RBG-36828, Gulf States Utils Co Annual Rept,1991. Audited Financial Statements for Cajun Electric Power Cooperative,Inc Also Encl

Gulf States Utils Co Annual Rept,1991. Audited Financial Statements for Cajun Electric Power Cooperative,Inc Also Encl

ML20096F657
Person / Time
Site:	River Bend
Issue date:	12/31/1991
From:	Donnelly J, Odell W GULF STATES UTILITIES CO.
To:	NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM)
References
RBG-36828, NUDOCS 9205210281
Download: ML20096F657 (81)

Text

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M I GULF STATES UTILITIES COMPANY MMk PChD $1 ATIOt4 PO$fOttkt80K720 id FRAN;tsvlLLE Loul6tAAA 7074 i ARE A CODf. SI)4 635 6094 346 8051 I

1 May M ,1992 l RBC- 36828 File No. G9.5 U.S. Nuclear Regulatory Commission  !

Document Control Desk Washington, D.C. 20555 Gentlemen:

River Bend Station - Unit 1 Docket No. S-458 i Enclosed are ten (10) copies of the Gulf States Utilities Company 1991 Annual Report. This report is being s!ibmitted in accordance with Section 50.71 of Title 10 of the Code of Federal Regulations and U.S. NRC Regulatory Guide 10.1.

In lieu of a 1991 annual report from Cajun Electric Power Cooperative, Inc.,

enclosed are 10 copies of an audited financial report for 1991.

If you have any questions or comments, please contact Mr. Leif L. Dietrich of 4 my staff at (504) 381-4866.

Si cerely, W. H. Odell '

Manager - Oversight ,

River Bend Station.

t 4 L E/ LD/WJS Enclosures 210025 00 i \o 9205210281 911231 PDR ADOCK 05009458 g PDR au

1 U. S; Nuclear Regulatory Commission 611 Ryan Plaza Dr.,- Suite 400 Arlington, TX 76011 NRC Resident Inspector P.O. Box 1051 St. Francisville, LA _70775 Mr; D. V. Pickeit

. U.S. Nuclear Regulatory Commission 11555 Rockville Pike I

Rockville. MD 20852-I l

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TABLE OF CONTENTS l

REPORT TO St1AHttlOLDERS 4 199bYEAR IN REVIEW G i INANCIAL INf'ORMATION 14 STATISTICAL

SUMMARY

47 OITICERS 48 DIRECTORS 49 <

INFORMATION TO St1AREliot.DERS 50 t

(

DESCRil' TION OF BUSINESS Anwr Trit covru Gulf States Utilitics Co. generates, transmits ,I,$* $"ffg,j,$ fin [!,'[

and sells electricity to more than 578.000 Cus" ing the company through tomers in a 24thousand squarc mile arca that kiugh times. Representathe of stretches 350 miles west from Baton Rouqc, La., usu anc. Imm icn on the front to a point about 50 miles cast of Austin,' Texas. $t' bab WE)," int "b"a i" The territory served by Gulf States has a popu. noucy. supentw. customer

( lation of about 1.48 rnillion and includes the "ff/n"",'f"([lync$Sh northern suburbs of flouston and the major cit,es i ment agent. conroe; nianne of Conroe, ttuntsville. Beaumont and l' ort Arthur nrandon. supenisor. cu+

in Texas and Lahc Charles and Baton Rouge in ("'C'gC[jatori g , ptc er s

Loulslana. Daton Rouge Disivon. on the At the end of 1991 the company was providing tah coser. from icft. orc Myra d

wholesale senice to slit municipalitics and three rural electrical cooperatives in both states In [o[*"

ocorge of".'

heti >j,'**[*Mc'[

senior pur-addition. GSU supplies steam and electricity to a chasing agent.. Rn cr Bcnd.

large industrial customer through a cogeneration and Benha Rosas. Customer facllity in Baton Rouge and is a partner in a contact cie:L ron Anhur.

cogeneration project, Nelson industrial Sicam Co., near Lake Charles.

l Oulf States owns and operates a natural gas retail distribution system serving morc than 84,000 customers in the Baton Rouge area.

~

As a member of the Southwest Power Pool, the company has the ability to interchange elec- ,.

tricity with 44 members (29 full members and 15 - er ,

associated members) in eight states in the South '

and Southwest. l In 1991. Gulf States had r cah load of 5.224  ;

megawatts. Normal dependable capacity and firm  :

purchased power agreements totaled 6,471 I megawatt 3 at the time of the peak. .*l'I OSU headquarters is located at 350 Pine St., - -

Beaumont, Texas.

l t ..

E _ _ _ _ . ___ _. _ _

I-l 1

Finnncial Highlights 1991 1990 Change Operating Revenue (000) $1,702,235 $1,690,085 ,7 Operating Expenses and Taxes (C00) $1,356,255 $1,357A52 -

$ 102,283 "

Net income (Loss) (000) $ (44,282) income (Loss) Applicable to Common Stock (000) $ 39,213 $ (107,024) 136.6 Eamings (Loss) per Average Share of Common Stock Outstanding $0.34 ' $(0.99) 134.3 Dividends per Share of Common Stocis - - -

Average Common Shares Outstanding (000) 114.055 108,055 5.6 Number of Electric C"stomers (end of year) 578,093 570,738- - 1.4 Total Kilowatt liour Sales (000) 29,069,549 28,964A99 .4 System reak Load - Megawatts 5,224 5,338 (3.0)

" percent is greater than 200.

x \

The Year in Brief W

• sf As this annud report shows, Gulf States Utilities made progress in several.

areas during 1991 and early 1992: Gulf States utilities -!

Service Area O Preferred dividends were pald for the first time since 1986 and in early 1992 all preferred errearages were declared payable March 15.

O Securities camed investment-grade ratings for the first time since 1986.

O interest costs were cut significantly through deot reduction at:d refinancing activity.

O Critical rate increases were implemented in Texas and Louislana and a potentially large write.cff averted in Louisiana.

O Kilowatt hour sales increased for the fourth year in a row.

O The company arranged for naturat gas storage capacity that will enable power plant fuel to be bought when prices are lower and kept on hand for use when prices go up.

O Growth throughout the region resulted in a not increase of nearly 8,000 electric customers dunng the year, about 7.200 of them residential users.

O The Team City program and other economic development partnerships enabled the company to continue helping local communities attract jobs and improve the quality of life.

O Some 3,350 new jobs in such diverse fields as pnsons, aircraft conversion and aquaculture wsre created throughout the area we serve. -

j O The River Bend nuclear plant was well run with an 81.8 percent net capacity factor that - i was well above the industry average.  !

O Customers contacted after having dealings with GSU gave very high marks to our -

cmployees for the service they provide, PrinW ori Recycled Paoer

__3 l

I

l Report to Shareholders a s.

Dear fellow Shareholders:

Successes in several areas helped clear With the new year came a new the way for the long awalted dividend activ-Ity that started in 1991. Our financial f

Ql-M challenge. On Jan. 6, I became Qulf States' chief executive position improved as a result of better L, 1j officer and, as of March 1, also sales, rate increases, debt retlements that h hY will be chairman of the board. I assume these dutics at a time reduced interest expenses and our contin-ulng attention to cost controls, cificiency

)% A Yd yy when, as you can see on the pre- and other self help measures. Our

[].f@t ceding page, there are many employees performed superbly in all of O? reasons to take pride in the these areas.

[

accomplishments of our Although clectric sales were up only

, company. slightly in 1991, it marked the fourth con-If you looked at an alphabett- secutive year that sales have been on cal listing of Outf States the positive side. When you consider that employces as 1991 ended, it sales had declined in cach of the three would have started with David preceding years, it is an Indication that the Abdalla and ended with Edmund economy in our service area has Zolkiewicz. This annual report is performed somewhat better than many dedicated to them and to the other regions of the country.

other 4,841 employce.s on ""

that list. They deserve credit for the measured progress made l As this report was about to go to p by the company in 1991 and the early part of 1992, another lingering cloud of uncertainty From a shareholder's per- was removul as the Loulslana Pub!!c Service Commission reaffirmed, with spective, the most tangible sign of our continuing financial recov. some helpful modifications, the deregulated 4 cry is the fact that we are now in asset plan for the disallowed portion of the a position to pay off all pre. River Bend power plant. As a result of the i ferred dkidend arrearages on revisions, no write-off of the deregulated i' March 15. The decision to pay the portion of the plant will be required.

Because of tax effects, there was a nel

$150 million in preferred divi.

dend arrearages and related $7.1 million charge to net income for the sinking fund obilgations as well foutti, quarter of 1991, as the current payments due through On another positive note, many electric l Joseph L Donnelly April 15 came at the feb.13 meeting of the utilitics are grappling with a major

! Chairman of the Board- oard of dlicctors, problem that wiii not have a significant As of March 15, there still wil! be nearly impact on Gulf States: how to comply with t e o ccr

$87 million in preference dividend arrear, the new Clean Air Act. Gulf States esti-ages that must be paid before the inates that during the remainder of the l resumption of common stock dividends decade it will have to spend significantly l can be addressed. Needless to say, the less than utilities that expect expendi- l board is extremely pleased with the positive tures of hundreds of millions or even bil-  !

steps that have been taken and remains lions of dollars to comply with the new l committed to resuming common stock div, requirements. The emissions from our l l-Idends as soon as possible, clean-burning fuels already meet Earnings per share of common stock the stricter acid - rain ' control-l were 34 cents in 1991, a definite improve, requkements.  ;

ment from the 99-cent loss reported in -

1990 and the $1 loss sustained in 1989.

Excluding the extraordinary item,1991 l Our clean fuel mix also gives us an carnings per share would have been 52 opportunity to help our customers, cents, particularly industrial users, cope with their Clean Air Act challenges by utilizing electro-technologies designed to reduce emissions and use energy more efficiently.

4

= _ _

Out.r STATES UTiuTits COMPANY I do not want to leave the impression We have one new that the road to financial recovery is clear board member since last f y of obstacles. Challenges abound in the form year's annual report. Wil- L of a major lawsuit involving the Cajun Elec-tric Power Cooperative, competition-Ilam F. Klausing, a former senior vice president in h }- Dear fellow --i Shar Id rs:

related pressures from several directions, Irving Trust's Public Utility the threat of critical legislative and regu- Division in New York, finali and fare-latory mandates at the state and federal joined the board at last well, letter as )

levels and continuing uncertainty about the year's annual meeting, tils your chairman economy, background and knowl' of the board. As Our corporate prioritics for 1992 and edge of utility finance is Linn Draper Joe Donnelly re-beyond will focus on dealing with these proving to be a valuable ports elsewhere pending or potential lssues while looking for asset- on this page, better times new and innovative ways to meet cus- In closing, I want to thank our appear to lie ahead.- I tomer needs, increase revenues and shareholders for their continuing regret I will not be here to enhance your investment in this company, support during the last several share them with you.

As was noted in this space last year, years. There is still much to do. The decision to leave there continue to be rumors that Gulf States but the worst appears to be over. Oulf States to become is about to merge with another utility With the help of our hard work- president of American company or be acquired. Our policy con. Ing employees i believe the better Electric Power was the tlnues to be that we will not comment on times we saw in 1991 will con- most difficult of my life. As such mmors unless material developments tinue to get better, dw the Jan, require us to do so. Sincerely, As we continue making progress toward my 13 y < as a Oulf Stater were productive, financial stability, the company will be challenging and never losing the services of four individuals who dull. The worst part is the have played key roles in getting us this people I will leave behind.-

far. One, of course, is Linn Draper, who will Josep L. Donnelly Chairman of the Board ticct I am proud of the progress become president of one of the nation's and Chief Executive officer made during my tenure, largest electric utilities, American Electric - but it didn't come easy. It Power Co., on March 1. Linn's steady, february 14.1992 took a great deal of hard calm leadership helped guide us work, sacrifice and com-through some difficult times, ar.d we mitment on the part of all I will miss him. ,

Oulf States employees. To them, 1 offer beart felt g Also leaving us are three members of thanks for Lsir support and dedication.

the board of directors who will be To our loyal sharc-retiring at the annual meeting in May, John holders,I offer regrets that Barton, Mar; .1 Goland and Bill LcDianc drcumstances forced the c mp ny to suspend divi-will be missed. The departures of Barton

' and LeBlanc are especially significant

• " P "

ea s ago i Kr t es because of their long tenures on the board, have been painful times John Barton has served longer than any of for many of you, and your the current directors, since 1970. Havin9 patience and understand-

- become a director in 1974, Bill LeBlanc has ing is deeply appreciated, served this company with distinction. A I leave confident that board member since 1983, Martin Galand Joe Donnelly, with the ,

made his mark in a relatively short time, help of all Gulf Staters, will The company has beneflted greatly from continue steering the their wise counsel. company down the path of recovery and toward a brighter future. You are in good hands. Good bye and good luck.

5

1991-Year in Review On Feb.13,1992, the OSU board Results for 1991 were helped by

-of directors declared the remaining rate increases in Texas and Loulslana dividends on preferred stock and during the flrst quarter, reduced authorized paying the preferred stock interest expenses and higher kilowatt-sinking fund arrcarages, hour sales.

/. e 7" Preferred shareholders will bc paid almost $116 million in divi-P,arnings would have been higher had it not been for one time charges j I dends about March 15,1992. In taken during the year. A refund

r 1991, this class of sharcholders reserve established in advance of a

?g, ^ received dividend payments January 1992 ruling in a Loulslana rate totaling about $127 million, rep- of return dispute decreased carnings resenting 11 quarters in arrcars, by 20 cents per sharc. The 1991 The March dividend payment results also were reduced by 6 cents P will make the company current per share as a result of a $7.1 million on preferred dividends, net charge related to the River Bend The board at the February deregulated asset plan that was reaf-meeting also authorized paying firmed and modified by Loulslana-the $28.4 million sinking fund regulators on Jan. 28,1992, arrearage and an additional $6 The 1990 carnings ad been

. million for March and April pre- Impacted negatively by a $135 million ferred sinking fund obilgations. after tax charge (equivalent to $1.25 Preference stock dividends of per share) for the settlemer+ dth about $87 million remain in the Southern Co. that was A arrears as of March 15,1992. booked during the second quarter These dividends must be paid of 1990.

and current before the board of directors can consider paying - -

common stock dMdends. -

Kilowatt hour sales increased Prior to 1991, the company from 29 billion in 1990 to 29.1 had not paid a preferred or prefer- billion in 1991, the fourth straight ence stock dividend since the year of improved sales, last quarter of1986 nor common Although there are no ongoing

. stock dividend since the second rate cases in any of the company's j quarter of that same year, regulatory jurisdictions, on Jan,21,

.;,s Members of the board of 1992, Oulf States filed fuel cost recon-H directors will continue to evaluate cillation data required by the Public )

• 9 the financial condition of the Utility Commission of Texas (PUCT). I

~ company at each meeting. Decl* If the PUCT adopts the proposal as l slons regarding the amount and filed, there will be little impact on cus- I m timing of further dMdend pay- tomer rates. I

ments remain at their discretion. Pucl costs are passed on to cus-  ;

f Gulf States reported earnings tomers, with OSU making no profit.

Qi of 34 cents per share of common The PUCT requires utility companies to isae stock for1991, compared with a periodically reconcile their fuel costs-Terri Hecht, loss of 99 cents in 1990. The last year and change fuel factors to reflect

, computer operator, OSU nad positive earnings was 1988. the actual cost of fuel.

Bsaumont, watches The Loulslana Public Service Com-Puter mission (LPSC) on Jan. 28,1992, i

$s o9s thea te t r on reconfirmed a deregulated asset plan

-preferred dividend I

checks, the first to address the portion of River Bend i

dividsnds the nuclear power plant construction costs i company has paid L since 1986.

t 6

OULr STATES UTitmts CoMrAm as the commission had disallowed as district judge, has the authority to imprudent in December 1987. The order the plan's implementation and commission did make some changes that the district court erred in raising from the previously ordered plan, the return on equity, specifically the sharing of revenue The U.S. Supreme Court in early from off system sales. Shareholders December 1991 refused to _ hear and ratepayers will benefit equally _ OSU's appeal of - the Lculslana from any revenues above a specific Supreme Court's decision,

c. mount. The previous plan called for From December 1987_ through-a 60-40 split between customers and February 1991 Loulslana regulators shtrcholders, and courts have approved about $175 Although no write-down is million in rate increases for the sys-r quired for the' deregulated portion of temwide $1.6 billion prudent tha plant, an increase in deferred-taxes resulted in a net $7.1 million l Investment in River Bend, charge to net income.11 the previous -

plin had remained in effect, the com- On the other side 'of the pany would have written down Sabine River which cuts the OSU cbout $128 million. service arca roughly in half, Also at the January 1992 meeting, Texas regulators approved a one-th3 LPSC ordered Gulf States to make time River Bend related rate increase refunds to customers of about $24 of about $60 miillon in May 1988 million. This amount, plus $10.8 mil- and set aside, with no finding as to lion in interest, represents the dlifer* prudency, about $1.4 billion of the ence between a court ordered 14 company's systemwide investment in percent return on equity in 1988, River Bend (about (g411 million as '

which the state Supreme Court of Dec. 31,1991, on a Texas' retall r versed, and the 12 percent return on jurisdicational basis after accumulated equity ordered by the com- depreciation and related taxes). The E M S:

mission. PUCT told the company.it Intended Half of the $24 million refund will to address the prudency of these costs

$ E st K-be made in July 1992 and the remain- s2m _ggg- s held in abeyance in a subsequent der in July 1993. The interest was proceeding.

recorded by shortening the deferred Therefore, the company fi'ed- 8t" revenue recovery period assocl- another River Bend case in March ~

1989, but intervenors went to court, - ' 8*

l ated with the phasein plan. claiming that Gulf States had only the ? -

d one legal opportunity tojustify River 8* ~

Bend costs. -The Texas Supreme :

I The pany.aLPSC granted

$16.8 million base rate- the com-increase in February 1991 as the Court ruicd in September 1990 that - '"

, the PUCT was barred from addressingu gg ,,

l f:;urth and final step of a February the prudency issue again and the:

1988 court-ordered phase-In plan. U.S. Supreme Court in April 1991 - .gg in April 1991, the Loulslana refused to review the state Supreme

Supreme Court upheld the disal- Court decision. . .

- 1:w nce of $1.4 billion in systemwide costs, affirmed the phase In plan and In the wake of the state court decl-sion, the company withdrew from the.-

" fq A g g 'g -

reversed and set aside the deregu-lated asset plan and the return on rate casc all issues involving the costs of River Bend not-In rate base QM*,,$$ )

creamingsduemrateincreases

. equity issue. The state Supreme and notifled parties it'still had a $65 aTexasandtouisiana, reduced  ;

Court said the commission, not a- million revenue deficiency, intest examses and syw ' : j higher kilowatt-hout sales. 1 7-i

1991-Year in Review The Texa:: commission on March The company contends there was 20,1991, approved settlement docu- sufficient evidence about River Bend ments granth.g Gulf States a $30 costs for the hearing examincts to million base rate increase as wcll as make recommendations and that the other elements that had the sup- PUCT should not have set aside the port of most parties to the case. $1.4 billion in systemwide costs.

Two of tne parties appealed the The long-standing purchased p rate order and a brief hearing power contracts dispute between OSU was conducted by an Austin dis- and the Southern Co. came to a -

trict court judge in December formal close on Nov. 7,1991, when

?g 1991. ofHclats of the two companies k On Oct.1,1991, a state dis-h trict court, in the appeal of the May 1988 rate order, held that =

l signed settlement documents, .

l the PUCT's decision to set aside a The two utilities had agreed portion of River Bend costs had to settic the lawsuit in June 1990, o the same effect as a disal- but the terms had to be c lowance ruling therefore the dis- approved by both boards of directors, 1-

" allowance stands. The judge various regulatory agencies and the remanded a part of the same federal court with jurisdiction over the H decision to the commission so case. The tea ms of the settlement are that it could make rate base the same as discussed in the 1990 adjustments invoMng two other Annual Report.

aspects. He ruled that the The lawsuit flied by the Cajun Elec-i deferred expenses for River Bend tric Power Cooperative against Gulf a and OSU's share of Big Cajun 2 States in June 1989 is still pending in Unit 3 that accrued between the a Baton Rouge federal district y' time those units went into com- court. The co op. which owns 30

/ 4 '4 mercial operation and the date percent of the River Bend nuclear 1 the PUCT took rate action should power plant, claims, among other Q not have gone into rate base.

This decision was based on an things, that Gulf States misrepresented

+

the costs involved in building the appellate court ruling in an El plant in order to lure Cajun into finan-

, Paso Electric Co. case which is on clal participation in the project. OSU appeal. Thejudge also said the believes the suit is without merit and is commission should not have contesting it vigorously, reduced OSU's deferral balance On Dec. 2,1991, Cajun filed

%" i '

by $1.50 for each $1 of revenue another lawsuit against OSU in federal .

collected after an interim rate court to block demands by Gulf w increase went into effect in 1987. States for payment ofits share of the A motion for a new tdal failed costs of making certain repairs at j'

for lack of action by thejudge on River Bcnd.

Dec.16 and the company has Cajun Informed Gulf States in appealed to the 3rd Court of. September that it would not partici-Appeals in Austin. OSU wants the pate in the cost of repairing a corro-Sam Richardson'p.

economic develo case sent back to the PUCT so it can slon problem in the nuclear plant's ment agent. Baton make a final ruling on River Bend service vmter system and converting _

Rouge, checks prudence based on evidence placed in the system to a closed loop so it no through data bases the record during the original rate longer takes in water from the Mis-irg sou by an case which was decided in 1988. sissippi River. Nor, Cajun said, will it industry interested help pay for repairs to a cracked in the area, feedwater nozzle discovered later.

Total estimated cost for the repairs 8

OULF STATts UTitmts COMPANY and improvements is about $60 in November, Gulf States rcoffered million. $94 million in pollution control reve- ELECTRIC SALES Cajun said in the lawsuit that it has nue bonds for the Parish of West a contractual right not to pay plant sit.uoNs xwr Feliciana where the River Bend 30 milntenance expenses and that it nuclear power plant is located. The -

would have to issue new debt if it paid bonds, which mature in 2014, were

_ f its share of the repairs, forcing it to 25 M 3 < a' converted from a daily adjustable rate l

default on its debt restructuring agreement with the Rural Electrifica-tion Administration, to a lhed interest rate of 7.7-percent. The company intends to remarket $109 million of other varl-20 ]ir

,-}

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l The company, which is exploring able rate pollution control bonds dur- 15 available legal remedies, will cer- Ing 1992. 41 ; ~ - .j tainly make the repairs to River Bend in July 1991, OSU sold $200 mil- 1 5 l5 i g

regardless of whether Cajun pays its share of the costs, lion in debentures at a 9/,'2 percent J{j, 3, l interest rate. Proceeds from the sale . L :.1 During 1991, OSU's first mortgage were used to refund a term loan l

bonds were upgraded to investment 5

f pV{

grade by both Standard & Poor's l facility with a group of banks, o and Moody's. This is the first time since 1986 that Gulf States'securitics A major goal of Gulf States' 4fg 4, have been investment grade, in addl- .

marketing program is to promotC tion, the company took advantage of ncreIsed to the fou h full use of existing generating consecutive year Sales falling interest rates and initiated a capacity through business develop- increased in the residential, series of refinancings that is contin- ment while helping customers use commercial and industrial ulng in 1992, cncrgy wisely to minimize OSU's need classes dunng 1991.

The company sold $300 million in for future power plant investment.

first mortgage bonds in January OSU worked closely with large 1992. A total of $150 million in 10- Industrial customers to develop mutu-year bonds was sold at an interest rate ally beneficial long-term plans. These of 8.21 percent, with the remaining strategies helped the company- ELECTRIC DEPARTMENT

$150 million 30-year bonds at attempt to meet existing customers' CUSTOMERS ,

needs and serve new customers in moussos l an 8.94 percent interest rate.the most. profitable manner possi- sm -

ble-through maximum utilization of existing capacity. 500 -

I The net proceeds will be used to retire outstanding first mort-gage bonds with interest rates Despite a widespread economic recession during 1991, the economy in 400 ranging from 13.5 percent to 16.8 OSU's service area remained fairly percent, which means the company's stable and Gulf States' overall electric 3g ,

interest expense is being signifl- sales increased.slightly from 1990 cantly reduced. The noilce of levels when sales were up 5 percent -

redemption was issued Jan. 22,1992. over the previous year. 200 The redemption premiums assocl- Industrial sales increased 2.1 ated with the various series ranged percent over 1990 levels, fostered by goo from zero to about $9 million. The the development of stronger partner-accrued interest on the bonds was ships between OSU and industrial paid from general corporate funds. customers. Sales to commercial and 0 '/ / -

residential customers also rose in N ek. f% e%

1991, duc in large part to a concerted The 7,955 new electric custom-direct sales effort by ' company - ers GSU gained dunng 1991 I amounted to a 1.4 percent increase, continuing the growth trend begur.in 1987c l

l 9 ~l

1991-Year in Review

- .R employees. About 21 percent of all This diversity, coupled with Gulf States' employees participated in modest but steady growth projected the "Reddy Referrals" program which for the region's petro-chemical indus-rewards employees for attracting try, should spell continued growth additional energy efficient sales. and increased stability for the These Reddy Referrals con- region's economy as a whoic. And tributed $6.4 million in new base OSU's ability to economically power revenue for Gulf States. such growth with existing capac-In addition to improved sales, ity-and little expected need for cap-y OSU saw a 1.4 percent increase Ital investment in power plant con-

- in the number of customers struction for years to come-points

~

connected to company lines dur- toward increased prcfitability Ing 1991. The residential cus- for the company, tomer class grew by 1.5 percent, with growth experienced through I out the service area, but highest During 1991, the River Bend r- 4 in the area north of Houston, nuclear power plant posted a Extensive economic develop- net capacity factor of 81.6 ment efforts on the part of Oulf percent, well above the industry aver-States and communitics age. This is the plant's actual genera-served by the company played a tion stated as a percentage of its

-';i!) signlilcant role in attracting new maximum capability, j businesses and industries to the The capacity factor for the plant service area, from the date of commercial opera-p OSU's Team City community tion, June 16, 1986, through development program was- Dec. 31,1991, was 69 percent, which i extremely successful In helping is considered good solid performance.

81 participating cities, countics - Also demonstrating the unit's pos-and parishes in the service itive performance was equivalent area retain existing employers availability statistics showing that -

and professionally market them- River Bend was available for service 83 selves to new businesses and . percent of the time dudng 1991. l' Industries. Many of these com- Equivalent availability since commer-munitics gained new jobs and- clal operation was 71 percent.

diversified their local economies in 1991, River Bend generated during 1991, while at the same more than 6.6 billion kilowatt-hours of time helping to diversify the electricity and provided 16 percent of a a economy of Gulf States' service the company's total energy require-

'3 arca as a whole. ments. From the time the plant went The Team City program, in into commercial operation through corgunction with numerous other the end of1991, it had produced 31.4 -

economic and- Industrial billion kwh.

development endeavors, helped OSU has a 70 percent ownership in

,$ attract 26 new businesses and the 936-megawatt unit, located near John Bernard, elec. Industrics and assisted 35 others 5 Francisville, La. Cajun Electric trical designer, to expand during 1991. They -- Power Cooperative owns the remaln-Besumont, looks brought with them more than 3,350 !ng 30 percent.

ovtr the marsh newjobs in such diverse fields as P

ke ping restorYfor prison construction and operations, the benefit of apparel manufacturing, aircraft conver-

- waterfowl. slon and aquaculture.

10

Gutr STATts UTiuTits COMPANY During the fourth refueling outage Construction of a new natural gas at River Bend, scheduled to begin storage facility south of Beaumont is RETURN March 15,1992, OSU will chemically underway. Oulf States will not be the on AVERAGE clean the service water system and - owner, but will have full use of Spin- CAPITAUZATION convert it from an open to a closed dlctop Oas Storage. 12 PE.R0l'NT ,

loop system. This should serve as a When it begins operations in the long-term solution to the corrosion fall of 1992, the company will pur-problem in the system. chase gas at lower prices for storage. 10 9

Also during the outage, a cracked feedwater pipe wcld that the company When prices rise, the gas will be pulled out for usage. The company dJr M

_3 .

has been monitrring will be repaired will be able to supply needed fuct to and steps will be taken to reduce the its plants when loads peak and do gh, s radiation levels in certain areas of it economically. 6 the plant by chemically cleaning the

' ator's re-irculation loop, The gas suppliers like this, too, since it can help levelize OSU's 4

'Imf'h Y';U -

Jecause of the senice water $

cleaning and conversion, and the wcld repair and chemical cleaning of the l demands on their systems. 2

,p y;\ l recirculation system, this outage is q,

Significant changes in top L now expected to last 156 days, management at Gulf States 0* - I compared with the 60 to 90 days a occurred'during the first month of  %/%'%'% %f refueling outage normally takes. 1992. Retum on average capitalea; Although River Bend will be out of Joseph L. Donnelly was electr.d tion increased due to the service during part of the summer, chief executive ofilter of OSU, effective impmved eamingsin 1991, the time of year when electricity use is Jan. 6,1992, and on March 1 will also c - highest, the company believes it has become chairman of the board. He enough other generating capacity, succeeds E. Linn Draper who is leav-supplemented by off system pur- Ing OSU to become president of chases, to adequately cover the antici- Columbusi Ohio based Arr San pated summer peak load. As always, Electric Power Co., the nation s second OSU buys power from other largest electric utility, on March 1* CONSTRUCTION Donnellyjoined OSU in Aprl!1979 EXPEN0fiURES l utilitics when economical- as senior vice president of finance and chief financial officer and became 400 executive vice president later that I River Bend report from received the Nuclear Regu-latory Commission during 1991.

a good same year. Mc was elected senior exec.

utive vice president in 1986 and was 350 300 in the NRC's Systematic Assessment of elected to the Gulf States' board of Licensee Performance (SALP) Issued directors that same year. 250 in mid June, River Bend received the Replacing Dannelly as chief finan-highest possible ranking in two of cial officer is Jack L. Schenck who will 200 seven operational areas, also hold the titic of senior vice pres-The plant received Category I rat- ident. He has been OSU's treasurer 150 --

Ings-the highest-in plant opera- since he joined the company in tions and in emergency preparedness, 1981 and was named vice president. 100 The other live areas - radiological in 1985. ~pp controle. maintenance and survell- Stephen K. Burton was named vice 50 gg -

lance, security, engineering and tcche nical support and safety assessment pres! dent and treasurer, replacing Schenck, and Clyde W. McBride was o M bI -~

and quality verifications-carned promoted from assistant treasurer to bI%Y% . %

Category 2 ratings. River Bend vice president of strategic planning. Construction expenditures received no Category 3 rankings, the Ocoffrey G.~ Oalow became assis- nue been keptio minimum lowest. tant treasurer, levels since the completion of River Bend in 1986.

11 l

I l

I991-Year in Review Also named to new pos'illons in raceway for ralslng hybrid striped ,

January were A.F. " Tony" Gabrielle, bass, who was moved from vice president Several of the aquaculture proJ-of computer applications to vice presi- ects have focused on growing com-dent of special projects, mercially. banned species of fish, Ronald W. Clesiel succeeds him such as redfish, and all of the projects as vice president of computer have offered economic development applications, possibilitics for the company.

On Nov. 22,1991, OSU sub- Aquaculture is a natural for OSU

. mitted to the LPSC plans for since it is the fastest-growing seg-implementing about 120 recom- ment of the agricultural economy and g mendations made by the firm the OSU service arca offers most of Y that conducted a management the resources needed to support I audit of the company that ended this growing industry.

In 1991.

Kennedy & Associates of g

Atlanta was hired by the LPSC to Some GSU employees are look at ways OSU could cut bringing to reality their dream of a costs. The results were released filling the skies near Sabine Sta-In April 1991 and OSU has tion with ducks, The power plant,

^

agreed to implement, or already located near Bridge City, Texas, was n has implemented about half the previously surTounded by a deteriorat-recommendations. Ing saltwater marsh.

Being carth-friendly is more Since 1989, OSU cmployces have than a catchy slogan for Gulf helped provide additional Texas Oulf.

States. The company has Coast roosting areas for migratory-depended upon a clean waterfowl by transforming two ponds fuel-natural gas-for decades, at the site into a freshwater marsh.

The more recer.t additions of OSU's 90-acre Waterfowl Manage-low-sulfur Western coal and ment Area, made up of two 45-acre nuclear diversified the fuel mix, ponds, joined the Gulf Coast Ven-while continuing the tradition of ture of the Ncrth American Waterfowl clean fuels. Management Plan in 1989, becoming Today, the company's natural the first large corporate member.

gas, nuclear and low sulfur coal The grassroots volunteer effort aims power plants meet the tough at giving ducks and geese a place to new sulfur dioxide emissions' rest and feed so that when they fly

,,j requirements of the 1990 federal back north in the spring, they'll bc 3 Clean Air Act. Oulf States healthy and ready to breed.4 W believes that during the '90s it E will be spending significantly less ,,,E

, to meet the new reoutrements " Improvements carried out on than those utilitics tha' rely heavily on high-sulfur ceal and a . volunteer basis by the 3 employees have - helped to oil. Emission from the company's power plants already -meet significantly raise the duck population Steve Bagloy, at the site.

senior draftsman the stricter new acid rain requirements.

Beaumont. is one of On another environmental front, OSU does more thanjust dabblein "

many GSU employ- Gulf States has carried out aquacul- environmental " projects." The com-t d n tradon projects for pany had an Erwironmental Affairs heir 1imo th p in about four years, including helping- team long before it =became fashion-local schools. able. In the early 1970s the company one school district develop an recognized that protecting the world aquacu"ure curriculum to raise catfish and wondng with another to build a around us was an important priority -

and- began hiring environmental experts.

12

Gutr STAits UTILmts CoMrAm' Today, the company has a staff of OSU cmployces have a long liis- !

nine professionals with training and tory of participating in formal fundrais-AVERAGE RESIDENTIAL experience in enviror. mental science, Ing activitics for worthy causes, such C

biology, geology and chemistry. as United Way, March of Dimes and ,[R10

,,9 SE The group works with environmental American Heart Association. -In gyg coordinators in the company's five recent years, concerned employees 16 operating divisions and cight generat- have expanded their range of activitics ing plants to help OSU meet its to include more person to-person giv- "

environmental obligations. Ing. OSU has a community relations y , g [g g _

Environmental Affairs obtains the coord!nator who helps match up bg many permits and registrations required by various federal and state employees who want to help with Individuals and organizations that 3g .g3 f _

agencies, conducts environmental e @paq N@ j -

compilance audits, does special proJ-ccts and recommends pro-active -

l need their assistance. p{ljh.) 6 s -

steps the company can take GSU employee volunteer Mh k 4Mk to demonstrate its environmental activitics include:

commitment. O " Adopting" an 84-year old y . WrW -

Although Gulf States stopped making colporate contributions to woman in Cleveland, Texas.

AD?Wb O Providing on thejob training for te -

worthwhile charitics when dividends 8th graders in Lake Charles, '4fg'g'g 's, were halted, employees have con- La.

tinued to give of their time and O Donating cuddly "Reddy Aeagueseewawase ,

talent. Teddy" bears for traumatized children in Port Arthur, Texas, QT "$5]

me rword arnountin 1m and Huntsville, Texas.

Menagement Audit Completed O Using their "first responder" training at River Bend for the ,

The management audit com- Wakefleid, La., Volunteer l' ire pleted in 1991 for the Loulslana Pub- Department. RESIDENTIAL COST lic Service Commission was O forming a musical variety per 1.000 KWHs*

performed by Kennedy & group, the "Reddy Rhythms," couns Associates, an Atlanta-based firm that performs at retirement 160l that has opposed the company in a homes and shopping malls in gg series of rate and regulatory pro- the Beaumont-Port Arthur area, gg p ccedings in recent years. Con- Employment practices for the no 9M@

sidering the frequent - criticism 4,843 Oulf States employees are gM a leveled by the firm at Gulf States and guided by the principles of equal its management, its management opportunity for all. it is- partially 100yk 80 "*

audit conclusions about the com- through the affirmative action pro-pany's executive management grams that the company has been able gg are interesting: . to hite skilled personnel from all "OSU has a well organized c mmunh sedoa e experienced executive managentent team that is quallfled to perform its OSU iri evel ing s uma resources to serve our customers 20 dk M .

responsibilitics. Executive man- more effectively. OI I agement appears to have a good wewasaukee understanding of the interrelated A * $ ts, processes necessary to develop ==

an effective organization. - Gsu s residentiat rates ternain lowerthanthenationalaverage and are cornpetitive in Texas The foregoing portion of this report is intended to present informatlon the company believes and Louisiana.

may be of interest to shareholder *. For purposes of making investment decisions, the more complete information contained in the company's Annual Report on form 10-K and other current reports filed with the ScCurities and Exchange Commission shou;d be consulted.

13

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• @#@w$i$pj s di!qh Financial Information 1 Jg -QQgyp ~ FINANCIAL SECTION Contents

$jMraf 19 efWp'Nh A

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-- Management Responsibility for Consolidated financial Statements . . . . ,. .. 15

~

jfagM8 f Common Stock Prices and Cash Dividends Per Share. . . . . . , . .. ..7. .. .

Selected Consolidated Financial Data . . . . . . ... . . . ... . . . . . .... ........ .... ., 16

.Nf Ryg(i!NhNf -5 .

Management's Discussion and Analysis of financial Condition and Results of Operations .

Consolidated Statement of income (Loss)

. 17 Consolidated Statement of Cash flows . . . .

.,, .,... .. .. .'. .. . 24:

h@gg!uif0@)Iidh3$$ M%s. Consolidated Balance Sheet . 26. . . . . .

.,. .. ., , .,. . .. .. 25-gg3e Consolidated Statement of Changes in Capital Stock and Retained Eamings

,......,. . . - 27 Consolidated Statement of Capitalization . . . . . . . .... . . . ... 28 g e g}f3Mpf@N+g vg9 Notes to the Consolidated financial Statements .... .... . . 30

. i Report of IndepMdent Accountants . .. ..., ,,..

y '

. . Statistical Summi 7 . . .. .. .

. ...... ..... . .. . .. 46

. .. ,. .. .., . 47 '

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Outr STAits UTit.mts COMPANY b

'~~"ddb Mcnagement Responsibility for the consolidated financial statements of the _

Ccusolidated Financial Statements C mp ny and_ Issue their report thereon, which appears on page 46, Coopers & Lybrand con-Management is responsible for the preparation. _ ducts a review of Internal accounting controls to Integrity, and objecthity of the consolidated the extent required by generally accepted auditing financial statements of Gulf States Utilities Com- standards and performs such tests and procc-pany. The statements have been prepared in dures as they deem necessary to arrive at an conformity with generally accepted accounting opinion on the fairness of the consolidated finan-principles and, in some cases, reflect amounts clal statements presented herein, based on estimates andjudgement of manage- The Board of Directors, through its Audit Com-ment, giving due consideration to materiality, mittee, has general oversight of management's preparation of the consolidated financial state-The Company maintains an adequate system of ments and is responsible for engaging, subject to internal controls to provide reasonable assur- shareholder approval, _the independent ante that transactions are executed in accord- accountants. The Audit Committee, comprised ance with management's authorization, that the entirely of outside directors, reviews with the inde-consolidated financial statements are pre- pendent accountants the scope of their- audits pared in accordance with generally accepted and the accounting principles applied in finan-accounting principles, and that the assets of the clal reporting. The Audit Committee meets Company are properly safeguarded. The system regularly, both separately and jointly, with the of internal controls is documented, evaluated, and independent accountants, representatives of tested by the Company's Internal auditors on a management, and the internal auditors, to review continuing basis, No Internal control system activilles in connection with financial reporting.

can provide absolute assurance that errors and The independent accountants have full and irregularities will not occur due to the inherent free access to meet with the Audit Committee, limitations of the effectiveness ofinternal controls; without management representatives present,'

however, management strives to maintain a bal- to discuss the results of their audits, _

ance, recognizing that the cost of such a system i should not exceed the benefits derived.

Coopers & Lybrand, independent certifled public accountants, is engaged to audit, in accord-ance with generally accepted auditing standards, Common Stock Prices and Cash Dividends Per Share Fct the years ended December 31 Ee'aY Ya'i$ Ee'nY Ya$

1991 Stigh Law rer Share 1990 Singh Low - rev Share first Quarter $12% .$10% $- first Quarter - - $12% $11 $-

Second Quarter , 12 9 -

Second Quarter , , 12% 9% -

Third Quarter. 10% 9% -

Third Quarter. , 12 % 9%- -

fourth Quarter. < 10% 8W -

fourth Quarter. 11 8% ~

The Common Stock of the Company is listed on the New York, Midwest and Pacific Stock Exchanges. The number of -

common shareholders c. record on December 31,1991, was 53,368.

15

)

-n Financial Information a.a.

Selected Consolidated financlai Data

.(in thousands except per short announts and ration)-

For the Years Ended December 31 1991 1990 1989) 1988 1987 Opetoting Revenne . . . . . . . . . . . . . . . . . . $1,702,235 $1,690.685_ $1,607.406 $1,520,477 - - $1,432,586 Income (less) Before Extraordinary Item and the Cumulative Effect of Statement of Financial Accounting Standards (SFAS) Mo. 90 in 1988 . . . . 122,449 (44,282). 13,251 1117,512. 241,101' Met Income (Loss) . . . . . . . . . . . . . . . . . . 102,283 '(44,282) (45.573) 103,143 241,101 Income (Loss) Appllcable to Common (107,024) (108,412)-

Stock .......................... 39,213 40,079- 178,091- :s Earnings (Lose) Per Average Share of Common Stock Outstanding Before Extraordinary Item and the Cumulative Effect of SFAS No. 90 in _

1988.........-...................- .52 (.99) - (.46)' .50 - -1.65 Earnings (Less) Per Average Share of -

Common Stock Outstanding , , , . . . . . .34 (.99) (1.00) .37 - 1.65-Dividends Per Share of Common Stock. . -- - -: -

-l Return on Average Common Equity. , . . 1.99% _( 5.44)% (5.29)% 1.95% - 9.29%  !

As of December 31 ~

Total Assets ~ . . . . . . . . . . . . . . . . . . . . . . $6,911.492 $6563,269 L $6,807,894 L $6.941.531.~ .-6,907,453 Long Term Debt and Preferred Stock -

Subject to Plandatory Redemption . . .

2.656,562 2,512,743 2,801,860 :2,990,934- 3.090.977..

Capital Lease Obligations (Current-and Non current) . . . . . . , , . . . . . . . 138,133 161,065 -180,552 98,852, .187f43 Book Value Per Share (reduced for all Preferred and Preference Stock Dividend Arrearages) . , , . . . . . . . . . . . -16,77 _; 16.81- ~' 7.80 118.80' 18.43 Capitalisation Ratiosa, -

Common Shareholders' Equity . . . . . . 41.1% - 41.2% - ' 39.8% =

39.3% - 37.8%

' Preferred and Preference Stock . . . . . 12.2: :14.4 L 12.9 -11.7i _11.1 - _q Long Term Debt . . . . . . . . . . . . . . . . . . -46.7 = 44.4 47.3 .  :- 51.1 ~

49.0_ -

-100.0% ,

100.0% L_ f_100.0% - 100.0 % 100.0 % -

See Notes 2 and 3 to the Consolidated financial Statements r

- possible disallowances and write otis, and accounting standagarding contingencies, current rate matters involving 16' 4

_L--__-__.----=_ - :--

1 l

q Out.r STAits UTit.rnts COMPANY Management's Discussion and Analysis of Interest, recorded in 1991, for a refund tesulting financial Condiffon and Resuus of from an April 1991 Loulslana Supreme Court Operaflons ruling, and the increase in deferred taxes resulting The Company's financial position was strained from the discontinuation of regulatory accounting from 1986 through 1990 as a result of the inabl!!ty principles for the Loulslana portion of the to obtain rate relief on the Company's entire deregulated part of River Bend.

Investment in River Bend Unit 1 (River Bend). Divi- The 1990 net loss and loss per average share of dends on the Company's common stock were common stock outstanding resulted primarily suspended in 1986, and dividends on the pre- from a $135,310,000 net of tax charge recorded ferred and preference stock were suspended in during the second quarter of 1990, for the settle-1987. Beginning in 1987, the Company failed to ment with Southern as discussed in Note 2 to the meet its sinking fund requirements on preferred Consolidated Financial Statements. Excluding the stock and has not met any such sinking fund cost of the Southern settlement, results of opera-requirements through 1991. Also, in 1986, the tions improved during 1990. Increased kilowatt-Company and Southern Company (Southern) hour sales and reduced interest charges con-began litigating disputes relating to certain pur- tributed ta the improved performance.

chase power contracts providing for purchases by the Company of capacny and energy from As of December 31,1991, the Company has not '

Southern. The Company had significant amounts recovered a significant amount of the investment of debt maturing in each of the years 1988-1991, or received any return associateo. with the por-which put additional pressures on its cash flow. tion of River Bend disallowed in the Loulslana rate order of December 15,1987, and included in However, through improving sales, reductions in the deregulated asset plan and the portion of capital requirements, strict cost controls, some River Bend placed in abeyance as part of the Texas external financing arrangements and the rate relief rate order which went into effect July 23,1988.

granted, the Company was able to meet its imme-dlate cash requirements for 1986 through 1990. Future earnings will continue to be limited as %g as the limited recovery of the investment and law in 1991, the Company's financial position of return continues.

continued to improve. The Company sold 1

$200,000,000 of debentures in July 1991, consum- Future results of operations could be adversely mated the Southern settlement in November affected b}' substantial additional write-offs or 1991, and remarketed $94.000,000 of pollution write-downs of the Company's investment in River control bonds in December 1991 that were secured Bend and deferred costs related to River Bend, by letters of credit that were dee to expire in which may result from regulatory actions, judicial December 1991. The Company began to actions, pricing energy below the full cost of serv-reduce the dividend arrearages u. .ts preferred ice to meet competition and the associated stock, paying the equivalent of eleven quarters of application of accounting principles, or from peri-dividends in 1991. odic reevaluation of the deregulated asset plan in While litigation with Southern was finally consum- cial Statements for potential exposures. Substan-mated in 1991, additional significant "tigation end "' * '

regulatory contingencies continue to exist. In

" wns wouM a&ctsch reviewing Management's Discussion and Analysis a ect the Company,s capacity to. continue to pay of Financial Condition and Results of Operations en s an a nan ng, which could in turn and the Consolidated financial Statements of the affect the Company s liquidity. Seej Liquidity, Company, attention should be given to the dis- nan ngs, and Capital Resources below.

closure in Notes 2 and 3 m the Consolidated The Company's results in 1989, and to a signifl-Financial Statements that catain litigation and cantly lesser extent in 1990 and 1991, have been regulatory contingencies exist and the possible affected by amounts recorded in accordance with consequences if such contingencies were ultimately phase-in plans and amounts recorded in accor-resolved adversely to the Company. dance with accounting orders issued in 1986 by regulators allowing the Company to defer, for flaan-Results of Operations cial reponing purposes, those expenses incurred Net income and earnings per share of common in connection with the operations of River Bend, stock outstanding for 1991 increased when com- the cost of buyhg back power from Cajun Electric pared to prior years due primarily to rate actions Power Cooperative, Inc. (CEPCO), and to record a in Texas and Loulslana during the llrst quarter of non-cash canying charge on the Company's -

1991, increased kilowatt hour sales, and reduced investment in River Bend not already reflected in interest charges. The increase was offset in part rate base and the subsequent amortization of those by a $25,064,000 net of tax reserve, including costs. Current amortization schedules indicate 17

Iie iFinancial Information _

that 1992 amortization of such costs will be Unit 3 accrued after the units were placed in com-approximately $32,000,000, merC.sl operation, but prior to relevant rate -

orders, should not be included in rate base under Rate Matters the recent dectslon regarding El Paso Electric:

Company's slmliar deferred costs. The court -

Texas Jtefall Jurisdiction (Regulator - remanded the case to the PUCT with Instructions Public Utility Commission of Texas (PUCT)) as to the proper handling of the deferred cost 1 in October 1990, hearings on a base rate request issues.

filed in March 1989 were restarted before the As of December 31,1991, on a Texas retailjutts-PUCT. Settlement negotiations began on dictional basis, the disallowed River Bend plant-February 13,1991, with various intervening par-ties. On March 22,1991, the PUCT issued an order costs were approximately $19,000,000, and the River Bend plant costs held in abeyance totaled consistent with the terms of a proposal (Joint Rec - approximately $41LOOO,000, both net of accumut ommendhtlon) offered by most of the parties to lated depreciation and related - taxes. The-1 the rate case that provided for a $47.500,000 rate increase, consisting of a $30,000,000 increase deferred River Bend costs associated with the por-in base rates and an .acrease of $17,500,000 in- tion of the investment held in abeyance as of -

fuei revenues. Among other things, the Joint December 31,199L amounted to approximately-

$161,000,000, net of taxes. Deferred River Bend Recommendation also required the Company to costs, which were allowed in rate base in Texas, -

refund approximately $25,400,000 of fuel over-were approximately $107,000,000, net of taxes, as -

recoverles to ratepayers over a twelve month -

period and allowed the Company to retain approxi- of December 3L 199L The Company estimates

' mately $16,800,000 in franchise tax refunds. The it collected approximately $85,000,000 = of revenues, as of December 31,199L as a result of-Company was also required to refund approxi-mately $*,,562,000 of revenue (including interest), the previously ordered rate treatment of these deferred costs and currently estimaics that it coli collected subject to reftmd as part of an approx 15 mate $65,089,000 base rate increase that was -lects revenues associated with such deferred -V placed in effect on Dec.cmber 11,1990 under bond. costs of approximately $2,300,000 monthly, or : A The Company also agreed not to Sie a new base $28,000,000 annually, from ratepayers in Texas; f rate request _ for two years, with certain Deferred _ costs associated with Big Cajun 2 Unit 3 5 --

exceptions, totaled approximately_$4,369,000, net of taxes, as in a MaY 1988 rate ordes, the PUCT set aaldo in f December 3L 199L of which approxhnately .;

$LB80,000, net of taxes, were included in rate - '

ab:yance $1.4 billion of the River Bend plant investment and $157,000,000 of related deferred base by the PUCT. The remalaing $2,489,000, net of taxes, of deferred costs weie not included in River Bend costs with no finding of prudency. The PUCT stated the ultimate rate treatment of such rate base and were included in the appeal to the -

amounts would be subject to future demor'stration district court' by the Company of the prudency of such costs. The Company's modon for a retrial was_ denied, The Company appealed the order. The Texas _ and_ on December 18,- 1991o the : Company Supreme Court subseqtently ruled that the pru- appealed the October 1,1991 decision of the dis-dence of the costs purported to be held in abeyance trict court. The El Paso case upon which the dect-by the PUCT in its May 16,1988 order could not be slon is in part based is also in the process of being -

relltigated in future rate cases; The. Texas; appealed. No assurance can.be given as to the- l Supreme Court's decision stated that all issues - timing or outcome of any such actions. However, relating to the merits of the original order of the j management believes, based on advice from legal PUCT, including the prudence of all River Bend- counsel of record in _the proceeding, there is a-related costs, remain to De addressed in the pend- reasonable possibility of a favorable decision on- i Ing district court appeal.'On Cmtober L 199L a the appeal of the district court order. Pending'ulti- i district court handed down its decision in the Com- mate resolution of these cases, the Company has' pany's appeal of the May 1988 rate order. The- made no write offs for the previously disallowed

- decision stated that, while it was clear the PUCT _ portion of River Bend plant costs / the River Bend -

made an error in assuming it could set aside

$1.4 billion of the total costs of River Bend and__costs . plant costs held discussed in abeyance, above; orcourt if the district the deferred decision -

consider th?m in a later proceeding, the PUCT, :1s ultimately upheld, a write-off will be required in -

nevertheless, found that the Company had not met addit)on, future revenues based- uponJhe its burden of proof related to the amounts placed deferred costs prcvicusly_ allowed in rate. base

= In abeyance. The court also rated that deferre'l could also be lost; and no assurance can be given

- costs associated 4th River Bend and Big Cajun 2 as to whether or not refunds of revenue received ~

\

18 < <

a i 0

9: x-OULF STATts UTILmt$ Com'AM -

n based upon such deferred costs previously Standards (STAS) No.101, Regulated Enter-recorded will be required, prises- Accounting for the Discontinuation os Adverse resolutions of these court appeals or Application _ of PASB Statement No. 71, which subsequent regulatory proceedings, if remanded, required no write-down of the deregulated por-could have a material adverse effect on the tion of River Dend: however, the application of SPAS Company, No.101 did require an increase in deferred taxes and other adjustments of $20,166.000 ($.18 per -

laulslana Nefall Jurisdicilon (Regulator - share of common stock). Due to the state net oper-IGulslana Public Service Commission ating loss car-) forward position the Company is (LFSC)) In, a previously unrecorded _ offsetting state tax benefit of $13.100,000 operations-related tax loss On February 26,1991, the LPSC granted the caWorward_($.12 per share of common stock)

Company a $16,800,000 base rate increase, effec-tive March 1,1991, as the fourth and final step of is included in " income Taxes - State."

the february 18,1988 court ordered phase in On January 28,1992, the LPSC also ordered a plan. refund of $34,94S,000 (representing return on On April 5,1991, the Loulslana Supreme Court equity related overcollections of $24,143,000 and -

affirmed the district court order of October 11, $10,802,000 of Interest) Instead of the $20,000,000 1989, which upheld the LPSC finding that the ($13,200,000 net of tax) previously Indicated in Company's 1979 decision to restart construction of the Loulslana Supreme Court order and reserved River Bend was imprudent, and which disallowed for in the second quarter of 1991 Accordingly,

$1.4 billion of the River Bend plant investment. the Company recorded an additional refund The Loulslana-Supreme Court reversed and set reservei including interest, _ of - $14,945,000 aside the district court's order which imple- ($9,864,000 net of tax) in the fourth quarter of '

mented the deregulated asset plan for the $1.4 1991- The $24,143,000 principal will be refunded in billion of River Bend plant investment. On two steps, one half in July 1992 and one-half in December 9,1991, the United States Supreme July 1993, Interest was recorded as credits to the Court refused to hear the Company s appeal of the Loulslana Supreme Court s decision, deferred River Bend revenue requirement assocl-ated with the phase-In plan.

On January 28,1992, the LPSC ordered that the previously ordered deregulated asset plan be Liquidity, F.nanclngs, and Capita: '

retalned, subject to certain conditions, Such condi- Resources tions include changing the sharing mechanism for incremental revenue derived from off system in 1991, cash provided by operations and the sales from the previously ordered 60 percent for _ sale of debentures were the most significar s , ource ratepayers/40 percent for shareholders to a split of funds, while the retirement of long-term debt of 50 percent for ratepayers/50 percent for share- and payment of preferred dividends were the pri-holders, Accordingly, the Company applied the pro- mary use of funds. The following table shows -

visions of Statement of Financial Accounting selected cash flow items for the years 1991 1989:

1991 . 1990_ 1989 (in thousands)

Funds Provided By Net operating activities .., . . . .. . ,, ,,,. $470,147 $363,788 $220,071 Sale of debentures. .. .....,,....... .. . . .,,, . 200,000 -

Sale of nuclear fuel- River Bend fuel lease . . .. ,,. . .. ,

114,931 Existing cash and cash equivalents . . . ... --

930 -

Other . . ,., , , , . ,,, , ,,,, . . . . 14,141 2,513 6,642 Total . . . . , ,, , . .i.... . $684,288 $367,231 - $341,644 Funds Used For CQpital expenditures , . . . . . . . . . . . . . ..... ........ ., ,,. , $ 87,470 $ 73,020 1$ 74,888-Retirement of long-term debt and deferred River Bend construction

' and continuing services commitments . . , , ,, .. .. 333,082 219,454 143,170 Payment of lease obilgations. , , , . . .. . . . . ..... 36,890 44,110 -27,552 Payment of preferred dividends. . . . . , , , . . . . . .. -127,398 - -

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

95,125 Other . .... . .... . .. . . . , ,, . 2,975 30,647 909

? Total . , ,, , .. . , , . , ,, , . . . .. $684,288 $_ 367,231 $341,644 19 Ta

hi mn.---M Financial Infonnation - -

As of December 31,1991, the Company had in a greater amount may also be issuable for the available $100,000,000 under a bank credit agree- refunding of outstanding first mortgage bonds, ment as described in Note 12 to the Consolidated The Company's Restated Articles of incorpora-financial Statements, which will expire lion, as amented, place carnings coverage limita-February 28,1992. The agreement contains restric" tions upon the issuance of additional preferred tions upon additional borrowings, payment of div- stock. On the basis of the results of operations for idends, and other actions of the Company, with the year ended December 31,1991, the Com-certain exceptions. The Company is cunently nego- pany believes it does not have the ability to issue tlating for a new short term line of credit, which additional preferred stock. There are no such lim-may include a restriction on the payment of com- Itations on the issuance of preference stock; mon dMdends. however, it is unlikely that the Company could As of December 31,1991, the Company had market any common, preferred, or preference stock appioximately $103,000,000 of long-term debt in the near future since dMdends on prefcared and scheduled to mature in 1992, in addition there are preference stock are in arreats and dividends on

$109,000,000 of pollution control bonds that are the common stock cannot be paid until all pre-secured by letters of credli which expire at vari, ferred and preference stock dividend and sinking ous times in 1992. If the letters of credit are not fund arrearages are satisfied.

renewcd or rcplaced, the Company nlans to Payment of current dividends on all stock is at the remarket and cause the pollution control bonds to discretion of the Board of Directors and icpends remain outstanding. If the Company is unsuc- upon its continuing evaluation of the financial cessful in these actions, the pollution control condition of the Company. tiowever, it is an objec-bonds will be redcemed. tive of the Company to pay all dividends in arrears in knuary 1992, the Company refinanced on preferred and preference stock, all sinking

$282,878,000 principal amount of outstanding fund obligations on preferred stock, and to resume higher cost first mortgage bonds with the proceeds payment of dividends on common stock as soon of tv'o new first mortgage bond issues totaling as the Board believes the Company is financially

$300.000,000. The Company intends to refinance aNe M @ sa additional higher cost first mortgage bonds dur. See Note 15 to the Consolidated financial State-Ing 1992, if possible. The Company's funds pro- ments for information regarding the february 13, vided from cperations have continued to improve 1992 declaration by the Board of Directors of over the last several years, and along with avalla. preferred stock dividend and sinking fund ble lines of credit, are expected to be sufficient to arrearages.

provide for the Company's cash requirements.

However, if and to the extent other external funds Mgnmcant uttgation, Msks, and are needed in the future, access to external funds EnWonmeMal Issues could be adversely affected by economic, finan- As discussed below, and more fully in Note 2 to clal mat het, or banking conditions, or adverse the Consolidated financial Statements, significar.t developments with respect to contingencies to litigation and other risks exist. The risks which which the Company is subject, management believes to be the most signlll-cant are discussed below, The Company's ability to arrange external financ-ing was materially affected by its weak financial CEPCO Litigation. As discussed in Note 2 to the position during 1986 through 1990, but improved Consolidated financial Statements, CEPCO has during 1991, as a result of the improvement in filed suit seeking recovery of its alleged $1.6 billion the Company's financial position. The Company's investment in River Bend as damages, plus Mortgage Indenture contains an interest coverage attorneys' fees, interest, and costs. The Company covenant which limits the amount of first mort. believes the suit is without merit and is contesting it gage bonds which the Company may issue, vigorously. No assurance can be given as to the based upon interest coverage for a period of twelve outcome of this litigation. if the Company were consecutive months within the 15 months preced. ultimately unsuccessful in this litigation and ing a new debt issuance. Based upon the results were required to make substantial payments, the of operations for the year ended December 31, Company would probably be unable to make 1991, and/or on the basis of previously retired such payments and would probably have to seek debt, the Company believes it could issue relief from its creditors under the Bankruptcy Code.

$349,000,000 of additional first mortgage bonds, in Nuclear Risks. Ownership and operation of a addition to the amount presently outstending nuclear generating unit subject the Company to (assuming an interest rate of 9 percent for addi- significant special risks, No assurance can be given tional first mortgage bonds), first mortgage bonds that the amount of insurance carried as to various 20- i l

\

' m a OULF STATts UTiuTits COMPANY _

risks will be sufficient to meet potential liabilities l'uct Cost Recovery. Tuct cost recovery revenue end losses. Increased (decreased) as detailed above, due pri-Environmental issues. The Company has been marily to changes in fuel and purchased power notifled by the U. S. Environmental Protection costs discussed below.

Agency (EPA) that it has been designated as a IUlowatt-hour Sales. Total kilowatt hour sales potentially responsible party for the cleanup of sites in xcased less than 1 percent during 1991, when on which the Company and others have or have compared to_1990. This _ increase follows a been alleged to have disposed of material 5 percent increase during 1990 when compared to designated as hazardous waste. The Company is 1989, and a 1 percent increase in sales during currently negotiating with the EPA and state author- 1989, when compared to 1988. Changes in the Itles regarding the cleanup of some of these sites, three major kilowatt hour sales categories are During 1991, the Company increased its reserve shown in the following table:

for cleanup of sites by $14,550,000. rmd"C*n.,

Several class action and other suits have been filed in state and federal courts seeking relief from Residential. 1% s% 2%

the Company and others for damages allegedly commercial 1 4 3 caused by the disposal of hazardous waste and Industrial 2 a 2 for asbestos related disease which allegedly See the Statistical Summary on page 47 for addi-occurred from exposure 3n Company premises, tional Information on kilowatt hour sales and One hazardous waste related suit claims approxi- related revenues by customer class, mately $15 billion of damages from the defendants. Industrial Sales. Cogeneration projects devel-While the amounts at issue in these cleanup oped or considered by certain industrial customers efforts and suits may be very substantial sums, the over the last several years have resulted in the Company presently believes that its financial con- Company deve. loping, and securing approval of dition will not be materially adversely affected by rates lower then the rates previously approved by the outcome of those suits, the PUCT and LPSC for such industrial customers, in 1990, amendments to the Clean Air Act Such rates are designed to retain such customers, became law. The effects on the Company are not and to compete for and develop new loFis, and do expected to be substantial due primarily to the not presently recover the Company's full cost of Company's clean fuel mix. service. Sales to those customers qualifying for-such rates have increascc over the last several Operating Kevenue years. Kilowatt hour sales, changes in kilowatt-hour Operating revenue increased by 1 percent during sales, and related revenue within the industrial 1991, when compared to 1990, by 5 percent dur- ci ss are detailed below:

Ing 1990 when compared to 1989, and by soie, _ gaio. tg. ,,,,,',7,,,,3 ~M 6 percent during 1989, when compared to 1988, hours The components of the changes in operating reve, service ru l ,cgt ,

nue are detailed below: non ruit cost of semce rro'n"r@r$*e'f based rates 3.423.389 3.06S.774 2.111.025 199 1990 tone Total Industrial ,

13.612.197 13.331.772 12.321.905 -

(in thousands)

Change in base rates. $ 46.927 $12.894 $38.289 '*E.*"rrE*r"'

I utsla (24,143) - - changes in Kilowatt hour sales ruel cost recovery . (21.842) 19,824 29.281 rull c st of service based rates . (1)% 1% (6)%

"U" 5 ales volume and other. 10.608 50.S61

$ 11.550 $83.279 $86.929 19.359 T 1Indu seen

'. teso soon Revenue On thousands) rull cost of service Hates. The changes in base rates shown above , basu do*t

• fsen se

- reflect rate orders, settlemerit agreements, and based rates . 104.947 97.156 69.s43 rate changes implemented during the period from Total Industrial . $500.923 - $577.436 $$39.944 1988 through 199L The Company implemented permanent rate increases in cach of the years 1988-199L in 1992, the Company anticipates a decrease in non full cost of service Industrial sales and an -

As discussed in Note 3 to the Consolidated Finan- Increase in full cost of service industrial sales due clal Statements, in 1991, the Company recorded a to new customers; however, the potential exists

$24,143,000 reserve for a refund to the Loul- for loss of additional load in the future to other slana retalljurisdiction, competitive sources of power, and further pricing 21

1 h

M Financial Information below the full cost of service may be necessary addition to a reduction in kilowatt hours to meet competition in order to prevent such loss. purchased during 1991, when compared to 1990.

Hholesale Sales. Competition for wholesale Purrhased power expense decreased 12 percent sales resulted in the Company and a majority of its during 1990, when compared to 1989, due to wholesale customers reaching agreements during reduced capacity payments to CEPCO under the -

1989 for rates that were lower than the then buyback agreement, as discussed in Note 15 to the existing approved rates for the Company's whole- Consolidated financial Statements, and sale electric service and, in some cases, lowered decreased purchases resulting from the availabil-the energy and power requirements from those pre- Ity of Company-owned generating units.

vlously contracted for. The rates agreed to iri con' The cost per hik watt hour of fucl consumed and tracts mnning until 1996-2000 do not recover the purchased power and the breakdown of electric full cost of service, energy requirements are detailed below:

The city of College Station, Texas ceased pur- * " '"

cost of fuel consumed (cents per Kwm chasing its energy requirements from the Company Natural gas . L79 1.91 L96 when its contract expired on December 31, coat. . . 2.08 2.11 2.12 1991. Non-fuel related revenues, from sales to Col- Nucicar . . . 1.24 1.28 1.33 lege Station were approxiraately $11,500,000, cost of p$rNas'e d power ':ents per KEt0 3b 4N 4$

$11,200,000 and $11,300,000 during 1991,1990, . . .

and 1989, respectively. Net generation p .u n.ar. a m =m Steam Department ticctric Sales. The Company (escluding steam ,

has for a number of years produced steam at its dle"ra' e ten"f . 25.233,164 24.782,548 22,759,532 Loulslana Station No. l in Baton Rouge and sold P0rchased power 4,010.461 4,230,143 _ 5,373.912 such steam, along with the cogenerated elec- Total electric energy tricity, to industrial customers located adjacent to requirements . 29.243p25 29,012,691 28,133,444 L,oulslana Station. Electric power requirernents of " " "

Net generation e ding steam these customers in excess of the by product department generation) electricity have been met by *.he Company with Natural . 57% 01% 58 %

power from the Company's avstem power grid. Coal . . 13 11 11 In June 1990, the remaining steam customer ""C'** ' w 13 12 replaced a substantial portion of power previously Purchased power . . . I provided from the Company's grid with power Total ciectric encruy requirements . . 100% 100 % 100 %

from additional cogeneration facilities. Non-fuel revenues froc sales of cic~tric power off the Com- Other Operations and Maintenance fspense, pany's system power grid to the stcam customer Operations and maintenance expense increased for amounted to approximately $13,700,000, 1991, when compared to 1990. The increc ;c

$19,400,000, and $22,800,000 during 1991,1990, resulted from additional payroll costs, and and 1989, respectively. Tuct revenues from sales increased outage accruals and maintenance at of electric power off the Company's system River Bend, power grid to the steam customer amounteC to A. cussed in Note 2 to the Consolidated Finan-approximately $4,90; "00, $12,500,000, and cial S .cments, the Company will be making cer-

$22,500,000 during 4991, 1990, and 1989, tain repairs and improvements to a service water respectively, system and repairs to a feedwater nozzle at River Operating F.xpenses and Taxes Bend dudi.g a refueling outage which will begin in fuel and Purchased Power. fuel expense the spring of 1992. These repairs and improve-decreased 2 percent for 1991, when compa cd to ments will extend the refueling outage beyond pre-1990, due to a reduction in the average fuel cost. . vlous outage periods. CEPCO has informed the The reduction in average fuct cost resulted prl- Company that it will not participate in funding its marily from lower natural gas prices and from share of the costs related to the service water greater utilization of lower priced nuclear system and feedwater nozzle. Due to the extended generation, outage and repairs discussed above, in addition fuel expense increased 11 percent during 1990, to the possibility that the Company will have to when compared to 1989, due to increased use of fund CEPCO's share of the costs, operations and Company owned generating units. This increase ma'ntenance expense could increase by approxi-was offset in part due to a decrease in the Com- mately $7,000,000 during 1992, when compared to pany's average fuel cost. 1991.

Purchased power expense decreased 18 percent - Other operations and maintenance expenses for 1991, when compared with 1990, due primarily decreased slightly during 1990, as expenses assocl-to the reduction in capacity costs associated with ated with the River Bend refueling outage were the buyback of a portion of CEPCO's share of River less in 1990 than in 1989. That decrease was Bend generation, which ended in June 1991, in somewhat offset due to severance pay and early -

22

r Out.r STAits Utumes COhPANY m

retirement benefits associated with the workforce the discounted present value of the notes until restructuring in January 1990. January 1, lis93.

Other operations and maintenance expenses Interest charges on short term debt and other increased during 1989, when compared to 1988, increased for 1991, when compared to 1990, due to due primarily to increased payroll and benefit interest expense accrued on the estimated charges, expense of $2,738,000 associated with the Southern Company settlement, recorded prior to cleanup of two hazardous waste disposal sites, the consummation of the settlement.

End increased costs associated with the refueling outage for River Bend, in addition, operations Interest charges on long-term debt decreased expense also increased duiing 1989, due to a tenta- during 1990, due to the retirement of $219A54,000 live setticment reached with CEPCO regarding the of debt that matured during 1990. Interest charges oserhead related to administrative and general on short term debt and other increased durin9 expenses for River Bend, which resulted in the 1990, due to Interest expenses associated with Company increasing its operations expense by the Southern Company settlement.

$8,310,000. Extraordinary item - Discontinuation of Regu-Tues, rederal income taxes charged to operat. latory Accounting Principles (Net ofIncome Taxes).

Ing expenses decreased in 1991, when compared See Note 3 to the Consolidated financial State-to 1990, as detailed in Note 4 to the Consoll, ments for a description of the incrcase in deferred dated financial Statements. State income taxes taxes associated with applying STAS No.101 to decreased due to the bock recognition of tax the deregulated portion of River Bend during 1991, benefits of state tax net operating loss in addition, see Note 3 to the Consolidated finan-carryforwards. clal Statements for a description of the write-offs in 1989 resulting from the application of SFAS Deferred income taxes increased during 1990, No.101 to the Company's wholesale jurisdiction when compared to 1989, due primarily to the during the third quarter ofl989 and to the steam utilization of tax net operating loss carryforwards, department in the fourth quarter of 1989, offset in part by a reduction in the River Bend costs deferred for financial reporting purposes. New Accounting Standards Non Operating Items The Financial Accounting Standards Board Southern Company Settlement and Related (FASB) has issued SPAS Na.109, Accounting for Income Taxes. See Note 2 to the Consolidated income Taxes, which may affect the Company's financial Statements for a description of the dis. results of operations and financial position when pute and settlement regarding purchased power adopted. See Note 4 to the Consolidated Finan-contracts with the Southern Company, clal Statements for information regarding SFAS Other - Net. Other - net increased for 1991, when compared to 1990, due to franchise tax The FASB has issued SFAS No.106, Employers' refunds the Company was allowed tc ctain as part Accounting for Postretirement Benclits Other of the rate case settlement in Texas, as discussed Than Pensions, that will significantly change the in Note 3 to the Consolidated financial Statements, accounting for such benefits. The Company esti-Other - net increased during 1990, when com- inates that if it had applied the p -visions of SPAS pared to 1989, due to decreased income taxes on No.106 in 1991, the Company 'would have other income, recorded approximately $30,000,000 of expense related to postrctirement benefits. The Company Application of STAS No. 90 - Accounting for estimates that it would have an accumulated Abandonments and Disallowances of Plant Costs, postretirement benefit obilgation of See Note 3 to the Consolidated financial State- $17S,000,000 as of December 31,1991. Annual ments for the effect of the application of SPAS expense for postrctirement benefits under the pro-No. 90 to the Company's previously canceled visions of SFAS No.106 is estimated to range River Bend Unit 2. between $32,000,000 and $55,000.000 over the Interest Charges. Interest charges on long-term next 10 years. Amounts ultimately recorded in debt decreased for 1991, when compared to 1990, accordance with SFAS No.106 will be influenced

l. due to the net decrease of $133,082,000 of debt by, among other things, the actuarial assumptions

! during 1991, excluding the notes payable to the used by the Company, and the regulatory treat-Southern Company issued as part of the litigation ment of the costs received by the Company. See settlement. This decrease was offset in part due to Note S to the Consolidated Financial State-Interest expense on the notes payable to the ments for the postrctirement benefit costs recorded Southern Company recorded subsequent to the during 1991,1990, and 1989. The Company will issuance of the notes on November 7,1991. The be required to apply SFAS No.106 beginning in Company will record interest expense on 1993.

23

Ih

_g [$1 Financial Information ..

Consolidated Statement of Income (Loss) for the years ended Decentber 31 (in thousands except per share announts) 1991 1990 1989 Operating Revenue Electric . $ 1,623,059 $1,596.635 $1,501,874 Steam 40,418 61,052 69,200 Oas 31,858 32,998 36,332 1,702,235 1.690,685 1,607,406 Operating Expenses and Taxes fuel 446,543 457,503 412,591 Purchased power 16L374 197,764 225.781 Other operations . 267,592 256,951 274,150 Maintenance .. 142,098 131,775 120,570 Depreciation and amortization . 187.936 186,451 187,985 Deferred Kiver Bend expenses . . ..

- - 10,739 Deferred revenue requirement - River Dend phase-In plan 5,575 (41,515) (114,722)

Amortization of deferred River Bend costs 32,661 21,631 31,086 income Taxes rederal ,

39,140 46,640 24,987 State . (15,066) 11,323_ 8,778 Other taxes . 88,402 88.929 91,641 1,356,255 1,357,452 1,279,586 Operating Income 345,980 333,233 327,820 Other income and Deductions Allowance for equity funds used during construction , , 608 640 875 Southern Company settlement. = .

- (205,015) -

Southern Company settlement related income taxes . - 80,834 -

At,andorment of subsidiary lignite leases , - -

G 9,183)

Other - net , 35,829 . 21,513 15.826 Income Before It terest Charges and Application of STAS No 90 . 382.417 231,205 325,338 Application of SPAS No. 90 - Accounting for Abandonments and Disallowances of Plant Costs. - - (23,853)

Related Income Taxes , . - -

8,965

- - (14,888)

Interest Charges Long-term debt . . 234,418- 259,186 209,058 Short term debt and other . .. .

26,038 16,811 10,403 Allowance for borrowed funds used during construction (488) (510) (2,262) 259,968 275,487 297,199 Income (Loss) Before Extraordinary item ,

122.449 (44,282) 13,251 Extraordinary Item - Discontinuation of Regulatory Accounting Principles (net of income taxes) (Note 3), (20,166) --

(58.824)

Net income (Loss) . . . . .. . , , 102,283 (44.282) (45,573)

Dividends on Preferred and Preference Stock , , 63,070 62,742 62,839 Income (Loss) Applicable to Common Stock , $ 39,213 $ (107.024) $ (108,412)

Average Shares of Common Stock Outstanding 114,05h 108,055 108,055 Earnings (loss) per average share of common stock outstanding before extraordinary item. , , $ .52 $ (,99) -$ (,46)

Earnings (loss) per average share of common stock outstanding . . . , , $ .34 .$ (.99) $ (1,00)

Dividends Per Share of Common Stock , $ --

The accompanying notes are an integral part of the consolidated financial statements, 24

I Getr SIATts UTilmits COMPANY

.f,cy_

u.

Consolidated Statement of Cash Flows For the years ended Decernber 31 (in thousand5) 1991 1990 1989 Opciating Activilles Net income (loss) , .. ... ... .. $ 102,283 $ (44,282) $ (45,573)

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

Provision for rate refund - Loulslana . 24,143 - -

Deferced fuel and purchased power expense - nel 23,374 1,099 (18,103)

Amortization of nuclear fuel 42,172 35A54 30,102 Depreciation and amortization. .. 107,521 188.885 191,254 Deferred River Bend expenses, revenue requirement, and.

carrying charges .. ...... .... 5,575 (41,,315) (97 A64)

Amortization of accumulated deferred River Bend costs 32,661 21,631 31,086 Deferico Ic.come taxes - net . 36,540 (16,169) 49,993 Investment tax credits - net . .. (4,308) (4.286) (4,424)

Allowance for funds used during construction . (1,096) (1,150) (3.137)

Southern Company settlement . . . . 12,565 213,885 -

Abandonment of subsidlary 1;gnite leases. . . . ... ,

- - 19,183 Application of SPAS No. 90 - accounting for abandonments and disallowances of plant costs (net of income taxes) ...

- - 14,MB Extraordinary item - discontinuation of regulatory accounting principles (net of income taxes). 20,166 -

58.824 Disputed amount - -

(7.795)

Other . (19,022) 16,439 26,995 Changes in:

Receivables . (12,503) (1,897) (16.990)

Puel inventories ... 10,422 (3,155) 3.113 Materials and supplies . (146) (919) (1,027)

Prepayments and other current assets Accounts payable - trade (9.825) 2.173 2,072 (6,912) 9,959 (7,828)

Customer deposits . 1,258 1,031 1,221 Taxes accrued . 753 (1,601) (12,419)

Intcrest accrued . . . . 3,211 (10.927) (1,322)

Other current liabilitics 21,315 (1,667) 7,422 Net cash flow provided by operating acthitics.

. 670,147 363,788 220.071 FinancinD Activities increase (decrease) in deferred River Bend construction commitments . ' 363 increase in long term debt . .

(321) , 2,826

... .... ... 200,000 -

679 Payment of deferred River Send construction and continuing service commitments . ... ..

(12,108) (31,517) 10)

' Payments of lease obligations (36,890) (4 ... i.0) (27,552)

Retiremerit of long-term debt . . (320,653) (202.654) (111,653)

Payment of preferred dividends (127,398) - -

Net cash flow used by financing activities (297,370) (262.201) __167,217)

(

Investing Activitics Construction expenditures (73,020) (54,679)

Nuclear fuel expenditures . (87.470)

(20,209)

Sale of nuclear fuel - River Bend fuel lease - -

114.931 Allowance for funds used during construction 1.096 1,150 3.137 Deposit to escrow account . (2,975) (11,463) -

Other property and Investments. 13.045 (19,184)

(909)

Net cash flow provided by (used by) Investing activitics . (76,304) (102,517) 42,271 Net change in cash and cash equivalents 96,473 (930) 95,125 Cash and cash equivalents at January 1 .,196,588 197,518 _ 102,393 Cash and cash equivalents at December 31.

$ 293,061 $ 196,588 $ 197,518 Supplemental Cash Flow Disclosure _

Cash paid during the period fon Interest $ 227,306 $ 267,529 $ 286.211 Income taxes . . . . . . .......

5.700 6,359 812 e increase in nuclert fuel lease obilgations . 13,958 24,623 3,521 The eccompanying notes are an integral part of the consolidated financian statements.

25

.I ld l Financial Informatjon , _

s 'A Consolidated Balance Sheet December 31 (in thousands) 1991 1 0 Assets Utility and Other Plant, at original cost Plant in service . . . .... .. ... . ...

$6,873,767 $6,741,601 Less: Accumulated provision for depreciation . 2,024,351 _1,847,882 4,849,410 4,893,719 Construction work in progress . . ... .. 36,538 24,576 Nuclear fuel, net of accumulated amortization 107,071 135,285 4,993,025 _5 053,580 Other Property and Investments __

50,200 61.3_01 Current Assets Cash and cash (quivalents . 293,061 196,588 Receivables Customers . 121,897 115,725 Other . . . . 25.095 18,764 fuel Inventories . . . . , 17,007 27,429-Materials and supplies 8,097 7,951 Prepay nents and other . 45,283 33,458 510,440 401,915 Deferred Charges and Other Assets Accumulated deferred income axes 190,438 169,355 Deferred River Bend costs. 891,5S8 954,163 Other 275,821 222 355 1,357,827 1,346.473

- - - - -$G,911,492 $6,863.269 Capitalization and Liabilities - -- -

Capitalization (See Stats 1cnt of Capitalization)

Common shareholders' equity $2,021,G73 $1,928,022 Prefe mce stock 100,000 100,000 Preferred stock Not subject to mandatory redemption . 13G,444 136,444 Subject to mandatory redemption . 3G2,580 438,631 Long term debt 2,293,982 2,074,112 4,914.G79 4,677,209 Current Llabilitics Long'e term debt 94.003 252,ngs andduc Wthintermone debtyear . . . fund

. .....requirements Pref rred stock long sinking 52,205 76/)63 Deferred River Bend construction commitments , ,

- 12, $29 Accounts payabic - trade . , 107,684 109,596 Customer deposits 20.156 18,898 Taxes accrued . . 21,726 20.973 Interest accrued. 77,289 74.078 Capital leases - current , 21,328 38,952 Other 75,718 48,454 465.109 652,426 Deferred Credits and Other Llabilities Investment tax credits. . . . . 96,889 101.197 Accumulated deferred income taxes 807,678 667,518 Caoltal leases - non current . ...

116,805 122,113 Deferred River Bend financing costs. 155,482 179,841 Southern Company settlement . 47,400 235,283 Other ,

307.450 227,682 1,531,704 1,533,634 Commitments and Contingencies (Note 2) . ,

N,911.492 $6,863,269 The accompanying notes are an integral part of the consolid tco > ' clal statements.

26 L _ _ _ _ _ _ _ _ _ _ _ _ _

_ _ Out.r $1Af ts Uituilts COMPANY Consolidated Statement of Changes in Capital Stock and Retained Earnings for the years ended December 31 (let thostsattds)

U%'."

235kd!. TO" r[$3[i T Y $" ' Eff,l"is Balances January 1,1989. . . . . . . $387,189 $1,195,148 $ (3,930) $20,103 $870.080 Net loss - 1989 . .,. . , .

(45.573)

Preferred sirvh sinking fund requirements . . . (7,080)

Dividends m .trears on prefened stock subject to mandate. edemption . . . . .

.. 35,142 (35,142)

Caltat snoch experise . . . . ..... ... .. _ 10 Cal nce: December 31,1989 . .. . . . . . .. 414.051 1.195.148 (3,930) 20.173 789,905 '

Net loss - 1990 .. .. .. . . . . . (44,282)

Preierred stock sin'Jng fund requirements . .,. . (11,000)

Dividends in arrears on prefetted stock subject to inandatory redemption . . . . . . . . . . 35.040 135,040)

Balante December 31.,1990 .,... . . . . .. 438.031 1,195,148 (3,930) 20.173 .-710.637 Net income - 1991. , ,. . .. .. .. .. . .. 102,283 issuance of common stock:

Southern Company setticment - -

(6.000.000 sharcs) . . .. ,, . . ... . .. 5,775 (200) - 51,075 Preferred stock sinking fund requirements . .. . . . . -- (14,816) -

Olvidends In artcars on preferred stock subject to mandatory redemption . . ... .. . ..... . - 35,374 (35,374)

Dividends declared on ireferted stock . . . . .. (90,009) (30,789).

Capital stock expense .... . . . . . ,

(19)

Ealances December 31,1991 ...

. . . .... . $302.580

- .$.1.20_0,9,23 $(

w_4,155) w 14,8

$78.- ,$7,40.75,7- - -

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

1 1

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l 4

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_m . .. . .. ..

a

~ c ;-.! Financial Information .--- ._--.

Consolidated Statement of Capitalization December 31 (in thousands) 1991 1990 Common Shareholders' rquity Cornmon stock Authortred 200.000,000 shares without par value Outstanding 114,055,065 and 100,055,065 shares. $ 1,200,923 $1,195,148 Fremlum and expense on capital stoth . (4,155) (3.936)

Other pald in capital 78.148 26,173 Retained camin's .

746,757 710,637

.2,021,673 1.928,022 Preference Stock Authorized 20,000,000 shares without par value, cumulative Outstanding 4,000,000 shares Cumulative Redemption Per Share Price as of Dividends Shares December 31, Dividend Series in Arrears Outstanding 1991 9 4.40 $22.18 2,000,000 $ 30.45 50,000 50,000

- 3.85. 19.41 2,000,000 30.15 50,000 50,000 100,000 100,000 Prefer ed Stock Authorized 6,000.000 shares, $100 par value, cumulative Outstanding 4,617,568 shares Cumulative Redemption Per Share Price as of Dividende Shares December 31, Dividend Series in Arrears _ _ Outstanding, _1091 Not subject to mandatory redemption S 4.40 $10.08 51,173 $108.00 5,117 5,117 4.50 . . . . . . 10.31 5,830 105.00 583 383 4.40-1949 . 10.08 1,655 103.00 160 166 4.20. , 9.63 0,745 102.818 975 975 4.44. 10.18 14,804 103.75 1,480 1,480 5.00. 11.46 10,993 104.25 1,099 1,099 5.08. 11.64 26,845 104.63 2,685 2,685 4.52, 10.36 10,564 103.57 1,056 1,056 6.08. 13.93 32,829 103.34 3,283 3,283 7.56. , . 17.33 350,000 101.80 35,000 35,000 8.52. 19.53 500,000 104.43 50,000 50,000 9.96. . . 22.83 350,000 104.64 35,000 35,000 136,444 136,444 SubjeC to mandatory redemption

$ 8.80 . 20.17 301.029 103.00 wd,103 30,103 9.75. .. . 22.34 29,636 103.00 2,963 2,963 8.64. . . 19.80 302.465 103.00 30,247 30,247 11.48, .. ... .. 26.31 480,000 103.00 40,000 48,000 13.M . .. 31.26 40,000 103.00 4,000 4.000 12.92. . .. 29.61 600,000 105.00 60,000 60,000

11. 50 . . . . . . . . . .. 26.35 750,000 105.00 75,000 75,000 A ustable Rate . . 22.05 300,000 103.00 30,000 30.000 A ustable Rate . . . . 21.63 450.000 103.00 45,000 45,000 Pr ferTed dMdends in aricars. . .. . .. . . , , . 80,477 141,711 405,790_ 467,024 Preferred stock sinking ftmd requirements . . . . .. ,, ... . (43,210) (28,393) 362,580 438.631 (mtement conunued on k,tiowing page.)

28

~

Out.r STAf ts Utsutits CoMrANY- -

1991 _.1993 ,,

Long Terne Debt rirst mortgage bonds Maturt 'g 1992 through 1996 -

17W% due January 13,1992 ... .... ,

. . . . . . ,. 6 ~- $ - 00,000 4%% due May 1,1992. .., . . . . . . . . . . ... ... - . 17,000 16.0% due September 23,1993 . .

. . . .... . . ... . . .. . . 17.150 - 23,720 13%% due March 1,1994 . . . . . . . . . . .. . . . . . . . .,. . .. .. 100.000 100,000 '

$% due January 1,1990 . . . ...... ....,, . . .. . . .,,. ....... 20,000 20,000 Maturing 1997 through 2001 - 5%% intough BW% . . . . . . . . . . . . . .. 245,000. 243,000 j Maturing 2002 through 2000 - 8W% through 10.15%. . . .... ...... 210,000 '210.000' Maturing 2007 through 2011 - 8%% through 12.3%. . . . , . . . . . .. .. 285,000 285,000 Maturing 2012 through 2016 ~~ 11%% through 15% . 3 . . . . . . . , . . . . , . . . 600,000-- 600.000':

First mortgage bond sinking fund requirement . . . , . . . . . . . . . . . . . ... .. _(8,570) *(48,570) 1,464,580 - - 1,514,150-Pollution control and industrial development bonds 7% due 2006 . . . . . ... ..... ..... . . . .............. 4... .. 25,000 25.000-S 9% due 2007.. . . .. . . . . . . ...a. .. , . . . . .. ... . . ........... . -23,000 ' 23,000 10%% due 2012 4 .. .... . ...... . . . . . 4 . . . . . c............ :48,285- !48,285i 9W% due 2013 . . . . . . . . . . . . ................ . ..j...... ... 17,450' 17,450 10%% due 2014. . . ...... ... . .... . . . . . . . - . . . . . ...........4- 50,000 . 50.000 12 % due 2014 . . . . . . . . . . . . . . . , . . . . . . .. . . . . ........ ..... . 52,000: $2.000 Yariable rate due 2014 . ..... ., . ....... . . 4 , . . ............. l- 94,000

7.7% due 2014. . . . . . . . .. ... . , . ............ 4 ...a.,... 94,000 . -

Variable rate due 2015 . . .......-... . . . . . . . . . . . . ....-......... 409.000 109,000s 9% due 2015 ... .. ................. . . . . . . . . . ....... ...... 45,000 4 45,000 Variable rate due 2016 . . . ....... ... . . . . ...,,...... . ..v,.... :20,000  : 20,000 Pollution control and Industrial development bond sinking fund requirements . . . . . . . . . ; , . . . . . . . . . . . . . , . , c. . . . . . . . . . . . . . . . . .

(425)

-

Euro debenturts - 15% due March 4,1992 . . . 4;.. , . . ..,, ...... ,- - 75,000 Convenible debentures - 7%% due September 1,1992 .. . . .,.:. .....,,.. -- 2,003 Debentures - due 1998 - 9.72% . . . . . . . . . . . . .,.., . .. . ..,..- . 200,000 --

Notes payable - Southern Company 4'ue January 1,1993.-. . . ,, , , . . . ; . . ;, , -142,697-Other iong term debt . . . .. .......,n,..... .................... 2,038.

2,030.i .

2,296,625 -2.076,926" t)namortized premium and discount on debt - net . .;i.... +. (2,645) .

- (2.814)1 2,293,982 '2.074,112

$ 4,914,6.,79 . $4,677,209 -,

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

)

,j

, ".9 E

t W

-g l Financial Information - -- -

in 1987, due to the construction Interest capitall-Gulf States Utilitics ComI)anuJ ration provt31ons of the fax Reform Act of 1980, Notes to the Consolidated the Company benan accming AruDC at pre tax rates. These mte were as foHows Financial Statements January A,1909 Manh 31,1989. . 12.2s %

• • 7

1. Suntulary of Significant ^fj 3 [, f9I,"",'.$

? 3[,

3 E~

,d Accounting Policles Apru 1. w91 uecemt>cr st 1991. 11.7s Itevenue. Maci, and huthased ibwer. The Com-System of Accounts. The accounting records of pany reco4s revenue as billed to its customers on the Company are maintained in accordance with a cycle billing basis. Herenue is not recorded for the Uniform System of Accounts as prescribed encigy delivered and unbilled at the end of each by the Federal Ercrgy Regulatory Commission Oscal period. The Company s wholesale and Loul-(FERC) md adopted by the Loulslana Public Serv- stana retall rate schedules provide for adust-Ice Commission (LPSC) and the Public Utility ments to substantially all tales for increases or Commission of Tex .s (PUCT). decreases in the costs of fuel for generation, Utility Mant and Depreciation. Utility and other purchased power, and gas distributed. The Com-plant is stated at original cost when first dedl- pany's Texas retall rate schedules include a cated to public service. Costs of repairs and minor fixed fuel factor approved by the PUCT, which replacements are thatned to expense as incurred, remalm, the same until changed as part of a genera.

The original cost of depreciable utility plant rate case or fuct reconcillation, or until the ITCT retired and cost of removal, less salvaDe, arc orders a reconcillation for any over or under col-charged to accumulated provision for depreciation, lections of fuel cost. Reconcilable fuct and The provition for depreclation is computed using purchased power costs in excess of those included the straight line method at rates, approved by in bacc rates or recovered through fuel adjust-the regulatory commissions, which will amortlze ment clauses arc deferred (or accrued) ui 11 such the unrecovered cost of depicclable plant over costs are billed (or credited) to customet .

the estimated remaining service life. Intentories. The Company's fuct inventories are Composite depreciation rates were as follows: c mprised of fuel oil, valued at weighted average cost, and coal, valued at last In, first-out (LirO) m1 mo 1_ga" cost. Matetials and supplies are valued at weighted ticcuic 2.60 % 2.70% 2.68* average cost.

steam . . 4.22 4.2s 4.16 oss . . . 3.ss s.s3 3.s3 Income hes. The Company and its sub-Total company . 2.70 2.72 L'.70 stdiaries file a consolidated federal income tax retum, income taxes are allocated to the Individual Decommissioning. The Company is accruing companics based on their respective taxable the decommissioning costs of River Bend in accur' income or loss and investment tax credits, subject dance w!th the regulatory commissions' orders to the limitat'ons, for recognition of net operating over a 50 to 40-year period- loss carryforwards and investment tax credits.

Allowance for Ihnds Used During Constmction The Company follows a policy of comprehcrisive (AfUDC) and Capitalization of fnf erest. The accmal interperiod income tax allocation where such of APUDC is a utility accounting practice calcu- treatment is permitted for ratemaking purposes by lated under guidelines prescribed by the FERC and regulatory bodics. Deferred income taxes result capitalized as part of the cost of utility plant rep- from timing differences in the recognition of reve-resenting the cost of servicing the capital invested nue and expenses for tax and accounting in construction work in progress (CWIP). Such purposes.

AFUDC has been segregated into two component investment tax credits have been deferred and >

parts - borrowed and equity funds. That portion ate being amottlzed ratably over the useful lives of allocated to borrowed funds is reflected as an th *clated property, a@ustment to interest chcrges, while that portion applicable to equity funds is shown as a source of Subsidiary Companles. The Company accounts other income. Both the equity and the borrowed for the operations and financial position of its 9

portlens of ArUDC are non-cash items which have wholly owned subsidiary companics, Varfbus Cor-the effect of increasing the Company's reported potation (Vartbus), Prudential Oil and Gas, Inc.

net income. When the related utility plant is placed (Prudential) OSO&T,Inc. (OSO&T), and Gulf States Overseas finance NN. on a consolidated basis, in serte, a return on and recovery of prudently incurred costs have been permitted by regu- Consolldated Statement of Cash Motus, for the lators in determining the rates charged for utility purposes cf the Statement of Cash flows, the service. Company considers all highly liquid investments 50

!f 3

Outr STAlts UTitmts CoMrANY _

with original maturities of three months or less all funds previously deposited by the Com-to be cash equivalents, pany in e court-controlled escrow account Unamorflied hoject Cancellation Costs. During in lieu of certain payments under the pur-1964, the Ccmpany began amortiring the cost of chase power contracts and the interest the River Bend Unit 2 cancellation applicable to carned thereon (the Company paid approxl-Its Texas retall operations over 15 years, in 1989, mately $6,590,000 in addition to the escrow the Company began amoitizing the cost of the funds);

River Bend Unit 2 cancellation applicable to the (b) $100,000,000 non interest bearing promis-Loulslana retalljurisdiction over 10 years. sory notes due on January 1,1993. subject to Reclassf/lcation of Anancial Statements. Pilor the Company having " adequate cash" at year financial statements have been reclassified in January 1,1993, as described below; and order to be consistent with current year presenta-tion with no effect on net income (loss) or com- (c) 6,000,000 shares of the Compa.ny) common mon shareholders' equity. stock, which Southern will have the rigtifto vote only in the event of bankruptcy of or

2. Commitments mid Contingencies default by the Company.

Mnancial CondIllon, Altha>gh the Company in addition, the Settlement Agreement provides received partial rate tellef relating to its River Bend that on January 1,1993, the Company will pay Unit 1 (River Bend) r.uclear unit, the Company's Southern for each of the 0,000,000 shares of com-financial position was stralncd from 1980 to mon stock, the amount by which (if any) $18.25 1990 by its inability to carn a return on and fully exceeds the highest average of the highest pdccs at recover its investment and other costs associ, which the Company s common stock trades for ated with River Bend. In 1991, the Company's five consecutive days during the period financial position continued to improve; howcycr, November 7,1991, (the date the shares were issues to be finally resolved in PUCT rate pro. delivered to Southern) and January 1,1993. Since ccedings and appeals thereof, combined with the the consummation of the setticment on application of accounting standards, may result in N vember 7,1991, the Company 5 common stock substantial write-offs and charges that could had a five day average high pdcc of $10.35 per result in substantial net losses being reported in share as of December 31,1991. Ilowever, if the 1992, and subsequent periods, with resulting Company does not have ' adequate cash , on substantial adverse adjustments to common sharc- January 1,1993, all unpaid amounts owed under holders' equity. Puture carnings will continue to the stock agreement discussed above and under be adversely affected by the lack of full recovery the promissory notes would begin to accrue and return on the investment and other costs asso- Interest at the prime rate plus 1 percent and would clated with River 3cnd, be payable on the earlier of the January 1st as of Southern Company (Southern), Beginning in which the Company has " adequate cash" or 1986, the Compt.ny and Southern have litigated January 1,1999, Pursuant to the SC.tlement Agree-disputes relatir.g to certain purchase power con

• rnent, the Company would be deemed to have tracts providlnc for purchases by the Company " adequate cash" at the time it begins to pay cash of capacity and energy from Southern, dividends on its outstaading common stcch or to the extent its projected availabic cash balance cach StTntMtm. On November 7,1991, the Company year exceeds $35,000,000.

and Southern consummated a etticment of the long standing liti allon in accordance with the The Company will accord Interest on the dis-terms and provls ons of a settlement agreement counted present value of the notes Ea}'able until previously executed as of December 21,1990. In January 1,1993.

, 1990, the Company recorded a charge to The Company's ob!Igations under the settlement earnings of $205,015,000 before the related are secured by a first mortgage lien on the Lewis income tax benefits of $80,834,000 (which includes Creek generating station, a 520 megawatt gas-

$11,129,000 of state tax bencllts) representing fired facility owncd by G5G&T, and a pkdge ofihc menagement's estimate of the settlement costs. common stock of 050&T.

Due to the state net operating loss position the Company is in, an offsetting state tax expense of Cajun Electric Ibwer Cooperative, Inc. (.CfirO).

$11,129,000 was included in " Income Taxes The Company has significant business relation-

- State" in 1990. sNos with CEPCO, including co ownership of River in accordance with the settlement agreement, Scud and Big Cajun 2 Unit 3. The Company and Southern received the following: CEPCO own 70 percent and 30 percent of River ncad, respectively, while Big Cajun 2 Unit 3 is (a) approximately $75,000,000 plus interest owned 42 percent and 58 percent by the Com-earned since August 31,1990, which inclur'es pany and CEPCO, respectively.

31 x . o

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j Qancial Information

__ g . - s, _.m _,._ _ - - - _ - - -

On sw K., M. % d filed a civil action amount in dispute, which is included in " Deferred apri A :i Company in u U. S. District Court for Credits and Other Liabilitics - I Other," with no

~ truk Obidct of coun 1.* CEPCO stated in effect on net income. No assurance can be given wo et UNW M H. r2# . the suit is to as to the timing or outcome of the final PERC wwt r.xsc V - #nN':g vnd/or dissolve the order, u,, w a. - A Woon and Operating Agree- The Company has been informed by CEPCO that w% em  ! M cm August 28,1979,(Operating it will not participate in funding its share of the AMw g4 J to River Bend becau>e of costs associated with certain repairs and improve-ty M ary) err uy the Company, breath of its fldu- rnents to a service water system and repairs to a

,2n.y dutics owed to CEPCO, and/or the Com- feedwater nonic at River Bend which are scheduled pany's repudlation, renunciation, abandonment, for the refueling outage which will begin in the or dissolution of its core obligations under the spring of 1992. CCPC'O has withheld funds called Operating Agreement, as well as the lack or fall' for by the Company for this purpose. The Com-ute of cause and/or consideration for CEPCO's pany presently intends to make such repairs and, periormance under the Operating Agreement. The without walving any rights against CEPCO, will pay suit sccks to rccover at least CEPCO's alleged costs incurred therefor if not funded by CEPCO.

$1.6 billion investment in the unit as damages, Total costs expected to be incurred in connection plus attorneys' fees, Interest, and costs. with the repairs and improvements referred to The Company believes the sult is without merit above are approximately $00,000,000. The Com-and is contesting it vigorously. No assurance can pany believes that CtPCO is obligated to pay its be given as to the outcome of this litigation. If share of such r.osts under the terms of the appil-the Company were ultimately unsuccessful in this cable contract. CtPCO has filed a sult seeking a litigation and were required to make substantial declaration that it does not owe ruch funds and payments, the Company would probably be unable injunctive tellef against the Company. The Com-to make such payments and would probably have pany is contesting such suit and is reviewing its to seek relief from its creditors under the Bank- available legal remedies, ruptcy Code. 11uclear Risks. Ownership and operation of a The Company has been informed that CEPCO nuclear generating unit subjects the Company to has had serious financial problems but that the signllicant special risks. The Company is Rural Electrification Administration (RCA) has insured to an extent as to its interest in River Bend refinanced CEPCO's outstanding dent. Addition- for property damage and decontamination, liabil-ally, ont of CEPCO's member cooperatives has Ity to employees and third partles, and incrc-filed bankruptcy. CEPCO's weak financial condl- mental replacement power costs, as described tion or its bankruptcy could have significant below, llowever, potential liabilitics to which the adverse effects on the Company, including, but not Company may be subject, including but not liml-limited to, possible Nuclear Regulatory Comrnis- ted to liabilitics relating to the release or escape of slon (NRC) action with respect to the operation hazardous substances into the environment, may of River Bend and a need to bear additional costs not be insurable, and the amount of insurance associated with the co-owned facilities. During cauled as to the various risks may not be sufficient 1992, and for the ncit several years, it is expected to meet potential liabilitics and losses. There is that CEPCO's share of River Bend rclated costs also no assurance that the Company will be will be in the range of $65,000,000 to $75,000,000 able to maintain insurance, coverages at Mir pres-per year, if the Company were required to fund ent levels. (Jnder those OrcumMantes, such CEPCO's share of costs, il 1e can be no assur- losses or liabilitics would have a very substantial ance that the Coinpany's resources would be adverse clicct on the imancial ccndition of the adequate. Company.

The Company and CEPCO are parties to PERC Public liabt!!ty in case of a nuclear incident at any proceedings regarding certain long-standing dis- licensed nuclear facility in the tinited States is putcs relating to transmb!ca wrvice charges, currently limited to $7.8 billion under provintons of licarings before the PERC werc' completed in the Price-Anderson Act (Act) which was renewed December 1988. On May 11,1989, an administra- and revised In 1983, and extends through August 1, tive lawjudge issued an initial decision, which is 2002. The Company insures River Bend for this subject to a final PERC order. The Company exposure through a combination of private insur-claims CEPCO has underpaid transmission ante and the Industry-wide secondary financial charges, which as of December 31,1991, amount program. The changes to the Act necessitated to $104,855,000. Such amount was recorded on modifications to the secondary financial protection,

- the balance shcci as a long term account receiv- .such that the Company will be subjected to a able, wb!'h is included in " Deferred Charges and potential retrospective assessment of rpproxi-Other Assets -- Other," and an offsetting mately $66,150,000 per incident with a maximum 32

p

- . _ _ . , . _ .__.__Jutr STuts UtiLmt:5 CoMrAN ,

amount of $10,000,000 per incident payable in Disposal of Spent Nuclear thcl and Nuclear any one year for losses in the event of a nudcar Decommissioning. As provided in the Nudcar intident at its facility or any other licensed Waste Policy Act of1982, the Company has entered nuclear reactor fatllity in the United States. Any into contracts with the United States Department retrospective assessments pertaining to this liabil- of Energy (DOE) for disposal of spent nuclear Ity are subject to the 70/30 pettent ownership fuel from River Bend. The Company pays a quar-Interest in River Bend between the Company and terly fee to the DOE equal to one mill per net CEPCO. kilowatt hour generated by River Bend. The Com-pany is cunently recovering such casts in all The Company maintains $500.000,000 primary jurisdictions.

property damage insurance and $765,000,000 of excess insurance for River Bend from the private The Company has recched approval from the Insurance market. Additionally, tne Company PUCT, LPSC, and FERC to collect in rates amounts has acquired $1,250,000,000 of excess property necessary to decommission River Bend when it Insurance coverage on River Bend through par- reaches the end of its service life. Decommis-tidpation in the Nudcar ticctric Insurance Limited sioning costs are subject to the 70/30 percent own-(NEIL) 11 program. Under NEIL 11, the Company is ership Interest in River Bend between the Com-subject to a maximum assessment of approxl. pany and CEPCO. In 1991 dollars, the Company's mately $6,519,000 in any one policy year. Although share of decommissioning costs, based on cur-the Company has continued to increase the limits rently approved funding by the respective of such insurance as capacity becomes avalla, regulatory commissions, is estimated to be bic, no assurante can be given about the adenuacy $198,000,000. A recently completed engineering of such Insurance limits in the event of a major study, which has yet to be approved as a basis accident. The property damage insurance policy for funding, Indicates that the Com9any's share in limits are substantially less tha't the replace- 1991 dollars may increase to approxltnately ment cost of the River Bend fadllties. $281,000,000, which at the end of the life of the unit may be approximately $1.8 billion. To pro-The NRC has adopted a rule applicable to the vide for future decommissioning costs, the Company's nuclear generating facilitics which amounts collected through rates from customers, establishes an oveniding priorhy and requires, in plus interest, are placed in a master trust funo to substance, that if there were an accident at River provide amounts needed in the future. The Com-Bend's reactor and the estimated costs of pany has ( 2cted the provisions of section 408A of stabillring and decontaminating the reactor exceed the Internal Revenue Code to qualify for an annual

$100,000,000, the proceeds must first be dedl- tax deduction for payments made to the nuclear cated to sudt purposes. The Company's policies decommissioning fund. At December 31,1991, the on such property have been endorsed to com. balance in the decommissioning trust fund was ply with such rule. This has the effect of reducing $7,368,000. There can be no assurance that the the amount of proceeds which would be available amount bcIng provided for will be adequate.

to repair, replace, or restore the property or oth-erwise be available for mortgy,cs, trustecs, and Dividend Matters other lois payecs. Patrtnato Stock. In February 1987, the Board of The Company maintains a Nuclear Workers' Lla' Directors omitted dividends on the Company's bility policy which covers liability for tort claims by preferred stock to have been payable in March on site workers first employed at a nucicu facli- 1987. The Company continued to omit preferred Ity after January 1,1988. for non catastrophic dhidends through June 1991. Dlvidends on pre-ferred stock are cumulative. Since the Company nuclear term, lowrelated injury such level radiation. as therelated Nuclear exposure to long- failed to pay preferred dhidends, the holders of claims by workers employed in a nuclear facill;y prior to preferred stoch became cilglble, as of March 15, January 1,1988, wl:1 continue to be covered 1988, to clect a majority of the Board of Directors, unoer the Nuclear EncrDy Llability policy provided and have done so since the annual meeting in the claim is made by December 31,1997. Under tht. 1988. On September 15,1991, the Company pald Nudcar Workers' Liab!!Ity policy, the Company is $46,336,000 of preferred dividends, equal to four subject to a maximum retrospective premium quarters in arrearages. On December 15,1991, the assessment of approximately $3,159,000, Company paid $81,062,000 of prefened dhi-dends, equal to seven qumters in arrearages. The Some extra expense for River Bend replacement Company is also in arrears on preferrql stock power is insured through the NEIL I program, sinking fund requirements.

Under the NEIL i progra.m the Company is subject Patrtatnct Stoch. In February 1987, the Board to a maximum annual retrospective assessment of Directors omitted dhidends on the Company's of approximately $1,299,000, preference stock to have been payabic in March 33

1 3

] Financial Inforniation 1987. The Company has continued to omit prefer- common steth of the Company to have been ence dhidends through December 1991. Divl- payable in September 1986. No dividend on com-dends on preference stock are cumulative. Since mon stock has been declared since then. The the Company failed to pay preference dividends, Company may not pay any dividend or make any the holders of preference stock became cilgible, as distribution on any of its common stoth or pur-of September 15,1988, to elect two dhectors to chase or othe: wise acqulic common stock the Board, and have done so since the annual meeting in 1989. The Company may not pay any unless all cumulative dhidends and sinking fund dividend or distribution on any of its preferente obligations have been paid on all prefened and stock, or arquire preference stock, unicss all preference stock.

accrued dividends and sinking fund obilgations have been pam on preferred stock. DmotNo l'AmrNis AND ARKrAMOrs. Detailed below CoMnom $1ou. At its meeting in August 1980, are the balances of cumulative dividends and sink-the Board of Directors omitted any dividend on the Ing funds in ancars:

Prefe rr ed Prefe ence Iteferred stMk btMk stM k ' total Sinkint Iend Dividendo Dividends Dividende _nequirernetti Total (in Goutande)

Amounts in ancars at $17,327 $208,300 December 15,1990. $185,039 $60,000 $251,039 1991 requirement . . . . . . . .

40,582 10,500 03,082 11,000 74,148 (40,330)

September 1991 dhidend payment (46,330) - (40,330) -

December 1991 dividend payment j81062) -

jt11,062) _- _ j81,062)

Amounts in anears at $215,110 December 15,1991 . . ..

[134 ] 23 [82,500 [186,723 p28,393 Payment of cunent dividends en all stoth is at the The Company has accrued dividends on and discretion of the Board of Directors and depends increased the balance of mandatory redeemable upon its continuing evaluation of the financial preferred stock with an ollsetting decrease to condition of the Company. liowever, it is an objec- ictained carnings, flowever, since dividends on all tive of the Company to pay all dividends in arrears scric9 of the Company's preferred and piclerente on preferred and preference stock, all sinking stock, both mandatory and nonmandatory fund obilgations on preferred stock, and to resume redecmabic, are cumulative, income (loss) appil-payment of dividends on common stock as soon cable to common stock and carnings (loss) per as the Board believes the Company is financially average share of common stock outstanding able to do 50. have been computed assuming that all such divl-Under the terms of its short-term bank credit dends through December 31,1991, were accrued, agreement discussed in Note 12, the Company is restricted from paying dividends, while the credit Sec Note 15 for information regarding the agreement is in clicct, in excess of I'cbruary 13,1992 declaration by the Doard of

$150,000,000 in total on any of its classes of stock. Directors of prefencd stock dividend and sinking in January 1992, the Company received a waiver fund arrearages, under the short tcrn trcdit agreement to pay the Outer Contingeacles. The Company has been remaining preferred stock dividend arrsarages. notifled by the U. S. Environmental Protection The Company's ability to declare and pay dhidends Agency (EPA) that it has been designated as a is also restricted by provisions of its 11cstated Artl.

cles of incorporation, various Indentercs, and potentially responsible party for the cleanup of sites state and federallaw. The Company'shbility to pay on which the Company and others have or have dividends and artcarages and redcem and pur, been alleged to have disposed of material chase outstanding stock (as is necessary to meet designated as hazardous waste. The Company is its prefened stock sinking fund obilgations) has currently negotiating with the EPA and state author been and may be further adversely affected, and ltics regarding the cleanup of some of these sites, possibly foreclosed for an Indeterminate period During 1991, the Company increased its reserve of time, by wri,te-ofIs and write-downs which have for cleanup of sites by $14,550,000. Several class resulted and mJy hercafter Icsult from regu. action and other suits have been filed in state and latory action $ or periodic reevaluation of the dc. federal courts secking relief from the Company regulated asset plan in Loulslana. Potential and others for damages caused by the disposal of changes in accounting stancbi rds could also affect hazardous waste and for asbestos relat~l disease the requirement for a write off or write-down of which allegedly occurred from exposure on Com-the deregulated asset and the amount thereof. pany premises. While the amounts at Issue in 34

l Ojtr STAlts Utit mts CoMrAny _

the cleanup efforts and suits may be very substan- regarding fl Paso I:lectric Company's similar ti:1 sums, management belteves that its financial deferred costs. The court further stateo that the condition will not be materially affected by the PUCT crred in reducing the Company's deferred outcome of the suits. costs by $1.50 for cach $1.00 of revenue collected The Company is also invoh'ed in litigation arising under the interim rate increases authorized in in the normal course of business. While the results 1987 and 1988. The court remanded the case to of such litigation cannot be predicted with cer- the PUCT with instructions as to the proper t:Inty, management believes that the final out- handling of the deferred cost issues, come will not nave a material adverse effect on its As of December 31,1991, on a Texas retallJurls-financial condition. dictional basis, the disallowed Rher Dend plant costs were approximately $19,000,000, and the

3. Rates and Accottuting

- - - ~ ~ River Dend plant costs held in abeyance totaled approximately $411,000,000, both net of accumu-Kate Matters lated depreciation and related taxes. The River Tetas - DocAef No. 7195. On May 10,1988, the 15cnd cost deferrals associated with the portion of PUCT granted the Company a permanent rate the Investment hcid in abeyance, which were also increase of $59,900,000. The increase was based hcid in abeyance as of Decembcr 31,1991, on including in rate base approximately $1.0 bil- amounted to approximately $101,000,000, net of Ilon of the Company's system-wide River Bcnd plant taxes. River Dend cost deferrals which were investment and approximately $182,000,000 of allowed in rate base in Texas were approximately related Texas retailjurisdiction deferred River $107,000,000, net of taxes, as of December 31, Dend costs ruled prudent. Addl;ionally, the PUCT 1 At December 31,1991, the Company csti-Effirmed its preliminary rulings made in february rnates It had collected approximately $85,000,000 1988, to disallow as Imprudent $63,468,000 of the of revenues as a result of the previously ordered Company's system wide River Bend plant costs rate treatment of these deferred costs and currently 3 cnd placed in abeyance approximately $1 A billion estimates that it collects tevenues associated with -

of the Company's system wide River Scnd plant such deferred costs of approximately $2,300,000 investment and approximately $157,000,000 of m nthly, or $20,000,000 annually, from ratepaycts Texas retalljurisdiction deferred River Bcnd costs in Texas. The reversal of the deferral offset con-with no finding as to prudency. The PUCT aflittred templated by the court is not expected to have a that the ultimate rate treatment of such materialimpact on the net amount of any potential amounts wc 1 he subject to future demonstration write off of deferrals.

by the Company of the pmdency of such costs, Dcferred costs associated with Big Cajun 2 Unit 3 The Company, the Office of Public Utility Coun. totaled approximately $4,369,000 (net of taxes) sel, the Attorney General, and the Intervening as of December 31,1991, of which approximately municipal groups appcated the PUCT order in $1,880300 (nct of taxes) were included in rate Docket No. 7195. The Texas Supreme Court subse. base * *e PUCT. The remaining $2A89,000 (nct quently ruled that the prudence of the costs ofta; of deferred costs were included in the purported to be held in abeyance by the PUCT in appeal before the court. The Company's motion its May 10,1988 order could not be relltigated in for retrial was denied, and on December 18,991,

future rate cases. The Texas Supreme Court's decl. the Company filed an appeal of the October 1, slon stated that all issues relating to the merits of 1991 district court order.

the original order of the PUCT, including the pru- Pending resolution of various appellate proceed-dence of all River Bcnd related costs, remain to be Ings, the Company has made no write off for the addressed in the pending district court appeal. previously disallowed portion of River Bcnd plant On October 1,1991, the district court handed costs or the previously abeyed River Send plant down its decision in the Company's appeal of the costs and deferred River Send costs discussed May 1988 order from the PUCT. The decision above.

stated that, while it was clear the P' '.T made an Tcyas - Docket No. 8702. On March 21,1989, crror in ass' .ntng it could set aside $1.4 billion the Company filed with the PUCT and 1cxas of the total costs of River Dend and consider them municipalitics a request for additional rate in a later proceeding, the PUCT, nevertheless, increases. The Texas Supreme Court issued a rul-found that the Company had not met its burden of Ing on September 12,1990, that prevened the proof related to the amounts placed in abeyance. PUCT from conducting ft hearings in Docket The court also ruled that deferred costs associated No. 8702 concerning ths .as jurisdictional por-with River Bend and Big Cajun 2 Unit 3 accrued tion of the $1.4 billion of River Bend costs put in after the units were placed in commercial opera- abeyance by the PUCT On April 22,1991, the .

'lon, but prior to televant rate orders, should not United States Supreme Court denied the Com-be included in rate base under a recent decision pany's petition seeking review of the Texa3 35

Q; } Financial information Supreme Court ruling. Based on the Texas On April 3,1991, the Supreme Court of the State Supreme Court decision, the Company pursued a of Texas, in the appeal of such order, ordercd the permanent intrease on the non River Bend por- PUCT to allow the Company to recover purchase tion of the case on which the PUCT could protecd. power payments in excess of its avolded cost in On December 11,1990, the Company imple- fvture proceedings, if the Company established to mented a base rate increase of $65,089,000 under the PUCT's satisfaction that the payments are ica-bond, subject to refund, so. table and necessary expenses. If the Company On March 20,1991, the PUCT, by a 21 vote, is ahic to sat'sfy the PUCT that the costs in excess approved rates consistent with the terms of a Joint f avolded costs are justifled, the Court stated Recommendation offered by most of the parties to that the PUCT should then determine what portion of the costs are reasonable and necesary for the the Company's rate casc. Unocr the rates set by the PUCT, the Company implemented a ratepayers to bear, given the distribu. ion of

$30,000,000 base rate Increase and retained benefits from the project to the ratepayers and to approximately $10,000,000 in franchise tax LSc shatcholders. The Court further found that the refunds. The Company increased its annual fuel PUCT s decision to allocate 83 percent of the revenut by $17,500,000 under the fixed fuel fac- sale proceeds to the ratepayers was not reasonably tor, and is refunding to ratcpayers over 12 months supported by substantial evidence in the record approximately $25A00,000 in existing fuel reve- and remanded the issue to the PUCT for further nue overrecoverics. The Compan also consideration. Whether the Company will be refunded approximatel' $7,562,000 ofrevenue allowed to recover purchased power costs in (lncluding interesth coflected subject to refund as excess of the Company's avolded cost will depend part of the approximate $65,089,000 base rate upon the outcome of the fuel reconcillation dis-Increase placed in effect on December 11,1990 cussed below. As of December 31,1991, the Com-under bond. The Company also agreed not to ille a pany had recorded, with no effect on net income, uew base rate request for two years, with certain $52,048,000 of unrecovered purchased power exceptions. The order was appealed by certain costs and deferred revenue (including interest),

parties, and there can be no assurance as to the based upon the court order, pending the timing or ultimate outcome of such appeals. determination of the reasonableness and necessity of the costs in a new proceeding.

On December 13,1991, the 53rd Judicial FIstrict Court of Travis County considered arguments on Texas- Thcl Reconciliadon. Or January 21, the appeals Pollowing argument, the District 1992, the Company applied with the PUCT for a new Court advised the partics that, if the declslon of the MM M M a hl ph Court of Appeals in Public Utility Commission of tion of fuel and purchased power costs through Texas v. OTE SW, as it relates to the calculation September 30,1991. The Company proposed to of federal Income taxes for regulatory purposes, is recover net undenecoveries and Interest (includ-not reversed on rehearing (the case is now before ing the underrecoveries related to NISCO, dis-the Court of Appeals on rehearing), the District cussed above) over a twelve month period, which at Court intends to reverse the PUCT on that issue December no hearings 31,1901 was $23,588,000. Currently, have been set in this proceeding.

and rernand the matter of the Company s rate order to the PUCT, flowever, if the OTC case is Loulslana. Previous rate orders of the LPSC teversed, then the District Count intends to decide have been appealed, and pending resolution of var-all of the issues in the appeal before it. if the tous appellate proceedings, the Company has Company's case (Docket No. 8702) is remanded to made no write-off for the disallowance of the PUCT, the PUCT could reduce the Company's $30,",G3,000 of deferred revenue requirement that rates in an amount up to $1,700,000 per month the Company recorded for the period from the time of the origlaal PUCT decision. December 10,1987 through February 18,1988.

Tetas-Joint Venture. In 19d6, the Company Loulslana. l'Itase-In Itan fourth Step. On filed with the PUCT a request for recovery of the Pcbruary 26,1991, the LPSC granted the Company costs of purchasing pow (t from the Nelson Indus. a $16,800,000 base rate increase as the fourth trial Steam Company (N!SCO), thejoint ventm e and final step of the February 18,1988 court-with three Industrial companics which now owns ordered phase in plan, effective March 1,1991.

Nelson Units 1 and 2. The PUCT ordered that Loulslana Supreme Couri Ruling. On April 5, purchased power costs in excess of the Company's 1991, the Loulslana Supreme Court affirmed the avolded costs be disallowed and that 83 percent district court order of October 11,1989, which of the proceeds from the sale of the units by the upheld the LPSC finding that the Company's 1979 Company to the venture be allocated to ratepayers, decision to restait River Dend was impmdent and-The l'UCT disallowante resulted in approxi- which disallowed $1.4 billion of the River Bend mateiy $12,000,000 to $15,000,000 of unre- plant investment. The Loulslana Supreme Court covered purchased power costs on an annual basis, reversed and set aside the district court's order 36

Iffa

'd Outr STATts UtiuTits CoMrANY which implemented the deregulated asset plan for $13,100,000 from operations-related tax loss car-the $1.4 billion of River Bend plant investment, ryforwards ($.12 per share of common stock) is The Loulslana Supreme Court also reversed and included in " income Taxes - State."

set aside the february 18,1988 district court Loulslana Management Audit. On October 22 order which increased the Company's allowed rate 1991, a majority of LPSC commissioners voted by a of return on equity from 12 percent to 14 percent S 2 vote not to turn the management audit into a during the first year of the phase in plan. The rate proceeding. In November 1991, the Company '

Supreme Court decision stated that the total filed its implementation plan with the LPSC.

amount in dispute with regard to the rate of rcturn After consideration of such plan, the LPSC will lasue was approximately $20,000,000 in revenue determine whether any further action will be taken collected by the Company hom rebruory 18, based on the audit.

1988 to March 1,1989.

In the second quartcr of 1991, the Company ^" """"" *** "*"

recorded a reserve of $20,000,000 for a possible STAS No 90, in December 1980, the Financ'ai refund based upon the rate of return issue. This Accounting Standards Board (f ASB) Issued TEAS resulted in a net of tax charge of $13,200,000. On No. 90, Regulated Enterprises - Accounting for January 28,1992, the LI SC ordered a refund of Abandonments and Disallowances of Plant Costs,

$34.945,000 (representing return on equity. which amends certain accounting standards for related overcollectiora - of $24,145,000 and rate regulated enterprises. SPAS No,90 specifles

$10,002,000 af Interest) Instead of the $20,000,000 the accounting for the effect of disallowances of (413,200,000 net of tax) previously indicated in costs of newly completed plants and plant the Loulslana Supreme Court order and abandonments. Additionally, it required the Com-reserved for in the second quarter of1991. Accord. pany to reduce its investment in the abandoned ingly, the Company recorded an additional refund River Bend Unit 2 to an amount equal to the -

reserve, including interest,. of $14,945,000 present value of the probabic future revenues

($9,864,000 nct of tax)in the fourth quarter of expected to be provided over the amortization 1991. The (24,143,000 principal will be refunded in period authorized by regulators. In subsequent two steps, one half in July 1992 and one half In per!ods, the Company is recogniting interest July 1993. Interest was recorded through credits to income to the extent of the difference between the deferred River Bend revenue requirement amortization allowed for regt4 tory purposes and cssociated with tbc phase in plan, the ieduced amortization reco ded for financial On December 9,1991, the United States I"E "O E"'E ***

• Supreme Court refused to hear the Company's During 1989, the Company reduced its invest-appeal of the 1.oulslana Supreme Court's Czcision, ment in River Bend Unit 2 by $23,853,000 before Loulslana Deregulated Asset I'lan. 11carings on related income tsx benefits of $8,965,000 for the the deregulated asset plan were held before the. Loulslana retalljurisdiction and steam depast.

LPSC in October and December 1991. ment. This wiite-down resulted from the february 28,1989 LPSC rate order which allowed On January 28,1992, the LPSC ordered that the the Company to recover its investment in River previously ordered deregulated asset plan be Bend Unit 2 but did not allow a return on the retained, subject to certain conditions. Such condi- Investment. Accordingly, this write-down was com-tions include changing the sharing mechanism puted in accordance with STAS No. 90 and was for incremental revenue denved from orf system not recorded as a cumulative effect of an sites from the previously ordered 60 percent for accounting change.

ratepayers/40 percent for shareholders to a spilt of 50 percent for ratepayers/50 percent for share- STAS No.101. In December 1988, the FASB holders. Accordingly, the Company applied the pro- Issued SPAS No.101, which specifics how an enter-prise that ceases to meet the criteria for applica-S rd ( ) o 11 gu aled Er r- tion of STAS No. 71, Accounting for the Effects of prises- Accounting for the Discontinuation of Ceitain Types of Regulation, to all or part of its Appilcallon of TASB Statement No. 71, which operations should report that event in its gen-required no w'ite-down of the deregulated por- cral-purpose extemal financial statements, tion of River Bend: however, the application of SPAS SicAM DtrARTMtni. The Company has, for a num-No.101 did require an increase in deferred taxes. ber of years, produced steam at its Loulslana Sta-and other adjustments of $20,166,000 ($.18 per tion No. I and sold such steam, along with the share of common stock), which was recorded as an cogenerated electricity, to industrial customers extraordinary item. Due to the state net operat- located adjacent to Loulslana Station. Electric ing loss canyfonvard position the Company is in, a power requirements of these customers in excess previously unrecorded offsetting state tax benefit of of the by-product electricity have been met by 37

=l

l,

' a~

.- g Financial Information .-

the Company with power from the Company's sys- AFUDC sccorded on capital expenditures prior to tem power grid. In the past, contractual arrange- 1980. Accordingly, the Company increased net ments with the steam customers called for that utility arid other plant and accumulated deferred power provided from the grid to be billed at rates income taxes by $62,907,000. The rate order set in rate proceedings by the LPSC. As a result requires the Corppany to amortize the increase in of this arrangement, the Company had previously plant in service over approximately 35 years, the accounted for the steam department in accor* cstimated remaining life of River Bend, and to dance with the provisions of SPAS No. 71. amortize the increase in deferred = taxes over During the fourth quarter of 1989, the Company approximately seven years. This will result in the discontinu:l regulatory accounting principles for Company recording less Operating Expenses the steam department and wrote-off the deferred and Taxes for the amortization period of those revenue requirement and accounting order defer- deferred income taxes, thereby increasing net rals and made other adjustments. The write-off income for that period, was recorded as an extraordinaly item and amounted to $34,431,000 before the related Itleer Bend Cost Deferrals. Pursuant to account-Income tax benclits of $12,527,000. Ing orders received in 1980 from the LPSC and the PUCT, the Company dcferred recognition, for g,nonsm JUnisDictioM. During June through financial reporting purposes, of the retail portion of August 1989, the Company reached agreements with a majority of its wholesale customers which, the and operating costs associated v.ith River Bend costs of purchasing capacity from CEPCO s among other things, lowered the contracted amount of power and the rates for such power. portlon of the unit ocurred subsequent to the unit's Upon approval by the PERC of these agreements in commercial in-selvice date and accrued carrying the third quarter of 1989, the Company discon, charges upon the retall portion of both the cash tinued regulatory accounting principles for the portion of the deferrals and the investment in the wholesale jurisdiction, wrote-off the deferred reve. unit not included in the Company's rate base, nue requirement previously recorded by the Tnc deferral of costs and accrual of carrying Company with respect to the phase in plan for its charges associated with River Bend was terminated wholesale custotilers, and made other adjust. In the Loulslana Ictall jurisdiction on ments. The write off was recorded as an extraordi. December 15, 1987, upon recclpt of the nary item and amounted to $65,502,000 before permanent rate decision and terminated in the the related income tax benefits of $28,582.000. Texas retalljurisdiction on July 23,1988, tne effec-LoV!51ANA DERt00 LATED Portion Or RivtR BtND. Sec live date of rates authorized by the PUCT rate "iWe Matters- Loulslana Deregulated Asset order of May 10,1988. face " Rate Matters -

Plan" above. Texas - Docket No. 7195" for recent rrJe action Loulslana Itate Order, in acccidance with the "U " "O "

rate order in Loulslana effective March 1,1991, the Detailed below are the components of Dcferred LPSC required the Company to modify its treat- River Bend costs included in DEFERRED ment of certain flow through benefits related to CilAROES AND OTlitA ASSETS:

Changen for the Year rnded Decemt et 31,1991 BalasKe at Balasne at 19 Arldations Nefund at I (in thousands)

DErtRRED REVcNUC REQUIREMcN rs - PilAst IN PLAN Loulalana retailjurisdiction . $319,455 $5.227 $(10,802) $ (8,723) $305,157 AccoVNTINo ORDER DtfERRALs Texas tetalljudsdiction Dcietted River Bend costa , , 368.953 - - -

368.953 Amortization of deferred River Bend costs (11,130) - - (9,332) ; (20,462)

Loulslana retalljurisdiction Deferred River Bend costs ', 400,375 - - - 400,375 Amortization of deferred River Bend costs ,, (123,490) - -

(38.965) (162,455) 634,708 - --

(48.297) _586,411 DtrtRRED RIVER BtND Costs . . ,

$954,1_63 $(1,01 002) ,$(57.020) $891.568

_$5.2]

The deferred income taxes related to the amounts detailed above at December 31,1991 and 1990 of $232,038,000 and $247,565,000, respec-tively, are included in " DEFERRED CREDITS AND 00 l

Outr STATts Utiutits ConrANY q)

"% "~~~

OTHER LIABILITitS - Accumulated deferred The components of federalincome taxes are as income taxes" on the Consolidated Balance Sheet, follows:

1991 199($ 1989 Detalled below are the components of Dcierred u,,,,,,,,,,,,,,,y,,,,,. on tw.u .a.>

River Bend financing costs included in '40 ERRED ( uned *derai emon= mi piou*= ibenenm

• 3 sw e iS om * -

CREDITS AND OTHER LIABILITitS: ne'e"ed 'ede'a8 9=t<me ***es - aci las depe? latkm St A76 49 773 M 361 Chan es 6ee C apitanted tonstrintkm tosis t%fo me all36 the et N le s ill aruellaikin tests net 14 maiana a. aca w-' * *- naia e si roei a,,d pu.oonw po- ums e.ena Deceenber S t. I# Det tentiet 31, w t rued 14 0121 16731 6 974 1990 Ameerttaallon 8994 f Apenas Oclened for tat purpDws (4 $2$1 (12401 (71 0 Oni M usands) f as net opusuaq kas tanylotwasd 59 473 17 (ADI (39 Mi DetrRr.tD mtn at mn 9,",,"#lj ,'yln*,'l(* ,yl,*, ",j *,"y,"' k" M W'W'O W 15 purimw e a u 7aoi 71 t i 25.70s Tetas tetall)orted4Clon $107,3 % $d4 2046 6 931%6 Unbilled resenues 708 16 t 321 1% 4201 Lovistana retan)unsauon 72 482 no 1%fa S eu crumt nesenw to, nesse* 64i

_ 6133 _

'!A"# M a *r -_n.9_m,i _. 2_4.3sm . i sS .u "a "***"a *' ~ ~~~-

ho.'istem sue rate ecturw - tuumaana"s=zu' mm i - -

Allef nalhe "dnimutti tat (fedit ($ %%8 13632) -

Recovery of Costs - Amortization of Accumu- **" " * " * " ' ' **

lated De/ cried River Bend Costs. The Company '",d"#*"""**"*""*'**~ w enn w oio 2v a n was ordered by the LPSC, as part of the imeument at oedeu - nei 44 wm a 2ma _ in uti December 15,1987 rate order, to amortize the 1m,s,i g ig g n=,u ustheuedio

, 3,,,,, o y, o, deferred costs and accnted carrying charges s.ouinun (.ompens uniemem -

e rosi -

related to the accounting order over a 10 year Q*uedj,", g,'g a"*, _"L ,,,,, ,,,, utw ew n.62o period in July 1988, the Company began amortiz- gm=*na ed diewm n w piam g ,,,,

Ing over a 40 year period approximately o ,2w to nimedinai,nem 6 so2 -

o. %oni

$182,000,000 of deferred costs and accrued carry- totane*,ai 9.ome uws wenm o w 402 eo6 49m o is sm Ing charges associated with the portlon of River '

Bend ruled prudent by the PUCT in accordance with Timing differences exist fot which federal and the May 10,1988 rate order. The amortization state deferred taxes have not been provided and, period was subsequently reduced to a 20-year therefore, have not been recovered through period in accordance with the March 22,1991 rates. The cumulative amount of timing differences Texas rate order, for which no federal deferred taxes have been provided was approximately $75,000,000 at

4. Federal Income Taxes Decen'ber 31,1991. The tax effects of the Com-pany s federal tax loss carryforwards have been The provisions for federat income taxes (benefits) recorded as reduction s of dcferred taxes. Invest-were different from the amounts computed by ment tax credit carryforwards have not been cpplying the statutory federal income tax rate to secorded for book pumoses. At December 31, net income (loss) before federal Income taxes. 1991, for tax purposes, the Company had federal The reasons for these differences are as follows: tax loss carr) forwards of apptoximately 3,,, 3,,, 3,,, $810.000,000 and investment tax credit carryfor-(hethous.nd, wards of approximately $183,000,000. These will het Irworne Oossl tickwe federal kuome Laws cuent percent *>

$ 160 685 6t00.760 $$134u be used to reduce income tax payments in future

• """*"'" " " " years and, II not used, will expire through the rederen, won uus idenenm ai sutuior, ut year 2004, me $4m3 notuo n o"*

Ad In february 1992, the FASB issued SPAS No.109,

,guonsi in nden.u"""" "'"

" Accounting for income Taxes, which significantly WC8b cEn*e "*"""" '"*" em ain a6u changes accounting for income taxes and super-tiems tepitallred for took purpows but eywnwd kw tat purposes 0 0 3191 (9.233) 17 484) sedes almost all existing authoritative accounting Mondelened depredstkm diflevernes 3 412 11.0$8 12.009 literature on accounting for income taxes. SFAS Aduumenoo, p,k, iws aus and ciwu requiatory adjustments No.109 revises the computation of deferred L290 US7) 11.23N Norstefored differem es of nonutility subudwfks $73 (900) 6.026 Delerial of nuclear lugt saungs . O,92o) U.S73n i .Q S)

Amortizat60n cd inver:enent tag utdlt (4.3086 (4.286l (4 424) f flect of St AS No.101 6.$00 (443) 639 Other liems 182 1%64 041)

Total federal bxome lases (benents) . $ 58 402 $dio 4Wi 9 (S 57H flfettive federal hKome On rate E3% 7 755% 10 9%

u==.m -~ = = =

39

t i

d Financial Information 2 -

income teses so that the amount of defened The obligations for plan benefits arid the amount income taxes on the balance sheet IS adjusted recognized in the Company's Consolidated Bal-whenever tax rates or other changen of the income ance Sheet al December 31,1991,1990, and tax law are enacted. $ RAS No.109 also prohibits 1989, are seconciled as follows:

net of tax accounting and reporti,,g, a',d requires 1991 1990 1989 recognition of defened tax liablydis for previously (in thousands) flowed truough tax benefits and the c julty com- ^g*MlJ,'"Nad""**

ponent of Ar0DC Adoption of SI'AG ho 109 is Auumuweoi.e== e e"n required in 1993, and when adopted is expected to have a significant impact on the Company's bal-

%QQI , ,

= ==== =

ante of deferred income lancs, plant In service ,'."?,",','C'2',7,,,, 'j',*7 Ty T['

and regulatory assets. The impact on the Com- ,. ,, ,, ,,m ,, ,,, ,,,

~

pany's Consolidated $tatemt.nt of Income (Loss) for future years may be significant, but will ulti-j"'**gu. _ ajsg g gg iw ,o,,o ,. .. . , ,

mately depend on the regulatory treatment of

• g,"" ,'l,7l;','fj",, u,, j@ $$ $N these items. ,,,,,,,,,,% , 3n g,

5. Retirement Plan and Other The accumulated benefit obligation is the present Postemployment BeneHis value of future pension benefit payments and is pased on the plan's benclit formulas without con-Rettremenf Plan. The Company has a noncon. sidering expected future salary increase;.

tributory pension plan which covers all Assumptions used to determlnc nct pension cost employees meeting certain age and service require- are as follows:

ments. Ber.cfits are based on years of service and 1991'1990 1989 the highest five consecutive years of employees' Discount rate . ~3517.25% 7.75%

7 compensation during the last 10 years of service. txpected long term rate of return on All of the Company's cilglble employces are **$ cts . . . ...., 8.50 7.50 7.50 entitled to retirement benellts upon completion of Amane ruture salary inel increase . E10 410 ato 10 years of service and after reaching age 50. The At December 31,1991,63_ percent of plan assets Company's pollcy is to fund the actuarially com- were invested in equity securitics,31 percent in puted pension contribution annually, l'ast and bonds, and 6 percent in cash or cash equivalents, prior service costs, which are oue primaril:, to in addition to the net pension cost detailed retirement plan amendments, are being funced by above, the Company recorded $1,253,000 of the Company over periods of up to 40 years. cxpense related to the 1986 carly retirement plan The Company's pension provision for the years for the year ended December 31, ~1991, in accor-ended Dcccmber 31,1991,1990, and 1989 was dance with regulatory treatment of this expense.

$5,110,000, $3,025,000, and $2,357,000, Other Ibstemployment 15cnc/lfs. In addition to respectively. Of such amounts, $4,552,000, the pension plan, the Company provides retired

$2,693,000, and $2,107,000, respectively, were employees and ths.tr familles with life and health charged to income with the balance of such costs care Insurance benellts. All of the Company's for each period charged to construction and other employees may become cilgible for benellts upon accounts. retirement. The Company currently records the cost of such benefits as claims are actually paid.

The components of the pens ion provision for The cost of such benellts was $5.514,000, 1991,1990, and 1989, are summarized as follows: $4,722,000, and $4,051,000, for the years 1991, 1991 __1990 1989_ 1990, and 1989, respectively.

Senice cost . ... .. $10.30 9N 7.855

% M, N%W ounung br M e-interest cost on projected tirement Denclits Other Than Pensions, requires t>cnent obligauon . . .. 15255 14.224 12.876- the Company, beginning in 1993, to change the Actual return on plan assets. (56.898) 6.a75 (46.3001 method of accounting for such benefits to the unrecognized net ga'n(ioss). . 37.349 (25.520) 29.991 U' I accrual method. The Company estimates that if it Am 2 oPsen' ice had applied the provisions of SFAS No.106 in cost . .. .... ... 1.385 1,385 1.095 1991, the Company would have recorded approxi-A rt ration of net transition mately $30,000,000 of expense related to post-

87) Q.387) 1 387) net pension cost . . 6 5.110 - $ 3.025 6 2.357 cmed kn@. W hpaq Mnes that it would have an accumulated postrctirement 40-

w Outr Starts UTitmts CoMi'ANY kd benefit obilgatjen of $175,000,000 as of 6. AbandOntuent of Subsidlaty December 31,1991. Annual expense for post- Lignite Leases retirement benefits under the provisions of SPAS No.106 is estimated to range between $32,000,000 Varibus acquired the rights to lignite reserves in cnd $55,000,000 over the next 10 years, the mid 1970's as fuct reserves for the Company's Amounts ultimately recorded in accordance with proposed lignite generating units. Upon deferral

$ PAS No.106 will be influenced by, arnong other of constniction of the proposed lignite units, things, the actuarlal assumptions used by the Com. Vartbus retained its investment in the lignite pany, and the regulatory treatment of the costs reserves in order to market them. In October 1989, received by the Company. Varibus determined all efforts to market the lignite reserves had failed and, therefore, abandoned the leases and wrote off its $19.183,000 invest-ment in lignite leases.

7. Jointly Owned Facilities As of December 31,1991, the Company owned undMded Interests in three jolntly owned electric generating facilities as detalled below (dollars in thousands):

River Bend Roy S. Nelson Big Ca,lun 2 Unit 1 Unit 6 Unit 3 Company Share of Investments:

Plant in senice . . . . . . . . . . . . . . . .. ...... ... $3,075,945 $405,734 $219,503 Accumulated depreciation .... ... ......... 421,942 117,811 55,594 Total plant capability . ........ . .... .. ...... 936 MW 550 MW 540 MW ruel sou rce . . . . . . . . . . . . . . . .......... . .... Nuclear Coal Coal Ownership share . . . . .. . ... .. ... .... 70 % 70 % 42%

The Company's share of operations and maintenance buyback egreement between the company and a participant in expense related to the, jointly-owned units is included in operat- Nelson Unit 6, Ing expenses. see Note 13 for information relating to a 8, Leases 9. Capital Stock and Retained "W

The Company has existing agreements for the -

leasing of certain vehicles, coal rail cars and other The Company offers its common, preference, and equipment, buildings, and nuclear fuel. Lease preferTed shareholders the opportunity to reinvest charges were $73,554,000, $65,984,000, and their dividends and to make additional cash pay-

$60,819,000 for the years ended December 31, merus to acquire shares of the Company's com-1991,1990, and 1989, respectively. Of such mon stock through its Dividend Reinvestment and amounts, $72,976,000, $65,114,000, and Stock Purchase Plan (DRIP). (See Note 2 for

$60,256,000, respectively, were charged to income. Informatlun on the payment of preferred stock divi-ruture minimum lease payments under non. dends during 1991.) The Company abo offers all ccncellabic capital and operating leases for cach of employees meeting designated service require-the next five years and in the aggregate at ments the option to participate in benefit plans .

December 31, 1991, are estimated to be (in which provide an opportunity to obbin common thousands): shares of the Company. At Decembei 31,1991, S 47,137 the Company had reserved 5,561,503 unissued 1992.......... .... ...

1993...... ...... .... 68,267 shares of common stock to be issued in connec.

tion with its DRIP and employee t ent: fit plans.

1994. ....... ........ 55,892 Beginning in June 1987, the Company has acquired 1995.. .,,........... . 40,682 the DRIP-and employce 5cnclit plan shares of-1996 ... ... .. ....... 10,785 common stock in the open market ra%cr than Remaln' g years . . . . . . . . . 139,991 offering unissued sharer, which would have a dilu-

$362,754 tive effect on earnings per share end book value.

The Restated Atticles of Incorporation (Articles)

The Company is leasing the Lewis Creek gener- provide that, at the Company's optlon, all or part ating station from its wholly-owned consolidated of its preferred and prefereace stock may be subsidiary, OSO&T. redeemed at stated prices.

41

LJ 1 -%

M financial Information At December 31,1991, the Company had There are no limitations in the Articles on the

! authortred 10,000,000 shares of preferred stock issuance of preference stock.

l without par value (none issued) and authorized 6,000,000 shares of preferred stoch $100 par 10. Preferred Stock Subject to value (4,617,568 issued). l. imitations based on the Mandatory Redemption ratio of after tax carnings to fixed charges and preferred dividends are imposed by the Articles The scrics of preferred stock subject to manda-upon the issuance of additional prefened stock, tory redemption are entitled to sinking ,bnds Based upon the results of operations for the which provide for the annual redemption of shares -

year ended December 31,1991, and exc ng cir- (varying in amount from 3 percent to 5 percent of cumstances, the Company believes it is unable to the number of shares originally issued) at $100 issue any additional preferred stock. per share, plus any dividends in arrears on such Certain limitations on the payment of cash dh'l- stock (see Note 2).

dends on common stock are contalncd in the As of December 31,1991, the Company has Articles, indentures, loan agreements, and appil- failed to satisfy $28,393,000 of preferred stock sink-cable state and federal law. Under existing lim

• Ing fund requirements.

Itations, as discussed in Notes 2 and 12, the Com-pany may not pay dividends on such stock; if During 1986, the Company purchased in the .

such restrictions did hot exist, the most restrictive open market, shares of the applicable series of -

limitation at December 31, 1991, as to the preferred stock in excess of the amount needed to amount of such dhidends which might be paid, was satisfy the 1986 sinking fund requirement At contained in the Articles. Based on such limita- December 31,1991, assuming that the additional tion, the retained earnings available for payment shares purchased during 1986 are used to satisfy of dMdends as of December 31, 1991, future sinking fund- requirements, minimum-amounted to $621,000,000. Preferred and prefer, redemption requirements amount to $14,816,700 -

ence dividend requirements, as well as preferred for each of the years from 1992 through 1996, stock sinking fund requirements, have priority exclusive of the $28,393,000 unsatisfied provision over the payment of cash dividends on common discus. Sed above. (See Notes 2,12 and-15 for stock. limitations on payment of dividends = on ' and purchases of preferred stock, and the February 13, Payment of dMdends on preference stock is sub- 1992 declaration by the Board of Directors of pre-ordinate to payment of dividends on preferred ferred stock dividend and sinking fund stock and preferred stock sinking fund obilgations, arrearages).

11. Long Term Debt and future requirements by certifying "available net

~

additions to the trustec.

The Company's Mortgage indenture contains Certain series of the Company's first mortgage--

sinking fund provisions which require, generally, bonds and pollution control and industrial develop-that the Company make annual cash deposits ment bonds require cash sinking funds. Sinking equal to 1.2 percent of the greatest aggregate prin* fund requirements, along with long term debt clpal amount of first mortgage bonds outstanding maturttles,- for each of the next five years are -

or, in lieu thereof, to apoly property additions or detailed below (in thousandsh reacquired first mortgage bonds for that purpose.

The Company has satisfied the mortgage require-ments in past years and plans to meet current

' &lnking rund -

Requirennents  : tang Terme Debt Maturities :

Satin 8ed by First Mortgage 110tes rayable-

. . . Property  : Bonde and - Southern Cash . Additions Debentures - Cosepany '

$8,99 5 . $17,520 - $ 94,003 1992...... . . . . . . . . . . . . . . . . . . . . . . . . . $ _ --

1993:...... .. .. ..... ,, ..,......i. 425 -17,520 ' 8,580 - 160,000-1994. ..... ..... ........ . .. ....... 425- 16,320 100,000 - -

1995....... . ... . .. . ..... ...... 425 16,320 _- -

1996.. . . . ........ .... 3......... 425 16,080- -20,000 -

42 r:

I - = - _ - _ -

OtJLr STATts UTitmts CoMrAM'

_ [b .

During 1991, the Company completed the sale bonds. Detailed below is a maturity schedule of of $200,000,000 principal amount of 9.72% the bonds and related letters of credit, debentures and primarily used the proceeds to ,.,%,,, u ,,, n,,

retire the remaining amounts outstanding under a ** w a " Pu * ~

revohing credit agreement.

Variabic rate due The Company's ability to arrange external financ- y,"*[bicrae e ~ '

ing was materially affected by its weak financial November 1,2015. 39.000 Nosember 27.1992 position during 1980 through 1990, but improved vagageyate du*

in 1991, as a result of the improvement in the 2ols. 2aAoo December 28,1992 variable rate due Company's financial position. The Company's Mort- Aprii 1. 2010 . 20,000 April 27,1993 gage Indenture contains an Interest coverage cov- 10-5/a% due May 1.

cnant which limits the amount of first mortgage 2014. so m May a m bonds which the Company may issue, based upon During the fourth quarter of 1991, the Company Interest coverage for a period of twelve consecu- tcmarketed $94,000,000 of pollution control tive months within the 15 months preceding a bonds that had been secured by letters of credit new debt issuance. Based upon the results of oper- that expired on December 28,1991.

ations for the year ended December 31,1991, if the letters of credit that expire in 1992 are not and/or on the basis of previously retired debt, the Company believes it could issue $349,000,000 of renewed or replaced, the Company plans to remarket and cause the pollution control bonds to first mortgage bonds in addition to the amount remain outstanding. If the Company is unsuc-presently outstanding (assuming an Interest rate cessful in these actions, the pollution control bonds of 9 percent for additional first mortgage bonds), will be redeemed.

First mortgage bonds in a greater amount may also be issuable for the refunding of outstanding 12. Short Term Lines of Credit first mortgage bonds.

As of December 31,1991, the Company had American Municipal Sond Assurance Corporatfort agreements with banks and banking institutions (ANf14C). The Company has agreements with which provided for short term lincs of credit total-AMBAC which guarantcc the payment of principal Ing $113,400,000 of which $100,000,000 is col-and Interest on $65,735,000 of pollution control lateralized as described below, interest rates asso-revenue bonds. clated with these lines are based on the prirne rate. Commitment fees on the collateralized line of During 1990, the Company and AMBAC amended credit cost W of1 percent of the amount of avalla-existing agreements which required the Company ble credit. In lieu of commitment fees on the to place certain amounts into a Permanent uncollateralized lines, certal'1 banks require a Indemnity Reserve which will be released to the nonrcstricted cash balance be maintalncd equal to Company when the pollution control revenue 10 percent of the commitment.

bonds are fully retired. Additionally, the amend-Included in the total short term lines of credit is a ment requires that unless ccitain financial tests are $100,000,000 bank credit agreement which is due met, the Company will deposit an additlonal to expire on February 28,1992. The short tcrm

$1,500,000 a year in an Indemnity Reservc to be bank credit agreement contains negative cove-relcased to the Company after such financial tests nants which, among other restrictions, restrict the are met or when the pollution control revenue incunence of additional debt, creation ofilens, bonds are retired, prepayment of r'ebt (with certain exceptions), pay-ment of dividends, purchase of stock other than As of December 31,1991, the Compa7y had issued to satisfy mandatoly sinking fund requirements,

$82,627,000 of notes (representing 200 percent of sale of assets, and acquisition of assets and require the otherwisc required cash payment) payable to satisfaction of a minimum net worth test. The AMBAC, which ate due on April 30,1993, and had bank credit agreement is collateralized by the placed $20,438,000, including interest, in the pledge of $100,000,000 principal amount of the Permanent Indemnity and indemnity Resetycs, Company's first mortgage 6nds. The Company is currcr'ly negotiating for a new short term line of Letters of Credit. The Company has various out- credit, which may include a restriction on the standing scrics of pollution control revenue bonds payment of common dividends, in January 1992, (bonds) which are collaterallzcd by irrevocable the Company received a walver under the short-letters of credit. The letters of credit are scheduled term credit agreement to pay the remaining pre-to expire before the scheduled maturity of the ferred stock dividend arrearages.

43 )

41, m

a Financial Information The Company had no shoit term debt outstand- 14. Financial Instrurnents ing with banks and banking institutions during the -- --

three year period ended December 31,1991. Temporary Cash investments. At December 31, 1991 and 1990, the Company had $291,845,000

15. Purchase Power _Agrectnents and $195,345,000 of temporary cash invest-ments inv sted in repurchase agreements or As of December 31,1991, the Company has an agreement with Sam Rayburn Municipal Power high grade short term corporate investments, Agency to buy back declining amounts of its sharc with nine banks and investment banks. The of the capactly of Nelson Unit 6 through the end repurchase agreements are collaterallred by U.S.

of May 1996. The Company had a five year agree. Government securitics or high grade short term ment with CEPCO, which expired June 15,1991, corporate investments. The Company has not to buy back declining amounts of their sharc of experienced any losses on its temporary cash the capacity of River Bend. The variable costs asso- Investments, clated with such buybacks are composed of fuct costs and operations and maintenance Accounts licccloabic. The Company's service expenses, while the fixed costs are based upon arca of Southeast Texas and Southwest Loulslana gross plant investment and other factors. Is heavily dependent on the petrochemical and inn inoo ano related industdes. The Company maintains On thousands) g ,Cs for doubtful accounts, based on past variable N $ 7.079 $7.409 $10,444 nted costs. a.184 9.M8 13.692 Dased upon current Information, the Company estimates that the annual fixed costs Incurred in 11rst Mortgage Sond Itc/inancing. In January connection with the Nelson Unit 6 buybacks wiin range in declining amounts from $6,000,000 in 1992, the Company sold two new issues of first 1992, to $1,500,000 in 1996. mortgage bonds '.otaling $300,000,000. The pro-cceds were irrevocably deposited with the indch-(la thousands) ture trustcc to bc used in February 1932, to retlrc nher Bend $282,878,000 principal amount of outstanding Variable costs 4 0.499 $14.940 $17,341 first mortgage bonds, which werc scheduled to nxed costs. 23,200 50.312 Ss.a30 mature, as detalled below:

Nelson Industrial Steam Company (NISCO). In vrs.r seas *1.*,Y..W*

n 1988, the Company entered into a joint venture ^'""""L """"*'" '"'

with a primary term of 20 years with Conoco, " " , 'a" "70" september 23,1992 Inc., Citgo Petroleum Corporation, and Vista a.Sao september 23,1993 Chemical Company (the participants) whereby thC 100.000 March 1.1994 Company's Nelson Units 1 and 2 (100 MW each) 100.000 september 1, 2012 were sold to a partnership (NISCO) consisting of 65.728 november 1. Pois the participants and the Company.

The participants are supplying the fuel for the units, while the Company operates the units at the IYeferred Dividends. On February 13,1992, the discretion of the participants and purchases the Company's Board of Directors declared electricity produced by the units. The Company $115,692,000 of preferred stock dividends and is continuing to sell electricity to the participants, authorized payment of $34,393,000 of preferred for the years ended Decem5cr 31,1991,1990, stock sinking fund regulrements. The preferred and 1989, tne purchases of c!cctricity from the stock dividend declaration includes all remaining jolnt venture totaled $61,316,000, $62,028,000, preferred dividend ancaragts in addition to the and $62,583,000, respectively. March 15,1992 required payment.

1 44

': 4 Otu STAits U11utits COMPANY 1

16. Quarterly Financial Infortnation (Unaudited)

(in thousands except_per share _arnounts)_

ras nings (Lost)

Per Average share. Ear ninos income of Commtsn Stock (loss)

(Less) Outstanding Per AveraDe nefore Defore Share of operating ope ratinD Estraosdinary het income f.mtraordinary Common Stock 1991 Resenue income item (Loss) ltem Outstanding, First Quarter . . . $390,538 $ 72,317 $ 24,448 $ 24,448 $ .08 $ .08 Second Quarter . 399,960 68,662 10,758 10,758 (.05) (.05)

Third Quarter . . . 499,500 125.121 G7,247 67,247 .45 .45 P'Jurth Quarter . . 412,229 79,880 19,994 (170) .o * (.i4) 1990 first Quarter $ 380,012 $ 68,207 $ 2,455 $ 2A55 $ ( 12) $ (,12)

Second Quarter . 416,212 80,320 (111,039) (111,039) (1.17) (1,17)

Third Quarter . . 488.106 124,911 60,490 60,490 .41 .41 rour.h Quarter. .

406,275 59.795 3,812 3,812 (.11) (.11)

See Note 3 for Information regiirding the extraordinary item recorded in the fourth quarter of 1991, due to the discontinuation of regulatory accounting principles to the deregulated Loulslana retall portion of River Bend.

See Note 2 for information regarding the Southern Company settlement recorded in the second quarter of 1990.

n 45

, . O

1 i

A FinandalInformation w

Report of Independent Accountants To the Shareholders of Gulf States Plant (River Dend) exceed those costs currently Utllities Companys being recovered through rates. At December 31, We have audited the accompcnying consoll- 1991, approximately $775 million is not cut-dated balance sheets and siatements of capitallra, rently being recovered through rates, further,in tion of Culf States Utluttes Company and sub. 1991 a district court in Texas ruled thet the Public stdiaries as of Dec.cntScr 31,1991 and 1996 Utility Commission of Texas exceeded its and the related cGnsolidated statemt:nts of authority by including deferred costs in rate base.

Income (loss), ca*h flows, end changes !Ji capital At December 31,1991, approximately $165 mil.

stock and retained earnings for each 01 the three Iton of deferred costs are currently being collected years in the period endeci December 31,1991. In rates, if current regulatory and court orders .

These consolidated financial statements are are not modified, a write off of all or a portion of the responsibility of (bc Company's management. such costs and a refund of deferred costs previ-Our responsibility 10 to express an opinloa oa ously collected may be required; however, the these consolidated financial statcments based on extent of such write off or refund, if any, will not our audits, be determined until appropria!c rate proceedings We conducted our audits in Mcerdance with and court appeals have been concluded, Mans generally accepted auditing standards. Those agement can provida no assurance that the Com-standards require that we plan and pedorm the pany will ultimately carn a return on or fully audit to obtain reasc.nable assurance about recover these caphalized costs yssociated with whether the financial statemerts are free of mate. River Bend.

rial misstatement. An audit includes examining, on a test basis, evidence supporting the As discussed in Note 2, to the consolidated financial statements, in 1989 the co owner of River amounts and dist!osures in the financial state-ments. An audit also includes assessing the Bend initiated a clWI attlon against the Company accounting principles used and significant esti, sccking, among other things, to recover its mates made by managemci.t, ts well as evaluat. Investment in River Bend and to annul the River in;; the overall financial staien.ent presentation, Bend Joint Ownership Participation and Operating We believe that our audits provide a reasonable Agreement.' The ultimate outcome of this pro-basis for out opinion, cceding cannot piesently be deteimined. Accord <

in our opinion, the consolidated financial state- "O'#' " P " ""# "# # " "I ments rtierred to sabove present fairly, in all result from Gs ultimate resolution has been material respects, the censolidated financial recorded in the accompanying consolidated finan-c al sWements, poshion of Oulf States Utilities Company and sub-sidlaries as of December 31,1991 and 1990 and As discussed in Note 3, to the consolidated the consolidated results of their operations and financial statements, the Company adopted State-their cash flows for each of the three years in the ment of Financial Accounting Standards No.101 period ended December 31,1991 in confuimit7 for portions of its business in 1991 and 1989, with generally accepted accounting principles, j , .

As discussed in Note 3. to the consolidated .

financial statements, at December 31,1991 and Cg 44$. [

1990, the net amount of capitallred costs for the liouston, Texa.

Comi_any's River Bend Unit 1 Nuclear Ocnerating- February 14,1992 .. !

C 46 .j i

i I ~

e a

Outr SIATts Ulitmts CoMrANY

---

g- N Statistical Summary For the years ended Deccinber 31 1991 1990 1980 1988 1937 f,LECTRIC DEPARTMENT Number of customers at > tar end:

Residential . . 505,927 498,072 492,054 400,993 484,838 Commercial . 63,522 63,044 62,409 61,958 01,801 Industrial . .. . 4,530 4,581 4,511 4.5G3 4,319 Temporary construction . 2,011 1,805 1,638 1,477 1,442 Other . 2 695 _ _ 2 ,03_5 _ 2,005 _ 2,585 _ _ 2,445 Total Customers t====

578,693

m==. 570,738 -533.277 mm e=

557,576

= u=1 554.905 u

Sales - Kilowatt hours (thousands):

Residential . . 6,924.649 G,833,920 0.473,021 0,320.089 0.208,901 Commercial . 5,460,326 5.3'30.449 5,197,350 5,023,755 4,911,378 Industrial . . . .. 13,612.197 13,331,772 12.321,905 12,072,078 11,811.070 Temporary construction . 17,144 15,399 10,759 13,133 10,241 Other . .. 1,343,545 1,464,58G 1,191,720 1,482,052 1,485,242 Total Sales . 27,357,861 27,034,120 -25,194,761 24,017,707 24,433,498 m- a.==s v= www - an m- -

.=

s Revenue - (thousands):

Residential . . $ 547,147 $ 523,911 6 487,972 6 452,538 $ 430,392 Commercial . 383,883 378,253 357,5G8 331,170 312,544 Industrial . ... .. 580,923 577,430 539.944 510,354 470,871 Temporary construction . 1,645 1,492 1.075 1,150 1,364 Other. a10,362 115.543 115.315 120.513 109 935 Total Revenue $ 1,623,95C 0 l b96f.35 $ 1.501.874 6 1,415,713 4 1,330,100 e== == =mww = = = = = = = = = . = = = = < ~ = =

Average Annual KWH Use Per Customer:

Residential . . . 13,786 13,795 13.228 13,029 12,818 Commercial . 80,238 85,761 83,513 81,339 79,180 Industrial . . . . . . ..

. 2,978,599 2.944,940 2,703.951 2,717,101 2,744,986 Revenue Per KWH ~ (cents):....

Residential . . 7.90 7.07 7.54 7.15 0.93 Commercial . . 7.03 7.02 0.88 6 59 6.30 Industrial . ..... .. . . ... 4.27 4.33 4.38 4.23 4.04 Electric Energy Output - Thousands of KWH:

Net Oenerated . .. ., .. .. 26,581,035 26.102,741 23,955,000 23,!40,780 23,421,700 Net Purchased and interchanged . 4,027,771 4,277,621 5,352.485 3,570,812 4.593,232

_3 0_.60_9.,. 7_06, _30. _,380,3_62 28,71 28,014,932 29..,3_08_,1 _45 m m_7,592 m m,= =

$ystem Peak Load - Including Interruptible Load - Megawatts . , 5,224 5,388 5.040 4,913 4,991 Total Capability, including Contract Purchases at Time of System Peak Load (MW) . . . . 6,471 0,553 6,009 6,866 6,926 1oad factor . . . . 66.9% 64.4 % 60,4% 60 0 % 64.1 %

STE \M PRODUCTS DEPARTMENT Steam Revenue (thousands) ..... $ 46,418 $ 61,052 $ 09,200 $ 70,728 $ 09,050 Electric Sales - XWil (thousands) 1,711,488 1,930,373 2,271,428 2,278,884 2,186,789 Steam Sales - millions of pounds . 13,686 13,204 11,398 10.494 8,593 OAS DEPARTMENT Gas Revenue (thousands) ... . $ 31,858 $ 32,998 $ 36,332 $ 34,036 $ 33,424 Number of Customers at year end . 84,005 83,164 82,681 82,510 83,003 Output - MM cu. ft, of natural gas purchased . ..... , ... 6,786 0,215 7,826' 7,320 7,505 Sales - MM cu. ft. . . 6,746 0,652 7,072 7,134 7,489 WEATHER DATA Cooling degree days (Normal 2,703) 2,888* 2,948 2,816 2,742 2,660 Percentage change from normal . . . . 6.8 9.1 4.2 1.4 (1.6)

Heating degree days (Normal 1,841) 1,665* 1,616 1,684 1,812 1,892 Percentage change from normal . . (9.6) (12.2) (8.5) (1.0) 2.5

• Estimated.

47

Officers Chaliman & President E. Linn Draper Jr. (12) 4D Chaltmats of the board N nesident (1)(a)

Chairman of the Board Elect & Joseph L. Donnelly (12) 02 Chief Executive Ott1cer Chattinan of the Board ticct &

Chief Grecuthie O#icer (1)

Senior Executive Vice President Edward M. Leggins (33) 61 Senior Ctecutive Mce hesident Operations Senior Vice Presidents James C. Deddens (D) 03 Scnlor Mce hesident-Rher Eknd 11ucicar Group Calvin J. liebert (29) 57 Jack L. Schenck (10) 53 Senior Mce hesident&tcrnal A#alts Scrtlot Mcc ncstdent &

Chic / (Triancial O#lter (3)

Vice Presidents william t. Darksdale (34) 60 William J. Jefferson (11) 02 Mcc nesident-Engineeritig & Mce hesident-Rates &

Technical Sctrices Regulatory A# alls Stephen K. Durton (13) 58 Cecil L. Johnson (15) 49 Mce nestdent & Ttcasurer (3) Mcc nesident itgal Services Amery J. Champagne (18) 48 Clyde W. McBride (14) 39 Mce hesident Energy Resouttch Mce nestdent Strategic l'lanning (3)

Ronald W. Ciestel (17) 30 J. Lcc Miller (D) 51 Mce ncsident Compulcr Mce hesident Human Resources Applicallotts (2)

Leslie D. Cobb (31) 50 James E. Moss (33) 55 Mce nesiderst N Secretary Mce ncsident Markeling Anthony F. Gabrielle (11) G4 Bobby J. Willis (20) 55 Mce hesident-Spectat nq]ccts (2) Mcc nesident & Controller Charles D. Glass (42) 03 Jasper P' Worthy (35) 63 Mce ncsident Operations Mce (*rs ..Jent-General Services DMslon Vice Pres! dents John W. Conley (33) 60 J. Ted McIns;her (41) 59

, it'estern Division Lake Charles Division Arden D. Loughmiller (30) 53 James D. Watkins (33) 60 Deautnor't Divislott Itaton IWuge Division Ronald M. McMenric (25) 51 lurt Arthur Division Other Officers ocoffrey O. Galow (11) 34 ( ) rears of service i Assistant Treasurer (3) Ages and years of service I as of Dec. 3L 1991 Timothy L. Morris (12) 40 (1) f#cctive Jan. 6,1992 Asststant Secretary (a) Restgned, c#cctive feb.29.1992 (2) EWettive Jan. L 1992 (3) Effective Jan. 16,1992 48 m nuu - -- - - - - - -

Directors CRobert H. Barrow ' Paul W. Murrill General. Retired Commandant Retired Chairman of the Ucmed Unllect States Marine Corps & Chlef Crecutive Offlier 5t. Tranctsville. La. (1984) Beauraont, Tctas (1978) 00(1) John W. Barton Eugene H. Owen tice hesident Loulslana Chairmart of the Board &

Alicraft Inc. N Ontster- Chief thecutlte Officer Darton Yarms Ouen N tthite Inc.

Daton Rouge. La. (1970) baton Rouge, La. (1989)

Joseph L. Donnelly Bookman Peters Chaltman of the Board Elect CPA and financial consultant N Chlef Cnecutive Officer artd former Chaltmart of the Board Beaumont. Texas (1986) N CLO, first City Tctas Bryar1, Texas (1990)

(2)E. Linn Draper Jr.

Chairman of the Board Monroc J. Mathbone Jr.

& nesident Medicat docto* and patiner.

Beaumont, Texas (1985) The Surglcal Cilnic Baton Rouge. La. (1975)

(1) Martin Goland hesident. Southwest 'Eam T. Segnar Research Institute Chairman of the Borld San Antonlo. Texas (1983) Collecting Bank; ff.A.

Houston. Tctas (1988)

Frank W. Harrison Jr.

Consulting Geologist -

• Bismark A. Steinhagen Lafayelle, La. (1990) Chaltinan of the Board-Steinhagen oli Co. Inc.

William F. Klausing Beaumont, TeAas (1974)

Retired, Senior t1cc hesident Irving Trust's hablic James C. Taussig Utility Dlvision h~esident Taussig Corp.

New York, (f.Y. (1991) take Charles. La. (1975)

(1) William H. LeBlanc Jr.

• Executive Committec Chaltman of the Board Baton Rouge Supply Co. Inc .. Chairman. Executive Committec EI[ncinal Onces Salon Rouge, La. (1974) ne trect (1)Will not stand for re election May 7.1992 f,0 9 9 cgas (2) Resigned, effective reb. 29,1992 77701 plvisions 285 Liberty Avenue Beaumont, Texas 77701 1540 Ninth Avenue Port Arthur, Texas 77640 tilghway 75 North Conroe, Texas 77301-.

, 446 North Boulevard Baton Rouge, Loulslana 70002 '

314 Broad Street Lake Charles,

. Loulslana 70601 49'

.J

InfOrmallOn (O Shareholders Stockholder Inforniation Stock Listing Shareholder-Questions Quif states utlittles Coca common stock is traded under the Shareholders having questions about their company or about their symbol OSU on the New York.

holdings may contact shareholder $crvices personnel at the corporate Midwest and Pacific $tock offices in Beaumont during normal business hours. Shatcholders' tails Exthanges, made within Texas are toll free at 1(800)3921032, whlic calls from shareholders outside Texas are toll free at 1(800)231-9200. $tock 1ransfer Agents Prospective shareholders may also use these numbet i to request Gulf $tates Utilitics Co.

financial and other information. Beaumont, Tczas Transfer of Stock rirst Chicago Tmst Co. of New Yoth Whenever 't becomes necessary to change the registration on a New York. N Y-OSU stock certificate, a transfer of the stock is required. Changes in registration are necessary, for example, when a gift of stock is made, ritst City Texas Deaumont N.A.

the stock it to be co-registered with another person, a name change is made or fo.' a number of other reasons.

There is no single stock transfer procedure whlth will cover all first Chicago Trust Co. of _New York possibic circumstances. Some transfet $ltuations require supporting New Yoth, N.Y, documents be transferred. while others might requite only the signa-ture of the shareholder authorizing the transfer to be guaranteed by Dlvidend Reinvestment Plan Agent either an officer of a commercial bank or a stockbroker. Gulf States Utilitics Co.

The company's Shareholder $ctylces Department may be con. P.O. Box 1671 tacted to determine the correct procedure for cach type of transfet, Beaumont. Texas Lost CertiflCates If a Obu stock certillcate is lost or stolen, written notification should form 10 K be sent immediately to the company's Shareholder $ctsice' Depattment so that a "stop" can be placed against 'hc missing certificate. Your The form 10-M Annual Report to notification should contain as much infoimation as possible describing the Securitics and r.xc.hange one certificate, including exact registration ertificate number and date Commission and OSU's 1991' ofissue. Financial and Statistical Report can After a "Stop" has been placed, which prevents the stock certificate be obtained without cuarge from from being traded, an amdavit may be requested from the transfer Lcalle D.' Cobb, Vice President &

agent in order to obtain a replacement certificate. The altidavit must be Secretary, completed, dgned, notatized and returned before replacement will be P.O. Box 2051, made. An irrevocable indemnity bond is required in most cases. Beaumont, Texas 77704..

The transfer agent should be notified promptly if a missing ccttift-cate is located. Notice of Annual Meeting The 1992 Annual Meeting of

. shatcholders will be held at 2 p.m.

Thursday, May 7,'1992, in the company's headquarters,550 Pine

• . Street, Beaumont, Texas. Formal-notices of the meeting, proxy-statements and proxles will be malled to all shareholders on or about March 27,1992.

Shareholders arc Invited to attend, but if they cannot, they are urged to fill out and retum their proxics.

50

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, Audited Financial Statements I Cajun Electric Power g Cooperative, Inc.

December 31,1991 I

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I AUDITED FIL:tNCIAL STATEMENTS CAJUN ELECTRIC POWER COOPERATIVE, INC.

I DECEMBER 31, 1991 I

I REPORT OF INDEPENDENT AUDIT 0RS...................................

l

.................I BALANCE SHEETS .................................................................. 2 STATIMENTS OF REVENUE AND EXPENSES................................................ 4 STATEMENTSOFCHANGESINEQUITYANDMARGIN(0EFICIT)...............................S I STATEMENTS OF CASH FLOWS.........

NOTES TO FINANCIAL STATEMENTS:

............................................... 6 I NOTE 1 - SIGNI F IC ANT ACCOUNTING POLICI ES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 NOTE 2 - U T I L I T Y P L AN T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 NOTE 3 - INVESTMENTS IN ASSOCI ATED ORGANIZATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 g NOTE 4 - L ON G T E RM D E B T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , .. . . 12 NOTE 5 - S HORT T ERM I NVE S TH:"T S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a l 6 l NOTE 6 - I N C OM E T AX E S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 NOTE 7 - EM P LOY E E B E N E F l f PL AN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 NOTE 8 - RE L AT E D PART Y *, RAN S ACT I ONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 I NOTE 9 - SPENT NUCLEAR FJEL AND DECOMMISSIONING RESERVES . . . . . . . . . . . . . . . . . . .16 NOT E 10 - NUC L E AR INSURANC E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1s NOT E 11 - GULF STATES UT I LITI ES COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 10 I NOT E 12 - RAT E S AND REGU L AT ION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 NOTE 13 - COMMITMENTS AND CONTINGENC I ES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 I

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I EB ERNST& YOUNG em on sw sn , w smu a 1 m n,s, s, u m o +.ms tou w na m m j REPORT OF INDEPENDENT AUDITORS 1 The Board of Directors 1 Cajun Electric Power Cooperative, Inc We have audited the accompanying balance sheets of Cajun Electric Power Cooperative,Inc, e (the Cooperntive) as of December 31,1991 and 1990, and the related statements of revenue and expenses, changes in equity and margin (deficit), and cash flows for the years then ended.

These financial statements are the responsibility of the Cooperative's management. Our responsibility is to express an opinion or, these financial statments based on our audits.

P i We conducted our aucits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant  ;

g estimates made by management, as well as evaluating the overall financial s.r.ement presentation. We believe that our audits provide a reasonable basis for our opinion.

In uro opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cajun Electric Power Cooperative, Inc. at December 31, g 1991 and 1990, and the results ofits operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming the Cooperative will continue as a going concern. As discussed in Note 11 to the financial statements, the I Cooperative is involved in significant litigation with Gulf States Utilities Company (GSU) as well as proceedings with the Federal Energy Regulatory Commission (FERC) involving certain transmission charges asseited by GSU. An unfavorable outcome of this litigation or g the proceedings at the FERC raises substantial doubt about the Cooperative's ability-to continue as a going concern. The financial stateniants do not include any adjustments that might result from the outcome of this uncertainty.

The Cooperative's ability to remain in compliance with the Debt Restructure Agreement and I to fully recover the costs of its investment in its utility plant cannot presently be determined as a result'of expected annual net deficits as discussed in Note 13 to the financial statements,

( future rate regulation, and the matters referred to in the preceding paragraph. Additionally, as -

discussed in Note 13 to the financial statements, the outcome of certain class action litigation cannot presently be determined.

I March 13,1992 64* -

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BALANCE SHEETS CAJUN ELECTRIC POWER COOPERATIVE, INC.-

(IN THOUSANDS)

December 31 1991 1990 UTILITY PLANT E Electric niant in service $2,647,370 $2,635,081 3 Less accumulated depreciation and amortization 555.020 481.521 2,092,350 2,153,558 Construction work in progress 7,273 10,938 Nuclear fuel at amortized cost 50,398 60,310 Electric plant held for future use 10.182 10.132

? 160.203 2.234.988 OTHER PROPERTY AND INVESTMENTS Nonutility property 687 687 Restricted funds held by trustees 2,167 2,027 Investments in associated organizations 53,356 50,847 l Decommissioning reserve funds 10.792 8.297 67.002 61.858 g

CURRENT ASSETS Cash and cash equivalents 36,552 31,997 Accounts receivable - electric customers:

Members 28,249 31,309 Nonmembers 8,195 9,518 Accounts receivable other 2,008 2,801 Fuel and supplies inventories 39,319 34,727-Prepayments 8.707 2.356 123.030 112.708 I

DEFERRED CHARGES 2,995 2,861

$2.353.230 $2.412,415-I I

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December 31 1991 1990 EQUITY AND LIABILITIES EQUITY AND MARGIN (DEFICIT)

Memberships $ 1 $ 1 Patronage capital credits 35,988 .36,533 Unallocated defi:;it (1,210,442) (952,738)

Donated capital 406 401 7 fl.174.047) (915.798)

LONG-TERM DEBT, LESS CURRENT PORTION 3,491,626 3,241,261 CURRENT LIABILITIES Accounts payable 359 482 Taxes other than income tax 773 240 Accrued interest and other expenses 23,277 23,490 B Current portion of long-term debt 459_ 54.443-l 24.859 78.655 I

l DECOMMISSIONING RESERVES 10,792 8,297 I

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{ $2.353.230 $2.412.415 a

u The accompanying notes are an integral part of these financial statements.

I  ;

i STATEMENTS OF REVENUE AND EXPENSES l

CAJUN ELECTRIC POWER COOPERATIVE, INC.

(IN THOUSANDS)

Year Ended Cecember 31 1991 _ 1990 OPERATING REVENUE Sales of electric energy:

Members $ 280,007 $ 289,580 Nonmembers 106,810 129,646 Other 744 E 387.561 1.lil 420.373 E OPERATING EXPENSES B Power production:

Fuel 152,356 156,177-Operations and maintenance 71,402 65.400 Purchased power 5,913 6,321 Other power supply expenses 477 680 Transmission 36.167 45,125 Administrative and general

'I Deprecistion and amortization 25,818 75,879 23,298 74,774 Taxes, other than income 3.503 _ 3.273 371.515 375.048 OPERATING MARGIN 16,046 45,325 OTHER INCOME AND EXPENSES Interest, rents and leases 4,864 7,838 Other income 1,596 190-I Loss on asset dispositions Litigation settlements (2,582)

.7.436 11.314 (7,425)

(10.378)

(9.775)

MARGIN BEFORE INTEREST AND OTHER DEBT EXPENSE 27,360 35,550 INTEREST AND OTHER DEBT EXPENSE 285.064 279.078 NET DEFICIT $(257.704) $(243.528)

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.I lI The accompanying notes are an integral part of these financial statements.

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g STATEMENTS OF CHANGES IN EQUITY AND MARGIN (DEFICIT)

CAJUN ELECTRIC POWER COOPERATIVE, INC.

l (IN THOUSANDS)

Years Ended December 31, 1991 and 1990 I

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, Fatronage Member- Capital Unallocated Donated ships Credits- Deficit Caoital , Total 3 BALANCE JANUARY 1, 1990 $ 1 $36,533- $ (709,210) $406 $ (672,270)

3 Net deficit for the year (243.528) (243.528) l BALANCE DECEMBER 31, 1990 1 36,533 (952,738) 406 (915,798)

- Net deficit for the year (257,704) (257,704)

Patronage capital retired (545) (545)-

BALANCE DECEMBER 31, 1991 $ 1 $35,989 $(1,210.442) E06, $(1,174,047)

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, The accompanying .10tes are an integral part of these financial statements.

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l STATEMENT OF CASH FLOWS CAJUN ELECTRIC POWER COOPEPATIVE, INC.

I YEAR ENDED DECEMBER 31, 1991 (IN THOUSANDS)

I CASH FLOWS FROM OPERATING ACTIVITIES Cash received from sales of power $ 390,763 Payments from joint owner of Big Cajun 2 Unit 3 21,377

.I Other cash receipts 2,568 Cash payments '-r fuel and fuel stock (150,929)

Operation and .waintenance expenses paid (81,918)

'I Purchased power and transmission expenses raid Administrative and general expenses paid (41,791)

(29,783)

Taxes paid (3,284)

I Interest and other income received Purchased power and transmission refunds 7,375 10,212 Interest paid (37.633)

NET CASH PROVIDED BY OPERATING ACTIVITIF", 86,957

CASH FLOWS FROM INVESTING ACTIVITIES

~3 Capital expenditures 13.388

3 Nuclear fuel purchased 6.045 NET CASH USED BY INVESTING ACTIVITIES 19,933 CASH FLOWS FROM FINANCING ACTIVITIES Repayment of long-term debt- 54,476 Note A prepayment .

7,448

!E Retirement of capital credits 545 E NET CASH USED BY FINANCING ACTIVITIES 62,469 INCREASE IN CASH AND CASH EQUIVALENTS 4,555 Cash and cash equivalents at beginning of year 31.997 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 36.552

E RECONCIt.IATION OF NET DEFICIT TO NET CASH lE PROVIDED BY OPERATING ACTIVITIES l

Net deficit $(257,704)

ADJUSTMENTS TO RECONCILE NET DEFICIT TO CASH PROVIDED BY OPERATING ACTIVITIES Depreciation and amortization 73,710 Amortization of nuclear fuel 17,932 Interest expense accrued to long-term debt 252,254

3 Book value of asset dispositions .2,050

5 Gain on REA adjustment of Note B (1,488)

Decrease in accounts receivable and

g investirents in associated organizations 2,528 l

,g Increase in fuel and prepayments (3,630)

Increase in accounts payable and accrued expenses 1.305 HET CASH PROVIDED BY OPERATING ACTIVITIES 5 86,951

! The accompanying notes are an integral part of these financial statements. i l~

iE STATEMENT OF CASH FLOWS CAJUN ELECTRIC POWER COOPERATIVE, INC.

YEAR ENDED DECEMBER 31, 1990 j (IN THOUSANDS)

I 6/ERATING ACTIVIlfES Net deficit Adjustments to reconcile net deficit to net

$(243,528) cash used by operating activities:

I Depreciation and amortization Amortization of nuclear fuel Amortization and write off of deferred 73,099 15,446 J charges and credits - net 8,595

!W Interest expense accrued to long-term debt 157,250 4

Interest income on long-term receivable (1,395 Patronage capital credits (3,858 Bock value of asset dispositions 5,213

Decrease in accounts receivable 6,963 Decrease in fuel and

;upplies inventories 5,221 l Increase in prepayments (1,856) t Decrease in accounts payable (424)

Decrease in accrued interest and other expenses (65.996)

NET CASH USED (45,270)

INVESTING ACTIVITIES

!I Capital expenditures Increase in investments and restricted funds (24,358) held by trustee (1,334) i Increase in deferred charges (2,080)

Collection of other receivables 26.015 NET CASH USED (1,757)

FINANCING ACTIVITIES

. Proceeds from payments made by REA as guarantor _ 134,052 il Repayment of long-term debt and debt classified as current prior to debt restructure (124.388)

NET CASH PROVIDED 9,664-DECREASE IN CASH AND CASH EQUIVALENTS (37,363)

Cash and cash equivalents at beginning of year 69.360 CASN AND CASH EQUIVALENTS AT END OF YEAR S 31,997

I The accompanying notes are an integral part of these financial statements.

1

I g NOTES TO FINANCIAL STATEMENTS CAJUN ELECTRIC POWER COOPERATIVE, INC.

g l DECEMBER 31, 1991 I NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES General: Cajun Electric Power Cooperative, Inc., (the Cooperative) is a rural g electric generation and transmission cooperative wholly owned - by 13 member

W distribution cooperatives (the Members) which provide electricity to approximately 300,000 cetered customers representing nearly 1,000,000 people residing throughout 80% of the land area of Louisiana. The Cooperative and its 13 Members have entered into wholesale all requirements power contracts which require the Members to purchase all of their electric energy requirements from the Cooperative generally through 2026. The Cooperative 14 subject to certain rules and regulations promulgated for rural alectric borrowers by the Rural Electrification Administration (REA) and is also subject to the jurisdiction of the Louisiana Public Service Commission (LPSC) (see Note 12).

System of Accounts: The Cooperative maintains its accounting records in accordance with the Federal Energy Regulatory Commission (FERC) chart of accounts as modified and adopted by the REA.

Electric Plant In Service: Electric plant in service is stated on the basis of cost. Depreciation is computed using the straight-line method over. the expected-useful lives of the related component assets- The net book value 'of units of' property replaced or retired, including costs of removal net of any salvage value, is charged to operations.-

Nuclear Fuel: The cost of nuclear fuel, including capitalized interest, is amortized to fuel expense on the basis of the actual number of units of thermal energy produced, multiplied by a unit cost which reflects the total thermal units expected to be produced over the life of the fuel (see Note 9).

I _ .

Notes to Financial Statements - Continued R cajun Electric Power Ceoperative, Inc.

Note I - Continued l

Construction Work In Progress: Construction work in progress is stated on the basis of cost, net of the amounts applicable to a joint owner, and includes interest during construction on major projects.

Investments: The Cooperative has investments in The National Rural Utilities Cooperative Finance Corporation (CFC) and the National Bank for Cooperatives (CoBank) which are in the form of capital term certificate, and Class "C" and "E" stock, respectively. In the accompanying financial statements, these investments i are carried at cost and include undistributed patronage capital credits from these I

organizations.

Fuel and Supplies Inventories: Fuel and supplies inventories are stated on the basis of cost utilizing the weighted average cost method of inventory valuation.

l Decommissioning: Decommissioning reserves represent cumulative accruals for decommissioning expense. The annual charge for decommissioning expense is the required addition to the decommissioning trust funds such that the balance 'of the funds (contributions plus net earnings) will be sufficient to satisfy estimated I decommissioning costs at the end of the expected useful lives of the Cooperative %

facilities (see Note 9).

Income Taxes: Certain revenue and expense itemt: are recognized in different periods for financial reporting and income tax purposes thus creating timing differences.

l Deferred income taxes are provided on these timing differences which are principally related to depreciation on electric plant in ser.vice and the sale of tax benefits.

The Cooperative uses the flow-through method of recognizing general business: gredits (see Note 6).

Patronage Capital Credits: The Cooperative is organized and operates on a not-for-profit basis. Patronage capital credits represent that portion of the Cooperative's not margins which have been allocated to Hember cooperatives. As providad in the Cooperative's bylaws, all amounts received from the furnishing of electric energy in f excess of the sum of operating costs and expenses and amounts required to offset any-ccrrent year losses are assigned to Hembers' patronage capital credit accounts on a:

patronage basis or, at the discretion of the Board of Directors, may be ; offset against losses of any p ior fiscal year. All other amcunts received from operations-i

! Notes to Financial Statements - Continued Cajun Electric Power Cooperative, Inc.

l Note 1 - Continued l in excess of costs and expenses may be used to offset losses incurred during the

, cuirent or any prior fiscal year and, to the extent not needed therefore, are j allocated to Hembers on a patronage basis. The Cooperative may also retire I

l previously allocated patronage capital credits out of its Retained Share (see Notes 4 and 12). In accordance with the Cooperative's bylaws, the net deficits have not been allocated to the Member cooperatives.

I Statement of Cash Flows: As a result of additional cash reporting requirements to the REA, the Cooperative adopted the direct method of reporting cash flows for the I year ended December 31, 1991. The statement of cash flows for the year ended December 31. 1990 was prepared using the indirect method as previously presented.

Ccsh Equivalents: The Cooperative considers all highly liquid investments witn a

, maturity of three months or less when purchased to be cash equivalents.

1 Reclassifications: Certain reclassifications have been made to the 1990 financial statements to conform to the 1991 presentation.

NOTE 2 - UTILITY PLANT I

Electric plant in service at December 31 consisted of the following (in thousands):

1991 __1990 Production:

Nuclear $1,476,734 i

l Coal Gas 1,023,144 32,597

$1,475,098 1,015,450 31,708

! Transmission 97,681 96,672 General 17.214 161 153

, $2,647,370 $2,635,081 Net l Megawatt Coquerative Ownership i

Generatina Unit _ Ratina Fuel Percentaae Meaawatts

I River Bend 936 Nuclear 30% 281 Big Cajun 2, Unit 1 540 Coal 100% 540 Big Cajun 2, Unit 2

,I Big Cajun 2, Unit 3 540 540 Coal Coal 100%

58%

540 313 Big Cajun 1, Unit 1 105 Gas 100% 105 Big Cajun 1, Unit 2 I 105 Gas 100% 105 I

Notes to Financial Statements - Continued Cajun Elcctric Power Cooperative, Inc.

Note 2 - Continued 9

l River Bend and Big Cajen 2, Unit 3 are jointly owned by the Cooperative and Gulf States Utilities Company (GSU) (see Note 11). Construction work in progress

consists of improvements and additions to existing plants. The estimated cost to complete these projects at December 31, 1991 was approximately $6.3 million.

I Nuclear fuel represents the Cooperative's 30% share of River Bend fuel and as of December 31 consisted of the following (in thousands):

l 1991._. 1990 l Nuclear fuel in process $ 22,263 $ 14,243 Nuclear fuel in stcck 177 177 Nuclear fuel in reactor 78,978 78,978 l Spent nuclear fuel 40.q48 40.948 l 142,366 134,346

{ Less nuclear fuel B amortization 91 J16 74.036 Net nuclear fuel 5 50,398 5 60.310 Nuclear fuel in process represents the accumulated cost, including capitalized f interast, of fuel required for the fourth reload and a portion of the fifth reload.

The fuel is in various stages of conversion, enrichment or fabrication. Spr nuclear fuel consists of the nriginal cost of nuclear 'uel assemblies, in the process of cooling, removed from the reactor during each of the three previous reloads.

Land relating to an abandoned lignite project has been retained as a possible site for a future generating facility and its cost, $9.8 million, is included in electric plant held for future use.

The net change in accumulated depreciation and amortizaticn for the years ended December 31 was (in thousands):

1991 __1990 Charged to operating expenses $73,710 $73,099 Charged to fuel inventories I and other assets 1 301 75,011 1.268 74,367 Less asset disposals 1.514 3.491

$73,497 !70,876 Notes to Financial Statements - Continued l Cajun Electric Power C: operative, Inc.

I NOTE 3 - INVESTMENTS IN ASSOCIATED ORGANIZATIONS Investments in associated organizations at December 31 consisted of the following (in thousands):

1991 1990 CFC $ 7,704 5 7,704 CoBank 44,244 41,819 3 Other 1.408 1.324 g $53,356 $50,847 NOTE 4 - LONG-TERM DEBT On December 2i, 1990, the Cooperative consummated a Debt Restructure Agreement (DRA) effective May 31, 1990, with the United States of America acting through the REA.

Under the terms of the DRA, the Cooperative exe- ted and delivered to REA two notes which restructured all of the Cooperative's debt to or guaranteed by the REA: Note A, in the original face amount of $2,147,994,670 which matures on December 31, 2026 I and Note B, in the original face amount of $1,037,007,550 which has a final maturity date of December 31, 2036. Both Notes A and B bear interest on the unpaid principal balance at a nominal rate of 8.64% with an assumed effective annual rate of 8.99%.

Any accrued but unpaid interest on Notes A or B is added to principal on a monthly basis. The DRA provide: that Note A may not be prepaid without the express wrftten l consent of REA. Note B may be prepaid withet 9remium or penalty.

The DRA requires that Note A be paid in varying annual installments. Under the terms of the DRA, so long as the annual amount due under the Note A debt service schedule has not been paid in full, on the fifteenth business day of each month the Cooperative pays to REA all cash balances at the end of the preceding month in excess of the general funds cap ($35,000,000 adjusted in accordance with the DRA).

Payments on Hote B prior to 2027 are contingent upon several factors, including-l Member and nonmember sales growth, extraordinary cash receipts and the existence of cash in excess of the gener-i funds cap at any month-end after the . annual Note A required payment has been made. The existence of such excess cash will also result in additions to the Cooperative's Retained Share, which represents the amount of I cash which the Cooperative may utilize for any valid corporate purpose, including Notes to Financial Statements - Centinued-Cajun Electric Power Cooperative. Inc.

Note 4 - Continued I

the payment of previously allocated capital credits (see Note 12). The required Note B payment for 1991 is approximately $872,000 which will be paid in April, 1992.

On February 25, 1991, the Cooperative's Board of Directors approved a distribution to the Members of the balance of the Cooperative's Retained Share in the amount of l

$544,552 to pay previously allocated capital credits. The distribution was made on March 5, 1991. At December 31, 1991, the Cooperative's Retained Share was approxi-mately $1,778,000.

The DRA provides that the unpaid principal amount of Note B as of December 31, 2026 will be restructured as follows: The Cooperative will have the fair market value of its assets appraised as of December 31, 2026. An amount equal to sixty percent of the appraised value shall be paid in equal annual installments over the next ten years ending December 31, 2036 at the same interest rate, accrued and compounded l

monthly in the same manner as the present Note A. The remaining balance of Note B as of December 31, 2026 will be repaid over the subsequent ten year period in_ a manner consistent with the terms and conditions associated with Note B of the DRA.

Any amount unpaid at December 31, 2036 will be due and payable in full as of that I date.

Under the terms of the DRA, the Cooperative's debt which was in default prior to the DRA, and was guaranteed by the REA (the REA related debt: notes payable to the j federal Financing Bank, the Cooperative Utility Trusts and CoBank) which is included

, in the restructured Notes A and B, was not retired or defeased but remains outstanding. The DRA requires REA to make all of its guaranteed payments on the REA related debt in a timely manner, and, so long as no event of' default has occurred I under the DRA, REA agrees not to exercise any remedy it may have under the REA-related debt documents. Additionally, the REA related debt will not be deemed satisfied entil the Cooperative satisfies in full the requirements of Notes A and B.

Under the terms of the DRA, in -thi event of default, hEA may seek remedies under either the terms of the DRA or the REA related debt documents.

I A portion of the underlying restructured REA related debt, aggregating $522 million at December 31, 1991, bears interest at variable rates, for which the Cooperative bears th: interest rate risk. If the actual ir.terest cost of this debt in any year is less than the benchmark amount set forth in the DRA, the difference will be added Notes to Financial Statements - Continued Cajun Electric Power Cooperative. Inc.

I Note 4 - Continued l to the Cooperative's Retained Share. If the actual interest _ cost is greater, the Cooperative must pay the difference to the REA.

Long-term debt at December 31 consisted of the following (in thousands): '

1991 1990 Note A to REA, due in varying annual installments through 2026, interest at 8.64% '

compounded monthly. 52,305,862 52,149,284 Note B to REA, varying annual payments, based upon several contingent factors, final maturity December 31, 2036, interest at 8.64% compounded monthly. 1,183,514 1,089,276 Citibank agreement, due June 1991. 48,870 Industrial Development Revenue Bonds, series 1982, interest at two-thirds of prime rate (4.4% at December 31,1991),

due in 6 annual installments from 1992 through 1997, 2,700 3,150 I River Bend construction and operations commitment, interest at a variable rate. 5,124 Less current portion of long-term debt 450 54.441 53,491.626 53,241,261 I Scheduled maturities of long-term debt including Note A principal and interest payments are (in thousands):

1992 $ 120,450 I 1993 1994 1995 135,450 170,450 170,450 I 1996 Thereafter 175,450 8.050.450 58,822,700 I

l

Notes to Financial Statements - Continued l Cajun Electric Power Co: perative. Inc.

Note 4 - Continued

-I Interest and other debt expense incurred on long-term debt for the years ended December 31 consisted of the following (in thousands):

. 1991._ 1990 Interest charged to operating expense $288,554 $270,768 Other debt expense 510 8.310 Total interest and other debt expense 285,064 279,078 Capitalized interest on nuclear fuel 1.429 848

$286,493 $279,926 I For the year ended December 31, 1991, the Cooperative paid $37.6 million in l interest. For the year ended December 31, 1990, the Cooperative and the REA on behalf of the Cooperative, paid interest of approximately $189.3 million.

.l Substantially all of the Cooperative's assets are pledged to secure the Cooperative's debt to REA by the Supplement to the Supplemental Mortgage and Security Agreement (the REA mortgage) executed November _ 28, 1990 between the Cooperative, REA and CoBank in order to facilitate the DRA. Both the REA mortgage 1

I and the DRA contain certain restrictive covenants including limitations on indebtedness, capital additions, distributions to Members and an agreement not to lower the Cooperative's wholesale electric rate for the term of the DRA. At December 31, 1991, the Cooperative was in compliance with all such covenants.

Certain office facilities in Baton Rouge are separately pledged to secure Industrial Development Revenue Bonds.

CoBank is secured by the REA Mortgage for two letters of credit amounting to approximately $58.6 million supporting potential indemnity payments under sale-leaseback transactions completed in 1983. During 1988, CoBank renewed the letters

of credit for an additional five-year period.

During 1991, the Cooperative received a refund of $7.4 million resulting _ from the settlement of a FERC rate case. On October 8, 1991, in accordance with the terms of the DRA, this refund, included in prepayments in the accompanying 1991 balance sheet, was transferred to REA and is to be applied to the required Note A payment for 1992.

- Notes to Financial Statements - Ctntinued Cajun Electric Power Cooperative, Inc.

NOTE 5 - SHORT-TERM INVESTMENTS At December 31, 1991, the Cooperative's cash was invested in U.S. Treasury securities, U.S. government agencies securities, commercial paper and short-term obligations issued by financial institutions. All investments conform with the guidelines established by the REA. Maturities are selected to correspond with cash flow raquirements and are generally for periods of less than three months and are consic2 red to be cash equivalents.

NOTE 6 - INCOME TAXES

{ The Cooperative had no current or deferred income tax provisions for the years ended December 31, 1991 and 1990.

At December 31, 1991, the Cooperative had a general business credit carryforward of approximately $166 million, of which approximately $9 million expires in 1999; $27 million in 2000; $128 million in 2001; and $2 million in 2002.

I

{ In addition, the Cooperative has loss carryforwards of approximately $1.5 billion which may be used to offset future taxable income. The expiration dates and amounts l of the net operating loss portion of the total loss carryforwards are as follows g (in thousands):

2004 $ 14,955 2005 231,809 2007 9&dQQ

( $342,564 I The remaining losses of approximately $1.2 billion are- attributable to Member activities and may be carried forward indefinitely.

I The Cooperative has available approximately $173 million in net operating loss carryforwards for alternative minimum tax purposes, $101 million of which expire in 2005, with $72 million expiring in 2007.

I>

l financial Statements - Continued Cajun Electric Power Cooperative, Inc.

Note 6 - Continued I Also, the Cooperative has approximately $1.2 billion of losses attributable to l Member activities for alternative minimum tax purposes which may be carried forward indefinitely. Additionally, approximately $166 million of the general business credit carryforwards of the Cooperative may be used to offset future alternative minimum tax. These credits expire in the same years as the general business credit carryforwards for regular tax purposes.

I In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No.109, Accounting for Income Taxes, which supersedes SFAS No. 96 and is effective for fiscal years beginning after December l 15, 1992.

determined.

The extent of the impact of SFAS No. 109 on the Cooperative has not been I NOTE 7 - EMPLGYEE BENEFIT PLAN All of the Cooperative's employees participate in the National Rural Electric Cooperative Association (NRECA) Retirement and Security Program once they have met minimum service requirements. The Cooperative makes annual contributions to the plan equal to the amounts accrued for pension expense, b this master multiple-employer defined benefit plan, which is available to all member cooperatives of the NRECA, the accumulated benefits and plan assets are not determined or allocatcd separately by individual employer. As a result of a better than anticipated return from the plan's investments, the Cooperative was not required to make contributions to the plan in 1991 or 1990.

NOTE 8 - RELATED PARTY TRANSACTIONS In December 1986, the Cooperative purchased certain substation equipment owned by eight Members in order to better define the operating responsibilitics of the transmission system. The aggregate purchase price of $12.4 million was partially financed by the Cooperative assuming long-term notes payable to the- PEA . in the amount of $8.4 million. In addition, the Cooperative agreed to make payments to

g. certain of its Members. During 1990, the Cooperative made payments of $2.2 million 5 under the terms of this agreement. Effective March 1,1991, -ths REA reduced the principal balance of Note B by $2.3 million in a final adjustment of the subttation transfer debt.

j Financial Statements - Continued I Cajun Electric PIwer C: operative, Inc.

NOTE 9 - SPENT NUCLEAR FUEL AND DECOMMISSIONING RESERVES GSU het executed a contract with the Department of Energy (DOE) whereby the DOE will furnish disposal ser~ ice for the spent nuclear fuel from River Bend. Currently, the cost amounts to one 7th of one cent per kilowatt hour e# net generation. The DOE spent nuclear fuel fee is subject to change in accordance with the provisions of the Nuclear Waste Policy Act of 1982.

The Nuclear Regulatory Commission in 1988 issued final regulations setting forth the technical and financial criteria for decommissioning licensed nuclear facilities.

The regulations require electric utilities either to certify that a minimum dollar amor t will be available to decommission the facility or to submit a decommissioning funding plan. In addition, these regulations require that financial- assurance be

~

provided by either prepayment, an external sinking- fund, or by a surety, insurance, i or other form of guarantee. In response to these regulations, on December 2,1988, the Cooperative established an external grantor trust, the River- Bend j Decommissioning Trust Fund, and intends to make annual contributions to' accumulate p an amount which will be sufficient, based on current estimates and assumptions, to pay for its share of the cost of decommissioning at the end of the estimated useful

) life of River Bend. Annual contributions to the trust are approximately $1.4 million. As of December 31, 1991, the balance in the River Bend Decommissioning jl 2

Trust Fund was $9.3 million.

The Cooperative is required by the State of Louisiana Department of Environmental Quality (DEQ) to provide assurance that it has the ability to fund the actions which will be necessary to rehabilitate its Big Cajun 2 ash and wastewater impoundment I areas which, as disposal sites,- are subject to DEQ review and supervision. The total liability for funding the solid waste disposal site rehabilitation is currently estimated to be approximately $4 million, of which GSU is ' responsible for -

approximately $500,000. On July 1,1989, the . Cooperative created the Solid Waste

.l Disposal Trust and deposited $1.06 million with the trustee in satisfaction of its DEQ funding requirements. The annual contributions to the trust are approximately j $116,000. The actual payments for site rehabilitation are not scheduled to occur-until the end of the estimated useful life of the Big Cajun 2 coal-fired facility.

The balance in the Solid Waste Disposal Trust at December 31, 1991 was $1.5 million. i I -+

Financial Statements .- Continu:d.

Cajun Electric Power Cooperative, Inc. l II NOTE 10 - NUCLEAR INSURANCE l The ownership of an undivided interest in River Bend subjects the Cooperative to j certain risks. The Cooperative is insured, as described below, for public liability and property damage.

The Price-Anderson Act (the Act) was renewed by Congress in 1988 and was extended

through August 1, 2002. Public liability under the Act for any nuclear incident is lg 5 currently limited to $7.8 billion. The Cooperative and GSU are insured for- this exposure by private insurance as well as by a secondary financial program. Changes to the Act related to the secondary financial program may< requit e the Cooperative to 8 become subject to a possible retroactive assessment of which the Cooperative's share ll would not exceed $19.8 million per incident with a maximum of $3 million per incident payable in any one year for lesses at any licensed nuclear fccility.

-I The Cooperative, together with GSU, maintains $500 million of property damage ir.surance and $765 million of excess insurance relatG to -River Bend obtained from the private insurance market. Additionally, the Cooperative is a member-insured of the Nuclear Electric -Insurance limited (NEIL II) program which provides .51.25 billion of excess property insurance. As a member-insured of NEIL II, the Cooperative is subject to a maximum assessment of. $2.0 million in any one policy

-l year. Although the Cooperative and GSU continue to. attempt .to increase insurance coverage as it becomes available, the- Cooperative can give no assurance as to the adequacy of its coverage in the event of a major accident. Total available property-damage insurance is substantially less than the potential insurable'value of River I Bend. In 1991, the Nuclear Regulatory Commission promulgated a rule-providing that, in the event of an accident at River Bend. in which the ~ estimated costs .of '

stabilizing and decontaminating the site exceed $100 million, insurance- proceeds-m :st first be dedicated to this purpose. Proceeds not required for -such stabilization and decontamination may then be used to repair.-or replats the damaged l unit. The Cooperative has joined GSU in establishing a Nuclear _ Workers' Liability policy which covers liability for the claims of workers employed at River Bend after January 1, 1988 for noncatastrophic nuclear- related injury such as prolonged exposure to low-level radiation. Any claims by workers employed at River Bend prior.

to January 1,1988 will continue to be covered under the Nuclear: Workers' Liability

,I I

Financial Statements - Continued Cajun Electric Power Cooperative, Inc.

Note 10 - Continued I policy if the claim is made by December 31, 1997. Under the Nuclear Workers' Liability policy, the Cooperative is subject to a maxi;aum potential retrospective premium assessment of approximately $1.0 million. It is possible that liabilities 4

related to the release or escape of a hazardous substance from River Bend may be greater than the coverage on policies currently carried and, consequently, existing insurance may not be sufficient to meet all possible liabilities or losses. The Cooperative cannot provide assurance that it will be able to maintain coverage at present levels. Any liability or loss in excess of that covered under existing l policies could have a material adverse effect upon the Cooperative, g NOTE 11 - GULF STATES UTILITIES COMPANY In August 1979, the Cooperative and GSU entered into a contractual agreement for the

^

I joint ownership of River Bend (see Note 2). The Cooperative has a 30% undivided

. interest in River Bend and is responsible for 30% of River Band's costs of construction, capital additions and operations. GSU is the operator of the facility. GSU paid the Cooperative approximately $29 million in 1991 ar.d $66 l million 'a 1990, completing a five-year capacity and energy sellbhck agreement related to River Bend, I In November IPO, the Cooperative and GSU entered into a contractual agreement for I the joint ownership of Big Cajun 2, Unit 3, and certain common facilities at Big Cajun 2 (sce h'ote 2). The Cooperative retained a 58% undivided ownership interest in Unit 3 and an 86% undivided ownership interest in the common facilities. The Cooperative is the operator of the Big Cajun 2 facilities.

The Cooperative filed suit on June 26, 1989 against GSU in United States District Court in Baton Rouge alleging fraud in the inducement to enter into the River Bend Joint Ownership Participation and Operating Agreement (J0POA; as .well as misrepresentation, mismanagement, breach of fiduciary duty and breach of contract.

The Cooperative seeks the annulment of the River Bend J0P0A and the secovery of its investment -in River Bend (approximately -$1.6 billion) as well as damages -resulting from the Cooperative's participation in the River Bend project. The Cooperative is I seeking further damages associated witn excessive operating costs of the facility which arose due to GSU's alleged mismanagement. On November 7,1990, GSU filed an amended counterclaim with the court requesting that the Big Cajun 2, Unit 3 J0P0A be Financial Statements - Continued Cajun Electric Power Cooperative, Inca Note 11 - Continued I rescinded and asked for an appropriate monetary judgment sufficient to place the Cooperative and GSU in the same position as if the Big Cajun 2, Unit 3 J0P0A were never consungnated. Additionally, GSU's counterclaim asserts that its present transmission arrangements with the Cooperative shoulci be terminated by the court.

I Further GSU asserts that in any event it is entitled to monetary damages resulting from an alleged breach of contract and fiduciary duty by the Cooperative. The timing or outcome of these matters is encertain.

l In September 1991, the Cooperative exercised its options under the River Bend J0P0A and elected not to participate in the funding of the Service Water Project (SWP) and

- the inlet feedwater nozzle repair or replacement. These projects, which are expected to be completed in 1993, are estimated to cost a total of approximately $60 million. Consequently, through the end of December 1991, the Cooperative has not I paid approximately $6 million related to the SWP. GSU asserts that the Cooperative is in default of the J0POA and disputes the Cooperative's right to not pay such amounts. The amounts not paid are based on the Cooperative's best estimate of the related costs to date and are not reflected in *he accompanying financial statements. On November 27, 1991, the Cooperative filed a complaint for Declaratory and Injunctive Relief with the United States District Court, Middle District of Louisiana seeking a declaration and interpretation of the Cooperative's rights as related to this issue under the J0P0A. The timing or outcome of this matter is g uncertain, although legal counsel has advised the Cooperative that it is within its E rights under the JCP0A to withhold such payments.

On July 17, 1967, the Cooperative filed a complaint with the FERC - against - GSU alleging overbilling end improper cost allocations for certain -transmission service l charges. On May 11, 1989, a FERC administrative law judge issued an initial r inion which could require the Cooperative to pay GSU approximately $25 million for transmission charges for the period 1981 through 1901. The FERC will make a final determination on the initial opinion which may increase, reduce or eliminate the Cooperative's potentia' liability to GSU. After final FERC action, either party may I pursue further appeals through the federal court system. ' At December 31, 1991, GSU alleges that the Cooperative had underpaid these transmission charges in the amount of approximately $105 million. The timing or outcome of this matter is uncertain.

Accordingly, no provision for any liability that may result has been made in the l ' financial statement:.

l Financial Statements - Continued Cajun Electric P wer Cooperative, Inc.

Note 11 - Continued I An unfavorable outcome of the SWP litigation or the proceedings at the FERC as j discussed in the two preceding paragraphs could have a material adverse impact upon the Cooperative.

I NOTE 12 - RATES AND REGULATION The Cooperative is regulated by the LPSC with respect to rates and certain other matters. The Conn m tive must also seek approval from REA for rate changes.

In May 1990, the LPSC ordered the Cooperative to reduce the base rate to its Members g by 4 mills per KWh replacing a fuel credit of approximately the same amount which the Cooperative had been flowing throufi its fuel adjustment.

In July 1990, the LPSC approved the DRA with certain conditions. One of these conditions was that the Cooperative's average annual rate to its Members in 1990 and 1991 be no higher that 54.5 mills per KWh.

In January 1991, the LPSC held hearings on the Cooperative's rate design and in April 1991 issued an extensive data request to the Cooperative in conjunction with its examination of the Cooperative's rates.

In August 1991, after receiving permission from REA as required by the DRA, the Cooperative filed a request with the LPSC to reduce the 4 mill credit imposed in May 1990 to a 1 mill credit in three increments over ten months beginning in October 1991. This proposed base rate increase was intended to maintain level rates through 1992. Hearings were held in December 1991 at which time the Cooperative modified its request and altered the timing of the change in the credit. At its February 4, 1992 meeting, the LPSC approved the Cooperative's modified request for a 3 mill reduction of the credit effective for the first and last quarters of 1992 and a 2 mill reduction of the credit effective for the second and third quarters of the I year. Additionally, the LPSC ordered the 54.5 mill per KWh cap on ra+es be continued and prohibited- the Cooperative from paying capital credits during 1992 from its Retained Share.

Financial Statements - Continued Cajun Elcctric P:wer Cooperative. Inc.

Note 12 - Continued I The LPSC has issued a procedural schedule to continue its examination of the Cooperative's rates during 1992. The Cooperative intends to make a filing with the LPSC in early 1992 regarding rates for 1993 and beyond.

NOTE 13 - COMMITMENTS AND CONTINGENCIES I Equity And Margin (Deficit): The Cooperative expects to incur continuing and substantial annual net deficits for the foreseeable future and also expects that its Unallocated Deficit (a component of equity and margin (deficit)) will continue to g increase principally because of interest expensa that is accrued but not paid. The B debt restructure completed in 1990 recognized that the Cooperative was unable- and would continue to be unable to pay previously scheduled debt service (principal and interest) on all of its debt and therefore split substantially all of its future-debt service obligations into fixed and contingent components in order to avoid forcing a restructure or reorganization under the bankruptcy code.

In accordance with Generally Accepted Accounting Principles, the Cooperative continues to accrue the interest expense on Note A and Note B, however, payments on Note A are based on a nontypical amortization schedule specifically set forth in the DRA while payments on Note B prior to 2027 are required only when certain contingent events occur (see Note 4). The interest that is accrued but not paid is added to the balances of the notes each month thereby increasing the debt of the Cooperative.

The interest expense that is accrued but not paid will continue to cause annual net deficits and a deteriorating net worth, but neither is an event of default.

Gulf States Utilities Company: As discussed more fully in Note 11, the Cooperative is involved in significant litigation with GSU as well as proceedings at the FERC.

Coal and Transportation Commitments: Purchases under the terms of contracts for the acquisition and related transportation of coal during 1991 and 1990 were approximately $121 million annually. Certain purchases are subject to various price escalators and deflators, minimum quantity takes and periodic price reopeners at=

then current market prices. Management is of the opinion that these contracts will properly meet anticipated coal supply needs. The transportation contracts begin to expire in 1999 while the coal contracts are for the useful life of the coal-fired Financial Statements - Continued Cajun Electric Power Cooperative, Inc.

Note 13 - Contiaued I generating facility provided the present supplier is willing to meet or better offers from other suppliers at scheduled periodic price reopeners.

Litigation: On September 20, 1989, a class action petition was filed in the Tenth Judicial District State Court in Natchitoches Parish, Louisiana naming the tooperative's Members as defendants. The plaintiffs in this action seek a refund of I all rate increases enacted by the Cooperative's Members from 1978 until the respective Member voted to be subject to the jurisdiction of the LPSC or was placed ander the jurisdiction of the LPSC by action of the State Supreme Court. On October 17, 1989, the case was moved to the federal courts. On June 23, 1990, motions were f$ led by the Cooperative's Members to name the Cooperative as a third party defendant in the case. On July 15, 1991, the V. S. District Court in New Orleans entered an urder retaining jurisdiction in the case and granting the motions of the Cooperative's Members to enjoin the Cooperative as a third party defendant in the case. The timing or outcome of this matter is uncertain and no provision for any I liability that may result has been made in the financial statements. An unfavorable outcome could have a material adverse impact upon the Cooperative.

On December 13, 1990, Sam Rayburn G&T Cooperative, Inc. (SRG&T) filed suit- against the Cooperative in a Texas state court seeking specific performance by the Cooperative of a contract to provide for the sale of a 77. undivided ownership interest in Big Cajun 2, Unit 1. The contract had expired, according to its terms, on June 1, 1990. Further, SRG&T petitioned the court to rule, if specific

-performance is not granted, that a firm power sales contract between SRG&T and the Cooperative be declared null and void. In February 1992, the parties agreed in principle to a settlement pursuant to which SRG&T will dismiss its suit and abide by the terms and conditions of the firm power sales contract.

-d-