (not limited to under- or over-recoveries) which the Texas Commission determines as unreasonable in a reconciliation - , proceeding are not recoverable from customers. During the outage CPUs fuel and purchased power costs have been, and are expected to continue to be, increased as the power normally generated by STP must be replaced through sources with higher costs. It is unclear how the Texas Commission will address ' the reasonableness of higher costs associated with the outage. AtJanuary 31,1993, before : the start of the STP outage, CPL had an over-recovered fuel balance of $5.2 million, I exclusive ofinterest. At January 31,1994, CPUs under-recovered fuel balance was $55.7 ' million, exclusive ofinterest. This under-recovery of fuel costs, while due primarily to - the STP outage, was also affected by changes in fuel prices and timing differences. CPL - cannot accurately estimate the amount of any future under- or over-recoveries due to the unpredictable nature of the above factors. Although there is the potential for disal- , Iowance of fuel-related costs, such determination cannot be made until fuel costs are reconciled with the Texas Commission. If a significant portion of fuel costs were disallowed by the Texas Commission, the Corporation could experience a material . adverse effect ofits consolidated results of operations in the year of any disallowance.- CPL is required by the Texas Commission's rules to file a reconciliation ofits fuel costs l by May 1,1994, however the Texas Commission Staffis proposing a revised fding dead-line that would not require CPL to file before the fourth quarter of1994. In July 1993, CPL filed a fuel surcharge petition, which is separate from a fuel l reconciliation proceeding, with the Texas Commission to comply with the mandatory i provisions of the Texas Commission's fuel rules. The petition requested approval of a . customer surcharge to recover under-recovered fuel and purchased power costs resulting l from the STP outage, increased natural gas costs and other factors. The petition also - l requested that the Texas Commission postpone consideration of the surcharge natil the { STP outage concluded or at the time fuel costs are next reconciled as discussed i above. In August 1993, a Texas Commission Administrative LawJudge granted CPUs request to postpone consideration of the surcharge. In January 1994, CPL updated its fuel surcharge petition to reflect amounts of under-recovery through November 1993. Likewise, CPL requested and was granted postponement of the updated petition until the STP outage concluded or at the time fuel costs are next reconciled. Management believes that the operating outage at STP will not have a material effect on the Corporation's financial condition or on its consolidated results of operations. Raw Cax Filbys During December 1993 andJanuary 1994, several Cities in CPUs service territory exer-cised their rights to require CPL to file rate cases to determine if CPUs rates are fair, just and reasonable. The Cities together account for approximately 40% of CPUs base revenues. The governing bodies of these Cities have originaljurisdiction over rates only within their incorporated limits. The Cities have ordered CPL to file rate cases by various dates from February 17 through March 18,1994, with hearings scheduled in February and March 1994. The Cities have informed CPL that this rate review was precipitated by the outage at i STP leading the Cities to question whether STP should continue to be included in I CPUs rate base. Further, the Cities question whether CPL is earning an excessive return ; on equity. In February 1994, a consultant for the Cities filed its report with the Cities. ! The consultant recommends that STP Unit 2 be removed from CPUs rate base, resulting i i
$5 l
l 1 in a reduction of CPUs total base revenues of $106.5 million. The consultant did not recommend a reduction in revenues relating to STP Unit 1, nor did it suggest a rev-enue reduction for its contention that CPUs earnings have been excessive, but it sug-gests that those issues be reserved for future proceedings if circumstances warrant i action. Furthermore, the consultant made no recommendations concerning STP operation and maintenance expenses. CPL contends that both units of STP belong in rate base because of the long-term benefits nuclear generation provides to customers. CPL is not aware of any Texas Commission precedent directly supporting the removal of a nuclear plant from rate base because of outages of the duration experienced by Unit I and expected for Unit 2. CPL also believes that its return on equity is below the level specified for the rate freeze period in accordance with the stipulated agreement entered into by CPL. ; and parties to its last rate order, including the Cities. This rate order does not restrict the Cities from exercising their originaljurisdiction over rates during the , rate freeze period. The Texas Commission has appellatejurisdiction over rates set by municipalities. In February and early March 1994, some of the Cities passed resolutions ordering CPL
- to reduce rates by $73 million,if applied on a total company basis. These Cities' revenues represent approximately 20% of CPUs total base revenues. The orders only .
afrect the rates ofcustomers who take service within these Cities' limits. The orders call for rates to be reduced in April unless, on appeal, the Te-as Commission takes - ' action which would stay their efTectiveness. CPL intends to appeal these orders to the Texas Commission and seek the actions necessary to stay their efTectiveness. CPL , cannot predict if other cities acting in their capacity as regulatory authorities will initiate similar proceedings. In December 1993, a complaint was filed at the Texas Commission by a CPL customer who takes service outside of municipal limits, where the Texas Commission has originaljurisdictional. The complaint seeks a review of CPUs rates due to the outage at STP. The Texas Commission has docketed the proceeding, but has taken no other y action in the matter. Subsequently, the OPUC and General Counsel petitioned the Texas Commission to review CPUs rates. Any rate orders which might ultimately be , entered as a result of these filings would affect customers served by CPL in all areas where individual city regulatory authorities do not have originaljurisdiction. Management cannot predict the uhimate outcome of these rate filings, although l management believes that their ultimate resolution.will not have a material adverse > effect on the Corporatimis comolidated results of operations or financial condition. I1istiglwwe Utiption CPL and other owners of STP are plaintiffs in a lawsuit filed in October 1990 in the District Court in Matagorda County, Texas against Westinghouse, seeking damages and ; other relief. The suit alleges that Westinghouse supplied STP with defective steam generator tubes that are susceptible to stress corrosion cracking. Westinghouse filed an i answer to the suit in March 1992, denying the plaintiff's allegations. The suit is currently in the discovery phase. Inspections during the current STP outage have detected early signs ofstress corrosion ; cracking in tubes at STP Unit 1, but the resulting remedial measures to date have not resulted in a material expense to CPL Management believes additional problems would develop gradually and could be monitored by the operators of STP. An accurate estimate of the costs of remedying any further problems currently is unavailable due to many uncertainties, including among other things, the timing of repairs, which may coincide with scheduled outages, and the recoverability of amounts from Westinghouse and any insurers. Management believes that the ultimate resolution of this matter will not have a material adverse effect on the Corporation's results of operations. i I
PSO in January 1994, the Oklahoma Commission issued an order unanimously approving ajoint stipulation between PSO,'the Oklahoma Commission Staff, and the Office of the Attorney General of the State of Oklahoma, as recommended by an Administrative L.awJudge. The order allows PSO an increase in retail rates of $14.4 - million on an annual basis which represents a $4.3 million increase above those I authorized by a March 1993 interim order. The revised rates were implemented in February 1994. Among other things, PSO has agreed that it'will not file another retail rate increase application until afterJune 30,1995. PSO has been named defendant in complaints fikd in Federal and state courts of Oklahoma and Texas in 1984 throughJanuary 1994 by gas suppliers alkging claims arising out of certain gas purchase contracts. Cases currently pending seek approximately
$34 million in actual damages, together with claims for punitive damages which, in compliance with pleading code requirements, are alleged to be in excess of 510,000. The plaintiffs seek relief through the filing dates as well as attorney fees. As a result of settlements among the parties, certain plaintiffs dismissed their claims with prejudice to further action. The settlements did not have a significant etTect on PSO's consolidated l results of operations. The remaining suits are in the preliminary stages. Management ;
cannot predict the outcome of these proceedings. However, management believes that l PSO has defenses to these complaints and intends to pursue them vigorously. Management ; l also believes that the ultimate resolution of the remaining complaints will not have a material adverse effect on the CorporatiorA consolidated results of operations. PSO has been named defendant in complaints filed in Federal and state courts of Oklahoma in 1984,1985,1986 and 1993. The complaints allege, among other things, that some of the plaintitTs and the property of other plaintiffs were contaminated with PCils and other toxic by-products following certain incidents, including transformer malfunctions in April 1982, December 1983 and May 1984. To date, complaints repre-senting approximately $735 million (including compensatory and punitive damages) ' of claims have been dismissed, certain of which resuhed from settlements among the j parties. The settlements did not have a significant effect on the Corporatioin consoli-dated results of operations. Remaining complaints currently total approximately $396
]
million, of which approximately one-third is for punitive damages. Discovery with regard to the remaining complaints continues. Management cannot predict the outcome .; of these proceedings. However, management believes that PSO has defenses to these l complaints and intends to pursue them vigorously. Management also believes that the j ultimate resolution of the remaining complaints will not have a material adverse efTect on the Corporatioin consolidated results of operations. In June 1992, PSO filed suit in Federal District Court in Ttdsa, Oklahoma, against a rail carrier seeking declaratory relief under a long-term contract for the transportation of coal. In July 1992, the defendant carrier asserted counterclaims.against PSO alleging ! that PSO breached the contract. The counterclaims seek damages in an unspecified amount. PSO and the defendant carrier have filed motions for summaryjudgment , l on certain dispositive issues in the litigation. The motions have been fully briefed and l argued and the parties are awaiting the Court's order. In December 1993, PSO amended its suit against the defendant carrier seeking damages and declaratory relief under Federal and state anti-trust laws. Although management cannot predict the out-come, management believes that PSO's interpretation and performance of the con-tract have been proper and intends to vigorously pursue this case. Management also believes that the ultimate resolution of the case will not have a material adverse effect ! on the Corporation's consolidated results of operations. i 57 l
i SlVEPCO in April 1991. TIEC filed suit in the Travis County District Court challenging the Texas Conunissioni fmal order on SWEPCO's fuel reconciliation proceeding in Docket 8900. The District Court upheld the order, a decision which TIEC challenged on appeal. OnJanuary 5,1994, the Texas Supreme Court rejected T1EC's latest request , for an appeal and the decision is now fmal. IV7U WTU received approval from the Texas Conunission in September 1987 to defer , operating expemes and carrying costs associated with Oklaunion incurred subsequent to its December 1986 commercial operation date until December 1987 when retail t rates including Oklaunion in WTU's rate base became effective. The deferred costs are being recovered and amortized over the life of the plant, in November 1987 OPUC , filed an appeal in District Court of the Texas Commission's fmal order requesting that - WTU not be allowed to defer any costs associated with Oklaunion. In . October 1988 the District Court affirmed the fmal order of the Texas Commission. In December 1988 OPUC fded an appeal of the District Court order with the Court of Appeals. In September 1990 the Court of Appeals upheld the District Court's affirmation of the . Texas Commission's final onler and in October 1990. OPUC filed a motion for rehe:uing of the Court of Appeal's decision, which was denied in November 1990. The Supreme Court granted OPUC's application for writ of error in WTU's deferred accounting case. Oral arguments were heard in September 1993 and the Supreme [ Court's decision is pending.
- On October 2,1992, the District Court heard the remanded appeals of the fmal rate ;
order of the Texas Commission in WTU's 1987 rate case. The District Court aflirmed WTU's rate order in all material respects with the exception of the inclusion of deferred carrying costs in rate base for Oklaunion. The District Court's decision allowed WTU to include Oklaunion deferred post-in-service operating and mainte- ; nance costs in rate base. While the 1992 District Court decision permits deferred '; post-in-service carrying costs to be amortired and recovered in WTU's cost ofseevice, it does not permit WTU to include these costs in rate base, thereby prohibiting WTU from earning a return on these costs. On April 16,1993, WTU filed an appeal of the District Court's decision with the Third Court of Appeals. Oral arguments for , the appeal were heard December 1,1993, and the case is pending a decision by the - Third Court of Appeak. No assurance can be given as to the ultimate outcome of this matter, which is related to but separate from WTU's deferred accounting case. ; Currently WTU has recorded approximately $32 million of Oklaunion deferred ; costs, of which $25 million are carrying costs. Management believes that no write-off t of deferred carrying costs is necessary under the District Court's decisions. Management believes that WTU's deferred accounting treatment is within the Texas , l Commission's statutory authority and should ultimately be sustained on appeal. i ! However, no assurance can be given as to the outcome of any rate proceedings involv-ing this matter. While management cannot predict the ultimate outcome of the deferred accounting appeals, management believes that WTU's deferred accounting matter will not result in a material adverse effect on the Corporation's consolidated ; l results of operations. ! ! ) OTHER i The Corporation is party to various other legal claims, actions and complaints arising in the normal course of business. Management does not expect disposition of these i matters to have a material adverse effect on the Corporation's consolidated results of ] operations. SS i
l l
- 11. Commitments and Contingent Liabilities it is estimated that the CSW System will spend approximately 5535 million in capital expenditures during 1994. Substantial commitments have been made in connection with this capital expenditure program.
.]
To supply a portion of the fuel requirements of the CS'W System, the subsidiary ] compame:, have entered into various conunitments for the procurement of fuel. l In connection with the lignite mining contract for its Henry W. Pirkey Power Plant, SWEPCO has agreed, under certain conditions, to assume the obligations of the mining contractor. As of December 31,1993, the maximum amount SWEPCO would have to assume was $76.3 million. The maximum amount may vary as the mining ; contractor's need for funds fluctuates. The contractor's actual obligation outstanding at i December 31,1993 was 566.3 million. Nudear Insurance In connection with the licensing and operation of STP, the owners have purchased the maximum limits of nuclear liability insurance, as required by law, and have executed indemnification agreements with the Nuclear Regulatory Commission, in accordance with the financial protection requirements of the Price-Anderson Act. l The Price-Anderson Act, a comprehensive statutory arrangement providing limitatiom on nuclear liability and governmentaiindemnities, is in effect until August 1,2002. j The limit ofliability under the Price-Anderson Act for licensees of nuclear power ' plants is $7.8 billion per incident. The owners of STP are insured for their share of this liability through a combination of private insurance amounting to $200 million and I a mandatory industry-wide program for self-insurance totaling $7.6 bilhon. The maxi-mum amount that each licensee may be assessed under the industry-wide program ! of self-insurance following a nuclear incident at an insured facility is $66.15 million (u hich amount may be adjusted for inflation) for each licensed reactor, but not more l than $10 million per reactor for each nuclear incident in any one year. CPL and each of the other STP owners are subject to such assessmen,s, which CPL and other ; owners have agreed will be borne on the basis of their respective ownership interests I in STP. For purposes of these assessments, STP has two licensed reactors. The owners of STP currently maintain on-site property damage insurance in the ; amount of $2.7 billion provided by American Nuclear Insurers and Nuclear Electric insurance Limited. Policies ofinsurance issued by American Nuclear insurers and _ ) Nuclear Electric Insurance Limited stipulate that policy proceeds must be used first to pay decontamination and clean-up costs, before being used to cover direct losses to property. CPL and the other owners ofSTP have entered into an agreement that pro-vides for the total cost of decontamination liability and property insurance for STP ~ 1 (including premiums and assessments) to be shared pro rata based upon each owner's respective ownership interests in STP CSW Enesq Through various wholly-owned subsidiaries, CSWE is involved in six different cogen-eration projects classified as qualifying facilities under the Public Utility Regulatory Policies Act of 1978 and the rules and regulations promulgated thereunder by the FERC. CSWE fmances its development efforts and equity investments primarily through borrowings from the Corporation. These borrowings are intended to be repaid with pmceeds fmm non-recourse project financing from independent third party financial institutions. As a result ofits participation in the projects, CSWE has contractual commitments to provide certain services and support. Each of the contracts provides, among other things, that the potential maximum liability of the CSWE subsidiaries will be limited to the fixed price of such contracts, currently aggregating approximately 5175 mil-lion. The Corporation has direct or indirect respomibility for these amounts. 59
i l l i
- 12. Business hg==eds l The Corporation's business segments include electric utility operations (CPL, PSO.
SWEPCO, WTU), and gas operations (Transok). Five non-utility companies are l included in corporate items (CSWE, CSW Credit, CSW l. casing, Inc., CSWS and the Corporation). The Corporation's business segment information follows: 1993 1992 1991 (milhons} Operating revernas Electric $ 3,055 $ 2,790 5 2.803 Gas 603 496 241 Corporate items and other 29 3 3 5 3,687 S 3.289 5 3,047 Operating inanne Electric 5 553 5 689 $ 692 Gas 17 40 34 Corporate items and other 12 1 7 Total operating income before taxes 582 730 733 Income taxes 125 142 167 5 457 '$ 588 5 566 Depraiatimt Electric $ 296 $ 284 $ 276 Gas 29 22 12 Corporate items and other . 5 5 3 5 330 $ 311 5 291 1Jentillable assets Electric $ 8,927 5 8,575 $ 8,321 Gas 691 674 585 Corporare items and other 1,005 . 580 490
$10.623 $ 9.829 5 9.396 Carital expenditures and acquisitwns Electric $ 481 5 325 5 276 Gas 88 101 300 Corporate items and other 45 2.} 7 5 614 5 449 5 583 i
i I l i i l
- 13. Quartedy Infonnation (Unaudited)
The following unaudited quarterly information includes, in the opinion of management, all adjustments necessary for a fair presentation of such amounts. Earnings Operating Operating Net per Share Revenues income income of Conunon Quarter Ended (milhom) Stock 1993 i March 31-Reported 5 817 $ 102 $ 57 $ .28 l Adjustment (7) (5) _ 35 .19 j March 31-Restated 810 97 92 .47 June 30-Reported 859 121 73 .36 Adjustment 35 23 23 .12 June 30-Restated 894 144 96 .48 September 30-Reported 1,139 218 180 .93
. Adjustment 1 1 1 -
September 30-Restated 1,140 219 181 .93 December 31-Reponed 872 16 17 .06 Adjustment (29) _(19) (59) (.31) December 31 -Restated 843 (3) (42) (.25)
$3.687 8 a57 $ 327 5 1.63 l
1992 March 31 $ 685 5 109 5 63 $ .30 June 30 763 126 79 .39 i September 30 989 222 175 .91 December 31 852 131 87 .43
$3.289 $ 588 $ 404 $ 2.03 a
Quarterly information has been restated to reflect the change in accounting for tmbilled revenues and the adoption of SFAS No.112, Employers' Accounting for Post-employment lienefits. These changes were made in December 1993, but are eflective January 1,1993. I Information for quarterly period,is atTected by seasonal variations in sales, rate changes, timing of fuel expense recovery and other factors. i + 1 61
i
\
I Glossary of Tenns , Defollowing abbreviations or acronyms used in this text are defined below: l l 1 Abbreviation or Acronym Definition AFUDC. Allowance for funds used during comtruction APllO . . Accumulated Postretirement Benefit Obbganons Arkamas Commnsion Arkansas Pubhc Senice Connniuton Austin City of Austm, Texa i BlP Ilusiness improvement Plan Btu Dritnh thermal unit CERCLA. Comprehenuve Environmental Response. Compensation and Liabihty Act of1980 Canes Several cmes in CPL's service terntory Corporanon or CSW Central and South West Corporation, Dallas, Texa Court of Appeals Court of Appeak, Third Dntnct of Texn, Ausun, Texas CPL Central Power and Light Company. Corpus Christi, Texa CSW Common CSW conunon stock. $3.50 par value per sharc CSW Credit . CSW Credit, Inc., Dallas, Texa CSWE CSW Energy, Inc.. Dallas, Texas CSW System . CSW and its subsidiaries CSWS. Central and South West Services, Inc., Dalle, Texas CWIP Construction work in progress DET. Diagnosuc Evaluauon Team Dutrict Court State Dntrict Courts of Travis County, Texas El Pao El Pao Electnc Company Electric Operating Companies CPL, PSO, SWEPCO and WTU EMF Electnc and Magnetic Fichts EPA United States Environmental Protection Agency EPS . Earnings per share F ERC Federal Energy Regidatory Comminion FMB. First Mortgage Bond ,; Hl.P . - Houston Lighnng & Power Company Holdmg Company Act Pubbc Utihty Holdmg Company Act of19.E. as amended KWil Kilowart-hour Louniana Conuninion Louinana Public Service Commiuion i Merger Agreement . Agreement and Plan of Merger between El Paso and CSW, dated as of May 8,1993, a amended MGP , Manufactured Gas Plant . Mirror CWIP . Mirror Construction Work in Progress Modified Plan . Modified Third Amended Plan of Reorganization ' MTN. Medium-term Note MW. Megawatt Notes . Notes to Consohdated Financial Statements i NRC Nuclear Regulatory Commission Oklahonu Commnuon Corporation Commission of the State of Oklahoma . Oklaunion . Oklaunion Power Station Umt No.1 Operatmg Companies CPL, P50. SWEPCO, WTU, and Transok OPUC Ollice of Pubhc Utility Coumel Palo Verde Palo Verde Nuclear Generatmg Station PC11 Polychlonnated biphenyl . PCRB. Pollution Control Revenue Bond Project Manager HLP, the Project Manager for STP PRP Potentially responsible party PSO Public Service Company of Oklahoma, Tulu, Oklahoma San Antonio City of San Antonio, Texas SEC Secunnes and Exchange Conunisuon - SFAS Statement of Financial Accounting Standards STP South Texas Project nuclear electne generaung station STP Unit 1 Order October 1990 Texa Commnsion STP Unit 1 Final Order STP Umt 2 Order December 1990 Texas Commission S1 P Unit 2 Final Order l SWEPCO Southwestern Electric Power Company, Shreveport, Louisiana Texas Conuniwion Public Unlity Conuninion ofTexas TIEC Texa industrial Energy Consumers TNRCC Texas Natural Resource Comervation C,numiwinn 1SA Texas State Agencies Transok Transok. Inc., T ulsa, Oklahoma Wesunghouse Westmghome Electric Corporation WTU. West Texas Utilines Company, Abilene, Texas 62
Repod of Independent Public Accountants To the Shareholders and lloard of Directors of Central and South West Corporation: We have audited the accompanying comolidated balance sheets of Central and South West Corporation (a Delaware corporation) and subsidiary companies as of December 31,1993 and 1992, and the related consolidated statements ofincome, retained earnings and cash flows for each of the three years in the period ended December 31,1993. These fmancial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these fmancial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the fmancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the fmancial statements. An audit aho includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reason- l able basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the fmancial position of Central and South West Corporation and subsidiary companies as of December 31,1993 and 1992, and the results of their operations and , their cash flows for each of the three years in the period ended December 31,1993, in l conformity with generally accepted accounting principles. In 1993, as discussed in Note 1. Central and South West Corporation and subsidiary companies changed their methods of accounting for unbilled revenues, postretirement l benefits other than pensions, income taxes and postemployment benefits. j h
- Arthur Andersen & Co.
Dallas, has l'ebnuary 25,1994 r 63 l l
Report of Management Management is responsible for the preparation, integrity and objectivity of the consohdated tinancial statements of Central and South West Corporation and subsidiary companies as well as all other information contained in this Annual Report. The - consolidated fmancial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis and, in some cases, reflect amounts based on the best estimates andjudgments of management, giving due comideration to materiality. Financial information contained elsewhere in this Annual Report is consistent with that in the consolidated financial statements. The Corporation, together with its subsidiary companies, maintains an adequate system ofinternal controh to provide reasonable assurance that transactions are executed in accordance with management's authorization, that the consolidated fmancial statements are prepared in accordance with generally accepted accounting principles and that the assets of the companies are properly safeguarded. The system ofinternal controls is documented, evaluated and tested by the Corporation's internal auditors on a continuing basis. Due to the inherent limitations of the etTectiveness ofinternal controh, no internal control system can provide absolute assurance that errors will not occur. However, management strives t'o maintain a balance, recognizing that the cost of such a system should not exceed the benefits derived. No material internal control weaknesses have been reported to management. Arthur Andersen & Co. was engaged to audit the consolidated financial statements of the Corporation and subsidiary companies and issue its reports thereon. Their audits were conducted in accordance with generally accepted auditing standards. Such standards require an examination of selected transactions and other procedures suflicient to provide reasonable assurance that the consolidated financial statements are not mislead-ing and do not contain material errors. The Report ofIndependent Public Accountants does not limit the responsibility of management for information contained in the consolidated financial statements and elsewhere in the Annual Report. E. R. Ilrooks Chairman, President and Chief Execuths Oficer h Glenn D. Rosilier Senior l' ice President and Chief Financial Oficer a h f Wendy G. Hargus Controller 64
l l Report of Audit Committee i The Audit Committee of the board of directors is composed ofseven outside directors. l The members of the Audit Committee are: Arthur E. Rasmussen, Chairman,
- Glenn 13iggs, Molly Shi Boren, Robert W. Lawless,Jr.,J. C, Templeton, Thomas B.
l Walker,Jr. and Lloyd D. Ward. The Committee held three meetings during 1993, j The Committee oversees the Corporation's fmancial reporting process on behalf of the board of directors. In fbirdling its responsibility, the Committee recommends to the I board of directors, subject to shareholder approval, the selection of the Corporation's independent public accountants. The Committee discusses with the internal auditors and the independent public accountants the overall scope and specific plans for their l i respective audits. The Conunittee aho discusses the Corporation's consolidated financial ! statements and the adequacy ofinternal controls. The Committee meets regularly l with the Corporation's internal auditors and independent public accountants to discuss the results of their audits, their evaluations ofinternal contmls and the overall quality of the Corporation's financial reporting. The meetings are designed to facilitate any private cornmunication with the Conunittee desired by the internal auditors or independent public accountants. l
<- W l Arthur E. Rasmussen l Chairman, Audit Committee 65
Comparative Statistical and Financial Recort! Central and South It'est Corporation 1993 1992 1991 1990 1989 Sales (Kilouutt-hours in millions) , Iksidential 15,903 14,593 15,236 14,857 14,268 Conunercial 12,966 12,370 12,512 12,321 11,993 Industrial 18,205 17,257 16,739 15,980 15,181 Sales for resale . 5,852 6,262 5,942 5,526 5,448 Other 1,434 1,363 1.346 1,329 1,308 54,360 51,8_45 51,775. 50,013 48,198 Operating Revenues (millions) , Electric Residential . $ 1,160 $ .1,046 $ 1,081 $ 1,003 $ 921 Conunercial 832 773 778 724 673 Industrial 736 659 632 596 567 Sales for resale 179 177 173 159 179 Other 148 135 139 .128 120 Gas and other 632 499 244 13_4 89
$ 3,687 $ 3,289 $ 3,047 5 2,744. $ 2,549 Average Number of Customers (thousands)
Residential 1,378 1,353. 1,335 1,322 1,308 Commercial 198 195 193 192 190 Industrial 25 25 25 25 25 Other 12 12 12 11 12 1,613 1,585 1,565 1,550 1,535 Nwnber of Customas at End of ftriod (thousands) 1,633 1,599 1,577 1,560 1,546 Residential Sales Averages Kilowatt-hours per customer 11,541 10,786 11,413 11,238 10,908 Revenue per customer 5 842 $ 773 $ 810 $ 759 $ 704 Revenue per kilowatt-hour 7.29v 7.17e 7.10v 6.75 6.46c Tbtal Electric Revenue per Kilouutt-hour 5.62( 5.38r 5.41 r 5.22g 5.10e Generating Capacity at Time ofIcak (megauutts) 12,242 13,041 13,623 13,597 13,537 System Coincident Irak Load (meganutts) 11,464 10,606 10,203 10,397 10,008 Fuel Data Average Btu per net Kwh 10,391 10,482 10,461 10,456 10,474 Cost per rnillion Utu $ 2.11 $ 1.92 $ 1.87 S 1.95 $ - 2.01 ' Cost per Kwh generated 20.90 20.12 19.59 20.45 21.02 - (mills) Tbtal Plant (millions) , Cost $11,357 $ 10,826 $ 10,788 $ 10,251 $ 9,634 i Annual additions 594 457 578 694 327 Accumulated depreciation 3,550 3,265 - 2,986 2,701 2,448 Capitalization (millions) Common stock equity 5 2,930 $ 2,927 $ 2,834 $ 2,743 $ 2,647 Preferred stock 350 367 389 394 397 Long-term debt 2,749 2,647 2,518 2,513 2,537 66
l i 1988 1987 1986 1985 1984 1983 14,036 13,518 13,338 13,321 .12,853 12,134 l 11,663 11,319 11,256 11,004 10,464 9,846 14,578 14,168 14,997 15,591 15,587 14,580 5,920 5,435 4,907 6,391 7,784 8,671 l 1,284 1,259 1,279 1,333 1,321 1,295 ! 47,481 45,699 45,777 47,640 48,009 46,526 l
$ 911 $ 85' $ 885 $ 894 5. 864 $ 803 657 635 666 672 650 601 ;
553 554 651- 734 768 716 l 181 170 .175 238 305 326 l 120 134 111 116 129 114 l 90 93 67 . 57 50 53
$ 2,512 $ 2,443 $ 2,555 $ 2,711 $ 2,766
$ 2,613 j l'
l l l 1,298 '1,292- 1,291 1,281 1,259 1,225 189 188 187 184 179 174 j l 1 25 25 25 25 25 24 11 11 12 12 11 11 1,523 1,51 6 1,515 1,502 1,474 - 1,434 l 1,531 1,523 1,518 1,515 1,494 1,456 10,814 10,463 10,332 10,399 10,209 9,905
$ 702 $ 663 $ 685 5 698 $ 686 $ 656 6.49v 6.34g 6.64 v 6.71 v 6.72r 6.62 v l 5.10e 5.14 r 5.44v 5.57r 5.66v 5.50g 13,176 13,550 13,049 12,729 12,217 12,167 10,138 9,668 10,243 9,802 9,830 9,567 l
10,340 10,367 10,414 10,365 10,377 10,380 !
$ 2.01 $ 1.94 $ 2.16 $ 2.48 $ 2.72 5 2.68 l 20.83 20.16 22.52 25.74 28.29 27.91 $ 9,370 $ 8,961 5 8,441 5 7,911 $ 7,361 $ 6,486 l l 466 562 676 8 51 910 756 2,219 2,015 1,827 1,703 1,544 1,397 ;
i
$ 2,594 $ 2,514 $ 2,359 $ 2,206 $ 2,030 $ 1,849 396 365 442 385 428 428 2,514 2,410 2,343 2,269 2,169 1,886 67
Managernent Profile E. R. Brooks Ferd. C. Meyer, Jr. Chainnan, lycsident ans' Chief Exmntisr Ol liar Senior I ice Ihnident and General Counsci p + g 11rookt 56, began his career with WIU m 1901 <
, ; ,w Meyer,54, was a partner wah the Matthews &
D y ai ceMvmg a ILS. degree in electrical engineering to $ thanscomb law firm in San Antonio before he (4 h;( 0 from Texas Tech. Ile became vice pre ident of .i joined CSW in 1986 as vice president and assistant j M customet semces at WTU in 1980, vice president T general counsel of CSWS. He was named assistant ! (Lda ' d of engineering at CPL in 1982 and president and chief execunvc officer at CPL in 1986. He was
;y
,f general counsel of CSW in 1987, vice president and general counsel in 1988 and senior vice l elevated to execunve vice president of CSW in 1987 and prnident president and general counsel in 1990. Meyer has a ILILA. degree l in 1990. He became chairman in 1991. Ilrooks is a member of in finance and a law degree from the University of Texas. In ,
the board of the Edison Electric Insotute and the Association of addition to other activities, he is vice chairman of the Electric Electnc Companies of Texas and chairman of the board of trustees Conunittee for the American Ilar Asmciation Section on Public for the North American Electric Reliabihty Councd. In addition Utility. Communications and Tramportation Law and serves to other activmes, he is on the execunve boards of the lloy Scouts on the ! egal Conunittee of the Edison Electric imtitute. Ile is abo of America the United Way of Metropohtan 1)allas and the a Fellow in The American College of Trial Lawyers. Dallas Symphony Association. Glenn D. Rosilier Thomas V. Shockley, lll Senior 11e President and ChiefIinancial O(liccr Eaccutiec Fice 14cident and Dirater 77 1(ositier. 46, worked at Arthur Andersen & Co. Presidcut and Cidcf Exemtier Ollker, CSil' Enter; irises y n w3 Shockley,49, joined CPL as an engineer in 1970. { %qasbefore joinicg treasurer arci WTU controller, inhe1975. in 1979 became At WTU he 1 At CPL he was named executive director of fuch bq ikj controller of CSW and vice president and co bg G and nuclear in 1984, vice president in 1985, chief i engmeering officer in 1986 and CPL president and f Mk "j troller of CSWS. He was promoted to vice presi-dent of finance of CSW in 1989 and to his present DM 4 chiefexecutive otlicer in 1987. He became senior position in 1990. He has a ILILA. degree from the University b vice president of CSW in 1990 and executive vice of Saint Thomas in Houston and an M.S. degree in accountancy president later that year. In 1993 he was named president and chief from the University of Houston. In addition to other activities, he executive aflicer of CSW Enterprises. He holds a ILS. degree in is a member of the board and executive committee of the Texas electncal engmeeting from Texas A&l and an M.S.E.E. degree Association of Taxpayers, a member of the Texas and Oklahoma from the Umvers ty ofTexas. He is a member of the board of the societies of CPAs and the Fmancial Execunves Institute and is Texas State Aquarium Association and the Dallas ilusiness active in the Circle Ten Council of the lloy Scouts of America. Committee tiir the Arts. Sho(Lley aho is a member of the Unn ersity of Texas at Dallas School of Management Advisory Council Rohed R hy and a member of the Citi7 ens Commemorative Coin Advisory PnWJent and CidgEmnire Ofav Comminee ti>r the U.S. Mint. Ccnnal Pon n and Qht Company y e, e Carey,55, became head of CPL in 1990, having H rry D. Mattison ] served as vice president of operations, Southern Excmtiec Uia Iresidcut and Durcror < g j Region general manager, Rio Grande Valley Prcudent and ChiefEaccutive Ofccr, CSil'Ehctric b d operations manager and director ofinformation g- - 3 Mattison. 57, joined SWEPCO in 1957 with a f 1 services. He has a ILILA. degree from Texas [ , ILS. degree in electncal engineering from the A&M. In addition to other activities. Carey is z Umversity of Arkansas. He worked in industrial inunediate past president of the United Way of the Coastalllend. ((' .; , sales and thvision operanons before being named He is chainnan of the Corpus Christi Chamber of Conunerce, q a SWEPCO vice president and East Texas president of the Texas Atomic Energy Research Foundation and a N division manager in 1983. Ile was named execu- member of the board of trustees for the Art Museum of South tive vice president in 1988 and SWEPCO's president and chief Texat Carey is abo on the boards of the Texas Research League. executive officer in 198H. He was promoted to his position at the Texas Association of Taxpayers and the Association of Echson CSW in 1990. In 1993, he was named president and chief exec- Illuminating Companies, unve otlicer of CSW Electric and chief executive otlicer of CSWS. Mattison is a member of the Program Advisory lloard of Robed L. Zemanek the Center for i egislative Energy and Environmental Research Praident and ChiefEanutier Djficcr and on the Executive Comnnttee of the Central 1)allas Association. Pulik Senia Gunfany of OUahoma pp ww Zemanck. 42, was named president of PSO in V 4 1992. Previously, he was PSO executive vice
@ president. He began his career in 1972 at CPL.
J where he held engineering and operations posi-tions before being named executive director of electrical systenn in 1987 In 1988, he became general manager of CPL's Northern Region, and in 1989 vice prnident of corporate services for PSO. He has a 11 S. degree in 68
l electrical engincenng from Texas A&M. In addition to Terry D. Dennis other activities, he is on the boards of the Metropolitan Itcsident and Chieflhconiec Olli.ct Tulsa Chamber of Commerce, the Oklahoma State Chamber CSi r Encryy, Inc. of Commerce and Industry, the Oklahoma Academy fbr p m Dennis,47, became president and CEO of State Goah, the Philbrook Museum of Art, The Nature k j CSW Energy in 1993. Previoudy, he had Conservancy. Oklahoma Chapter, and the Hillcrest Medical [ m y been president of CSWS and vice picsident Center. j of engineering at CSWS. lleginmng in 1970, {l N he worked in various engineering positiom Richard H. Bremer at WTU before being named WTU's vice 14csident and Chief Excanny OITicer president of engineering in 1989. He has a ILS. degree in Southwestern Electric Pouvr Cornpany electrical engineering from the University of Texas. Dennis m~ g Ilremer,45, advanced to SWEPCO presi- is past section chairman of the institute of Electrical and 4 y dent in 1990 from vice president of operations. Mectronic Engineers and a member of the Texas and y;;I g He worked in various financtal positions, National Societies of Professional Engineers. He has served yn 4 vice president of finance and regional man- as both chapter president and a member of the state board ager at CPL from 1977 to 1989. He has a for the Texas Society of Professional Engmeers. He has ILA. degree in accounting from Luther semd on variom committees of the Edison Electric Institute l College. In addition to other activities, he is a member of and the Electric Reliability Council ofTexas. the board of directors of the Commercial National Bank of l Shreveport, the Iliomethcal Research Foundation of M. Bruce Evans Northwest Louisiana, the Louisiana State Fair, the Shreve- 14csident, Operation Scrrices l port Symphony and the Association of Electric Compames Central and South it 'est Sen>ias, Inc. i of Texas. He is currently serving as the president of the gm5 Evam,38, was named president of CSWS Shreveport Chamber of Commerce. f #T Operation Services in 1993. Hejoined the Nnn Files h'yd CSW system in 1979 as a management trainee fbr WTU. He worked as district IVesidcnr and ChiefIIxcanier Olliar g %@ authtor in Childress, as a customer services ll'est Tcxas Utilitics Company 9 mpervhor in the Abilene Division and as y e3 bles,46, joined WTU in 1991 as executive distnct manager in Marfa. He transferred to CSW in 1990
,j vice president. Previously, he was vice presi~
as executive assistant to the chief operating otUcer and was q dent of marketing and business development named vice president of business improvement in 1992. k i at CPL in more than 19 years at PSO, his Evans holds a ILILA. degree in finance from Hardm-Simmons {d positions mcluded district manager, division University. Currently he is serving on the board of directors
- manager and corporate planning and analys" of the lloys and Girls Clubs of Greater Dallas.
responsibilities. In 1993, he assumed additional duties as transinon executive for the merger of CSW with El Paso Richard P.Verret Electric Company. He has a ILS. degree from Cameron Ivesident, lvoduction Scn ices University. In addition to other activines, nics is a member Central and South it'est Screices, Inc. of the board of the Texas Research League, the Ilendrick Verret,47, was named president of CSWS Medical Center I oundation. the West Texas Rehabihtation Production Services in 1993. Ilejoined CPL Center, the Community Foundation of Abilene, the Center for Economic Education ofIlardin-Sinunons University > [ in 1972 as a distribution electrical engineer. At CPL, he was named vice president of and vice president of public atLirs for the Abilene Chamber hph power in 1986, vice president of engineering of Commerce. b and chief engineer in 1987, and vice presi-dent of regional operations in 1989. Verret moved to CSWS F. Joseph Becraft in 1992 as vice president of engineenng. He holds a ILS. pcsident and Chief Erccutive O$cer degree in electrical engineering from Texas A&l University fransok, Inc. and is a Registered Professional Engineer in Texat pw q 11ecraft,50, joined Transok in 19H9 from b d Valero Energy Corporation where he had L " been senior vice president and natural gas q divismn head. Ile has a ILS. degree in busi-p ness from Drake University. In addition to othc r acurities, he serves as a vice president of the Gas Proccuors Assocution, a director of the Soutbern Gas Associanon, a member of the Oklahoma Commission on Natural Gas Pohcv, a member of the board of the Texas intrastate Natural Gas Pipelines Association and on the boird of the Center tbr the Phyucally Limited in Tuha. 69
l Board of Directors T.J. Barlow Committees of the board of Directors Rcrired Chairman and Chief Executin O$cer 1. The Audit Committee reconunends to the board ofdirectors Anderson, C!ayton & Co., Houston the independent public accountants to be appointed, subject to shareholder approval. The Audit Conunittee reviews with
"" "N . , the independent public accountants and the Corporation's Cluirman and Chief L,xecutur oficer .
" " " ' " #" ' " E# "Y#'"* *nd internal audits and Tbxas High-Speed Rail Corporation .
the adequacy of, and the comphance with, the Corporanon s Molly Shi Boren system ofinternal accounting controls. Attorncy, Seminole, Oklahoma 2. The Executive Compensation Committee reviews benefit E. R. Brooks programs and management succession programs and determines Chairman, hrsident and Chief Exeautin Ofcer the compensation of executive otlicers. Central and South Ilist Corporation 3. The Nominating Committee reviews the compensation JoeH.poy of the board of directors and recommends candidates for Retired Partner membership. Braccurll & Patterson, Houston 4. The Policy Committee reviews and makes recommendations Robert W. Lawless to the board of directors concerning major policy issues; considers on a continuing basis the composition, structure President and ChiefExecutiw Of]icer and functions of the board of directors and its conunittees; 7Fxas 7ivh Uniirrsity and 7?xas Tivh Uniwrsity Health Science Cenicr and reviews existing corporate policies and recommends Lubbock, TFxa, changes when appropriate. The Policy Committee has authority to act in place of the board of directors when the Harry D. Mattison board is not in sersion, to the extent permitted by law. , Executisr Vice President Membership of these committees is as follows: Central and South ilist Corporation James L. Powell T. J. Barlow (3) (4) Ranching and imrstments Chairman of the Nominating Committer Fort MKawit, Texas cienngiggs(j)(3) Arthur E. Rasmussen Molly Shi Boren (1) (2) Retired Chairman and ChiefExecutisr O@ccr and Chairman of the Exautiw Committee E L Hmoh H) Houuhold International, Chs.cago Chairman of the Policy C,ommittee Thomas V Shocklev,111 J e H. Foy (2) (4)
^
Excautiw I Tcc 14csident Chairman of the Executive Compensation Committec Central and South Ilest Corporation Robert W. Lawless (1) (2) J.C. Templeton James L. Powell (2) (3) $nWslments, NonSten Arthur E. Rasmussen (1) (4) Thomas B. Walker,Jr- Chairman of the Audit Committcc Limited Partner Goldman Sachs Group, LR, Dallas J. C. Templeton (1) (2) Lloyd D. Ward Thomas B. Walker,Jr. (1) (3) ; Division Pirsident-Central Lloyd D. Ward (1) (3) Frito-Lay, Inc., Dallas
)
70
t Officers Central and South West C=A-" CSW Bectdc Harry D Mattison E. IL Brooks Chairman,14esident and CIdgfExeaaiw Oju, er 1%sident and Clief1hecurite Oficer Central Power and Light Company Thomas V. Shockley,111 Excaniw iice lhesident bber IL Carey IWsident and ChiefErecutin Oficer E i i1 e I lad
- h Robert L Zemanek Ferd. C Meyer,Jr. 14esidera and Chiefihraain Oficer Senior iice 14csident and General Counsel Southwestern Electric Power Company Glenn D Rosilier .
Itichard H. Bremer Senior iice President and CIdef Financial Oficer hesident and ChicfEwanix Oficer Thomas M. Hagan West Texas Utillbes Company , l' ice kident, Gownnnera Relations-Ojice of the Chainnan Glenn Files Lawrence E. De Simone President and Chiefihraaix Oficer Vice lhesidera, Stratmic Planning Transition Excaaix, Ellbso Electric Tr.msition Team G. Holman King Central and South West Services, Inc. Iice 14csident, Mergers and Anjuisitions M. Bruce Evans Pnsidad, Ojan'on Senias Kenneth C Rancy,Jr. l' ice President and Assistant General Gnmsel ILichard P. Verret President,1%luction Senkes Michael D Smu. h Iice lhesidera, Corprate Sen ices ' ggy y Frederic L Frawley Thomas V Shockley, Ill Corporsae Secretary and Senior Attorney President and Chief Excaniw O[Ilar Wendy G. Hargus Transok, Inc. Cornroller EJoseph Becraft StephenJ. McDonnell huidan and ChiefExcanix Oficer 77tasurer CSW EnetEY, Inc. Verla R. Campbell Terry D Dennis Assistata Secretary Thesident and Chief Excaaiw Ojiar CSW Leasing, Inc. Thomas V Shockley, III l President CSW Credit, Inc. Glenn D Rosilier 14csidan i I i l 71
information for Shardioiders Connnon Stock Listing Taxpayer ID Number Central and South West Corporation's common stock is Federal law requires each shareholder to provide a taxpayer . .; i traded under the ticker symbol CSR and listed on the New identincation number for all shareholder accounts. For York and Midwest stock exchanges. individual shareholders, your ID number is your Social i Secmity nmnber. You can obtain stock quotations from the New York Stock Exchange report in most daily newspapers under the listing You must provide yuur ID number whenever you open a ; CenSoW. new account in our stock, even ifyou already own stock in . " existmg accounts in your name, if you do not provide the Connnon Stock W ID number, the Corporation is required to withhold 31% Dividends of 40.5 cents a share were paid in each quarter of federal income tax from your dividends. i 1993. All dividends paid by the Corporation represent taxable income to shareholders for federal income tax purposes. If your stock is registered in ajoint account, it is important to tell us the taxpayer ID number of the primary owner you ' The Corporation's board ofdirectors mJanuary 1994 increased designate. If you are a custodian for a minor or act as a the quarterly dividend rate to 42.5 cents a share, payable on trustee on an account, please provide the beneficial o,vner's February 28,1994, to shareholders of record on February 8, tax identi6 cation number. This will ensure that your 1994.The increase marked the 43rd consecutive year of dividends are reported under the correct name, address and , higher dividends paid by the Corporation. The Corporation mpayer ID number. is one of only four companies listed on the New York Stock . Exchange to have such an uninterrupted record of dividend If you have not yet given us your taxpayer ID number, increases. please contact our shareholder services department to request a W-9 form. Complete, sign and return the form as soon Traditionally, the Corporation's board of directors has declared as possible. dividends to be payable on the last business day of February, May, August and November, Duphcate Annual Report Ma&ngs We are required to mail an annual report to all our share-Lost Dwidend Checks or Stock Certificates . holders. You wd. l receive duph.cate mad. ings from us if If you do not receive your dividend check or stock certificate, there are two or more shareholders at the same address or if or they are lost, destroyed or stolen, please call our shareholder your shares are registered in different, but similar, names. , services department immediately. ' To eliminate duplicate mailings, please tell us the name of Stock Transfer the accounts you want eliminated and the name of the Central and South West Services, Inc., is the transfer agent account that you want your mailings addressed to. Send and registrar for Central and South West Corporation's your request to our shareholder services department. > common stock and for the preferred stocks of the i Corporation's subsidiary companies. Direct Deposit i We are pleased to offer direct deposit of dividend payments T.o transfer your stock to another name, write the new name, to your checking, savings or credit union account at any . address and tax ident fication number on the back of the cer' financial institution that accepts electronic direct deposits. I tificate and sign your name exactly as it appears on the front. Direct deposit eliminates the possibihty of your check being
- l Then, lave your signature Medallion-guaranteed by a lost or stolen, and the funds are credited to your account on f conunerdal bank or a stockbroker whose Erm is a member the dividend payment date. Ifyou would like an enrollment !
of the New York Stock Exchange. Signatures cannot be card, please call our shareholder services department. ! Medallion-guaeed by a notary pubbc.
% and Dwidend MaWng - Your stock certincate should be sent to our shareholder services Duplicate mailings fpmxies and dividend checks cannot j department by registered or certified mail.
be eliminated unless the registration is the same for all of ; ifyou have questions about transferring your shares, you can your accoums. ! w rite or call our shareholder services department. ! If yoiir account registrations are identical, notify our share-holder services department that you want to combine your accounts. If your account registrations are ditTerent and you want to combine your accounts, all certificates must be L issued in the one registration you prefer. To have your , certi6 cates reissued, follow the instructions under Stock . Transfer. 72 ; l'
l 1994 AnnualMeetag . Through the plan, participants may sell shares of conunon
' The 1994 annual meeting of shareholders is scheduled for stock held or deposited in their pbn accounts.
April 21. It will b' held e at the University of Arkansas, GitTels We also offer automatic electronic investment to participants Auditorium, Old Mam., Fayetteville. Arkansas. The meeting in the PowerShare* Plan. Optional cash payments can be wdl begin at 10:00 a.m., Central Daylight time. If you will electronically processed directly from your checking, savings not be attending the meeting, please vote your shares by sign-or credit union account at any fmancialinstitution that' mg and returmng your proxy card as soon as possible, accepts electronic direct debits.
- Fowet$ hate
- Dmdend Reinvestment and Stock Furchase Fian his does not constitute an olkr to xil or wlicitmion <f an ofer to Inty securi.
The Corporation otters its shareholders a convenient way to rics. Such otkrs and solicitations are snade by uvy ofpwreacts ordy. No purchase additional shares ofconunon stock through its sales of CSit*comonon stock under the plan uill be inade or cornmitments to - puuhay acapud untd a mpy <f the empeaus n dA>md Mm n PowerShare* Dividend Reinvestment and Stock Purchase Plan. no obhgation to participate m the plan, and the above 4xs not constitute The plan ofrers shsreholders, non-shareholders oflegal age CSIPs roommendario" 'o pdr'icipate in 'he rlan.- who are residents of the four-state area (Arkansas, Louisiana, Adh WMm Oklahoma and Texas), and employees and eligible retirees We will be pleased to send you additional copies of i of the Corporation or its subsidiaries a convenient and eco-this annual report. Also available is a 7cn&ar Financial and nomical way to purchase the Corporations' common stock. Starbrimi MWr/n Centraland South liisi Sysictn ; Once participants are enrolled in the plan, cash dividends, The Corporation is subject to the informational require-as well as any cash invesanents and/or payroll or pension ments of the Securities Exchange Act of1934 and files deducdons, may be used to purchase shares of common stock. '
. reports and other information statements with the Securities Participants may make optional cash purchases of $25 and Exchange Conimission. These reports may be inspected l minimum and up to $100,000 per calendar year (Annual Limit) . at the SEC and at the New York and Midwest Stock l for the purchase ofconunon stock. ' Exchanges.
CSW shareholders of record may enroll in PowerShare We will pmvide copies of these reports without charge to any ; simply by completing and returning the enrollment form Central and South. West shareholder. If you would like to received from the Corporation. receive a report, please write or call our shareholder services Employees and eligible retirees of the Corporation or its deputnwnt. subsidiaries may purchase shares of common stock through Shareholder Services automatic payroll or pension deductions. Our shareholder services stafris available from 8 a.m. to 5 p.m., Full investment of fimds is possible under the plan (subject to Central time, Monday through Friday to answer questions minimum and maximum purchase requirements) because you may have. Our address and telephone number is: both ftdl and fractional shares will be credited to participants' Central and South West Corporation plan accounts- Shareholder Services Department Participants may deposit all of their certificates of common I!O. Box 660164 stock with our shareholder services department for safekeep_ Dallas, Texas 75266-0164 ing and will receive cwdit to their plan accounts for their shares. or call: 1-800-527-5797 Participants will receive quarterly statements of account with a record of their activity as soon as practicable fbilowing Security Analyst Contact , each dividend payment date and will receive written Security analysts should contact: l confirmations ofinvestments upon opening plan accounts Sharon R. Peavy, Director ofInvestor Relations ! or making optional cash purchases of plan shares. Statements Central and South West Corporation of account are a participant's continuing record of transactions 214-777-1277 and should be retained for tax purposes. u would like to be included on our investor relations mailing list to receive news releases and other corporate infor- : mation. please contact our shareholder services department. 73
Central and Sot:th West Corporation incorporated in 1925 iinder the Laws of Delaware 1616 Woodall Rodgers Freeway P.O. Ilox 660164 Dallas, Texas 75266-0164 214-777-1000 Subsidiary Companies Central Power and Light Company Public Service Company of Oklahoma Southwestern Electric Power Company West Texas Utilities Company Transok, Inc. Central and South West Services, Inc. CSW Credit. Inc. CSW Energy, Inc. CSW Leasing. Inc. Equal Opportunity Ernployer O Tbn repon n printed on recytled paper Deupr Minunerford I trugn. Inc. Photography-Jun Olvera Photopapher
PowerShard" Share in the Power = Timely Rccords of Transactions Shareholders and employees of Central and South West Participants will receive quarterly statements of account with Corporation as well as residents m the four states where CSWs a record of their activity as soon as practicable following each electric utility companies operate can now purchase the divihd pyment date, and written confirmations of common stock of CSW directly from the corporation without investments upon opening plan accounts, or making optional going through a broker. cash purchases of plan shares. Statements of account are a This convenient, economical investment plan is called participant's continuing record of transactions and should be PowerShare* retained for tax purposes. About Power $ hare = For More Information and a Prospectus .
. Easy Enrollment for Shareholders The more information you have, the stronger your ability to CSW shareholders of record may enroll in the plan simply by make sound investment decisions. The CSW prospectus completing the enrollment form sent to them by the Corporation provides more details about IbwerShare and about Central and along with a prospectus. South West Corporation. We encourage you to read this information before deciding whether to enroll in the plan or = $25 Minimum Addm. .onal Investments sending in any money.
The minimum additional or optional cash purchase per trans-If you have any questions, please call CSW Shareholder action is $25. Participants may make optional cash purchases of Services toll-free at 1-800-527-5797 weekdays between the up to $100,000 per calendar year for common stock. hours of 8 a.m. and 5 p.m. Centra! time.
= Dividend Reinvestment and Payment Options Participants may elect to have cash dividends on all or any portion of their shares of common stock automatically reinvested in CSW common stock. Cash dividend payments not reinvested will be paid to participants by check or through electronic direct deposit. = New Safekeeping Service thr CSW Stock Certificates I PowerShare participants may deposit stock certificates for CSW common stock with CSW's Shareholder Services for safekeeping and the shares will be credited to those participants' PowerShare accounts.
Yes! I want more infonnation about PowerSha rc~ Please type or print clearly, and mail this completed form to: Central and South West Corporation Shareholder Services Department, l!O. Box 660164, Dallas Texas 75266-0164 ast Name First Name Middle Initial Address City State Zip 11is does not constitute an ofer to sell or a soliciution ofan ofer to buy scamnes. kch ofers and solicitations are made by way ofprospeans only, and no sales ofcomnwn stock under the plan will be made or commitment to purchase aucpted until a copy of the prospectus is delivered. There is no obligation to participate in the plan, and these materials do not constitute the Corporation's recommendanens to partuspate m the plan. ! I L
t t t l 11 { No lhtage Net coary if Maded in The , Umted Statn t _- 't I BUSINESS REPLY CARD > FIRST CLASS PERMIT NO. 2561 DALLAS,TfEA$ } Pmtage Wdi De Pud Dy Addrcuee Central and South West Corporation Shareholder Services P.O. Box 660164 Dallas, Texas 75266 9874 i l l . . . l . l . l . . . l . l . . l . I I,1. . l . l . . I , I . . l . l . . l l . . . l . . l .1 ______________I
. . . . . .. . . . . . - = - .-. - -
I Centraland South West Corporadion - l
)
1616 Woodall Rodgers Freeway j P.O. Ilox 660164 , Dallas, Texas 75266-0164 - ,
?
i e i i 6 4 e t G i I r l L I l t i f I , i l ' t
- I I
l s 1 i I I I ! l l
'I l
.i 1
j
- i i.
t
FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31,1993 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to COMMISSION FILE NUMBER 0-346 CENTRAL POWER AND LIGHT COMPANY (Exact name of registrant as specified in its charter) TEXAS 74-0550600 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 539 North Carancahua Street, Corpus Christi, Texas 78401-2802 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: 512/881-5300 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ~ None None Securities registered pursuant to Section 12(g) of the Act: Cumulative Preferred Stock, $100 Par Value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months - and (2) has been subject to such filing requirements for the past 90 days. Yes 1.No Indicate by check mark if disclosure for delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K [X]. Number of shares of Common Stock outstanding at December 31,1993: 6,755,535 (None of such shares are held by nonaffiliates.)
l TABLE OF CONTENTS Page DEFINITIONS'. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 PART I l l ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1 1 1 REGULATION AND RATES . . . . . . . . . . . . . . . .'. .-. 4 STP. . . . . . . . . . . . . . . . . . .. . . . . .. .. . . 5 i OPERATIONS . . . . . . . . ' . . . . . . . . . . . . . . . . 6 OPERATING STATISTICS . . . . . . . . . . . . .. . . . . . . 8 'l CONSTRUCTION AND FINANCING . . . . . . . . . . . . . . . . 9-
-FUEL SUPPLY . . . . . ' . . . . . . . . . . . . . . . . .-. 9 i ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . 11- )
J ITEM 2. PROPERTIES ... . . . . . . . . . . . . . . . . . . . . . 14 l ITEM 3. LEGAL PROCEEDINGS . . . .. . . . . . . . . . . . . . . . . 15 l ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURIT ' HOLDERS . . . . -15 PART II' l l 1 ITEM 5. MARKET.FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . . . . . . . . . ... .. . . . .. . . 15 l 16 l ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . .. i ITEM 7. MANAGEMENT'S DISCUSSION AND' ANALYSIS OF FINANCIAL ' CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . 17 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . 24 , t ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . 44 ) i PART III 1 i ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . 45 ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . 48 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . 51-l ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . 51 ! PART IV-ITEM 14. EXHIBITS,' FINANCIAL STATEMENT SCHEDULES AND REPORTS ! ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . 52 l l l i 2
.. - .-. , , , , - - _ - - _. . _ _ _ . . _ _ - _ . . _ _ . _ . _ . _ ~ . . _ . .
DEFINITIONS i The following abbreviations or acronyms used in this text are defined below: Abbreviation or Acronym Definition . t ALJ................. Administrative Law Judge AFUDC............... Allowance for funds used during construction 1 APBO................ Accumulated Postretirement Benefit Obligation l Austin.............. City of Austin, Texas . Btu..........-...... British thermal unit CEO................. Chief Executive Officer CERCLA.............. Comprehensive Environmental Response, Compensation and Liability Act of 1980 Company or CPL...... Central Power and Light Company, Corpus Christi, Texas i Court of Appeals.... Court of Appeals, Third District of Texas, Austin, Texas CSW................. Central and South West Corporation, Dallas, Texas CSW System.......... CSW and its subsidiaries CSWE................ CSW Energy, Inc., Dallas, Texas CSWS................ Central and South West Services, Inc., Dallas, Texas i CWIP................ Construction Work in Progress ; DOE................. Department of Energy District Court...... District Court of Travis County Electric Operating , Companies......... PSO, SWEPCO, WTU and the Company Energy Policy Act... The National Energy Policy Act of 1992 EPA................. United States Environmental Protection Agency- i ERISA............... Employee Retirement Income Security Act of 1974, as amended ERCOT............... Electric Reliability Council of Texas FASB................ Financial Accounting Standards Board FERC................ Federal Energy Regulatory Commission HLP................. Houston Lighting & Power Company Holding Company Act. Public Utility Holding Company Act of 1935, as amended HVdc................ High-voltage direct-current ITC................. Investment Tax Credit Kw.................. Kilowatt (1,000 Watts) Kwh................. Kilowatt-hour
- Mcf................. 1,000 cubic feet -
Mw.................. Megawatt (1 Million Watts) Named Executive Officers.......... The CEO and the four most highly compensated executive ; officers of the Company reflected in the Summary compensation Table > NRC................. Nuclear Regulatory Commission Oklaunion........... Oklaunion Power Station Unit No. 1 OPUC................ The Office of Public Utility Counsel , PCB................. Polychlorinated biphenyl > Project Manager..... Houston Lighting & Power Company PSO................. Public Service Company of Oklahoma, Tulsa, Oklahoma PURA................ Public Utility Regulatory Act RCRA................ Federal Resource Conservation and Recovery Act of 1976 l PCRB................ Pollution Control Revenue Bond i SAR................. Stock Appreciation Right San Antonio......... City of San Antonio, Texas SEC................. Securities and Exchange Commission SFAS................ Statement of Financial Accounting Standards , SO2................. Sulfur dioxide STP................. South Texas Project electric generating station SWEPCO.............. Southwestern Electric Power Company, Shreveport, Louisiana Texas Commission.... Public Utility Commission of Texas TNRCC............... Texas Natural Resource Conservation Commission TSA................. Texas State Agencies TU.................. Texac Utilities Electric Company Westinghouse........ Westinghouse Electric Corporation i WTU. ............... West Texas Utilities Company, Abilene, Texas ' 3
1 PART I l ITEM 1. BUSINESS. The Company. The company, a Texas corporation, is a public utility engaged l in generating, purchasing, transmitting, distributing and selling electricity in south Texas. It is a wholly owned subsidiary of CSW, a registered holding company under the Holding Company Act. i 1 At December 31, 1993, the company supplied electric service to approximately ! 589,000 retail customers in a 44,000 square mile area with an estimated l population of 1,945,000. It supplied at wholesale all or a portion of the electric energy requirements of two municipalities and five rural electric 1 cooperatives. The three largest metropolitan areas served by the Company are i corpus Christi, Laredo and McAllen, which have estimated populations of 265,000, ; 133,000 and 88,000, respectively. . I The economic base of the territory served by the Company includes I I manuf acturing, metal refining, petroleum, petrochemical, agriculture and tourism. In 1993, industrial customers accounted for approximately 23% of the Company's , total operating revenues. Contracts with substantially all industrial customers I provide for both demand and energy charges. Demand charges continue under such l contracts even during periods of reduced industrial activity, thus mitigating the l effect of reduced activity on operating income. ! 1 Regulation and Rates l Regulation. The Company, as a subsidiary of CSW, is subject to the jurisdiction of the SEC under the Holding Company Act with respect to the issuance, acquisition and sale of securities, acquisition and sale of certain assets or any interest in any business, including certain aspects of fuel , , exploration and development programs, accounting practices and other matters. l l The FERC has jurisdiction under the Federal Power Act over certain of the 1 Company's electric utility f acilities and operations, wholesale rates and certain 1 other matters. The Texas Commission has jurisdiction over accounts, certification of utility service territories, sale or acquisition of certain utility property, mergers and certain other matters. Neither the Texas Commission nor the governing bodies of incorporated municipalities have jurisdiction over the issuance of securities. National Energy Policy Act of 1992. The Energy Policy Act, adopted in October 1992, significantly changed U.S. energy policy, including that governing , the electric utility industry. The Energy Policy Act allows the FERC, on a case- 1 by-case basis and with certain restrictions, to order wholesale transmission access and to order electric utilities to enlarge their transmission systems. l The Energy Policy Act does, however, prohibit FERC-ordered retail wheeling, including " sham" wholesale transactions. Further, under the Energy Policy Act l a FERC transmission order requiring a transmitting utility to provide wholesale transmission services must include provisions generally that permit the utility to recover from the FERC applicant all of the costs incurred in connection with the transmission services, any enlargement of the transmission system and associated services. l l In addition, che Energy Policy Act revised the Holding Company Act to permit l utilities, including registered holding companies, and non-utilities to form exempt wholesale generators. An exempt wholesale generator is a new category of non-utility wholesale power producer that is free from most federal and state regulation, including the principal restrictions of the Holding Company Act. These provisions enable broader participation in wholesale power markets by reducing regulatory hurdles to such participation. Management believes that this Act will make wholesale markets more competitive. However, the Company is unable to predict the extent to which the Energy Policy Act will affect its operations. See ITEM 1. BUSINESS -- Environmental Matters, for information relating to Environmental regulation. l 4 l l l _ -. ._ __. __ __ - . _ _ . , _ . . _ . , _ - . _ _ . . . ,_ . . , . . ~ . . . - , _ . , _ ,_
Rates. The Texas Commission has original jurisdiction over retail rates in the unincorporated areas of Texas. The governing bodies of incorporated municipalities have such jurisdiction over rates within their incorporated limits. Municipalities may elect, and some have elected, to surrender this jurisdiction to the Texas Commission. The Texas Commission has appellate jurisdiction over rates set by incorporated municipalities. See NOTE 9, LITIGATION AND RFGULATORY PROCEEDINGS, Rate Case Filings in ITEM 8, for further information with respect to current rate proceedings. Electric utilities in Texas are not allowed to make automatic adjustments to recover changes in fuel costs from retail customers. A utility is allowed to recover its known or reasonably predictable fuel costs through a fixed fuel factor. The Texas Commission established procedures effective May 1, 1993, subject to certain transition rules, whereby each utility under its jurisdiction may petition to revise its fuel f actors every six months according to a specified schedule. Fuel factors may also be revised in the case of an emergency or in a general rate proceeding. Under the revised procedures, a utility will remain subject to the prior rules until af ter its first fuel reconciliation, or in some instances a general rate proceeding including a fuel reconciliation, subject to the new rules. Management does not believe that the new rules substantially change the manner in which the company will recover retail fuel costs. Fuel f actors . are in the nature of temporary rates, and the utility's collection of revenues by such is subject to adjustment at the time of a fuel reconciliation proceeding. At the utility's semi-annual adjustment date, a utility is required to petition the Texas Commission for a surcharge or to make a refund when it has materially under- or over-collected its fuel costs and projects that it will continue to materially under- or over-collect. Material under- or over-collections including interest are defined as four percent of the most recent Texas Commission adopted annual estimated fuel cost for the utility, which is approximately $10.4 million for the Company. A utility does not have to revise its fuel factor when requesting a-surcharge or refund. An interim emergency fuel f actor order must be issued by the Texas Commission within 30 days after such petition is filed by the utility. Final reconciliation of fuel costs are made through a reconciliation proceeding, which may contain a maximum of three years and a minimum of one year of reconcilable data, and must be filed with the Texas Commission no later than six months af ter the end of the period to be reconciled. In addition, a utility must include a reconciliation of fuel costs in any general rate proceeding regardless of the time since its last fuel reconciliation proceeding. Any fuel costs which are determined unreasonably incurred'in a reconciliation proceeding must be refunded to customers. In the event that the Company does not recover all of its fuel costs under the above procedures, the Company could experience an adverse impact on its results of operations. All of the Company's contracts with its wholesale customers contain FERC approved fuel-adjustment provisions that permit it to automatically pass actual fuel costs through to its customers. See NOTE 9, LITIGATION AND REGULATORY PROCEEDINGS, in ITEM 8, for further information with respect to regulation and rates. STP The ownership of a nuclear generating unit exposes the Company to significant special risks. Under the Atomic Energy Act of 1954 and Energy Reorganization Act of 1974, operation of nuclear plants is intensively regulated by the NRC, which has broad power to impose licensing and safety-related requirements. Along with other federal and state agencies, the NRC also has extensive regulations pertaining to the environmental aspects of nuclear reactors. The NRC has the authority to impose fines and/or shutdown a unit until compliance is achieved, depending upon its assessment of the severity of the situation. The high degree of regulatory monitoring and controls to assure safe operation could cause the STP units to be out of service for long periods of 5
- - . - . - - , - - - = - - - -
time. Outages are also necessary approximately every 18 months for refueling. Because STP's fuel costs currently are lower than any of the Company's other units, the Company's average fuel costs are expected to be higher whenever an STP unit is down or operates below the prior period's average capacity. Risks of substantial liability arise from the operation of nuclear-fueled generating units and f rom the use, handling, and possible radioactive emissions associated with nuclear fuel. While the Company carries insurance, the availability, amount and coverage thereof is limited and may become more limited in the future. The available insurance will not cover all types or amounts of loss expense which may be experienced in connection with the ownership of STP. See NOTE 10, COMMITMENTS AND CONTINGENCIES - Nuclear Insurance, in ITEM 8 for further information. See NOTE 9, LITIGATION AND REGULATORY PROCEEDINGS, in ITEM 8 for a discussion of the STP outage. . Operations Peak Loads and System Capabilities. The following table sets forth for the years 1991 through 1993 the net system capabilities of the Company (including the net amounts of contracted purchases and contracted sales) at the time of peak demand, the maximum coincident system demand on a one-hour integrated basis (exclusive of sales to other electric utilities) and the respective amounts and percentages of peak demand generated by the Company and net purchases and sales: Percent Increase Maximum (Decrease) Net Purchases Coincident In Peak Generation at (Sales) at Net System System Demand Time of Peak Time of Peak Capabilities (a) Demand (b) Over Prior Year Mw Mw Period Mw % Mw % 1991 4,005 3,291 5.8 3,424 104.0 (133) (4.0) 1992 4,165 3,347 1.7 3,003 89.7 344 10.3 1993 4,480 3,518 5.1 2,943 83.7 575 16.3 (a) Does not include 452 Mw of system capability in long-term storage in 1991 and 310 Mw in 1992 and 1993 as described under " ITEM 2. PROPERTIES -- Facilities." Does include 630 Mw of STP capability that was not available at the peak due to the outage described in NOTE 9, LITIGATION AND REGULATORY PROCEEDINGS, in ITEM 8. (b) Maximum coincident system demand occurred on August 21, August 11 and August 25, in the years 1991, 1992 and 1993, respectively. The Company is a member of ERCOT, which also includes TU, HLP, WTU, Texas Municipal Power Agency, Texas Municipal Power Pool, Lower Colorado River Authority, the municipal systems of San Antonio, Austin and Brownsville, the South Texas and Medina Electric Cooperatives, and several other interconnected systems and cooperatives. The ERCOT members interchange power and energy on firm, economy and emergency bases. The Company also engages in economy interchanges with the other electric operating companies in the CSW System. The CSW System operates on an interstate basis to facilitate exchanges of power. PSO and WTU are interconnected through the 200,000 Kw North HVdc Tie. In August 1992, the Company entered into an agreement with SWEPCO, HLP and TU to construct and operate an East Texas Hvdc transmission interconnection which will facilitate exchanges of power for the CSW System. The Company has a 25.0% ownership interest in the project. This interconnection will consist of a back-to-back HVdc converter station and 16 miles of 345 kilovolt alternating-current i transmission line connecting transmission substations at SWEPCO's Welsh Power { Plant and TU's Monticello Power Plant. In March 1993, an application for a j Certificate of convenience and Necessity for the transmission interconnection was approved by the Texas Commission. This 600,000 Kw project is scheduled to be ! completed in 1995. ' 6
?
Competition. In Texas, electric service areas are approved by the Texas commission. A given tract in the company's overall service area may be singly certificated to the company, to one of several competing electric cooperatives or to one of the competing municipal electric systems; it may also be dually or triply certificated to these entities. These certificated areas have changed only slightly since the formation of the Texas Commission in 1976, with the Company generally singly certificated to serve inside most municipalities, ( cooperatives singly certificated to serve much of the rural areas, and the suburban areas mostly dually certificated. Since 1990, in dually certificated areas, the Company has been higher in cost than competitors for many applications, especially small commercial and industrial customers. However, most business has been retained and some new business acquired, primarily because of service reliability and other customer i service advantages. Natural gas and other alternative fuels, including those used in cogeneration f acilities, have resulted in some losses of sales, primarily because of higher electricity costs relative to gas and oil costs. Although i' there have been some losses, electricity is still the fuel of choice for most air conditioning installations. Renewable energy such as solar and wind is not now a feasible economic choice for customers of the Company in most instances. The i company believes that its rates, the quality and reliability of its service and the relatively inelastic demand for electricity for certain end uses place it in a favorable competitive position in current retail markets. l Wholesale energy markets, including the market for wholesale electric power, , are extremely competitive, even more so af t er the enactment of the Energy Act of 1992. See " National Energy Policy Act of 1992" above. The Company competes with other public utilities, cogenerators and qualified facilities in other forms, exempt wholesale generators and others for sales of electric power at wholesale. Many competitive forces currently are at work in the electric utility industry. Various legislative and regulatory bodies are considering many issues, including the extent of any deregulation of the electric utility industry or of ' any access to an electric utility's transmission system to make retail sales of . power, the pricing of transmission service on an electric utility's transmission system, and the role of utilities, independents and others in the construction and operation of new generation capacity. The company is unable to predict the ultimate outcome or impact of these issues or the impact of further changes in the electric utility industry on the Company. To the extent that consumers of electric power approach electric power as a fungible commodity and are accorded more choices in the future for their power supplies, the principal factor determining success in retail and wholesale markets probably would be price, and to a lesser extent, reliability, availability of capacity, and customer service. The Company is taking steps to enhance its marketing and customer service, reduce costs, and improve and standardize business practices in line with the best i practices in the CSW System, in order to position itself for increased 1 competition in the f uture. See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF l FINANCIAL CONDITION AND RESULTS OF OPERATIONS, for a discussion of the l restructuring of the CSW System and certain industry and other challenges. Seasonality. Sales of electricity by the Company tend to increase during warmer summer months and, to a lesser extent, cooler winter months, because of higher demand for power for cooling and heating purposes. Employees. At December 31, 1993, the Company had 2,299 employees. See ITEM 7, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Restructuring, for a discussion of the recently announced restructuring of the CSW System and associated early retirement program and work force reduction. 7 !
L i f L .i i 'i Operating Statistics l i i Years Ended December 31, { i J 93 1992 -1991 ) i j KILOWATT-HOUR SALES (Millions): ~
-Residential ..................... 5,612 5,408 ~5,476 comme rc ia l . . . . . . '. ' . . . . . . '. . . . . . . 4,278 .4,181 4,215 'i l Industrial'..................... 6,406 5,800 5,354 i Other retail................... 435' 414 396 l l
Sales to retail customers ..... . 16,731 15,803. .15,441 Sales for resale............... 913 1,370 1,485 j Total'.................... 17,644- '17,173 16,'926 { l: . I I NUMBER OF ELECTRIC CUSTOMERS AT END j OF PERIOD: Residential ................... 504,893 '493,772 483,627' r- ' Commercial .................... 74,767 73,200- ,72,520 Industrial (a)................. Other.......................... 6,156 3,538 6,307 3,561 6,411
-3,508-l Total .................... 589,354- ~576,840 566,066 :
RESIDENTIAL SALES AVERAGES: l , Kwh per customer .............. '115298. '11,133' 11,492 l Revenue per customer .......... $955. $890 $915 l l Revenue per Kwh ............... 8.454 7.99&- 7.96* , f REVENUES PER KWH ON TOTAL SALES ... 6.934- 6.489 6.494 i v FUEL COST DATA: Average Btu per net Kwh ....... 10,296 10,404 10,309 l Cost per million Btu .......... $2.17 $1.70 $1.73 Cost per Kwh generated ........ 2.23t' 1.774 1.79$ ; Cost as a percentage of .... revenue ..................... 28.6 27.6 27.6 ; i (a) The customer decrease in 1993 was largely due to the combining of multiple. customer accounts into single accounts.
.r l
l l l-l l 8
. - - . . _ , . . . _ . . _ . - ~ . . - . _ .. ._.
l construction and Financing ) 1 Construction. The estimated total capital expenditures (including AFUDC) for the years 1994-1996 are as follows: 1994 1995 1996 Total (Millions) Generation ........................ $ 36 $ 27 $ 20 $ 83 Transwission ...................... 72 16 41 129 Distribution ...................... 57 56 60 173 Fuel .............................. 2 8 21 31 Other ............................. 28 21 15 64 Total $195 1128 1157 $480 Information in the foregoing table is subject to change due to numerous factors, including the rate of load growth, escalation of construction costs, changes in lead times in manufacturing, inflation, the availability and pricing of alternatives to construction or nuclear, environmental and other regulation, ! delays from regulatory hearings, the adequacy of rate relief and the availability ! of necessary external capital. Changes in these and other factors could cause the Company to defer or accelerate construction or to sell or buy more power, which would affect its cash position, revenues and income to an extent that cannot now be reliably predicted. See Construction Program in MANAGEMENT'S i DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, in ITEM 7, for additional information relating to construction. The company continues to study alternatives to reduce or meet future , . increases in customer demand, including without limitation demand-side management I programs, new and efficient electric technologies, various architectures for new and existing generation facilities, and methods to reduce transmission and ' distribution losses. The Texas Commission considers on a case-by-case basis mechanisms whereby costs of demand-side management programs and some return on the related investment are recoverable from customers, either on a current basis or through deferral to a base rate case. The Texas Commission has not to date ; adopted similar mechanisms for associated revenue reductions and performance incentives. The CSW System f acilities plan currently indicates that the company will not require substantial additions to its generating capacity until the year 2001 or beyond. Financing. See, Financing and Capital Resources in MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, in ITEM 7, for information with respect to financing and capital resources. Fuel Supply General. The Company's present electric generating plants showing the type of fuel used are set forth under " ITEM 2. PROPERTIES." During 1993, approximately 65% of Kwh generation was from gas, 33% from coal and 2% from nuclear fuel. Nuclear generation was substantially reduced in 1993 , i due to the STP outage described in NOTE 9, LITIGATION AND REGULATORY PROCEEDINGS, i n ITEM 8. Natural gas consumption totaled 104 million Mcf and coal requirements l were 2 million tons. Natural Gas. The Company's eight gas-fired electric generating plants are supplied by 12 separate long-term natural gas purchase agreements accounting for approximately 57% of the Company's total gas requirements in 1993. The balance of the Company's natural gas requirements could have been supplied under existing ( long-term arrangements; however, with the favorable spot market conditions existing during the period, the Company elected to purchase these requirements under lower cost, spot market arrangements. The Company's principal gas supplies for 1993 were provided under agreements with Corpus Christi Gas Marketing L.P., P 9 ' i
Enron Corporation, Onyx T oeline Company or their af filiates. They supplied approximately 22%, 18% ant 1%, respectively, of the Company's total natural gas purchases. Including sp , market suppliers, the Company had 31 individual suppliers of natural gas during 1993. Coal. The Company's two coal-fired electric generating plants, Coleto Creek and jointly owned Oklaunion, are both primarily supplied by single long-term coal , purchase agreements. At Coleto Creek, the long-term agreement expiring in 1999 with Colowyo Coal company provided approximately 56% of the coal requirements of the plant for 1993. The Company's purchase obligation set forth in the Colowyo agreement for 1994 is for approximately 60% of Coleto Creek's requirements and I 25% for 1995 through expiration. The coal is mined in northwestern Colorado and is transported approximately 1,400 miles under long-term rail agreements with the Denver & Rio Grande Western Railroad Company, the Burlington Northern Railroad Company and the Southern Pacific Transportation Company. The balance of the Coleto Creek requirements are currently being procured on the spot market and it is anticipated that this will continue until the expiration of the agreement in 1999. The Company owns sufficient railcars for operation of three unit trains, and has negotiated-contracts with the rail carriers involved which have been accepted by the Interstate Commerce Commission. At year-end 1993, the Company - had approximately 140,000 tons of coal in inventory at Coleto Creek, representing ; approximately 21 days supply. Currently Oklaunion's long-term coal supply is provided under a contract expiring in 2006 with Exxon Coal USA, Inc. This agreement is for Wyoming coal which is transported approximately 1,100 miles to the plant by the Burlington Northern Railroad Company. Approximately 65% of the total 1993 Oklaunion coal ; requirements for the company were supplied under the Exxon Agreement with the balance procured on the spot market. In December 1993, a settlement was reached with Exxon regarding disputes over certain provisions of this long-term coal contract. The settlement is expected to result in lower fuel costs at Oklaunion. The Company's share of the year-end 1993 coal inventory at Oklaunion was approximately 40,000 tons, representing approximately 52 days supply. Nuclear Fuel. The nuclear fuel cycle entails several steps, including purchase of uranium concentrate, conversion of uranium concentrate to uranium hexafluoride, enrichment of uranium hexafluoride into the isotope U235 and ! fabrication of the enriched uranium into fuel rods and fuel assemblies. Fuel requirements for STP are being handled by a committee comprised of representatives of all participants in STP. The Company and the other STP participants have entered into contracts with suppliers for uranium concentrate suf ficient for the operation of both STP units through 1996. Enrichment contracts have been secured for a 30-year period from the present for each unit. Contracts have been secured for conversion services for both units through 1996. Also, fuel fabrication services have been contracted for the initial cores and 16 years of operation of each unit from the present. The Company believes it will be able to obtain adequate supplies of nuclear fuel components and services required for the life of STP. l The nuclear power industry f aces uncertainties with respect to the cost and l availability of long-term arrangements for disposal of spent nuclear fuel and ! other radioactive waste. Disposal costs for low-level radioactive waste that
- results from normal operation of nuclear units have increased significantly in recent years and are expected to continue to rise, but adequate storage and disposal facilities are expected to be available for STP.
The Company and the other STP participants have entered into a waste disposal contract for spent fuel with the DOE. Under this contract, the DOE is required to take possession of all spent fuel from the STP units by 1998. The DOE has had difficulties in formulating and implementing its strategy for high-level waste disposal and for any compensation to utilities if the DOE is unable to accept such waste on schedule. Until the federal government begins receiving such materials in accordance with the Nuclear Waste Policy Act and DOE contracts, operating nuclear generating plants will need to retain high-level wastes and spent fuel on-site or make some other provisions for their storage. STP has on-site storage f acilities with the 10 t 4
--v- , , - , , , - , -,,.,,,,-.-r--- - - - - ,- .---~-,.c- -y w r ~=
capability to store up to 40 years of spent fuel discharged from each unit. Under NRC regulations, spent nuclear fuel from STP may be stored under a general license provided that the licensee notifies the NRC, uses only NRC-certified casks for storage, and stores the spent fuel under conditions specified in the cask's certificate of compliance. Governmental Regulation. The price and availability of each of the foregoing fuel types are significantly af fected by governmental regulation. Any inability in the future to obtain adequate fuel supplies, or adoption of additional regulatory measures restricting the use of such fuels for the generation of electricity, might affect the Company's ability to meet economically the needs of its customers and could require it to supplement or ' replace, prior to normal retirement, existing generating capability with units using other fuels. This would be impossible to accomplish quickly, would require ' substantial expenditures for construction and could have a significant adverse effect on the Company's financial position and results of operations. Fuel Costs. Additienal fuel cost data for the company appears under
" Operating statistics." For 1993, total average cost of fuel per million Btu was l $2.17. Average costs per million Stu by major fuel type were $2.27 for natural l gas, $2.06 for coal and $0.57 for nuclear. The Company is unable to predict l accurately the future cost of fuel.
Environmental Matters The Company is subject to regulation with respect to air and water quality , i and solid waste standards, along with other environmental matters, by various federal, state and local authorities. These authorities have continuing l jurisdiction in most cases to require modifications in the Company's f acilities and operations. Changes in environmental statutes or regulations could require , substantial additional expenditures to modify the Company's facilities and ! operations and could have a significant adverse effect on the Company's results of operations. Violations of environmental statutes or regulations can result in fines and other costs. Air Quality. Air quality standards and emission limitations are subject to , the jurisdiction of the TNRCC, with oversight by the EPA. In accordance with l regulations of the TURCC, permits are required for all generating units on which {; construction is commenced or which are substantially modified af ter the effective date of the applicable regulations. The Company has not received notice from any l federal or state government agency alleging that it currently is subject to an enforcement action for a material violation of existing federal or state air ; quality and emission regulations. The EPA has approved and may enforce the air ' quality standards and limitations adopted by the TNRCC and has adopted ambient l air quality standards applicable nationally, as well as new source performance standards for all new or substantially modified generating units. In November 1990, the United States Congress passed the Clean Air Act Amendments of 1990, which place restrictions on the emission of SO2 and nitrogen oxides from gas , coal- and lignite-fired generating plants starting in the year 2000. The right to emit SO2 from existing generating plants will be established based on historical operating conditions. These rights will be controlled through an allowance program. Each unit of allowance is an entitlement to emit one ton of SO2 per year. The Company, based on the CSW System facilities plan, believes its allowances are adequate to meet its needs at least through 2008. Public and private markets are developing for trading of excess allowances. The company presently has no intention of engaging in sales or purchases of allowances, but may seek to do so in the future if market conditions warrant. Based on the latest CSW System f acilities plan, the Company estimates making capital expenditures of $5 million to install emission monitoring equipment for existing plants by January 1, 1995. Water Quality. The TNRCC and the EPA have jurisdiction over all wastewater discharges into state waters. The TNRCC has jurisdiction for establishing water quality standards and issuing waste control permits covering discharges which might affect the quality of state waters. The EPA has jurisdiction over " point source" discharges through the National Pollutant Discharge Elimination System 11 l _ . _ - -
l l provisions of the Clean Water Act. The Company has not received notice from any federal or state government agency alleging that it currently is subject to an enforcement action for a material violation of existing federal or state wastewater discharge regulations. Solid %aste Disposal. The RCRA and the TNRCC solid waste rules provide for comprehensive control of all solid wastes from generation to final disposal. The TNRCC has received authorization from the EPA to administer the RCRA solid waste control program for Texas. The company has not received notice from any federal or state government agency alleging that it currently is subject to an enforcement action for a material violation of existing federal or state solid l waste regulations. CERCLA and Related Matters. Under CERCLA, owners or operators of contaminated sites and, transporters and/or generators of hazardous substances can be held liable for the cleanup of hazardous substance disposal sites. Similar liabilities for hazardous substance disposal can arise under applicable state law. The Company incurs costs for the handling, transportation, storage and disposal of hazardous, toxic and non-hazardous waste materials. Unit costs I for waste classified as hazardous or toxic exceed by a substantial margin unit ! costs for waste classified as non-hazardous. l The Company produces combustion and other generation by-products, such as ! sludge, ash, slag, low-level radioactive waste and spent fuel. The Company owns j distribution poles treated with creosote or similar substances which are not l expected to exhibit characteristics that would cause them to be hazardous waste. l The EPA currently exempts coal combustion by-products from regulation as hazardous wastes. In connection with its operations, the Company also has used asbestos, PCBs and other materials classified as hazardous or toxic waste. If additional by products or other materials generated or used by the Company were reclassified as hazardous or toxic wastes, or other new laws or regulations concerning hazardous or toxic wastes or other materials were put in effect, the Company's disposal and remedial costs could increase materially. In 1993, the EPA made an administrative determination that coal combustion by products are non-hazardous. The EPA is expected in the near-term to issue new regulations i stating whether certain other non-combustion by products will be classified as hazardous waste. ; In November 1985, the Texas Attorney General brought suit against the Company under the Texas Solid Waste Disposal Act and Chapter 26 of the Texas Water Code. This suit alleged that the Company was one of the parties responsible for lead and PCB contamination at the Industrial Road and Industrial Metals site in Corpus Christi, Texas and, therefore, should share the responsibility for cleanup of the site. The site was used by several metal I salvage companies for the salvage of various materials allegedly purchased from various entities including the company and other utilities. Pursuant to an agreement with the State of Texas, and under the direction and supervision of the Texas Water Commission (TWC), now the TNRCC, the company engaged independent contractors to design and implement a closure plan for the site which was approved by the TWC. The closure of the site was conducted and completed under the direction and supervision of the TWC by an independent contractor specializing in waste site closures and vaste management f acilities. The closure Certification Report was submitted to t7e TWC in December 1990, and was given j final approval by the TWC in August 1991. Total expenses incurred by the Company for cleanup through December 1993 have been approximately $2 million. No , additional material costs to the company are anticipated. ' Three additional lawsuits relating to this site, naming the Company as one l of the defendants, are pending and discovery continues. The first was filed in December 1990 and is currently pending in U. S. District Court, Southern District, Nueces County. This suit was filed by multiple plaintiffs residing in a neighborhood near the Industrial Metals site who now allege response costs under CERCLA and property damages in excess of $100 million for lead contamination allegedly resulting from closure of the site. In November 1992, a similar suit with multiple plaintif fs, was filed in the ll7th Judicial District Court, Nueces County. This suit alleges property damage and response costs under CERCLA in excess of $1 million for lead and PCB contamination allegedly resulting f rom the closure of the site. A third lawsuit was filed in March 1993 in the
- 2
94th Judicial District Court in Nueces County. The suit was filed by multiple f parties alleging that the closure of the site caused a wrongful diversion of surface water under the Texas Water Code, resulting in flooding to their property. They claim actual damages of approximately $162,000, plus mental ' anguish and attorneys' fees. The Company was recently granted summary judgment on a fourth suit arising from the site that was filed in the spring of 1993 in the 37th Judicial District Court in Bexar County. This suit was filed against the Company and other defendants by a widow alleging that her husband's death was caused by exposure to PCBs at the site where he was employed 20 years ago for a ~ two week period. An appeal is possible, but the limitation period for that appeal does not begin to run until the Company is. severed from the suit still pending against other defendants. Although management cannot predict the outcome ' of these proceedings, based on the defenses that management believes are available to the Company, management believes that the ultimate resolution of these matters will not have a material adverse effect on the Company's results of operations or financial condition. - In September 1992, the EPA conducted an inspection, of various Company facilities, under the Toxic Substance Control Act regarding various PCB and equipment management activities. The company is responding to the initial findings and it is not known when a final inspection report will be issued, however, management does not believe that the resolution of this matter will have a material adverse effect on the company's results of operations or financial condition. . See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Environmental for a discussion of certain other environmental matters. , From time to time the Company is made aware of various other environmental issues or is a party to various other legal claims, actions, complaints and other proceedings related to environmental matters. Management does not expect disposition of any such environmental proceedings to have a material adverse effect on the Company's results of operations or financial condition. ,. P t 13 _, ._ , . -y,-. -- - r -- -.,.w, o_ , - ,--.y-r e. --,.my -r,,w- r - - - - .,w, - . . f- ,.,.9 , e.
ITEM 2. PROPERTIES. Facilities. At December 31, 1993, the Company owned the following electric generating plants (or portions thereof in the cases of the jointly owned plants) . (See " ITEM 1. BUSINESS -- Fuel Supply.") Net Dependable Type of Fuel Capability Plant Name and Location Primary / Secondary Mw Barney M. Davis gas / oil (a) 339 Corpus Christi, Texas gas / oil 340 coleto Creek coal 604 Goliad, Texas Lon C. Hill gas / oil (a) 549 Corpus Christi, Texas Nueces Bay gas / oil (a) 512(b) Corpus Christi, Texas victoria gas / oil (a) 258(b) Victoria, Texas La Palma gas / oil 47 San Benito, Texas gas / oil (a) 156(b) E. S. Joslin gas /cil(a) 252 Point Comfort, Texas J. L. Bates gas / oil (a) 182 Mission, Texas Laredo gas / oil (a) 66 Laredo, Texas gas / oil 106 Eagle Pass Eagle Pass, Texas hydro 6 oklaunion coal 53(c) , Vernon, Texas l STP nuclear 630(d) Bay City, Texas Total 4,100 I l
.l (a) For extended periods of operation, oil can be used only in combination with gas. Use of oil in facilities primarily designed to burn gas results in increased maintenance expense and a reduction of approximately 15% in capability.
(b) Excludes units in long-term storage - 34 Mw at Nueces Bay, 228 Mw at ] Victoria and 48 Mw at La Palma. (c) The Company owns 7.81% of the 676 Mw unit operated by WTU. i (d) The Company owns 25.2% of the two 1,250 Mw units operated by HLP. i All of the generating plants described above are located on land owned by l the Company or jointly with the other participants in jointly owned plants. The company's electric transmission and distribution f acilities are for the most part located over or under highways, streets and other public places or property owned j by others, for which permits, grants, easements or licenses (which the Company l believes to be satisfactory, but without examination of underlying land titles) } , 14 i
I have been obtained. The principal plants and properties of the Company are subject to the lien of the first mortgage indenture under which the Company'r first mortgage bonds are issued. 1 ITEM 3. LEGAL PROCEEDINGS. See ITEM 1. BUSINESS-- Environmental Matters, for information relating to environmental and certain other proceedings. See NOTE 9, LITIGATION AND REGULATORY PROCEEDINGS, in ITEM 8, for , information relating to regulatory and legal proceedings. The Company is party to various other legal claims, actions and complaints arising in the normal course of business. Management does not expect disposition of these matters to have a material adverse offect on the company's results of operations or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. All of the~ outstanding shares of Common Stock of the Company are owned by its parent company, CSW. 1 15
ITEM 6. SELECTED FINANCIAL DATA. ' The following selected financial data are provided to highlight significant trends in the financial condition and results of operations of the company: 1993 1992 1991 1990 1989 (thousands, except ratios) 1 Electric Operating Revenues $1,223,528 $1,113,423 $1,098,730 $ 948,520 $ 836,585 Inccme Before Cumulative Effect of Changes in Accounting Principles 145,130 218,511 217,206 204,870 147,781 Preferred Stock Dividends 14,003 16,070 19,844 23,528 24,558 Income for Conanon Stock Before Cumulative Effect of Changes in Accounting Principles 131,127 202,441 197,362 181,342 123,223 Cumulative Effeet of Changes in Accounting Principles (1) 27,295 - - - - Net Income for Common Stock 158,422 202,441 197,362 181,342 123,223 Total Assets (2) 4,781,745 4,583,660 4,458,063 4,516,375 3,913,360 Preferred Stock Not Subject to & ndatory Redamption 250,351 250,351 250,351 250,351 250,351 Subject to Mandatory Redemption 22,021 28,393 35,331 40,584 4J,803 Long-Term Debt 1,362,799 1,347,887 1,350,854 1,346,587 1,331,349 Ratio of Earnings to Fixed Charges (SEC Method) Before Cumulative Effect of Changes in Accounting Principles 2.69 3.23 3.18 3.11 2.48 Capitalization Ratios Common Stock Equity 46.6% 46.9% 46.6% 47.0% 45.7% Preferred Stock B.9 9.1 9.3 9.4 9.8 Long-Term Debt 44.5 44.0 44.1 43.6 44.5 (1) The 1993 cumulative eff ect relates to the changes in accounting for unbilled revenues and adoption of EFAS No.112, Employer's Accounting for Postemployment Benefits. See NorE 1,
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, in ITEM 8. (2) The 1992+1989 total assets have been reclassified to reflect the effects of the adoption in 1993 of SFAS No. 109, Accounting for Income Taxes. See NOTE 2, FEDERAL INCOME TAXES, in ITEM 8. The Company changed its method of accounting for unbilled revenues in 1993. t Pro forma amounts assuming that the change in accounting for unbilled revenues j had been adopted retroactively are not materially different from amounts previously reported for prior years. I l 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Reference is made to the Company's Financial Statements and related Notes and Selected Financial Data in ITEM 8. The information contained therein should be read in conjunction with, and is essential in understanding, the following discussion and analysis. Overview Net income for common stock for the year 1993 decreased 21.7% to $158 million from $202 million in 1992. The decline was due primarily to increased administrative and general expenses, increased STP operating and maintenance expenses, higher taxes other than Federal income, additional employee benefits costs, and the decline in Mirror CWIP liability amortization. Partially of f setting the ef fects of the above items were increased base revenues, reduced interest expense, lower preferred stock dividends, and the cumulative effect of a change in accounting for unbilled revenue. Reflected in the overall earnings reduction is a $9 million net negative effect of several one-time items including the cost of the company's restructuring, true-up of prior years' federal taxes, write-down of lignite properties and environmental issues, adoption of new accounting standards for medical costs and the accrual of unbilled revenues. The 1992 increase in net income for common stock over 1991 was due primarily to higher revenues from increased Kwh sales, lower operating and maintenance expenses and a reduction in preferred stock dividends. 4 Average return on common equity decreased to 11.1% in 1993 from 14.2% in 1992. The company took advantage of lower interest rates in 1993 and refinanced $391 million of higher cost debt which reduced the embedded cost of long-term debt and lowered annual interest expense $11 million. STP In February 1993, Unite 1 and 2 of STP were shut down by HLP, the Project Manager, in an unscheduled vutage resulting from mechanical problems relating to two auxiliary feedwater pumps. HLP determined that the units would . not be restarted until the equi tment f ailures had been corrected and the NRC was briefed on the causes of these f ailures and the corrective actions that were taken. The NRC formalized that commitment in a confirmatory action letter and sent an t Augmented Inspection Team to STP to review the matter. In March 1993, the NRC began a diagnostic evaluation of STP. Conducted infrequently, diagnostic evaluations are broad-based evaluations of overall plant operations and are intended to review the strengths and weaknesses of the licensee's performance and to identify the root cause of performance problems. During and subsequent to the i June 1993 completion of the evaluation, the NRC supplemented its confirmatory action letter to identify additional issues to be resolved and verified by the ; NRC before restart of STP. Such issues included the need to reduce backlogs of engineering and maintenance work and to simplify work processes which placed excessive burdens on operating and other plant personnel. The report also identifled the need to strengthen management communications, oversight and teamwork as well as the capability to identify and correct the root causes of problems. The NRC announced in June 1993 that STP was placed on its " watch list" of plants with " weaknesses that warrant increased NRC attention.". Plants on the watch list are subject to closer NRC oversight. STP will remain on the NRC's watch list until both units return to service and a period of good performance is demonstrated. During the outage, the necessary improvements have been made by HLP to address the issues in the Confirmatory action letter, as supplemented. On February 15, 1994, the NRC agreed that the confirmatory action letter issues had been resolved with respect to Unit 1, and that it supported HLP's recommendation that Unit 1 was ready to restart. Unit 1 restarted in late February 1994 and operated at low power for three days. The Project Manager then shut down Unit I due to a problem with a steam generator feedwater valve and a steam generator 17
tube leak. The Project Manager expects to make the necessary repairs and restart Unit 1 in late March 1994, although additional delays may occur. While many of the corrective actions taken are common to both units, HLP must demonstrate to the NRC that these issues are also resolved with respect to Unit 2 before it is restarted. HLP estimates that Unit 2 will restart during the second quarter of 1994 after the completion of refueling, which began in March 1993 but was delayed in order to focus on the issues discussed above. The outage has not affected the company's ability to meet customer demands because of existing capacity and the company's ability to purchase additional energy from I affiliates and nonaffiliates. As discussed below, under Results of Operation, the outage resulted in an additional $29 million of operating, maintenance and administrative and general costs. The company expects to continue to experience increased operation and maintenance expenses in 1994 but at a significantly lower level than in 1993. During the outage, the Company's fuel and purchased power costs have been, ) and are expected to continue to be, increased as the power normally generated by i STP must be replaced through sources with higher costs. It is unclear how the Texas Commission will address the reasonableness of higher costs associated with the STP outage. At January 31, 1993, before the start of the STP outage, the Company had an over-recovered fuel balance of $5.2 million, exclusive of ; interest. At January 31, 1994, the Company's under-recovered fuel balance was i $55.7 million, exclusive of interest. This under-recovery of fuel costs, while due primarily to the STP outage, was also affected by changes in fuel prices and timing differences. The Company cannot accurately estimate the amount of any future under- or over-recoveries due to the unpredictable nature of the above factors. Although there is the potential for disallowance of fuel-related costs, such determination cannot be made until fuel costs are reconciled with the Texas Commission. If a significant portion of fuel costs were disallowed by the Texas Commission, the company could experience a material adverse ef fect on its results of operations in the year of disallowance. The Company is required by the Texas Commission's rules to file a reconciliation of its fuel costs by May 1, 1994. However, the Texas Commission Staff is proposing a revised filing deadline that would not require the Company to file before the fourth quarter of 1994. Management believes that the operating outage at STP will not have a material effect on its financial condition or on its results of operations. See NOTE 9, LITIGATION AND REGULATORY PROCEEDINGS, in ITEM 8 for additional information related to STP. Restructuring CSW recently announced a management restructuring and early retirement program designed to consolidate and restructure its operations in order to meet the challenges of the changing electric utility industry and to compete i ef f ectively in the years ahead. The underlying goal of the reorganization is to enable the company and the other Electric Operating Companies to focus better on and be accountable for serving customers. The initial phase of the restructuring will involve certain changes at CSWS, the mutual service company that serves the CSW System. CSWS will be realigned into two primary units - Operation Services and Production Services. Operation Services will provide administrative services that can be performed centrally to benefit the CSW System, including the Company. Production Services will focus on consolidated fuel and generation planning for the Electric Operating Companies as well as certain other activities. Certain aspects of the restructuring may require SEC approval. To implement its restructuring program, the CSW System will consolidate and centralize its operation services and production services, including the Company's. The Company is expected to reduce the size of its work force. An early retirement program has been of fered to approximately 200 eligible Company employees and 726 employees on a systemwide basis. Since the restructuring is not expected to be completed until the end of 1994, it is not possible at this time to predict the number of employees who will take the early retirement 18
program, be granted severance packages or be relocated. The Company's share of costs associated with an early retirement program, severance packages and relocation is estimated to be $29.4 million before taxes, and was expensed in 1993. The Company's share of severance and relocation costs will be paid from its general corporate funds in 1994 and early retirement costs primarily from pension and postretirement benefit plan trusts. Savings from the restructuring are expected to begin in the second half of 1994. By the end of 1995, initial costs should be fully recovered through operations and maintenance cost savings. CSW established a Business Improvement Plan (BIP) in 1991 to identify, analyze and implement the best business practices as part of its efforts to align the CSW System strategically to meet competitive forces. The BIP program will be incorporated as part of the reorganization. Any additional costs to the Company are expected to be offset by future savings from the benefits provided through the implementation of BIP recommendations. Rates and Regulatory Matters Reference is made to NOTE 9, LITIGATION AND REGULATORY PROCEEDINGS, in ITEM 8, for a discussion of the Company's rates and regulatory matters. Construction Program The Company's need for capital results primarily from its construction of i facilities to provide reliable electric service to its customers. Construction expenditures including AFUDC were approximately $180 million in 1993, $102 million in 1992 and $100 million in 1991. It is estimated that construction expenditures including AFUDC during the 1994 through 1996 period will aggregate
$480 million. Such expenditures primarily will be made to improve and expand transmission and distribution facilities. These improvements are expected to meet the needs of new customers and to satisfy changing requirements of existing customers. No new baseload power plants are currently planned until after the year 2000.
The CSW System f acilities plan presently includes projected coal and lignite fired generating plants for which the Company has invested approximately $24 million as of year-end for plant sites, engineering studies and lignite reserves. As part of an analysis in 1993, the CSW System rejected certain lignite leases and CPL wrote down its lignite related investment by approximately $2.9 million. l Should future plans exclude these plants for environmental or other reasons, the l Company would evaluate the probability of recovery of these investments and ) record appropriate reserves. l Financing and Capital Resources Internal Generation. Internally generated funds consisting of cash flows from operating activities less common and preferred stock dividends, provided approximately one-half of the capital requirements for 1993. It is anticipated that capital requirements for the period 1994 through 1996 will generally be provided f rom internal sources. The Company also anticipates that some external financing will be required during this period; however, the nature, timing and extent have not yet been determined. Long-Term Financing. Long-term financing by the Company involves the sale of first mortgage bonds, unsecured debt and pref erred stock, and the receipt of i capital contributions from its parent company. The goal of the Company is to provide a strong capital structure. At December 31, 1993, the capitalization i ratios were 47% common stock equity,'9% preferred stock and 44% long-term debt. On September 30, 1993, the Company filed with the SEC an amendment to a l previously filed registration statement for the sale of first mortgage bonds in i an aggregate amount up to $360 million. The Company intends to offer its first , mortgage bonds subject to market conditions and other f actors. The proceeds of i any such offerings will be used principally to reacquire all or a portion of one 4 or more series of the Company's outstanding first mortgage bonds in order to l lower the Company's embedded cost of long-term debt and to repay short-term debt. ! 19 l l
l l l The Company may also use the proceeds to redeem outstanding higher cost preferred stock.
- During 1993, the Company sold $325 million of first mortgage bonds and the Matagorda County Navigation District Number One (Texas) issued on behalf of the Company $120 million of tax-exempt PCRBs in order for the Company to refinance high cost debt with lower cost debt. Summarized below are the Company's 1993 long-term debt activities.
Debt Debt Issued Reacquired , Series Amount Maturity Series Amount Maturity (millions) Tinillions) (1) DD, 7 1/8% $ 25 1999 (1) K, 8 3/4% $ 25 2000 (1) EE, 7 1/2% 115 2002 (1) N, 9 3/8% 40 2004 (1) P, 8 7/8% 75 2008 (2) FF, 6 7/8% 50 2003 M, 8% 46 2003 GG, 7 1/8% 75 2008 0, 8 1/4% 75 2007 HH, 6% 100 2000 Y, 9 3/4% 150 1998 (2) II, 7 1/2% 100 2023 PCRB, Series PCRB, Series 1993, 6% 120 2028 1984, 10 1/8% 70 2014 (3) Series U ! 9 3/4% 50 2015 (4) Z, 9 3/8% 8 2019
$585 $539 1
I (1) Reacquisition occurred in 1993 with proceeds from the iscuance of debt in 1992. The funds held for these reacquisitions were reflected on the December 31, 1992 balance sheet in special deposits. (2) The proceeds remaining after the reacquisition of debt were used for general company purposes. l (3) Series U is a first mortgage bond issue which collateralized PCRB, Series 1985A. (4) Reacquisition occurred with internally generated funds. The Company reduced its embedded cost of long-term debt from 8.94% in 1992 to 8.43% in 1993 and lowered annual interest expense by $11.0 million as a result of its debt management activities. The Company continually monitors the capital markets for opportunities to refund other long-term securities through refinancings if market conditions permit. Sale of Accounts Receivable. The Company sells its billed and unbilled accounts receivable, without recourse, to CSW Credit, Inc., a wholly owned l subsidiary of CSW. The sales provide the Company with cash immediately, thereby l reducing working capital needs and revenue requirements. The average and year-end amounts of accounts receivable sold were $112.3 million and $105.8 million in 1993, as compared to $106.7 million and $95.4 million in 1992. Short-Term Financing. The Company, together with other members of the CSW System, has established a CSW System money pool to coordinate short-term i borrowings. These loans are unsecured demand obligations at rates approximating l the CSW System's commercial paper borrowing costs. The Company's short-term l borrowing limit from the money pool is $250 million. During 1993, the average I amount of short-term borrowings outstanding at month-end was $87.3 million at a weighted average interest rate of 3.3%. The maximum amount of short-term borrowings outstanding at any month-end during 1993 was $171.2 million, which was the amount outstanding at December 31, 1993. Accounting Changes In 1993 the Company adopted SFAS No. 106, Employers' Accounting for l Postretirement Benefits Other Than Pensions, SFAS No.112, Employers' Accounting 20
a for Postemployment Benefits (See NOTE 7, BENEFIT PLANS) and SFAS 109, Accounting i for Income Taxes (See NOTE 2, FEDERAL INCOME TAXES). The Company also changed ; its method of accounting for unbilled revenues (See NOTE 1,
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -- Electric Revenues and Fuel). Results of Operations i Electric Operating Revenues. Total revenues increased 9.9% in 1993 and 1.3% in 1992. The 1993 increase reflects higher fuel-related revenues of $88.7 million and greater base revenues of $21.4 million. Fuel-related revenues were up because of the rise in per unit fuel and purchased power costs, as discussed below, and because of higher fuel consumption on greater Kwh sales. Total Kwh sales were up 2.7%, reflecting growth in retail sales of 5.9%, partially of fset by a 33.4% decline in lower margin sales for resale. All of the company's retail classes showed increases with residential and commercial sales growing by 3.8% and 2.3%, respectively. Such growth was mainly due to the continued increase in number of customers served as well as from 1993's weather, which was warmer than the mild weather experienced last year. Industrial sales were up 10.4% on higher demand in the petrochemical and petroleum industries, where several companies that CPL serves had plant expansions and increased load requirements. The off-system sales decline was a result of decreased economy sales, attributable to less available capacity to make such sales as a result of the outage at STP during the year. The increase in 1992 revenues over 1991 was primarily due to higher Kwh sales to lower-margin industrial customers mainly in the petrochemical and petroleum industries. Fuel and Purchased Power Expense. The 14.1% increase in fuel expense in 1993 is attributable to an increase in consumption of both gas and coal, associated with higher generation during the STP outage and the resulting higher average unit cost of fuel. The rise in per unit fuel costs reflects the higher per unit cost of gas and coal, which replaced lower cost nuclear fuel during the STP outage as discussed in LITIGATION AND REGULATORY PROCEEDINGS in ITEM 8. Purchased power increased $46.9 million in 1993 as a result of increased ; purchases to replace STP's generation. Fuel expense increased in 1992 mainly because of higher fuel consumption associated with increased generation from greater Kwh sales. Purchased power was up as a result of increased economy purchases from other power companies with lower cost generation. Costs per million Btu by fuel source were: 1993 1992 1991 Gas $2.27 $2.13 $2.03 Coal 2.06 2.06 2.16 Nuclear .57 .54 .55 Total 2.17 1.70 1.73 Other Operating Expenses and Taxes. Other operating expenses increased $40.5 million in 1993 primarily because of an $16.7 million increase in operation and administrative and general costs at STP and a $19.5 million increase in administrative and general expenses other than STP. The higher STP related costs reflect costs associated with the outage. Administrative and general costs other than those at STP were higher due to increased pension and medical costs, which included implementing of SFAS No. 106 Employers' Accounting for Postretirement Benefits Other Than Pensions. The adoption of this accounting standard increased 1993 expenses $5.9 million over 1992. Maintenance expense increased $20.0 million in 1993, due largely to a $17.3 million increase in maintenance activities at STP associated with the outage. Expenses at STP are expected to be higher in 1994 than those prior to the outage, but not as high as experienced in 1993. The restructuring expenses reflect the one-time cost of the Company's restructuring as previously discussed. Such expenses include the estimated costs associated with the early retirement program, severance packages and relocation. 21
r These costs are expected to be recovered through lower expenses by the end of 1995. The 1992 decrease in other operating and maintenance expenses was primarily the result of reduced administrative and general, customer accounting and power station maintenance expenses. Depreciation and amortization increased in 1993 and 1992 due mainly to the addition of distribution f acilities. Taxes, other than Federal income, increased in 1993 mainly as a result of increasing ad valorem taxes. The increase in 1992 is largely a result of a Texas state franchise tax refund received in 1991 for ; prior year taxes and higher ad valorem taxes. For 1992 and 1993, ad valorem i taxes increased due to changes in the funding system for public schools in Texas. j Federal income taxes decreased $12.1 million in 1993 due to lower taxable l income partially of fset by the increase in the statutory tax rate from 34% to 35% l effective retroactive to January 1, 1993. l Annual inflation rates, as measured by the Consumer Price Index, have averaged 3.3% for the three-year period ending December 31, 1993. The Company l believes that inflation, at these levels, does not materially af fect its results ! of operation or financial condition. However, under existing regulatory practice, only the historical cost of plant is recoverable from customers. As 1 a result, cash flows designed to provide recovery of historical plant costs may l t not be adequate to replace plant in future years. Mirror CWIP Liability Amortization. The Company is amortizing its Mirror CWIP liability in declining amounts over a five year period. As a result, $76 million of non-cash earnings was recognized in 1993, a decrease from the $83 million recognized in 1992. The liability will be amortized over the remaining two years at $68 million in 1994 and $41 million in 1995. Interest Expense and Preferred Stock Dividends. Total interest expense decreased 6.5% in 1993. The decrease was due to the company's refinancing of higher cost long-term debt with lower cost debt partially of fset by increases in short-term interest and other associated with higher short-term borrowings to meet working capital needs and increased amortization levels for debt issuance costs and loss on reacquisition of debt. Preferred dividends decreased in 1993 and 1992 due to lower dividend rates on money market and auction preferred stocks and due to the retirement of $6.5 million and $7.1 million of 10.05% Series preferred stock in 1993 and 1992. Cumulative Ef fect of Changes in Accounting Principles. In 1993 the Company changes its method of accounting for unbilled revenues and recorded unbilled revenues of $29.5 million, net of taxes of $15.9 million, for electricity used by customers but not yet billed. The Company also adopted SFAS No. 112, Employers' Accounting for Postemployment Benefits, recognizing $2.2 million, net of taxes of $1.2 million, in additional expense. Other Matters Competition and Industry Challenges. The Company's business has been, and will continue to be affected by various challenges that confront the electric utility industry generally. The Company currently faces competition for power sales in the wholesale market. In the future, the Company may face similar competition for retail sales from other utilities, independent power producers or alternative sources of electricity or other energy. To date, the company has been successful in meeting the competition, other industry-wide issues confronting the Company include current and proposed stringent nuclear, environmental and other regulation and deregulation as discussed elsewhere in this report. In addition, the Company is continually seeking to manage costs and rates and focus on new initiatives in order to maintain its financial strength and reach its financial targets. Environmental. The operations of the Company, like those of other electric utilities, generally involves the use and disposal of substances subject to environmental laws. CERCLA, the federal, "Superfund" law, addresses the cleanup 22
l l of sites contaminated by hazardous substances. Superfund requires that PRPs fund remedial actions regardless of f ault or the legality of past disposal activities. Many states have similar laws. Theoretically, any one PRP can be held ; responsible for the entire cost of a cleanup. Typically, however, cleanup costs are allocated among PRPs. ; i The company has been named as a responsible party under federal or state J remedial laws and has either resolved or expects to resolve these claims without a material adverse effect on the company. Although the reasons for this expectation differ from site to site, factors that are the basis for the expectation for specific sites are the volume and/or type of waste allegedly contributed by the company, the estimated amount of costs allocated to the company and the participation of other parties. i The Clean Air Amendments of 1990 direct the EPA to issue regulations governing nitrogen oxide emissions. In ' addition, these amendments require government studies to determine what controls, if any, should be imposed on utilities to control air toxic emissions. The impact that the nitrogen oxide emission regulations, and the air toxies study, will have on the company cannot be determined at this time. Research is ongoing whether exposure to Electric and Magnetic Fields (EMFs) may results in adverse health effects or damage to the environment. Although a few of the studies to date have suggested certain associations between EMFs and some types of adverse health effects, the research to date has not established a cause-and- ef fect relationship between EMFs and adverse health effects. The company cannot predict the impact on the company or the electric utility industry if further investigations or proceedings were to establish that the present electricity delivery system is contributing to increased risk or incidence of health problems. i consolidated Taxes. The Texas commission has historically allowed recovery 1 in rates of an income tax component based on the Federal income tax incurred by ) a utility as if it were a stand-alone company. However, in two recent rate determinations, the Texas commission reduced another Texas utility's cost of service tax expense by tax losses of an unregulated affiliated and other items. 4 The Texas Supreme court has agreed to review the decision of a court of appeals which determined that the Texas Public Utility Regulatory Act requires the Texas commission to reduce rates by the tax benefit of losses of an unregulated affiliate. The Company believes that federal income taxes should be determined on a stand-alone basis for ratemaking purposes. Presently this issue does not have a significant effect on the company 1 1 i 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Statements Of Income CENTRAL POWER AND LIGHT COMPANY For the Years Ended December 31, 1993 1992 1991 (thousands) Electric Operating Revenues Residential $ 474,426 $ 432,295 $ 435,860 Commercial 369,426 342,201 343,437 Industrial 281,247 240,341 221,885 Sales for resale 45,369 50,342 48,834 Other 53,060 a8,244 48,714 1,223,528 1,113,423 1,098,730 Operating Expenses and Taxes Fuel 350,268 306,939 303,428 Purchased power 64,025 17,160 15,041 Other operating 225,034 184,514 196,817 Restructuring charges 29,365 - - Maintenance 81,352 61,399 68,092 Depreciation and amortization 131,825 129,131 127,341 Taxes, other than Federal income 86,394 70,343 62,453 Federal income taxes 65,186 77,272 75,985 1,033,449 846,758 849,157 Operating Income 190,079 266,665 249,573 Other Income and Deductions Mirror CWIP liability amortization 75,702 82,527 96,671 Other 2,737 1,298 3,590 78,439 83,825 100,261 Income Before Interest Charges 268,518 350,490 349,834 Interest Charges Interest on long-term debt 112,939 125,476 124,987 I Interest on short-term debt and other 10,449 6,503 7,641 123,388 131,979 132,628 Income Before Cumulative Effect of ! Changes in Accounting Principles 145,130 218,511 217,206 j Cumulative Effect of Changes in Accounting Principles 27,295 - - l l Net Income 172,425 218,511 217,206 Preferred stock dividenas 14,003 16,070 19,844 Net Income for Common Stock $ 158,422 $ 202,441 $ 197,362 Statements Of Retained Earnings For the Years Ended December 31, 1993 1992 1991 (thousands) Retained Earnings at Beginning of Year $863,988 $854,659 $875,521 Net income for common stock 158,422 202,441 197,362 Deduct: Common stock dividends 172,000 193,000 215,000 Preferred stock redemption costs 103 112 3,224 Retained Earnings at End of Year $8501 307 $863,988 $854,659 The accompanying notes to financial statements are an integral part of these statements. l l 24
Balance Sheets -l CENTRAL POWER AND LIGHT COMPANY As of December 31, 1993' 1992-(thousands) Electric' Utility Plant .
~j
-Production $3,061,911 .$3,051,969 d Transmission 351,584 329,400 Distribution 765,266 715,633-General _
.209,170 210,204 Construction work in progress 168,421= 94,736 Nuclear fuel 160,326 152,494 4,716,67B 4,554,436-Less - Accumulated d=preciation 1,263,372 1,148,348 3,453,306 3,406,088 j Current Assets j Cash and temporary cash investments 2,435 . 3,666- 1 Special deposits- 1,967 151,589 !
Accounts. receivable 23,850 20,296 ! Materials and supplies, at. average cost 64,359 - 58,839 Fuel inventory, at average cost- 16,934 '29,259 Deferred income taxes 4,831 31,289 Unrecovered fuel costs 52,959 - Prepayments and other 2,255~ 2,198-169,590 297,136 Deferred Charges and Other Assets-Deferred STP costa 489,773 490,458 Mirror CWIP asset .331,845 341,865 Income tax related regulatory assets 266,597 - Other 70,634 48,'113 1,158,849 880,436 54,781,745 54,583,660 i CAPITALIEATION AND LIABILITIES Capitalization Common stock,'$25 par value, authorized 12,000,000 shares, issued and outstanding 6,755,535 shares $ 168,888 $ 168,888 , Paid-in capital 405,000 405,000 ) Retained earnings 850,307 863,988 l Total Common Stock Equity 1,424,195 1,437,87E: l Preferred stock Not subject to mandatory redemption 250,351 250,351' ] j Subject to mandatory redemption 22,021- 28,393 Long-term debt- 1,362,799 1,347,887 Total Capitalization 3,059,366 3,064,507 Current Liabilities Long-term debt and preferred stock due within twelve months 3,928 143,900 Advances from affiliates 171,165 91,766 Accounts payable 79,604 60,392 Accrued taxes- '33,769 27,224 Accrued interest 24,683 25,729 Accrued restructuring charges 29,365 - Other- 28,020 31,047 370,534 380,058 Deferred Credits Income taxes. 1,057,453 727,953' Investment tax credits 164,322 170,128-Mirror CWIP liability and other 130,070 241,014 1,351,845 1,139,095
$4,781,745 $4,583,660 The accompanying notes to financial statements are an integral part of'these statements.
25
Statements of Cash Flows CENTRAL POWER AND LIGHT COMPANY For the Years Ended December 31, 1993 1992 1991 (thousands) OPERATING ACTIVITIES , Net Income $172,425 $218,511 $217,206 Non-cash Items Included in Net Income l Depreciation and amortization 140,223 154,716 148,012 Deferred income taxes and investment tax credits 84,714 42,773 30,990 Mirror CWIP liability amortization (75,702) (82,527) (96,671) Restructuring charges 29,365 - - Cumulative effect of changes in accounting principles (27,295) - - Changes in Assets and Liabilities Accounts receivable (3,554) (6,415) 12,473 Fuel inventory 12,323 (3,137) 1,175 Accounts payable 19,151 6,209 7,057 Accrued taxes (9,311) (2,165) 17,065 Unrecovered fuel costs (57,386) (1,195) 5,001 Other (6,388) (23,020) (23,199) 278,567 303,750 319,109 INVESTING ACTIVITIES Construction expenditures (177,120) (100,805) (98,199) Other (1,544) (763) (1,056) (178,664) (101,568) (99,255) FINANCING ACTIVITIES Proceeds from issuance of
- long-term debt 441,131 435,497 -
Retirement of long-term debt (431) (405) (168) Reacquisition of long-term debt (573,776) (304,650) (210) Retirement of preferred stock (6,578) (7,050) (7,050) ; Special deposits for reacquisition i of long-term debt 145,482 (145,482) - Change in short-term debt 79,399 29,618 21,523 Payment of dividends (186,361) (209,196) (235,674) (101,134) (201,668) (221,579) NET CHANGE IN CASH AND CASH EQUIVALENTS (1,231) 514 (1,725) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,666 3,152 4,877 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,435 $ 3,666 $ 3,152 SUPPLEMENTARY INFORMATION Interest paid less amounts capitalized $116,664 $130,078 $125,760 Income taxes paid 3,631 45,314 35,715 The accompanying notes to financial statements are an integral part of these statements. 26
i I Statements of Capitalization CENTRAL POWER AND LIGHT COMPANY As of December 31, 1993 1992 (thousands) COMMON STOCK EQUITY $1,424,195 $1,437,876 PREFERRED STOCK Cumulative $100 Par Value, Authorized 3,035 s00 Shares Number Current l of Shares Rede,eption Series outstanding Prico Not Subject to Mandatory Redemption 4.00% 100,000 $105.75 10,000 10,000 4.20% 75,000 103.75 7,500 7,500 7.12% 260,000 101.00 26,000 26,000 8.72% 500,000 102,91 50,000 50,000 Auction Money Market 750,000 100.00 75,000 75,000 Auction Series A 425,000 100.00 42,500 42,500 Auction Series 8 425,000 100.00 42,500 42,500 Issuance Expense (3,149) (3,1491 250,351 250,351 Subject to Mandatory Redemption
- 10.05% 223,750 104.76 22,375 28,850 Issuance Expense (354) (457) 22,021 28,393 LONG-TERM DEBT First Mortgage Bonds Series J, 6 5/8%, due January 1, 1998 28,000 28,000 Series L, 7%, due February 1, 2001 36,000 36,000 Series M, 8%, due November 1, 2003 -
46,000 Series o, 8 1/4%, due October ~, 2007 - 75,000 Series T, 7 1/2%, due December 15, 2014 111,700 111,700 Series U, 9 3/4%, due July 1, 2015 31,765 81,700 Series Y, 9 3/4%, due June 1, 1998 - 150,000 Series Z, 9 3/8%, due December 1, 2019 140,000. 148,000 Series AA, 7 1/2%, due March 1, 2020 50,000 50,000 Series BB, 6%, October 1, 1997 200,000 200,000 Series CC, 7 1/4%, October 1, 2004 100,000 100,000 Series DD, 7 1/8%, December 1, 1999 25,000 25,000 Series EE, 7 1/2%, December 1, 2002 115,000 115,000 Series FF, 6 7/8%, due February 1, 2003 50,000 - Series GG, 7 1/8%, due February 1, 2008 75,000 - Series HH, 6%, due April 1, 2000 100,000 - Series II, 7 1/2%, due April 1, 2023 100,000 - Installment Sales Agreements - PCRBs Series 1974A, 7 1/8%, due June 1, 2004 8,700 0,955 Series 1977, 6%, due November 1, 2007 34,235 34,235 Series 1984, 7 7/8%, due September 15, 2014 6,330 6,330 Series 1984, 10 1/8%, due October 15, 2014 68,870 139,200 Series 1986, 7 7/8%, due December 3, 2016 60,000 60,000 Series 1993, 6%, due July 1, 2028 120,265 - Notes Payable, 6 1/2%, due December 8, 1995 448 651 Unamortized Discount (12,265) (17,923) Unamortized Costs of Reacquired Debt (86,249) (49,9611 1,362,799 1,347,887 j TOTAL CAPITALIZATION }3,059,366 $3,064,507
]
l The accompanying notes to financial statements are an integral part of these statements, l 27 j l
i , NOTES TO FINANCIAL STATEMENTS
- 1.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES Central Power and Light Company is subject to regulation by the SEC, under the Holding Company Act, and by the FERC, under the Federal Power Act, and follows the Uniform System of Accounts prescribed by the FERC. The Company is subject to further regulation for rates and other matters by the Texas Commission. The Company, as a member of the CSW System, engages in transactions and coordinates its activities and operations with other members of the CSW System. The most significant accounting policies are summarized below. Electric Utility Plant. Electric utility plant is stated at the original cost of construction which includes the cost of contracted services, direct labor, materials, overhead items and allowances for borrowed and equity funds used during construction. Depreciation. Provisions for depreciation of utility plant are computed using the straight-line method generally at individual rates applied to the , various classes of depreciable property. The annual composite rates averaged 3.0% for each of the years 1993, 1992 and 1991. Nuclear Decommissioning. The Company's portion of the estimated costs of decommissioning STP is $85 million in 1986 dollars based on a site specific study completed in 1986. The Company will continue to review and update this cost estimate and a new study will be completed in 1994. The Company is' recovering decommissioning costs through rates over the 38 year life of STP. The $4.2 million annual cost of decommissioning is reflected on the income statement as other operating expense. The funds received from customers applicable to decommissioning are paid to an irrevocable external trust and as such are not reflected on the Company's balance sheet. At December 31, 1993, the trust balance was $15.2 million. At the end of STP's 38 year life, decommissioning is expected to be accomplished using the decontamination method, which is one of three techniques acceptable by the NRC. Using this method the decontamination activities occur as soon as possible af ter the end of plant operation. Contaminated equipment is , cleaned or removed to a permanent disposal location and the site is generally i returned to its pre-plant state. Electric Revenues and Fuel. Prior to January 1, 1993, electric revenues generally were recorded at the time billings were made to customers on a cycle-billing basis. Electric service provided subsequent to billing dates through the end of each calendar month became part of electric revenues of the next month. To conform to general industry standards the Company in 1993 began accruing unbilled base revenues for electricity used by customers but not yet billed. This adjustment was recorded in 1993 as a cumulative erfect of a change in accounting principle. The ef fect of this change on the Company's net income for 1993 was an increase of $45.4 million, or $29.5 million net of taxes. If this change in accounting method was applied retroactively, the effect on net income for 1992 and 1991 would have been immaterial. The cost of fuel is charged to expense as consumed. The cost of nuclear fuel is amortized to fuel expense based on a ratio of the estimated Btu's used and available to generate electric energy, and includes a provision for the disposal of spent nuclear fuel. The Company recovers fuel costs applicable to sales to wholesale customers, regulated by the FERC, through an automatic fuel adjustment clause. The Company recovers fuel costs in Texas as a fixed component of base rates. The dif ference between f uel revenues billed and fuel expense incurred is recorded as an addition to or a reduction of revenues, with a corresponding entry to unrecovered fuel cost or other current liabilities as appropriate. Over-recoveries of fuel are payable to customers, and under-recoveries may be billed to customers after Texas Commission approval. 28
i NOTES TO FINANCIAL STATEMENTS Accounts Receivable. The Company sells its accounts receivable, without , recourse, to CSW Credit, Inc., a wholly owned subsidiary of CSW. Deferred STP Costs. In accordance with Texas Commission orders, the company I deferred plant costs for STP Units 1 and 2 incurred subsequent to their commercial operation dates until retail rates which included the units in rate base became effective. The deferred plant costs are amortized and recovered through rates over the life of the plant in increasing amounts. See NOTE 9, LITIGATION AND REGULATORY PROCEEDINGS for further discussion of the deferred > accounting proceedings. Mirror CWIP. In accordance with Texas commission orders, the Company previously recorded Mirror CWIP, which is being amortized over the life of STP, as more fully discussed in NOTE 9, LITIGATION AND REGULATORY PROCEEDINGS. Statements of Cash Flows. Cash equivalents are considered to be highly liquid debt instruments purchased with a maturity of- three months or less. Accordingly, temporary cash investments and advances to af filiates are considered cash equivalents. Reclassification. Certain financial statement items for prior years have been reclassified to conform to the 1993 presentation. Accounting Changes. Ef fective January 1,1993, the Company adopted SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, SFAS No.112, Employers' Accounting for Postemployment Benefits (See NOTE 8, BENEFITS PLANS), and SFAS No.109, Accounting for Iacome Taxec (See NOTE 2, FEDERAL INCOME TAXES). The Company also changed its a.ct nod of accounting for unbilled revenues; (See Electric Revenues and Fuel above). The adoption of SFAS No. 109 had no effect on the Company's results of operations. The adoption of SFAS No. 112 and the change in accounting for unbilled revenues are presented as cumulative effect of changes in accounting principles as shown below: Pre-Tax Tax Net Income Effect Effect Effect (thousands) SFAS No. 112 $(3,371) $ 1,180 $(2,191) Unbilled revenues 45,363 (15,877) 29,486 Total $41,992 1(14,697) }27,295 Pro forma amounts, assuming that the change in accounting for unbilled l revenues had been adopted retroactively, are not materially different from 1 amounta previously reported for prior years. I l
- 2. FEDERAL INCOME TAXES The Company, together with other members of the CSW System, files a consolidated Federal income tax return and participates in a tax sharing agreement.
The Company adopted the provisions of SFAS No. 109, effective January 1, j 1993. This standard had no impact on the Company's results of operations. SFAS No.109 requires the recognition of deferred tax liabilities for income customers associated with temporary dif ferences previously passed through to rate l payers and the equity component of allowance for funds used during construction. l In addition, SFAS No. 109 requires reclassification of certain deferred income 1
- l. tax liabilities to reflect the Company's obligation to reduce revenue i requirements for deferred income taxes provided at rates higher than the current l 35% Federal income tax rate.
As a result, the Company recognized additional accumulated deferred income taxes and corresponding regulatory assets and liabilities to customers in amounts 29 i i
, _ . .- - ,_i
NOTES TO FINANCIAL STATEMENTS equal to future revenues or the reduction in future revenues that will be required when the income tax temporary dif ferences reverse and are recovered or settled in rates. Components of Federal income taxes are as follows: 1993 1992 1991 (thousands) Included in Operating Expenses and Taxes current $(19,690) $ 34,336 $ 44,832 Deferred 90,682 48,773 36,984 Deferred ITC (5,806) -(5,837) (5,831) 65,186 77,272 75,985 Included in Other Income and Deductions Current 736 390' (1,963) Deferred (162) (163) (163) 574 227 (2,126) Tax Effects of Cumulative Effects of Changes in Accounting Principles 14,697 - -
$ 80,457 $ 77,499 $ 73,859 Total income taxes differ from the amounts computed by applying the statutory income tax rates to income before taxes. The reasons for the dif ferences are as follows:
1993 % 1992 % 1991 % (dollars in thousands) Tax at statutory rates $ 88,509 35.0 $100,643 34.0 $ 98,962 34.0 Differences Amortization of ITC (5,806) (2.3) (5,789) (2.0) (5,789) (2.0) Mirror CWIP (22,989) (9.1) (24,652) (8.3) (29,463) (10.1) Prior period adjustments 19,101 7.6 - - - - other 1,642 .6 7,297 2.5 10,149 3.5
$ 80,457 31.8 $ 77,499 26.2 $ 73,859 25.4 ITC deferred in prior years are included in income over the lives of the related properties.
l l f I l l l I t 30 ! 1 I
NOTES TO FINANCIAL STATEMENTS The-significant components of the net deferred income tax liability are as follows: December 31, January 1, 1993 1993 (thousands) Deferred Tax Liabilities Property related book / tax basis differences $ 745,164 $ 640,275 Income tax related regulatory assets 178,984 172,657 Mirror CWIP asset 116,146 116,234 Deferred STP costs 171,421 166,756 Other 37,989 38,061 Total Deferred Tax Liabilities 1,249,'iD4 $1,133,983 Deferred Tax Assets Income tax related regulatory liabilities (85,675) (105,370) Mirror CWIP liability (38,150) (62,799) Unamortized ITC (57,513) (57,843) Alternative minimum tax (15,744) (13,402) Total Deferred Tax Assets (197,082) -(239,414) Net Accumulated Deferred Income Taxes-Total jl,052,622 $ 894,569 Net Accumulated Deferred Income Taxes-Noncurrent $1,057,453 $ 925,858 Net Accumulated Deferred Income Taxes-Current (4,831) (31,289) Het Accumulated Deferred Income $ 894,569 Taxes-Total 11,052,622
- 3. IDNG-TERM brBT The mortgage indenture, as amended and supplemented, securing first mortgage bonds issued by the Company, constitutes a direct first mortgage lien on substantially all electric utility plant.
Annual Requirements. Certain series of the Company's outstanding first mortgage bonds have annual sinking fund requirements which are generally one percent of the greatest amount outstanding at any time of each series of first mortgage bonds issued. These requirements may be, and have historically been, satisfied by the application of net expenditures for bondable property in an amount equal to 166-2/3% of the annual requirements. Series J, L, and Z first mortgage bonds are subject to this annual sinking fund requirement. At December 31, 1993, the annual sinking fund requirements exclusive of maturities, and the annual aggregate maturities including sinking fund requirements, of long-term debt are as follows: , Annual Sinking Annual Aggregate Fund Requirements Maturities t (thousands) 1994 2,120 3,299 1995 2,120 3,563 1996 2,120 3,135 1997 2,120 203,155 1998 1,840 30,895 Dividends. The Company's mortgage indenture, as amended and supplemented, contains certain restrictions on the payment of common stock dividends. At December 31, 1993, $630 million of retained earnings were available for the paymert of cash dividends to CSW. 31 f
NOTES TO FINANCIAL STATEMENTS Reacquired Long-Term Debt. During 1993, the Company issued first mortgage bonds, the proceeds of such offerings were used to refinance higher cost debt in order to lower the embedded cost of long-term debt. The premiums and reacquisition costs of reacquired long-term debt are included in long-term debt on the balance sheets and are being amortized over 5 to 35 years. Reference is made to ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, for additional information on reacquired long-term debt. I Due Within Twelve Months. In December 1992, the Company issued Series DD and EE first mortgage bonds in the aggregate amount of $140 million to reacquire Series K, N and P first mortgage bonds in January 1993. Accordingly, at December 31, 1992, the Company reclassified these bonds totaling $140 million from long-term debt on the balance sheet to current liabilities, long-term debt and preferred stock due within twelve months.
- 4. PREFERRED STOCK The dividends on the Company's $160 million auction preferred stocks are adjusted every 49 days, based on current market rates. The dividend rate averaged 2.7%, 3.6%, and 5.5% during 1993, 1992 and 1991.
The Company's 10.05%, $100 par value preferred stock requires a mandatory sinking fund sufficient to retire 35,250 shares annually until January 31, 2001, and a specified number of shares in each 12-month period thereafter. The sinking fund redemption price is $100 per share. The portion to be retired within twelve months is reflected as such on the balance sheet under current liabilities. Each series of preferred stock, with the exception of the 10.05% Series and the auction preferred stock, is redeemable at the option of the company upon 30 days notice at the current redemption price per share. Redemption prices of the 8.72% and 10.05% Series decline at specified intervals in future years. The 10.05% Series is redeemable as of February 1, 1994. The Company's three issues of auction preferred stock may be redeemed aN par on any dividend payment date. The premiums and reacquisition costs of reacquired preferred stock are treated as a reduction to retained earnings.
- 5. SHORT-TERM FINANCING The Company, together with other members of the CSW System, has established a money pool to coordinate short-term borrowings through the issuance of CSW's commercial paper. Money pool borrowings are shown as advances from affiliates on the balance sheet. At December 31, 1993, the CSW System had bank lines of credit aggregating $197 million, including the Company's lines of credit, to back up its commercial paper program. Short-term cash surpluses transferred to the money pool receive interest income in accordance with the money pool arrangement.
- 6. FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate fair value:
Cash, temporary cash investments, special deposits and short-term debt. The l carrying amount appioximates fair value because of the short maturity of those instruments. Long-term debt. The f air value of the Company's long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for the debt of the same or similar remaining maturities. Preferred stock subject to mandatory redemption. The fair value of this preferred stock is estimated based on the quoted market prices for the same or 32 t _
NOTES TO FINANCIAL STATEMENTS similar issues or on the current rates offered to the company for preferred stock with the same or similar remaining redemption provisions. The estimated fair values of the company's financial instruments are as follows: 1993 1992 Carrying Fair Carrying Fair Amount Value Amount Value (thousands) Cash and temporary cash investments $ 2,435 $ 2,435 $ 3,666 $ 3,666 Special deposits 1,967 1,967 151,589 151,589 Short-term debt 171,165 171,165 91,766 91,766 Long-term debt 1,362,799 1,456,533 1,347,887 1,424,128 Preferred stock subject to mandatory redemption 22,021 23,086 28,393 29,766 Long-term debt and preferred stock due within twelve months 3,928 4,096 143,900 149,632
- 7. BENEFIT PLANS Defined Benefit Pension Plan. The Company, together with other members of the CSW System, maintains a tax qualified, non-contributory defined benefit pension plan covering substantially all of its employees. Participants in the plan during 1993 included approximately 2,300 active employees, 1,200 retirees and beneficiaries and 300 terminated employees with vested benefits. Benefits are based on employees' years of service, age at retirement and final average annual earnings with an offset for the participant's primary Social Security >
benefita The CSW System's funding policy is based on actuarially determined contributions, taking into account amounts deductible for income tax purposes and minimum contributions required by ERISA. Centributions to the plan for the years ended December 31, 1993, 1992 and 1991 were $11.0 millien, $11.7 million and
$10.1 million, respectively. Pension plan assets consist primarily of common stocks and short- and intermediate-term fixed income investments.
The components of net periodic pension cost and the assumptions used in accounting for pensions are as follows: 1993 1992 1991 (thousands) Net Periodic Pension Cost Service cost $ 5,228 $ 4,834 $ 4,324 Interest cost on projected benefit obligation 14,878 13,686 12,072 Actual return on plan assets (18,079) (11,750) (26,785) Net amortization and deferral 68 (5,330) 12,269
$ 2,095 $ 1,445 $ 1,880 Assumptions:
Discount rate 7.75% 8.50% 8.50% Long-term compensation increase 5.46% 5.96% 5.96% Return on plan assets 9.50% 9.50% 9.50% As of December 31, 1993 and 1992, the plan's net assets exceeded the total l actuarial present value of accumulated benefit obligations. ; Postretirement Benefits Other Than Pensions. The Company adopted SFAS No. l 106, Employer's Accounting for Postretirement Benefits Other Than Pensions, January 1, 1993. The adoption resulted in an increase in operating expense of
$5.9 million for 1993. The Company's accumulated postretirement benefit l obligation was $66.5 million. The transition obligation was $58.0 million and is being amortized over twenty years. In prior years the Company accounted for j these benefits on a pay-as you go basis. Expenses for 1992 and 1991 were $3.8 i million and $3.5 million, respectively. The CSW System's funding policy is based i on actuarially determined contributions taking into account amounts which are i
! 33 l l
.~ - - _ _
NOTES TO FINANCIAL STATEMENTS deductible income tax purposes. The Company contributed approximately $8.6 million in 1993. The components of net periodic postretirement benefit cost and the assumptions used in accounting for postretirement benefits are as follows: 1993 (thousands) Net Periodic Postretirement Benefit Cost Service cost $2,257 , Interest cost on accumulated postretirement benefit obligation 5,505 Actual return on plan assets (249) Amortization of transition obligation 2,900 Net amortization and deferral (703)
$9,710 Assumptions:
Discount rate 7.75% Return on plan assets 9.00% Health Care Cost Trend Rate Assumptions: Pre-65
Participants:
1993 Rate of 12.50% grading down .75% per year to an ultimate rate of 6.5% in 2001. Post-65
Participants:
1993 Rate of 12.00% grading down .75% per year to an ultimate rate of 6.0% in 2001. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the APBO as of December 31, 1993 by $8.8 million and increase the aggregate of the service and interest cost components of net postretirement benefits by $1.2 million. Postemployment Benefits. In November 1992, the Financial Accounting Standards Board issued SFAS No. 112, Employers' Accounting for Postemployment Benefits. This statement requires the accrual method of accounting for certain types of postemployment benefits provided to former or inactive employees af ter employment, but before retirement. This new standard requires that the expected costs of these benefits be accrued during the period employees render service to qualify for benefits. The most significant costs for the Company are the continued medical and salary benefits during long-term disability. Effective January 1, 1993, the Company adopted SFAS No. 112 and the effect of the change on 1993 income was $2.2 million reflected in cumulative effect of changes in accounting principles. Restructuring Charges. The company recently announced an early retirement program as a part of the Company's restructuring efforts in order to streamline operations and reduce future costs. It is anticipated that this restructuring will affect employee benefit costs incurred by the Company in future periods. Due to the timing of the implementation of the program, many variables regarding specific costs cannot be identified until mid-1994. As a result, no adjustments have been made to the employee benefit cost data presented above. l 8. JOINTLY OWNED ELECTRIC UTILITY PLANT l The Company is party to joint ownership agreements with nonaffiliated entities. Such agreements provide for the joint ownership and operation of STP ! consisting of two nuclear generating units. The company also has a joint ownership agreement with other members of the CSW System and nonaffiliated entities to provide for the joint ownership and operation of Oklaunion and its l related facilities. The statements of income reflect the Company's portion i ofoperating costs associated with jointly owned plant in service. At December l 31, 1993, the Company had interests in the generating stations and related facilities as shown below: j 34
NOTES TO FINANCIAL STATEMENTE STP Oklaunion (dollars in thousands) Plant in service $2,340,336 $36,045 Accumulated depreciation $318,101 $7,058 Plant capacity - mw 2,500 676 Participation 25.2% 7.8% Share of capacity - mw 630 53
- 9. LITIGATION AND REGULATORY PROCEEDINGS l
STP l Introduction. The Company owns 25.2% of STP, a two-unit nuclear power plant j snich is located near Bay City, Texas. In addition to the Company, HLP, the j Project Manager, owns 30.8%, San Antonio owns 28.0%, and Austin owns 16.0%. STP 1 Unit I was placed in service in August 1988 and STP Unit 2 was placed in service in June 1989. , STP Final Orders. In October 1990, the Texas Commission issued a final order (STP Unit 1 Order) which fully implemented a stipulated agreement filed in February 1990 to resolve dockets then pending before the Texas Commission. -In December 1990, the Texas Commicsion issued a final order (STP Unit 2 Order) which . fully implemented a stipulated agreement to resolve all issues regarding the : Company's investment in STP Unit 2. l l i The STP Unit 1 Order allowed the Company to. increase retail base rates by
$144 million. This base rate increase made permanent a $105 million interim base ;
rate increase placed into effect in March 1990 and a $39 million interim base rate increase placed into effect in September 1989. The STP Unit 2 Order provided for a retail base rate increase of $120 million effective January 1, 1991. The STP Unit 1 Order also provided for the deferral of operating expenses ! and carrying costs on STP Unit 2. A prior Texas Commission order (see " Deferred Accounting" below) had authorized deferral of STP Unit I costs. Such costs are I being recovered through rates over the remaining life of STP. Also, the STP Unit l 1 Order authorized use of Mirror CWIP, pursuant to which the Company recognized l
$360 million of carrying costs as deferred costs, and established a corresponding l liability to customers recorded in Mirror CWIP liability and other deferred credits on the balance sheets. In compliance with the order, carrying costs collected through rates during periods when CWIP was included in rate base were recognized as a loan from customers. The loan is being repaid through lower rates f rom 1991 through 1995, which approximates the length of time during which the carrying costs were collected from customers. The Mirror CNIP liability is ,
being reduced by the recognition of non-cash income during the period 1991 1 through 1995. l The STP Unit I and 2 Orders resolved all issues pertaining to the reasonable ' original costs of STP and the appropriate amount to be included in rate base. Pursuant to the Texas Commission orders, the original cost of the Company's total investment in STP is included in rate base. As part of the stipulated agreement, the Company has agreed to freeze base rates f rom January 1,1991 through 1994, subject to certain force majeure events including double-digit inflation, major tax increases, extraordir.ary increases in operating expenses or serious declines in operating revenues. The Company may file for increases in base rates, which would be ef fective af ter 1994 and subject to certain limitations. The fuel portion of customers' bills is. subject to adjustment following the normal review and approval by the Texas Commission. l The stipulated agreements, as discussed above, were entered into by the Company, the Texas Commission Staf f and a majority of intervenors including major cities in the Company's service territory and major industrial customers. These intervenors represent a significant majority of the Company's customers. The Company and the TSA reached agreements, which were subsequently approved by the Texas Commission Staff and other signatories, whereby TSA-agreed not to oppose the stipulated agreements in any respect, except with - regard to deferred accounting and rate design issues in the STP Unit 1 Order. OPUC and a coalition of low-income customers declined to enter into the stipulated agreements. 35
NOTES TO FINANCIAL STATEMENTS In January 1991, the TSA, OPUC and t coalition of low-income customers filed appeals of the STP Unit 1 Order in District Court requesting reversal of the deferred accounting for STP Unit 2 and other aspects of that order. In March 1991, the TSA, OPUC and the coalition of low-income customers filed appeals of the STP Unit 2 Order in the District Court requesting reversal of that order. These appeals are pending before the District Court. If these orders are ultimately reversed on appeal, the stipulated agreements would be nullified and the Company could experience a significant adverse effect on its results of operations. However, the parties to the stipulated agreement, should it be nullified, are bound to renegotiate and try to reach a revised agreement that would achieve the same results. Management believes that the STP Unit 1 and 2 Orders will be upheld. Deferred Accounting. The Company was granted deferred accounting for STP Unit 1 and 2 costs by Texas Commission orders. These orders allowed the Company to defer post-in-service operating and maintenance costs, including taxes and depreciation, and carrying costs until these costs were reflected in retail j rates. Deferred accounting had an immediate positive ef fect on net income in the l I years allowed, but cash earnings were not increased until rates went into ef fect reflecting STP in service (see "STP Final Orders" above). The total deferrals for the periods affected were approximately $492 million with an after-tax net income effect of approximately $325 million. This total deferral included approximately $270 million of pre-tax debt carrying costs. Pursuant to the STP Unit 1 and 2 Orders, the Company's retail rates include recovery of all STP Unit 1 and 2 deferrals over the remaining life of the plant. In July 1989, OPUC and the TSA filed appeals of the Texas Commission's final order in District Court requesting reversal of deferred accounting for STP Unit
- 1. In September 1990, the District Court issued a judgment affirming the Texas Commission's order for STP Unit 1, which was subsequently appealed to the Court of Appeals by OPUC and the TSA. The hearing of the Company's STP Unit 1 deferred accounting order was combined by the court of Appeals with similar appeals of HLP deferred accounting orders.
In September 1992, the Court of Appeals issued a decision that allows the Company to include STP Unit 1 deferred post-in-service operating and maintenance costs in rate base. However, the Court of Appeals held that deferred post-in-service carrying costs could not be included in rate base, thereby prohibiting the company from earning a return on such costs. Af ter the Court of Appeal's denial of each party's motion for rehearing of , 8 the decision, the Company and the Texas Commission in December 1992 filed Applications for Writ of Error petitioning the Supreme Court of Texas to review the September 1992 decision denying rate base treatment of deferred post-in-service carrying costs by the Court of Appeals. Additionally, the TSA and OPUC filed Applications for Writ of Error petitioning the Supreme Court of Texas to reverse the Court of Appeal's decision, challenging generally the legality of deferred accounting for or rate base treatment of any deferred costs. In May 1993, the Supreme Court of Texas granted the company's application for writ of error. The Company's case was consolidated with the deferred accounting cases of El Paso Electric Company and HLP. Oral arguments were heard in September 1993 and the Supreme Court's decision is pending. If the Company's orders granting deferred accounting were ultimately reversed and not favorably revised, the Company could experience a material adverse ef fect on its results of operations. While management cannot predict the ultimate outcome of the deferred accounting appeal, management believes the Company will successfully receive approval of its deferred accounting orders or i will be successful in renegotiation of its rate orders, so that there will be no material adverse effect on the Company's results of operations . or financial
)
condition. STP Outage. In February 1993, Units 1 and 2 of STP were shut down by HLP, the Project Manager, in an unscheduled outage resulting f rom mechanical problems relating to two auxiliary f eedwater pumps. HLP determined that the units would not be restarted until the equipment failures had been corrected and the NRC 36
NOTES TO FINANCIAL STATEMENTS briefed on the causes of these failures and the corrective actions that were taken. The NRC formalized that commitment in a confirmatory action letter, and sent an Augmented Inspection Team to STP to review the matter. In March 1993, the NRC began a diagnostic evaluation of STP. Conducted inf requently, diagnostic evaluations are broad-based evaluations of overall plant operations and are intended to review the strengths and weaknesses of the licensee's performance and to identify the root cause of performance problems. During and subsequent to the June 1993 completion of the evaluation, the NRC supplemented its confirmatory action letter to identify additional issues to be resolved and verified by the NRC before restart of STP. Such issues included the need to reduce backlogs of engineering and maintenance work and to simplify work processes which placed excessive burdens on operating and other plant personnel. The report also identified the need to strengthen management communications, oversight and teamwork as well as the capability to identify and correct the root causes of problems. The NRC announced in June 1993 that STP was placed on its " watch list" of plants with " weaknesses that warrant increased NRC attention." Plants on the watch list are subject to closer NRC oversight. STP will remain on the NRC's watch list until both units return to service and a period of good performance ! is demonstrated. During the outage, the necessary improvements have been made by HLP to address the issues in the confirmatory action letter, as supplemented. On February 15, 1994, the NRC agreed that the confirmatory action letter issues had ! been resolved with respect to Unit 1, and that it supported HLP's recommendation that Unit I was ready to restart. Unit I restarted in late February 1994 and operated at low power for three days. The Project Manager then shut down Unit I due to a problem with a steam generator feedwater valve and a steam generator tube leak. The Project Manager expects to make the necessary repairs and restart Unit 1 in late March 1994, although additional delays may occur. While many of the corrective actions taken are common to both units, HLP . must demonstrate to the NRC that these issues are also resolved with respect to Unit 2 before it is restarted. HLP estimates that Unit 2 will restart during the second quarter of 1994 after the completion of refueling, which began in March 1993 but was delayed in order to focus on the issues discussed above. The outage has not affected the Company's ability to meet customer demands because of l existing capacity and the Company's ability to purchase additional energy from affiliates and nonaffiliates. > During 1993, the NRC imposed a total of $500,000 in fines against HLP in e connection with violations of NRC requirements that occurred prior to the , February 1993 shut down. No fines have been imposed for activities subsequent < to the shut down. The Company has paid its portion (25.21.) of the cost of fines, l The Company's share of increased non-fuel operation and maintenance costs in 1993, related to the outage at STP, necessary to effect the needed improvements were approximately $29 million, and were expensed as incurred. Included in these expenses were detailed inspections of both units' steam generators, and the acceleration of certain maintenance activities from 1994 to 1993. This acceleration is expected to eliminate the need for any planned i outages for either unit in 1994. The 1994 budgeted STP non-fuel operation and l maintenance expenses are expected to be significantly lower than the 1993 actual expenses; but even though lower, they are expected to be suf ficient to continue enhancements that will result in improved long-term performance of STP. Pursuant to the substantive rules of the Texas Commission, the Company generally is allowed to recover its fuel costs through a fixed fuel factor. These fuel factors are in the nature of temporary rates, and the Company's collection of revenues by such fuel f actors is subject to adjustment at the time of a fuel reconciliation proceeding before the Texas Commission. The dif ference between fuel revenues billed and fuel expense incurred is recorded as an addition to or a reduction of revenues, with a corresponding entry to unrecovered fuel cost or other current liabilities, as appropriate. Any fuel costs (not limited 37 l
NOTES 'ID FINANCIAL STATEMENTS to under- or over-recoveries) which the Texas Commission determines- as unreasonable in a reconciliation proceeding are not recoverable from customers. During the outage, the company's f uel and purchased power costs have been, and are expected to continue to be, increased as the power normally generated by . STP must be replaced through sources with higher costs. It is unclear how the , Texas Commission will address the reasonableness of higher costs associated with the outage. At January 31, 1993, before the start of the STP outage, the Company had an over-recovered fuel balance of $5.2 million, exclusive of interest. At January 31, 1994, the Company's under-recovered fuel balance was $55.7 million, exclusive of interest. This under-recovery of fuel costs, while due primarily-to the STP outage, was also affected by changes in fuel prices and timing differences. The Company cannot accurately estimate the amount of any future under- or over-recoveries due to the unpredictable nature of the above f actors. , Although there is the potential for disallowance of fuel-related costs, such determination cannot be made until fuel costs are reconciled with the Texas ' ( commission. If a significant portion of fuel costs were disallowed by the Texas Commission, .the company could experience a material adverse ef fect on its results of operations in the year of any disallowance. The Company is required by 1994, Texas ; t commission's rules to file a reconciliation of its fuel costs by May 1, However, the Texas Cumminulon Staf f is proposing a revised filing deadline that would not require the company to file before the fourth quarter el 1994. In July 1993, the Company filed a fuel surcharge petition, which is separate from a fuel reconciliation proceeding, with the Texas Commissio a to comply with the mandatory provisions of the Texas Commission's fuel rules. The petition , requested approval of a customer surcharge to recover under-recovered fuel and i purchased power costs resulting f rom the STP outage, increased natural gas costs ; and other factors. The petition also requested that the Texas commission postpone concideration of the surcharge until the SIP outage concluded or at the ti:ne fuel coats are next reconciled as discussed above. In August 1993, a Texas Commission ALJ granted the Company's request to postpone consideration of the , surcharge. In January 1994, the Company updated its fuel surcharge petition to reflect amounts of under-recovery through November 1993. Likewise, the Company requested and was granted postponement of the updated petition until the STP outage concluded or at the time fuel costs are next reconciled. Management believes that the operating outage at STP will not have a material effect on its financial condition or on its results of operations. l Rate Case Filings. During December 1993 and January 1994, several cities i (Cities) in the company's service territory exercised their rights to require the company to file rate cases to determine if ~ its rates are fair, just and reasonable. The Cities, together, account for approximately 40% of the Company's base revenues. The governing bodies of these cities have original jurisdiction over rates only within their incorporated limits. The Cities have ordered the , Company to file rate cases by various dates from February 17 through March 18, l l 1994, with hearings scheduled in February and March 1994. l The Cities have informed the Company that this rate review was precipitated , by the outage at STP leading the Cities to question whether STP should continue to be included in the Company's rate base. Further, the Cities question whether the Company is earning an excessive return on equity. In February 1994, a consultant for the Cities filed its report with the cities. The consultant recommended that STP Unit 2 be removed from the Company's rate base, resulting in a reduction of the Company's total base revenues of $106.5 million. The consultant did not recommend a reduction in revenues relating to STP Unit 1, .nor did it suggest a revenue reduction for its contention that the Company's earnings have been excessive, but it suggested that those issues be reserved for future l proceedings if circumstances warrant action. Furthermore, the consultant made
- no recommendations.concerning STP operation and maintenance expenses.
The Company contends that both units of STP belong in rate base because of the long-term benefits nuclear generation provides to customers. The Company is . not aware of any Texas Commission precedent directly supporting the removal of ! a nuclear plant from rate base because of outages of the duration experienced by 38
NOTES TO FINANCIAL STATEMENTS Unit 1 and expected for Unit 2. The Company also believes that its return on equity is below the level specified for the rate freeze period in accordance with the stipulated agreement entered into by the Company and parties to its last rate order, including the Cities. This rate order does not restrict the Cities from ; exercising their original jurisdiction over rates during the rate freeze period. The Texas Commission has appellate jurisdiction over rates set by municipalities. In February and early March 1994, some of the Cities passed resolutions l ordering the Company to reduce rates by $73 million, if applied on a total company basis. These cities' revenues represent approximately 20% of the Company's total base revenues. The orders only af fect the rates of customers who take service within these Cities' limits. The orders call for rates to be reduced in April unless, on appeal, the Texas Commission takes action which would stay their effectiveness. The Company has appealed these orders to the Texas Commission seeking the actions necessary to stay their effectiveness. The Company cannot predict if other cities acting in their capacity as regulatory authorities will initiate similar proceedings. l In December 1993, a complaint was filed at the Texas Commission by a j customer of the Company who takes service outside of municipal limits, where the j Texas Commission has original jurisdiction. The complaint seeks a review of the
- Company's rates due to the outage at STP. The Texas Commission has docketed the l proceeding, but has taken no other action in the matter. In March 1994, the OPUC
- and General Counsel petitioned the Texas Commission to review the Company's
! rates. Any rate orders which might ultimately be entered as a result of these filings would affect customers served by the Company in all areas where individual city regulatory authorities do not have original jurisdiction. Management cannot predict the ultimate outcome of these rate filings, although management believes that their ultimate resolution will not have a material adverse effect on the Company's results of operations or financial condition. ' l l Westinghouse Litigation. The Company and other owners of STP are plaintif fs in a lawsuit filed October 1990 in the District Court in Matagorda County, Texas against Westinghouse, seeking damages and other relief. The suit alleges that Westinghouse supplied STP with defective steam generator tubes that are susceptible to stress corrosion cracking. Westinghouse filed an answer to the suit in March 1992, denying the plaintiff's allegations. The suit is currently in the discovery phase. i Inspections during the current STP outage have detected early signs of stress corrosion cracking in tubes at STP Unit 1, but the resulting remedial measures to date have not resulted in a material expense to the Company. Management believes that any additional problems would develop gradually and could be monitored by the operators of STP. An accurate estimate of the costs of remedying any further problems currently is unavailable due to many i uncertainties, including among other things, the timing of repairs, which may coincide with scheduled outages, and the recoverability of amounts from l Westinghouse and any insurers. Management believes that the ultimate resolution I , of this matter will not have a material adverse effect on the company's results , j of operations. General. The Company is party to various other legal claims, actions and complaints arising in the norm'd course of business. Management does not expect disposition of these matters to have a material adverse ef fect on the Company's results of operations or finane'al condition. i l 1 l l l I l 39 i i t , s
NOTES TO FINANCIAL STATEMENTS
- 10. COMMITMENTS AND CONTINGENT LIABILITIES It is estimated that the Company will spend approximately $187 million for construction purposes in 1994. Substantial commitments have been made in connection with the construction program. {
To supply a portion of the fuel requirements of its generating plants, the Company has entered into various commitments for the procurement of fuel. Nuclear Insurance In connection with the licensing and operation of STP, the owners have purchased the maximum limits of nuclear liability insurance, as required by law, and have executed indemnification agreements with the NRC in accordance with the financial protection requirements of the Price-Anderson Act. The Price-Anderson Act, a comprehensive statutory arrangement providing limitations on nuclear liability and governmental indemnities is in ef fect until August 1, 2002. The limit of liability under the Price-Anderson Act for licensees of nuclear power plants is $9.3 billion per incident ef fective February 1994. The owners of STP are insured for their share of this liability through a combination of private insurance amounting to $200 million and a mandatory industry-wide program for self-insurance totaling $9.1 billion. The maximum amount that each licensee may be assessed for each licensed reactor under the industry-wide program of self-insurance following a nuclear incident at an . insured f acility is $75.5 million which may be adjusted for inflation plus a five percent charge for legal expenses, but not more than $10 million per reactor for each nuclear incident in any one year. The Company and each of the other STP owners are subject to such assessments, which the Company and the other owners have agreed will be borne on the basis of their respective ownership interests in STP. For purposes of these assessments, STP has two licensed reactors. The owners of STP currently maintain on-site decontamination liability and , property damage insurance in the amount of $2.7 billion provided by American Nuclear Insurers (ANI) and the Nuclear Electric Insurance Limited (NEIL) II program. Policies of insurance issued by ANI and NEIL II stipulate that policy proceeds must be used first to pay decontamination and clean-up costs, before being used to cover direct losses to property. The company and the other owners of STP have entered into an agreement that provides for the total cost of , decontamination liability and property insurance for STP (including premiums and i assessments) to be shared pro rata based upon each owner's respective ownership interests in STP. The Company purchases, for its own account, business interruption and extra expense insurance under the NEIL I Business Interruption and/or Extra Expense l Program. This insurance will reimburse the Company for extra expenses incurred, up to $1.7 million per week, for replacement generation or purchased power as the result of a covered accident that shuts down production at STP for more than 21 weeks. The maximum amount recoverable for Unit 1 is $103.4 million and for Unit i 2 is $105.9 million. The company is subject to an additional assessment up to l approximately $2.2 million for the current policy year in the event that losses as a result of a covered accident at a nuclear facility insured under NEIL I exceeds the accumulated funds available under the NEIL I Business Interruption and/or Extra Expense Program.
- 40 I
3
l NOTES TO FINANCIAL STATEMENTS
- 11. QUARTERLY INFORMATION (UNAUDITED) 1 The following unaudited quarterly information includes, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such amounts:
Electric Operating Operating Net Revenues Income Income Quarter Ended (thousands) 1993 March 31 $240,910 $41,346 $28,598 Adjustment (2,656[ (1,753) 25,962 March 31 Restated $238,254 139,593 $54,560 June 30 298,863 55,400 42,334 Adjustment 17,190 11,345 11,345 June 30 Restated }316,053 $66,745 _153,679 Sept.wudier 30 383,087 85,916 75,510 Adjustment 4,103 2,522 2,102 Septc=ber 30 Restated }387,190 $88,438 $77,612 December 31 (1) 12822031 $(4,697) $(13,426) 1992 March 31 $227,513 $46,838 $34,022 June 30 267,959 60,984 47,527 September 30 338,215 95,474 83,426 December 31 279,736 63,369 53,536 l (1) Operating and net income includes the effect of a pre-tax charge of $29 million related to the Company's restructuring as discussed in ITEM 7. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCI AL CONDITION AND RESULTS OF OPERATIONS - Restructuring. Quarterly information for 1993 has been restated to reflect the change in accounting for unbilled revenues and the adoption of SFAS No. 112, Employers' Accounting for Postemployment Benefits See NOTE 1,
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES. These changes were made in December 1993, but were effective January 1, 1993. Information for quarterly periods is affected by seasonal variations in sales, rate changes, timing of fuel expense recovery and other factors. 41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Central Power and Light company: We have audited the accompanying balance sheets and statements of capitalization of Central Power and Light Company (a Texas corporation and wholly owned subsidiary of Central and South West Corporation) as of December 31, 1993 and 1992, and the related statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present f airly, in all material respects, the financial position of Central Power and Light company as of December 31, 1993 and 1992, and the results of its operations and its cash flows for each ot the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. In 1993, as discussed in the Notes to the financial statements, the Company l changed its methods of accounting for unbilled revenues, postretirement benefits other than pensions, income taxes and postemployment benefits. l Our audits were made for the purpose of forming an opinion on the financial l statements taken as a whole. The supplemental schedules V, VI, IX, X and Exhibit 12 are presented for purposes of complying with ' the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules and exhibit have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. , 1 Arthur Andersen & Co. Dallas, Texas February 25, 1994 s T 42
. - - .~ ---_ _ - - .. . -. .. -
REPORT OF MANAGEMENT Management is responsible for the preparation, integrity and objectivity of the financial statements of Central Power and Light Company as well as all other i information contained in this report. The financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis and, in some cases, reflect amounts based on the best estimates and judgments of management, giving due consideration to materiality. l Financial information contained elsewhere in this report is consistent with that in the financial statements. l The company maintains an adequate system of internal controls to provide i reasonable assurance that transactions are executed in accordance with l management's authorization, that financial statements are prepared in accordance l with generally accepted accounting principles and that the assets of the Company ! l are properly safeguarded. The system of internal centrols is documented, evaluated and tested by the Company's internal auditors on a continuing basis. Due to the irherent limitations of the effectiveness of internal controls no internal cratrol system can provide absolute assurance that errors and irregularities will not occur. However, management strives to maintain a balance, recognizing that the cost of such a system should not exceed the benefits derived. No material internal control weaknesses have been reported to i management. . Arth?r Andersen & Co. was engaged to audit the financial statements of the Company and issue a report thereon. Their audit was conducted in accordance with ' generally accespted auditing standards. Such standards require an examination of selected transactions and other procedures sufficient to provide reasonable ! assurance that the financial statements are not misleading and do not contain ' material errors. The Report of Independent Public Accountants does not limit the responsibility of management for information contained in the financial l statements and elsewhere in the report. I I Robert R. Carey President and Chief Executive Officer \ 1 i n Melanie J. Richardson l Vice President and Treasurer l l David P. Sartin Controller and Secretary I 1 l 4 1 l l 43 I i f
. .- . . . - . ~ _ - - . . - -
l l REPORT OF AUDIT COMMITTEE The Audit Committee of the Board of Directors is composed of six outside directors. The members of the Audit Committee are: Robert A. McAllen, Chairman, ! Jim L. Peterson, Ruben M. Garcia, H. Lee Richards, Pete Morales, Jr. and S. Loyd l Neal, Jr. The Committee held two meetings during 1993. The Committee oversees the Company's financial reporting process on behalf of the Board of Directors. The Committee discusses with the internal auditors ! and the independent public accountants the overall scope and specific plans for their respective audits. The Committee also discusses the Company's financial j statements and the adequacy of internal controls. The Committee meets regularly with the company's internal auditors and independent public accountants to discuss the results of their audits, their evaluations of internal controls, and the overall quality of the Company's financial reporting. The meetings are ! designed to facilitate any private communication with the Committee desired by the internal auditors or independent public accountants. l l Robert A. McAllen j Chairman, Audit Committee i ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. l l l l l l l l l t i r 6 h 5
)
44 i
PART III CSW common stock amounts in ITEM 11 and ITEM 12 reflect the two-for-one common stock split, effected by a 100% common stock dividend paid March 6, 1992 to shareholders of record on February 10, 1992. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. (a) The following is a list of directors of the Company, together with i certain information with respect to each of them: Name, Age, Principal Year l Occupation, Business Experience First Became and Other Directorships Director E. R. BROOKS. . . . . . . . . . . . . . . . . . . AGE - 56 1991 Chairman, President and CEO of CSW since February 1991. l President of CSW from September 1990 to February 1991. I President and Chief Operating Officer of CSW from January 1990 to September 1990 and Executive Vice ! President of CSW from 1987 to 1989. Director of CSW j and each of its subsidiaries. Director of Hubbell,,
- Electric, Inc. and of Baylor University Medical Center, f Dallas, Texas, i
ROBERT R. CAREY . . . . . . . . . . . . . . . . . AGE - 56 1989 l President and CEO of the Company since January 1990. l Executive Vice President and Chief Operating Officer l of the company from 1989 to 1990. Vice President, Operations of the Company from 1988 to 1989. Director of Corpus Christi National Bank, Corpus Christi, Texas. RUBEN M. GARCIA . . . . . . . . . . . . . . . . . AGE - 62 1981 President or principal of several firme engaged primarily in construction and land development in the l Laredo, Texas area. l HARRY D. MATTISON (1) . . . . . . . . . . . . . . AGE - 57 1994 l l Executive Vice President of CSW since September 1990 l and Chief Executive Officer of CSWS since December l 1993. Chief Operating Officer of CSW from September 1990 to December 1993. President and Chief Executive Officer of SWEPCO from September 1988 to September 1990. Director of each of CSW's wholly owned subsidiaries. ROBERT A. McALLEN . . . . . . . . . . . . . . . . AGE - 59 1983 Robert A. McAllen Investments, Inc., Weslaco, Texas. Consultant to First National Bank, Edinburg, Texas. PETE MORALES, JR. . . . . . . . . . . . . . . . . AGE - 53 1990 President and General Manager of Morales Feed Lots, Inc.,. Devine, Texas. Director of Devine State Bank, Devine, Texas. S. LOYD NEAL, JR. . . . . . . . . . . . . . . . . AGE - 56 1990 President of Hilb, Rogal and Hamilton Company of Corpus Christi, an insurance agency, corpus Christi, Texas. 45 i
Name, Age, Principal Year Occupation, Business Experience' First Became and Other Directorships Director JIM L. PETERSON . . . . . . . . . . . . . . . . . AGE - 58 1989 President and CEO of Whataburger, Inc. from 1974 to 1993. Director of Mercantile Bank'of Corpus Christi. H. LEE RICHARDS . . . . . . . . . . . . . . . . . AGE - 60 1987 Chairman of the Board of Hygeia Dairy Company, Harlingen, Texas. Director of Harlingen National Bank, Harlingen, Texas. MELANIE J. RICHARDSON . .. . . . . . . . . . . . AGE -- 3 7 1993 Vice President, Administration and Treasurer of the Company-since 1993. 'Vice President, Corporate Services and Treasurer-of the Company-from 1992 to 1993. Treasurer of the company since March 1992. Director of Internal Audits of the Company 1991 to 1992. Manager of Personnel Services of the company 1990 to 1991. Manager of Financial Audits of the Company 1986 to 1990. J. GONZALO SANDOVAL . . . . . . . . . . . . . . . AGE - 45 1992 Vice President, Operations / Engineering of the Company since 1993. Vice President, Regional Operations of the Company from 1992 to 1993. Vice President, Corporate Services of the Company from 1991 to 1992. General Manager of the Southern Region from 1988 to 1991. B. W. TEAGUE. . . . . . . . . . . . . . . . . . . AGE - 55 1984 Vice President, Marketing and Business Developnient of the Company since 1991. Vice President, Corporate Services of the company from 1988 to 1991. Senior Vice President, District Operations of the company from 1986 to 1988. GERALD E. VAUGHN. . . . . . . . . . . . . . . . . AGE - 51 1993 Vice President, Nuclear of CSWS since January 1994. Vice President, Nuclear Affairs of the Company since July 1993. Vice President for Nuclear Services of Carolina Power and Light Company, Raleigh, North Carolina, from 1990 to 1993. Vice President of Nuclear Operations at HLP from 1987 to 1990. (1) Mr. Mattison was elected to the Board ef fective February 1,1994, replacing Dale E. Ward. Mr. Ward resigned from the Board in January 1994 upon his transfer to CSWS as Vice President of Production Engineering. All outside directors have engaged in their respective principal occupations listed above for a period of more than five years, unless otherwise indicated. t i 46 I l'
c (b) The following is a list of the executive of ficers who are not directors of the Company, together with certain information with respect to each of them: Year First Elected to Present Name Age Present Position Position David P. Sartin 37 Controller and Secretary 1991 Each of the directors and executive officers of the Company is elected to hold of fice until the first meeting of the Company's Board of Directors after the 1994 annual meeting of stockholders, presently scheduled to be held on April 14, 1994. Each of the executive of ficers listed in the table above has been employed by the Company or an_ affiliate in the CSW System in an executive or managerial capacity for at least the last five years except for Mr. Vaughn. E l l l l l l i
.I 47 i
j j i
. , _ , . . . . . _ . _ - , , . - . ,~--
I I ITEM 11. EXECUTIVE COMPENSATION. Cash and other Forms of Compensation The following table sets forth the aggregate cash and other compensation for , services rendered for the fiscal years of 1993, 1992, and 1991 paid or awarded I by the Company to the Named Executive Officers. j l 1 Summary compensation Table ! l i Annual Compensation Long Term Compensation Awards Payouts CSW Other CSW Securities Annual Restricted Underlying All Othnr Compen- Stock Options / LTIP Compen-Name and Salary Bonus sa tion Award (s) SARs Payouts sation Principal Position Year ($) ($)(1) ($)(1)(2) ($) (1)(4) (#) ($) ($)(2)(5) Robert R. Carey 1993 ' 272,893 32,943 9,548 33,608 - - 27,587 President and CEO 1992 248,384 47,150 5,718 47,151 12,431 - 27,498 1991 223,475 45,092 - 48,116 - - - 1993 8,407 4,a16 8,531 - 5,920 Dale E. maro (6) 143,681 - Vice President, 1992 134,858 10,269 1,339 10,266 3,135 - 5,838 Engineering and 1991- 127,717 8,161 - 8,740 - - - Production B. W. Teague 1993 128,308 5,085 4,169 5,143 - - 5,309 Vice President, 1992 122,200 9,905 1,885 9,874 3,135 - 5,499 Marketing and 1991 109,665 5,542 - 5,888 - - - Business Development J. Gonzalo Sandoval 1993 120,327 7,878 4,963 7,986 - - 4,221 Vice President, 1992 111,107 13,583 27,649 - 2,916 - 3,333 Operations / Engineering 1991 93,650 6,331 - - - - - C. Wayne Stice (7) 1993 119,628 7,664 2,279 - - - 1,049 Assistant to the 1992 112,854 8,403 2,486 - 2,295 - - President, 1991 106,666 6,792 - - - - - Corporate Secretary , (1) Amounts in this column are paid or awarded in a calendar year for performance in a preceding year. (2) The 1991 amounts are omitted pursuant to the transitional provisions in the revised rules on executive of ficer and director compensation disclosure adopted by the SEC. (3) Amounts of perquisites and other personal benefits are included in this column only if they exceed the lesser of $50,000 or 10% of the total annual salary and bonus reported, Each such item that exceeds 25% of the total amount of perquisites and other personal benefits reported for each Named Executive Of ficer is identified below. Mr. Sandoval was reimbursed $18,745 for moving expenses in 1992. (4) Crants of restricted stock are administered by the Executive Compensation Committee of CSW's Board of
- Directors, which has the authority to determine the individuals to whom and the terms on which restricted >
! stock grants shall be made. The awards reflected in this column all have four-year vesting periods with 20% [ of the CSW common stock vesting on the first, second and third anniversary dates of the award and 40% vesting on the fourth such anniversary. Upon vesting, shares of CSW common stock are issued without restrictions. The individaals received dividends and may vote shares of restricted stock, even before such shares have vested. The amount reported in the table represents the market value of the shares at the date of grant. As of the end of 1993, the aggregate t estricted stock holdings of each of the Named Executive Of ficers wer e: Restricted Stock Market Value Name Held at 12/31/93 at 12/31/93 Robert R. Carey 3,963 $119,881 Dale E. Ward 948 28,677 B. W. Teague 726 21,962 J. Gonzalo Sandoval 264 7,986 C. Wayne Stice - - 48
l (5) Amour.ta shown in this column consist of the annual employer matching payments to CSW's Thrift Plus Plan. The 1991 and 1992 amounts in this column for Mr. Cazay also includes the average amounts of premiums paid per participant in those years under CSW's memorial gif t program. For 1993, this average was $17,013. Under this program for certain executive officers, directors and retired directors from the CSW system, CSW will make a donation in the participant's name to up to three organizations of an aggregate of $500,000, payable by CSW upon the participant's death and funded by term life insurance coverage. Actual premiums paid are based on l pooled risks for groups of participants. (6) Mr. Ward transferred to CSWS in January 1994. (7) Mr. Stice retired from the Company in February 1994. Option /SAR Grants . No grants of CSW common stock options or CSW SARs were made in 1993. Option /SAR Exercises and Year-End Value Table Shown below is information regarding CSW common stock option /SAR exercises during l 1993 and unexercised CSW common stock options /SARs at year-end for the Named Executives Officers. Aggregated CSW Option /SAR Exercises in 1993 and Fiscal Year-End CSW Option /SAR Value Number of CSW Securities value of
- Underlying unexercised Unexercised in the Value Options /SARn at Year-End Money Options /SARs at Shares Acquired Pealized (#) Exercisable / Year-End ($) Exercisable /
Name on Exercise (fj ($) Unexercisable Unexercisable (1) i Robert R. Carey - - 5,643 / 8,288 3,527 / 5,180 i Dale E. Ward - - 1,045 / 2,090 653 / 1,306 B. W. Teague 1,045 3,004 0 / 2,090 0 / 1,306 , J. Gonzalo Sandoval - - 971 / 1,945 607 / 1,216 C. Wayne Stice 500 8,375 1,015 / 1,530 634 / 956 (1) Based on the New York Stock Erchange December 31, 1993, closing price of CSW's conexan stock of $30.25/ share and an exercise price of $29.625/ share. ! Long-term Incentive Plan Awards Table The following table shows information concerning awards made to the Named Executive Officers during 1993 under CSW's Long-Term Incentive Plan ("LTIP"): 1 Long-Term Incentive Plan Awards Made in 1993 Performance or Estimated Future Payouts under Number of CSW Other Period Non-Stock Price Based Plans Shares, Units or Until Maturation Threshold Target Maximum Name Other Rights (#) or Payout ($) ($) ($) Robert R. Carey 1 2 years - 137,238 205,857 Dale E. Ward 1 2 years - 28,105 42,158 D. W. Teague 1 2 years - 28,105 42,158 l J Conzalo Sandoval 1 2 years - 28,105 42,158 j C. Wayne Stice 1 - Payouts of the awards are contingent upon CSW's achieving a specified level of total shareholder return, relative to a peer group of utility companies, for I the three year period ended December 1995. Such return must also exceed the average six-month treasury bill rate for the same period in order for any payout to be made. If the Named Executive Of ficer's employment is terminated during the performance period for any reason other than death, total and permanent . I disability or retirement, then the award is generally canceled. 49 l l
The LTIP contains a provision accelerating awards upon a change in control of CSW. If a change in control of CSW occurs, (a) all options and SARs become fully exercisable, (b) all restrictions, terms and conditions applicable to all restricted stock are deemed lapsed and satisfied and (c) all performance units are deemed to have been fully earned, as of the date of the change in control. Awards which have been granted and outstanding for less than six months as of the date of change in control are not then exercisable, vested or earned on an accelerated basis. The LTIP also contains provisions designed to prevent circumvention of the above acceleration provisions generally through coerced termination of an employee prior to the change in control of CSW. Retirement Plans Pension Plan Table Annual Benefits After Average Compensation Specified Years of Credited Service 20 25 30 or more $100,000 . . . . . . . . . . . . . . . $ 33,333 $ 41,667 $ 50,000 150,000 . . . . . . . . . . . . . . . 50,000 62,500 75,000 200,000 . . . . . . . . . . . . . . . 66,667 83,333 100,000 250,000 . . . . . . . . . . . . . . . 83,333 104,167 125,000 300,000 . . . . . . . . . . . . . . . 100,000 125,000 150,000 350,000 . . . . . . . . . . . . . . . 116,333 145,833 175,000 Executive officers aca eligible to participate in the tax qualified, CSW Pension Plan like other employees of the Company. Certain executive officers, ) including the Named Executive Officers, are also eligible to participate in the i CSW Special Executive Retirement Plan (SERP), a non qualified ERISA excess benefit plan. Such pension benefits depend upon years of credited service, age at retirement and amount of covered compensation earned by a participant. The annual normal retirement benefits payable under the pension and the SERP are based on 1.67% of " average compensation" times the number of years of credited service (reduced by (i) no more than 50% of a participant's age 55 Social Security benefit, and (ii) certain other offset benefits).
" Average compensation" means the average covered compensation (salary as reported in the Summary Compensation Table) during the 36 consecutive months of highest pay during the 120 months prior to retirement. The combined benefit levels in the table above, which include both the pension and SERP, are based on assumed retirement at age 65, the years of credited service shown, continued existence of the plans without substantial change, and payment in the form of a single life annuity.
Respective years of credited service and ages, as of December 31, 1993, for l the Named Executive Officers are as follows: Mr. Carey, 26 and 56; Mr. Stice, j 30 and 56; Mr. Ward, 21 and 46; Mr. Sandoval, 20 and 45, and Mr. Teague, 30 and l 55. Meetings and Compensation. The Board of Directors held four meetings during 1993. Directors who are not also executive of ficers and employees of the company or its affiliates receive annual directors' fees of $6,000 for serving on the Board and a fee of $300 plus expenses for each meeting of the Board or committee attended. Those directors who are not also officers of the Company are eligible to i participate in a deferred compensation plan. Under this plan such directors may elect to defer payment of annual-directors' and meeting fees until they retire from the Board or as they otherwise direct. Compensation Committee Interlocks and Insider Participation. No person serving during 1993 as a member of the Executive Compensation Committee of the Board of Directors of CSW served as an officer or employee of the Company during or prior to 1993. No person serving during 1993 as an executive officer of the Company serves or has served on the compensation committee or as a director of another company, one of whose executive officers serves as a member of the Executive Compensation Committee of CSW or as a director of the Company. 50
h ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. All 6,755,535 shares of the company's outstanding Common Stock, $25 par value, per share, are owned beneficially and of record by CSW, 1616 Woodall Rodgers Freeway, Dallas, Texas 75202. Security Ownership of Management The following table shows CSW common stock beneficially owned as of December 31, 1993, by each director, the Named Executive Officers and, as a group, all directors and executive officers of the Company. Share amounts shown in this table include restricted stock, options exercisable within 60 days after year-end shares of CSW common stock credited to Central and South West Corporation Thrif t plan accounts, and all other shares of CSW common stock beneficially owned by the listed persons. Each person has a sole voting and investment power with respect to all shares listed in the table below unless otherwise indicated. Beneficial Ownership as of December 31, 1993 , Name CSW Common Stock (1)(2) E. R. Brooks 60,959 Robert R. Carey 10,734 Ruben M. Garcia - Robert A. McAllen 2,000 Pete Morales, Jr. - S. Loyd Neal, Jr. 323 Jim L. Peterson - H. Lee Richards - Melanie J. Richardson 757 J. Gonzalo Sandoval 6,225 C. Wayne Stice 4,087 B. W. Teague 2,701 Gerald E. Vaughn 500 Dale E. Ward 8,659 All of the above and other executive officers as a group 99,192 (1) Included in these amounts for Mr. Brooks, Mr. Carey, Mr. Mattison, Mr. , Stice, Mr. Ward, Mr. Teague and Mr. Sandoval are restricted stock of 7,172, i 3,963, 4,708, 0,'948, 726 and 264, respectively. These individuals have i voting power, but not investment power with respect to these shares. The I above shares also include 9,531, 5,643, 6,176,1,015,1,045, 0, 971, and 938 l shares underlying immediately exercisable options held by Mr. Brooks, Mr. Carey, Mr. Mattison, Mr. Stice, Mr. Ward, Mr. Teague, Mr. Sandoval and the ] directors and executive officers as a group, respectively. (2) All directors' and executive officers' shares owned as of January 1,1994, as indicated are owned directly and aggregate less than one percent of the outstanding shares of such class. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. l i 51
.~. - - _ _ - - - - - _ _ _ _ _ _ _ _ - -
PART IV , ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. Page Reference , (a) Financial Statements (Included under
" ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA"):
Report of Independent Public Accountants. 42 Statements of Income for the years ended- 24 December 31, 1993, 1992 and 1991. , Statements of Retained Earnings for the 24 years ended December 31, 1993, 1992 and 1991. l Balance Sheets as of December 31, 1993 25 j and 1992. .; l Statements of Cash Flows for the years 26 l ended December 31, 1993, 1992 and 1991. - Statements of Capitalization as of 27 December 31, 1993 and 1992. I Notes to Financial Statements. 28-41 (b) Reports on Form 8-K The Company filed a report on Form 8-K dated March 10, 1994, reporting ITEM 5. OTHER EVENTS relating to the STP outage and current rate case proceedings. (c) Exhibits: . J
- 3. (a) Restated Articles of Incorporation, as -
I amended, of the Company (incorporated j herein by reference to Exhibit 4(a) to the Company's Registration Statement No. l 33-4897, Exhibits 5 and 7 to Form U-1 File No. 70-7171, Exhibits 5, 8.1, 8.2 i and 19 to Form U-1 File No. 70-7472 and the Company's Form 10-Q for the quarterly period ended September 30, 1992, ITEM 6, Exhibit 1). (b) Bylaws, as amended, of the Company. - (Incorporated herein by reference to Exhibit 3(b) to the Company's 1991 Form 10-K, file No. 0-346.) i 52
Page Reference '
- 4. Indenture of Mortgage or Deed of -
Trust dated November 1, 1943, executed by the Company to The First t National Bank of Chicago and Robert L. Grinnell, as Trustees, as amended through October 1, 1977 (incorporated herein by' reference to Exhibit 5.01 in File No. 2-60712), and the Supplemental l Indentures of the Company dated l September 1, 1978 (incorporated herein ! by reference to Exhibit 2.02 in File No. 2-62271) and December 15, 1984, July 1, 1985, May 1,'1986 and November 1, 1987 (incorporated herein by reference to l Exhibit 17 to Form U-1 File No. 70-7003, ! Exhibit 4(b) in File No. 2-98944, Exhibit 4 to Form U-1 File No. 70-7236 and Exhibit 4 to Form U-1 File No. 70-7249) and June 1, 1988, December 1, 1989, March 1, 1990, October 1, 1992, December 1, 1992, February 1, 1993 and April 1, 1993 (incorporated herein by reference to Exhibit 2 to Form U-1 File No. 70-7520, Exhibit 3 to Form U-1 File No. 70-7721, Exhibit 10 to Form U-1 File , No. 70-7735 and Exhibit 10(a), 10(b), 10(c) and 10(d), respectively, to Form U-1 File No. 70-8053).
- 12. Statement re computation of Ratio of 61 Earnings to Fixed Charges for the five years ended December 31, 1993,
- 18. Letter from Independent Public Accountants 62 for change in accounting principle. i
- 23. Consent of Independent Public 63 Accountants. >
- 24. (a) Powers of Attorney. 64 (b) Powers of Attorney. 65 (c) Powers of Attorney. 66 l
l l l 1 L 53
Page Reference (d) Schedules: Report of Independent Public 42 Accountants on Supplemental Schedules and Exhibit. V. Property, Plant and Equipment for the 56 years ended December 31,' 1993, 1992 and 1991. VI. Accumulated Depreciation, Depletion 57 and Amortization of Property, Plant and Equipment'for the years ended December 31, 1993, 1992 and 1991. IX. Short-Term Borrowings for the years 58 ended December 31, 1993, 1992 and 1991. X. Supplementary Income Statement _ 59 Information for the years ended December 31, 1993, 1992 and 1991. All other exhibits and schedules are omitted because of the absence of the conditions under which they are required or because the required information
-is included-in the financial statements and related notes to financial statements.
l l 1 l i 54
. ._ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - . I
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 15, 1994. CENTRAL POWER AND LIGHT COMPANY r By: David P. Sartin Controller and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the foAlowing persons on behalf of the registrant , and in the capacities indicated on March 15, 1994. Signature Title Robert R. Carey President and CEO and Director (Principal executive officer) Melanie-J. Richardson Vice President, Treasurer and Director ' (Principal financial officer) l David P. Sartin Controller and Secretary (Principal accounting officer) i
*E. R. Brooks Director ' *Ruben M. Garcia Director
- Harry D. Mattison Director
- Robert A. McAllen Director
*Pete Morales, Jr. Director ;
Director ;
*S. Loyd Neal, Jr.
Director :
- Jim L. Peterson Director l
*H. Lee Richards *J. Gonzalo Sandoval Director i *B. W. Teague Director
- Gerald E. Vaughn Director 1 i
*Melanie J. Richardson, by signing her name hereto, does sign this document on i behalf of the persons indicated above pursuant to a power of attorney duly I executed by each such person. ,
*By: Melanie J. Richardson ;
Attorney-in-Fact t i t 55
SCHEDULE V CENTRAL POWER AND LIGHT COMPANY PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED DECEMBER 31 Column A Column B Column C Column D Column E Column F 1 Balance Other l Beginning Additions Retirements Changes Balance Classification of Year at Cost at Cost Add /(Deduct) End of Year (Thousands) _. Year 1993 Electric Utility Plant: Production $3,051,969 $ 9,692 $ 1,040 $ 1,290 $3,061,911 Transmission. 329,400 22,190 733 727 351,584 Distribution 715,633 57,940 7,561 (746) 765,266 , General 210,204 8,400 4,061 (5,373) 209,170- j Construction work { in progress 94,736 73,685 - -- 168,421 J Nuclear fuel 152,494 7,832 - - 160,326'
$4,554,436 $179,739 $13,395 $f4,102) $4,716,678 Year 1992 Electric. Utility Plant:
Production $3,043,101 $ 9,703 $ 942 $ 107 $3,051,969 Transmission 329,192 1,655 439 (1,008) 329,400 ! Distribution 681,905 43,190 9,590 128 715,633 i General 209,932 2,769 1,957 (540) 210,204 Construction work in progress 65,699 29,037 - - 94,736 Nuclear fuel 136,877 15,617 - - 152,494
$4,466,706 }101,971 $12,928 }(1,313) $4,554,436 Year 1991 Electric Utility Plants Production $3,020,266 $ 25,019 $ 2,129 $ (55) $3,043,101 Transmission 318,573 10,775 177 21 329,192 Distribution 642,529 46,391 7,013 (2) 681,905 General 206,930 5,451 838 (1,611) 209,932 Construction work in progress 56,917 8,782 -~ -
65,699 Nuclear fuel 132,972 3,905 - - 136,877
$4,378,187 }100,323 110,157 $(1,647) }_4,466,706 56
h l r ! SCHEDULE VI l CENTRAL POWER AND LIGHT COMPANY ACCUMULATED DEPRECIATION, DEPLETION AND i AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT i FOR THE YEARS ENDED DECEMBER 31 l Column A Column B Column C Column D Column E Column F Additions Charged to Costs and Expenses Other Balance Changes Balance Beginning Depreciation / Other . Add / End of Classification of Year Amortization Accounts . Retirements (1) 1 Deduct) Year (Thousands) Year 1993 l Electric Utility Plant: ! l Production $ 638,458 $ 78,595 $ 1,093 $ 1,109 $ - $ 717,037 ! l Transmission 130,317 9,437 - 654 - 139,100 ! Distribution 222,749 32,101 - 12,644 135 242,341 l General 84,871 4,757 5,806 3,992 - 91,442 i Nuclear fuel 71,953 - 1,499 - - 73,452
$1,148,348 }124,890 j 8,398 $18,399 $ 135 $1,263,372 Year 1902 Electric Utility Plant:
Production $ 559,640 $ 78,342 $ 1,093 $ 617 $ - $ 638,458 Transmission 121,976 9,206 - 815 (50) 130,317 Distribution 206,278 30,323 - 13,931 79 222,749 l General 78,168 4,582 3,177 1,773 717 84,871 ! Nuclear fuel 50,637 - 21,316 - - 71,953 l
$1,016,699 }122,453 1252 586 $17,136 $ 746 }1,148,348 Year 1991 Electric Utility Plant:
Production $ 482,524 $ 77,866 $ 1,094 $ 1,844 $ - $ 559,640 Transmission 113,216 9,059 - 299 - 121,976 Distribution 188,883 28,671 - 11,288 12 206,278 General 73,085 4,346 1,920 676 (507) 78,168' Nuclear fuel 32,980 - 17,657 - - 50,637
$ 890,688 $119,942 $20,671 1142 107 $ (495) $1,016,699 (1) Retirements are at original cost, net of removal costs and salvage.
57 l
SCHEDULE IX CENTRAL POWER AND LIGHT COMPANY SHORT-TERM BORROWINGS FOR THE YEARS ENDED DECEMBER 31 Column A Column B Column C Column D Column E Column F Maximum Average- Weighted Category of Balance Weighted Amount Amount Average Aggregate at End Average Outstanding Outstanding Interest Short-term of Interest at any During Rate During Year Borrowings Period Rate Month-end the Period the Period (Thousands) 1993 Advances from Affiliates $171,165 3.4% $171,165 $87,319 3.3% 1992 Advances from Affiliates $ 91,766 3.7% $107,425 $49,058 4.1% 1991 Advances from Affiliates .$ 62,148 5.0% $ 69,876 $28,717 6.2% 58
SCHEDULE X l CENTRAL POWER AND LIGHT COMPANY SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED DECEMBER 31 1 1993 1992 1991 (thousands) Real estate and personal property taxes $55,255 $41,003 $38,817 State gross receipts taxes 14,173 13,685 13,099 Payroll taxes 8,300 7,288 7,032 Franchise taxes 6,420 6,284 1,265(a) State utility commission assessments 1,913 1,822 1,784 Other taxes 333 261 456 j86t 394 9 $70,343 }62,453 (a) A refund of approximately $3.6 million related to prior years was received in 1991. The amounts of taxes, depreciation and maintenance charged to accounts other than income and err.onse accounts were not significant. Rents, royalties, advertising a0d research and development costa during these years were not significant. l i l I i l l l 59
i INDEX TO EXHIBITS , Exhibit Transmission i Number Exhibit Method I i
)
3(a) Restated Articles of Incorporation, as Incorporated- [ amended, of the company (incorporated by Reference ; herein by reference to Exhibit 4(a) to ! the Company's Registration Statement l No. 33-4897, Exhibits 5 and 7 to Form U-l File No. 70-7171, Exhibits 5, 8.1, 8.2 and 19 to Form U-1 File + No. 70-7472 and the. Company's Form 10-Q for the quarterly period ended- l September 30, 1992, ITEM 6,' Exhibit 1). 3(b) Bylaws,.as amended, of the company. Incorporated ' (Incorporated herein by reference to by Reference Exhibit 3(b) to the Company's.1990 , Form 10-k, File No. 0-346). , 4 Indenture of Mortgage or Deed of Trust Incorporated j
-dated November-1, 1943, executed by the by Reference !
Company to The First National Bank of Chicago and Robert L. Grinnell, as Trustees, as amended through October 1, 1977 (incorporated herein by reference z
. to Exhibit 5.01 in File No. 2-60712), and l the Supplemental Indentures of the' Company dated September 1, 1978 ;
(incorporated herein by reference to , Exhibit 2.02 in File No." 2-62271) and. i December 15, 1984, July 1, 1985, May 1, 1986 and November 1, 1987 (Jncorporated ! herein by reference to Exhibit 17-to Form U-1 File No. 70-7003, Exhibit 4(b) in File No. 2-98944, Exhibit 4 to Form U-1 File No. 70-7236 and Exhibit 4 to Form U-1 File No. 70-7249) and June 1, 1988, December 1, 1989, March 1, 1990, , October 1, 1992, December 1, 1992, _ ! February 1, 1993 and April 1,-1993, (incorporated herein by reference to Exhibit 2 to Form U-1 File No. 70-7520 ; and Exhibit 3 to Form U-1 File No.
- 70-7721, Exhibit 10 to Form U-1 File No. 70-7725 and Exhibit 10(a), 10(b), ,
10(c) and 10(d), respectively, to Form i U-1 File No. 70-8053). l 12 Statement re computation of Ratio of Electronic ! Earnings to Fixed Charges for the five ' years ended December 31, 1992. l 18 Letter from Independent Public Accountants ' for change in accounting principle. Electronic 23 Consent of Independent Public Accountants. Electronic l l 24(a) Powers of Attorney. Electronic j I 24(b) Powers of Attorney. Electronic 24(c) Powers of Attorney. Electronic 60 1 l
)
t
EXHIBIT 12 CENTRAL POWER AND LIGHT COMPANY I RATIO OF EARNINGS TO FIXED CHARGES FOR THE YEARS ENDED DECEMBER 31 1993 1992 1991 1990 1989 i (thousands, except ratios) Operating income $190,079 $266,665 $249,573 $162,527 $161,695 + Adjustments: i Federal income taxes (19,690) 34,336 44,832 (2,124) (60,000). Provision for deferred ' Federal income taxes 90,682 48,773 36,984 103,490 127,894 Deferred investment tax credits (5,806) (5,837) (5,831) (6,103) (5,619) Other income and deductions 2,237 1,117 396 (2,641) 4,243-Allowance for borrowed and equity funds used during construction 2,618 1,171 2,124 1,057 40,091 STP carryi:,g costs - - - 185,078 84,590 Mirror CWIP amortization 75,702 82,527 96,671 - - Earnings }335,822 $428,752 $424,749 $441,284 $352,894 Fixed charges: ! Interest on long-term debt $112,939 $125,476 $124,987 $126,584 $129,535 Interest on short-term debt and other 11,993 7,266 8,697 15,521 12,511 Fixed Charges $124,932 }132,742 $133,684 $142,105 11421 046 Ratio of Earnings to Fixed Charges 2.69 3.23 3.18 3.11 2.48 i 61
h P i A EXHIBIT 18 ; RE: Central Power and Light Company j Form lO-K Report for the year ended December 31, 1993 , Ladies and Gentlemen: This letter is written to meet the requirements of Regulations S-K calling { for a letter from a registrant's independent accountants whenever there has been , a change in accounting principle or practice. Prior to January 1, 1993, electric revenues were recorded at the time billings were made to customers on a cycle-billing basis. Electric service provided subsequent to billing dates through the end of each calendar month became part of operating revenues of the next month. To conform to industry-standards CPL changed its method of accounting to accrue for estimated revenues ; for electricity used by. customers, but not yet billed. .. A complete coordinated set of financial and reporting standards for determining the preferability of accounting principles among acceptable alternative principles has not been established by the accounting profession. l Thus, we cannot make an objective determination of whether the change in accounting descr.ibed in the preceding paragraph is to a preferable. method. However, we have reviewed the pertinent factors, including those related to financial reporting, in this particular case on a subjective basis, and our opinion stated below is based on our determination made in this manner. ; We are of the opinion that the Company's change in method of accounting is : to an acceptable alternative method of accounting, which, based upon the reasons 3 stated for the change and our discussions with you, is also preferable under the l circumstances in this particular case. In arriving at this opinion, we have ! relied on the business judgment and business planning of your management. ; Very truly yours, E ARTHUR ANDERSEN & CO. !,
)
f f r i t i ; l I ' s i P l l 62 4 t
.m . __ - - . .
I l 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS i To the Shareholders and Board of Directors of l Central Power and Light Company , As independent public_ accountants, we hereby consent to the incorporation of our reports dated February 25, 1994, included in, . and incorporated by reference in this Form 10-K, into Central Power and Light Company's previously .; filed registration statement on Form S-3 (File Nos. 33-48995 and 33-49577). = r i i i i Arthur Andersen & Co. t I Dallas,' Texas l February 25, 1994 ; r , i I t l I I l l 1 . l i 6 4 I i 63 l i
. .. , .- ., , -. , . . , . .}}