ML19341C495

Direct Testimony & Exhibits of Jh Erwin

ML19341C495
Person / Time
Site:	Waterford
Issue date:	05/26/1980
From:	Erwin J LOUISIANA POWER & LIGHT CO.
To:
Shared Package
ML19341C490	List: ML19341C489 ML19341C492 ML19341C495 ML19341C499 ML19341C501
References
NUDOCS 8103030645
Download: ML19341C495 (104)

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i LOUISIANA POWER & LIET C0!GANY DIRECT TESTIMONY OF JOHN H. ERWIN, JR.

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l Direct Testimony of l 1

John H. Erwin, Jr. I l

l Q. Please state your name and business address.

A. John H. Erwin, Jr. ,142 Delaronde Street, New Orleans, Louisiana 70174.

Q. By whom are you en: ployed and in what capacity?

A. I am Vice President and Treasurer of Louisiana Power &

Light Company.

Q. Please describe your educational back 6round and experience.

A. I am a graduate of Louisiana State University, having received a Bachelor of Science degree in Accounting in 1948. I have held several positions with Louisiana Power & Light Ccupany since joining the Company in 1948, inana%g Accountant, Statistician, Assistant Treasurer and Assistant Secretary, Treasurer and Assistant Secretary, and Vice President and Treasurer.

Q. What are your duties as Vice President and Treasurer?

A. I am the Company's principal accounting and financial officar.

In my capacity as principal accounting efficer, I am responsible for all accounting functions and reports of the Company.

In my capacity as principal financial officer I am responsible for the Company's long-term and short-term financing programs.

This includes planning, schednM ng and aMnistering the Company's financial requirements, including the sale and i'isuance of long-term securities such as first mortgage bonds, preferred stock, and co:znon stock, all of which are required to raise the large sums of money we need to cover the construction program outlined by Mr. Wyatt. The short-term interim financing program involves negotiating bank loan agreements and arranging for the sale of commercial paper. Short-term financing provides the day-to-day availability of the necessary funds to meet the Co=pany's obligations and expenses.

Q. What is the purpose and scope of your testimony?

A. The purpose of my testimony in this proceeding is to explain the necessity for the rate relief requested by pointing out the inadequacy of Louisiana Power & Light Company's earnings, discussing the current construction program and the associated financing require-ments, analyzing declining coverages and the problems facing the Company in providing adequate, dependable service to its customers.

In addition to the financial testimony, I am presenting exhibits which were prepared either under my supervision and direction or to which I have direct knowledge. These exhibits are numbered LPL Erwin Ex. 1 through LPL Erwin Ex. 28. I wish to add that the historical data contained in these exhibits has been l

l obtained frctn the books and records of the Cc=pany which are L

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kept in accordance with the Unifor= System of Accounts as prescribed by the Louisiana Public Service C* ssion (L?SC) which generally confoms to that prescribed by the Federal Energy Regulatory Con::ission (FERC). L?&L is audited annually by Deloitte Haskins & Sens, an independent, outside auditing fim, and periodically by both the L?SC auditors and the FERC auditors.

Q. What is the Co=pany requesting in this application?

A. The Co=pany is requesting revenues necessary to cover its cost of service and is requesting this Commission to authorize the collection of actual revenues from customers in lieu of the Co=pany recording Anowance for Funds Used During Construction (AFUDC) on Construction Work in Progress (ChTI?). Without real earnings in lieu of AFUDC or equivalent additional revenue, the Company will be unable to continue to finance its construction program so necessary to meet its customers' electric power requirements.

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The requested rate of return on LPSC jurisdictional rate base is 10 91+y, and this will provide the Company with revenue increases of $203.6 million.

Q. Let us now comence the specific portions of your testimony.

First, would you please review the Company's construction program?

A. Erwin Ex. 1 sets forth construction costs by years and indicates the tremendous amounts of money that must be invested in plant facilities by the end of 1981. L?&L's construction expenditures during the period 1972 - 1977 totalled $809,000,000. For the

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period 1978 - 1981, construction expenditures are estimated to total $1,107,000,000. Assu=ing adequate rate relief, the external financing required during the period 1978 - 1981 is estimated to total over $971,000,000. In addition, the company must pay off a $9,900,000 3#, bond issue maturing in 1980 and a

$50,000,0009-1/2,# bond issue maturing in 1981.

Erwin Ex. 2 shows that LP&L's total utility plant at the end of 1977, after more than 50 years of operation, totalled

$1.510 billion and that it will increase to $2.610 billion by the end of 1981. This is an increase in only 4 years of

$1.100 billion, which is an increase of 73#p.

Q. Win LP&L be able to finance this construction program?

A. LP&L will not be able to continue to finance a construction program of this magnitude, which is already committed for and under way, without the increase in earnings necessary to provide the coverages required to continue to raise funds from outside sources. This requires substantial rate relief.

Erwin Ex. 3, pages 1 and 2, reflect the bond and preferred stock coverages for the twelve month period ending December 31, 1979, and projected for December 31, 1980 and December 31, 1981.

Pages 3 and 4 of this Exhibit reflect the coverages projected by months for the year 1980 and as can readily be seen, LP&L will be unable to finance until late in the fourth quarter when it expects to sell $30 million of preferred stock and $100 million of bonds.

At the end of 1980, coverages win be 2.05x and 1.44x and the 1

Company will be unable to SE11 additional bonds or preferred stock. !

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LP&L must have this rate increase or it will be forced to curtail its entire construction program. Tnis Commission surely must realize that this would be disastrous and act promptly to prevent such an occurrence. In fact, without substantial rate relief early in 1981 the cash then available will be required for shutdown purposes rather than for continuing the construction program.

Q. How would LP&L propose to provide the funds required by this construction program?

A. Assuming LP&L will be granted additional rate relief that will provide the required coverages, the Company will finance in the conventional manner through the sale of first mortgage bonds, preferred stock and common stock. Short-term borrowings in the form of pro =issory notes will be used for interim financing, replaced periodically by one of the above-mentioned types of permanent financing.

Q. Would you review LP&L's capital structure?

A. LP&L has maintained its capitalization ratios in the range of 54-57% long-tem debt,10-12% preferred stock and 32-35% common equity, with the target capitalization ratios being 56-10-34 as shown on page 1 of Erwin Ex. 4. The Company believes this capital structure produces about the lowest cost of capital. This, in tum, keeps the cost of service and revenue requirements frca its customers to the lowest practicable level and therefore LP&L plans 1

to continue to finance in this manner. l

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Page 2 of Exhibit 1+ shows the Company's capital structure and cost of capital and reflects a co=posite cost of capital of 10.94%.

I would like to point out that the Securities and Exchange Coc=ission (SEC) has jurisdiction under the Securities Act of 1933 and also under the Public Utility Holding Co=pany Act of 1935, over the issuance of securities by LP&L, including the Co=pany's short-term borrowings.

In order to sell additional bonds and/or preferred stock the Co=pany must file under both the 1933 Act and the 1935 Act and is required to advertise and sell these securities through comoetitive bidding. Thus, the Co=pany should be securing the lowest cost capital possible at the time of bidding which is to the advantage of its customers.

The Company's charter, as well as the SEC policy rule, limits I

short-tem borrowings to a m*viwa of 10% of its total capital-ization. LP&L mast schedule its financing so that permnent financing is completed before the short-term borrowing 14 wit is

, reached. For 1980 the Company has SEC authorization for up to

$150,000,000 of short-term borrowing. This authorization allows the Ccepany to borrow upto $150,000,000 frcm banks and issue up to$75,000,000 of commercial paper, limited, however, to a total not exceeding the $150,000,000 authorized.

The Company plans to continue to finance in a manner that will enintain target capitali::ation ratios, hf Q. Please explain the Company's internally generated funds.

A. Internally generated funds are funds generated through the Co=pany's operations and changes in working capital. The major portion of internally generated funds is provided by depreciation, deferred income taxes, investment tax credits and net income, excluding APJDC.

Q. Kby did you exclude AFUDC7 A. AFUDC is strictly a bookkeeping entry and, while it is included in income, it is not real money and does not provide any immediate cash.

Erwin Ex. 5 shows the Company's funds from operations for the years 1972 - 1981 and reflects the decreasing amount of internally generated funds in the face of increasing cash requirements.

Q. Would you describe the various components of LP&L's capital structure?

A. Debt in the form of first mortgage bonds is the least expensive source of pemanent financing. There are two reasons for this.

The first reason relates to security. The principal and interest payments to the holders of first mortgage bonds are secured by a first claim on substantially all of the Ceapany's property in the event of a default under the terms of the mortgage. First mortgage bondholders have a claim on the Company's earnings for interest payments prior to the payment of any dividends to i preferred and co= mon stockholders. The second reason relates to the fact that interest expense is deductible for income tax purposes and thus the after-tax cost to the Co=pany is approximately one-half of the amount of the interest expense, ,

1 Other long-term debt is primarily composed of the long-term debt of the five municipalities where LP&L is operating under Operating Agreements and does not represent a source of capital.

Preferred stock is the second lowest cost source of per=anent capital and the reasons again relate to the degree of risk assumed by the investor and income tax regulaticus. While the investment of preferred stockholders is unsecured, the stockholders do have a claim on the assets of the Company after the outstanding debt obligations, and before any distribution of assets to the ccrsmon stockholder. With respect to dividends, the preferred stockholder has a claim to the after-tax income of the Company after debt obligations are met and before any dividends are paid to the ecx=on stockholder. In addition, the dividends on preferred stock are contractually fixed in amount and are cmmlative. Another factor affecting the cost of preferred stock is that dividends on this stock are 85% tax-free to corporate purchasers; thus, corporate purchasers of preferred stock are willing to accept a lower dividend I

rate than would otherwise be required.

The highest cost source of permanent capital is common equity.

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i This is because of the inherently greater risk assumed by the l

co= mon equity investor. The common stock is unsecured and tae common stockholder has last claim t;c both the Company's assets and its earnings. Dividends can only be paid to the common stockholder after all interest and preferred dividends have been paid. Therefore, !

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a higher rate of earnings must be attainable by the common stockholder in order to induce him to make the equity investment and assume the greater risk. Without this expectation of greater reward, an investment in equity securities would be very unwise.

Q. Would you please review the Company's cost of debt. .

A. The increasingly higher interest rates that the Company has had to pay bondholders for the use of their money are reflected in the embedded cost (average interest cost) of bonds. LP&L's embedded interest cost on its outstanding first mortgage bonds has risen from 5.49% in 1969 to 8.46% at December 31, 1979 as reflected in Erwin Ex. 6, Page 1, an increase of over 54%. As you wm note on Page 2 of this exhibit, the Company sold bonds in 196o at 5%, in 1969 at 9-3/8% and in 1978 at 10%. The Company sold $55,000,000-of a bonds in November 1979 and the interest rate was 13-1/2%. Forecasts of future interest rates do not indicate a significant decrease in the cost of this type of financing.

Q. Now, please review the Company's cost of preferred stock.

A. A similar increase has occurred in the embedded cost of preferred stock. This cost has increased from 5.15% in 1969 to 10.01% at December 31, 1979 as shown on Erwin Ex. 7, Page 1, an increase of over 94%. Page 2 of this exhibit reflects the various dividend rates of the Company's preferred stock.

Q. What is the Company's return on common equity?

A. Erwin Ex. 8 reflects LP&L's return on common equity for the period 1969 - 1979 This exhibit shows that L?&L's return on common equity

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peaked in 1974, declined to 10.56% at the end of 1977 and l was 9 93% at December 31, 1979 Excluding AFUDC, the return on common equity at December 31, 1979 was only .52%.

Erwin Ex. 9 reflects the amount of A NDC included in the return on emmon equity and shows that it has increased from $2,400,000 in 1969 to $45,853,000 at December 31, 1979 Excluding non-cash AFUDC, the earnings on common equity for the 12 months ended December 31, 1979 were only $2,200,000. mus, cash earnings fall terribly short of covering the dividends of $52,673,000 paid on ccanmon stock during the 12 months ended December 31, 1979 LPE is a substantial part of Middle South Utilities, Inc. ,

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and the low rates of return contributed by LPE make it extremely difficult for Middle South to sell its common stock at a reasonable price in order to secure funds to invest in the Company's ccanmon stock. Such a return is tco low to adequately compensate the equity investors of Middle South for the higher risk involved.

LPE is asking for a rate of return on common equity of 16%.

This is the rate deemed necessary to provide an adequate level of earnings sufficient to cover the Company's cost of capital.

D e Company has previously engaged outside consultants to testify as to the fair and necessary rate of return and cost of capital required by LPE. However, in this filing we have deter-mined that the facts and circumstances are such that we can provide adequate support for the returns we are requesting.

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At the end of 1978, LP&L's embedded cost of bonds was 7.87% and preferred stock was 7.35%.

During 1979, primarily as a result of inflation, the cost of capital skyrocketed. LP&L sold $100 million of First Mortgage l Bonds at a cost to the Campany of 12.54% and $135 million of preferred stock at a cost to the Company of 12 30%.

The Com=ission's Consultant in LP&L's last rate case estimated the cost of long term debt and preferred stock in 1979 and 1980 to be approximately 10.12% and 9 75% respectively. In addition he recommended a rate of return on LP&L common equity of 13 00% to 13 25%.

In 1979 Middle South invested $75 million in LP&L. Like amounts of common equity fr xn Middle South will be required every year in crder to continue the Company's construction program and maintain target capitalization ratios.

Middle South's only source of permanent capital is from the sales of its c:xmnon stock to the public. Such sales are necessary from time to time and have occurred at least aamally for the past few years and may well even increase in the future.

When a company sells stock at below book value, its existing stockholders experience a dilution in their investment.

Much has been said and published by cost-of-money experts representing both utility commissions and utilities concerning the basic requirement of maintaining earnings sufficient to provide a market-to-book ratio of 116% to 120%.

For the past few years, each time Middle South has sold ccamon stock it has received far less than the book value per share. Prior to Middle South's sale of ccumnon stock in April 1980, the Book value per share was $18.40 and the Market Price per share was $13.375 ane. the market-to-book ratio was about 73%. After the sale of 7,000,000 shares of common stock in April 1980, the Book Value per share decreasect to $18.16 per share, resulting in further erosion of each stockholder's investment.

We are now well into 1980 and the cost of capital continues to be above the range experienced in 1979 Many financial analysts support the conclusion that investors in ccumnon stock require a risk premium of 3% to 5% over the alternate return available from bonds.

A pro-forma adjustment to the 13.25% return on equity granted by this Ccumcission in LP&L's last rate case, based on the increases of 2.25% to 2.75% in the cost of other capital actually experienced by LP&L, will result in an updated rate of return on equity of approximately 16% being required.

'lhis Commission should consider these facts and allow the Company 16% on common equity, based on the current costs of capital.

In a recent Utah Power & Light Company rate case, the Utah Com=ission recognized scune of the effects that increasing interest rates and rising costs of capital are having upon that Company's financing and operations. 'Ihat Commission, as a result of a rehearing of the case in which an earlier decision had been given on January 25, 1980, raised the rate of return allowed on equity from 14.5% to 16.8%.

Thus, the return being requested by LP&L cannot be considered excessive.

211s Comcission, while recognizing current costs and the effects of outrageously high inflation in granting this 16%

return on equity, can feel secure in its knowledge that LP&L will be returning to this Consnission in future years and that reviews of facts and circumstances at that time will dictate changes in the rates granted in this filing.

We cannot survive on rates of return based on money costs averaged over the last 30 years. We must live and survive in today's market.

Q. Are there any legal limitations on LP&L's capitalization ratios?

A. Yes, there are. Under the Public Utility Holding Company Act of 1935 and the Statement of Policy of the Securities and Exchange Commission and also under the Company's Mortgage and Deed of i

Trust,there are restrictions relating to capitalization ratios.

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Under the Statement of Policy of the Securitics and Exchange Co==ission as set forth in Release No. 35-13105 dated February 16, 1956, there are certain important restrictions as shown in the extract of that Statement included in Erwin Ex. 10.

It is the policy of the Securitics and Exchange Co==ission to not approve the issuance of bonds under the Public Utility Holding Co=pany Act of 1935 that win result in the first mortgage debt ratio being more than 60% after the isstw.nce of such bonds.

There are also restrictions under the Co=pany's mortgage and the Securities and Exchange Co==ission's Statement of Policy relating to fundable property which effectively limit the amount of first mortgage bonds to 60% of total capitalization.

L?&L's policy has been to maintain a reasonable margin below that 60% limitation to assure compliance and provide the Co=pany with the necessary flexibility as previously discussed..

Q. You referred previously to the Company's declining coverage ratios.

Would you please discuss bond coverage ratios at this point?

A. Under the Company's Mortgage, as set forth in Erwin Ex. 11, addition-al bonds may not be issued unless the adjusted net earnir4s of the Co=pany (as defined in the mortgage) for 12 consecutive months out of the 15 months i:mnediately preceding the issurmee of the additional bonds shall have been at least twice the amount of the annual interest requirements on all bonds at that time outstanding, plus the additional bonds being issued, and any indebtedness of prior rank.

In addition to this restriction under the mortgage, the Securities and Exchange Co==ission Release No. 35-13105, dated February 16, 1956, contains a Statement of Policy regarding the issuance of first mortgage bonds by co=panies subject to the l l

Nblic Utility Holding Company Act of 1935, such as 1P&1. The  !

release sets forth standards against which that agency judges  !

security i'ssues, and it contains the same minimm requirement of maintaining an earnings-to-interest coverage ratio of two to one as required by the mortgage.

The SEC Statement of Policy is more restrictive than LP&L's mortgage in that it requires that we exclude from net earnings, as defined, all other income in excess of 10% of net earnings which 13 defined as operating revenue less operation and maintersnee expenses, depreciation expense and taxes other than income taxes.

Under the Co=pany's original mortgage, the exclusion of other income is that amount in excess of 15% of the net eamings, as defined, which is basically the same as that set out above, but includes other income as a part of the base on which the 15% excess is applied. Thus, the SEC method is more restrictive than the Cc=pany's mortgage.

This SEC requirement is being enforced by requiring the Co=pany to amend its mortgage to confom to this Statement of Policy over a period of years in future bond issues. The first step was taken in September 1975 when the Company in its Twenty-second Supplemental Indenture reduced the 15% limitation on other income fro = 15% to 11+%. Subsequent bond sales have reduced this to10%. The effect of this is shown on page 1, line 10 of Erwin Ex. 3.

AFUDC is included in and makes up the major portion of other income. The limitation of liv,placed on other income in 1979 reduced the amount of other income that could be included in ea.Ws, as defined, by $34,561,000. With the increases in the amount of AFUDC in future years and the reduction in the portion of other income that can be included decreasing to lopv of net earnings, this limitation will become more restrictive and further reduce coverage ratios.

Erwin Ex.12 Tcflects the dramatic downward trend that has occurred in the coverage ratios under the Company's mortgage for the period 1969 through 1979 niis coverage has decreased from 3.58 times at the end of 1969 to 1.71 times at the end of 1979 Q. Would you now discuss preferred stock coverage requirements?

A. Under the Public Utility Holding Company Act and the Company's charter, as reflected in Erwin Ex. 13, additional preferred stock may not be issued unless the gross income is equal to at least one and one-half times the aggregate of the annual interest charges and annual dividend requirements, including the dividends on the new stock to be issued. Gross income is sim41** to earnings for the mortgage interest coverage calculation except that, under the charter, income taxes are deducted but other income may be included without limitation. These requirements are the same under both the Company's charter and the SEC Statement of Policy.

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Erwin Ex.14 reflects the decline in the coverage ratios that 1

1 has occurred. This coverage has dropped from 2.04 times at the l end of 1969 to 1.36 times at the end of 1979 Erwin Ex. 3, Page 2, shows that the preferred stock coverage in projected to be 1.44x and 1.32x at the end of 1980 and 1931, respectively. LPE's coverages at year end 1980 will be such that the Co=pany w4ll be unable to sall preferred stock and, as previously shown on Endn Ex. 3, Page 1, its bond coverage will be 2.05 times and, therefore, the Company will be effectively prohibited from selling bonds or preferred stock.

, Q. What are LP&L's bond and preferred stock ratings?

A. Prior to December 1976, LP&L's bonds and preferred stock were rated A by both Moody's Investors Service and Standard and Poor's Corporation. Since December 1976 LP&L's bonds have been downrated to Baa by Moody's and BBB- by Standard and Poor's. The Company's preferred stock has been downrated to Ba by Moody's and BB by Standard and Poor's. In addition, the Company's commercial paper has been downrated from Prime 1 to Prime 3, which is the lowest rating issued. Erwin Ex. 15, Page 1, reflects these downratings.

Q. What is so important about coverage ratios and ratings?

A. Coverages below those required by a coc:pany's mortgage and charter place a company in the positionwhere it is prohibited from sallinE any bonds or preferred stock until its coverages have improved to the level that will legally allow additional financing. As I pointed out previously, and as shown on pages 1 and 2 of Enin Ex. 3, j

1 LP&L's coverages have t'+:reased to 1.71 times and 1.36 times, respectively, at December 31, 1979 and the company is prohibited from salling any First Mortgage Bonds or Preferred Stock until these coverages improve substantially above 2.0 and 1.5 times, respectively.

In addition, coverage ratios are one of the primary measures used by the financial community and the Rating Agencies to evaluate a company's financial health. Higher ratios result in higher ratings and lower cost of money and conversely lower ratios and lower ratings result in higher cost of money.

Q. Is anything wrong with a Company being a BBB- rated company?

A. Yes. There are several things wrong with being a BBB- company.

We most serious problem with a BBB- rating is that in times of

" tight money" BBB-s can not sell bonds or preferred stock.

Also, the rates paid by BBB- companies are always considerably higher than A cnmInnies.

Erwin Ex. 15, Pages 2 and 3, show the average cost of "A" and "BBB1' utility bonds sold during 1979 mese exhibits reflect that the difference between "A" and "BBB " bond rates wr.s as much as 1.37 percentage points.

Q. What rating should LP&L have?

A. At a minimum, LP&L should regain its A rating. With the tremendous construction progran facing LP&L, anything less than an A rating will jeopardize the completion of the facilities that will be i

essentially needc.d in the next few years and the decade ahead. l Q. What coverage ratios will be required for LP&L to regain its A rating?

A. In order for LP&L to regain its A ratings, it will be necessary to l

improve the bond interest coverage to 2.75x to 3.oox and demonstrate i 1

.l the ability to maintain this coverage range over future periods.

Q. What does this mean in tems of additional revenue requirements?

A. LPL Erwin Ex. 1, Page 1, shows that the Company's construction program for the period 1978 - 1981 totals $1,107,000,000. Page 2 reflects that $971 million of external financing is necessary to provide the funds required during 1978 - 81.

Pages 4 and 5 of LPL Erwin Ex.15 show, on a pro forma basis, the additional revenue that is required to attain coverage ratios at year end of 3.00x. In addition, to the revenue increases required, these pages also reflect the corresponding amount of CWIP/AFUDCincludedata5%AFUDCrate. The additional revenue requirement in 1980 and 1981 to attain coverages of 3.00x is $68.6 million and $118.7 million, respectively.

Q. Let's now address the CWIP issue. How does the inclusion of Construction Work in Progress in the rate base and the inclusion of Allowance for Funds Used During Construction in income affect LP&L?

A. There has been a great deal of discussion about the need for LP&L (as well as all other utilities) to include CWIP in the rate base for determinina utility rates to customers.

Some regulatory bodies, including this Consnission, include CWIP in the rate base determination and allow utilities to include AFUDC as part of income. AFUDC represents " paper earnings" resulting from a bookkeeping entry. In the case of LP&L, this entry is the 1

result of multiplying the amount of CWIP subject to the calculation by an annual rate. The resulting amount is charged to CWIP and a like amount is credited to "Other Income" (AFUDC). Thus, AFUDC is a non-cash item as there is no cash associated with this entry and it is also non-taxable income.

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In recent years inflation, the tremendous increase in l construction costs, the extended periods of construction, the high cost of borrowed money and inadequate cash earnings have caused a swift deterioration in the financial position of LP&L.

Present rates can not cover the higher cost of doing business today as well as providing for the cost of funds to construct the facilities so important to provide for the future reliable service so very necessary for the welfare of our customers and this State.

The limitation on the amount of AFUDC and other income that can be included in the calculation of the Company's times bond interest earned coverage ratio presently excludes $34,561,000.

Q. What is LP&L proposing in this proceeding regarding AFUDC7 A. LP&L has included CWIP in the rate base, and has aliminated all AFUDC.

Thus, LP&L is asking the Commission to substitute "real earnings" in lieu of AFUDC.

Q. Are there any regulatory authoritics that allow CWIP - real earnings?

A. Yes. A large and growing number of regulatory authorities have allowed CWIP - real earnings. This is definitely the trend at this time.

Q. Does the FERC permit all of the CWIP in rate base for companies under its jurisdiction?

A. The FPC, predecessor of the FERC, in its Order No. 555 announced changes in rate making policy regarding investment in plant under construction. In this Order, Mie FPC recognized all CWIP involving ponution control facilities and conversion of existing facilities to conserve gas and oil. In addition, the Commission recognized the severe financing problems of electric utilities with major construction programs. On Pages 12 and 13 of the Order, the dommission stated as follows:

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"The FPC will also per=it, in individual proceedings, inclusion of CRIP in rate base where the utility is in severe financial stress. The financial circumstances that wc. conte = plate are those in which it would be clearly detrimental to utility wholesale customers if some amount of CWIP were not per=itted in rate base. In particular, we envision a situation in which the rate of return necessary to enable the utility to maintain its credit and attract capital in accordance with the standards of the Bluefield decision would be materially in excess of the cost of capital for otherwise similar utilities. Such a circumstance might arise, for example, where the exigencies of the utility's construction program are such as to reduce its interest coverage to such an extent that additianal capital cannot be raised at reasonable rates and that an amount of earnings sufficient to attract capital would require a rate of return on equity substantially in excess of the cost of equity capital to otherwise si=ilar electric utilities. Under such circumstances, it would be to the benefit of the consumer if the additional earnings necessary to attract capital were permitted by way of a return on CWIP rather than by way of an inflated return on the traditional rate base since the former treatment would eventuan y be reflected in a lower rate base by way of reduced AFUDC allowance, while the latter would not."

In its present filing before the FERC, LP&L, because of its severe financing problems, has included all CWIP in the rate base.

Q. Who will benefit from this proposed change?

A. The substitution of revenue from LP&L's customers in lieu of AFUDC will benefit both the customers and the Company.

The customer will realize a lower cost of electricity over the life of the property than he would under the present procedure of capitaH:ing AFUDC because the costs upon which he will be required to pay a return as well as depreciation expense and related income taxes will be lower. There would be no further capitalization of AFUDC on the amount of CWIP included in the rate base and for which LP&L is allowed real earnings from its ratepayers in lieu of such AFUDC. Without these AFUDC accruals, the grosc investment in l

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utility plant would be lover, resulting in a lower rate base e id therefore lower future rates for the customer.

Another i=portant benefit to LP&L's customers is the greater assure.nce that the Company win be financially able to construct the facil4 ties necessary to meet their de= ands for electricity and help assure the expansion of the State's econo =y.

A periodic increase in revenue (in lieu of ANDC) will reduce the full impact on ratepayers when a large generating unit, such as Waterford Unit No. 3, is placed in service. such periodic increases will enable LP&L's customers to adjust to the future cost of electricity and not have them experience an at once the very large ircrease in rates that will be required and must be granted when a large generating unit is placed in service.

'Ihe inclusion of CWIP in the rate base and real ea.%gs in lieu of AWDC win reduce the Company's cost of capital which is one of the major costs of providing service. And, any reduction in the cost of capital win certainly benefit the customer.

'rae Company's cost of capital will be reduced for the following reasons:

(1) Increase in cash flow (2) Improved quality of ea.%gs (3) Improved coverage ratios Since ANDC is a non-cash item, "real earnings" in lieu of ANDC will improve LP&L's cash flow. This increase in cash flow win additionally reduce the amount of external financing required.

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l Tne quality of earnings will be improved. The financial ,

co== unity is greatly concerned about the amounts of AFUDC included '

in utility earnings. The large construction programs and longer construction periods have resulted in AFUDC becoming a larger and larger portion of net income. In the case of LP&L, E. % Ex. 9 shows tbst the annual amount of AFUDC has grown from about

$2,400,000 in 19o9 to more than $45,853,000 in 1979, which is an increase from 13% of net income to 95% of net income. Since AFUDC is looked upon with disfavor by investors, even sometimes called " funny money" or " phantom ea.W s", it does not carry the weight given to cash earnings. The replacement of AFUDC earnings with cash earnings through additional revenue will i= prove the quality of LP&L's earnings and will make the Company's securities more attractive to investors and result in lower cost of capital.

The Company's coverage ratios will be improved considerably.

Under the CoLw's Mortgage, as wall as the Securities and Exchange Comission regulations, as previously noted, earnings for interest coverage include a limited amount of "Other Income" which is made up primarily by AFUDC.

Thus, the replacement of AFUDC with cash earnings will improve the indenture coverage ratio because all of the cash revenue will be included in calculating the coverage since this calculation is on earnings before taxes.

l l

l 4

The replacement of AFUIC with revenue from LP&L's customers will improve the preferred stock coverage ratio as well as the Company's credit-worthiness, and will enable preferred stock to be a more attractive investment. and thus require a lower dividend rate freci investors.

Q. How do you plan to implement the discontinuance of AEUDC as proposed in this proceeding?

A. At the time LP&L is allowed to put increased rates into effect, it will discontinue calculating AFUDC on the amount of CWIP that has been allowed in the rate base and on which it has been granted increased rates.

Q. What do you propose with respect to future application of AFUDC7 A. LP&L proposes to continue sctting up AFUDC on all CWIP on which it is not pemitted real earnings.

Q. Let us turn now to another important topic. Please tell us how regulatory lag affects a company.

A. Certainly one of the serious problems facing electric utility companies and regulators today is that it is almost impossible for a company to earn the rates of return being granted by regulatory ccacc:issions. The problem arises to a large extent because of the use of historical test periods during periods of rising costs. The problem is further magnified by the delay that takes place while the company puts the rste case together and the time that passes after filing an application before the rate proceedings can be held and theadditionaltimerequiredthereaikerforthecommissiontoweigh the evidence and render its decision. This time lag is a very

-21+-

serious problem for electric utility companies because in many instances the rates of return finally granted are on the low end of the range of reasonableness. When a conpany is then unable to even earn this minimm rate of return, its earnings are fur' er depressed and the result is a very serious financial condition.

LP&L is suffering from the effects of regulatory lag.

Mi nimm rates of retum and revenues granted by this Commission based on average rate base for the year 1976were put into effect in late July 1978, over 19 months later and the full effect was not realized until July 1979, over 31 months later. The LPSC in its order No. U-14076 indicated LP&L was entitled to earn 13 25%

on common equity. LP&L's 1980 budget indicates a return of only 11 36%.

The Commission should recognize regulatory lag and compensate for it by allowing revenue requirements to be based on year-end rate base and a forward test year.

Q. Please define attrition.

A. Attrition is the deterioration in the rate of return that a ecmpany is able to earn and results from faster growth in the rate bsse and expenses than in revenues. Inflation, such as we have been experiencing in recent years; is the major cause of attrition.

So long as inflation continues the Commission should include an attrition allowance in making its final revenue deterr.ination.

Q. Will you please describe Erwin Ex. 16, pages 1 and 2.

A. Erwin Ex.16, pages 1 and 2, is the balance sheet of the Company at December 1979 l

)  ;

l Q. Will you please describe what is shown by Erwin Ex.177 l

A. Exhibit 17 shows the co:iined Income and Retained Earnings State- l ments of the Co=pany for the 12 months ended December 31, 1979 Q. Will you please describe what is shown by Erwin Ex.187 A. Exhibit 18 shows electric c1erating revenues, customers and EH sales by revenue class for the 12 months ended December 31, 1979 Q. What is shown by Erwin Ex.197 A. Exhibit 19 shows the revenues and MWH sales to other electric utilities and the purchased power expenses and EH of energy purchased for the 12 months ended December 31, 1979 Q. Will you please describe what is shown by Erwin Ex. 207 A. Exhibit 20 sets forth the sources and disposition of the electric enerEy account in MWH for the 12 months ended December 31, 1979 Q. What does Erwin Ex. 21 show?

A. Exhibit 21 sets forth the original cost of util'ty plant by functional classification of plant at December 31, 1978, the additions and retirements during the year 1979, and the resulting balance at December 31, 1979.

Q. please turn to Erwin Ex. 22 and tell us what it shows.

A. Exhibit 22 sets forth the Accumulated Provision for Depreciation of Ut414 ty plant by functional classifications of plant at December 31, 1978, the depreciation expense and retirements during the year 1979, and the resulting balance at December 31, 1979 Depreciation of transportation equipment, which is included in general plant, has been a14minated and included in operation and maintenmce expenses and other accounts.

Q. What is shown by your Exhibit 23?

A. Exhibit 23 shows the summary of Construction Work in Progress by functional classifications at December 31, 1978, the property additions and transfers during the year 1979, and the resulting balance at Decerber 31, 1979 Q. Will you please describe what is shown in Erwin Ex. 24?

A. Exhibit 24 shows operation and maintenance expenses by functional classifications and MWH supply and requirements statistics for the year 1979 O. What is shown by Erwin Ex. 25?

A. Exhibit 25 shows the payroll expense charged directly to operation and maintenance expenses by functional classification for the year 1979

, Q. Please te12. us what your Exhibit 26 shows.

A. Exhibit 26 sets forth the Taxes Other Than Income Taxes charged to operating expenses for the year 1979 This exhibit also shows property tax by functional classifications and local franchise requirements by revenue classifications for the year.

Q. What does your Exhibit 27 show?

A. Exhibit 27 reflects Net Operating Income and the Rate Base (unadjusted) for the year 1979 and consists of 2 pages. some of the information presented in Column 3 is also on various exhibits mentioned in my previous testimony with the exception of Cash Working Cs.pital included in the Rate Base. Cash working capital as shown on page 2 is equal to 1/8 of the operation and maintenance l expenses excluding fuel and purchased power expenses. The1/8 represents the 45 day formula for cash working capital.

Q. Please explain the pro-foma adjustments included in this filing.

A. Tne pro-foma adjustments included in Erwin Ex. 28 are necessary to update the December 31, 1979 Rate Base and Rate of Return. These adjustments affect Operating Revenues, Operating Expenses, Net Operating Income, Net Plant, Inves 6ent in SFI, Working Capital and of course Total Rate Base.

The major adjustments are as follows: '

(1) 1979-80 Rate Increase. This revenue increase of

$67,512,446 gives effect to annualization of the recent rate increases granted by the LPSC and the CNo.

(2) Sales For Resale Revenue. This decrease in revenue of$22,595,714, and the associated reductions in operationexpensesof$18,410,360 reflects the loss of cooperative and unmicipal customers in 1980.

(3) Capability EquaM ation Expense Increase. This increase in expenses of $38,080,087 is primarily attributable to two new generating units being put into commerciul operation by Al%L which increases the Middle Scuth Systeds tote.1 capability and results in an increase in LP&L's Capability Equalization expense.

(4) Plant Increases. 'lhis adjushent reflects the i

estimated increase in Rate Base of $243,o48,347 in 193C.

l I

Pages 3 and 4 of Erwin Ex. 28 provide detail infomation relative to each of the adjustments.

Q. Would you please summarize your analysis of LF&L's financial condition?

A. LPE's financial condition is such that it could not, as of April 30, 1980, sell any additional bonds or preferred stock. Present estimates indicate that short-term borrowings will reach the ma v4 =m amountauthorizedof$150,000,000 on or before September 30, 1980. Coverage ratios will not improve to the point that LP&L can sell additional bonds and preferred stock before November; and, if the Appeal by the Industrials of the 1979 rate order has not been disallowed by the Courts by November, legal coverages may prohibit thesales of any additional securities in 1980. This v411 put LPE in a very serious financial position. We would have the m*v4== amount of short-tem borrowings outstanding and be in a very critical cash position.

LPE must have substantial rate relief at an early date in order to continue its construction program.

Q. What recourse is available to the Company if an adequate and timely rate increase is not granted?

A. As previously stated, the Company's only alternative would be to shut down its construction program.

The effect of LPE's halting its construction program would be traumatic. 'Ihe workers directly involved with LPE's construction program as well as associated industries would innediately be l

affected. Future power supplies would be in serious jeopardy.

The econcuny of the whole area would suffer.

I plead with this Commission to very carefully and realis-tically ana'.yse this rate application, recognize the real financial condition of this Company and promptly grant the revenue increase requested in this filing.

Q. Does this c:xnplete your testimony?

A. Yes it does.

9

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VERIFICATION STATE OF LOUISIMIA PARISH OF ORLEANS BEFORE ME, the undersigned authority, per-sonally came and appeared J. H. IRWIN, JR. who after by me being duly sworn d:l.d depose and say that the above and foregoing is his sworn testimony in connee-tion with Louisiana Power & Light Coccpany's application for rate relief and that the statements contained therein are true and correct to the best of his knowled6e, information and belief.

. l J. H. ERWIN, JR.

Sworn to and a bscribed before me thi n ". day of

/

~ l' 1 1980. / /

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. ' Notary -

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LOUISI!JIA POWER & LIGHT COMPANY EXHIBITS OF J. H. ERWIN, JR.

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J LPL Erwin Ex. 1 Page 2 of 2 LOUISIANA POWER & LIGHT COMPANY ucutmAL FINANCH!G 1976 - 81

---

-- yi ' l i ons ------------

1978 1979 1980 1981 Mortgage Bonds-Net $125 $100 $ 90 812F Other Long-Term Debt 25 -

(2) (2)

Pollution Control Bonds 4 10 1 -

Preferred Stock -

128 30 -

Comon Stock 50 75 100 75 Bank Loans /Comercial Paper - Net 24 (52) 3_8 27 TOTAL $228

$261 $g $g l

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IDUISIANA FOWER & LIGHT COMPANY

'IOTAL UTILITY PLANT l Millions 1976 - 1981 of

,, Dollars 3000 i $2,610 2500 1

$2.349

$2,069 2000 - _ . . .

, $1,793 l

1500 $1,510 i

$1,30c 1000 . . _ _ _ _ . _ . _ _ . . _ .. . _ . _ . _ _ _ . . _ . . _ .

i 500 _ _ .

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-.. .. .I h 1976 1977 1978 1979 1980 . . . . . _ .1981 n, k.

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LPL Erwin Ex. 3 Page 1 of 4 Louisiana Power & Light Company Interest Coverage on First Mortgage Bonds Calculated in Accordance with Company's Mortgage Twelve Months Ending 12/31/79 12/31/80 12/31/81 (Thousands) 1 Operating Income $ 73,861 $ 96,674 $ 92,7h7 2 Add: Total Operating Taxes 38,727 62,nB 55,431 i

3 (Deduct) Taxes Other Than Income Taxes (15,977) (20,101) (24,152 4 Subtotal (Lines 1-3) 9e,6n 136,691 b,0E) 5 Add Other Income:

• 6 AFUDC 15,131 17,370 18,537 7 Other Income & Deductions 35,642 40,939 h4,108 8 Total other Income (Lines 5-7) 50,773 56,309 o2,o45 9 subtotal (Lines 4 plus 8) 147,364 197,000 16o,o71 10 (Deduct) Excess Other Income (34,561) (38,609) (43,978) n Total Earnings, as Defined $11 '> ,623

$ {5 Jc $142,o93 12 13 Bond Interest Requirements (Annualized) $g $ 77,126 $ 91,101 14 15 Times Bond Interest Earned (Lt.ne H

• 13) M M g 1

• Line 10 shows the amount of Other Income, made up primarily of AFUDC, that cannot be used in calcu-lating the times bond interest earned on line 15 (Limited to a percent of line 9 as shown on this line.) HT, 10#g 10%

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a LPL Erwin Ex. 3 Page 2 of 4 Louisiana Power & Light Company Times Interest Charges and Preferred Dividends Earned Dol.lars in Thousands 12/31/79 12/31/80 12/31/81 Income before interest charges $121,254 $151,094 $151,117 Add Allowance for Borrowed Funds Used During Construction-Cr. 15,131 17,370 18,537 Add income tax effect on annualisation of bond interest 3,962 4,940 4.34 Adjusted inecme before intereat charges (A) $140,347 $173,404 $173,998 Interest requirements:

Total interest charges $56,125 $65,847 $77,415 Add Allowance for Borrowed Funds Used During Construction-Cr. 15,131 17,370 18,537 Add amoun~. to annualize bond interest 8,18E. 10,202 8,972 Adjustea interest charges 79,436 93,419 104,924 Preferred dividends requirements:

Preferred dividends declared 16,749 24,537 27,316 Add amount to annualize preferred dividends 7,057 2,779 -

Adjusted preferred dividends requirements 23,806 27,316 27,316 Total requirer mts (B) $1 M 4j1 $120,735 $132,240 Tines Earner'. (A

• B) 1.36 1.W 1.32 l

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IRL Erwin Ex. 3 Page 3 of 4 Louisiana Power & Li5ht Company Interest Coverage on First Mortgage Bonds By Months 1930 12 Months Ended January 1.60 July 1.97 February 1.67 August 2.12 March 1.73 September 2.20 April 1.70 October 2.31 May 1.84 November 2.35 June 1.83 December 2.05

• i

• Reflects projected sale of $100 million of bonds e n.14

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LPL Erwin Ex. 3 Page 4 of 4 l

Louisiana Power & Light Cot *my Preferred Stock Coverage By Months 1980 12 Months Ended January 1.36 July 1.47 February 1.39 August 1.51 March 1.40 September 1.53 April 1.40 October 1,56 May 1.W November 1.52

• June 1.43 December 1.4 **

• Reflects projected sale of $30 million of Preferred Stock @ 11.7%.

• • Reflects effect of December Bond sale.

LPL Erwin Ex. 4 PaSe 1 of 2 Louisiana Power & Light Company Target Capitalization Ratios i

i I First Mort 6 age Bonds 56.00 Preferred Stock 10.00 Comon Equity 34.00 100.00 i

IDUISIANA POWER & LIGIT COMPANY COMPOSITE COST OF MONEY WR 'lHE YEAR ENDED DECEMBER 31, 1979 (1) (2) (3) (It ) -(5) (6)

Actual Per Books Composite Composite Line Capitalization Costs of Costs of No. Particulars Amount  % of Total Capital Money

$o00  %  %  %

1 First Mortgage Bonds 781,900 49 20 8.165 1.16 4

2 other Long Term Debt 57,017 3.59 5.56 .20 3 Preferred Stock-Without Sinking Fund (including premium of $382,6216 ) 155,883 1

9 18 8.35 .77 le Preferred Stock-With Sinking Fund (including issuance expense of $7,010,100) 6 92,990 5.85 12.60 .74 5 Conanon Equity 487,441 30.67 16.00 4.91 6 Accumulated Deferred Investanent Tax Credits-After 1970 23,998 1.51 10 94 .16 7 Total Capitalization $1,589,229_ 100.r0 10.9ft N

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IOUISIANA POWER & LIGHT COMPANY FUNDS FROM OPERATIONS 1972 - 1981 Millions of Dollars (Millions) 50 . . . . _ . _ _ _ . _ . . . ._ _ . . . . _ . _ . .

$13 6 Io t . . _ _ ....

. .____. __ _. - - $3 9

$37

$35

._$.32 30 I L-.$28 -

l 20

$20 __ _

I 10 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ . ___

46 i

$6

$1 h

0 ! P 1972 1973 19716 1975 1976 1977 1978 1979 1980 1981 h n.

IDUISIANA IOWER & LIGHT COMPANY D4 BEDDED INTEREST RATE ON FIRST MORTUAGE BONDS 1969 - 1979 Percent 10.00 . - . - . - . ... .

9.00 e.oo ----~

7, g _7. 39J .. 7.39% 187.%_

7.00 6.38%

6.17%

6.00 ,

__. 5.78%-..

r-5.9 g 5.49%

5.oc 4.00 .__

3.00 2.00 g T m 1.00 "d

Sb mg o .

1969 1970 1971 1972 1973 1974 1975 1976~ 197/" "'1978 1979 m

LPL Erwin Ex. 6 Page 2 of 2 LOUISIANA POWER & LIGHT C@?AITI DEBT CAPITAL - 30 YEAR FIRST MCRIGAGE BoKDS(1)

AT DECEMBER 31, 1979 (1) (2) (3) (4) (5)

Weighted Year Interest Average Amount Issued Rate Due Date Cost of Debt outstanding 5  % $

1950 3 80 3.o1 9,900,000 1954 3-1/8 1 , B4 3.o5 18,000,000 1957 h-3/4 87 3.51 20,000,000 1960 5 90 3.82 20,000,000 1964 4-5 8 94 3.99 25,000,000 1966 5-3 4 3 96 4.38 35,000,000 1967 5-5 8 97 4.49 16,000,000 1%7 6- 2 9 97 4.68 18,000,000 1968 7-1 8 3 98 5 06 35,000,000 1969 9-3 8 99 5.'49 25,000,000 1970 9- 8 2000 5.78 20,000,000 1971 7- 8 4 5 95 25,000,000 1972 7- 2 2002 6.07 25,000,000 1972 7- 2 2002 6.17 25,000,000 1973 8 6.38 45,000,000 1974 8-3 4 3 2004 6.62 45,000,000 1974 9- 2 1(1) 7 07 50,000,000 1975 9- 8 983(1 7.29 50,000,000 1976 8-3 4 2006 ) 7.39 40,000,000 1978 9 986(1) 7 59 75,000,000 1978 10 2008 7.87 60,000,000 1979 lo- 8 5 9(1) 8.06 45,000,000 1979 13-1 2 2009 8.46 55,000,000 Total 781,900,000 Note: (1) 9- 2% Series dae 1981 seven year bands.

9-3 8% Series due 1983 and 9% Series due 1986 eight year bonds.

10-7/8% Series due 1989 ten year bonds.

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IDUISIANA POWER & LIGHT COMPANY

• EMBEDDED DIVIDEND RATE ON PREFERRED STOCK Percent 1969 - 1979 i

12.00 i u.00 !.

10.00 10.01%-

9.00 8.00 ._ ._. . ._ . ._

g 7.00 6.56% 6.56% 6.56%

6 101, J ,284 6.2tX l 6.00 42 51%

5 00 4.00 _ _ . . . _ , _ _ _ _ _ _ . _ . . . ._ . _ _ _ _ . _ _ . . _ .._-.. _ . _ . . .

3.00 s 2.00 1.00 g 0 %str

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1969 1970 1971 1972 1973 1974 1975 1076 1977 1978 i{ff9 ' H[

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LPL Erwin Ex. 7 Page 2 of 2 LOUISIANA PCMER & LIGHT COMPANY ymndBD STOCK CA? ITAL - $100 PAR VALUE AT DECDGER 31, 1979 (1) (2) (3) (4) (5)

Weighted Date of Did dend Number Cost of Amount Issue Rate of Shares Preferred outstamM ng 4 53 4.96 60,000 4.98 6,000,000 3 54 4.16 70,000 4.54 7,000,000 3 56 4.W 70,000 4.51 7,000,000 59 5 16 75,000 4.69 7,500,000 67 5.40 80,000 4.85 8,000,000 8 67 6.4 80,000 5.15 8,000,000 770 9 52 70,000 5 75 7,000,000 4 71 7.84 100,000 6.10 10,000,000 72 7.36 100,000 6.28 10,'00,000 74 8.56 100,000 6.56 10,000,000 11 77 9.W 300,000 7.35 30,000,000 79 11. 4 350,000 8.35 35,000,000 79 10.72 2,400,000(1) 9.18 60,000,000 lo 79 13.12 1,600,000(1) 10.01 40,000,000 Total 2h5,500,000 (1) $25 Par Value i

l l

IDUISIANA l'0WER & LIGIT CQ4PANY ,

j RATE OF RETURN ON COMMON EQUITY-YEAR END 1969 - 1979 Percent

, 15.00

. _.1LE

13.82 13.25 13.30 12.82 12.7, 1 12.50 10.60 _10263-- 10.56 MM 10.23 10.59

- - - - - 10 22 10.00 ----- '

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1969 1970 1971 1972 1973 19716 1975 1976 1977 1978 1979 h

tn Including A WDC Without AWDC m.

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LPL Erwin Ex. 10 Paga 1 of 13 UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION February 16, 1936 HOI. DING COlfPANY ACT OF 1933 Release No.13103 ADOPTION OF STATEMENT OF POUCY REGARDING FIRST MORTGAGE BONDS SUBIECT TO THE PUBUC UTIUTY HOLDING COMPANY ACT OF 1935 The Securities and Exchange Commission has adopted a Statement of Policy setting forth the requirements which it considers should be met by indentures securing 6tst mortgage bonds of public utility companies subject to the Public Utility Holding Company Act of 1933.

The Statement of Policy has been adopted pursuant to Sections 6(b),7 and 20(a) of said Act.

Notice of the proposal to adopt a Statement of Policy regarding such 6rst mortgage bonds and an invitation to submit views and comments thereon were published on 11ay 23,1934 (Holding Company Act Release No.12507). Thereafter, views and comments were received in writing from interested persons. After considering such views and comments, the Com-mission determined that the pre. posed Statement of Policy should be adopted with certain modi 6 cations therein. The Statement of Policy shall be applicable to app;ications or declara.

tions filed after Afarch 31, 1936. The text of the Statement of Policy is attached.

By the Commission.

OsvAL L. DuBots (Sr.AL) Secretary STATEMENT OF POUCY REGARDING FIRST MORTGAGE BONDS SUBIECT TO THE PUBUC UTIUTY HOLDING COMPANY ACT OF 1935 The Securities and Exchange Commission in acting upon applications under Section 6(b) and declarations under Section 7 of the Public Utility Holding Company Act of 1933 filed in respect of issues of first mortgage bonds of public-utility companies has required issuers to include in indentures various protective provisions.

There has not heretofore been published by the Commission any rule or de6nitive state-ment of policy setting forth the standards against which it judges the adequacy of proposed indenture provisions. The Commission believes that such a statement would be in the pabiic interest, and accordingly has formulated the standards set forth herein. The Commissior; will compare indentures submitted by issucts with these standards in considering (1) whether to impose terms and conditions in granting applications 61cd under Section 6tb) or (2) whether to make adverse findings in respect of declarations pursuant to Section 7(d). Where the Commission finds that a particular standard should be complied with, but it is impracticable to include such standard in the indenture, the Commission will impose the standard as a I condition in the Commission's order.

(Bulletin No. 23, 5-10-36) .,,. 6 c. .m . c a.. c.

LPL Erwin Ex. 10 Page 2 of 10 l l

802 Holding Company Act Statement of Policy The Commission realizes that deviations from these standar<1s should be permitted in appropriate cases. It also realizes that in most cases securities subject to Sections 6 and 7 of the Act will be issued under existing indesres and th- to require irsuers to conferm existing indentures to such standards would in some cases produce harsh results and in other cases add needless complexity to the issuer's problem of complying in respect of several series of bonds with varying provisions reletmg to the same subject matter. The Commission is mindful of the fact that most securities presently outstanding under such existing inden-tures were issued after the examinatinn of the indenture by the staff of the Commission and in many cases after the making of changes therein on recommendation of the staff or the Commission. Moreover, substantial amounts of such securities were purchased by and are held by experienced investors and such securities enjoy favorable ratings in the pubhc markets.

The Commission therefore has determined that in most cases it would not be inconsistent with protection of the public interest and the inte *st of investors and consumers to permit the issue of additional securities under an existing indature if (1) the Commission has here-tofore permitted a declaration for the issuance of secudties under such indenture to become efeerive imder Section 7 or has heretofore granted an exemption with respect thereto under Section 6(b) and (2) the additional securities will be subject to substantially the same pro-tective provisions as the most recently issued outstanding securities of the issuer. However.

the Commission may suggest changes in an existing indenture to comply with one or more of the proposed standards if by reason of changed or unusual circumstances the probable results of applying the provisions of the existing indenture would in the Commission's opinion require the making of adverse Endings und-r Section 7(d) cr the imposition as a condition to granting an exemption under Section 6(b) T a requirement that such changes h made.

Moreover, since cach supplemental indenture in respect of an additional series of bonds usually involves the restriction of additional su plus, all indenture provisions dealing with that subject will be examined for substantial conformhy with the s.andards hereinafter prescribed. As indicated in the standards, the Commission may permit the amount of carned surplus remaining unrestricted to be larger than one year's dividend requirements on preferred and cocunon stocks if the issuer demonstrates to the Commission that the payment of such larger amotmt to the common stockholders would not materially and adversely affect existing capitalization ratios or otherwise be inconsistent with the protection of the holders of the securities in the light of the ratio of mortgage debt to net fixed property.

The r'ommission is interested in ascertaining whether the amunt to be expended anrma!!:

for property additions in compliance with the provisions of existing indentures is a reasonVMe annual requirement in relation to the book cost and estimated useful life of depreciable mortgaged property In connection with declarations or applications in respect of additional bonds, the Commission will not, prior to July 1,1956, require changes in existing eJauses relating to renewal and replacement of mortgaged property. Thereafter the Commission will require a showing, on the basis of studies by the issuer, that the existing provisions for renewal and replacement are substantially equivalent to of greater than such amount as would reasonably be required under the standards hereinafter set forth for new indentures.

Neither the renewal and replacement fund requirements nor the sinking and improvement fund requirements, as set forth in this Statement of Policy, will be required to be applied retroactively.

FIRST MORTGAGE BOND INDENTURE PROVISIONS The Indenture as supplemented (the Indenture) of the issuer (the Obligor) of the bonds to be authenticated and delivered smder the Indentu e sha!! provide that the bonds can be called by the Obliger for redemption at any time upon reasonable notice and with reason-able redemption premiums, if any.

i

..esu enmvm. co me. (Bulictin No. 23, 5-10-56) l l

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LPL Erwin Dc. lo l Paga 3 of lo  !

stat. ment of Polley Holding Company Act 803 The Indenture shat! centain provisions which shall not be less favorable to the holders of the bonds than the following:

Issucence of Additional Bonds (a) Additional bonds may be authenticated and delivered under the Indenture in a principal amount not in excess of (1) a like amount of cash deposited with the Indenture Trustee; (2) a like principal amount of retired bonds; or (3) sixty per centum (60%) of the bondable value of net property additions; pravided that net earnings available for the payment of interest during any twelve (12) consecutive calendar months during the period of fifteen (15) calendar months immediately preceding the first day of the month in which application is made to the Indenture Trustee for the authentication and delivery of such additional bonds shall be at least equal to twice the annual interest requirements on all bonds authenticated and delivered under the Indenture and prior lien obligations which will be outstanding immediately after the authentication and delivery of such additional bonds. Notwithstanding any of the foregoing. no earnings test need be met if such additional bonds are to be authenticated and delivered solely for the purpose of refunding an outstanding series of bonds issued under the Indenture or prior lien obligations, bearing a higher interest rate than such additional bonds, or for refunding an outstanding series of bonds issued under the Indenture or prior lien obligations within two years of maturity.

Sinidag crnd Improvement Fund (b) The Indenture sha!! have the effect of requiring the Obligor to deposit annually with the Ir. denture Trustee an amount of cash equal to not less than one per centum (1%)

of the aggregate principal amount of bonds of a!! series authenticated and delivered under the Indenture. Such requirement may, at the option of the Obligor, be stated separately for each series of bonds or be stated on an omnibus basis for all series.

(c) In determining the aggregate principal amount of bonds of af series authenticated and delivered under the Indenture, there may be excluded (1) a series of bonds which has been retired, if the sinkicg and improvement fund with respect thereto was operative only so long as such series was outstanding; (2) in a!! ether cases, bonds authenticated and delivered under the Indenture on the basis of retired bonds; (3) bands authenticated and delivered under the Indenture which have been redeemed or purchased by the application of moneys deposited with the Indenture Trustee in con.

nection with releases of property or on account of the damage or destruction of property; and (4) bonds authenticated and deliured under the Indenture which have been pledgert f.i secure indebtedness of the Obligor but which have not otherwise been issued to the l

public.

l (d) In lieu of cash, the Obligor at its option may apply against the sinking fund require.

ment an amount equal to (1) the principal amount of retired bonds; or (2) sixty per centum (60%) of the bondable value of net property additions.

(e) The Obligor shall be required to meet its initial obligation under the sinking and improvement fund relating to the series of bonds to be authenticated and delivered under the Indenture not later than twenty inree (23) months from the date of said series of bonds.

(Bulletin No. 23, 5 10-56) men m.mme co., =c.

e .

LPL E2 vin Ex.10 Page !+ of 10 804 Holding Company Act Statement of Policy Renewal and Replacement Fund (f) The Obtigor shall expend annually for property additions an amount which the Obligor has demonstrated to the Comminion is a reasonabte annual requirement for the replacement of the book cost of depreciable mortgaged property of the Obligor which amount shall be expressed in terms of a percentage of said book cost. Such annual expenditure requirement may be satisfied, in whole or in part, by expenditures for property additions made in a previous period.

(g) If the Obligor shall have failed to satisfy such annual expenditure requirement, the Obligor shall deposit cash with the Indenture Trustee to the extent of such deficiency; pro-vided, however, that the amount of cash required te be deposited may be reduced by an amowit equal to the principal amount of retired bonds.

Limitation on Dividends (h) The Obligor sha!! not (1) declare any dividends or make any distributions in respect of outstanding shares of its common stock (other than dividends in shares of its common stock); or (2) purchase or otherwise acquire for value, either directly or indirectly through a subsidiary, any outstanding shares of its common stock otherwise than in exchange for or out of the proceeds from the sale of other shares of its common stock if the total amount of such dividends. distributions, purchases and acquisitions (all of which are hereinafter in this paragraph embraced in the mord "drvidends"), together with all other such dividends subsequent to the date of the series of bonds to be authenticated and delivered under the Indenture, exceeds, withc,ut giving effect to any of such dividends, or to any net transfers from earned surplus to stated capital accounts, the sum of (i) the earned surplus accumulated since said date, (ii) an amount equal to appeoximately the current annual dividend payments on the outstanding shares of preferred stock and common stock of the Obligor (including any shares then proposed to be issued), and (iii) such additional amounts the payment of which the Obligor has demonstrated to the Commission would not materially and adversely affect existing capitalisation ratios or otherwise be inconsistent with the protection of the holders of the securities of the Obligor in the light of the ratio of mortgage debt to net fixed property.

Property Additions subject to a Prior Lien and ,

Prior Lien Obligations (i) Property additions which are subject to a tien prior to the lien of the Indenture may be used by the Obligor for any purpose under the Indenture provided that there is deducted ima the amount of such property additions an amount at *a t equal to 166H% of the principal amount of outstanding prior tien oMigations secured by such prior lien and such other deductions as may be regtvired under the Indenture and provided, further, that i8 uch proper y additions are used as the basis for the authentication and delivery of bonds ww the Indenture or the withdrawal from the Indeuture Trustee of cash made the basis for the authentm:stion and delivery of bonds under the Indenture, there sha!! be deposited with the Indenture Trustee (unless the issuance and deposit thereof are invalid) a principal amount j of prior Iien obligations not theretofore issued under the prior tien lastrument at least equal i to the principal amount of such bonds or cash.

(j) From and after the date of acquisition by the Obligor of property additions subject to a prior tien, prior lien obligations may net b issued under the instrument establishing such prior lien except for the purpose of delivery to the 1:xlenture Trustee, awea6 m.m co..me. (Bulletin No. 23, 5-10-56)

. . LPL Erwin Ex. 10 Pa p 5 of 10 Statement of po!!ey Holding Company Act 805 (k) After dedurtion shall have been made as et forth in paragraph (i) above on accos=t of any outstanding prior tien obligations, the Obligor may use such prior tien obligatior-upon the deposit thereof with the Indenture Trustee or their payment, redemption or retiu ment, for the same purposes under the Indenture and to the same extent that retired bonds may be used.

Definitions cmd Miscellcmeous (1) The amount of property additions shall be the cost to the Obligor or the fair value to the Obligor, whichever is less, of gross property additions. The fair value may be deter-mined either as of the date of acquisition or the date of certincation to the Indenture Trustee, whicherer is appropriate in the light of other provisions of the Indenture.

(ta) The bondable value of net property additions shall be determined after excluding or deducting from the amount of property additions an amount of property additions equal to the greater of retirements (less credits for cash or other substitutions) or the amount required to be expended for property additions pursuant to the renewal and replacement fund.

(n) To the extent property additions, cash, bonds, retired bonds, prior lien obligations and other property have, under a particular provision of the Indemure, been mr.de the basis of a credit or for action by the Indenture Trustee, they may not be made the basis of a credit or for action by the Indenture Trustee t=ader another provision of the Indenture. The pro-visions of this paragraph are designed to prohibit duplication of credits but they are not intended to preclude, for example, the certification of property additions (to the extent not theretofore used as the basis of a credit or for action by the Indenture Trustee) for the release of propeny additions which were likewise not so used and the subsequent inclusion of the property add;tions so ecrtified in the computation of the bondable value of net property additions.

(o) Bonds authemiested and delivered under the Indenture and prior lien obhgations which in either case have been purchtsed or retired with moneys or other property consti-tuting a part of the trust estate under the Indenture sha!! not be used by the Obligor for any purpose under the Indemure except as otherwise herein provided.

(p) Retired bonds shall mean bonds authenticated and delivered under the Indenture which have been paid at maturity or upon redemption or have been purchased or otherwise acquired.

and have been surrendered to the Indenture Trustee and cancelled or for which funds are held by the Indenture Trustee for any of such purposes; provided, however, that retired bonds shall not include bonds theretofore authenticated and delivered under the Indenture which have been retired with moneys or other psoperty constituting part of the trust estate under the Indenture.

(q) The net earnings of the Obliger available for the payment of interest shall be the amount of income remaining after deducting from the gross operating revenues of 't.e Obliger all operating expenses of the Obligor including depreciation and taxes (other than taxes based on income) and after adding or deducting, as the case may be, net non-operating income ur loss. The amount of net non-operating income or loss to be taken into account shall not exceed ten per centum (10%) of the balance of income remaining before consideration of such I net non-operating income or loss.

l (t) Any amounts representing amortization of e!cctric or gas plant acquisition adjustments charged to income or charged to earned surplus in lieu of income shall be deducted in the I

l computation of earnings available for the payment of interest only to the extent that the current provision for depreciation with respect to depreciable property shall be insufficient to l

permit the write-off of depreciable property (together with amounts classikd as plant acquisi-tion adjustments) at the expiration of the estimated useful life thereof.

(s) If the renewal and replacement fund requirement sha!! exceed the amount required to be deducted on account of depreciation plus the amount. if any, required to be deducted in (Bulletin No. 23, 5 10-56) m.a ne . e . .

LPL Erwin Ex. 10 Page 6 of 10 806 Holding Company Act Statement of Policy accordance s Ith par: graph (t) above, such excess shall alw be deducted in the computation of earnings anilable for the payment of interest (t) Earned surplus which has been restricted in respect of the paymcar of dividends on, or the making of distributions with respect to, or the acquisition of, outstanding shares of the common stock of the Obligor may be debited or credited in respect of items inherent in the enterprise at the date as of which such earned surplus was restricted and debited in respect of transfers to capital.

(u) For purposes of determining earned surplus accumulated after the date as of which earned surplus shall have been restricted, there shall be included as charges applicable to the period subsequent to such restriction date the dividends on the outstanding shares of the pre-ferred stock of the Obligor accruing subsequent to said date and the amount, if any, by which the aggregate of the expenditures required to be made by the Obligor subsequent to said date for property additions pursuant to the renewal and replacement fund shall exceed the aggre-gate for said period of (1) the provisions made on its books of account in respect of depreciation; and (2) amounts representing write-off, amortization, or provision for reserves in respect of plant acquisition adjustments, whether accounted for through the mcome account or through the earned surplus account, to the extent that such amounts pertain to items not inherent in the enterprise prior to the date as of which earned surplus has been restricted.

(v) In appropriate cases, the provisions of the Indenture may be drawn so as to permit tle see of consolidated data in complying with the requirements of the Indenture.

Trust Indenture Act Provisions (w) h*one of the provisions of the Indenture shall be in contravendon of provisions re.

quired to be included pursuant to Sections 310 to 317 of the Trust Indenture Act of 1939, in indentures quali6ed under said Act.

am sa6 m.m . ca . c. (Bulletin No. 23, 5-10-56)

LPL Erwin Ex. 10 Page 7 cf 10 807 UNITED STATES 07 AMERICA before the SECURITIES AND EXCHANGE CObD4ISSION February 16, 1936 HOLDING COMPANY ACT OF 1935 Release No.13106 ADOPTION OF STATEMENT OF POUCY REGARDING PREFERRED STOCK SUBJECT TO THE PUBUC UTIUTY HOLDING COMPANY ACT OF 1935 The Securities and Exchange Commission has adopted a Statement of Policy setting forth the requirements pertaining to preferred stock of public utility companies subject to the Public Utility Holding Company Act of 1933 The Statement of Policy has been adopted pursuant to Sections 6(b),7 and 20(a) of said Act.

Notice of the proposal to adopt a Stateraent of Policy regarding such preferred stock and an invitation to submit views ar.d comments thereon were published on May 25,1934 (Holding Company Act Release No.12308). Thereafter, views and comments were re:eived in writing frorn interested persons. After considering such views and comments, the Commission deter-mined that the proposed S*stement of Policy shou *d be adopted v.ith certain modincatiens thereirt The Statement of PoIIcy shall be applicable to applicat;ons or declarations Eled after March 31, 1956. The text of the Statement of Policy is attached.

By the Commission.

ORTAt. L. DuBors iSr.ht-) . Secretary STATEMENT OF POUCY REGARDING PREFERRED STOCK SUBJECT TO THE PUBUC UTIUTY HOLDING COMPANY ACT OF 1935 The Securities and Exchange Commission in acting upon applications smder Section 6(b) and declaradons under Sc tion 7 of the Public Utihty Holding Company Act of 1933 filed in respect of issues of preferred stock by public-utility compar.ies has required issuers to include various protective provisions in charters, by-laws or related instruments (hereinafter referred to as " charters").

There has not heretofore been published by the Commission any rule or definitive state-meat of policy setting forth the standards against which the Commission judges the adequan nf su-h provisions. The Commission batieves tht such a statement would be in the public interest and accordingly has formulated the :tandards set forth herein. The Commission will compare charters submitted by issuers with these standards in considering (1) whether to impose terms and conditions in granting applications nled under Section 6(b) or (2) whether to make adverse findmgs in rest /.ct of declarations pursuant to Section 7(d). The Commis-sion recognizes that deviations from these standards should be permitted in appropriate cases.

(Bulletin No. 23, 5-10-56) ma n vm. co ..,c,

\

=

5

1 \

l 1

LPL Ervin Ex. 10 Page 6 of lo i

Holdine company Act stat.mont el Policy 808 in many cases a new series of preferred stock will be issued under existing charter pn-visions which prescribe the rights, preferences and prisileges of the class of stock of wl.ich the new series is a part. In such a case, if the existing charter provisions do not conform substantially to the standards set forth herein, and if the issuer should decide that it would be unduly inconvenient or impracticable to convene a meeting of its stockholders prior to the issuance of the new series for the purpose of amending its charter to effect compliance with the standards, the Commission would expect to apply the standards by the imposition of a condition to that effect in its order permitting the issuer's declaration to become effective or granting its application for exemption. The condition would be drafted to operate only so long as the issuer's charter was not amended to comply with the standards. The Cce-nission.

however, would expect the issuer to present such an amendment to hs stockholders for approval on the next date on which a meeting of stockholders was being held for any other purpose.

PREFERRED STOCK CHARTER PROVISIONS The charter of the issuer (the Corporation) of the preferred stock (meaning the class under consideration) shall previde that the dividends on such stock sha!! be cumulative, and that such stock can be called by the Corporation for redemption at any time upon reasonable notice and with reasenable redemption premiums, if any.

The terms and provisions of the preferred stock shall not be less favorable to the holders thereof than the following:

Rights of Holders of .he Preferred Stock to Elect Directors (a) If and wher dividends on any series of the preferred stock shall be in arrears in an amount equal to four full quarter-yearly ppnents or more per share, the holders of all series of the preferred stock voting together as a class shall be entitled to elect the smal!*st munber of directors necessary to constitute a majority of the full board of directors until such time as all dividend arrears on the preferred stock shall have been paid or declared and set apart for payment.

(b) Whenever the right' to elect directors shall have accrued to the holders of the preferred stock, the proper of5cers of the Corporation shall call a meeting for the election of directors, such meeting to be held not less than 43 days and not more than 90 days after the accrunt of such right.

Issuance of Securities Representing Unsecured Debt (c) Without the consent of the holders of at least a majority of the total msnber of shares of the preferred stock outstanding, the Corocration may not issue or assitne any umecured notes, debentures or other securities representing imsecured debt (other th.n for the purpose of refunding or renewing outstanding unsecured securities issued or asstuned by the Corporation resulting in equal or longer maturities or redeeming or otherwise retirg*

all outstanding shares of the preferred stock) if immediately after such issue or assumption (1) the total outstanding principal amount of all unsecured notes, debentures or other securi-ties representing unsecured debt of the Corporation will thereby exceed 20% of the aggre-gate of all existing secured debt of the Corporation and the capital stock, premiums thereon, and surplus of the Corporation, as stated on its books, or (2) the total outstanding prin-cipal amount of all unsecured nctes, debentures or other securities representing unsecured debt of the Corporation of maturities of less than 10 years will thereby exceed 10% of such aggregate.

l (d) For the purpose

• of paragraph (c) above, the payment due upon the maturity of

' imsecured debt having an original sin;;te maturity in excess of 10 years or the payment due upon the final maturity of any imsecured serial debt which had original maturities in excess of 10 years shall not be regarded as unsecured debt of a maturity of less than 10 years until l

such payment shall be required to be made within 3 years.

u,ea ==vm. co me. (Bulletin No. 23, 5-10-56)

l

. . LPL Erwir2 Ex. l')

Pcga 9 of lo r l l

Statement of Policy Holding Company Act 809 Limitation on Junior Stock Dividends (e) The Corporation shall not declare any dividends or make any distributions in respect of outstanding shares of any stock (herein called junior stock) of the Corporation ranking junior to the preferred stock as to. dividends or assets, other than dividends in shares of junior stock, or purcl ase or otherwise acquire for value any cutstanding shares of junior stock (each such dividend, distribution, purchase or acquisition being herein called a junior stock dividend) in contravention of the folowing:

(1) If and so long as the junior stock equity at the end of the calendar month imme-diately preceding the date on which a dividend on the junior stock is declared is, or as a result of such dividend would become, less than 207, of total capits.lzation, the Cor-poration shall not dd.s such dividends in an amount which, together with all other dividends on the junior stock paid within the year ending with and including the date.

on which such dividend is payable, exceeds 507, of the net income of the Corporatica available for dividends en the junior stock for the twelve full calendar months imrce-diately preceding the calendar month in which such divid,ds are declared, except in en amount not exceeding the aggregate of dividends on the junior stock which under tht restrictions set forth above in this subdivision (1) could have been, and have not been, declared; a d (2) If and so long as the junior stock equity at the ett of the calendar month immediately preceding the date on which a dividend on junia stock is declared is, or as a result of such dividend would become, less than 2% ist not less than 207, of total capitalization, the Corporation shall not d-clare divid:nds on the junior stock in an amount which, toothrr with all other dividends on the junior stock paid within the year ending with and including the date on which such dividend is payable, exceeds 75f of the net income of the Corporation anilable for dividends on the junior stock for the twelve full calendar months immediately preceding the calendar month in which such dividends are declared, except in an amount not exceeding the aggregate of divi-dends on the junior stock which under the restrictions set forth above in subdivision (1) and in this subdivision (2) could have been, and have not been, declared.

(f) As used herein, " junior stock equity" sha!! mean the aggregate of the par value of, or stated capital represented by, the outstuding shares of junior stock, all earned surplus, capital or paid-in surplus, and any premiums on the junior stock then carried on the books of the Corporation, less (1) the excess, if n, of the aggregate amount payable on involuntary liq,idation of the Corpor. ' upon all s utstanding shares of preferred stock of the Corporation of all classes over the sum of (i) the aggregate par or stated value of such shares and (ii) any premiums thereon; (2) any amounts on the 'aooks of the Corporation known, or estimated if not known, to represent the excess, if any, of recorded value over original cost of used or useful utility plant; and (3) any intanglie items set forth on the asset side of the balance sheet of the Corporation as the result of accounting convention, such as unamortized debt discount and expense; provided, bewere, that no deductions shall be required to be made in respect of items referred to in subdir'iions (2) and (3) of this paragraph (f) in cases in which such items are being amortized or are provided for, or are being provided for, by reserves.

(g) As used herein " total capi %Iization" sha!! mean the aggregate of (1) the principal amount of a!! outstanding indebtedness of the Corporation maturing more than 12 months after the date of issue thereof; and (2) the par value or stated capital represented by, and any premiums carried on the (Bulletin No. 23. 5-10 56) . a ... m co inc.

L?L Erwin D:.10 Page 10 of 10 810 Holding Company Act Statement el Policy Looks of the Corporation in respect of, the outstanding shares of all classes of the capital stock of the Corporation, earned surplus, and capital or paid-in surplus, less any amounts required to be deducted pursuant to subdivisions (2) and (3) of paragraph (f) above in the determination of junior stock equit:.

Merger or Consolidation (h) Without the consent of the holders of at least a majority of the total number of shares of the prefened stock outstanding, the Corporation sha!! not merge or censolidate with or into any other corporation or sell or otherwise dispose of all or substantially all of its assets unless such merger, consolidation, sale or other disposition or the issuance or assumption of securities in the efectuation thereof shall have been ordered or approved under the Public Utility Holding Company Act of 1935.

Alteration of Preferred Stock Provisions (i) Without the consent of holders of at least two-thirds of the total number of shares uf the preferred stock at the time outstanding, the Corporation shall not amend, alter, or repeal any of the rights, preferences or powers of the holders of the preferred stock so as to afect adversely any such rights, preferences or powers; provided, liowever, that if such amendment, alteration or repeal afects adversely the rights, preferences or powers of one or more, but not all, series of prefened stock at the time outstanding, only the consent of the holders of at least two-thirds of the total number of outstanding shares of all series so afected shall be required: and provided, further, that an amendment to increase or decrease the authorized amount of preferred stock or to create or authorize, or increase or decrease the amount of, any class of stock ranking on a parity with the outstanding shares of the preferred stock as to dividends or assets shall not be deemed to affect adversely the rights, preferences or powers of the holders of the preferred stock or any series thereof.

Issuance of Additional Preinrred Stock (j) (1) Without the consent of the holders of at I ast two-thirds of the total number of shares of the preferred stock outstanding, the Corpore. ion shall not create or authorize any shares of any class of stock ranking prior to the prefened stock as to dividends or assets or issue any shares of any such prior ranking stock more than 12 months after the date as of which the Carporation was empowered to create or authortze such prior ranking stock.

(2) Wit mut the consent of the ho!ders of at least a majority of the total number of shares of th* preferred stock outstanding, the Corporation shall not issue any additional shares, or reistue any reacquired shares, of prefened stock or of any other class of stock ranking on a yrity with the outstanding shares of the preferred stock as to dividends or assets for any pepose other than to refmance an equal par nrwnt or stated value of pre-ferred stock or o. **xk ranking prior to or on a parity w3h the preferred stock as to l

dividends or assets at the time outstanding, unless I

(i) the gross income of the Corporation (after all taxes including taxes based on income) for' 12 consecutive calendar months within a period of 15 calendar months immediately preceding the calendar month of such is:,uance is equal to at least 1H l times the aggregate of the annual interest charges on indebtedness of the Corpor stion (excluding interest charges on indebtedness to be retired by the application of ceeds from the issuance of such share.t) and the annual dividend Arequiremen:p nn all pro-preferred stock (including dividend requirements on any class of stock rar: king prior to or on a parity with the shares to be issued, as to dividends or assets), which will be outstanding immediately after the issuance of such shares; and I (ii) the aggragate of the junor stock equity is at least equal to the . aggregate amount payable in comwetion with nn involuntary lituidation of the Corporttion with a

. esas emi=v,wo co enc. (Bullet.n Nc6 23, 5-10-56)

I

LOUIGI/.i PCTM.n & LIG!!T CC'! patty LPL Erwln Ex. 11 I Puce 1 or 3 Execrpt from LivL'c crir.inal Mortenr,c .

nnd Decd er*1Tuat 339

, (S) its other income (net);

(D) the sum of the ammmis required to be stated in such certificate by clau.w., (7) and (S) of thi.s Section; (10) the ann,unt,if any, by which the aggregate of (a) such other income (net) and (b) that portion of the amount required

, to be stated in .uch certiScale by elause (7) of this Section which,in the opinion of the . signers,'is dircelly derived from the operations of property (other than paving, grading an 2 other improvements to, under or upon public highways, brid.:es, parks cr other pt:blic properties of analogous character) not subject

' to the Lien of this Indenture at the date of such certifcate, exceeds fifteen per centum (15?) of the sum required to be stated by clause (D) of this Section; provided, however, if the amount required to be stated in such certidente by clause (7) of this Section inehtdes revenues from the operation of prop- '

crty not subject to the Lien of this Indenture, there shall be included in the calculation to be mad' e pursuant to this clause (10) such reasonable interdepartmental or interproperty reve-nues and expen es between the .'Jurigaged and I' led;cd Property .

and the property not cubject to the Lie a hereof as shall be allo.

cated to such respective p 'perties by the Company; and -

(11) the Adjuited Net Earnings of the Company for such peri 6d of twelve (12) consecutive calendar months (being the .

amount remaining after deducting in such certificate the muount required to be . stated by clau.<c (30) of this Section from tbc sum required to be stated by clause (0) of this Section);

(B) the .\nnual Interest licquirements, being the interest requirements for twelve (12) months upon:

(i) all bonds Outstanding hereunder at the date of such certificate, except any for the refnuding of which the bonds

, applied for are to be i.uned; (ii) all bouis then applied for in pending applications, .

including the application in connection with which such certifi.

ente is made; l

l -

,i .

Louisiana Power & Light Co=pany LPL Erwin Ex. 11 l Excerpt fran LP&L's Twenty-Sixth Page 2 of 3 3

Supplemental Indenture l

i 27 Szerrox 5. So long as any bonds of the Twenty-fifth Series shaII remain Outstanding, in each Net Earning Certificate made pursuant to l Section 7 of the Mortgage there shall be included in operating expenses for the twelve (12) months period with respect to which such certificate is made an amount, if any (not otherwise included), equal to the pro.

g visions for amortization of any amounts included in utility plant acqui.

i sit,on adjustment accounts for such period.

1 Szerrow 6. So long as any bonds of the Twenty-fifth Series shall

' remain Outstanding, subdivision (2) of Section 7 of the Mortgage is hereby amended by adding thereto the following words "provided, further, that the amount so included in such operating expenses in lieu i of the amounts actually appropriated out of income for retirement of I the Mortgaged and Pledged Property used primarily and principally t

in the electric, gas, steam and/or hot water utility business and the Company's automotive equipment used in the operation of such prop-

' arty shall not be less than the amaunts so actually appropriated out of income".

! Sacrrox 7. So long as any bonds of the Twenty-fif6 Series shall 1

remain Outstanding, clause (5) of subsection (I) of Section 39 of the Mortgage is amended by deleting the word "expenditeres" from the i first line of such clause (5) and inserting in lien thereof the words " net I

cash expenditures (after reflecting salvage) made". -

Sacrior 8. Section 55 of the Mortgage, as heretofore amended, is

hereby further amended to insert the words "and subject to the pro-

' visions of Section 2 of the Twenty-sixth SupplementalIndenture dated

, as of May 1,1979", after the date " July 1,1978".

Sacrrox 9. Efective with and apvlicable to the applic< don to the Corporate Trustee for the anthenticatiou and delivery of th6 Srst d 3 of bonds created after January 31,1980, or such later date as shaU oo authorized or approved by the Securities and Exchange Commisaion, or by any successer comminsion thereto, under the Public Utility iTold-ing Company Act of 1935, clause (10) of Section 7 of the Mortgage is hereby amended to read aa follows:

"(10) the amount, if any, by which the aggregate of (a) such other income (net) and (b) that portion of the amount required

--n.~.

Loainiana Power & Light Co=pany LPL Erwin Ex. 11 Excerpt frc= LP&L's Twenty-Sixth Page 3 of 3 Supplemental Indenture 28 to be stated in such certificate by clause (7) of this Section which, in the opinion of the signers, is directly derived from the operation of property (other than paving, grading and other improvements to, under or upon public highways, bridges, parks or other public properties of analogous character) not subject to the Lien of this Indenture at the date of such certi6cate, exceeds ten per

,eentum (10%) of the sum required to be stated by clause (9) o.f

_this Section; provided, however, that in computing the foregoing, there may be used such per centum greater than ten per centum (10%) but not greater than fifteen per centum (15%) as shall be authorized or approved, upon application by the Company,

, by the Securities and Exchange Commission, or by any successor commission thereto, under the Public Utility Holding Company a Act of 1935; and provided further, that if the amount required to be stated in such certificate by clause (7) of this Section includes revenues from the operation of property not subject to the Lien of this Indenture, there shall be included in the calculation to be 1

made pursuant to this clause (10) such reasonable interdepart-mental or interproperty revenues and expenses between the Mort-gaged and Pledged Property and the property not subject to the Lien hereof as shall be allocated to such respective properties by the Company; and" i

Szerros 10. The Trustees hereby accept the trusts herein declared, provided, created or supplemented and agree to perform the same upon the terms and conditions herein and in the Mortgage, as heretofore amended, set forth azid upon the following terms and conditions:

h Trustees shall not be responsible in any manner whatsoever for or in respect of the validity or sufEciency of this Twenty. sixth Supple-mentalIndenture or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general each and every term and condition contained in Article XVII of the Mort-gage, as heretofore amended, shall apply to and form part of this Twenty. sixth Supplemental Indenture with the same force and effect as if the same wero herein set forth in full viL such omissions, vari-ations and insertions, if any, as may be appropriate to make the same conform to the provisions of this Twentv sixth SupplementalIndenture.

1 i

._ .. .- 1

I/XTISIAHA NelER & LIGHT CCMPANY EARNINGG/ BOND INTEREST COVERAGE RATIO 1 % 9 - 1979 Times Earned Ratio 5 00

!+.00

_3.58 3 52 3.16 4

3.36 3.00 2.60 2.15 4

2.24 1 2.39 2.00 I, g, Minimma 2.0 Ratio l 1.71 i

i 1.00 i to

t

! b 1969 1970 1971 1972 1973 1978+ 1975 1 976 1777 1 978 1979 y

", , L?L Erwin Ex. 13 P2ge 1 of 12 RESTAIED ARTICLES OF INCORPORATION 9.L LOUISIANA POWER & LIGHT COMPANY Louisiana Power & Light Company, a corporation organized and existing under the laws of the State of Louisiana (sometimes hereinafter referred to as the 'Corperation"), through its undersigned President and Secretary, pur-suant to the laws of the State of Louisiana and by authority of resolutions unani=ously adopted by the Board of Directors of the Corporation at a meeting of said Board of Directors duly convened and held on February 15, 1980, with a quoru: present and acting throughout, does hereby certify that the Be-stated Articles of Incorporation of the Ccrporation set forth hereinbelow ac-curately copies the original Articles of Incorporation of the Corporation as amended by all acendments thereto in effect at the date hereof without substan-tive change; that in confor=ity with law and the resolutions aforesaid, however, the names and addresses of the incorporators have been omitted and because the caterial so o=itted constituted the entirety of Article 6 of said Articles of Incorporation, Article 7 of said Articles of Incorporation has been re-nu=bered as Article 6 of said Restated Articles of Incorporation; that each amendment to the Articles of Incorporation of the Corporation heretofore made has been effected in conformity with law; that the date of incorporation of the Corpora-tion was October 15, 1974 and the date of this Restatement and of these Restated Articles of Incorporation is February 21, 1980; and that the Restated Articles of Incorporation of the Corporation are as follows:

ARTICLE 1 The name of this corporation is and shall be:

LOUISIANA POWER & LIGHT COMPANY l

f i

l

LPL Erwin Ex. 13 Page 2 of 12 ARTICLE 2 The objects and purposes of this corporation (soLetimes hereinafter re-ferred to as the " Corporation") and for which the Corporatien is organized are stated and declared to be to engage in any lawful activity for which cor-porations may be for:ed under Chapter 1 cf Title 12 of the Louisiana Revised Statutes of 1950, as a: ended, including spe:*fically; but not by way of limita-tion, the purcharing or otherwise acquiring, holding, certgaging er otherwise entu: bering, and selling or otherwise alienating of real estate an: all for=s of ic=ovable property, as well as all forms of personal and mixed proper ty; and further, and without in any way li=iting the foregoing, the Corperation shall have all powers which corporations may have, and may carr; on all busi-nesses of any and every nature and kind which corporations may carry un, under said Chapter 1 of Title 12 of the Louisiana Revised Statutes of 1950, as amended, including, but not by way of licitation, the following business or businesses:

To acquire, buy, hold, own, sell, lease, exchange, dispose of, pledge, mortgage, encu=ber, hypothecate, finance, deal in, construct, build, install, equip, improve, use, operate, maintain and work upen:

(a) Any and all kinds of plants and syste=s for the manufacture, pro-duction, generation, storage, utilization, purchase, sale, supply, trans-mission, distribution or disposition of electricity, gas or water, or power produced thereby; (b) Any and all kinds of plants and syste=s for the manufacture of ice; (a) Any and all kinds of works, power plants, structures, substations, cyste=s, tracks, machinery, generators, motors, la=ps, poles, pipes, wires, cables, conduits, apparatus, devices, equipment, supplies, articles and merchandise of every kind in anywise connected with or pertaining to the manufacture, production, generation, purchase, use, sale, supply, trans=is-sion, distribution, regulation, control or application of electricity, gas, water and power; To acquire, buy, hold, own, sell, lease, exchange, dispose of, trans=it, distribute, deal in, use, manufacture, produce, furnish and supply electricity, power, energy, gas, light, heat and water in any form and for any purposes whatsoever; ,

To purchase, acquire, develop, hold, own and dispose of lands, interests in and rights with respect to lands and waters and fixed and movable property necessary or suitable for the carrying out of any of the foregoing powers; To borrow money and contract debts when necessary for the transaction I of the business of the Corporation or for the exercise of its corporate rights, i

_2-

. LPL Erwin Ex. 13 Pago 3 of 12 I

privileges or franchises or for any other lawful purpose of its incorperation; to issue bonds, pre:issory notes, bills of exchange, debentures and other obli-gations and evidences of indebtedness payablz at a specified ti=e or times cr payable upon the happening of a specified event or events, whether secured  ;

by mortgage, pledge or otherwise, or unsecured, fer money borrowed er in pay =ent for property purchased or acquired or any other lawful objects; To guarantee, purchase, hold, sell, assign, transfer, mortgage, , ledge i oc otherwise dispose of the shares of the capital stock of, or any bonds, securi-ties or evidences of indebtedness created by, any o.her corporation or corpora-tiens organized under the laws of the State of Louistina or of any other state cr government end fermed for the purpose of carrying c.it any of the forescing powers and, while the owner of such stock, to exercise wil the rights, powers cnd privileges of ownership, including the right to vote thereon; and to do cny acts designed to protect, preserve, improve or enhance the value of any property at any time held or controlled by the Corporation, or in which it may be at any time interested; and to organize or promote or facilitate the organization of subsidiary ec=panies for the purpose of carrying out any of the foregoing powers; To purchase, held, sell and transfer shares of its own capital stock, provided that the Corporatien sn 11 not purchase its own shares of capital stock except frc the surplus of its assets over its IAab111 ties including capital; and provided further, that the shares of its own capital stock owned iy the Corporation shall not be voted upon directly or indirectly nor counted as outstanding for the purposes of any stockholders' quorum or vote; To conduct business at one or more offices and hold, purchase, mortgage and convey real and personal property in the State of Louisiana and in any of the several states, territories, possessions and dependencies of the United States, the District of Colu=bia and foreign countries; In any manner to acquire, enjoy, . utilize and to dispose of patents, copy-rights and trade-carks and any licenses or other rights or interests therein and thereunder necessary for and in its opinion useful or desirable for or in connection with the foregoing powers; To purchase, acquire, hold, own and dispose of franchises, concessions, consents, privileges and licenses necessary for and in its opinion useful or desirable for or in connection with the foregoing powers; and To do all and everything necessary and proper for the accomplishment of the objects enumerated in tnese Articles of Incorporation or any amendment thereof or necessar:- - inc* dental to the protection and benefit of the Corpora-tion.

ARTICLE 3 I

The aggregate nu=ber of shares of stock which the Corporation shall have authority to issue and have .cutstanding at any time is as follows:

l l

LPL Erwin Ex. 13

[ Page 4 of 12 (a) 150,000,000 shares of Co==cn Stock without nc=inal er par value (hereinafter called the "Cc==en Stock").

(b) 4,500,000 shares of preferred stock having a par value of 4100 per share, which shall all be of one class (hereinafter called the "$100

• Preferred Stock"), and 12,000,000 shares of preferred stock having a par

. value of $25 per share, which shall all be of one class (hereinafter called ,

i

- the "$25 Preferred Stock"), which said two classes of preferred stock are hereinafter together referred to as the " Preferred Stock", and, for certain purpcses and to such extent as are hereinafter set forth, are '

treated or referred to together as a single class of stoch; and further with respect to the Preferred Stock: ,

(1) Said 4,503,000 shares of $100 Preferred Stock shall be issutble in one or =cre snries fre= time to time; 1,455,000 of said shares of

$100 Preferred Steck shall be divided into twelve series, one of which shall consist of 60,000 shares of 4.965 Preferred Stock, Cu=ulative,

$100 par value (hereinafter so=etimes called "First Series Preferred Stock"), one of which shall consist of 70,000 shares of 4.16% Preferred Stock, Cu=ulative, $100 par value (hereinafter so=etimes called "Second Series Preferred Stock"), one of which shall consist of 70,000 shares of 4.44% Preferred Stock, Cu=ulative, $100 par value (hereinafter some-times called " Third Series Preferred Stock"), one of which shall consist of 75,000 shares of 5.16% Preferred Stock, Cumulative, $100 par value (hereinafter sometimes called " Fourth Series Preferred Stock"), one of which shall consist of 80,000 shares of 5.40% Preferred Stock, Cumula-tive, $100 par value (hereinafter so=eti=es called "Fifth Series Pre-ferred Stock"), one of which shall consist of 80,000 shares of 6.44%

Preferred Stock, Cumulative, $100 par value (hereinafter sometimes called " Sixth Series Preferred Stock"), one of which shall consist of 70,000 shares of 9 52% Preferred Stock, Cu=ulative, $100 par value (hereinafter sometimes called " Seventh Series Preferred Stock"), one of which shall cor.sist of 100,000 shares of 7.84% Preferred Stock, Cumulative, $100 par value (hereinafter sometimes called " Eighth Series Preferred Stock"), one of which shall consist of 100,000 shares of 7'.36% Preferred Stoc,k, Cumulative, $100 par value (hereinafter someti=es called " Ninth Series Preferred Stock"), one of which shall consist of 100,000 shares of B.56% Preferred Stock, Cumulative, $100 par value (hereinafter sometimes called " Tenth Series Preferred Stock"), one of which shall consist of 300,000 shares of 9.44% Preferred Stock, Cumulative, $100 par value (hereinafter sometimes called " Eleventh Series Preferred Stock"), and one of which shall consist of 350,000

' shares of 11.48% Preferred Stock, Cumulative, $100 par value (herein-after sometimes called " Twelfth Series Preferred Stock"); and the re-maining 3,045,000 of said shares of $100 Preferred Stock may be divided into and issued in additional series from time to time, each such addi-tional series to be provided for and to be distinctively designated, i

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LPL Erwin Ex. 13 Pass 5 of 12 and the issuance of the shares of each such additional series to be authorized, in and by a resolutien or resciutions to be adopted by the Board of Directors of the Corporation in accordance with the pro-visions hereof.

(ii) Said 12,000,000 shares of $25 Preferred Stock shall be issuable in one or mere series from time to time; one series er $25 Preferred

,- Stock shall consist of 2,400,000 shares of 10.725 Preferred Stock, Cumulative, 425 par value (hereinafter so etimes called " Series A Pre-ferred Stock"), and one series of $25 Preferred Stock shall consist of 1,600,000 shares of 13.12% Preferred Stock, Cc=ulative, $25 par value (hereinafter scmeti=es called " Series B Preferred Stock"); and the remaining 8,000,000 of said shares of $25 Preferred Stock may be divided into and issued in additional series from ti=e to time, each such additional series to be provided for and to be distinctively desig-nated, and the issuance of the shares of each such additional series to be authoriced, in and by a resolution or resolutions to be adepted by the Board of Directors of the Corporatien in accordance with the provisions hereof.

II .

The shares of each class of Preferred Stock shali have the same rank and shall have the same relative rights except as to =atters relating to the par values and voting rights thereof (including matters relating to quoru=s and adjournments) and these characteristics with respect to which there may be variations amens the respective series of Preferred Stock.

The shares of each series of Preferred Stock shall have the same rank and shall have the same relative rights except with respect to such charac-teristics as are peculiar to or pertain only to the particular class of such series and with respect to the following characteristics:

(a) The nu=ber of shares to constitute each such series and the dis-tinctive designation thereof; (b) The annual rate or rates of dividends payable on shares of such series and the date from which such dividends shall co==ence to accumulate; i

(c) The amount or amounts payable upon rede=ption thereof; and l

(d) The terms and amount of the sinking fund requirements (if any) for the purchase or redemption of shares of each series of Preferred Stock other than the First through Tenth Series Preferred Stock; which different characteristics of clauses (a), (b), and (c) above are herein set forth with respect to the First through Tenth Series Preferred Stock and of clauses (a), (b), (c), and (d) above are herein set forth with respect to the Eleventh and Twelfth Series Preferred Stock and the Series A and Series B Preferred Stock, and, with respect to each additional series of Preferred

• - LPL Erwin Ex. 13 Page 6 of 12 Stock, the designation of the class thereof and the different characteristics i of clauses (a), (b), (c), and (d) above shall be set forth in the resolution or resciutions of the Board of Directors of the Corporation providing for such series. To the extent, if any, that the issuance of additional series of Pre-ferred Stock, the designation of the class thereof, the fixing and setting forth of such different chnracteristics of each additional series of Preferred Stor.k, and the adeption by the Board of Directors of the resolution or resolu-tions providing therefer, constitutes or re:;uires the a=end ent of these Articles of"Incorperation, the 3 card of Directors shall have authcrity so te amend these Articles of Incorperation, as provided by Louisiana law and particularly, but not by way of li=itation, Section 243(6) of Title 12 of the Louisiana Revised Statutes of 1953, as a= ended, and to authorice and to cause the due execution and filing of such Articles of A=endment to these Articles of Incorporation as the Board of Directors =ay dee: necessary, appropriate or advisable, or sees fit, fer such purpose.

III Further provisiens with respect to the Preferred Stock and the Co==en Stock are and shall be as set frrth hereinafter in this Part III of Article 3 and hereinafter in these Arti.:les of Incorporation.

(A) The Preferred Stock shall be entitled, but only when and as declared by the Board of Directors, out of funds legally available for the payment of dividends, in preference to the Co==en Stock, to dividends at the rate of 4.965 per annus on the First Series Preferred Stock, at the rate of 4.165 per annu=

on the Second Series Preferred Stock, at the rate of 4.445 per annu: on the Third Series Preferred Stock, at the rate of 5.16% per annu= on the Feurth Series Preferred Stock, at the rate of 5.40% per annu= on the Fift'h Series Preferred Stock, at the rate of 6.44% per annu= on the Sixth Series Preferred Stock, at the rate of 9.52% per annu= on the Seventh Series Preferred Stock, at the rate of 7.845 per annu: on the Eighth Series Preferred Stock, at the rate of 7 365 per ann = on the Ninth Series Preferred Stock, at the rate of 8.56% per annum on the Tenth Series Preferred Stock, at the rate of 9.445 per annu: on the Eleventh Series Preferred Stock, at the rate of 11.48% per annu=

on the Twelfth Series Preferred Stock, at the rate of 10.725 per annu= on the Series A Prerwrred Stock, and at the rate of 13 125 per annu= on the Series B Preferred Stock, of the par value thereof, and no more, and at such rate per annu= on each additional series as shall be fixed in and by the resolution or resolutions of the Board of Directors of the Corporation providing for the issuance of the shares of such series, payable quarterly on February 1, May 1, August 1 and Nove=ber 1 of each year to stockholders of record as of a date, not exceeding forty (40) days and not less than ten (10) days preceding such dividend pay =ent dates, to be fixed by the Board of Directors, such dividends to be cu=ulative fro: the last date to which dividends upon the First through Tenth Series Preferred Stock of Louisiana Power & Light Company, a Florida corporation, are paid, with respect to the First through Tenth Series Preferred

~

Stock, from Nove=ber 2,1977 with respect to the Eleventh Series Preferred b

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LPL Erwin Ex. 13 Pago 7 of 12 Stock, fro: March 1,1979 with respect to the Twelfth Series Preferred Stock i from July 19, 1979 with respect to the Series A Preferred Stock, from October 17, 1979 with respect to the Series B Preferred Stock, and from such date with respect to each additional series, if made cu=ulative in and by the resolution or resolutions of the Board of Directors of the Corporation providing for such series, as shall be fixed in and by such resolution or resolutions, provided that, if such resolution or resolutions so provide, the first dividend pay =ent date for any such additional series may be the dividend payment date next suc-ceeding the dividend payment date immediately following the issuance of the shares of such series.

(B) If and when dividends payable on any of the Preferred Stock of the Corporation at any ti=e outstanding shall be in default in an amount equal to four full quarterly pay =ents or more per share, and thereafter until all dividends on any such Preferred Stock in default shall have been paid, the holdurs of the Preferred Stock, voting separately as a class, shall be entitled to elect the smallest nu=ber of directors necessary to constitute a majority of the full Board of Directors, and the holders of the Com=on Stock, voting separately as a class, shall be entitled to elect the remaining directors of the Corporation, anything herein to the contrary notwithstanding. The ter=s of office, as directors, of all persons who may be directors of the Corporation at the time shall ter=inate upon the election of a majority of the Beard of Directors by the holders of the Preferred Stock, except that if the holders of the Com=on Stock shall not have elected the remaining directors of the Cor-poration, then, and only in that event, the directors of the Corporation in office just prior to the election of a majority of the Board of Directors by the holders of the Preferred Stock shall elect the re=aining directors of the Corporation. Thereafter, while such default continues and the majority of the Board of Directers is being elected by the holders of the Preferred Stock, the remaining directors, whether elected by directors, as aforesaid, or whether originally or later elected by holders of the Common Stock, shall continue in office until their successors are elected by holders of the Com=on Stock and shall quality.

If and when all dividends then in dercult on the Preferred Stock then outstanding shall be paid (such dividends to be declared and paid out of any funds legally available therefor as soon as reasonably practicable), the holders of the Preferred Stock shall be divested of any special right with respect to the election of directors, and the voting power of the holders of the Pre-ferred Stock and the holders of the Common Stock shall revert to the status existing before the first dividend payment date on which dividends on the Pre-ferred Stock were not paid in full, but always subject to the 22.me provisions for vesting such special rights in the holders of the Preferred Stock in case of further like defaults in the payment of dividends thereon as described in the im=ediately foregoing paragraph. Upon termination of any such special voting right upon payment of all accumulated and unpaid dividends on the Preferred l

_7 i

LPL Erwin Ex. 13 Page S of 12 l

Stock, the ter=s of office of all persons who may have been elected directors of the Corporation by vote of the holders of the Preferred Stock as a class, pursuant to such special voting right, shall forthwith ter=inate, and the re- ,

sulting vacan:ies shall be filled by the vote of a majority of the remaining directors.

. In case of any vacancy in the office of a director occurring among the 1 directors elected by the holders of the Preferred Stock, voting separately I as a class, the re=aining directors elected by the holders of the Preferred Stock, by affir ative vote of a majority thereof, or the re=aining director so elected if there be but one, may elect a successor or successers to hold office for the unexpired ter= or terms of the director er directors whose place or places shall be vacant. Likewise, in case of any vacancy in the office of a director occurring among the directors not elected by the holders of the Preferred Stock, the re=aining directors not elected by the holders of the Preferred Stock, by affir=ative vote of a majority thereof, or the remaining i director so elected if there be but one, may elect a successor or successors to hold office for the unexpired term or ter=s of the director or directors whose place or places shall be vacant.

Whenever the right "shall have accrued to the holders of the Preferred Stock to elect directers, voting separately as a cla'ss, it shall be the duty of the President, a Vice President or the Secretary of the Corporation forth-with to call and cause notice to be given to the shareholders entitled to vote of a meeting to be held at such time as the Corporation's officers may fir.,

not less than forty-five nor more than sixty days after the accrual of such right, for the purpose of electing directors. The notice so given shall be mailed to each holder of record of the Preferred Stock at his last known address appearing on the books of the Corporation and shall set forth, among other things, (1) that by reason of the fact that dividends payable on the Preferred Stock are in default in an amount equal to four full quarterly payments or more per share, the holders of the Preferred Stock, voting separately as a class, have the right to elect the smallost number of directors necessary to constitute a majority of the full Board of Directors of the Corporation, (ii) that any holder of the Preferred Stock has the right, at any reasonable time, to inspect, and maxe copies of, the list or lists of holders of the Preferred Stock maintained at the principal office of the Corporation or at the office of any Transfer Agent of the Preferred Stock, and (iii) either the entirety of this paragraph or the substance thereof with respect to the number of shares of the Preferred Stock required to be represented at any meeting, or adjourn-ment thereof, called for the election of directors of the Corporation. At the first meeting of stockholders held for the purpose of electing directors during such time as the holders of the Preferred Stock shall have the special right, voting separately as a class, to elect directors, the presence in person or by proxy of the holders of a majority of the outstanding Common Stock shall be required to constitute a quorum of such class for the election of directors, and the presence in person or by proxy of the holders of a majority of the '

_ S.

', , LPL Erwin Ex. 13 Paga 9 of 12 outstanding Preferred Stock shall be required to constitute a quorum of such class for the elsetien of directors; provided, however, that in the absence of a quorum of the holders of the Preferred Stock, no election of directors shall be held, tat a majority of the holders of the Preferred Stock who are present in person or by proxy shall have power to adjourn the election of the .

directors to a date not less than fifteen nor more than fifty days from the '

giving of the notice of such adjourned meeting hereinafter provided for; and provided, further, that at such adjourned meeting, the presence in person or by proxy of the holders of 355 of the outstanding Preferred stock shall be required to constitute a quoru= of such class for the election of directors.

In the event such first meeting of stockholders shall be so adjourned, it shall be the duty of the President, a Vice President or the Secretary of the Corpora-tion, within ten days from the date on which such first meeting shall have been adjourned, to cause notice of such adjourned meeting to be given to the shareholders entitled to vote thereat, such adjourned meeting to be held not less than fifteen days nor more than fifty days from the giving of such second notice, such second notice shall be given in the form and manner hereinabove provided for with respect to the notice required to be given of such first meeting of stockholders, and shall further set forth that a quoru= was not present at such first meeting and that the holders of 35% of the outstanding Preferred Stock shall be required to constitute a quorum of such class for the election of directors at such adjourned meeting. If the requisite quoru=

of holders of the Preferred Stock shall not be present at said adjourned meeting, then the directors of the Corporation then in office shall re=ain in office until the next Annual Meeting of the Corperation, or special meeting in lieu thereof and until their successors shall have been elected and shall qualify.

Neither such first meeting nor such adjourned meeting shall be held on a date within sixty days of the date of the next Annual Meeting of the Corporation or special meeting in lieu thereof. At each Annual Meeting of the Corporation, or special meeting in lieu thereof, held during such time as the holders of the Preferred Stock, voting separately as a cliss, shall have the right to elect a majority of the Board of Directors, the foregoing provisions of this paragraph shall govern each Annual Meeting, or special meeting in lieu thereof,

, as if said Annual Meeting or special meeting were the first meeting of stock-holders held for the purpose of electing directors after the right of the holders of the Preferred Stock, voting separately as a class, to elect a majority of the Board of Directors, should have accrued with the exception, that if, at any adjourned annual meeting, or special meeting in lieu thereof, 35% of the outstanding Preferred Stock is not present in person or by proxy, all the di- '

rectors shall be elected by a vote of the holders of a majority of the Co= mon i Stock of the Corporation present or represented at the meeting. l (C) So long as any shares of the Preferred Stock are outstanding, the Corporation shall not, without the consent (given by vote at a meeting called for that purpose) of at least two-thirds of the total number of shares of the Preferred Stock then outstanding:

(1) create, authorize or issue any new stock which, after issuance would rank prior to the Preferred Stock as to dividends, in liquidation, l

-9

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L?L Erwin Ex. 13 Page 10 of 12 dissolution, winding up or distribution, or create, authorize or issue any security convertible into shares of any such stock except for the purpose of providing funds for the rede=ption of all of the Preferred Stock then outstanding, such new stock or security not to be issued until such rede=ption shall have been authori:ed and notice of such rede=ption given and the aggregate rede=; tion price deposited as provided in paragraph (G) below; provided, however, that any such new stock or security shall be issued within twelve =enths (and so long as any of the First Series

- Preferred Stock remains outstanding, within 180 days), after the vote of the Preferred Stock herein provided for authorizing the issuance of such new stock or security; or (2) a=end, alter, change er repeal any of the express te: :s of any of the Preferred Stock then oustanding in a manner prejudicial to the holders thereof; the increase or decrease in the authorized a=ount of the Preferred Stock or the creation, or increase or decrease in the au-thorized a=ount, of any new class of stock ranking on a parity with the Preferred Stock shall not, for the purposes of this paragraph, be deemed to be prejudicial to the holders of the Preferred Stock.

(D) So long as any shares of the Preferred Stock are outstanding, the Corporation shall not, without the consent (givea by vote, at a meeting called for that purpose) of the holders of a majority of the. total nu=ber of shares of the Preferred Stock then outstanding:

(1) merge or consolidate with or into any other corporation or corpora-tions or sell or otherwise dispese of all or substantially all of the assets of the Corporation, unless such merger or consolidation or sale or other disposition, or the exchange, issuance or assu=ptir.u of all securi-ties to be issued or assumed in connection with any such rerger or con-solidation or sale or other disposition, shall have been ordered, approved or permitted by regulatory authority of the United States of America under the provisions of the Public Utility Holding Company Act of 1935; provided that the provisions of this sub-paragraph (1) shall not apply to a pur-chase or other acquisition by the Corporation of franchises or assets of another corporation in any manner which does not involve a corporate merger or consolidation; or i (2) issue or assume any unsecured notes, debentures or other securi-ties representing unsecured indebtedness for purposes other than (i) the refunding of outstanding unsecured indebtedness theretofore issued or assumed by the Corporation, (ii) the reacquisition, redemption or other retirement of any indebtedness which reacquisition, redemption or other retirement has been authorized by the Securities and Exchange Com=ission under the provisions of the Public Utility Holding Company Act of 1935, or (iii) the reacquisition, redemption or other retirement of all outstand-ing shares of the Preferred Stock, or preferred stock ranking prior to, l

LPL Erwin Ex. 13 P:ga 11 of 12 or pari passu with, the Preferred Stock, if i==ediately after such issue or assu=ptten, the total principal a: cunt of all unsecured notes, deben-tures or other securities representing unsecured indebtedness issued or l assu=ed by the Corporation, including unsecured indebtedness then to be issued or assu=ed (but excluding the principal a= cunt then outstanding of any unsecured notes, debentures or other securities representing un-secured indettedness having a maturity in excess er ten (10) years and

. in amount not exceeding 10% of the aggregate of (a) and (b) of this sub-paragraph (2) below) would exceed ten per centu= (105) of the aggregate of (a) the total principal a=ount of all bonds or other securities repre-senting secured indebtedness issued or assumed by the Ccrporation and then to be outstanding, and (b) the capital and surplus of the Corporation as then to be stated on the books of account -of the Corporation. When unsecured notes, debentures or other securities representing unsecured debt of a maturity in excess of ten (10) years shall beco=e of a Laturity of ten (10) years or less, it shall then be regarded as unsecured debt of a maturity of less than ten (10) years and shall be co=puted with such debt for the purpose of deter =ining the percentage ratio to the su= of (a) and (b) above of unsecured debt of a maturity of less than ten (10) years, and when provisien shall have been made, whether through a sinking fund or otherwise, for the retirement, prior to their maturity, of unse-oured notes, debentures or other securities repre, senting unsecured debt .

of a maturity in excess of ten (10) years, the a=ount of such security ,

so required to be retired in less than ten (10) years shall be regarded as unsecured debt of a maturity of less than ten (10) years (and not as unsecured debt of a maturity in excess of ten (10) years) and shall be computed with suc' debt for the purpose of determining the percentage ratio to the su: of (a) and (b) above of unsecured debt of a maturity of less than ten (10) years, provided, however, that the pay =ent due upen the maturity of unsecured debt having an original single maturity in excess of ten (10) years or the payment due upon the latest maturity of any serial debt which had original maturities in excess of ten (10) years shall not, fcr the purposes of this provision, be regarded as unsecured debt of a maturity of less than ten (10) years until such payment or pay =ents shall be required to be made within five '5) years (provided the words "five (5) years" shall read "three (3) yv.rs" when none of the First Series Preferred Stock re=ains outstanding); further= ore, when unsecured notes, debentures or other securities representing unsecured debt of a maturity  !

of less than ten (10) years shall exceed 10% of the su= of (a) and (b) above, no additional unsecured notes, debentures or other securities repre- l senting unsecured debt sh ll be issued or assumed (except for the purposes set forth in (i), (ii) and (iii) above) until such ratio is reduced to 10% of the sum of (a) and (b) above; or (3) issue, sell, or otherwise dispose of any shares of the Preferred Stock in addition to the 805,000 shares of the First through Tenth Series Preferred Stock originally authorized, or of any other class of stock l

l l

l l

LPL Erwin Ex. 13 Page 12 of 12 ranking on a parity with the Preferred Stock as to dividends or in liquida-tien, dissolution, winding up or distribution, (a) so long as any of the 1 First Series Preferred Stock re=ains outstanding, unless the net income of the Corporation and Louisiana Power & Light Co=pany, a Florida corpora-tion, deter =ined, after provision for depreciation and all taxes and in accordance with generally accetted accounting practices, to be available for the pay =ent of dividends for a period of twelve (12) consecutive calendar

. Lenths within the fifteen (15) calendar months i= mediately preceding the

- issuance, sale or disposition of such stock, is at least equal to twice the annual dividend requirements on all outstanding shares of the Preferred Stock and of all other classes of stock ranking prior to, or on a parity with, the Preferred Stock as to dividends or distributions, including the shares proposed to be issued, and (b) so long as any Preferred Stock re=ains outstanding, unless the gross income of the Corporation and Louistana Power & Light Co:pany, a Florida corporation, for such period, deter =ined in accordance with generally accepted accounting practices (but in any event after deducting all taxes and the greater of (a) the a=ount for said period charged by the Corporation and Louisiana Power & Light Co=pany, a Florida cerperation, on their books to depreciation expense er (b) the largest a=ount required to be provided therefor by any mortga;;e indenture of the Corporatien) to be available for the pay =ent of interv 6t, _sla1L have been at least one and one-half times the su= of (i) the annual interest charges on all interest indebtedness of the Corporation and (ii) the annual dividend requirements on all outstanding shares of the Preferred Stock and of all other classes of stock ranking prior to, or on a parity with, the Preferred Stock as to dividends or distributions, including the shares proposed to be issued; provided, that there shall be excluded fro: the foregoing co=putation interest charges on all indebtedness and dividends on all shares of stock which are to be retired in connection with the issue of such additional shares; and provided, further, that in any case where such additional shares of the Preferred Stock, or other class of stock ranking on a parity with the Preferred Stock as to dividends or distributions, are to be issued in connection with the acquisition of r iw property, the net income and gross income of the property to be so acquired, cc:puted on the same basis as the net income and gross income of the Corporation, may be included on a pro forma basis in making the foregoing ec=putation; or (4) issue, sell, o. otherwise dispose of any shares of the Preferred Stock, in addition to the 805,000 shares of the First through Tenth Series Treferred Stock originally authorized, or of any other class of stock ranking on a parity with the Preferred Stock as to dividends or distri-butions, unless the aggregate of the capital of the Corporation applicable to the Co==en Stock and the surplus of the Corporation shall be not less than the aggregate amount payable on the involuntary liquidation, dissolu-tir.n or winding up of the Corporation, in respect of all shares of the l

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LPL Erwin Ex. 15 Page 1 of 5 Louisiana Power & Light Coc:pany Downgradings of Securities Standard & Poor's Corporation First Mortgage Bonds Preferred Stock From p Date From To Date A A- 12/76 A A- 12/76 A- BBB 1/78 A- BBB 10/77 BBB BBB- 4/79 BBB BBB- 4/79 BBB- BB 7/79 Mood.y's Investors Service Inc.

, First Mortgage Boris Preferred Stock Commercial Paper From p Date From E Date From g Date A Baa 12/76 A Baa 12/76 P-1 P-2 12/76 Bu Ba 10/77 P-8 P-3 10/77 QtchCommercialPaper From Q Date F-2 F-3 1/79

BOND SALES RATED Baa .BY HOODY'S ,

l l

l COST OF OFFERING S&P AHOUNI HONEY TO INTEREST C REFUND l

DATE COMPANY RATING $ HILLION COMPAN ? RATE MATURITY N PROTEC. ,

01/23/79 Indiana & Michigan Elec. Co BBB 80.00 10.36 10-1/4 8 Yr. C 5 Yr.

01/24/79 Ark. Power & Light Co. A 60.00 10.22 10-1/4 30 Yr. C 5 Yr.

02/21/79 Georgia Power Co. BBB 100.00 10.57 10-1/2 30 Yr. C 5 Yr.

03/22/79 Monongahela Power Co. A- 40.00 10.52 10-1/2 30 Yr. C 5 Yr.

04/10/79 Pacific Power & Light B BB+- 100.00 10.40 10-1/4 30 Yr. C. 5 Yr.

04/18/79 Georgia Power Co. BBB 125.00 11.10 11 30 Yr. C 5 Yt.

04/26/79 Iouisiana Power & Light Co,_ BBB_ 45.00 11.15 10-7/8 10 Yr. C 5 Yr.

~5708/79 0 Truckline Gas BBBi- 75.00 10.78 10-5/8 12 Yr. N 5 Yr.

05/15/79 Ap9alachian Power BBB- 70.00 11.15 11 8 Yr. C 5 Yr.

06/05/79 United Gas Pipe Line BBB 50.00 10.69 10-1/2 10 Yr. N 5 Yr.

09/12/79 Detroit Edison Co. BBB 100.00 11.07 10-7/8 30 Yr. N 5 Yr.

09/18/79 Potomac Edison Co. . A- 30.00 11.042 11 30 Yr. C 5 Yr.

9/25/79 Toledo Edison Co. A- 75.00 11.08 11 30 Yr. C 5 Yr.

11/8/79 Inuisiana Power & Light Co. BBB . 55.00 13.68- 13-1/2 30 Yr. C 5 Yr.

12/5/79 EL Paso Natural Gas Co. BBB 75.00 12.57 12.45 . 18 Yr. N 5 Yr.

12/13/79 Consnonwealth Edison Co. A 250.00 12.82 12-1/2 7 Yr. N 6 Yr.

ro y Mr

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_ EMD SAIIS RATED A BY MOODY'S COST OF -

OFFERING S&P AMOUNI HONEY TO INIEREST C REFUND DATE COMPANY RATING $ MILLION COMPANY RATE MATURITY N PROTEC.

01/18/79 Montana Power Co. A 50.00 10.04 9-7/8 30 Yr. N 5 Yr.

02/07/79 Pacific Telep. & Teleg. Co. At 300.00 9.964 9-7/8 37 Yr. N 5 Yr.

l 02/22/79 Dequesne Light.Co. AA- 100.00 10.23 10-1/2 30 Yr. C 5 Yr.

03/29/79 Nat'l Rural Ltilities Coop.

Finance Corp. AA 100.00 9.93 9-3/4 30 Yr. N 10 Yr.

04/03/79 Virginia Elec. & Power Co. A 100.00 10.41 10-1/4 30 Yr. C 5 Yr.

04/04/79 Culf States Utilities Co. A+ 75.00 10.125 10-1/8 30 Yr. C 5 Yr.

04/18/79 South Carolina Electric and Cas A 35.00 10.25 10-1/8 30 Yr. N 5 Yr.

, 04/19/79 Utah Power & Light AA- 35.00 10.14 10-1/8 30 Yr. C 5 Yr.

04/23/79 Consumers Power A- 100.00 10.55 10-3/8 30 Yr. C 5 Yr.

04/24/79 Culf Power Co. A+ 30.00 10.41 10-1/4 30 Yr. C 5 Yr.

05/16/79 Columbia Cas System A 75.00 10.40 10-1/4 20 Yr. C 5 Yr.

05/17/79 Hontana-Dakota Utilities A 25.00 10.36 1041/4 25 Yr. C 5 Yr.

05/17/79- General Tel. California A+ 75.00 10.20 10-1/8 30 Yr. C. 5 Yr.

05/22/79 Carolina Power & Light A 125.00 10.56 10-1/2 30 Yr. C 5 Yr.

06/07/79 Duke Power Co. A 150.00 10.27 10-1/8 30 Yr. N 5 Yr.

06/13/79 South Carolina Electric and Gas A 50.00 10.03 9-7/8 30 Yr. N 5 Yr.

06/28/79 Pacific Tele'p. & Teleg. At 300.00 9.84 9-3/4 40 Yr. N .5 Yr.

08/01/79 National Fuel Gas A 40.00 9.94 9-7/8 20 Yr. C 5 Yr.

09/12/79 Utah Power & Light Co. AA- 65.00 10.28 10-1/4 30 Yr. C 5 Yr.

09/20/79 Central Hudson cas & Elec.

Corp. A- 20.00 10.90 10-3/4 30 Yr. C 5 Yr.

09/27/79 Cen. Telep. Co. of Calif. A 125.00 10.902 10-3/4 30 Yr. C 5 Yr.

10/2/79 Duke Power Co. A+ 150.00 11.00 10-7/8 30 Yr. C 5 Yr.

10/10/79 Philadelphia Elec. A- 100.00 12.62 12-1/2 26 Yr. C 5 Yr.

10/17/79 Columbia Gas A 100.00 11.95 11-3/4 20 Yr.

10/18/79 Arizona Pub. Serv.

C 5 Yr.

A- 75.00 12.31 12-1/8 30 Yr. N 5 Yr.

10/24/79 Atlanta Gas Light Co.

• A 50.00 12.87 12-3/4 20 Yr. N 5 Yr.

10/25/79 Ceneral Tel. Southwest A 75.00 12.407 12-1/4 30 Yr. C 5 Yr.

10/30/79 Carolina Power & Light A 100.00 12.36 12-1/4 30 Yr.

10/30/79 Southern Calif. Cas.

N 5 Yr. '

A 70.00 12.85 12-3/4 20 Yr. C 5 Yr. W l 11/P/19 Florida Power & Light A+ 75.00 12.31 12-1/8 30 Yr. N 5 Yr. $

11/14/79 Pacific Tel. and Teleg. A 300.00 12.81 12.70 40 Yr. N 5 Yr. wF 11/14/79 United Tel. Florida At 30.00 12.24 12-1/8 30 Yr. N 5 Yr. d o6

. . _ - . .. - . - - _- . . . . - ,- ., UI

-.. -- . .. ._ . . . . . .- ... -. . _. . . . - . . . . . . . , . , ~ . . . .

LPL Erwin Ex. 15 Page 4 of 5 Louisiana Power & Light Company Interest Coverage on First Mortgage Bonds Twelve Months Ending 12/31/80

($000) 1980 (1) After Budget Adjtc aents Adjustments 1 Operating Revenues $820,304 $68,756 $888,880 2 Operation and Maintenance Expenses (619,358) (619,358) 3 Depreciation and Amortization (42,154) (42,154) 4 Taxes Other Than Income Taxes (20,101) (20,101) 5 Other Income - Net 58,309 (24,468) 33,841 6 Total 197,000 44,106 241,100 7 Less Excess Other Income 10% (38,609) 28,879 (9,730) 8 Total Earnings, As Defined $156,391 $72,967, ,$231,378 9 Bond Interest Requirements (Annualized) $77,126 $77,126 10 Times Bond Interest Earned 2.05x 3 (1) Adjustments reflect the additional revenues required to attain a 3.00r coverage ratio. $563 million of CWIP is included in the rate base with an AFLTDC rate of 5%, other Income (AFUDC) is reduced by $24.468 millinn and the additional amount of revenue required for the 12 months ended 12/31/80is$6S.7million.

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LPL Erwin Ex. 15 Page 5 of 5

)

Louisiana Power & Light Company Interest Coverage on First Mortgage Bonds Twelve Months Ending 12/31/81

($000) 1981 (1) After Budget Adjustments Adjustments 1 Operating Revenues $913,817 $n8,736 $1,032,553 2 Operation & Maintenance Expenses (721,485) (721,485) 3 Depreciation and Amortization (44,154) (44,154) 4 Taxes Other Than Income Taxes (24,152) (24,152) 5 Other Income - net 62,645 62,645 6 Total 16o,671 nS,736 305,407 7 Less Excess Other Income 10% (43,978) 11,874 (32,104) 8 Total Earnings, As Defined $142,693 , $130.61o $ 273,303 9 Bond Interest Requirements (Annualized) $91,101 $91.101 10 ~ Times Bond Interest Earned 1 3 g (1) Adjustments reflect arMitional revenues required to attain a 3.00x coverage ratio. $1,155 minion of CWIP is included in the rate base with an AFUDC rate of 5% and the additional amount of revenue required for the twelve months ended 12/31/81is$118.7million.

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, , LPL Erwin Ex.16 Paga 1 of 2 IOUISIANA POWER & LIGHT COMPANY BALANCE SHEET AT DECEMBER 31, 1979 (1) (2) (3)

Line Actual No. Title of Account Per Books

$000 ASSETS AND OMER DEBITS Utility Plant 1 Utility Plant Completed $1,235,773 2 Utility Plant Acquisition Adjustments 1,496 3 Construction Work in Progress 831,837 4 Total 2,069,106 5 Less: Acet=11mted Provision for Depreciation and Amortization 353,994 6 Net Utility Plant 1,715,112 7 Other Property and Investments 37,379 Current and Accrued Assets 8 Cash and Cash Items 19,078 9 SPecial Deposits 10,552 10 Accounts Receivable - Associated Companies 100 11 Accounts Receivable - Customers and Others (Net) 26,267 12 Deferred Fuel Costs 15,054 13 Materials and Supplies 10,795 14 Prepayments 1,020 15 Other Current and Accrued Assets 4,630 16 Total Current and Accrued Assets 87,496 Leferred Debits 17 Unamortized Debt Expense 2,378 18 Acetmnilated Deferred Income Taxes 6,578 19 Total Deferred Debits 8,956 20 Total Assets and Other Debits $1,8h8,ok3 i

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LPL Erwin Ex.16 Page 2 of 2 IOUISIANA POWER & LIGHT COMPANY BAIANCE SHEET AT DECEMBER 31, 1979 (1) (2) (3)

Line Actual No. Title of Account Per Books

$000 LIABILITIES AND OTHER CREDITS Proprietary Capital 1 Common Stock $ 428,900 2 Preferred Stock (Including Premium and Issuance Expense) 238,872 3 Unappropriated Retained Earnings 58,541 4 Total Proprietary Capital 726,313 Long-Term Debt 5 First Mortgage Bonds 781,900 6 Other Long-Term Debt 57,401 7 >

Total Long-Term Debt 839,301 Current and Accrued Liabilities

. 8 Notes Paysble 32,375 9 Accounts Payable to Associated Camp'.a.tes

~

22,902 10 Accounts Payable - Other 36,698 11 Customer Deposits 13,159 12 Taxes Accrued 3,459 13 Interest Accrued 19,825 14 Dividends Declared 5156 15 Other Current and Accrued Liabilities 634 16 Total Current and Accrued Liabilities 135,208 Deferred Credits 17 Accit=ilated Deferred Investment Tax Credits 29.382 18 Acenntlated Deferred Income Taxes 105, 7 19 Customer Advances for Construction 7,649 20 Other Deferred Credits 80 l 21 Total Deferred Credits 141,199 Operating Reserves 22 Injuries and Damages Reserve 1,130 23 Property Insurance Reserve 5,792 l 24 Total Operating Reserves 6,922 i

25 Total Liabilities and Other Credits $1,848,943

LPL Erwin Ex.17 Paga 1 of 2 LOUISIANA POWER & LIGHT COMPANY STATEMENTS OF INCOME AND RETAINED EARNINGS

SUMMARY

FOR THE 12 MONTHS ENDED DECEMBER 31, 1979 (1) (2) (3)

Line Actual No. _

Title of Account Per Books

$000 1 Operating Revenues .

$ 557,'476 Operating Expenses 2 Operation Expense 368,655 3 Maintenance Expense 31,269 h Depreciation Expense 40,863 5 Amortization of Property Losses 4,101 6 Taxes Other Than Income Taxes 15,977 7 Income Taxes - Federal 10,768 8 - State 1,086 9 Provision for Deferred Income Taxes - Federal 107,244 10 - State 10,864 11 Income Taxes Deferred in Prior Years-Federal-Credit (96,537) 12 Income Taxes Deferred in Prior Years-State-Credit (9,656) 13 Investment Tax Credit Adjustments - Net (1,019) 14 Total Operating Expenses 483,615 15 Net Utility operating Income 73,861 Other Income 16 Allowance for Other Funds Used During Construction 30,722 17 Miscellaneous Income 5,193 18 Total Other Income 35,915 Other Income Deductions 19 Miscellaneous Income Deductions 273 20 Taxes Applicable to Other Income and Deductions 2,438 21 Income Taxes Relating to Debt Portion of CWIP (14,189) 22 Net Other Income and Deductions 47,393 23 Inccane Before Interest Charges 121,254 Interest Charges 24 Interest on Long-Term Debt 60,263 t 25 Amortization of Debt Discount and Expense 204 l 26 Amortization of Premium on Debt-Credit (134) 27 Other Interest Expense 10,923 28 Allowance for Borrowed Funds Used During Construction-Credit (15,131) l 29 Total Interest Charges 56,125 30 Net Income $65,129

LPL Erwin Ex.17 Page 2 of 2 IDUISIRIA P(TrTER & LIGHT COMPANY STATEMDITS OF INCOME mfd RETAINED EARNINGS SGEARY FOR TEE 12 MONTHS ENDED DECEMBER 31, 1979 (1) (2) (3)

Line Act'd No. Title of Account Per Books 4000 1 Net Income $65,129 2 Retained Earnings - Beginning of Period 63,292 3 Total 128,421 Deduct-4 Coctnen Stock Expense 4 5 Preferred Stock Expense 454 6 Preferred Dividends 16,749 7 Comon Dividends 52,673 8 Total Deductions 69,880 9 Retained Earnings - End of Period $58,541

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LPL Erwin Ex. 18 Page 1 of 2 IOUISIANA POWER & LIGHT COMPANY ELECTRIC OPERATING REVUiUES, CUSIOMERS AND SATLS FOR 12 MONTHS ENDED DECE!GER 31, 1979 (1) (2) (3)

Line No. Items Actual

$000 ELECTRIC OPERATING REVENUES Ultimate Customers 1 Residential $180,364 2 Comercial 85,983 3 Industrial 212,853 4 Government and Municipal H ,688 5 Total Ultimate Customers 490,888 Other 6 Sales for Resale - System Companies 29,366 7 Sales for Resale - Others 32,338 8 Total Other 61,704 9 Total Sales of Electricity 552,592 Other Operating Revenues 10 Forfeited Discourts 2,310 H Miscelleeous .o.rvice Revenues 393 12 Rent from Elt:,cric Property 1,265 13 Other Ehr1.ric Revenues 287 14 Plant Leased to Others 629 15 Total Other Operating Revenues 4,884 16 Total Electrie Operating Revenues $557,476 CUS10MERS Ultimate Customers Average At 12/31/79 17 Residential 435,639 W3,527 18 Comercial 45,844 46,848 19 Industrial 7,130 7,162 20 Government and Municipal 3,047 3,108 21 Total Ultimate Customers 491,860 500,645 22 Sales for ResaJ 65 65 23 Total Electric Customers 491,925 500,710

I LPL Erwin Ex. 18 Page 2 of 2 IOUISIANA POWER & LIGHT COMPANY i ELECTRIC OPERATING Rt;vausS, CUS'IDMERS AE SALES FOR 12 MONTES ENDED DECEMBER 31, 1979 (1) (2) (3)

Line Actul No. Items MWH MWH EERGY SALES Ultimate Customers 1 Residential 5,996,179 2 Commercial 2,721,426 3 Industrial 11,388,056 4 Gover:rnent and Municipal 444,814 5 Total Ultimate customers 20,550,475 Other 6 Sales for Resale-System Companies 1,131,707 7 Sales for Resale-Others 1,569,996 8 Total other Sales 2,701,705 9 Total Electric Energy Sales 23,252,18o _

- - LPL Erwin Ex. 19 LOUISIANA POWER & LIGT COMPANY SAISS 'IO O'IEER ELECTRIC UTILITIES AND PURCHASED POWER FOR 12 MONTHS ENDED DECEMEra 31, 1979 (1) (2) (3)

Line No. Particulars Actual

$000 SALES TO O'IHER ELECTPlc UTILITIES Operating Revenues 1 Sales for Resale - System Companies $ 29,366 2 Municipalities 4,793 3 Cooperatives 22,595 4 Other Non-associated C11 ties 4,949 5 Total Other Elec :ric Utility Revenues $ 61,704 MWH MWH T.;aergy Sales 6 Sales for Resa)J - System Companies 1,131,707 7 Municipalities 239,921 8' Cooperatives 1,236,714 9 Othe- Non-associated Utilities 93,363 10 Total Other Electric Utility Sales 2,701,705 PURCHASED POWER Operating Expenses 11 Transactions with Associated Companies $ 47,647 12 Other Non-associated Utilities 87,012 13 Total Other Utilities 134,659 Facilities Charges 14 Associated Companies 6,365 15 Outside Utilities (913) 16 Total Facilities Charges 5,452 17 Total Purchased Power $g MWH MWH Energy Purchased 18 Transactions with Associated Companies 1,721,326 19 Other Non-associated Utilities 4,138,792 20 Total Purchased Power 5,860,118 I

I

LPL Erwin Ex. 20 l

1

)

IJJISIANA POWER & LIGHT COIGM1Y SOUPCES AND DISPOSITION OF ENERGY FOR YEAR ENDED DECEMBEE 31, 1979 (1) (2) (3)

Line No. Particulars MWH SOURCES OF ENERGY 1 Generation: Steam and Combined Cycle 18,419,787 2 Other 9,291 3 Net Generation 18,429,078 4 Purchases 5,860,118 5 Interchanges In (Out) - Net 32,510 6 Total Sources of Energy $3?.17g1 DISPOSITION OF ENERGY 7 Sales to Ultimate Customers 20,550,475 8 Sales for Resale 2,701,705 9 Energy Furnished Without Charge 4,716 10 Energy Used By Company 25,420 11 Unaccounted for Losses 1,039,390 12 Total Disposition of Energy 24,321,706 13 Energy Losses as % of Total 4.3%

. . LPL Erwin Ex. 21 IOUISIANA POWER & LIG'IT COMPANY COST OF ELECTRIC UTILITY PLANT AT 12/31/78 A?O 12/31/79 (1) (2) (3) (4) (5) (6)

Line Balance Balance No. Function 12/31/78 Additions Retirement _s 12/31/79 Sooo sooo sooo $ooo ELECTRIC PLANT IN SERVICE Production 1 Steam Production 464,668 5,o96 1,907 467,857 2 other Production 15,319 4 - 15,323 3 Total Production 479,987 5,100 1,907 483,180 Transmission Lines 4 Land and Land Rights 13,414 361 - 13,775 5 other n9,812 1,754 104 121,462 6 Total Lines 133,226 2,ns 104 135,237 Substations 7 Land and Land Rights 156 -

3 153 8 other 26,585 1,768 31 28,322 9 Total Substations 26,741 1,768 34 28,475 lo Total Trans=ission 159,967 3,883 138 163,712 Distribution Lines 11 Land and Land Rights 5,204 512 - 5,716 12 other 170,037 13,053 1,n9 181,971 13 Total Lines 175,241 13,565 1,n9 187,687 Substations 14 Land and Land Rights 2,703 28 7 2,724 15 other 117,316 7,078 1,864 122,530 16 Total Substations 120,019 7,106 1,871 125,254 17 Line Transfor=ers 105,400 12,365 1,747 n6,o18 18 Services 27,33o 3,785 360 30,755 19 Meters 31,497 2,923 W3 33,977 20 Street Lighting 15,991 1,614 226 17,379 21 Total Distribution 475,478 41,358 5,766 511,070 22 General 42,912 786 1,175 42,523 23 Intangible 63 - -

63 24 Electric Plant Leased to others 5,14 - - 5,1%

25 Plant Held for Future Use 4,599 - - 4,599 26 Total Utility Plant Completed 1,168,150 51,127 8,G86 1,210,201

LPL Erwin Ex. 22 LOUIS 1ANA PCTdER & LIGHT COMPMiY ACCUMLMTED PROVISION FOR DEPRECIATION OF ELECTRIC PLANT IN SERVICE AT 12/31/78AND12/31/79 (1) (2) (3) (4) (5) (6)

Line Balance Balance Wo. Function 12/31/78 Depreciation Retirements 12/31/79

$000 $O00 $000 $000 1 Steam Production m ,062 14,527 987 124,602 2 Other Production 6,694 518 - 7,212 3 Transmission 46,457 4,473 188 50,742 4 Distribution 132,942 19,397 3,707 148,632 5 General 18,196 3,084 1,052 20,228 6 Electric Plant Leased to Others 2,232 346 - 2,578 7 Total 317,583 42,345 M EQ 8 Less: Vehicle Depreciation (General Plant) 1,482 9 Income Depreciation 40,863 i

)

i e

LPL Erwin Ex. 23 1

IOUISIANA POWER & LIGHT CCMPANY

SUMMARY

OF CONSTRUCTION WORK Hi PROGRESS AT 12/31/78AND12/31/79 (1) (2) (3) (4) (5) (6)

Line Balance Balance No. Function 12/31/78 Additions Transfers 12/31/79

$000 $000 $000 $000 1 Production 593,633 231,250 5,100 819,783 2 Transmission 850 5,327 3,891 2,286 3 Distribution 4,749 45,961 41,350 9,360 4 General 264 930 786 408 5 Total 599,4% 283,468 51,127 831,837 l l

LPL ER'nTF EX. 24 Page 1 of 2 i IDUISI NA POWER & LIGHT COMPANY OPERATION AND MAINTENANCE EXPENSES BY ITJNOTIONAL CLASSIFICATIONS FOR 12 MOICHS ENDED DFCDGER 31, 1979 (1) (2) (3)

Line No. Particulars Actual OPERA' DON AND MAINTENANCE EXPENSES W

Production Generation Steen Operation 1 Fuel 189,853 2 Other Operation 5 k84 3 Total OPer a a 195,337 4 Maintenance 17,381 5 Total Steam 213,218 Other Operation 6 Fuel 373 7 other operation 206 8 Total operation 579 9 Maintenance 445 10 Total Other 1,02a*

11 Total Generation 214,242 Other 12 Purchased Power. 140,111 13 other Production Expense (14,h62) 14 Total other 125,649 15 Total Production 339,891 Transmission 16 Operation 649 17 Maintenance 1,280 1

18 Total Transmission 2,129 Distribution 19 Operation 5,904

! 20 Maintenance 10,412 1 21 Total Distribution 16,316 22 Customer Accounts Expenses 8,734 23 Cust. Service & Info. Expenses 3,171 l 24 Sales Expenses 62 Administrative and General

• 25 Operation 28,370 26 Maintenance 1,251 27 Total Administrative and General 29,621 l

28 Tots 1 Operation and Maintenance 309,92k l

LPL ERWIN EC. 24 Page 2 of 2 LOUISIANA POWER & LIGT COMPAITI MWH SUPPLY AND REQUIREMENTS STATISTICS FOR 12 MOIrlHS ENDED DECneER 31, 1979 (1) (2) (3)

Line No. Particulars Actual MWH MWH STATISTICS Supply 1 Steam Generation Exc. Sta. Use - Gas 15,102,404 2 - 011 3,317,383 3 Other Generation Exc. Sta. Use 9,291 4 Total Generation Exc. Sta. Use 18,429,078 5 Purchases 5,860,118 6 Interchanges - In 976,975 7 Total Supply 25,266,171 Requirements 8 Sales Exc. Interdepartmental 23,252,180 9 Interchanges - Out 944,465 10 Furnished Without Charge 4,716 11 Used by Electric Utility 25,420 12 Lost or Unaccounted For 1,039,390 13 Total Requirements 25,266,171 14 Peak Load (60 minute) - KWH 4,091,000 1

LPL ERWIN EX. 25 LOUISIANA POWER & LIGHT COMPANY PAYROLL msuss CHARGED DIRECTLY TO OPERATION AND MAIIiTENANCE EXPENSES BY FUNCTICICLL CLASSIFICAIION FOR 12 MONIES ENDED DECDGER 31, 1979 (1) (2) (3)

Line No. Function Actual

$000 Production 1 Operation 3,550 2 Maintenance 3,062 3 Total Production 6,612 Transmission 4 Operation 79 5 Maintenance 361 6 Total Transmission 441 Distribution 7 operation 2,994 8 Maintenance 3,876 9 Tota 1 Distribution 6,870 10 Customer Accounts 4,690 11 Cust. Serv. & Info. Expense 2,183 Administrative & General 12 Operation 6,233 13 Maintenance 461 14 Total Administrative and General 6,694 15 Total Directly to operation and Maintenance Expense 27,490 l

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• LPL ERWIN EK. 26 IDUISIANA POWER & LIGIT COMPANY TAXES O'ISER THAN INCOME TAXES CILL GED TO OPERATING EXPENSES FOR 12 MON'IES ENDED DECEMBER 31, 1979 (1) (2) (3)

Line No. Particulars Actual

$000 Federal Taxes 1 FICA 1,554 2 Unemployment 65 3 Total Federal Taxes 1,619 State and Local Tues k Corporate Franchise 2,083 5 Unemployment 216 6 Property Tax 9,573 7 Receipts and Sales (Pemits) 149 8 Regulatory Comission 51 9 Franchise Requirements 2,286 10 Total State and Local Taxes 14,358 11 Total Charged to Operating Expenses 1M Property Tax By Functional Classification 12 Production 1,927 13 Transmission 1,851 14 Distribution 5,298 15 General 497 16 Total Property Tax 9,573 17 Franchise Requirements 2,286 1

LFL ERWIN EX. 27 Page 1 of 2 LOUISIANA POWER & LIGHT COMPANY NET OPERATING INCOME l

FOR 12 MONLMS ENDED DECEMBER 31, 1979 (1) (2) (3)

Line No. Particulars Actual SOOO OPERATING RByr.aut;;5 Sales of Electricity 1 Sales to Ultimate Users 490,888 2 Sales for Resale 61,704 3 Total Sales of Electricity 552,592 Other Overating Revenues 4 Forfeited Discounts 2,310 5 Miscellaneous 393 6 Rents from Electric Property 1,265 7 Other Electric Revenues 287 8 Utility Plant Leased to Others 629 9 Total other operating Revenues 4,884 10 Total Operating Revenues 557,476 OPERATING EXPENSES Operation and Maintenance Expenses 11 Froduction 339,891 12 Transmission 2,129 13 Distribution 16,316 14 Customer Accounts 8,734 15 Cust. Service & Info. Expenses 3,171 16 Sales Expenses 62 17 Administrative and General 29,621 18 Total Operation and Maintenance Expenses 39?,924 19 Amortization of Prcperty Losses 4,101 20 Depreciation Expense 40,863 21 Taxes Other than Income 15,977 22 Income Taxes 22,750 23 Total operating Expenses 483,615 24 Operating Income 73,861 25 Allowance for Funds Used During Construction 45,853 26 Income Taxes on Debt Portion of CWIP-Cr. 14,189 27 Net Operating Income 133,933 l

LPL ERWIN EX. 27 Page 2 of 2 1

IOUISIANA POWER & LICIT COMPANY RATE BASE AT DECEGER 31, 1979, UNADJUSTED (1) (2) (3)

Line No. Particulars Actual

$000 Bate Base 1 Total Electric Plant in Servict 1,200,549 2 Plus: Plant Held for Future Use 4,599 3 Plant leased to Others 5,11A 4 Construction Work in Progress 831,837 5 Plant Acquisition Adjustments 1,496 6 Less: Accu =alated Depreciation (353,994) 7 Net Electric Plant 1,689,631 8 Cash Working Capital (See Calculation Below) 8,698 9 Materials and Supplies 8,741 10 Prepayments 1,870 11 Customer Advances (7,649) 1? Accmmaated Deferred Income T::xes (98,510) 13 Deferred Investment Tax Credit Pre-1971 (4,384) 14 Rate Base 1,598,397 15 Calculation of Cash Working Capital 16 Total Operation and Maintenance Expense 399,924 17 Less: Fuel (190,226) 18 Purchased Power (140,n1) 19 Working Capital Base 69,587 20 (1/8or45 days) x.125 21 Cash Working Capital 8,698 l

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Iouisiana Power & Light Company Pro Toma Rate of Return on Rate Base 1979 (1) (2) (3) (4) At (5)December 31(6) (7) (8) (9) (10) (11) (12)

Adjustments connection Sales for Group Invest- 1779-80 Tee & NSF Pesale Savings Life Pension Capability Lir.1t Per ment Pate Check Fee Revenue Payron Plan Insurance Cost Equalization 27 0 . Item Books in SFI Increase Increase Decrease Increase Incresse Increase Increase Erp. Increase 1 0perating Pevenues $557,476,007 $!+,011,57% $67,512,446 $1,053,000 $(22.595,714) 2 operating Expenses 3 cperation and Maintec.ance 399,923,804 (14,485,5n) $2,645,675 $ 47,158 $ 35,339 $ 929,277 $ 38,000,067 4 Depreciation 40,063,000 5 tr.ortz. of Property .osses 1,101,089 4

6 Taxes other Than [n,:ome Taxes 15,977,301 7 Federal Insans Tat 10,767,850 1,765,471 29,711,842 463,1194 (3,569,254) (1,164,346) (20,754) (15,552) (408,770) (16,758,829) 8 stste Income Tax 1,086,n2 175,889 2,960,n1 46,169 (355,595) (116,001) (2,068) (1,549) (40,744) (1,669,637) 9 Deferre1 Federal Inccne Tax-Net 10,706,835 10 Diferred State In:ome Tax-Net 1,207,594 11 Investment Tax Cr3dit Adj.-Net (1,018,558) 12 Total operating Expenses 183,615,027 4 1,941,360 32,671,953 509,588 (18,410,360) 1,365,326 23,336 18,238 479,563 19,651,621' 13 Nat operating Income $g,860,900 $2,070,22 $34,840,493 $M $(I+,185,354) $(1,365,328) $hg $g8 23,) $(k79,563) $(19,651,621) 1h hte Esse 15 Plant in service $1,200,548,424 16 Plant ield for Future Use 4,599,378 17 C'JIP 831,836,990 18 P1snt Leased to others 5,143,675 19 Accum.Prov.for Depreciation (353,993,802) 20 net Plant 1,688,134,665 21 working capttal 19,309,407 $330,709 $5,895 $4,117 $n6,16C 6

22 Investment in SFI $36,996,850 23 Cu:stomer Advances for Const. (7,6f8,989) 4 24 Deferred ITO pre-1971 (4,383,651) 25 Accu:n. Deferred Income Taxes (93,509,782) 26 Plant Acquisition Adjustments 1,495,927 -

27 Total Este Base $1,598,397,577 $ M f so $33o,709 $5,895 $4,417 g 28 Rate of Return on Rate Base 4.62% [,

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a-Iouisiana Power & Light Company Pro Forn.a Rate of Return on Rate Base At December 31, 1979 (Continued) '

(1) (2) (13) (14) (15) (16) (17) (18) (19) (20) (21)

Adjustments Real and M&S Trans- Group Tax Personal portation & Hospital- FICA on Debt Line Property Cartmct Work ization Tax Postage Plant Portion

!:o, Item Tax Increase Increase Increase Increase Increase Increases of AMIDC TOM Pro-FoT.a 1 Operatir.g Revenues $49,501,306 $607,f*57,313 2 Operating Expenses 3 Opecation and liaintenance $4,114,000 $868,000 . $130,400 32,3fA,425 432,288,229 4 D*:preciation 40,863.000 5 A .ortz, of Property Losses 4,101.069 6 Taxes Other Thaa Incotte Taxes $2,21,7,000 $200,016 '2,447,016 18,,l.24,317 7 Federal Incorae sax (988,892) (1,810,548) (382,002) (68,026) (57,388) $(12,673,559 (6,197,384) 4,570,466 8 stste Income Tax (98,5?1) (180,380) (38,o58) (8,770) (5,717) (1,315,833) (650,704) 435,403 9 Dererred Federal Income Tax-Net 10,706,835 10 Def*c rred State Ir.coce Tax-Net 1,207.5 %

11 Investa.ent Tax Credit Adj.-Net (1,018,558) 12 Total Operatirg Expenses 1,159,587 2,123,072 447,940 103,220 67,295 (14,189,388) 27, % 3,353 511.578,3 2 13 Nat Operating Income * $ Q M M ) $(2,123,072) $(447,940) $(103,220) $g) $14,189.388 $22,017,953 (g873

_ A pjJg 14 Rate Psse 15 Plant in Service $45,30!*,462 $t+5,304,f,62 $1,245,852,R86 16 Pla.t !! eld for Fcture t!se 4,57),378 17 CLTIP 234,329,010 234,329.010 1,066,laic.iu 13 Plant inced to Others 5,143,675 19 Accum.Prov.for Dtpreciation _

(36,1+60,198) (36,460,198) (390,4 % ,000) 20 Net Plut 243,173,274 243,173,274 1,931,307,939 21 Ucrking Capital $514,250 $108,500 $16,300 1,096,231 20,405,638 22 Investnent in SFI 36,996,850 36,9 % ,850 23 Customer Advances for Const. (7,645,9C9) 24 Deferred lit pre-1971 (4,383,651)'o t*

25 Accum. Deferred Ir.come Taxes (98,509,782)[ h3 26 Plant Acquisitiot Adjustments (124,927) (124,927) 1,371,000 <*

27 Total Bate nase $514,250 $1cd,500 ng $243,048,347 $j281 2 1t 1,428 $b6191535,00_i ro 20 Rate of Return on Bate Base 510f, t :s S- t'1 F

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t Louisiana Power & Light Company g Explanation of Adjustments in the Pro Forma Rate of Return on Rate Base At December 31, 1979 Column Explanation 1+ Investment in SFI. Interest income received in 1979 from the investment in SFI and related income taxes en other income and deductions are reclassified for rate-making purposes as operating revenues and related operating income taxes. Adjustment is also made to include investment in SFI in the rate base.

5 1979-80 Rate Increase. This adjustment gives effect to the annualization of the mte increases granted by the LPSC in December 1979 and by the City of New Orleans in February 1980.

6 Connection Fee & NSF Check Fee Increase. This adjustment gLves effect to the annualization of the estimated charges for connection fees and NSF checks initiated in March 1980.

7 Sales for Resale Revenue Decrease. By mid-1980, it is anticipated that the rural electric cooperatives wi n have their own electric generation facilitier. This adjustment gives effect to the annual loss of cooperative and municipality sales for resale revenue and related reduction in fuel costs and income taxes.

8 Payroll Increase. This adjustment gives effect to the annualization of wage and salary increases during 1979 which were charged to operation and maintenance. One-eighth of the payroll increase is also added to working capital in the rate base.

9 Savings Plan Increase. The Company's share of funds contributed to this plan in 1979 amounted to 1.78% cf total payroll. 'Ihis contribution is anticipated to increase operation and maintenance in 1980 by 1.78% of the payroll increase shown in Column 8. One-eighth of this increase is also included in the rate base as working capital.

10 Group Life Insurance Increase. As a result of the earnings adjustment for hourly employees and salary increases for employees in the Salary Administration Program in December 1CJ/9, the additional group life insurance coverage will increase operation and maintenance in 1980 by WG approximately $35,339 The rate base is also increased by one-eighth of this amount for working 9U capital. .

us oV 11 Pension Cost Increase. Primarily as a result of the payroll increase mentioned in Column 8 and ""

the increased pension benefits effective September 1,1979 for LP&L retirees who retired prior 9 to January 1,1978, pension costs is estimated to increase by $1,359,500 in 1980, of which *

$929,277 will be charged to operation and maintenance. One-eighth of this amount is also El>

included in the rate base as working capital.

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Louisiana Power & Light Company g Explanation of Adjustments in the Pro Forma Rate of Return on Rate Base At December 31, 1979 Column Explanation 12 Capability Equalization Expense Incren!3e. This adjustment gives effect to the annualization of the increased cost of capability equalization which is primarily attributable to two new generating units being put into commercial operation in 1980 by Arkansas Power & Light Company.

13 Real & Personal Property Tax Increase. This adjustment gives effect to the estimated increase in real and personal property taxes in 1980, which is primarily attributable to the end of the ten year tax exemption for Little Gypsy Unit No. 3 l!4 FAS, Transportation & Contract Work Increase. This adjustment is to give effect to an estimated 15% increase due to inflationary pressures in 1980 for materials and supplies, transportation and contract work charged to operation and maintenance. One-eighth of this amount is also included in the rate base as working capital.

15 Group Hospitalization Increase. It is anticipated that group hospitalization costs will increase by $1,216,000 in 1980, of which $868,000 vill be charged to operation and maintenance.. Working capital in the rate base is also increased by one-eighth of such expense.

16 FICA Tax Increase. This adjustment gives effect to the increased cost of FICA taxes in 1980 charged to operating expenses as a result of the increase in FICA base from $22,900 to $25,900 and the payroll increases shown in Column 8.

17 Postage Increase. This adjustment is to give effect to the anticipated increased cost of postage during 1980 as a cesult of the cost of a postage stamp to be increased from 15p to 20p. One-eighth of such expense is also included as work!nd capital in the rate base.

18 Plant Increases. This adjustment reflects the 1980 estimated net increases in plant in service and CWIP less the increase in the accumulated provision for depreciation and the annual amortization of plant acquisiticn adjustments.

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19 Tax on Debt Portion of AFUDC. This adjustment gives effect to the elimination of income taxes on v the debt portion of AFUDC as a result of reflecting "real earnings" on CWIP rather than AFUDC. o o

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r Attachment to questioa #(4 from letta. W3P81-0323 l

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