ML20246A919
| ML20246A919 | |
| Person / Time | |
|---|---|
| Site: | Comanche Peak  |
| Issue date: | 05/04/1989 |
| From: | Beck J TEXAS UTILITIES ELECTRIC CO. (TU ELECTRIC) |
| To: | NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| Shared Package | |
| ML20246A924 | List: |
| References | |
| TXX-89189, NUDOCS 8905080365 | |
| Download: ML20246A919 (65) | |
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h F Log # TXX-89189 File # 231, 234
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r C 843, 10047 10101 '0102 TUELECTRIC Ref.#10CFR50I30.
10CFR50.90 W. J. Cahlii Exeutive Vice l' resident pgy 4, 39gg U. S. Nuclear Regulatory Connission
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Attn: Document Control Desk b Washington, D. C; 20555 !
SUBJECT:
' COMANCHE PEAK STEAM ELECTRIC STATION (CPSES)
DOCKET N05, 50-445 AND 50-446 REQUEST FOR AMENDMENT TO CONSTRUCTION PERMIT N05,'CPPR-126 AND CPPR-127 AND APPLICATION b FOR OPERATING LICENSES FOR CPSES UNIT 1 AND 2 Gentlemen:
M Pursuant to 10CFR50.30 and 50.90, Texas Utilities Electric Company (TV Electric), licensee under the referenced NRC Construction Permits for the Comanche Peak Steam Electric Station (CPSES), ecting for itself and the other licensees named in the referenced Construction Permits, hereby requests amendment.of the said Permits and hereby amends its Application for Operating Licenses to reflect revised ownership interests as described below. In support thereof, the following information is submitted.
A. Proposed Amendments Of Construction Permits Applicants propose le amendments to reflect a re-allocation of ownership linterests in CPSES as follows:
The transfer by the Tex-La Electric Cooperative of Texas, Inc. (Tex-La) of its 2-1/6% ownership interest in CPSES to TV Electric.*
- / The current owners and holders of Construction Permits for CPSES are
~ TV Electric, Tex-La and Texas Municipal Power Agency (TMPA). Transfer to I
10 Electric of ownership of TMPA's 6.2% interest was authorized on August' 25, 1988, by Amendments No. 9 and 8 (as corrected) to Construction Permits Nos. CPPR-126 and CPPR-127 for CPSES Units 1 and 2, respectively.
The transfer from TMPA is taking place in 10 installments as set forth in the Agreement between TV Electric and TMPA dated February 12, 1988. At completion thereof, TMPA will no longer be a licensee.
8905080365 090504
.PDR ADOCK 05000445 800 $
A PDC t k 400 North Olive Street LB 81 Dallas, Texas 75201 L_-_ _ = . _ _ _ . _ _ - _ _ . _ _ _ _ - - _ . _ - _ _ _ _ - _ _ _ _ _ _ _ _ _ = _ _ _ __. - _ _ _ _ _ _ _ _ _ _ _ - - _ _ _ _
e TXX-89189 May 4, 1989 Page 2 of 4 The transfer of the Tex-La interest is memorialized in the Agreement between Tex-La and TV Electric dated as of March 23, 1989 (the Agreement), which is discussed below. Under the terms of the Agreement, the foregoing transfer is subject to certain conditions precedent and regulatory approvals including the Commission's approval. Applicants request that the amendments involving the Tex-La-ownership interest be approved at this time and be made effective as of the-date of completion of'the transfer of the Tex-La ownership interest as set forth in the Agreement.
B. Supporting Material in support of this request, there is submitted for the Commission's convenience a copy of the Agreement.
TV Electric has the financial qualification and ability to complete construction of the 2-1/6% share of CPSES which it proposes to purchase under the Agreement. To support that conclusion, we furnish TV Electric's most recent SEC Form 10-K dated December 31, 1988, TV Electric's Form 8-K dated March 28, 1989, and the 1988 Annual . Report of Texas Utilities Company.
C. . General-This request is being, submitted pursuant to 10CFR50.30 and 50.90. The amendments herein requested are administrative in nature and involve only the transfer of an ownership interest from one entity to another entity which is ,
already an owner and licensee. This transfer will in no way affect the 1 responsibility for the operation and control of CPSES nor in any way affect 1 the design or construction of the facility. Accordingly, the proposed transfer does not involve any' increase in the probability or consequences of accidents previously considered, does not create the possibility of an accident of a type different from any evaluated previously., does not involve any decrease in a safety margin, and therefore does not involve a significant hazards consideration. Finally, the proposed transfer will not have a significant impact on the environment.
In view of the fact that the transfer proposed by these amendments does not raise any. complex. issue, and that the proposed transfer is also subject to tre u
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jurisdiction of other regulatory agencies whose approval is a condition precedent to the transfer, TV Electric respectfully requests an expedited processing of these amendments so the transfer can be consummated at the l earliest possible date.
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TXX-89189 May 4, 1989 Page 3 of 4 In accordance with 10CFR50.4(b)(2)(ii), one (1) signed original and thirty seven (37) copies of this request are enclosed.
Sincerely, J
William J. Cahill, Jr. >
By:_ M.k Jop W. Beck Vice President, '
Nuclear Engineering RSB/vid ;
Enclosnies c - J. H. Wilson, OSP-NRC Mr. R. D. Martin, Region IV Resident Inspectors, CPSES (3) h
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TXX-89189 May 4, 1989 Page 4 of 4 1 i
il STATE OF TEXAS :
COUNTY OF DALLAS:
Before me, the undersigned authority, on this day personally appeared l John W. Beck, who after being first duly
- worn by me, on his oath did depose l and says as follows: i My name is John W. Beck and I am Vice President, Nuclear Engineering of Texas Utilities Electric Company a.d am duly authorized to sign and file with the Nuclear Regulatory Commission this amendment request for amendment of Construction Permit Nos. CPPR-126 and CPPR-127, this amendment to the Application for Operating Licenses for Comanche Peak Steam Electric Station, Units 1 and 2, and the supplemental information regarding the foregoing. I am familiar with the contents thereof and the matters of fact set forth therein are true and correct to the best of my knowledge, information and belief.
SWORN TO AND SUBSCRIBED before me on thisJthe #rd day of May, A.D.,1989 to certify which witness my official hand and smal of office.
ULL . wm Notary Public,UState of Texas My commission expires: I b /b- N l
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J L I SECURITIES-AND EXCHANGE COMMISSION
- Washington,'D.C. 20549 e
FORM 8-K 1
1 CURRENT REPORT Pursuant to'Section 13 or 15(d) of the Fecurities. Exchange Act of 1934 I
l 0 Date of Report (Date of earliest event reported) - March 23, 1989 l
i TEXAS UTILITIES ELECTRIC COMPANY
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(Exact name of registr. ant as specified in its charter) l TEXAS 0-11442 75-1837355 !
(State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) IdentificationNo.)
i 2001 BRYAN TOWER, DALLAS, TEXAS 75201
-(Address of principal executive offices) l Registrant's telephone number, including area code - (214) 812-4600 1
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ITEM 5. OTHER EVENTS.
Reference is made' to the 1988 Form 10-K of Texas Utilities Electric Company (Company) in Item 1. Business under Fuel Supply and Purchased Power and under Comanche Peak Nuclear Generating Station, in Item 2.
Properties under Construction Program, in Item 3. Legal Proceedings unoer Comanche Peak Nuclear Generating Station and in. Item 8. und e Notes 10 and 11 to Financial Statements.
The Company, which is the principal subsidiary of Texas Utilities Company,.is constructing two nuclear-fueled generating units at the Comanche Peak nuclear generating station (Comanche Peak). The Company's ownership share in each unit is 97 5/6%. Tex-La Electric Cooperative of Texas, Inc. (Tex-La) owns the remaining 2 1/6% interest.
On March 23, 1989, the Company entered into an agreement with Tex-La (Agreement) pursuant to which the Company will purchase Tex-La ':;
ownership interest in Comanche Peak. Under the terms of the Agreement, the Company will make initial payments and issue a promissory note to Tex-La payable over approximately 32 years, said payments and the principal amount of said note totaling about S163 million plus interest from August 31, 1988. The purchase price is based on the Company's incurred cost per kilowatt, including allowance for funds used during I. construction and net of amounts due the Company from Tex-La for I expenditures in connection with Tex-La's ownership interest in Comanche ,
l Peak, plus payment for Tex-La's interest in the nuclear fuel for !
l Comanche Peak, certain transmission facilities associated with Comanche j Peak and certain expenses. Also, as part of the consideration, power 1 l supply arrangements between the Company and Tex-La have been revised to provide an opportunity for Tex-La to substitute other power supply l resources. In connection with the purchase of Tex-La's ownership l
interest by the Company, all outstanding claims and pending lawsuits n between Tex-La and the Company will be settled and terminated. 1 Finalization of the Agreement is subject to obtaining the approval of the. Nuclear Regulatory Commission and the Public Utility Commission of l
Texas, with respect to the transfer of Tex-La's ownership interest, for which the Company plans to promptly file applications, and is also subject to obtaining the approval of the Rural Electrification Administration, the Federal Financing Bank and the National Rural Utilities Cooperative Finance Corporation, for which Tex-La is making application. Finalization is also subject to Tex-La obtaining an acceptable tax ruling from the Internal Revenue Service. The Company cannot predict when action with respect to these matters will be taken.
SIGNATURE Pursuant to the requirements 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.
TEXAS UTILITIES ELECTRIC COMPANY By: /s/ S. S. Swiger S. S. Swiger Vice President and Controller Date: March 28, 1989
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'A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K l l
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31,1988 Commission File Number 0-11442 Texas Utilities Electric Company (Exact name of registrant as specijfed in its charter)
A Texas I.R.S. Employer Corporation No. 751837355 2001 Bryan Tower, Dallas, Texas 75201 Telephone Number (214) 812-4600 Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Preferred Stock, without par value 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes / No Aggregate market value of Common Stock on January 31,1989 held by non-affiliates: None Common Stock outstanding at January 31,1989: 118,925,000 shares, without par value DOCUMENTS INCORPORATED BY REFERENCE None
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TABl.E OF CONTENTS g Description g PARTI 1 Business . . . . . . . . . . .. . . .. ... . . . ... . . ... . ... ... 1 The Company . ...... .. .. . ... .... ... . .. ... . . 1 Peak Load and Capability . ... . .. ... . .. ..... . ..... . .... ... 1 Fuel Supply and Purchased Power . .. . . . . .... ...... ..... 2 Regulation and Rates . . , . . .... ... . . .... .. . .. 5 Comanche Peak Nuclear Generating Station . . . . ... ... . .. .... . 7 Environmental Matters. . ... .. . .... .... ... .... .. ....... 8 2 Properties . . . .... . .... .... . , . .. . . . . . ........ ... ..... 10 Construction Program .. .. .. ... .... . . ..... .. .. . ... 10 The Company System Map . . . .. . ... . . . .. ........ 13 3 Legal Proceedings . . . . . . .. . . . . .... .. . . . ...... .. . 14 4 Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 PART 11 5 Market for Registrant's Common Equity and Related Stockholder Matters . . . .... 15 6 Selected Financial Data .. . .. . . .. ... ....... ...... .. 16 Financial Statistics . . . . .. . ....... .. . .. . .. . 16 Operating Statistics . . . .... . . .... . .. . . . . . . .. . 17 7 Management's Discussion and Analysis of Financial Condition and i Resuiis of Operations . .. .. . . ... ... ........ . 18 8 Financial Statements and Supplementary Data . . .. .. . .... . .... . . . . 24 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . ... ........ ... .. .. .... .. . 43 PART III 10 Directors and Executive Officers of the Registrant . . .. . .... .. .. 43 11 Executive Compensation . . . .. . . ... .. .. . . . . . .. 45 12 Security Ownership of Certain Beneficial Owners and Management . . . . .. . .... 46 13 Certain Relationships and Related Transactions . . . . . . . . . .. 46 PART IV 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K . ... .. . . 47 i
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e DEFINITIONS When used herein the following terms will have the meanings indicated.
Term Definitions
~AFUDC Allowance for funds used during construction Agreement Joint Ownership Agreement among the owners of Comanche Peak nuclear generating station Alcoa . Aluminum Company of America ASLBu Atomic Safety and Licensing Board BEPC Brazos Electric Power Cooperative, Inc.
Big Brown Big Brown generating station Board - . Financial Accounting Standards Board Comanche Peak Comanche Peak nuclear generating station
' Company Texas Utilities Electric Company (the Registrant)
CWIP Construction work in progress -
DTPA Texas Deceptive Trade Practices Act EPA Environmental Protection Agency ERCOT Electric Reliability Council of Texas FERC Federal Energy Regulatory Commission Forest Grove - Forest Grove generating station l Fuel Company Texas Utihties Fuel Company Lone . Star Lone Star Gas Company -l Martin Lake - Martin Lake generating station ]
Mining Company Texas Utilities Mining Company ,
Monticello - Monticello generating station 'l NPDES National Pollutant Discharge Elimination System ;
NRC Nuclear Regulatory Commission l NWPA Nuclear Waste Policy Act of 1982 1
'OPUC Office of Public Utility Counsel of Texas ;
ORC Operations Review Committee for Comanche Peak l PUC. Public Utility Commission of Texas RCRA Resource Conservation and Recovery Act of 1976,
'l as amended i Sandow Sandow generating station
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System Companies - Texas Utilities Company and its subsidiaries TACB' Texas Air Control Board Texas Utilities Texas Utilities Company Tex-La Tex-La Electric Cooperative of Texas, Inc.
TML Texas Municipal League )
TMPA Texas Municipal Power Agency TNP Texas New Mexico Power Company TRA Tax Reform Act of 1986 TRT Technical Review Team of the NRC TU Services Texas Utilities Services Inc.
TWC Texas Water Commission
-Twin Oak Twin Oak generating station 1 ii I
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PARTI Item 1. BUSINESS.
TIIE COMPANY Texas Utilities Electric Company (Company) was incorporated under the laws of the State of Texas in ,
1982 and has perpetual existence under the provisions of the Texas Business Corporation Act. The Company )
is an electric utility engaged in the generation, purchase, transmission, distribution and sale of electric energy wholly within the State of Texas. The Company possesses all of the necessary franchises and cc.iificates required to enable it to conduct its business (see Regulation and Rates).
The Company is the principal subsidian of Texas Utilities Company (Texas Utilities). Texas Utilities also has three other subsidiaries which perform specialized services for the Texas Utilities Company System i (System Compames), including the Corapany: Texas Utilities Fuel Company (Fuel Company) owns a natural 1 gas pipeline system, acquires, stores and delivers fuel gas and provides other fuel services for the generation of electric energy by the Company; Texas Utilities Mining Company (Mining Company) owns and operates fuel production facilities for the surface mining and recovery oflignite for use at the Company's generating !
stations; and Texas Utilities Services Inc. (TU Services) furnishes fmancial, accounting. computer and other administrative services at cost. Effective January 1,1984, the Company became the successor by merger to Dallas Power & Light Company, Texas Electric Service Company and Texas Power & Light Company which had been subsidiaries of Texas Utilities.
The Company is engaged in the generation, purchase, transmission, distribution and sale of electric energy in the north central, eastern and western parts of Texas, with a population estimated at 5,185,000 -
about one-third of the population of Texas. Electric service is provided in 87 counties and 367 incorporated municipalities, including Dallas, Fort Worth, Midland, Odessa, Wichita Falls, Arlington, Irving, Plano, Richardson, Waco, Tyler and Killeen. The area is a banking, insurance and commercial center with substantial electronics, aerospace, petrochemical and specialized steel manufacturing, and automotive and aircraft assembly. The territory served also includes major portions of the oil and gas fields in the Permian Basin and East Texas, as well as substantial farming and ranching sections o' the State and the Dallas-Fort Worth International Airport.
At December 31,1988, the Company had a total of 12,223 full-time employees.
For energy sales and operating resenues contributed by each class of service, see item 6, Selected Financial Data--Operating Statistics.
PEAK LOAD AND CAPABILITY Net capability, peak load and reserve at the time of peak were as follows during the years indicated:
Peak I.oad(a)
Net increase Capability Over Heserve(b)
& (megawatts) Megaw atts Prior Year (megawatts) 1988. . .. . .. . 20,115 17,620 5.6% 2,655 l 1987.. . . 19,465 16,680 0.9 2,898 i 1986. .. .... 18,854 16,537 4.0 2,447 (a) Includes interruptible load of 160 megawatts in 1988,113 megawatts in 1987 and 130 megawatts in 1986.
(b) Excess of net car. bility over peak load, excluding interruptible, at the time of peak.
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Item 1. BUSINESS (Continued).
The peak load increases for 1988 and 1%7 resulted primarily from weather factors in the service area and also from customer growth. The peak load in 1988 occurred on August 8. Included in the 1988 net capability was 1,726 megawatts of firm purchased capacity, including 1,596 megawatts of cogeneration and small power production. The Company expects to continue to purchase capacity in the future from various sources. (See Fuel Supply and Purchased Power and Item 6, Selected Financial Data-Operating Statistics.)
Peak load increases through the mid-1990's are expected to average approximately 2.1% annually, after giving effect to an aggressive load management program (including interruptible contracts). The Company's resource plan provides for meeting the increases in required capability (taking into consideration, among other factors, expiring purchased power contracts and possible retirements of older gas-fired generating units) through the acquisition of purchased power capacity (including cogeneration and small power production), j through the completion of various nuclear, lignite and gas / oil fueled capacity additions and through the i Company's conservation and load management programs. The resource plan is subject to annual review as part of the Company's regular planning process. The components of the resource plan (see item 2, Properties
-Construction Program) are as follows: .
Resource Plan 1989 1998 Capability Resource Additions (megawatts) Percent l Lignite ....... .. .. .... . . . ... . ... . 2,250 29 %
Nuclear . . . .... .... ...... ....... . ...... 2,250 29 Combustion turbines. . . . . . . .. .. .. .... 780 10 Load management . . . . . . . . . . . . .. .... .. . 1,314 17 Cogeneration, other purchases and unspecified . . .. ... 1,118 J Total . . . . . ... . .. ....... .... . ...... 7,712 1_00 %
FUEL SUPPLY AND PURCHASED POWER Net input for 1988 was 85,589 million kilowatt-hours of which 73,493 million were generated by the Company. During this period, 803,411,980 million Btu of fuel (including 38,035,350 million Btu furnished by Aluminum Company of America (Alcoa) at no cost to the Company) were consumed for electric generation.
Average fuel and purchased power cost (excluding capacity charges) per kWh of net input was 1.97c for 1988,2.05e for 1987 and 2.02c for 1986. A comparison of the resource mix for net input and the unit cost per million Btu of fuel to the Company during the last three years is as follows:
Mix for Net Unit Cost Input Per Million Htu 1988 1987 1986 1988 1987 1986 j Fuel for electric generation: l Gas . . . .. .. .... .. ..... . 41.1 % 42.1 % 44.2% $2.47 $2.56 $2.77 !
Oil . . . . . . . . . . . . . .. ... 0.4 0.3 0.1 4.74 4.82 6.14 !
Lignite * . . . . .... .. 44.4 44.3 49.8 0.95 1.07 0.98 Total / Average fuel costs for <
electric generation . . . . .... 85.9 86.7 94.1 $1.71 $1.82 $1.84 Purchased power . ..... .. 14.1 13.3 5.9 Total . .. ... . ... . ..... 100.0 % 100.0 % 100.0 %
- Lignite cost per ton to the Company was $12.40 for 1988, $13.72 for 1987 and $12.74 for 1986.
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e Item 1. BUSINESS (Continued), ,
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Fuel gas for units at nineteen of the principal generating stations of the Company, having an aggregate gas / oil capability of 12,544 megawatts, was provided during 1988 by Fuel Company. Fuel Company supplied ,
approximately $1% of such fuel gas requirements under contracts with producers at the wellhead and other contracts v,ith dedicated reserves,8% under contracts with Lone Star Gas Company (Lone Star) and 41%
under contracts with other commercial suppliers.
Fuel Company has acquired under contracts expiring at intervals through 2008, with producers at the wellhead, supplies of gas which are generally expected to be produced over a ten to fifteen year period. As
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gas production declines and/or contracts expire, new contracts are expected to be negotiated to replenish or augment such supplies. During 1988, no curtailments were experienced under these contracts.
Fuel Company has negotiated gas purchase contracts, ranging in term from one to twenty years, with a number of commercial suppliers. In 1988, Fuel Company began receiving gas produced from the State of j l Oklahoma, pursuant to an order of the Federal Energy Regulatory Commission (FERC) which allows Fuel Company to purchase such gas without subjecting it to regulation under the Natural Gas Act of 1938.
Additionally, Fuel Company has entered into a number of short-term gas purchase contracts with other commercial suppliers at spot market prices; however, these contracts typically do not provide for a firm supply obligation from the seller nor a firm purchase obligation from Fuel Company. During periods of winter peak gas demand, curtailments of gas deliveries have been experienced; however, such curtailments have been of relatively short duration and have had minimal impact on operations.
Fuel Company owns and operates an intrastate natural gas pipeline system which extends from the gas-producing area of the Permian Basin in West Texas to the East Texas gas fields and southward to the Gulf Coast area. This system includes a one-halfinterest in a 36-inch pipeline which extends 395 miles from the Permian Basin area of West Texas to a point of termination south of the Fort Worth-Dallas area and has a j total estimated capacity of 800 trillion cubic feet per day with existing compression facilities. Additionally, l Fuel Company owns a 39% undivided interest in another 36-inch pipeline, connecting to this pipe'ine and j extending 58 miles eastward to one of Fuel Company's underground gas storage facilities. Fuel Company also owns and operates over 1,700 miles of various smaller capacity lines which are used to gather and
'ransport natural ga:, from other gas-producing areas. The pipeline facilities of Fuel Company form an ir tegrated network through which fuel gas is gathered and transported to certain generating stations of the j Capany for use in the generation of electric energy.
Fuel Company also owns and operates underground gas storage facilities with a usable capacity of 27.2 billion cubic feet with approximately 23.3 billion cubic feet of gas in inventory at December 31,1988. Gas stored in these facilities is currently capable of being withdrawn at a rate of approximately 785 million cubic feet per day for use during periods of peak demand, to meet seasonal and other fluctuations or curtailment of deliveries by gas suppliers.
Oil During 1988, the Company's utilization of fuel oil as an alternate source of boiler fuel amounted to 577,464 barrels or 0.4% of total fuel requirements. Fuel oil is stored at all nineteen of the principally gas-fueled generating stations. At December 31, 1988, the Company had fuel oil storage capacity sufficient to accommodate the storage of approximately 6.2 million barrels of oil, with approximately 2.5 million barrels of oil in inventory. It is anticipated that oil required to replenish that removed from storage and consumed for the generation of electric energy will be obtained primarily through purchases in the open market. Fuel Company has access to an oil pipeline and owns terminal facilities to provide for more dependable and efficient movement of oil.
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Item 1. BUSINESS (Continued). l Lignite }
1 Two units in service at the Big Brown generating station (Big Brown), three units at the Monticello i generating station (Monticello), three units at the Martin Lake generating station (Martin Lake), and one I unit at th: Sandow generating station (Sandow) (see item 2, Properties), having an aggregate net capability of 5,845 megawatts, use lignite as fuel; three other lignite-fueled units, with an aggregate net capability of 2,250 megawatts, are planned for the future (see Item 2, Properties-Construction Program). These Ibite units, which are or will be base loaded to operate at the maximum practical capacity factor, have been or will be constructed adjacent to lignite reserves which will be surface mined. At the present time, the Company owns in fee or has under lease an estimated 760 million proven recoverable tons of such reserves. Mining Company owns and operates equipment to remove the overburden and to recover lignite. One of the Company's lignite units, Sandow 4, is fueled from lignite deposits owned by Alcoa, which furnishes fuel at no cost to the Company for that portion of energy generated from such unit and dedicated to Alcoa (see i Item 6, Selected Financial Data-Operating Statistics). For information concerning applicable air quality standards, see Environmental Matters.
Lignite production operations at Big Brown, Monticello and Martin Lake are accompanied by an ,
I extensive reclamation program which returns the land to productive uses and includes a vegetation restoration program. Similar programs are planned for future lignite-fueled generating stations. For information concerning federal and state laws with respect to surface mining, see Environmental Matters.
l Nuclear Two nuclear-fueled units are under construction at the Comanche Peak nuclear generating station (Comanche Peak) (see Comanche Peak Nuclear Generating Station, item 2, Properties-Construction Program and item 3, Legal Proceedings). The nuclear fuel required for the first operating cycle of Unit 1 is onsite. Enriched uranium for the first 4 years of operation of Unit I and the first 3 years of operation of Unit 2 has been purchased and commitments have been ebtained for fabrication services for both units for the first 7 years of operation. Uranium hexafluoride conveMon services have been contracted through 2003; and a uranium enrichment contract having a duration of approximately 25 years has been made with the Department of Energy. Additional contracts for uranium ore concentrates and nuclear fuel cycle services will be required in the future; however, it is r.ot possible to predict the ultimate availability or cost thereof.
The Nuclear Waste Policy Act of 1982 (NWPA) provides for the development by the federal government ofinterim storage and permanent disposal facilities for spent nuclear fuel and/or high level radioactive waste materials. The Company is unable to predict when the federal government will be able to provide such storage and disposal facilities. Under provisions of the NWPA, funding for the program will be provided by a one-mill per kilowatt-hour fee levied on electricity generated and sold by nuclear reactors, including the Comanche Peak units. There will be storage capacity at Comanche Peak for spent fuel suflicient to accommodate the operation of Comanche Peak for approximately 20 years and this storage capacity can be increased, subject to approval by the Nuclear Regulatory Commission (NRC).
Purchased Power in 1988, the Company purchased 12,095 million kilowatt-hours or approximately 14'7o of its energy requirements and had available 1,726 megawatts of firm purchased capacity under contract at the time of peak load. Firm purchased capacity presently under contract for each year is 2,132 megawatts for 1989; 1,994 megawatts for 1990; 1,294 megawatts for 1991 with options for an additional 500 megawatts; 1,294 megawatts i for 1992 through 1995 and 1,224 megawatts for 1996 through 1998. This firm purchased capacity is primarily cogeneration and does not include the capacity , be purchased from Tex-La Electric Cooperative of Texas, Inc. (Tex-La) of its entitlement from Comana peak (see Note 11 to Financial Statements). The Company expects to acquire purchased power capacity m the future to accommodate a portion of the System load 4
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Item 1. BUSINESS (Continued). I growth and plans to investigate potential available sources. (For information concerning the Company's resource plan, see Peak Load and Capability.)
General The Company is not able to predict: (i) whether or not problems may be encountered in the future in obtaining the fuel and purchased power it will require, (ii) the effect upon its operations of any difficulty it may experience in protecting its rights to fuel and purchased power now under contract, or (iii) the cost of fuel and purchased power. All reasonable costs of fuel and purchased power are generally recoverable subject to the rules of the Public Utility Commission of Texas (PUC). (See Regulation and Rates for information pertaining to the method of recovery of fuel costs.)
REGULATION AND RATES Regulation Texas Utilities and its subsidiaries, including the Company, are exempt from the provisions of the Public Utility IIolding Company Act of 1935, except as to Section 9(a)(2) which relates to the acquisition of securities of public utility companies.
The Company does not transmit electric energy in interstate commerce or sell electric energy at wholesale in interstate commerce, or own or operate facilities therefor, and its facilities are not connected directly or indirectly to other systems which are involved in such interstate activities, except during the continuance of emergencies permitting temporary or permanent connections or under order of FERC exempting the Company from jurisdiction under the Federal Power Act. In view thereof, the Company believes that it is not a public utility as defmed in the Federal Power Act and has been advised by its counsel that it is not subject to general regulation under such Act.
The PUC has originaljurisdiction over electric rates and service in unincorporated areas and exclusive appellate jurisdiction to review the rate and service orders and ordinances of municipalities. Each municipality within the Company's service area has original jurisdiction over the regulation of electric rates and service within its corporate limits until such time as any such municipality may elect to have the PUC exercise original jurisdiction. Approximately 20% of the Company's revenues for 1988 were derived from electric energy sales to customers in unincorporated areas and municipalities that have ceded original jurisdiction to the PUC. The Texas Public Utility Regulatory Act prohibits the collection of any rates or charges (including charges for fuel) by a public utility that do not hase the prior approval of the PCC (see Rates). The provisions for inclusion of construction work in progress (CWIP) in rate base provide that such inclusion is an exceptional form of rate relief to be granted only when necessary to the fmancial integrity of the utility and that it shall not be included for major projects to the extent they have been inefficiently cr imprudently planned or managed.
The System Companies are also subject to various other federal, state and local regulations. (See Comanche Peak Nuclear Generating Station, Environmental Matters and item 3, Legal Proceedings.) ;
Rates Rates for electric service remained unchanged during 1988. At appropriate times in the future, the Company intends to file rate applications with the PUC and its municipal regulatory authorities to recover the costs and a return on its investment in its electric plant, including the Comanche Peak nuclear units. It anticipates that such rate applications will be subject to challenge with regard to th, prudence of costs incurred. The Company has indicated that it does not currently plan to implement increased electric servic:
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item 1. BUSINESS (Continued).
rates which reflect any additional Comanche Peak costs until Unit 1 is ready for commercial operation. The Company continues to believe, based upon current cost estimates and using acceptable ratemaking approaches and assumptions, that the rate' increase, when Unit I goes into service, can be held to about 10% (see item 2, Properties-Construction Program).
In March 1984, the Company made applications to the PUC and to its municipal regulatory authorities for upward adjustments in rates for electric service throughout its service area. The proposed rate adjustments, affecting all classes of service, were estimated to increase operating revenues by $304.2 million, or 8.0%, based upon the test year ended September 30,1983. On October 12,1984, the PUC issued its fmal order which decreased rates by approximately $7.0 million, or 0.2%. On October 31, 1984, in response to appeals from the ordinances of various municipal regulatory authorities, the PUC issued its final order fixing the Company's rates within the corporate limits of those municipalities at the same level approved by the PUC in its October 12 order. The present rates (excluding fixed fuel factors) were placed into effect in November 1984. (See item 3, Legal Proceedings.)
In July 1986, the PUC adopted a revised rule relating to the method of recovery of fuel costs. This rule provides for recovery of fuel costs through fixed fuel factors as approved by the PUC. f# 1 Item 3, Legal Proceedings.) The rule requires refunds of material over-recoveries of fuel cost revenun and reductions in the fixed fuel factors in the event that the utility is materially over-recovered and gojects that it will materially over-recover its known or reasonably predictable fuel costs. Material as defined in the rule is the amount of over-recovery, including interest, which exceeds the lesser of $40 million or 4% of the approved annual known or reasonably predictable fuel costs most recently approved by the PUC. Final reconciliation of fuel costs is to be made at the time of the utility's general rate case or at a ruonciliation proceeding. The rule also provides for an emergency request to increase the fixed fuel factors, which must be acted upon within thirty days on an interim basis by the PUC, if reasonably unforeseeable circumstances have resulted in a material under-recovery of known or reasonably predictable fuel costs. Reconciliation may be requested only ifit has either been over one year since the utility's last final reconciliation or the utility has materially under-recovered its known or reasonably predictable fuel costs. In such reconciliation, the utility has the burden of proving that it has generated electricity efficiently, maintained effective cost controls, its non affiliated fuel and fuel-related contracts have produced the lowest reasonable cost of fuel to ratepayers, and, for fuels acquired from affihates, al? fuel-related expenses are reasonable and necessary and that the prices charged are no higher than prices charged by the supplying affiliate to other ofits affiliates or divisions or to unaffiliated persons or corporations for the same item or class of items. Under-recovery reconciliation will be granted only for that portion of fuel costs increased by conditions or events beyond the utility's control. Interest will be paid or received by the utility on any over or under-recovery of fuel costs at the utility's composite cost of I capital as established by the PUC in the utility's most recent general rate case. The rule imposes penalties of up to 10% in the event that interim refunds, when required, are not timely requested and in the event that an emergency increase is granted when there was no emergency.
l l In February 1986, the Company received approval from the PUC to reduce its composite interim fixed l fuel factor by approximately 12.4% and such reduction was implemented in March 1986. In April 1986, the Company was authorized to refund approximately $140.4 million, representing the cumulative amount of over-recovered fuel revenues, including applicable interest, as of January 1986. The refund was implemented with the May 1986 billings. (See item 3, Legal Proceedings.) {
In August 1986, the Company filed an application with the PUC for authority to refund approximately
$64.8 million, representing the cumulative amount of over-reco cred fuel revenues, including applicable interest, as of June 30,1986. The refund was implemented with the October 1986 billings. (See item 3, Legal Proceedings.)
6
Item 1, BUSINESS (Continued). .
1 In November 1986, the Company filed an application seeking authority to reduce its composite interim l fued fuel factor by approximately 10.3% and to refund approximately 558.4 million, representing the cumulative amount of oser-recovered fuel revenues, including applicable interest, as of September 30,1986.
The refund was implemented with the December 1986 billings and the reduced interim fixed fuel factors were implemented with the February 1987 billings.
In December 1986, the Company filed an application with the PUC for authority to refund approximately $55.6 million, representing the cumulative amount of over-recovered fuel revenues, including applicable interest, as of November 30,1986. The refund was implemented with the February 1987 billings.
In March 1987, the Company filed an application with the PUC for authority to refund approximately ;
i
$69.7 million, representing the cumulative amount of over recovered fuel revenues, including applicable interest, as of February 1987. The refund was implemented with the May 1987 billings.
i COMANCilE PEAK NUCLEAR GENERATING STATION Licenses The Company is subject to the jurisdiction of the NRC with respect to nuclear power plants. NRC regulations govern the granting of licenses for the construction and operation of nuclear power plants and subject such plants to continuing review and regulation. Pursuant to such regulations, a review is being conducted by the NRC of the Company's application for licenses to operate the Comanche Peak units. In
. March 1984, the NRC established a task force to consolidate and carry out the various reviews necessary for the NRC Staff to reach its decision regarding the operating licenses. This effort involved the establishment of a Technical Review Team (TRT), which conducted an intensive onsite investigation and subsequently issued reports that requested additional information from the Company with respect to several functional areas of the plant's construction program and described deficiencies that had been found, primarily in the area of quality assurance / quality control. The Company then formed a special team, the Comanche Peak Response Team, which included a number ofindependent experts in each area addressed by the TRT, and submitted a Program Plan to the NRC to respond to the questions raised. Such Program Plan, which was revised in June 1985, substantially revised and reissued in January 1986, and firther revised in July 1987,is presently being implemented. It provides for a complete design review of virtually all safety related systems in the plant and the development of a corrective action program for design and construction issues as required. In February 1987, in order to carry out the NRC Staff review, the NRC created an Office of Special Projects to manage all aspects of the NRC's licensing and inspection efforts for Comanche Peak and certain other nuclear power '
plants. In January 1988, the NRC Staff approved the Program Plan and corrective action program as the basis to resolve outstanding issues.
l Until July 1988, an Atomic Safety and Licensing Board (ASLB) was involved in the NRC's review process. Proceedings on various issues had been ongoing before this ASLB since December 1981 and an intervenor was actively involved in such proceedings. In July 1988, these ASLB proceedings were dismissed pursuant to a Joint Stipulation and a Joint Motion for Dismissal filed by the Company, the intervenor and the NRC Staff. Under the terms of this Motion for Dismissal, the Company will continue to implement its corrective action program and a representative of the intervenor has been appointed as a member of the Operations Review Committee for Comanche Peak (ORC) and will be actively involved in the corrective action process. The ORC is required by the Comanche Peak technical specifications and reviews operational and other safety related matters. The dismissal of the ASLB proceedings was part of an overall settlement between the intervenor and the Company, in addition, the Company has resolved claims by workers formerly employed at Comanche Peak w ho had employment discrimination claims or suits against the Company or its contractors, and it has rei.nbursed the intervenor for expenses incurred by the intervenor in connection with its activities relating to the licensing of Comanche Peak. The Company .nust still, however, resolve remaining 7
f I
Item 1. BUSINESS (Continued), j issues to the satisfaction of the NRC Staff before the Staff can make a recommendation for licensing to the NRC. In making its decision, the NRC is expected to rely largely on detailed technical inspections conducted by the Staff at Comanche Peak, and also the TRT inspection.
In August 1988, after the dismissal of the ASLB licensing proceedings discussed above, a request for hearing and petition for leave to intervene was filed with the NRC by another group seeking intervenor status.
Such request asked the NRC to reopen the licensing hearings. In December 1988, the NRC issued a
- Memorandum and Order denying this petition. This decision has been appealed by this group to the United States Court of Appeals for the Fifth Circuit.
At various times in the past, the Company has paid civil penalties to the NRC relating to the findings of the TRT, allegations of harassment and intimidation at Comanche Peak and violations of the Company's j reinspection and corrective action effort. 1 The construction permit for Comanche Peak Unit I has been extended until a " latest date for completion" of August 1,1991; and the construction permit for Unit 2 has been extended until a " latest date for completion" of August 1,1992.
Cost and Schedult Estimates For information relating to cost and schedule estimates see Item 2, Properties--Construction Program.
ENVIRONMENTAL MNITERS The System Companies are subject to various federal, state and local regulations dealing with air and water quality and related environmental matters (see Item 2, Properties-Construction Program for scheduled expenditures in connection with lignite-fueled generating units).
Air Under the Texas Clean Air Act, the Texas Air Control Board (TACB) has jurisdiction over the permissible level of air contaminant emissions from generating facilities located within the State of Texas. In '
addition, the new source performance standards of the Environmental Protection Acency (EPA) promulgated under the federal Clean Air Act, which have also been adopted by the TAC'd, are applicable to such generating units, the construction of which commenced after March 5,1972. The Company's generating units have been constructed to operate in compliance with regulations promulgated pursuant to these Acts; however, due to variations in the quality of the lignite fuel, operation of certain of the lignite-fueled generating units at reduced loads is required from time to time in order to maintain compliance with these standards.
Generating facilities under construction have received state and federal permits and are designed to comply i with applicable statutes and regulations. Construction of the Twin Oak generating station (Twin Oak) and i Forest Grove generating station (Forest Grove) has been suspended (see Item 2, Properties) and new or amended permits will be required prior to resumption of construction activities. The Company believes that l it can satisfy the requirements necessary to obtain such permits. l in recent years legislation has been introduced in Congress to amend certain provisions of the Clean Air Act Similar legislation may be introduced in 1989, or future years. The Company cannot predict the impact of any such legislation on its operations or the cost thereof.
Water The Texas Water Commission (TWC) and the EPA have jurisdiction over all water discharges from j generating stations and mining areas. The Company's generating stations presently in operation have been J constructed to operate in compliance with applicable state and federal standards relating to the quality of 8
c . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ -
Item 1. BUSINESS (Concluded),
discharges of water. The Company and Mining Company have obtained all required waste water discharge permits from the TWC for facilities in operation and have applied for or obtained all such permits for facilities t under construction. Permits have been received from the EPA under the National Pollutant Discharge l Elimination System (NPDES) for the discharge of waters from units at the generating stations currently in operation. All NPDES permits required for units under construction and lignite mining areas hase been applied for or obtained. The Company and Mining Company believe they can satisfy the requirements necessary to obtain any required renewals.
Diversion of water by the Company for cooling and other purposes is subject to the jurisdiction of the TWC which is empowereri to allocate such waters among users. The Company possesses all necessary permits from the TWC for the use of surface water required for its present operations and plants under construction.
Other Federal legislation regulating surface mining was enacted in August 1977 and regulations implementing the law have been issued. Mining Company's lignite mining operations are currently regulated at the state level by the Railroad Commission of Texas. Surface mining permits have been issued for current mining operations that provide fuel for Big Brown, Monticello, Martin Lake and Sandow.
Treatment, storage and disposal of solid waste is regulated at the state level under the Texas Solid Waste Disposal Act and at the federal level under the Resource Conservation and Recovery Act of 1976, as amended (RCRA). The EPA has issued regulations under the RCRA and the TWC has issued regulations under the Texas act applicable to the Company's generating units. The Company has registered its disposal sites as required by such regulations.
9
l l
Item 2. PROPERTIES.
At December 31,1988, the Company owned and operated sixty-nine electric generating units at twenty-three stations having a total net capability of 17,804 megawatts. The locations of the principal electric generating stations and transmission lines of the Company are indicated on the map included herein. Forty generating units with a net capability of 8,506 megawatts use natural gas as the primary fuel and are designed to use fuel oil for short periods when the gas supply is interrupted or curtailed; two units with a net capability of 750 megawatts can use natural gas only; five units with a net capability of 2,680 megawatts use natural gas as the primary fuel and are designed to use fuel oil for extended periods; nine units with a net capability of 5,845 megawatts use lignite as fuel; and thirteen units with a net capability of 23 megawatts are diesel units.
In December 1987, the Company entered into an operating lease arrangement for nine combustion turbine generating units, designed to use natural gas or fuei oil, with a total net capability of 585 megawatts.
At that time, three of such units having a total net capability of 195 megawatts went into operation. The other six units became operational in 1988. (See Note 9 to Financial Statements.)
The principal generating facilities and load centers of the Company are connected by 3,834 circuit miles of 345,000 volt transmission lines and 8,922 circuit miles of 138,000 and 69,000 volt transmission lines.
The Company is connected by six 345,000 volt lines to llouston Lighting & Power Company; by three 345,000 volt, six 138,000 volt and nine 69,000 volt lines to West Texas Utilities Company; by two 345,000 volt, seven 138,000 volt and one 69,000 volt lines to Lower Colorado River Authority; by four 345,000 volt and eight 138,000 volt lines to the Texas Municipal Power Agency (TMPA); and at several points with smaller systems operating wholly within Texas. The Company is a member of the E!ectric Reliability Council of Texas (ERCOT), an intrastate network of six major investor-owned and seventy-two public entities.
ERCOT is the regional reliability coordinating organization for member electric power systems in Texas.
The generating stations and other important units of property of the Company are located on lands owned primarily in fee simple. The greater portion of the transmission and distribution lines of the Company, and of the gas gathering and transmission lines of Fuel Company, has been constructed over lands of others pursuant to easements or along public highways and streets as permitted by law. The rights of the System Companies in the realty on which their properties are located are considered by them to be adequate for their use in the conduct of their business. Minor defects and irregularities customarily found in titles to properties of like size and character may exist, but any such defects and irregularities do not materially impair the use of the properties afTected thereby. The Company and Fuel Company have the right of eminent domain whereby they may, if necessary, perfect or secure titles to privately held land used or to be used in their operations. Electric plant of the Company is generally subject to the liens ofits mortgages.
During the period from January 1,1986, to December 31, 1988, the Company made gross property additions of approximately $5,375,486,000 and retirements of property aggregating approximately
$158,902,000. Such gross additions amounted to 32.8% of electric plant at December 31,19ed.
CONSTRUCTION PROGRAM Construction expenditures for the years 1989 through 1991 are estimated as follows:
1989 1990 1991 Thousands of Dollars Electric Property:
Production . . $ 879,000 $492,000 $569,000 Transmission . 51,000 64,000 54,000 Distribution . . . 180,000 217,000 224,000 General , 19,000 22,000 21,000 Total . . 1,129,000 795,000 868,000 AFUDC . 436,000 194,000 78,000 Total construction expenditures . . $1,565,000 $989,000 $946,000 Such expenditures do not include amounts for the resumption of AFUDC on Unit 2 of Comanche Peak or the following:
Nuclear fuel , $ 1,000 $ 8,000 $ 2,000 10 l
I Item 2. PROPERTIES (Continued).
The Company is subject to federal, state and local regulations dealing with environmental protection (see Item 1, Business-Environmental Matters). Construction expenditures for additional items of equipment contributing to the protection of the environment for lignite-fueled generating units (included above in Production) are estimated to be approximately $8,200,000 for 1989, $5,900,000 for 1990 and $11,900,000 for 1991. Similar such expenditures approximated $18,700,000 for 1988, $9,800,000 for 1987 and $4,800,000 for 1986.
Additional generating units planned for future years are described as follows-Combustion Turbines The Company expects to enter into an operating lease arrangement for six gas / oil fueled combustion turbine generating units totaling 390 megawatts at two existing plant locations for service prior to the peak season of 1990. These units are currently owned and are being constructed by a third party and -
will be sold to a lessor after completion, which is expected to occur in late 1989. Therefore, estimated construction expenditures for 1989 through 1991 do not include these costs.
j Comanche Peak Nuclear Generating Station The Company is constructing two nuclear-fueled generating units at Comanche Peak, each of which is designed for a capability of 1,150 megawatts. After giving effect to the acquisition of all of the interests of TMPA and the Brazos Electric Power Cooperative, Inc. (BEPC), the Company's ownership share in each unit is 1,125 negawatts, or 97%E The other participant in the facility is Tex La, which owns the remaining 2 %% interest. (See Item 3, Legal Proceedings-Comanche Peak Nuclear Generating Station.)
In March 1988,' the Company announced that following its review of the cost and schedule for Comanche Peak, commercial operation of Unit I was anticipated at the end of 1989. All Unit I corrective action activities were scheduled for completion to permit fuel loading in mid-1989. The Company also announced the temporary suspension of construction activities and aceraal of allowance for funds used during construction (AFUDC) on. Unit 2 beginning in April 1988 for a period of approximately one year. Unit 2 was not expected to be ready for commercial operation until after the 1991 peak season. The delay of Unit 2 was implemented to allow the Company to concentrate its ;
resources on the completion of Unit 1, thereby reducing the duplication of effort that would be required ~ j to maintain the previous timing between the two units and strengthen the Company's ability to manage )
construction and start-up activities for both units more efficiently with fewer personnel. Additionally, )'
i such delay will allow time to make a more complete determination of any modifications that may be required for Unit 2 based upon the knowledge gained from the reinspection and corrective action program applied to Unit 1. The delay of Unit 2 will also permit the Company time to implement rates
(- for Unit 1 prior to the final completion and operation of Unit 2. Although construction on Unit 2 has
! been temporarily suspended, there are some ongoing expenditures required to maintain the unit until l construction is resumed. Additionally, to the extent the work necessary to place Unit 1 into service affects various common systems, some capital expenditures are associated with Unit 2.
Based upon this schedule, the total cost of the Company's 97 %% share of the plant, excluding AFUDC, would be $6.69 billion. The estimated cost of the Company's share, including AFUDC, would be $8.90 billion or about $3,950 per kilowatt. Because of the uncertainty regarding the date of commercial operation of Unit 2, no provision has been included in such amount for reestablishing the accrual of AFUDC on Unit 2 after construction resumes.
In February 1989, the construction of Unit 1 is approximately three months behind the schedule announced in March 1988, which will delay the fuel loading and commercial operation dates for Unit 1 j 11
Item 2. PROPERTIES (Continued).
and the restart of construction of Unit 2 for a corresponding period. Such delay will not affect the peak season in-service dates of 1990 for Unit I and 1992 for Unit 2. Although a new cost estimate has not been developed, a three month delay will increase the estimated project cost; however, such increase should not be materialin relation to the total cost of the project.
Due to numerous uncertainties, no assurance can be given that further slippage in the schedule will i not occur or that the estimated completion cost will not be exceeded which would likely increase i fmancing requirements. Because of the three month delay and the other uncertainties, estimated construction expenditures (Electric Property-Production) for 1989 and 1990 include approximately
{
$300 million and $100 million, respectwely, as a contingency to provide for such events.
Lignite Fueled Generating Units The Company's resource plan includes two 750 megawatt units at Twin Oak scheduled for service for the peak seasons of 1994 and 1995, and one 750 megawatt unit at Forest Grove scheduled for service for the peak season of 1997. Based upon this schedule, the anticipc.ted completed cost of the two Twin Oak units is $2.30 billion, or $1,531 per kilowatt, and for the Forest Grove unit $1.33 billion, or $1,770 per kilowatt. Expenditures through December 31,1988 on the Twin Oak units and the Forest Grove unit were $395 million and $233 million, respectively. Construction and the accrual of AFUDC on these units has been suspended since September 1987 and is not expected to resume until after 1989.
The effects of inflation on construction costs the reevaluation of growth expecta .ons or additional regulatory requirements may result in changes in estimated completed costs and in-service dates for certain generating units in design or under construction. Actual expenditures and dates of completion may further vary because of other uncertain factors such as licensing delays, changes in peak load requirements and cost and availability of fuel, labor, materials and capital. Commitments in connection with the construction program, principally for generating stations and related facilities, are generally revocable subject to reimbursement to manufacturers for expenditures incurred or other cancellation penalties.
Of the cash required to fmance the construction program in 1989, present estimates indicate that less than 10% will be provided from operations. For info.mation regarding financing of the construction program see Management's Discussion and Analysis of Financial Condition and Results of Operations.
I
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( Item 2. PROPERTIES (Concluded).
i THE CO51PANY SYSTEh! MAP December 31,1988 I
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13
Item 3. LEGAL PROCEEDINGS.
Regulation and Rates In December 1984, the Company filed suit in the 98th Judicial District Court of Travis Coucy, Texas, the Office of Public Utility Counsel (OPUC) filed suit in the 147th Judicial District Court of Travis County, Texas, Texas Municipal League (TML) filed suit in the 200th Judicial District Court of Travis County, Texas, and Texas-New Mexico Power Company (TNP) filed suit in the 353rd Judicial District Court of Travis County, Texas, seeking review of the PUC order of October 12,1984 in the Company's 1984 rate proceeding.
The Company's suit seeks judicial review and a reversal of certain aspects of the order. The OPUC, TML and TNP suits complain of certain aspects of the order and ask that excessive rates be refunded. In December 1984, the Company filed suit in the 250th Judicial District Court of Travis County, Texas, and in January 1985 certain municipalities filed suit in the 126th Judicial District Court of Travis County, Texas for review of the PUC order of October 31,1984 in the appeals from various municipal ordinances in connection with the Company's 1984 rate proceeding. The Company's suit seeks judicial review and a reversal of certain aspects of the order. The municipalities' suit complains of certain aspects of the order and asks that excessive rates be refunded. (See Item 1, Business-Regulation and Rates.)
In April 1986, the Attorney General of Texas, on behalf of several state agencies, filed suit in the 345th Judicial District Court of Travis County, Texas, against the PUC and several utilities, including the Company, challenging the validity of the PUC's emergency rule, adopted in February 1986, relating to the method of making refunds of over recovered fuel revenues. The suit seeks to enjoin the application of the rule and additional refunds of the difference between the amounts that the State agencies alleged they were overcharged and the amounts of the refunds they received under the rule. (See Item 1, Business-Regulation and Rates.)
In June and November 1986, the Attorney General of Texas filed suits in the 98th and 331st Judicial District Courts of Travis County, Texas, respectively, on behalf of several state agencies against the PUC and the Company seeking reversal of the PUC's orders authorizing the refund of over-recovered fuel revenues implemented with the May and October 1986 Company billings, respectively. These suits seek additional refunds of the difference between the amounts that the state agencies alleged they were overcharged and the amounts of the refunds they received pursuant to such PUC orders. (See Item 1, Business-Regulation and Rates.)
Comanche Peak Nuclear Generating Station The Company and Tex-La are owners of undivided interests in Comanche Peak under the terms of a Joint Ownership Agreement (Agreement) which provides that the Company is the Project Manager for Comanche Peak. Since May 1986, Tex-La has failed to make payments to the Company for its portion of Comanche Peak. In May 1986, the Company filed suit in the 14th Judicial District Court of Dallas County, Texas against Tex-La because of controversies which exist under the Agreement with respect to the obligations of the parties. The Company sought recovery of damages against Tex La for its anticipatory breach of the Agreement and asked for a declaratory judgment against Tex-La, declaring among other things that it was obligated to pay its share of the remaining costs of co :struction of Comanche Peak and that the Company has not failed to use prudent utility practices in constructing Comanche Peak in accordance with the Agreement. Tex La filed a cross action in such suit against the Company and Texas Utilities asserting various causes of action, including a number of alleged breaches of the Agreement by the Company and violations of the Texas Deceptive Trade Practices Act (DTPA). In September 1986, the Court in this suit l ruled in favor of the Company with regard to a plea of Tex-La attempting to change the venue of such suit; and in July 1988 it dismissed the DTPA claims. In June 1986, Tex-La filed suit in the 98th Judicial District Court of Travis County, Texas against the Company and Texas Utilities. The petition asserted various causes of action, including a number of alleged breaches of the Agreement by the Company and violations of the DTPA, and asked for rescission and modification of the Agreement and payment for damages, including 14
l Item 3, 1.EGAL PROCEEDINGS (Concluded).
treble damages based upon violations of the DTPA. The Company and Texas Utilities intend to vigorously contest this suit, which has been stayed as a result of the September 1986 ruling in the Dallas County suit.
The Company and Tex-La are currently involved in settlement negotiations and thus have agreed to a temporary stand still in the legal proceedings. It is expected that the Dallas County suit will be tried in the late spring of 1989 if the current discussions do not result in a settlement agreement. The Company cannot predict the outcome of either the discussions or the suits at this time.
TMPA and BEPC previously had also owned undivided interests in Comanche Peak. In August 1988 and December 1988, the Company finalized agreements to purchase the minority ownership interests of TMPA and BEPC, respectively, in Comanche Peak. TMPA and BEPC were also defendants in the Dallas County suit mentioned above and had also filed suits in Travis County, Texas against the Company and its affiliates,in conjunction with Tex-La in the case of TMPA, and separately, but in a similar suit in the case of BEPC. Pursuant to the foregoing agreements, all claims in these suits between the Company and its et!hiates, and TMPA and BEPC have been dismissed.
See Item 1, Business-Comanche Peak Nuclear Generating Station, Item 2, Properties-Construction Program and Notes 10 and 11 to Financial Statements.
Item 4. SUBMISSION OF SIA'ITERS TO A VOTE OF SECURITY IIOLDERS.
None.
PART11 Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKilOLDER MA'ITERS.
All of the Company's common stock is owned by Texas Utilities.
See item 6, Selected Financial Data-Financial Statistics for information concerning declaration of dividends by the Company on its Common Stock.
Reference is made to Note 5 to Financial Statements regarding limitations upon payment of disidends on common stock of the Company.
l 15 1
Item 6. SELECTED FINANCIAL DATA.
FINANCIAL STATISTICS Year Ended December 31, 1988 1987 1986 1985 1984 TOTAL AsstTs end of year (thousands) . 514.828,250 512,938,655 Si1,276,886 59,800,7.i3 58.782,507 l
151I-CTkiC PLANT cnd of year (thousands) . 516,370.676 514,149,647 512,543,249 511,154,092 510,082,063 Accumulated depreciation end of year , , 2,558,282 2,355,827 2,174,441 2,011.061 1,848,146 ,
Construction expenditures (including allowance l for funds used during construction) . . 1,542,974 1,662,483 1,475,177 1,057,057 878,581 l
.I l
CAP!TALUATION end of year (thousands) t Eong-term debt . 5 5,872,613 5 4,639,111 53,748,931 53,048,329 52,798,105 Preferred stock:
Subject to mandatory redemption . . 328,770 232,906 232,424 34,696 34.696 Not subject to mandatory redemption . 909.582 900,633 811,4I8 811,4I8 727,911 Common stock cquity . , 5.278,697 4.827,145 4.282.405 3,793.118 3,319.729 ;
Total . 512,389.662 510.608,795 59,075,178 57,687,561 56,880.441 EMbr.onto INTI. REST COST ON EONG-TERM Di nT end of year . , ,, , , 9.9% 9.87c 10.0 % 10.3 % 10.1 % i Eustporo DIVIDEND COST ON PRLII RRED STOCK end of year . , , 8.3% 8.3% 8.1% 8.2% 8.3% I NrT INCOML (thousands) 5747.062 5781,178 5712,292 5654,417 5590,765 CASH DIVmLNDS DiCLARED ON COMMON STOCK (thousands) 5500,968 5447,200 5395,430 5354,752 5317,638 RAT 10 Or EARNINGS 10 FIXfD CHARGts. . 2.6 3.3 3.7 3.9 4.0 SUPPL.LMENTAL RATIO OF EARNINGS TO Fixto CHARGES *. ,,, ,, , 2.4 3.0 3.3 3.4 3.5 Al LOWANCE FOR FUNDS Usru DURING CONSTRUCTION As PERCENT Of EARNINGS TO COMMON STOCK 59.3 % $5.9% 47.9 % 39.1 % 32.4 % t RETURN ON AVIRAGE COMMON STOCK EouiTv 12.9 % 15.2 % 15.7 % 16.5 % 16.7 %
CASH Flows FROM OPi RATIONS (less disidends paid) As PLRCLNT OF CASH CONSTRUCTION ExrtNotTURI.s** 10.7 % 20.6 % 33.5 % 48.6 % $68%
- The supplemental ratio of earnings to fixed charges includes interest billed the Company on senior notes of affiliated companies which provide services to the Company. (See Note 2 to Financial Statements.)
" Prior periods have been restated pursuant to the adoption in 1988 of the Statement of Cash Flows.
i l
16
Item 6. SELECTED FINANCIAL DATA (Concluded).
l OPERATING STATISTICS Year Ended December 31, 1988 1987 1986 1985 1984 Etrcrnic ENLRGY GLNI. RATED AND PURCHAs! p (mwh)
Generated - net station output . ,, 73,493,397 71,878,925 75,467,871 76,355,396 72,582,637 Purchased and net interchange . . . 12.095,385 11,019,037 4,712.082 2,057,490 382,651 Tot snerated and purchased. ,, . . 85,588,782 62,897,962 80,179.953 78,412,886 72,965,288 Company use, losses and unaccounted for , 4,864.236 5,125,310 4.925,178 5,042,990 3,839,517 Total electric energy sales , , 80,724,546 77.772,652 75,254,775 73,369,896 69,125,771 Et tcTaic ENtmay SALLs (mwh)
Residential , ,, , . 26,634,150 25,716,080 24,604,109 24,300,788 22,693,290 Commercial . .. 23,187,122 22,324,328 21,453,435 20,349,334 19,026.267 Industrial . ... . . . 22,287,732 21,420,705 21,013.278 20,921,530 20,343,$58 Government and municipal. . . .. .. 2,613,600 2.499,981 2,385.168 2,324,785 1,920,420 l
Total general business , ,, , , 74,722,604 71,961,094 69,455,990 67,896,437 63,983,535 Other electric utilities , , ,, ,, . 6,001.942 5,811,558 5.798,785 5,473,459 5,142,236 l Total electric energy sales , , .. 80,724,546 77,772,652 75.254,775 73,369,896 69,125,771 i
On RATING REVENtJL5 (thousands)
Residential . . . , 51,697,787 51,603,446 51,530,258 51,673,378 51,546,081 Commerciwl ., ,,, , , ,, 1,248,460 1,166,832 1,137,944 1,207,784 1,127,766 Industrial . . . , , 852,035 800,635 822.831 935,849 893,531 Government and municipal., , . 149,942 140,291 134,927 145,256 117,793 Total general business . . , , 3,948,224 3,711,204 3.625,960 3,962,267 3.685,171 Other electric utihties 239,937 221,413 222,644 250.857 233,296 Total from electric energy sales , , , 4,188,161 3,932,617 3,848,604 4,213,124 3,918,467 Other operating revenues (mcluding over/under-recovered fuel revenue) . . , , . (36,343) 146,684 78,795 (48,744) 7,271 <
Total operating revenues . . . , 54,151,818 54,079,301 53,927,399 54.164,380 $3,925,738 Et EcTaic CuirtoMLus (end of year)
Residential , ,, . . 1,853,128 1,838,467 1,820,381 1,764,346 1,669,735 Commercial ,, 219,508 218,641 217.232 214.386 208,477 Industrial , 23,799 24,006 23,912 24,148 24,058 Government and municipal, 14,028 13 690 13,180 12,080 11,455 Total general business , . . 2,110,463 2,094,804 2,074,705 2,014,960 1,913,725 Other electrie utihties . . , , 64 62 61 63 66 Total electric customers. . 2,110,527 2,094.866 2,074,766 2,015,023 1,913,791 RisipixrIAL STATISTICS (excludes master-metered customers, mwh sales an1 revenues)
Average kwh per customer , , , , 13,498 13,147 12,749 13.062 12,887 Average revenue per kwh . , . 6.48e 6.33e 6 3lc 6.994 6 93e Industrial classification includes service to Alcoa-Sandow:
Electric energy sales (mwh) 3,525,416 3,409,332 3,092,696 2.861,454 2.989,272 l Operating revenues (thousands) , 556,608 562,630 565,664 568,946 570,825 17 t _ _ _ _ _ _ _ _ _ _ _ . _ _
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
s Liquidity and Capital Resources The primary capital requirements of Texas Utilities Electric Company (Company) for 1988 and as estimated for 1989 through 1991 are as follows: )
1989 1990 1991
)j 1988 Thousands of Dollars I Cash construction expenditures (excluding allowance for equity funds used during construction) ... . .. . 51.323,000 51,280,000 5882,000 5903,000 =
Nuclear fuel .. . . . . ....., , .. .. . . . . , 5,000 1,000 8,000 2,000 Purchase of minority ownership interests in Comanche Peak . 120,000 - - -
Maturities of long-term debt and sinking fund requirements (including early redemptions of preferred stock in 190,8 of 53,761,000) . . . . . . ...... . . . 28.000 78.000 66,000 85,000 Total . . . . . , .... . ., .. . . , ,
51,476,000 $1.359.000 1956,000 5990.000 For detail concerning major construction work now in progress or contemplated by the Company and commitments with respect thereto, see Item 2, Properties- Construction Program.
The Company has generated cash from operations sufficient to meet operating needs, pay dividends on capital stock and finance a portion of capital requirements. This cash is derived principally from net income, depreciation and deferred taxes. Factors affecting the ability of the Company to continue to fund a portion of its capital requirements from operations include adequate rate relief and regulatory practices allowing recovery of capital investment, adequate depreciation rates, normalization of federal income taxes, recovery of the cost of fuel and purchased power and the opportunity to earn competitive rates of return required in the capital markets. Prior to the completion of the Comanche Peak nuclear generating station (Comanche .l Peak) and its inclusion in rate base, a decreasing percentage of capital requirements may be generated from operations. For 1988, approximately 11% of the cash needed for construction expenditures was generated from operations. !
1 External funds of a permanent or long-term nature are obtained through the sales of common stock to Texas Utilities Company (Texas Utilities), preferred stock and long-term debt. The capitalization ratios at December 31,1988, consisted of approximately 47% long-term debt,10% preferred stock and 43% common stock equity. These ratios were affected in 1988 by the financing activities described below and similar ratios are expected to be maintained in the future, assuming adeouate rate relief and recovery of capital investment.
To provide for immediate cash requirements during periods between long-term financings, the Company obtains short-term loans from Texas Utilities, which had lines of credit with commercial banks aggregating
$1,025,000,000 at December 31,1988. The Company does not maintain separate credit arrangements with banks or other lenders.
Financings in 1988 by the Company included the following:
IAmg-Term Debt:
Principal Month Amount Description April 5100.000.000 9%% Collateralized Pollution Control Revenue Bonds due 2018 May 150,000,000 10%% First Mortgage and Collateral Trust Bonds due 1998 May 150,000,000 11%% First Mortgage and CollateralTrust Bonds due 2018 i Septem%r 66,000,000 Secured Medium-Term Notes, Series A October 79,000,000 Secures Medium-Term Notes, Series A November 150,000,000 10.44% First Mortgage and Collateral Trust Bonds due 2008 l.
November 8,500,000 Secured Medium-Term Notes, Series A December 53,000,000 Secured Medium Term Notes, Series A Total 5756.500.000 18
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued),
Liquidity and Capital Raouren - (C<mti . ud}
Preferred Stock:
Month Shares Net Proceeds Description November 1.000,000 $99,432,000 59 64 senes Cumulanve Preferred Stock : Subject to Mandatory Redemption Common Stock:
Month Shares Net Proceeds Dewription April 2,275,000 $100,100,000 Without Par Value December 4,500,000 200.250,000 Without Par Value Total 5300.350,000 l
In August 1988 and December 1988, the Company fmalized agreements to purchase the ownership interests of the Texas Municipal Power Agency (TMPA) and the Brazos Electric Power Cooperative, Inc.
(BEPC), respectively, in Comanche Peak. Under the terms of the agreement with TMPA, the Company recorded $355,000,000 principal amount of long-term debt as an obligation for purchase of electric plant.
Under the terms of the agreement with DEPC, the Company issued a promissory note in the amount of
$194,458,000 for purchase of electric plant.
Early redemptions of preferred stock by the Company in 1988 included the following:
Month Shures Redemption Cost Description April 25,750 $2.317,000 59 48 senes Cumulative Preferred Stock; Subject to Mandatory Redemption April 15,000 1,444,000 $10.08 senes Cumulauve Preferred Stock; Subject to Mandatory Redemption Total 53.761 AX)
M@rtsl, early redemptions of long-term debt and preferred stock may occur from time to time in amounts presently undetermined.
In February 1989, the Brazos River Authority issued $100,000,000 principal amount of poilution control revenue bonds to finance costs of certain pollution control facilities of the Company. These bonds are collateralized by the issuance of an equal principal amount of the Company's first mortgage and collateral trust bonds. The Company expects to sell securities as needed, including the possible future sale by the Company of up to $93,500,000 principal amount of secured medium-term notes and up to 1,000,000 shares of cuu:ulative preferred stock, both currently registered with the Securities and Exchange Commission for offering pursuant to Rule 415 under the Securities Act of 1933. Sales of additional securities may occur from time to time, in amounts and of types presently undetermined.
The Tax Reform Act of 1986 (TRA), among other things, repealed the investment tax credit, lengthened depreciation lives, created an alternative minimum tax and lowered the corporate tax rate subject te certain transition rules. Other tax accounting changes were required, including the capitalization ofitems previously expensed and a change in the timing of income recognition for certain items. Substantially all of the tax changes, with the exception of the rate reduction, resulted in the Company paying more taxes currently and eliminated sources ofinternally generated cash for the Company, thereby increasing fmancing requirements.
The TRA < lid not have a material effect on the periods presented in the financial statements of the Company.
Although the Company cannot predict future regulatory practices, the extent of any further delays in the licensing of Comanche Peak or any changes in economic and securities market conditions, no changes 19 n--______ _ _ - - - - - - - -- -- - - - - -- - - - - - - - - - - - - - - - - - - - - - -- - - - - - -
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued).
Liquidity and Capital Resources - (Concluded) are expected in trends or commitments which might significantly alter its basic financial position or ability to fmance capital requirements. Ilowever, the Company has indicated that it does not currently plan to implement increa:,cd electric service rates which reflect any additional Comanche Peak costs until Unit I is ready for commercial operation and it continues to believe, based upon current cost estimates and using acceptable ratemaking approaches and assumptions, that the rate increase, when Unit I goes into service, can be held to about 10%
See Item 6, Selected Financial Data - Financial Statistics for additional information.
Results of Operations Operating revenues increased $72,517,000 and $151,902,000 for 1988 and 1987, respectively. The following table details the factors contributing to the increases:
Increase (Decrease)
Factors 1988 1987 Thousands of Dollars Fuel revenue . $(12,433) $ 73.589 Power cost reemery factor revenue . 35,445 32.485 Increased energy sales . . 57.338 51,954 Other . . . (7.833) (6.126)
Total . .. $ 72.517 $ 151,902 The increase in operating revenues for 1988 was attributable to increased purchased power revenue and increased energy sales, offset in part by decreased fuel revenue. The increase in operating revenues for 1987 was due primarily to increased fuel and purchased power revenue and increased energy sales. Energy sales increased 3.8% for 1988 and 3.3% for 1987 as a result of increased customers and customer usage. (See Item 1, Business- Fuel Supply and Purchased Power and Regulation and Rates and Item 6, Selected Financial Data - Operating Statistics.)
Fuel and perchased power expense increased $22,951,000 in 1988 and $101,595,000 in 1987. The increases for 1988 and 1987 were due primarily to increased off-system power purchases partially offset by lower fuel costs. Lower fuel expense for 1988 reflects the decreases in the unit costs of lignite from $1.07 per million Blu in 1987 to $0.95 per million Btu in 1988 and gas from $2.56 per million Btu in 1987 to $2.47 per million Btu in 1988. Lower fuel expense for 1987 reflects the decrease in unit cost of gas from $2.77 per million Btu in 1986 to $2.56 per million Btu in 1987. (See Item 1, Business- Fuel Supply and Purchased Power and Item 6, Selected Financial Data- Operating Statistics.)
Operation expense decreased $6,499,000 for 1988 and increased $63,812,000 for 1987. The decrease for 1988 was prim'rily the result of a special early retirement program in 1987 and the resulting reduction in labor costs in 1988. The increase for 1987 was affected by increases in the cost of labor, liability and property insurance and the special early retirement program. (See Note 8 to Financial Statements.)
Maintenance expense decreased $8,096,000 and $20,024,000 for 1988 and 1987, respectively. The decreases for both years were due primarily to a reduction in unscheduled power plant outages and revisions in the scope of certain power plant scheduled overhauls.
Taxes other than income increased $12,777,000 for 1988 and $14,006,000 for 1987. The increase for 1988 resulted primarily from increases in revenue and property based taxes. The increase for 1987 was the result ofincreased franchise and property based taxes. ,
I 20
ltem 7. MANAGE 51ENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued).
Results of Operations -(Concluded)
Allowance for funds used during construction (AFUDC) decreased $439,000 for 198R and increased
$83,297,000 in 1987 and was affected in all years by the ongoing construction work in progress of the Company not included in rate base. The decrease for 1988 was due to the reduction in the AFUDC rates (see Note 1 to Financial Statements) and the temporary suspension of AFUDC on the Twin Oak (Twin Oak) and Forest Grove (Forest Grove) generating stations in October 1987 and on Unit 2 of Comanche Peak in April 1988 (see Suspension of Capitalization of AFUDC below).
Other income and deductions - net decreased $20,550,000 for 1988 and increased $13,102,000 for 1987.
The decrease for 1988 was attributable to the loss resulting from the discounting to present value of the expected future recovery of costs associated with the abandonment of the Martin Lake generating station Unit 4 (Martin Lake Unit 4) (see Note 11 to Financial Statements), the gain on the disposition of certain properties experienced in 1987 and decreased interest on temporary cash investments. The increase for 1987 was due primarily to increased interest on temporary cash investments.
Interest on mortgage bonds increased in both periods due to new issues sold during such years and annualized interest of issues sold in prior years, partially offset by retirements and redemptions of certain higher interest rate issues during 1987 and 1986.
Interest on other long-term debt increased in 1988 as a result of interest paid in connection with the purchase of minority ownership interests in Comanche Peak from TMPA and BEPC.
Other interest charges increased $4,708,000 for 1988 and decreased $19,890,000 for 1987. The increase for 1988 was due primarily to increased interest cost on over-recovered fuel revenue. The decrease for 1987 reflects decreased interest cost on over-recovered fuel revenue.
Net income decreased $34,116,000 in 1988 and increased $68,886,000 in 1987 which represents a culmination of the factors described above. The suspensions of AFUDC reduced net income for 1988 and 1987 by approximately $160,000,000 and $10,000,000, respectively.
Preferred stock dividends increased $5,855,000 and $10,663,000 in 1988 and 1987, respectively, due to new issues sold during these years and the full year's effect of prior year issuances.
Estimated Efect of Pending Accounting Change in December 1987, the Financial Accounting Standards Board (Board) issued Statement of Financial Accounting Standards No. 96, " Accounting for Income Taxes" w hich was to become effective for fiscal years i
beginning after December 15, 1988. In December 1988, the Board extended the effective date by one year.
The Statement, among other things, requires the liability method of recognition for all temporary differences, requires that deferred tax liabilities and assets be adjusted for an enacted change in tax laws or rates and I prohibits net-of-tax accounting and reporting. Certain provisions of the Statement provide that regulated enterprises are permitted to recognize such adjustments as regulatory assets or liabilities ifit is probable that such amounts will be recovered from or returned to customers in future rates. Although the application of the Statement will increase both total assets and liabilities, these requirements are not expected to nave a meterial effect on the Company's financial position or results of operations.
Suspension of Capitali:ation of AFUDC In September 1987, the Company announced the suspension of construction on Twin Oak and Forest Grove. Therefore, capitalization of AFUDC was suspended in October 1987 until active construction I resumes. Expenditures not included in rate base as of December 31,1988 and 1987, applicable to these 21
i f
l l Item 7. NIANAGESIENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 1 RESULTS OF OPERATIONS (Concluded).
Suspension of Capitali:ation of AFUDC-(Concluded) stations, totaled approximately $492,000,000 and $468,000,000, respectively. Construction on Twin Oak and Forest Grove is not expected to resume until after 1989.
In March 1988, the Company announced the temporary suspension of construction on Unit 2 of Comanche Peak for an anticipated period of one year. Therefore, beginning in April 1988, capitalization of AFUDC was suspended until active construction resumes. Expenditures not included in rate base as of December 31,1988 and 1987, applicable to this unit, totaled approximately $2,068,000,000 and
$ 1,513,000,000, respectively. Construction on Unit 2 of Comanche Peak is expected to resume in mid-1989.
j 22
Y
- [ Tills PAGE INTENTIONALLY LEIT BLANK]
I i
23
( )
Item 8. FINANCIAL STATEh!ENTS AND SUPPLEAIENTARY DATA.
TEXAS UTILITIES ELECTRIC CONIPANY i
STATE 51ENT OF INCOVZ i
(-
Year Ended December 31, 1988 1987 1986 Thousands of Dollars OPERATING REVENuts , $4,151,818 $4,079,301 $3,927,399 OrtRATINo ExrENsts Fuel and purchased power . , , 1,718,720 1,695,769 1,594,174 Operation . , , 569,033 575,532 511,720 Maintenance , , , , 287,048 296,094 316,118 Depreciation , 231,521 221,772 209,152 i
Federal income taxes (Note 7) , , 135,738 201,446 264,584 Taxes other than income . 299,554 286,777 272,771 Total operating expenses 3,242,564 3,277,390 3.168,519 4
OPERATING INCOME , . 909,254 801,911 758,880 OrHE R INCOME Allowance for equity funds used during construction., 262,834 283,061 231,880 Other income and deductions - net , , 2,126 22,676 9,574 Federal income taxes (Note 7) , ,
(802) (9,114) (3,091)
Total other income . , , 264,158 296,623 238,363 ,
1 TOTAL INCOME , , , ,, 1,173,412 1,098,534 997,743 INTEREST CHARGES Interest on mortgage tonds . 469,888 402,389 317,978 Interest on other long-term debt . 67,059 10,484 10,484 Other interest . . 13,253 8,545 28,435 Allowance for tmrrowed funds used during construction . (123,850) , (104.062) (71,946)
Total interest charges . 426,350 317,356 284,951 NLT INCOME , 747,062 781,178 712,292 PRtrt RREp SrocK DivioENos . 94,893 89.038 78,375 NET INCOME AFTE R PREFTRRLD STOCK DivlDENDS . , 5 652.169 $ 692,140 $ 633,917 See accompanying Notes to Financial Statements.
24
TEXAS UTILITIES ELECTRIC COMPANY STATEMENT OF CASH FLOWS Year Ended Deeember 31, 198N 1987 1986
]
Thousands of Dollars l CASH FLOWS Fnow OPERATING Ac'IvtTIEs: J Net income, . . , , 5 747,062 5 781,178 5 712.292 1 Adjustments to reconcile net income to cash provided by operating activities:
Depreciation .
231,521 221,772 209,152 ]j Deferred federal income taxes- net , 35,379 35,894 121,086 l
Federal investment tax credits- net , , , (15,711) 59,109 64,243 Allowance for equity funds used during construction . . (262,834) (283,061) (231,880) 735,417 814,892 874,893 I Cash flows from operations .
Changes in assets and liabilities:
Receivables - net , ,
(1,842) (48,826) 50,621 Inventories . , , , (1,813) (3,514) 10,314 Accounts payable - net , (8.389) 2,N8 20,292 Interest and taxes accrued . . 83.329 805 (22,216)
Other working capital , 728 24,309 (21,043)
Over/under recovered fuel revenue 75,834 (107,713) (22,794)
Deferred taxes on over/under-recovered fuel revenue (28,399) 46,879 10.485 Other - net 12.575 27,908 (2,970)
Net cash flows from operating activities . 867,440 756,788 898,482 CASH Flows Fsow FINANCING ACTivmES:
Sales of securities:
First mortgage bonds . 767,945 1,058,852 970,000 Preferred stock ,
99,432 98,215 197,728 Common stock 300,350 299,800 250,800 Retirement oflong-term debt and preferred stock (27,426) (149,844) (279,312)
Increase (decrease) in notes payable to parent .
- - (99,300)
Preferred stock dividends paid (93.330) (88,293) (78,812)
Common stock dividends paid ,
, (500,968) (447,200) (395,430)
Debt premium,iscount and financing expensei, (6,276) (39,237) (43,626)
Net cash flows from financing activities , ,
539,727 732,293 522,048 CASH Flows FROM INvtsTING ACTivtTits:
Construction expenditures . (1,542,974) (1,662,483) (1,475,177)
Allowance for equity funds used during construction , 262,834 283,061 231,880 Construction receivables /payables - net . , (43,123) 26,236 46,154 Cash construction expenditures . (1,323,263) (1,353,186) (1,197,143)
Non-utility property - net . (78) (15) (95)
Nuclear fuel (5,075) (797) 2,760 Purchase of minority ownership interests in Comanche Peak (Note 11) (120,355) - -
Other investments (28.322) (55,150) (42,087)
Net cash flows from investing activities . (1,477,093) (1,409,148) (1,236,565)
NET CHANGE IN CASH AND CASH EQUIVALENTS < (69,926) 79,933 183,965 268,902 188,969 5,004 CASH AND CASH EQUIVALENTS - BEGINNING BALANCE 5 198,976 $ 268,902 $ 188,969 CASH AND CASH EQUIVALENTS- ENDiNo BALANCE SUPPLEMENTAL SCHEDULE OF NoNCASH INVESTING AND FINANCING AcrIVIrlts:
Purchase of minority ownershir interests in Comanche Peak:
Purchase of production and transmission plant 5 667,294 % -
Purchase of nuclear fuel 45,446 - -
Reimbursement of certain expenses (deferred debits) and working funds advanced 41,874 - -
Total purchase price 754,614 - -
less amounts due from minority owners . 84.801 - -
Less promissory note and obligation for purchase of electric plant 549,458 - -
Cash paid on the purchase 5 120.355 5 -
See accompanying Notes to Financial Statements.
25 l
1 I
TEXAS UTILITIES ELECTRIC COMPANY BALANCE SHEET ASSETS December 31, 1988 1987 Thousands of Dollars C
EttcTaic PLANT in service:
Production , , $ 3,069,851 $ 3,038,866 Transmission . . . 1,277,098 1,214,642 Distribution , , , , 2.882,086 2,696,523 General , .
381,414 361,888 Total , ,
7,610,449 7,311,919 Construction work in progress (Notes 10 and 11) . .
8,433,261 6,565,327 Nuclear fuel , , ,
., 303,282 252,761 licld for future use . 23,684 19,640 Total electric plant , ,
16,370,676 14.149,647 Less accumulated depreciation , , , ,
2,558,282 2,355,827 Electric plant, less accumulated depreciation , 13,812,394 11,793,820 1 INytsTM EN1s . , ,
13,080 13,218 CURRENT ASSETS Cash in banks , , ,
4,226 6,502 Temporary cash investments-at cost , 194,750 262,400 Cash and cash equivalents . , , ,
198,976 268,902 j Special deposits , ,
36,524 37,007 Accounts receivable:
Customers . . 246,885 250,684 l Minority owners of Comanche Peak (Notes 10 and 11). 51,i16 109,284 Other ,
46,608 42,88o Allowance for uncollectible accounts (14.012) (13,243)
Inventories - at average cost: j Materials and supplies ,
122,320 114,633 1, Fuel e,tock , 91,014 96,888 Deferred federal income taxes (over-recovered fuel revenue) 10,774 -
Other current assets ,, ,
40,117 34.018 Total current assets , 831,318 941,059 DEI ERRED Di' BITS Under-recovered fuel revenue - 44,119 Unamortized loss on reacquired debt (Note 6) 67,956 70,967 Cancelled lignite unit costs (Note 11) 31,848 37,246 Other deferred debits ,
71,654 38,226 Total deferred debits . 171,458 190,558 Total ,
$14,828,250 $ 12,938,655 See accompanying Notes to Financial Statements. 4 l
l 26
TEXAS UTILITIES ELECTRIC CONIPANY BALANCE SilEET CAPITALIZATION AND LIABILITIES December 31, 1988 1987 Thousands of Dollars CAPITAL.12ATION Common stock - without par value (Note 3):
Authorized shares - 180,000,000 Outstanding shares - 1988, 118,925,000; 1987, 112,150,000 . 5 3,265,950 5 2.965,600 Retained earnings (Note 5) , ,
2,012.747 1,861.545 Total common stock equity . 5,278,697 4,827,145 Preferred stock (Note 4):
Not subject to mandatory redemption . 909,582 909,633 Subject to mandatory redemption. . 328,770 232,906 Long-term debt, less amounts due currently (Note 6) . . 5,872.613 4,639,111 Total capitalization . 12.389.662 10.608,795 Ct!RRENT LIABILITIES Long-term debt due currently (to be refinanced) 77,756 22,500 Accounts payable:
A fliliates , , , 108,268 109,591 Otiier , , , , 193,285 247,875 Dividends declared . ,, , , ,
24,848 23,694 Customers' deposits . 52,415 51,259 Taxes accrued . 175,658 119,660 Interest accrued , 155,947 128,616 Over-recovered fuel revenue . 31,715 -
Other current liabilities . 29,093 24,439 Total current liabilities. 848.985 727,634 DETTRRED CREDITS AND OTHER NONCURRENT LIABILITIES Accumulated deferred federalincome taxes , , 853,163 835,410 Unamortized federal investment tax credits 721,495 737,220 Other deferred credits and noncurrent liabilities, .
14,945 29,596 Total deferred credits and other noncurrent liabilities . 1,589,603 1, ,226 COMMITMEN s AND CONTINGENClis(Notes 2,10 and 11)
Total , ,
$14,828,250 512.938,655 See accompanying Notes to Financial Statements.
f 27
TEXAS UTILITIES ELECTRIC COMPANY STATEMENT OF RETAINED EARNINGS Year Ended December 31, 1988 1987 1986 Thousands of Dollars BALANCE AT BEGINNING OF YEAR . $1.861,545 $1,616,605 $1,378,118 ADD - NET INCOME . 747,062 781,178 712,292 Total . . 2,608,607 2,397,783 2,090,410 DEnucT Cash dividends declared Preferred stock:
$ 4.50 series ($ 4.50 per share per annum) . . 334 334 334 4.00 series ($ 4.00 per share per annum) . 280 280 280 4.56 series ($ 4.56 per share per annum) . 609 609 609 4.00 series ($ 4.00 per share per annum) . , . 440 440 440 4.56 series ($ 4.56 per share per annum) . 296 296 296 4.24 series ($ 4.24 per share per annum) . . . 424 424 424 4.64 series ($ 4.64 per share per annum) . . 464 464 464 4.84 series ($ 4.84 per share per annum) , ,
339 339 339 4.00 series ($ 4.00 per share per annum) . . 280 280 280 4.76 series ($ 4.76 per share per annum) . .
476 476 476 5.08 series ($ 5.08 per share per annum) . , 407 407 407 4.80 series ($ 4.80 per share per annum) . . 480 480 480 4.44 series ($ 4.44 per share per annum) . 666 666 666 7.20 series ($ 7.20 per share per annum) . 1,440 1,440 1,440 7.80 series ($ 7.80 per share per annum) . 2,339 2,339 2,339 8.92 series ($ 8.92 per share per annum) . 1,784 1,784 1,784 6.84 seri:s ($ 6.84 per share per annum) . 1,368 1,368 1.368 7.24 series ($ 7.24 per share per annum) . 1,809 1,809 1,809 7.44 series ($ 7.44 per share per annum) . ,,. , 2,232 2,232 2,232 7.48 series ($ 7.48 per share per annum) . 2,244 2,244 2,244 8.20 series ($ 8.20 per share per annum) . 2,460 2,460 2,460 8.44 series ($ 8.44 per share per annum) , 2,532 2,532 2,532 9.32 series ($ 9.32 per share per annum) , 2,796 2,796 2,796 9.36 series ($ 9.36 per share per annum) . 2,808 2,808 2,808 8.68 series ($ 8.68 per share per annum) . 2,604 2,604 2,604 8.16 series ($ 8.16 per share per annum) . . . 2,444 2,444 2,444 8.32 series ($ 8.32 per share per annum) . . 2,496 2,496 2,496 8.84 series ($ 8.84 per share per annum) , 2.652 2,652 2,652 9.48 series ($ 9,48 per share per annum) . 9,297 9,480 8,032 8.92 series ($ 8.92 per share per annum) , 4,460 4,460 1,995 10.00 series ($10.00 per share per annum) . 5,000 5,000 2,236 10.92 series ($10.92 per share per annum) . 3,276 3.276 3,276 10.12 series ($10.12 per share per annum) . 3,542 3,542 3,542 10.08 series ($10.08 per share per annurn) . , ,. 3,414 3,528 3,528 7 11.32 series ($11.32 per share per annum) . . 3,396 3,396 3,396 9.64 series ($ 9.64 per share per annum) , 1,606 - -
)
Adjustable rate series A . . . .. 6,675 6,762 6,662 Adjustable rate series B 6,290 6,162 6,205 Stated rate auction series A . 8,240 3,525 -
Common stock (per share: 1988, 54.40; 1987, 54.16; 1986, $3.92). 500,968 447,200 395.430 Total cash dividends declared , 595,667 535,834 473.805 Dividends other than cash accretions . /
193 404 -
Total dividends . . 595,860 536,238 473.805 BALANCE AT END or YEAR (Note 5). , $2,012,747 $1,861,545 $1,616,605 See accompanying Notes to Financial Statements.
28
TEXAS UTILITIES ELECTRIC CONIPANY NOTES TO FINANCI AL STATE 31ENTS
- 1. SIGNil'ICANT ACCOUNTING POLICIES Electric Plant- Electric plant is stated at original cost. The cost of property additions charged to electric plant includes labor and materials, applicable overhead and payroll-related costs and an allowance for funds used during construction. ,
l 3 A//owance for Funds Used During Construction - Allowance for funds used during construction (AFUDC)is a cost accounting procedure whereby amounts based upon interest charges on borrowed funds and a return on equity capital used to finance construction are charged to electric plant. The accrual of AFUDC is in accord with generally accepted accounting principles for the industry, but does not represent current cash inc, me.
Texas Utilities Electric Company (Company) is capitalizing AFUDC, compounded semi-annually, on expenditures for ongoing construction work in progress (CWIP) not otherwise allowed in rate base by regulatory authorities. In 1986, AFUDC was capitalized using a net-of-tax rate of 9%%. In 1987, pursuant to the provisions of the Tax Reform Act of 1986 (TRA), the Company began using a comparable gcoss capitalization rate on projects commenced after March 1,1986. Beginning July 1,1987, a net-of-tax rate of 9% and a gross rate of 10%% have been used. All such rates were determined on the basis of, but are less than, the cost of capital used to fmance the construction program.
Depreciation - Depreciation is based upon an amortization of the original cost of depreciable properties on a straight-line basis over the estimated service lives of the properties. Depreciation as a percent of average depreciable property approximated 3.3% for 1988 and 1987 and 3.2% for 1986.
Revenues- Revenues include billings under approved rates (including a fixed fuel factor) applied to meter readings each month on a cycle basis and an amount for under or over recovery of fuel revenue representing the difference between actual fuel cost and billings on the approved fixed fuel factor. Pursuant to a rule adopted in July 1986 by the Public Utility Commission of Texas (PUC), the Company is required to refund over-recovered fuel revenue if the amount of over recovery, including interest, exceeds the lesser of
' $40 million or 4% of its annual known or reasonably predictable fuel costs most recently approved by the PUC. Reconciliation of fuel costs is to be made in a general rate case or a reconciliation proceeding.
Reconciliation may be requested only if it has either been over one year since the utility's last final reconciliation or the utility has materially under-recovered its known or reasonably predictable fuel costs.
Federal Income Taxes-The Company is included in the consolidated federal income tax return of Texas Utilities Company (Texas Utilities) and its subsidiaries (System Companies), and federal income taxes are allocated to all subsidiary companies based upon their taxable income or loss. Deferred federal income taxes are currently provided for timing differences between book and taxable income; such differences result primarily from the use ofliberalized depreciation and cost recovery deductions allowable under the Internal Revenue Code, the under or over recovery of fuel revenue and unbilled revenues accrued for tax purposes.
Cumulative timing differences in earlier years for which deferred federal income taxes were not provided approximated $232,000,000 at December 31,1988. Investment tax credits are being amortized to income over the estimated service lives of the properties.
In December 1987, the Financial Accounting Standards Board (Board) issued Statement of Financial Accounting Standards No. 96, " Accounting for Income Taxes" which becomes effective for fiscal years beginning after December 15, 1988. In December 1988, the Board extended the effective date by one year.
The Statement, among other things, requires the liability method of recognition for all temporary differences, requires that deferred tax liabilities and assets be adjusted for an enacted change in tax laws or rates and 29
TEXAS UTILITIES ELECTRIC COMPANY NOTES TO FINANCI AL STATEMENTS -(Continued)
- 1. SIGNIFICANT ACCOUNTING Pottetts--(concluded) prohibits net-of tax accounting and reporting. Certain provisions of the Statement provide that regulated enterprises are permitted to recognize such adjustments as regulatory assets or liabilities ifit is probable that such amounts will be recovered from or returned to customers in future rates. Although the application of the Statement will increase both total assets and liabilities, these requirements are not expected to have a i material effect on the Company's financial position or results of operations.
Statement of Cash Flows -In November 1987, the Board issued Statement of Financial Accounting Standards No. 95," Statement of Cash Flows", which supersedes APB Opinion No.19, " Reporting Changes -
in Financial Position" and establishes a statement of cash flows and standards for cash flow reporting.
Accordingly, the Company has adopted the Statement for 1988 and the statement of source of funds for construction previously presented in 1987 and 1986 hase been restated to conform with the Statement. For purposes of reporting cash flows, cash equivalents are considered to be temporary cash investments purchased with a maturity of three months or less.
Sul.plemental information regarding cash payments for each of the three years in the period ended December 31,1988 is provided below:
Year Ended December 31, 1988 1987 1986 Thousands of Dollars Interest (net of amounts capitalized) . 5392.070 5290.265 5271,993 ,
Income taxes . 98,866 111,658 107,315
- 2. AITILIATES Texas Utilities provides common stock capital and short term financing to the Company. Texas Utilities has three other subsidiaries which perform specialized services for the System Companies, including the Company: Texas Utilities Services Inc. (TU Services) furnishes financial, accounting, computer and other -
administrative services; Texas Utilities Fuel Company (Fuel Company) owns a natural gas pipeline system, acquires, stores and delivers fuel gas and provides other fuel services for the generation of electric energy by the Company; and Texas Utilities Mining Company (Mining Company) owns and operates fuel production facilities for the surface mining and recosery of lignite for use at the Company's generating stations.
The Company has entered into agreements with Fuel Company to procure certain fuels and related services and with Mining Company for the procurement and production oflignite; payments are at cost for the services received and are required by the agreements to be "at least equivalent in the aggregate to the annual charge to income on the books" of Fuel Company and of Mining Company. The Company is, in effect, obligated for the principal, $502,380,000 at December 31, 1988, and interest on long-term notes of Fuel Company and of Mining Company through payments described abose. Such notes mature at various dates through 1999 and have interest rates ranging from 8.507c to 12.207c.
4
- 3. CoststoN stock Shares Outstanding Amount -
December 31, December 31, 1988 1987 1988 1987 Thousands of Dollars Common stock - without par salue; authorized 180,000.000 shares . 118.925,000 112.150,000 53,265.950 52,965,600 30
TEXAS UTILITIES ELECI' HIC CON 1PANY NOTES TO FINANCIAL STATEN1ENTS -(Continued) 1
- 3. CosistoN STOCK -(concluded)
The Company issued and sold shares of its authorized common stock to Texas Utilities as follows:
December 1988,4,500,000 shares for $200,250,000; April 1988,2,275,000 shares for $100,100,000; December 1987, 2,300,000 shares for $100,050,000; June 1987, 4,700,000 shares for $199,750,000; December 1986, 2,400,000 shares for $100,800,000; and June 1986, 3,750,000 shares for $150,000,000.
L No shares of the Company's common stock are held by or for account of the Company, nor are any shares of such capital stock reserved for omeers and employees or for options, warrants, conversions and other rights in connection therewith.
- 4. PRrrERRED STOCK (cumulative, without par value; entitled upon liquidation to $100 a share; authorized 17,000,000 shares)
Redemption l' rice l'er Share Shares Outstanding Amount (before adding accumulated dividends) i Series Groups December 31, December 31. Current Eventual Stinimum From To 198M 1987 1988 1987 From To From To Thousands of Dollars Not Subject to Standatory Redemption
$4.00 $ 4.84 . 1,142,942 1,142,942 5114,588 $114,588 $101.79 5112.00 $101.79 $112.00 5.08 7.80 . 1,629,675 1,629,675 163,270 163,270 102.40 103 60 102.40 103.60 8.16 8.92 . 1,999.475 1,999,475 198,642 198,642 103.44 106.13 101.00 10160 1,550,000 1,550,000 153,205 153,205 104.66 108.19* 100,00 102.73 9.32 11.32 Adjustable rate (a) 1,850,000 1,850,000 181,711 181,713 - - 100.00 100.00 1,000,000 1,000,000 98,164 98,215 - -
100.00 100.00 Stated rate auction (b) -
Total . 9,172,092 9,172,092 $909.582 $909,633 Subject to Standatory Redemption teHdi
$8.92 $ 9 48. 1,474,250 1,500,000 $146,421 $148,610 $108.92* $109 48* $100.00 $100.00 9.64 10.08 . 1,835,000 850.000 182,349 84,296 107.56* 110.00* 100 00 100.00 Total . 3,309,250 2,350,000 $328,770 3232.906
- Redemption may not be effecte,1 currently through certain refunding operations.
(a) Adjustable rate series A bears a dividend rate for the penod ended January 31,1989 of 6 607< pei annum and adjustable rate series B bears a dividend rate for th period ended December " 1988 of 7A57< per annum, both of which are based on a fixed hquidation price of $100.00 per share. T' e series are not redeem sr to June I,1989 and June 1,1990, respectively.
(b) Stated rate auction senes i bears a dividend rate m annum for the fixed dnidend period through September 30,1992.
The dividend rate for ca n 49 day dividend perio afts all be determined on the basis of certain auction procedures. The maximum rate determir;d by the auction may rart i 1 & to 2004 of the 60-day "AA" composite commercial paper rate index. All redemptions are at a price of $100.00 p r share plus accumulated dividends. The shares are not redeemable prior to September 29,1992.
(c) The Company is required to redeem a specified minimum number of shares annually or semi-annually commencing on the initial dates shown below, except for the $8 92 seiies which does not hase a sinking fund provision These redeemable shares may be called, purchased or otherwise acquired. The Company may annually call for redemption, at its option, an aggregate of up to twice the number of shares shown below for each series at a price of $100 00 per share plus accumulated dividends, except for the 59.64 series which may be redeemed in a minimum amount of 10.000 shares at any time at a price of $100 00 per share plus accumulated dividends plus a component at a sanable price per share whi,:b is designed to maintain the :xpected yield at issuance; Niinimum Initial Date of Redeemable Standatory Series Shares Redemption
$10.08 14,000 annually 4/1/89 9.48 66,700 annually 4/1/92 10.00 20,000 annually 7/1/92 9 64 125,000 semi. annually 5/1/95 8 92 All outstanding shares 7/1/96 31
TEXAS UTILITIES ELECTRIC COSIPANY NOTES TO FINANCIAL STATESIENTS-(Continued)
- 4. PREI7 ERRED stock (cumulative, without par value; entitled upon liquidation to $100 a share; authorized 17,000,000 shares)-(concluded)
The carrying value of preferred stock subject to mandatory redemption is being increased periodically to equal the redemption amounts at the mandatory redemption dates with a conespondmg increase in preferred stock dividends.
(d) Under certain circumstances relating to a change in federal tax law governing the dividends received deduction appheable to eligible corporations, the dividend rate of the 59.64 series may increase to a maximum of 510.74.
In April 1988, the Company redeemed 25,750 shares ofits $9.48 series cumulative preferred stock which is subject to annual mandatory redemption commencing on April 1,1992, and 15,000 shares of its $10.08 series cumulative preferred stock which is subject to annual mandatory redemption commencing on April 1,1989.
The Company issued and sold shares of its authorized preferred stock as follows: November 1988, 1,000,000 shares of 59.64 series cumulative preferred stock, subject to mmdatory redemption, for
$99,432,000; July 1987,1,000,000 shares of stated rate auction series A for $98,215,000; July 1986, 500,000 shares of $10.00 series cumulative preferred stock, subject to mandatory redemption, for $49,413,000; July 1986, 500,000 shares of $8.92 series cumulative preferred stock, subject to mandatory redemption, for
$49,437,00); and February 1986, 1,000,000 shares of $9.48 series cumulative preferred stock, subject to mandatory redemption, for $98,878,000.
No shrres of the Company's preferred stock are held by or for account of the Company, nor are any shares of st ch capital stocks reserved for officers and employees or for options, warrants, conversions and other rights in connection therewith.
- 5. RETAINED EARNINGS RESTRICTIONS The Company's articles ofincorporation, the mortgages, as supplemented, and the debenture agreements contain provisions which, under certain conditions, restrict distributions on or acquisitions of its common stock. At December 31,1988, $150,556,000 of retained earnings were thus restricted as a result of the provisions of such articles of incorporation.
The articles ofincorporation restriction provides in effect that the Company shall not pay any common dividend which would reduce retained earnings to less than one and one half times annual preferred dividend requirements. The mortgage restrictions are based prim rily on the replacement fund requirements of the mortgages. The restriction contained in the debenture agreements is designed to maintain the aggregate preferred and common stock equity at or above 33 %% of total capitalization.
32
TEXAS UTILITIES ELECI'RIC CONIPANY l<
L
. NOTES TO FINANCIAL STATEMENTS -(Continued) i
- 6. LONG-TERM DEBT, less amounts (3ue currently Maturity Groups Interest Rate Groups Decs nber 31 From To From To 1988 1987 i
Thouseds of Dollars First mortgage bonds:
1989 1993' .4%% -4%%, ... .. .. . S 69,000 $ 69.000 .
1994 1998 4%. 10 % . . . , , , , . ., ... 474,000 l 324,000 {'
1999 2003 7% 9% . ... .... . . .. .
365,000 ' 365,000 -
- 2004 2008 8% 10.44 ., . . . . . , . . .. . . 850,000 700,000 2009, 2013 9% 12 % . . ., . 375,000 .375,000 2014 2018 9% 13 % . . . . , .. . 2,225,000 2,075,000 1
Pollution control series 2007 2018 7% 10 . .. .. . . 689,000 589,000 Funds on deposit with trustee . . ,, ,, ,. (8,704) (20,148) l Sinking fund debentures:
1989 ;1994 4% 7% . . . . .. .. . . . 30,570 49,589 Secured medium-term notes, series A:
1994 - 2003. '9% 10 % .. . . . .. . 206,500 -
Total . . .... . . . . . . .. . ... . 5,275,366 4,526,441 Pollution control revenue bonds:
2004 2009 5.70 7% . . ... .. , , 160,000 160,000 Promissory note and obligation for purchase of electric plant:
1990 2021- 9.50 9.50 , . . ... , , , ,, . 489,556 -
Unamortized premium and discount . .. .. .. . . , . .... . (52,309) (47,330)
. Totallong-term debt, less amounts due currently , , .. , . .
$5,872.613 $4,639,111 Sinking fund and maturity requirements for the years 1989 through 1993 under long-term debt instruments in effect at December 31,1988, were as follows:
Sinking Minimum Cash Year Fund (a) Maturity Requirement (b)
~~
Thousands of Dollars
'1989. . . , , . . $ 76,959 $17,854 $ 77,756 1990-. .. , . ,, ,. 83,821 - 66,045 1991.. . . , , , . ., ,, , 90,952 12,000 84,996 1992. .. . . .. .. . , 99,087 - 81,491 1993.. . ..... . . . . . 106,664 73,653 163,146 (a) Excluding requirements satisfied prior to December 31,1988: $1,833,000 for 1989, $763.000 for 1990,5460,000 for 1991 and $320,000 for 1992.
(b) Other requirements may be satisfied by certification of property additions at the rate of 167% of such requirements.
except for eighteen issues at 100%
From time to time, various principal amounts of first mortgage bonds were redeemed by the Company prior to maturity. Pursuant to expected regulatory treatment, the losses on reacquired debt have been deferred and are being amortized over the remaining lives of the bonds retired.
) The total amounts of sinking fund debentures authorized in the debenture agreements have been issued.
The Company's first mortgage and collateral trust bonds may be issued in additional amounts, without -
limitation as to the maximum thereof, but limited by property, earnings and other provisions of the
- mortgages. None of the long-term debt is pledged, held by or for account of the issuer, or held in its sinking l-or other special funds. Electric plant of the Company is generally subject to the liens ofits mortgages.
33 l
)
E - - - _ - -
i i
.g 1 TEXAS UTILITIES ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS-(Continued)
- 7. " FEDERAL INCOME TAXES
. The details of federal income taxes are as follows:
Year Ended December 31, 1988 1987 1986
. Thousands of Dollars (
Charged (credited) to operating expenses:
Current . .. .. .. . ,, .. .... .. ,, ... $142.578 $ 59.587 5 67,320 Deferred - net:~
Differences between depreciation methods and lives . . ... ... . . 45.469 58,600 70,451 Certain capitalized construction costs . . , , , . . . (8,317) (4,444) . 19,428 Over/under-recovered fuel revenue . . . . . . .. . . . . .. .. (28,344) 46,856 11.935 L
Cancelled lignite unit . , .. . . . . . .... , . .. -
(971) 12,293 Early redemption 3 oflong-term debt . . ... .. ... . . .. (1,320) 6,091 l0,763
!. Prepaid (accrued) pension cost . . . . . . . , , , .. .. .. . . . 2,981 . (!!,676) 6,162 Unbilled revenues. . .. , .. .. .. ,, . .. ,, . . . ,, (11,820) (17,367) (322)
I 13,719 l Minority owners settlement . . . .. ... .. . ... . .. . . ,, ., . - -
l Alternative minimum tax . . . . . . . . . (1.896) .- -
l - Other . .. ,. .. . . ... ,, , ... . (1,601) 5,661 2,311 Total . .. . . . .., ,, .. . . , .. . , , . 8,871 82,750 133,021 Investment tax ' credits - net 4 . .. . . .. . . ... . . . (15,711) 59,109 64.243 Total to operating expenses. . ... . . . . ... . . . 135,738 201,446 264,584 Charged (credited) to other income:
- Current . .. .. . ... . ... . ..... ........ . ... .. 2,693 9,091 4,541 Deferred - net . ..... . ...... .. .. . . ,, . . . .. ,, . (1,891) 23 (1.450)
Total to other income . . . , , , , . . ., ,. , . 802 9.114 - 3,091 Total federalincome taxes . . . ..... . .. , . $136,540 $210.560 $267,675 Federal income taxes were less than the amount computed by applying the federal statutory rate to pre-tax book income as follows:
Year Ended December M, 1988 1987 1986
, Thousands of Dollars Federalincome taxes at statutory rate (34% for 1988. 39.95% for 1987 and 46% for 1986) . $300,425 $396.199 $450,785 Reductions in federal income taxes resulting from:
Allowance for funds used during construction . .. . ,, .. . 130,176 152,816 139,760 Depletion allowance. . . . .. .. . 22,662 26,393 23,770 -
Amortization ofinvestment tax credits . , , . ... , 13,812 13,697 13,347 Orher. .. . . . .. . .. .. . . . (2,765) (7,267) 6,233 Total reductions . , ,. . .,, .. 163,885 185,639 183.110 Total federat income taxes . . .. . . . $136,540 $210.560 $267,675 EKective tax rate , .. . .. . . . . . , , ,. 15.5 % 21.2 % 27.3 %
34
TEXAS LTilLITIES ELEQ XIC CONIPANY NOTES TO FINANCI AL STATENIENTS -(Continued) l 8. RETIRidf ENT PEAN AND OTHER Postal;llREMENT IlENE IITS
} The Company has a retirement plan covering substantially all employees. The benefits are based on years of accredited servie' and the employee's average annual earnings received during the thme years of highest earnings. The cost of the plan is determined by independent actuaries. Contributions .o the plan were determined using the frozen attained age method which is one of the several actuarial methods allowed by the Employee Retirement Income Security Act of 1974. Ileginning in 1986, pension cost for financial reporting purposes has been determined using the projected unit credit actuarial method, in accordance with the provisions of the Board's Statement of Financial Accounting Standards No. 87," Employers' Accounting for Pensions." The cumulative ditTerence between pension cost as determined for financial reporting purposes and contributions to the plan is recorded either as prepaid pension cost or as accrued pension liability.
In 1987, the Company otrered a special early retirement program to certain eligible employees which was recorded in accordance with the lloard's Statement of Financial Accounting Standards No. 88,
" Employers' Accounting for Settlements and Curtailments of Defined llenefit Pension Plans and for Termination llenefits."
The following tatle sets forth the plan's funded status and amount recognized in the Company's balance sheet:
- December 3 t, 1988 1987 Thousands of Dollars Actuanal present salue of accumulated benef tv Accumulated benefit obliganon (meludmg sested benetits of $458,720,000 for 1988 and $457,826,0un for l987) $ ( 503.861) $(510,829)
Projected benefit obligation for service rendereu to date $ (639,607) $(652,066)
Plan assets at fair salue, pnmarily equity investments. government bonds and corporate bonds . 726,601 632.897 Plan assets in excess of(less than) projected benefit obhgation . 86,994 (19,169)
Unrecognized net loss (gain) from past expenence difrerent from that assumed and effects of changes in assumptions. (96,618) 1,440 Prior sersice cost not yet recognized in net penodic pension expense 14,586 15,439 Unrecognized plan assets in excess of projected benefit obhgation at initial appheation . (10,722) (11,410)
Prepaid pension cost (accrued pension liability) . $ (5,750) $ (13,700)
Assumptions used for 1988 included a discount rate of 8.5% and an expected long-term rate of return on assets of 8.75%. Assumptions used for 1987 and 1986 included a discount rate of 8.0% and an expected long-term rate of return on assets of 8.0%, Assumptions for increases in compensation levels for 1988,1987 and 1986 were 5.3%, 5.3% and 6.3%, respectively. Effective January 1,1989, vesting in the retirement plan was reduced from 10 years to 5 years.
Total pension costs, including amounts capitalized, were comprised of the following components:
Decemher 31,
) 1988 19H7 1986
)
Thousands of Dollars Service cost - benefits earned dunng the penod 5 24.125 $ 23,919 $ 26.208 Interest cost on projected bendit ohhganon . 50,816 48,126 40,921 Actual return on plan assets . (99,749) (519) (87.306)
Net amortuation and deferral 50,697 (50,145)
_ 44.904 Net penodic pension cost . 25,889 21,381 24,727 Terrnination cost . -
36.097 -
Total pension cost . $ 25,889 $ 57.478 $ 24.727 In addition to the retirement plan, the Company offers certain health care and life insurance benefits to active and retired employees. The costs of such benefits are generally recognized as claims are paid. The costs 35
TEXAS UTILITIES ELECTRIC COMPANY NOTES TO FINANCIAL STATEMENTS-(Continued)
- 8. RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS-(concluded) of providing such benefits to retired employees, net of employee contributions, approximated $11,314,000 for 1988, $8,040,000 for 1987 and $6,570,000 for 1986.
- 9. LEASES The Company has entered into operating leases covering various facilities and properties including such items as transportation equipment, data processing equipment, office space and combustion turbines. The lease covering the combustion turbine generating facilities was entered into in late 1987 with an initial lease term of approximately 27 years. Lease costs charged to operation expense for the years ended December 31, 1988,1987 and 1986 were $26,785,000, $23,554,000 and $22,826,000, respectively.
The Company's future minimum lease commitments under such operating leases that have initial or remaining noncancellable lease terms in excess of one year as of December 31,1988 were as follows:
Combustion g Turbines Other Total Thousands of Dollars 1989 5 16.511 514,448 5 30,959 1990 , 16,521 12,586 29,107
~
1991 16,521 8,477 24.998 1992 16,521 5,392 21,913 1993 16,521 4,413 20,934 Thereafter . 429,152 6.713 435,865 Total minimum lease commitments. 5511,747 552.029 5563,776
- 10. COMANCHE PEAK NUCLEAR GENERATING STATION The Company is constructing two nuclear-fueled generating units at the Comanche Peak nuclear generating station (Comanche Peak), each of which is designed for a capability of 1,150 megawatts. This project is subject to the jurisdiction of the Nuclear Regulatory Commission (NRC). NRC regulations govern the granting oflicenses for the construction and operation of nuclear power plants and subject such plants to continuing review and regulation. After giving effect to the acquisition of all of the interests of TMPA and BEPC, the Company's ownership share in each unit is 1,125 megawatts, or 975/67c. The other participant in the facility is Tex-La Electric Cooperative of Texas, Inc. (Tex-La), which owns the remaining 21/67c interest.
Licenses The NRC has been reviewing the Company's application for operating licenses for the Comanche Peak units. In March 1984, the NRC established a task force to consolidate and carry out the various reviews necessary for the NRC Staff to reach its decision regarding the operating licenses. This effort involved the establishment of a Technical Review Team (TRT), which conducted an intensive onsite investigation and subsequently issued reports that requested additional information from the Company whh respect to several functional areas of the plant's construction program and described deficiencies that had been found, primarily in the area of quality assurance / quality control. The Company then formed a special team, the Comanche Peak Response Team, which included a number ofindependent experts in each area addressed by the TRT, and submitted a Program Plan to the NRC to respond to the questions raised. Such Program Plan, which was revised in June 1985, substantially revised and reissued in January 1986, and further revised in July 1987, is presently being implemented. It provides for a complete design review of virtually all safety related systems in the plant and the development of a corrective action program for design and construction issues as 36
TEXAS UTILITIES ELECTRIC CO31PANY NOTES TO FINANCIAL STATEMENTS -(Continued)
- 10. COMANCHE PEAK Nuct EAR GENERATING STATION -(continued) -
required. In February 1987, in order to carry out the NRC Staff review, the NRC created an Office of Special Projects to manage all aspects of the NRC's licensing and inspection efforts for Comanche Peak and certain ser nuclear power plants. In January 1988, the NRC Staff approved the Program Plan and corrective action program as the basis to resolve outstanding issues.
Until July 1988, an Atomic Safety and Licensing Board (ASLB) was involved in the NRC's review process. Proceedings on various issues had been ongoing before this ^SLB since December 1981 and an intervenor was actively involved in such proceedings. In July 1988, these ASLB proceedings were dismissed pursurnt to a Joint Stipulation and a Joint Motion for Dismissal filed by the Company, the intervenor and the NRC StatT. Under the terms of this Motion for Dismissal, the Company will continue to implement its corrective action program and a representative of the intervenor has been appointed as a member of the Operations Review Committee for Conianche Peak (ORC) and will be actively involved in the corrective ,
action process. The OFC is required by the Comanche Peak technical specifications and reviews operational and other safety related matters. The dismissal of the ASLB proceedings was part of an overall settlement between the intervenor and the Company. In addition, the Company has resolved claims by workers formerly employed at Comanche Peak who had employment discrimination claims or suits against the Company or its contractors, and it has reimbursed the intervenor for expenses incurred by the intervenor in connection with its activities relating to the licensing of Comanche Peak. The Company must still, however, resolve remaining issues to the satisfaction of the NRC StatT before the Staff can make a recommendation for licensing to the NRC. In making its decision, the NRC is expected to rely largely on detailed technical inspections conducted by the Staff at Comanche Peak, and also the TRT inspection.
In August 1988, after the dismissal of the ASLB licensing proceedings discussed above, a request for hearing and petition for leave to intervene was filed with the NRC by another group seeking intervenor status.
Such request asked the NRC to reopen the licensing hearings. In December 1988, the NRC issued a Memorandum and Order denying this petition. This decision has been appealed by this group to the ' United States Court of Appeals for the Fifth Circuit.
At various times in the past, the Company has paid civil penalties to the NRC relating to the findings of the TRT, allegations of harassment and intimidation at Comanche Peak and violations of the Company's reinspection and corrective action efTort.
The construction permit for Comanche Peak Unit I has been extended until a " latest date for completion" of August 1,1991, and the construction permit for Unit 2 has been extended until a " latest date for completion" of August 1,1992.
Litigation The Company and Tex-La are owners of undivided interests in Comanche Peak under the terms of a Joint Ownership Agreement (Agreement) which provides that the Company is the Project Manager for Comanche Peak. Since May 1986, Tex La has failed to make payments to the Company for its portion of ,
Comanche Peak. Accounts receivable at December 31,1988 included $51,116,000 due from Tex La. In May ~
1986, the Company filed suit in the 14th Judicial District Court of Dallas County, Texas against Tex La because of controversies which exist under the Agreement with respect to the obligations of the parties. The Company sought recovery of damages against Tex-La for its anticipatory breach of the Agreement and asked for a declaratory judgment against Tex-La, declaring among other things that it was obligated to pay its share of the remaining costs of construction of Comanche Peak and that the Company has not failed to use prudent utility practices in constructing Comanche Peak in accordance with the Agreement. Tex La filed a cross-37
( TEXAS UTILITIES ELECTRIC COMPANY NOTES TO FINANCI AL STATEMENTS --(Continued) i
- 10. CostANcHE PEAK NUCLEAR GENERATING STATION -(continued) action in such suit against the Company and Texas Utilities asserting various causes of action, including a number of alleged t; reaches of the Agreement by the Company and violations of the Texas Deceptive Trade q Practices Act (DTPA). In September 1986, the Court in this suit ruled in favor of the Company with regard l to a plea of Tex-La attempting to change the venue of such suit; and in July 1988 it dismissed the DTPA j claims. In June 1986, Tex-La fded suit in the 98th Judicial District Court of Travis County, Texas against the Company and Texas Utilities. The petition asserted various causes of action, including a number of alleged breaches of the Agreement by the Company and violations of the DTPA, and asked for rescission and modification of the Agreement and payment for damages, including treble damages based upon violations of )
the DTPA. The Company and Texas Utilities intend to vigorously contest this suit, which has been stayed as a result of the September 1986 ruling in the Dallas County suit The Company and Tex-La are currently involved in settlement negotiations and thus have agreed to a terrporary stand-still in the legal proceedings.
It is expected that the Dallas County suit will be tried in the late t pring of 1989 if the current discussions do not result in a settlement agreement. The Company cannot predi. t the outcome of either the discussions or the suits at this time.
The Texas Municipal Power Agency (TMPA) and the Braze i Electric Power Cooperative, Inc. (BEPC) previously had also owned undivided interests in Comanche Pea o In August 1988 and December 1988, the Company finalized agreements to purchase the minority ownership interests of TMPA and BEPC, respectively, in Comanche Peak. (See Note 11 concerning the terms of these agreements.) TMPA and BEPC were also defendants in the Dallas County suit mentioned above and had also filed suits in Travis County, Texas against the Company and its affiliates, in conjunction with Tex-La in the case of TMPA, and separately, but in a similar suit in the case of BEPC. Pursuant to the foregoing agreements, all claims in these suits between the Company and its affiliates, and TMPA and BEPC have been dismissed.
Cost and Schedule Estimates In March 1988, the Company announced that following its review of the cost and schedule for Comanche Peak, commercial operation of Unit I was anticipated at the end of 1989. All Unit I corrective action activities were scheduled for completion to permit fuel loading in mid-1989. The Company also announced the temporary suspension of construction activities and accrual of AFUDC on Unit 2 beginning in April 1988 for a period of approximately one year. Unit 2 was not expected to be ready for commercial operation uniil after the 1991 peak season. The delay of Unit 2 was implemented to allow the Company to concentrate its resources on the completion of Unit 1, thereby reducing the duplication of efrort that would be required to maintain the previous timing between the two units and strengthen the Company's ability to manage construction and start-up activities for both units more efficiently with fewer personnel. Additionally, such I delay will allow time to make a more complete determination of any modifications that may be required for Unit 2 based upon the knowledge gained from the reinspection and corrective action program applied to j Unit 1. The delay of Unit 2 will also permit the Company time to implement rates for Unit 1 prior to the j fmal completion and operation of Unit 2. Although construction on Unit 2 has been temporarily suspended, l there are some ongoing expenditures required to maintain the unit until construction is resumed.
Additionally, to the extent the work necessary to place Unit 1 into sersice affects sarious common systems, some capital expenditures are associated with Unit 2.
Based upon this schedule, the total cost of the Company's 97%#c share of the plant, excluding AFUDC, ;
would be $6.69 billion. The estimated cost of the Company's share, including AFUDC, would be $8.90 billion :
or about $3,950 per kilowatt. Because of the uncertainty regarding the date of commercial operation of Unit I 2, no provision has been included in such amount for reestablishing the accrual of AFUDC on Unit 2 after construction resumes.
38
. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - - _ _ _ _ _ 4
TEXAS UTILITIES ELECI'RIC COMPANY NOTFS TO FINANCIAL STATEMENTS -(Continued) I
- 10. COMANCi!E PEAK NUCLEAR GENERATING STATION -(concluded)
In February 1989, the construction of Unit 1 is approximately three months behind the schedule announced in March 1988, which will delay the fuel loading and commercial operation dates for Unit 1 and the restart of construction of Unit 2 for a corresponding period. Such delay will not affect the peak season in-service dates of 1990 for Unit I and 1992 for Unit 2. Although a new cost estimate has not been developed, a three month delay willincrease the estimated project cost; however, such increase should not be material in l relation to the total cost of the project.
Due to numerous uncertainties, no assurance can be given that further slippage in the schedule will not occur or that the estimated completion cost will not be exceeded which would likely increase financing l requirements. Because of the three month delay and the other uncertainties, estimated construction expenditures (Electric Property- Production) for 1989 and 1990 include approximately $300 million and
$100 million, respectively, as a contingency to provide for sach events. At December 31,1988 and 1987, the Company's investment in Comanche Peak, including AFUDC, was $7,688,000,000 and $5,808,000,000, respectively, of which $1,284,000,000 has been allowed in rate base by regulatory authorities. The Company has indicated that it does not currently plan to implement increased electric service rates which reflect any additional Comanche Peak costs until Unit 1 is ready for commercial operation. The Company continues to believe, based upon revised cost estimates and using acceptable ratemaking approaches and assumptions, that the rate increase, when Unit I goes into service, can be held to about 10E Such rate application will be subject to cht.llenge with respect to the prudence of certain costs, for which an estimate is not presently determinable. Accordingly, no provision for loss, if any, has been made in the fmancial statements of the Company.
- 11. COMMITMENTS AND CONTINGENCIES Construction Program For major construction work now in progress or contemplated, and commitments with respect thereto, see Item 2, Properties-Construction Program.
Cooling Water Contracts The Company has entered into contracts with public agencies to purchase cooling water for use in the generation of electric energy and has agreed, in effect, to guarantee the principal, $46,630,000 at December 31,1988, and interest on bonds issued to finance the reservoirs from which the water is supplied. The bonds mature at various dates through 2011 and have interest rates ranging from 5%% to 9% The Company is required to make periodic payments equal to such principal and interest for the years 1989 through 1993 as follows: $4,396,000 for 1989, $4,423,000 for 1990, $4,435,000 for 1991, $4,430,000 for 1992 and $4,392,000 for 1993. In addition, the Company is obligated to pay certain variable costs of operating and maintaining the reservoirs. Total payments, including amounts capitalized, under such contracts for 1988,1987 and 1986 were $4,404,000, $4,400,000 and $4,833,000, respectively. The Company has assigned to a municipality all contract rights and obligations in connection with $98,260,000 remaining principal amount of bonds at i
December 31,1988 issued for similar purposes which had previously been guaranteed by the Company; the l Company is, however, contingently liable in the event of default by the municipality.
l l Capacity and Energy Purchase 1
The Company entered into an agreement in 1982 with Tex-La, a 2%% owner of Comanche Peak, whereby the Company agreed to purchase an assignment of portions of Tex La's entitlement to capacity and 39
_______j
I TEXAS UTILITIES ELECI'RIC COMPANY NOTES TO FINANCIAL STATEMENTS -(Concluded)
- 11. COMMITMENTS AND CONTINGENCIES-(cencluded) energy from Comanche Peak in declining amounts over the first eight years of commercial operation of each generating unit. Under the agreement, the Company is required to make annual payments to Tex-La comprising a pro rata share of operating costs plus a capital charge on Tex La's net investment applicable to the portion of Tex-La's entitlement assigned. (See Note 10 concerning litigation proceedings regarding Tex-La's participation in Comanche Peak.)
Martin Lake Unit 1 Construction Cancellation In November 1986, the Company announced that it was not economically feasible to construct a fourth unit at the Martin Lake generating station (Martin Lake Unit 4) and cancelled the project which was scheduled for service in 1994. Pursuant to expected regulatory treatment, the present valc of expected future recovery of costs of approximately 531,848,000, including contractor termination costs, have been recorded as a deferred asset to be amortized as approved by regulatory authorities. The application in 1988 of the Board's Statement of Financial Accounting Standards No. 90, " Regulated Enterprises- Accounting for Abandonments and Disallowances of Plant Costs" to the accounting for the abandonment of Martin Lake Unit 4 did not have a material effect on the Company's financial statements.
Purchase of Minority ownership Interests in Comanche Peak In February 1988, the Company entered into an agreement with TMPA to purchase TMPA's ownership interest in Comanche Peak and an initial closing of the transaction occurred in August 1988. The purchase price, totaling approximately $456.9 million, is based on the Company's incurred cost per kilowatt, including AFUDC, for its existing share plus payment for TMPA's interest in the nuclear fuel for Comanche Peak, certain transmission facilities associated with Comanche Peak and certain expenses. In connection with the purchase of TMPA's ownership interest by the Company, all outstanding claims and pending lawsuits between TMPA and the Company and Texas Utilities have been settled and terminated. Payments of approximately $101.9 million plus interest were made by the Company in 1988. Under the terms of the agreement, beginning in February 1989, the Company will pay the remaining $355.0 million in ten equal semi-annual payments including interest, each in the amount of approximately $45 million, for the balance of the purchase. For accounting purposes, the transa: tion is treated as a completed purchase of electric plant; however, under the terms of the agreement, legal title to the purchased assets rasses to the Company at the time of, and in proportion to, each payment made. Texas Utilities has unconditionally guaranteed these payments.
In July 1988, the Company entered into an agreement with BEPC to purchase bel'C's ownership interest in Comanche Peak and finalization of the agreement occurred in December 1988. The purchase price, totaling approximately 5297.7 million, is based on the Company's incurred cost per kilowatt, including AFUDC, for its existing share plus payment for BEPC's interest in the nuclear fuel for Comanche Peak, certain transmission facilities associated with Comanche Peak and certain expenses. In connection with the purchase of BEPC's ownership interest by the Company, all outstanding claims and pending lawsuits between BEPC and the Company, Texas Utilities, Texas Utilities Mining Company and Texas Utilities Services Inc.
have been settled and terminated. Under the terms of the agreement, the Company made initial payments of approximately $18.4 million plus interest, applied accounts receivable from BEPC of approximately $84.8 million and issued a promissory note in the amount of $194.5 million payable to BEPC over approximately 33 years.
General In addition to the above, the Company is involved in various legal and administrative proceedings which, in the opinion of the Company, should not have a material efTect upon its financial position or results of operations.
40
TEXAS UTILITIES ELECTRIC COMPANY STATEMENT OF RESPONSIBILITY The management of Texas Utilities Electric Company is responsible for the preparation, integrity and objectinty of the fmancial statements of the Company and other information included in this report. The financial statements have been prepared in conformity with generally accepted accounting principles. As appropriate, the statements include amounts based on informed estimates and judgments of management.
The management of the Company has established and maintains a system of imernal control designed to provide reasonable assurance, on a cost-effective basis, that assets are safeguarded, transactions are executed in accordance with management's ashorization and financial records are reliable for preparing financial statements. Management believes that the system of control provides reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected within a timely period. Key elements in this system include the effective communication of established written policies and procedures, selection and training of qualdied personnel and organizational arrangements that provide an appropriate division of responsibility. This system of control is augmented by an ongoing internal audit program designed to evaluate its adequacy and effectiveness. Management considers the recommendations of the internal auditors and independent certified public accountants concerning the Company's system of internal control and takes appropriate actions which are cost effective in tha circumstances. Management believes that, as of December 31,1988, the Company's system ofinternal control was adequate to accomplish the objectives discussed herein.
1 The ind.: pendent certified public accounting firm of Deloitte liaskins & Sells is engaged to audit, in accordance with generally accepted auditing standards, the financial statements of the Company and to issue their report thereon.
/s/ ERI.E NYE Erle Nye, Chairman of the Board and Chief Executive Officer
/s/ T. L. BAKER T. L. Baker, Senior Vice President and Principal Financial Officer
/s/ S. S. SWsGER S. S. Swiger, Vice President, Controller and Principal Accounting Officer l
41
\
i l !
1 INDEPENDENT AUDITORS' REPORT )
Texas Utilities Electric Company: l 1
We have audited the balance sheet of Texas Utilities Electric Company as of December 31,1988 and 1987 I and the related statements ofincome, retained earnings and cash flows for each of the three years in the period -l ended December 31,1988. These financial statements and the supplemental schedules discussed below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial ,
statements based on our audits. '
l 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 l 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 I 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 fmancial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31,1988 and 1987, and the results of its operations and its cash flows for each of the three years in the period ended December 31,1988, in conformity with generally accepted accounting principles.
Our audits also comprehended the supplemental schedules listed in Item 14.(a)2. In our opinion, such supplemental schedules, when considered in relation to the basic financial statements, present fairly in all material respects the information shown therein.
DELOrrrE HASKINS & SELLS ,
Dallas, Texas February 17,1989 42 l
1-
Item 9. CHANGES IN AND DISAGREEMENTS WITII ACCOUNTANTS ON ACCOUNTING AND FINANCI AL DISCLOSURE. l None PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. l Identification of directors, business experience and other directorships:
Other Positions and Offices Pruently Present Principal Occupation lleld With the Company Date First or Employment and Principal (Term Expires Elected as Business (Preceding Five years),
Name of Officer Aj,e May 19,1989) Director Other Directorships Erle Nye 51 Chairman of the Board September 17,1982 President of Texas Utilities, the parent i and Chief Executive company of the Company; prior thereto Executive Vice President of Texas Utilities; other directorships: Texas Utilities. l E. D. Scarth 61 Division President May 20,1986 President of Texas Electric Service Division; l I
prior. thereto Vice President of Texas Electric Service Division. j Michael D. Spence 47 Division President September 17,1982 President of Generating Division; prior l thereto Executive Vice President of Texas l' Utilities.
W. M. Taylor 46 Division President May 20,1986 President of Dallas Power Division; prior l thereto Vice President of the Company; i prior thereto Vice President of Texas l Electric Service Division. l T. L. Baker 43 Senior Vice President February 20,1987 Senior Vice President of the Company; pnor- !
thereto Vice President of the Company. l Tom Blakey ' 56 Executive Vice President May 23,1988 Vice President of Texas Power Division; prior j thereto served in other ' management j positions with Texas Power Division.
J. S. Farrington 54 None September 17,1982 Chairman of the Board and Chief Executive ;
Officer of Texas Utilities; prior thereto !
President of Texas Utilities; other directorships: Texas Utilities.
E. L. Watson 54 Senior Vice President February 20,1987 Senior Vice President of the Company; prior thereto Vice President of the Company. j Identification of executive officus and business experience: I Positions and Offices l Presently IIeld (Current Term Expires Date Elected to Business Experience Name of Odicer Ay May 19.1989) Present Office (s) (Preceding Five Years)
Erle Nye 51 Chairman of the Board February 20,1987 President of Texas Utilities, the parent !
and Chief Executive company of the Company; prior thereto Executive Vice President of Texas Utilities. 1 William G. Counsil 51 Vice Chairman December 21,1988 Executive Vice President of Generating i Division; prior thereto Senior Vice I Presidcat of Northeast Utilities. l E. D. Scarth 61 Division President May 20,1986 Vice President of Texas Electric Service Division.
Michael D. Spence 47 Division President January 1,1984 Executive Vice President of Texas Utilities. j W. M. Taylor 46 Division President May 20,1986 Vice President of the Company; prior thereto j Vice President of Texas Electric Service !
Division.
T. L. Baker 43 Senior Vice President May 20,1986 Vice President of the Company; prior thereto ;
Vice President of Dallas Power Division. l i
43
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF TIIE REGISTRANT (Concluded). -,
Identification of executive officers and business experience (concluded):
Positions and 061ces Presently IIeld (Current Term Expires Date Elected to Business Experience Name of Officer g May 19.1989) Present 00 ice (s) (Preceding Five Years)
E. L. Watson 54 Senior Vice President May 20,1986 Vice President of the Company; prior thereto Vice President of Texas Electric Service Division.
Tom Blakey 56 Executive Vice President July 14,1987 Vice President of Texas Power Division; prior j
thereto served in other management positions with Texas Power Division.
M. S. Greene 43 Vice President December 21,1988 Served in other management positions in the Company.
T. R. Locke, Jr. 51 Vice President January 1,1984 Vice President of TU Services.
T. Michael Ozymy 48 Vice President May 20,1986 Served in other management positions in the Company.
G. W. Sellar 55 Vice President January 1,1984 Vice President of Dallas Power Division. ..
S. S. Swiger 53 Vice President and January 1,1984 Controller of Texas Utilities.
Controller Paul D. Williarr.s 49 Vice President December 17,1986 Vice President of Texas Electric Service Division; prior thereto served in other .
management positions with Texas Electric Service Division.
Peter B. Tit,kham 44 Secretary September 24,1982 Secretary and Assistant Treasurer of Texas Utilities.
H. Dan Farell 39 Treasurer and Assistant December 28,1987 Director of Finance of TU Services; Secretary Controller of TU Services and served in other management positions in TU Services.
G. A. Engelland, Ill 46 Assistant Secretary October 25,1988 Served in other management positions in the Company.
J. D. Karney 55 Assistant Controller December 17,1986 Controller of Dallas Power Division; prior thereto Treasurer and Assistant Secretary of Dallas Power Division.
J. P. Knierim 46 Assistant Treasurer January 1,1984 Treasurer and Assistant Secretary of Texas Electric Service Division.
Gary L. Price 44 Assistant Controller January 1,1984 Treasurer and Assistant Secretary of Texas Power Division.
There is no family relationship between any of the above named executive officers.
44
J l
1 i
L Itern 11. EXECUTIVE COMPENSATION. I The Company paid cash compensation during 1988 to the following executive oflicers for services in all capacities:
Name ofIndividual and number of Capacity in which Cash persons in group compensation was received compensation Erle Nye . . . . . . . . . . . . . . . . . Chairman of the Dourd and Chief Executive $ 354,167(1)
Michael D. Spence . . . . . . . . . . Division President 265,500 E. L. Watson . . . . . . . . . . . . . . . . senior vice President 173,750 E. D. Scarth . ......... Division President 170,833 l
W. M. Taylor . . . . . . . . . . . . . . toision President 170,833 All executive officers of the l Company as a group (15),
not including those named above . . . .......... ... ... . .. . 1,638,551(2)
(1) Consists entirely of compensation paid by Texas Utilities.
(2) Includes compensation paid by the Company, Texas Utilities and TU Services. Does not include payments for any portion of the period durmg which any individual was not an executive officer of the Company.
Under the Employees' Thrift Plan of the Texas Utilities Company System, all employees with at least one year of full time service with any of the System Companies may invest up to 12% of their regular salary or wages in coa non stock of Texas Utilities, a United States Government Bond fund, a guarmiteed fixed income fund, an equity mutual fund or a percentage in each. Employer-corporations make a contribution to each participant's account of 40%,50%, or 60% of the employee's savings, up to the 6% level, depending upon length of service, which amount is invested in the common stock of Texas Utilities. During 1988, employer contributions under this Plan made for all executive officers of the Company as a group (20) amounted to $72,486, including contributions made for Messrs. Nye, Spence, Watson and Searth in the amounts of $11,250, $7,954, $5,634, $5,538, respectively. Employer contributions are not included in amounts
'mder Cash Compensation in the table above.
Under the Deferred and incentive Compensation Plan of the Texas Utilities Company System, officers of Texas Utilities and its subsidiaries with a title of Vice President or above may defer a percentage of their compensation not to exceed a maximum percentage determined by the Board of Directors for each Plan year and in any event not to exceed 15% of the participant's compensation. For the Plan year 1988, the maximum deferral percentage was 10E Such deferred compensation is included in amounts reported under Cash Compensation in the table above. The Company will make a matching award equal to 150% of the deferred compensation. In addition, the Company can also make incentive awards. In no event will the sum of all incentive awards in any Plan year exceed 25% of the aggregate compensation of eligible employees. The Company will establish accounts for each participant containing performance units equal in number to the number of shares of common stock purchased by a trustee with an amount of cash equal to the deferred compensation, matching award and any incentive award. On the expiration of the applicable maturity period (3 years for incentive awards and 5 years for deferrals and matching awards), the value of the participants' accounts will be paid in cash. The maturity requirement is waived if the participant dies or becomes totally
. and permanently disabled.
The Company maintains a retirement plan qualified under applicable provisions of the Internal Revenue Code. Annual retirement benefits are computed as follows: For each year of accredited service prior to age 65,1.3% of the first $7,800, plus 1.5% of the excess over $7,800 of average annual earnings received by the participant during his three years of highest earnings. Such benefits are not subject to any reduction for Social Security payments. Amounts reported as salaries for specified officers approximate earnings as defined by the retirement plan. As of January 31,1989, years of accredited service under the plan for Messrs. Nye, Spence, 45
Item 11. EXECUTIVE COMPENSATION (Concluded).
Watson, Scarth and Taylor were 26,22,29,36 and 20, respectively. The table below illustrates the annual
~
benefit payable at retirement after age 65 under this formula:
3-year average 20 years 30 years 40 years annual earnings service service service
$ 25,000 $ 7,188 $ 10,782 $ 14,376 50,000_ 14,688 22,032 29,376 100,000 29,688 44,532 59,376 200,000 59,688 89,532 119,376 400,000 119,688 179,532 239,376 500,000 149,688 224,532 299,376 Benefits payable from a qualified retirement plan are limited by provisions of the Internal Revenue Code.
The Company maintains a Supplemental Retirement Plan which provides for the payment of retirement benefits calculated in accordance with the foregoing retirement plan formula which would otherwise be limited by the provisions of the Internal Revenue Code. The Plan has been amended and s trust has been authorized to provide for the funding of certain benefits under the Plan, Any benefits not paid from the trust are payable from the Company's general funds.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Security ownership of certain beneficial owners at January 31,1989:
Amount and Nature Name and Address of Beneficial Title of Class of Beneficial Owner Ownership Percent of Class Common Stock, Texas Utilities Company 118,925,000 shares 100.0 %
without par value. 2001 Bryan Tower sole voting and of the Company Dallas, Texas 75201 investment power Security ownership of management at December 31,1988:
Number of Shares Title of Class Beneficially Owned
- Percent of Class Preferred Stock, without par value, of the Company 4 Less than 1%
Common Stock of Texas Utilities (parent) 92,046 Less than 1%
- Amount of shares with respect to which such persons have the right to acquire beneficial ownership:
None.
I Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
46
l PART IV -
Item 14. EXHIBITS, FINANCIAL STATEMENT SCIIEDULES AND HEPORTS ON FORM 8-K.
(a) Documents' filed as part of this Report, l' age
- 1. Financial Statements (included in Item 8, Financial Statements and Supplementary Data):
Statement of Income for each of the three years in the period ended December 31,1988. ... ..... ... ... .. .. .. .. .. . 24 Statement of Cash Flows for each of the three years in the period ended December 31,1988 . ....... . . ........... . .......... 25 Balance Sheet, December 31,1988 and 1987 . . . . . . ... .. ... . .. . 26
. Statement of Retained Earnings for each of the three years in the period ended December 31,1988 ........... ................. ..... 28 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... . -29 Statement of Responsibility .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . .. 41 Independent Auditors' Report . . . . . . . . . ....... ............. ........... . 42
- 2. Financial Statement Schedules:
V-Electric Plant for each of the three years in the period ended December 31,1988.. ....... ... .. . ....... ..... ..... ... ....... ... 54 VI-Accumulated Depreciation for each of the three years in the period ended December 31,1988.. .......... ........ ................... ... 55 VIII-Valuation and Qualifying Accounts for each of the three years in the period ended December 31,1988...................................... ...... 56 X-Supplementary Information for each of the three years in the period ended December 31,1988.. ......... ...... .... .... .... . ........ 57-The following financial statement 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 or notes thereto: I, II, III, IV, VII, IX, XI, XII and XIII.
(b) Reports on Form 8-K:
Reports on Form 8-K filed since September 30,1988, .are as follows:
Date of Report items Reported December 27,1988 Item 5. OTIIER EVENTS (c) Exhibits:
- 3(a)-Articles of Incorporation of Texas Utilities Electric Company (filed as Exhibit 4(a), File No. 2-91002).
- 3(a)-1-Statement of Resolution establishing Thirty-third Series of Preferred Stock of the Company (filed as Exhibit 4(b)-1, File No. 2-91002).
- 3(a)-2-Statement of Resolution establishing Thirty fourth Series of Preferred Stock of the Company (filed as Exhibit 4(b)-2, File No. 2 97786).
- 3(a)-3-Statement of Resolution establishing Thirty.fifth Series of Preferred Stock of the Company (filed as Exhibit 4(b)-3, File No. 33-5528).
- 3(a)-4-Statement of Resolution establishing Thirty-sixth Series of Preferred Stock of the Company (filed as Exhibit 4(b)-4, File No. 33-14585).
- 3(a)-5-Statement of Resolution establishing Thirty-seventh Series of Prefereed Stock of the Company (filed as Exhibit 4(b)-5, File No. 33-14585).
47
l l
l
- j. 1 Item 14. EXIIIBITS, FINANCIAL STATEMENT SCIIEDULES AND REPORTS ON FORM 8-K, (Continued).
3(a)-6-Statement of Resolution establishing Thirty-eighth Series of Preferred Stock of the Company.
3(a)-7-Statement of Resolution establishing Thirty-ninth Series of Preferred Stock of the Company.
- 3(b)-Bylaws of Texas Utilities Electric Company (filed as Exhibit 3(b), File No. 2-80537).
- 4(a)-DALLAS POWER & LIGIIT COMPANY
' Mortgage and Deed of Trust, dated as of February 1,1937, between Dallas Power & Light Company and Old Colony Trust Company, as Trustee (The First National Bank of Boston, as successor Trustee), filed as Exhibit B-2, File No. 2-2801.
TEXAS ELECTRIC SERVICE COMPANY q Mortgage and Deed of Trust, dated as of March 1,1945, between Texas Electric Service Company and The Fort Worth National Bank, as Trustee (Texas . merican Bank / Fort Worth, L N.A., as successor Trustee), filed as Exhibit 7(b), File No. 2-5609.
i TEXAS POWER & LIGIIT COMPANY -
Mortgage and Deed of Trust, dated as of May 1,1945, between Texas Power & Light Company and Republic National Bank of Dallas, as Trustee (NCNB Texas National Banic, as successor -
Trustee), filed as Exhibit 7(c),- File No. 2-5718.
TEXAS UTILITIES ELECTRIC COMPANY Mortgage and Deed of Trust, dated as of December 1,1983, between Texas Utilities Electric Company and Irving Trust Comp.my, as Trustee. filed as Exhibit 4(a), File No. 2-90185.
- 4(b)-Supplemental Indentures to Mortgage and Deed of Trust.
DALLAS POWER & LIGliT COMPANY Number Dated File Re,erence Exhibit First April 1,1949 2-7855 7(a)
Second June 1,1950 2-8466 7(a)-2 .
Third March 1,1953 2-10071 4(b)-3 !
Fourth February 1,1956 2-12200 2(b)-1 l Fifth December 1,1956 2-77857 4(b)-5 l
Sixth December 1,1959 2-77857 4(b)-6 Seventh February 1,1963 2-20997 2(b)-7 Eighth January 1,1966 2-77857 4(b)-8 Ninth February 1,1967 2-25805 2(b)-9 Tenth June 1,1970 2-37161 2(c) i Eleventh November 1,1971 2-42043 2(c)
Twelfth September 1,1972 2-45403 2(c)
Thirteenth March 1,1975 2-52708 2(c) j Fourteenth May 1,1977 2-77857 4(b)-14 Fifteenth June 1,1981 2 71621 4(c)
Sixteenth November 1,1981 2-77857 4(b)-16 Seventeenth July 1,1982 2-77857 4(c)
Eighteenth November 1,1982 2-81476 4(b)-18 Nineteenth February 1,1983 2-81476 4(c)
Twentieth June 1,1983 2-90185 4(c)-1 Twenty-first January 1,1984 2-90185 4(c)-2 Twenty 4econd April 1,1984 2-90185 4(c)-3 Twenty-third September 1,1984 2-92738 4(b)-1 48
lL Item 14. EXHIBITS, FINANCIA'L STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (Continued).
DALLAS POWER & LIGHT COMPANY (Concluded)
Number Dated - File Reference Exhibit Twenty-fourth September 1,1985 2-99940 ' 4(b)-1 Twenty-fifth October 1, '986 33-11326 4(b)-1 Twenty-sixth March 1, it ' 33-14584 4M 1 Twenty-seventh - July 1,1987 33-24039 4 J.,)-1 TEXAS ELECTRIC SERVICE COMPANY Number . Dated File Reference, Exhibit First- October 1,1947 2-7186 7(b)
Second April 1,1948 2-7423 7(c)
Third April 1,1949 2-7894 7(d)
Fourth June 1,1951 2-8982 7(e)
Fifth May 1,1952 2-9547 4(c)
Sixth April 1,1953 2-10118 4(c)
Seventh March 1,1955 2-12227 2(c)
Eighth March 1,1956 2-60449 2(b)-1 Ninth July 1,1957 2-60449 2(b)-1 Tenth November 1,1958 2-60449 2(b)-1 Eleventh April 1,1963 2-21105 2(b)
Twelfth February 1,1965 2-23056 2(b)
Thirteenth February 1,1966 2-24384 2(c)
' Fourteenth May 1,1967 2-26297 2(c)
Fifteenth March 1,1969 2 31474 2(c)-
Sixteenth October 1,1970 2-38358 2(c)
Seventeenth April 1,1971 2-39627 2(c)
Eighteenth January 1,1972 2-42552 2(c)
Nineteenth April 1,1974 2 60449. 2(b)-1 Twentieth December 1,1974 2-60449 2(b)-1 Twenty-first June 1,1975 2-60449 2(b)-1 Twenty-second March 1,1976 2-60449 2(b)-1 Twenty-third February 1,1979 2-63425 2(c)
Twenty fourth March 1,1980 2-66633 2(c)
Twenty-fifth November 1,1981 2-74809 4(c)-1 Twenty-sixth December 1,1981 2-74809 4(d)-1 Twenty-seventh April 1,1982 2-76675 4(c)
Twenty-eighth November 1,1982 2-80329 4(c)
Twenty ninth December 1,1982 2-80329 4(d)
Thirtieth June 1,1983 2-90185 4(d)-1 Thirty-first January 1,1984 2-90185 4(d)-2 y Thirty-second April 1,1984 2-90185 4(d)-3 Thirty-third September 1,1984 2-92738 4(c)-1 Thirty-fourth August 1,1985 2-99940 4(c)-1 Thirty-fifth March 1,1986 33-9583 4(c)-1
, Thirty-sixth . December 1,1986 33-11376 4(c)1 1 Thirty-seventh February 1,1987 33-14584 4(c)-1 Thirty-eighth September 1,1987 33-24089 4(c)1 49 l
Item 14. EXIIIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8 K (Continued).
TEXAS ELECTRIC SERVICE COMPANY (Concluded)
Number Dated File Reference Exhibit Thirty-ninth October 1,1987 33-24089 4(c)-2 Fortieth March 1,1987 33-24089 4(c)-3 Forty-Sot September 1,1988 Form 8-K, 4(a)
File No. 0-11442 (September 13, 1988)
TEXAS POWER & LIGHT COMPANY Number Dated File Reference Exhibit First October i,1947 2-7204 7(a)
Second April 1,1948 2-7446 7(a) ,
Third April 1,1952 2 9474 4(c)
May 1,1953 Fourth 2-10?O4 4(c)
Fifth October 1,1954 2-11162 2(b)
Sixth November 1,1956 2-12856 4(c)
Seventh December 1,1958 2-14553 2(b)
Eighth January 1,1961 2-19452 2(b)-1 Ninth February 1,1963 2-21028 2(b) l i
Tenth January 1,1965 2 24326 2(c)
Eleventh February 1,1966 2 24326 2(d)
Twelfth February 1,1967 2-25885 2(c)
Thirteenth January 1,1968 2 27853 2(c)
Fourteenth February 1,1970 2-35941 2(c)
Fifteenth September 1,1970 2-38171 2(c)
Sixteenth February 1,1971 2-39083 2(c)
Seventeenth February 1,1972 2-42763 2(c)
Eighteenth February 1,1973 2-46740 2(c)
Nineteenth February 1,1974 2-73790 4(b)-19 Twentieth October 1,1974 2-73790 4(b)-20 Twenty-first April 1,1975 2-52865 2(c)
Twenty-second January 1,1976 2-55210 2(c)
Twenty-third February 1,1977 2 57963 2(c)
Twenty-fourth February 1,1979 2-63369 2(c)
Twenty-fifth May 1,1980 2-67594 (b)(2)-2 Twenty-sixth September 1,1981 2-73790 4(c)
Twenty-seventh November 1,1981 2-77733 4(b)
T wenty-eighth June 1,1982 2-77733 4(c)
Twenty-ninth November 1,1982 2-90185 4(e)-1 Thirtieth June 1,1983 2 90185 4(e)-2 Thirty-first October 1,1983 2-90185 4(e)-3 Thirty-second January 1,1984 2-90185 4(e)-4 Thirty-third April 1,1984 2-90185 4(e)-5 Thirty-fourth September 1,1984 2-92738 4(d)-1 Thirty-fifth April 1,1985 2-97185 4(d)-1 Thirty-sixth December 1,1985 33-01774 4(d)-1 Thirty-seventh May 1,1986 33-9583 4(d)-1 Thirty-eighth December 1,1986 33-11376 4(d)-l 50
1 Item I4, EXIIIBITS, FINANCIAL STATEMENT SCllEDULES AND REPORTS ON FORM 8 K (Continued).
TEXAS POWER & LIGIIT COMPANY (Concluded)
Number Dated l'ile Reference Exhibit Thirty-ninth April 1,1987 33-14584 4(d)-1 Fortieth May 1,1988 33-24089 4(d)-1 TEXAS UTILITIES ELECTRIC COMPANY Number Dated File Reference Exhibit First April 1,1984 2-90185 4(b)
Second S rember 1,1984 2-92738 4sa)-1 l Third / '1,1985 2-97185 4(a)-1 l Fourth August 1,1985 2-99940 4(a)-1 l Fifth September 1,1985 2 99940 4(a)-2 Sixth December 1,1985 33-01774 4(a)2 Seventh March 1,1986 33-9583 4(a)-1 Eighth May 1,1986 33-9583 4(a)-2 Ninth October 1,1986 33-11376 4(a)-1 Tenth December 1,1986 33-11376 4(a)-2 Eleventh December 1,1986 33-11376 4(a)-3 I Twelfth February 1,1987 33-14584 4(a)-1 Thirteenth March 1,1987 33-14584 4(a)-2 :
t Fourteenth April 1,1987 33-14584 4(a)-3 Fifteenth July 1,1987 33-24089 4(a)-1 Sixteenth September 1,1987 33-24089 4(a)-2 Seventeenth October 1,1987 33-24089 4(a)-3 Eighteenth March 1,1988 33-24089 4(a)-4 Nineteenth May 1,1988 33-24089 4(a)-5 Twentieth September 1,1988 Form 8-K, 4(b)
File No. 0-11442 (September 13, 1988)
- 4(c)-Debenture Agreement dated as of February 1,1964, between Dallas Power & Light Company and Morgan Guaranty Trust Company of New York, as Trustee, filed as Exhibit 2(b)-10, File No. 2-22020.
- 4(c)-1-First Supplemental Agreement dated as of June 21,1983, to the Debenture Agreement dated as of February 1,1964, between Dallas Power & Light Company and Morgan Guaranty Trust Company of New York, as Trustee, filed as Exhibit 4(c)-1, Texas Utilities Company 1983 Form l 10-K, File No.1-3591. >
- 4(c)-2-Second Supplemental Agreement dated as of January 1,1984, to the Debenture Agreement dated I as of February 1,1964, between Texas Utilities Electric Company and Morgan Guaranty Trust l Company of New York, as Trustee, filed as Exhibit 4(c)-2, Texas Utilities Company 1983 Form 10-K, File No.1-3591.
- 4(d)----Debenture Agreement dated as of February 1,1968, between Dallas Power & Light Company and Morgan Guaranty Trust Compar9 of New York, as Trustee, filed as Exhibit 2(b)-13, File No. 2-28016.
- 4(d)-1-First Supplemental Agreement dated as of June 21,1983, to the Debenture Agreement dated as of February 1,1968, between Dallas Power & Light Company and Morgan Guaranty Trust Company of New York, as Trustee, filed as Exhibit 4(c)-3, Texas Utilities Company 1983 Form !
10-K, File No.1-3591.
51
7 Item 14. EXHIBITS, FINANCIAL STATEMENT SCIIEDULES AND REPORTS ON FORM 8 K (Continued).
- 4(d)-2-Second Supplemental Agreement dated as of January 1,1984, to the Debenture A greement dated as of February 1,1968, between Texas Utilities Electric Company and Morgan Guaranty Trust Company of New York, as Trustee, filed as Exhibit 4(c)-4, Texas Utilities Company 1983 Form 10-K, File No.1-3591.
- 4(e}-Debenture Agreement dated as of February 1,1968, between Texas Electric Service Cmpany and The First National Bank of Fort Worth, as Trustee (NCNB Texas National Bank, as successor Trustee), filed as Exhibit 2(d), File No. 2-27908.
- 4(e)-1-First Supplemental Agreement dated as of June 29,1983, to the Debenture Agreement dated as of February 1,1968, between Texas Electric Service Company and The First National Bank of Fort Worth, as Trustee (NCNB Texas National Bank, as successor Trustee), filed as Exhibit 4(d)-3, Texas Utilities Company 1983 Form 10-K, File No.1-3591.
- 4(e)-2-Second Supplemental Agreement dated as of January 1,1984, to the Debenture Agreement dated as of February 1,1968, between Texas Utilities Electric Company and InterFirst Bank Fort Worth, N.A., as Trustee (NCNB Texas National Bank, as successor Trustee), filed as Exhibit 4(d)-4, Texas Utilities Company 1983 Form 10-K, File No.1-3591. j
'4(1)-Debenture Agreement dated as of January 1,1964, between Texas Power & Light Company j and First National Bank in Dallas, as Trustee (NCNB Texas National Bank, as successor j Trustee), filed as Exhibit 2(c)-3, File No. 2-21962. 1 1
'4(f)-1-First Supplemental Agreement dated as of June 28, 1983, to the Debenture Agreement dated 1 January 1,1964, between Texas Power & Light Company and InterFirst Bank Dallas, National Association, as Trustee (NCNB Texas National Bank, as successor Trustee), filed as Exhibit 4(e)-3, Texas Utilities Company 1983 Form 10-K, File No.1-3591.
- 4(f>2-Second Supplemental Agreement dated as of January 1,1984, to the Debenture Agreement dated January 1,1964, between Texas Utilities Electric Company and InterFirst Bank Dallas, National Association, as Trustee (NCNB Texas National Bank, as successor Trustee), filed as Exhibit 4(e)-4, Texas Utilities Company Form 10-K, File No.1-3591.
- 4(g)---Debenture Agreement dated as of April 1,1969, between Texas Power & Light Company and First National Bank in Dallas, as Trustee (NCNB Texas National Bank, as successor Trustee),
filed as Exhibit 4(c), File No. 2-31966.
- 4(g)-1-First Supplemental Agreement dated as of June 28,1983, to the Debenture Agreement dated as of April 1,1969, between Texas Power & Light Company and InterFirst Bank Da'.' a, National Association, as Trustee (NCNB Texas National Bank, as successor Trustee), filed as Exhibit 4(e)-5, Texas Utilities Company 1983 Form 10-K, File No.1-3591.
- 4(g)-2-Second Supplemental Agreement dated as of J nuary 1,1984, to the Debenture Agreement dated April 1,1969, between Texas Utilities Electric Company and InterFirst Bank Dallas, National Association, as Trustee (NCNB Texas N:tional Bank, as successor Trustee), filed as Exhibit 4(e)-6, Texas Utilities Company 1983 Form 10-K, File No.1-3591.
52
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (Concluded).
4(h)-Supplemental Indentures to Mortgage and Deed of Trust.
Dallas Power & Light Company Number Dated Twenty-eighth January 1,1989 Texas Power & Light Company Number Dated Forty-first . August 1,1988 Texas Utilities Electric Company Number Dated Twenty-first November 1,1988 Twenty-second Januaty 1,1989 4(i)-Agreement to furnish certain debt instruments.
12(a)-Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends.
12(b)-Computation of Supplemental Ratio of Earnings to Fixed Charges and Preferred Dividends.
24(a)-Consent of Deloitte Haskins & Sells.
. 24(b)-Consent of Counsel.
- 28(a)--Agreement dated, as of February 12,1988, between the Cosupany and Texas Municipal Power Agency, filed as Exhibit 28,1988 Form 10-K, File No. 0-11442.
- 28(b)-Agreement dated, as of July 5,1988, between the Company and the Brazos Electric Power
. Cooperative, Inc., filed as Exhibit 28(b), Form 10-Q for the quarter ended June 30,1988 File
- No. 0-11442.
' Incorporated herein by reference.
53
i 1
l TIiAS UTILITIES ELECTRIC COMPANY.
SCIIEDULE V - ELECTRIC PLANT For Each of the Three Years in the Period Ended December 31,1988 COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E . COLUMN F Other llalance at , Changes - Balance lleginning Additions Add at End Classification ' of Year at Cost Retirements (Deduct) of Year Thousands of Dollars Year Ended December 31,1988 Electric plant In service:
Production , ,, 5 3,038,866 5 34,581 5 3,596 5 - 5 3,069,851 Transmission . ., ,. 1,214,642 63,115 4,659 4,000 (a) 1,277,098 Distribution , , .., ,. 2,696,523 211,692 26,129 - 2,882,086 -
General . ,, ... . . 361.888 22,584 3,058 -- 381,414 Total electric plant in service. . 7,311,919 331,972 37,442 4,000 7,610,449 Construction work in progress .. 6,565,327 1,204,640 - 663,294 (a) _ 8,433.261 Nuclear fuel. .. .. 252,761 5,075 - 45,446 (a) 303,282
)
Electric plant held for future use, 19,640 4,044 - - 23,684 '
Total electric plant ,, , , ,, 514,149.647 51,545,731 537,442 5712,740 516,370,676 Year Ended December 31,1987 Electric plant in service:
l Production . , 5 2,980,395 5 81,311 $22,840 5 - 5 3,038,866 Transmission ,, ,, , 1,166,066 51,457 2,881 - 1,214,642 Distribution . , , . . 2,543,163 183,505 30,145 - 2,696,523 General ' , . . . 328,575 40,368 7.055 - 361,888 Total electric plant in service, 7.018,199 356,641 62,921 - 7.311,919
. Construction work in progress , 5,266.729 1,317,716 - (19,118)(b) 6.565,327 Nuclear fuel . . . . , , , ,, 251,964' 797 -- - 252,761 Electric plant held for future use,, , 6,357 1,583 - 11,700 (b) 19,640 Total electric plant , 512.543,249 51.676,737 562,921 5 (7,418) 514.149,647 Year Ended December 31,1986 Electric plant in service:
Production , ,, ,, 5 2,878,212 5 111,519 5 9,336 5 - 5 2,980,395 Transmission , , ,, 1,111,704 60,686 6,324 - 1,166,066 Distribution , , , 2,331,764 246,151 34,752 - 2,543,163 General 283.722 52.980 8.127 - 328,575 Total electric plant in service. 6,605,402 471,336 58,539 - 7,018,199 Construction work in progress 4,288,525 1,007,842 - (29,638)(c) 5,266,729 Nuclear fuel. . 254,724 (2,760) - - 251,964 Electric plant held for future use. , , 5.441 916 - - 6,357 Total electrie plant , $11,154,092 51,477,334 158,539 $(29.638) 512.543,249 (a) Purchase of minority ownership interests in Comanche Peak from TMPA and IJEPC, (See Note 11 to Financial Statements.)
(b) Includes $11,70r .000 associated with the transfer of facilities to electric plant held for future use and 57,418,000 associated with the cancellation of ;.gnite unit. (See Note 11 to Financial Statements.)
(c) Cancellation of lignite unit. (See Note 11 to Financial Statements.)
54
TEXAS UTILITIES ELECTRIC COMPANY SCllEDULE VI- ACCUMULATED DEPRECIATION -
For Each of the Three Years in the Period Ended December 31,1988 CGI.UMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F Additions Other Balance at Charged to Changes -
Beginning Costs and Net Add (a) Balance at Description of Year Expenses Retirements (Deduct) End of Year Thousands of Dollars Year ended December 31,1988 Accumulated depreciation . ,, . 52,355,827 5231,521 539,760 510.694 $2,558,282 Year ended December 31,1987
' Accumulated depreciation . . . . . . 52.174,441 5221,772 549,464 59,078 52.355,827
! Year ended December 31,1986 Accumulated depreciation . ..... , , 52,011,061 5209,152 553,622 57,850 52,174,441 (a) Depreciation of transportation and work equipment, based on the estimated lives thereof, is charged to a clearing account and allocated on the basis of the use of such equipment, and depletion of lignite is charged to fuel.
l 55 1
l
l 7
TEXAS UTILITIES ELECTRIC COMPANY SCIIEDULE ' 'Il- VALUATION AND QUALIITING ACCOUNTS l
For Eact .ac Three Years in the Period Ended December 31,1988 COLUhtN A ~ COLUhtN B COLUh1N C COLUhtN D COLUhtN E
' Additions Balance at . Charged to Charged Balance Beginning Costs and .to Other at End ,
Description . of Year Expenses Accounts Deductions (a) of Year ~!
Thousands of Dollai j Valuation account, deducted from related j
asset on the balance sheet-Year Ended December 31,1988 Allowance for uncollectible accounts. , $13,243 $19,373 $ - $19,604 $13,012 Year Ended December 31,1987 Allowance for uncollectible accounts. , . . . $13,817 $20 732 5 - $21,306 $13.243 Year Ended December 31,1986 Allowance for un e llectible accounts. .. $15,011 $20,326 5 - $21,520 $13,817 (a) Deductions from the allowance reprewnt uncollectible accounts written off,less recoveries of amounts previously written off.
1 56 I
TEXAS UTILITIES ELECTRIC COMPANY SCHEDULE X - SUPPLEMENTARY INFORMATION For Each of the Three Years in the Period Ended December 31,1988 COLUMN A COLUMN B Charged to Expenses and Other Accounts Year Ended December 31, j,
Item 1988 1987 1986 Thousands of Dollars .
Taxes other than income:
Ad valorem . . .. . . .... .. .., , ... ., 5 88,289 $ 82.054 5 69,534 Local gross receipts . .. .. . .. . .. .. ., .. .. . . 107,215 101,069 102,017 State gross receipts . , ,. .. , , . , .. . .. 60,323 $5,734 56.494 State franchise. . . . . . .. .. ... .. . 28,156 30.222 26,523 Social security and unemployment . . . . . .... .. . 36,564 34.600 33,286 Public Utility Commission assessment . .,, .. . .. . ... 6,606 6,180 6,085 Miscellaneous . . . .. ... . 11.465 8,982
_ 15.285 Total . . .. .. . . ., ,,,, , .., , $342,438 $321.324 $302.921
' Charged to:
Operating expenses , . . .. . .. . . .. , ,, , , $299,554 $286,777 $272,771 Electric plant and sundry accounts . . . .. ... ., ,. 42.884 34.547 30,150 Maintenance and repairs, depreciation, depletion, amortization, royalties, research and development, and advertising, other than amounts set out separately in the financial statements, are not material.
l c
4 l
a 57 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 sigined on its behalf by the undersigned, thereunto duly authorized.
TEXAS UTiuriEs ELECTRIC COMPANY ,
Date: February 17,1989 By /s/ ERLE NYE l
(Erle Nye, Chariman of the Board and Chief Executive) 3 Pursuant to the requirements of the Eccurities Exchange Act of 1934, this report has been signed below '
' by the following persons on behalf of the registrant and in the capacities and on the date indicated. ,
Signature Title Date !
R
/s/ - ERLE NVE Principal Executive Officer ,
(Erie Nye, Chairman of the Board and Director ]
and Chief Executive) l l
s
/s/ T.L.DAKER Principal Financial Officer (T. L. Baker, Senior Vice President) and Director
/s/ S. S. SWIGER Principal Accounting (S. S. Swigo, Vice President and Controller) Officer i
/s/' TOM DLAKEY Director (Tom Blakey) !
February 17,1989
/s/ J. S. FARRINGTON Director ,
(J. S. J'arrington)
)
/s/ E. D. SCARTH Director (E. D. Scarth)
/s/ MICHAEL D. SPENCE Director (Michael D. Spence)
/s/ W. M. TAYLOR Director (W. M. Tay lor)
/s/ E. L. WATSON Director l (E. L. Watson) 58 l
_____________a