ML20072G678

Annual Financial Rept 1982

ML20072G678
Person / Time
Site:	Comanche Peak
Issue date:	03/31/1983
From:	Marquardt W TEXAS ELECTRIC SERVICE CO.
To:
Shared Package
ML20072G635	List: ML20072G639 ML20072G666 ML20072G678 ML20072G694 ML20072G708 ML20072G713 TXX-3688, Forwards Annual Financial Repts 1982
References
NUDOCS 8306280593
Download: ML20072G678 (37)

Text

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TEXAS ELECTRIC SERVICE C0MPANy ANNUAL REPQRT 1982

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8306280593 830615 PDR ADOCK 05000445 PDR I

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.-- m w m (Dollan in Thousands) 1982 I981 1980 Total Electric Plant *

$2,783,000

$2,J72,000

$1,22J,000 Construction Expenditures (excluding nuclear fuel)

$ 301,000 J 256,000 J 215,000 Net Generating Capability (Kilowatts)*

5,997,000 5,997,000 5,997,000 Gas / Oil Fueled 1,256,000 J,256,000 1,256,000 Lignite Fueled 1,711,000 1,7.//,000 1,7JI,000 Fuel Alix for Electric Generation (%)

Gas 50.6 50.9 5I. 7 Oil 0.5 0.2 0.2 l

Lignite 18.9 18.9

./8.1 Fuel and Purchased Power Expense

$576,000

$399,000

$10/,000 Fuel Cost per NINillto

$2.29 J/.66 f.81 Gas

$3.65

$2.J6 J.98 Lignite

$.86 J.81 J.69 Number of Customers' 587,000 561,000 531,000 Operating Revenues

$1,I19,000

$915,000

$666,000 Supplemental Ratio of Earnings to Fixed Charges 3.1 3.9 3.6

• Endofyear.

swa exas Electric new Electric Company.

/pHP.? Service Company, Texas Utilities has three other d

an investor-owned subsidiaries which perform

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j4 electric utility, specialized services, at cost, for the L

provides service in Texas Utilities Company System, 48 counties including the Company. Texas t

g' p throughout North Utilities Services Inc. furnishes s

Central and West Texas. This area engineering, financial and other includes the cities of Fort Worth, services. Texas Utilities Fuel

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Arlington, Ilig Spring, Eastland, Company owns a natural gas

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Grand Prairie, Slidland, Odessa, pipeline system, and acquires, Sweetwater, Wichita Falls and 69 stores and delivers fuel gas and other incorporated municipalities.

oil, and provides other fuel services The Company is a wholly owned for the generation of electricity.

subsidiary of Texas Utilities And Texas Utilities Generating g

Company which provides common Company operates the jointly n

stock capital and short-term owned generating stations and financing to the Company. Dallas furnishes related services, Power & Light Company and including the ownership and Texas Power & Light Company, operation of fuel production I

whose respective systems are facilities for surface inining and interconnected with that of the recovery oflignite for use as fuel I

Company, are also subsidiaries at such stations.

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of Texas Utilities.

- Midsedsedlessedsprusy Texas Utilities Electric Company l

FrasideAndesse.

was organized in 1982 as a wholly

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owned subsidiary of the Texas P0ssesenEdumisiss& sense Utilities Company. Effective i

g' Closes a

January 1,1984, Texas Electric,

%seindsee at Dallas Power & Light and Texas Campsqp'seseAdesrasadamesassis,

Power & Light will merge into

is FidiasFads.

and become divisions of the K

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- nuns of the people Nes ertheless this region telt w e sen e - are repercussions of the nationwide facing this challence.

recession last S car - repercussions l'se of the term "hard times" compounded bs a dou nturn in the to describe economic conditions petroleum industry.

in Texas Electric's senice area This general economic "Our goal-as always-is to hold down the price our customers

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slowdown, and the real financial approved the merger of Texas the political and legislative process concerns of some of our customers, Electric with Dallas Power & Light can have on our customers' electric have made belt-tightening more and Texas Power & Light into a bills.

than ever the order of the day at new utility, Texas Utilities Electric Our employees are doing their Texas Electric.

Company.

part to encourage responsible Our goal-as always-is to hold Texas Electric, DP&L and legislation. More than 4,000 people down the price our customers have TP&L cach will be a division of attended ger-out-the-vote parties to pay for electricity. Where we the new company, which also will for employees and their families can help do this by reducing our include a fourth division primarily on the eve of the 1982 general operating costs, we arc.

responsible for power plant election.

Our commitment is to reduce engineering, design, construction A political scientist once said, these operating costs without and operation.

"To serve the public interest is t

bringing about any deterioration in Although we'll still have our not the same as being a servant of the quality of service we provide local service identity and the public opinion." We know rising our customers.

organizational changes will not be costs are not popular. And we are This will not be an easy task, readily apparent to customers, this dedicated to continuing our efforts espccially since we will be serving new structure will provide greater to increase productivity and to more customers with fewer ficxibility and will allow us to operate as efficiently as possible.

employees.

operate more efficiently and But we know the essential costs The answer lies in the ingenuity, economically.

of providing electric service are productivity and dedication of our Last year at this time, we did not going up, and to fail to act employees, anticipate getting through 1982 responsibly on this knowledge l

Over many years, we've devised without having to ask for a rate would penalize our customers numerous ways to hold down costs increase. We were able to do so, severely in the not-too-distant and save money for our customers.

partly because of our efforts to cut future, both in terms of the price of A good example is our acquisition costs and increase productivity.

electricity and reliability of service.

of relatively cheap lignite fuel and Although fuel costs have increased, All of us, then, will persist in our construction of generatmg plants it's been three years since we've efforts to assure our customers of a to use it. Our customers have asked for an increase in base rates, reliable supply of electricity and a saved hundreds of millions of and we no longer can postpone a high quality of electric service at as dollars because of this innovative request. Strict budget cuts and low a price as possible.

planning, done years ago.

other cost-saving s,teps we're taking Alore recently, we've undertaken help offset higher mvestment and increased use of computers in areas interest costs and will help hold where they can help employees down the amount ofincrease we'll become more productive-have to ask for this year.

including the computerized meter-These rising costs, of course, reading system pioneered by Texas serve to re-emphasize the vital

Electric, importance of conservation and of Our load management program Texas Electric's efforts to help W. G. Marquardt is proving to be effective. By customers learn ways they can Presidentand encouraging our customers to install conserve on their use of electricity.

ChiefExecurit;r more energy-efficient equipment, In addition, in 1983 the especially air conditioners, this Company began its Energy long-range program is holding down Aid Program aimed at helping growth in demand for electricity.

people who have severe financial 1

This is reducing the need for new hardships pay their energy bills.

.1/and J/,1983 generating capacity, thereby The Company made an initial reducing costs-now and in contribution of $30,000 to the the future.

program, and its customers are be, employees and Another important action which mg given the will help us hold down costs is the opportunity to make donations.

reorgamzation of the Texas Utilities

'I he program is administered by Company System. In Februarv established commumty agencies.

1983, our preferred shareholders Finally, we realize the impact am.mn

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s in the rest of the levelitself was below the national distribution facilities were United States, the average.

completed, under construction iAi economy of Texas Residential housing construction or announced during the year i

slowed in 1982.

increased substantially in 1982, by 172 industries. It is estimated lly comparison to with almost 20,000 ne'w units tliese industries will provide more much of the nation, completed in the service area. This than 4,000 new jobs.

however, the state's made 1982 the second most active economic outlook remained good.

year for housing unit completions The deepening nationwide in the area's history, surpassed only recession had its impact on Texas, by 1980.

with parts of the state especially And industrial development affected by the slowing of oil continued in the Company's service industry activities and adverse area. Niore than 7.2 million square agricultural conditions.

feet of manufacturing and Nevertheless, there were a number ofindications that the overall economy of Texas Electric's service area would remain healthy.

Unemployment rates in the Company's North Central and West Texas service area were below the overall average for the state.

And the state's unemployment W

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- m aving money can to provide the quality of electric Our eight lignite-fueled be a matter of doing service customers expect.

generating units have saved Texas g%c@without, doing with The Company's use oflignite Electric's customers hundreds of M less, doing more fuel remains one of the most millions of dollars since the first

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MM2 ' with what you have important examples of how unit began operating in late 1971.

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.. and using new innovative thinking has had-and Other practices and equipment

--. and innovative ways will keep on having-far-reaching in use may save lesser individual to provide service to customers at a benefits for our customers, amounts. Ilut the combined effects

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lower cost.

of these practices add up to Texas Electric and its employees millions in savings, have been taking all approaches to hold down costs u hile continuing For examplet

= Computerprograms developed by employeesin the engineering departmentalloc substation and transmission line construction cost s

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few minutes.

= Computerprograms usedto AVERAGE FUEL COST-

$1 MILL 10N BTU A"l0.nn (0!"PI(X rnginanng D NaturalGas E Lignite Coal studies assortatedwith

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transmission anddistribution l'11 systemproblems substantially A

redua the man-houn requind andimprove thearturaty and

,,7, resuhs ofthesestudies.

y; a Thedatasystemsdepanment pmvides datapmassingforall majorsystems, such as customer W

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M infonnatton andarrounting,fmm a antrallocation. Such automated systems make_itpossible to get and fortgerusefullivesforequipment use information that othmeise andeconomies ofscale resuhing n

couldnotbe obtainedfeasibly.

fmm volumepurchasing of w UseoftheCompany's equipment.

transponation maintenanaanten

= Smallauxiliary "packageboikrs" 19f?

has trsuhedin more rrliable in use at two gas-fuekdpower wl transponationforservia cm:s, plants kap " peaking" units wann andnadyforfaststart-up.

Quickerstart-ups, along eith

.\\lany dozens of other cost-saving improvedunitstartingtahniqyes practices also add up to substantial andretmptting ofpeaking units, economics. ]ust two examples:

contnbute to substantialannual savings infuelrosts.

2 Replacingfluoresantlamps with enoxy-efficient lamps results in i

significantsavings eachyearin the l

Fon \\\\'onh headquanen buihling l

alone, with proportionate savings beingexpairnadas allCompany facilities are re-larnpal.

m lexas Elenricbaame thefint company in the Dallas-Fon \\\\'onh area to begin soningfint-dass mailby carrierroute as wellas ZIP riule, bringingabout a savings expatedto be up to $6M00 a year.

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i PERCENT

.111LL10NS OF DOLL 1RS C Gas Oil E Lignite 1970 y.

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8 increased by only 13 percent during the five-yea'r period from 1979

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the number ofcustomers served will have increased by an estimated

• Estimated 197f 27 percent.

68 The reorganization of the Texas Utilities Company System also will help reduce the number of

,, g employees necessary to serve customers by enabling more efficient operations and long-let?

term productivity gains.

The Company is able to continue providing high-quality service to more customers without a corresponding increase in Cost-reduction measures also are personnel, largely because of important in the categories of doing the efforts of employees and without and doing with less.

their use of computers and other These measures include labor-saving measures.

reduction in number of employces, deferred replacement of Company vehicles and deferment of many other maintenance and construction pnyects.

Employment level is to be reduced by at least 110 people by the end of 1983. The reduction in personnel is expected to be i

accomplished through attrition.

Ilased on this goal, the number of Company employees will has e w e. -- e a mm--,=mv~m==mm.

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m. cm wm,1ruz~3yzgy,;; mmgw;;- ;g;m,: Lwr;;=rz;,ga ;g u.a o a great many and its relatively low electricity Commission, which began a series p//;=p~l people, Texas is the costs-mean it should continue to of hearings on an operating license pc i

N place to be... be highly attractive to business and for Comanche Peak in late 1981, 13m.. and the place to industry. completed most of the hearing move to. Niceting the growing demarid process during the past year. Texas Electric for electricity posed by this influx Nuclear power and Comanche ^ gained more than of people and businesses is a Peak are showcased and explained 25,000 new customers in 1982. In challenge, but a challenge for in the Visitors Information Center, the last five years, the Company which we feel well-prepared. which opened in late 1982. The has added almost 124,000 new A primary resson we are well-center is in the lobby of the customers. prepared to mcet the demands of Nuclear Operations Support The rate of continued population coming years is our Comanche Facility one mile inside Comanche growth in Texas Electric's service Peak nuclear plant, being built near Peak's front gate. Its informational area will depend on a number of Glen Rose. Comanche Peak also displays are open to the public, and factors. But this area's relatively will use cheaper fuel. Uranium will visitors can be taken on van tours of stable and diversified economy-cost about 70 cents per million Bru, the plant site. compared to an average cost to The Nuclear Operations Support Texas Electric in 1982 of 86 cents Facility also contains offices for the for lignite and $3.65 for natural gas, plant's operations support group Unit 1 is scheduled to go into and facilities for training plant service in 1984. At the end of 1982, personnel. In addition, it is Unit I was 93 percent complete, designed to serve, if needed, as Unit 2 was 57 percent complete an emergency operations facility. and the plant as a whole was 81 L percent finished. f Pre-operational testing had [ begun, with a major milestone-f3 test of the reactor coolant system f' -completed in July 1982. l Early in 1983, two other ,~ milestone tests were completed-1 b the structural integrity test and integrated leak rate test. These tests confirm the strength of the Unit I containment buil~ ding and its ability to remain leak-tight when subjected to internal pressure. An Atomic Safety and Licensing Board of the Nuclear Regulatory [ l l c. y 1 .. SamendgesseFaudNA.le L q F drapphuscamum 3 sudrammeneksisAdigns.1 w. .. +%: a 4 LutniG0LG -w L 2CLTZJ2'C'~T^ *":~*'""T W'~T"V"M WV"M * ~~ "" T?' E~ ~ ' ?'t .91 -

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l b F efeenive a. __.J. r:,n=:memw=mw.1==2mmm:=rc=mm am=rmx=s rw-nzz===m =a e vidence was units and solar systems as assist of Company facilities, by attending m } %i devices for electric water heaters. special programs and from the ' L 3 p. clear in 1982 that 7 conservation by New home builders and mobile Company s home services p 3 J-L7j our customers and home dealers also can participate department. {">~~". ' Texas Electric's by installing qualifying high-And in 1982, the Company went ~ ~~ load management efficiency air conditioners or heat into the second year ofits home j' '" program are pumps. energy analysis program. Through contributing substantially to In 1982, the load management the Residential Conservation slowing the rate of growth in peak project was augmented by a Service program, Company energy dem:nd for electricity, program to provide incentives specialists make individual visits to Although the Company added to commercial and industrial the homes of customers who accept more than 25,000 new customers customers who replace existing invitations to have their homes during the year, peak demand rose standard fluorescent lamps with analyzed. Customers can be only 1.2 percent. specific reduced-wattage lamps. advised as to what they can do to llolding down growth in peak Ily the end of 1982, the load make their homes more energy demand is the intent of the management program had helped efficient, as well as how much they Company's load management prompt installation of 10,433 high-can expect to save on utility bills if program, which was inaugurated in efficiency central air conditioners, they act on the recommendations. 1981. Success of the program will 5,244 room units,2,374 central me:n the Company will need to heat pumps,254,000 reduced-build fewer expensive new power wattage lamps and other high-pl:nts to meet future demand for efficiency equipment. electricity. IIciping customers learn how Through the program, the to hold down on their use of Company offers customers fmancial electricity at home also remained incentives to encourage them to emphasized. Four years ago, Texas replace worn-out electric Electric began its Operation refrigerated air conditioners and Tighten-Up program. Customers heat pumps with high-efficiency are invited to free neighborhood units and to install heat-recovery workshops to learn low-or no-cost ways to make their homes more energy efficient. Customers also receive conservation information on tours . ~~w ~~n m It SemertempsteropersterSykysterl [ 8essers*46enesafdesssiersgr j ; units.= J = s .j J a w u.un. w _ s ua w.u M ~.:2~==Cr3= V W M' C YT W C M 2T M Z *R M X M~M C W 22 I.- u i

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====:m=m=======wma l r-,m irms onstruction in Texas Electric's ability to Company sold first mortgage bonds [ Jr ;"itl expenditures for raise capital for construction at for a total amount of $150 million. [ ~p generating units and reasonable costs from people The Comp $14 million in Decembe any also raised an t- <W other facilities, willing to invest in the Company. additional [ cxcluding nuclear For many years, Texas Electric 1982 by issuing first mortgage l fuel, amounted to has maintained a AAA bond rating bonds to collateralize the sale of $304 million in with rating agencies. This rating pollution control bonds. I 1982, compared to $256 million in has proved invaluable in enabling Early in 1983, the Company 1981. Plans are to spend about $312 the Company to obtain construction raised $35 million through the sale million in 1983, $258 million in funds at more reasonable costs and of preferred stock. l 1984.md $256 million in 1985. under more favorable terms. The financial condition of the The Company raised $30 million Company is an important factor in.\\ larch 1982 through the sale of common stock to its parent company, Texas Utilities. In April 1982 and December 1982, the i th, ner ship of I'la nneal blilitinns to Jeanth thened (,'ener atinct apability I ig nito tu rner ating % tations 14 G-1441 i . TEXAS - TEXA8 ' RLECTRIC ^ W ELECTRIC COST-t sIEE:

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t 6: Ln s n amummmmme- --mmmm. wm-y -- -i wmne n December 1980, Council of Texas, has been appeal in the 250th Judicial District M an appeal of a involved in a dispute with the Court of Travis County, Texas, and 6 NM previous Texas Company and other members of the court upheld the decision of

1. GM Public Utility ERCOT relating to synchronous the Railroad Commission, which Commission s interconnections between SWPP judgment was appealed by Gulf, a

[y,,,*g ruling on the and ERCOT with the principal in August 1982, the Board of reasonableness of issues being the Company's Directors of Texas Utilities directed transactions between affiliated concem for the reliability ofits management to proceed with the companies of the Texas Utilities system and objection to being implementation of the revision of Company System resulted in the subjected to the general jurisdiction the organizational structure of the court indicating its intention to of the Federal Energy Regulatory Texas Utilities System. Such enter an order that the PUC further Commission. This controversy has revision will involve the merging of reconsider its findings with respect been contested in numerous the Company, Dallas Power & to the application of Texas forums, including proceedings Light and Texas Power & Light Electric s fuel cost factor. before FERC, a lawsuit in the into Texas Utilities Electric The court entered such an order United States District Court for the Company, a recently formed wholly in December 1981 in light ofits Northern District of Texas, a owned subsidiary of Texas Utilities, conclusion that provisions of the licensing proceeding before the with the merging companies Texas Public Utility Regulatory Act Nuclear Regulatory Commission thereafter becoming divisions of require a prior determination by the for the Comanche Peak station, a the new Electric Company. In l PUC of the reasonableness of the PUC proceeding and an ongoing December 1982, the merger charges involved in transactions Secunties and Exchange received the approval of the PUC among affiliated interests which are Commission hearing. In January which found that it was in the i to be recovered by the Company 1982, FERC issued an order public interest. In February 1983, under its fuel cost factor. The court approving a settlement among the at special meetings of the preferred did not order further refunds or various parties which provides for stockholders of the Company, require penalties to be levied but the establishment of two direct Dallas Power and Texas Power, the asked that these matters be current asynchronous proposed merger was approved by considered further by the PUC. interconnections between SWPP more than the required vote of the The Company appealed this and ERCOT. The settlement is outstanding shares of the preferred judgment and filed for approval made on a basis which would stock of each of those companies. with the PUC, and those not subject the Company to the The Company believes that the municipalities retaining original general jurisdiction of FL7RC. In revised structure should provide jurisdiction, a new procedure to September 1982, FERC entered an greater flexibility and achieve provide for prior approval of order dismissing this proceeding. additional economies and payments to affiliates. On July 29, The entry of this order terminates efficiencies which will benefit 1982, all suits, appeals, and the litigation and various shareholders, customers and remands relating to these rate administrative proceedings relating employees of the System proceedings were resolved by the to the dispute. compames. l entry of a non-appealable Agreed In a proceeding before the Final Order by the PUC which Railroad Commission, Gulf Oil l adopted a new procedure for prior Corporation filed an application to approval of payments to affiliates pass through purchased gas costs and granted no further relief, to Odessa Natural Corporation. l The PUC also has under review Odessa filed a motion with the various methods of recovering Railroad Commission to the effect t l the costs of all fuel used in the that should Odessa be required to generation of electricity. pay any additional amounts to Gulf, For the past several years, it should be allowed to pass these Central and South West increased costs to the Company, Corporation, a holding company which purchased the gas from with an interstate system which is Odessa. In December 1980, the part of the Southwest Power Pool Railroad Commission entered an and an intrastate system which is order denying Gulf's claim. part of the Electric Reliability In January 1981, Gulf filed an wwa.w. m a m - w w w nammmmmama- ~~e -

FinancialStatements Opinion ofIndependent Certified Public Accountants Texas Electric Service Company: We have examined the consoli.ated financial statements (pages 24 to 32) of Texas Electric Service Company and subsidiary, Old Ocean Fuel Comp,any, as of December 31,1982 and 1981 and for each of the three years in the period ended December 31,1982. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the financial statements referred to above present fairly the financial position of the ampanies at December 31,~ 1982 and 1981 and - the results of their operations and the source of their funds for construction for each of the three years in the period ended December 31,1982, in conformity with generally accepted accounting principles applied on a consistent basis. Deloitte Haskins & Sells Fort ll' orth, Texas Alarch 25,1983 Y 19

Five-Year Financial & Stadsdcal Summary Financial Statistics )* ear EndedDeember31, 1982 1981 1980 1979 1978 Total Assets (thousands) $2,454,513 $2,157,994 $1,924,006 $1,690,795 $1,529,979 Electric Plant (thousands) $2,783,027 $2,471,845 $2,223,505 $1,978,389 $1,769,706 Accumulated depreciation 518,014 466,905 417,856 375,982 329,838 \\ Construction expenditures lincluding allowanceforfunds usedduring constniaion) 30',277 255,816 245,106 206,346 200,541 l Capitalization (thousands) Long-term debt S 893,446 $ 730,103 $ 678,137 $ 6/8,405 $ 545,525 Yreferred stock 209,606 209,606 209,606 174,991 174,991 Common stock equity 923,841 829,444 698,011 600,402 553,850 Total $2,026,893 $1,769,153 $1,585,754 $1,393,798 $1,274,366 Average Interest Cost on Long-term Debt 10.0 % 9.1% 8.3% 7.6% 7.2% Average Dividend Cost on ( Preferred Stock 8.1% 8.1% 8.1%

7. 7%

7. 7%

Net income (thousands) $ 165,558 $ 155,034 $ 121,217 $ 85,511 $ 85,179 Dividends Declared on Common Stock (thousands) $ 84,160 $ 71,100 $ 58,320 $ 50,500 $ 46,080 l Ratio of Earnings to Fixed Charges 3.9 4.6 4.3 3.8 4.1 l Supplemental Ratio of Earnings to Fixed Charges

• 3.4 3.9 3.6 3.4 3.8 i

Allowance for Funds Used During Construction as Percent of Earnings to Common Stock 40.0 % 18.2 % 25.2 % 26.1 % 27.5% Return on Average Common Stock Equity 16.8 % 18.4 % 15.9 % 12.3 % 13.3 % l l Net Funds from Operations as Percent of Construction l l Expenditures (excludingallowance l forfunds usedduringtonstruction) 42.1 % 54.9 % 49.5 % 50.4 % 47.1%

• 1he supplemental mtio of earnings tojxedcharges includes the Company's allocable ponion ofinterest on senior notes of affiliatalcompanies which pirwide services to the Company.

20

rn e Operating Statistics Year EndedDecember31, Elcetric Energy Generated 1982 1981 1980 1979 1978 \\ cnd Purehased (meh) Generated-net station output 22,004,793 21,388,596 21,721,274 20,378,943 20,681,066 Purchased and net interchange 717,802 287,648 113,265 444,965 347,945 Total generated and purchased 22,722,595 21,676,144 1/,834,539 10,823,908 21,029,011 Company use, losses and unaccounted for _. 1,738,418 1,705,088 1,641,934 1,534,200 1,459,322 Total electrie energy sales 20,984,177 19,971,156 20,192,605 19,289,708 19,569,689 Fuel Mix for Electric Generation Gas 50.6 % 50.9% 51.7% 51.5% 65.7% Oil 0.5 0.2 0.2 2.8 1.1 Lignite 48.9 48.9 48.1 45.7 33.2 Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Electric Energy Sales (meh) Residential 6,540,768 6,086,019 6,513,255 5,758,252 5,868,457 Commercial 5,330,000 4,973,797 4,732,093 4,242,064 4,169,380 Industrial 7,448,983 7,352,039 7,155,624 6,989,265 6,772,579 Government and municipal 437,220 420,503 487,608 stU,923 527,971 Total general business 19,756,971 18,832,358 18,888,580 17,493,504 17,338,387 Other electric utilities 1,227,206 I,138,798 1,304,025 1,796,204 2,231,302 Total electrie energy sales 20,984,177 19,971,156 20,192,605 19,289,708 19,569,689 Operating Revenues (thousands) Residential $ 412,927 $344,813 $264,920 $201,677 $189,450 Commercial 307,736 252,331 169,332 135,009 125,257 Industrial 331,724 276,519 178,836 151,807 142,251 Government and municipal 27,469 23,449 18,990 16,259 15,266 Total general business 1,079,856 897,112 632,078 504,752 472,224 Other electrie utilities 51,617 41,186 30,648 26,748 _ 27,932 Total from electric energy sales 1,131,473 938,298 662,726 531,500 500,156 Other operating revenues 17,065 7,093 2,992 2,514 2,092 Total operating revenues $1,H8,538 $945,391 $665,718 $534,014 $502,248 Electric Customers (endofyrar) Residential 504,515 483,908 460,227 437,484 416,889 Commercial 68,673 64,358 61,123 57,171 55,527 l Industrial 11,266 10,839 10,238 9,72 7 9,497 Government and municipal 2,075 2,345 2,474 3,034 3,3 74 Total general business 586,529 561,450 534,062 507,416 485,287 Other electric utilities 39 36 37 37 34 Total electric customers 586,568 561,486 534,099 507,453 485,321 Residential classification includes indirect sales (apartments, etc.); dwelling units not included in number of customers 46,323 49,365 50,656 53,516 53,7/5 21

Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Company generates funds from operations suf-ficient to meet operating needs, pay dividends on its The primary capital requirements of the Company capital stock and finance a significant portion ofits cap-for 1982 and as estimated for 1983 through 1985 are as ital requirements. These funds are derived from net follows: income, depreciation, deferred taxes, and investment tax credits. Factors affecting the ability of the Com-m2 19s3 19se 1935 Pany to fund a portion ofits capital requirements from n-,,ds, pea,r> conm wtion operations include adequate rate relief and regulatory Practices allowing,a significant portion of construction

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12. m 11.av 33.av 13.av work m progress in rate base, adequate depreciation Maurities orlons-tenn rates, normalization of federal income taxes, full cur-debt sm 19.av rent recovery of the cost of fuel used in the generation Tout s265. m szn.av sess,av s261.av of electricity, and the opportunity to earn competitive rates of return required in the capital markets. For 1982, approximately 42% of the funds needed for con-struction was generated from operations.

External funds of a permanent or long-term nature are obtained through the sales of common stock to Texas Utilities, preferred stock and long-term debt. The capitalization ranos of the Company at December 31,1982 were approximately 44% long-term debt,10% preferred stock and 46% common stock equity. To provide for immediate cash requirements during periods between long-term financings, the Company obtains shon term loans from Texas Utilities, which had lines of credit with commercial banks aggregating $300,000,000 at December 31, 1982. The Company does not maintain separate credit arrangements with banks or other lenders. On hlarch 24, 1983, the Company issued and sold 350,000 shares of $10.08 preferred stock for $34,695,500. The Company expects to sell 2,000,000 i shares of its authorized common stock to Texas Utili-ties at the end of hf arch. The Company also expects to sell additionaisecurities as needed, in amounts and of types presently undetermined. Although the Com-l l' pany cannot predict future regulatory practices and is to some degree exposed to fluctuating economic and ( security market conditions, it does not currently expect any changes in trends or commitments which l might significantly alter its basic financial position or l ability to finance capital requirements, including the , Dallas Power & proposed merger of the Company & Light Compan i Light Company and Texas Power l into Texas Utilities Electric Company. The new orga-l l nization resulting from the proposed merger should provide greater financing flexibility and achieve addi-tional economies and efficiencies. l l 22 1 i l

i I 1 / n l 2 ) R:sults of Operations The increase in interest charges for 1982 was duc primarily to the issuance of additional debt securities Operating' revenues have increased $203,147,000 and, for 1981, as a result of the increase in short term and $279,673,000 for 1982 and 1981, respectively, pri-borrowings from Texas Utilities and the increased rate marily as the result of recovery of higher fuel costs on on such borrowings. a current basis, increased rate levels and also, for 1982, The Company expects to pursue adequate and l as a result ofincreased energy sales. Energy consump. timely rate relief to offset increases in the cost of pro-tion is affected by material variations in weather con- .viding electric service. ditions and was particularly impacted by the unusually The Company has prepared supplementary infor-hot and dry summer of 1980 co'mpared to the relatively marion concermng the effects of changing prices in - normal temperatures during the summers of 1981 compliance with the reporting requirements of Finan-and 1982. cial Accounting Standards Board Statement No. 33; The increase in fuel and purchased power expense such information is included following the Notes to resulted from higher unit fuel costs due to the expira-Financial Statements. tion of contracts for fuel gas from the Old Ocean Field at the end of 1980, the expiration of the Odessa Nat-ural contract at the end of 1981 and also, for 1982, as a reruit ofincreased generation. i Operation and maintenance expenses have increased primarily as a result ofinflationary pressures on the cost oflabor, materials and services. Operation and maintenance were also affected by the higher costs of operating and maintaining lignite-fueled gen-i erating units, including the additional costs of operat-ing and maintaining pollution control equipment required on several such units. Increases in taxes other than income resulted primarily from increases in rev-enue based taxes. Increases in allowance for funds used during con-struction reflect the increasing balance in construction work in progress and increases in the AFUDC rate effective January 1982 and January 1981, respectively. r l 23 t l l l

1. Texas Electdc Senice Company and Subsidiary-Consolidated Statement ofincome Year Ended December 31, 1982 1981 1980 Thousands ofDollan Operating Revenues 51,148,538 ' $915,391 $665,718 Operating Expenses-Fuel and purchased power 575,633 - 399,262 20J,283 Operation 132,974 111,672 98,291 Maintenance 68,067 57,750 48,030 Depreciation 54,689 52,598 51,153 Federal income taxes (Note 7) 71,789 91,008 71,613 Taxes other than income 59,755 51,2J7 J1,718 Total operating expenses 962,907 763,53 7 515,391 Operating Income 185,631 181,854 150,327 Other Income Allowance for equity funds used during construction 45,515 28,830 19,973 Other income and deductions-net 1,995 1,919 3,3 71 Federal income taxes (998) (883) (1,552) Total other income 46,512 29,866 21,795 Total Ineome 232,143 211,720 172,122 Interest Charges l Interest on mortgage bonds 73,213 51,306 51,580 l Interest on other long-term debt - 3,253 3,296 3,J60 l Other interest 4,055 9,150 2,568 Allowance for borrowed funds used during construction (13,936) (10,066) (6.703) Total interest charges 66,585 56,686 50,905 165,558 155,03J 121,217 Net Income l Preferred Stock Dividends - 17,001 17,001 15.288 l l Nat Income After Preferred Stock Dividends 5 148,557 $138,tU3 $105,929 See accompanying Notes to Financialstatements. 24

1 / ' {i Texas Eleenic Senice Company s and Subsidiary-Consolidated Statement ofSource of Fundsfor Construction Year EndedDecember31, 1982 1981 1980 Thousands ofDo//ars Funds from Operations Net income $165,558 $155,034 $121,217 Dcpreciation -54,689 52,598 51,453 Deferred federal income taxes-net 20,227 19,187 /6,467 Federal investment tax credits-net 23,132 19,348 19,237 Allowance for funds used during construction '(59,451) (38,896) (26,676) Total funds from operations 204,155 207,27/ 18/,698 Less-Dividends declared: Preferred stock 17,001 17,001 15,288 Common stock 84,160 71,100 58,320 Total dividends declared 101,161 88,101 73,608 Net funds from operations 102,994 119,/70 108,090 Funds from Financing Sales of securities: First mortgage bonds 166,453 62,338 75,000 Other long-term debt (502)- 502 Preferred stock 34,6/5 Common stock 30,000 64,500 50,000 Retirement oflong-term debt (3,262) (12,810) (3,332) Increase (decrease) in notes payable to Texas Utilities Company (parent) (6,000) 1,000 (39,000) Net funds from fmancing 181,689 1/5,028 117,785 Oth:r Sources (Uses) of Funds Changes in working capital, excluding notes payable and long-term debt due currently: Cash in banks and temporary cash investments 195 (1,025) /,391 Accounts receivable-net (9,283) (13,414) (9,269) Inventories (17,446) (15,867) (21,356) Accounts payable 12,597 ~ 14,242 (390) Taxes accrued (1,821) (2,820) 27,638 Other-net (6,845) 3,742 6,098 Net change (22,603) (15,142) 4,112 Nuclear fuel (12,087) 1,787 (11,023) Other-net (5,167) (3,923) (534) Net ather sources (uses) of funds (39,857) {l 7.2 78) (7,445) Total $244,826 $216,920 $218,430 Construction Expenditures Electric plant $304,277 $255,816 $245,106 Allowance for funds used during construction (59,451) (38,896) (26,676) Construetion Expenditures (excludinga//oeance forfunds usedduringconstruction) $244,826 $216,920 $218,430 See arrompanying Notes to FinancialStatements. 25

Texas Electric Senice Company and Subsidiary-Consolidated Balance Sheet Assets December 31, 1982 1981 Thousands ofDollan Electric Plant - In service: Production S 911,502 $ 86/,892 Transmission 171,266 JJ/,138 Distribution 500,939 451,911 General 55,021 JJ,806 Total 1,741,728 1,599,777 Construction work in progress-990,611 836,871 Nuclear fuel 15,152 33,065 Held for future use 2,533 2,129 Total electric plant 2,783,027 2,471,845 Less accumulated depreciation 518,014 466,905 Electric plant, less accumulated depreciation 2,265,013. 2,004,9J0 Other Investments 1,151 I,720 Current Assets Cash in banks 5,661 5,859 Special deposits 1,157 I,458 Working funds 12,803 9,823 Accounts receivable: Customers - 61,567 56,117 Other 6,319 J,742 Allowance for uncollectible accounts (2,961) (2,516) Inventories-at average cost: Materials and supplies 13,885 12,255 Fuel stock 71,278 55,J62 Other current assets 7,503 1,535 Total current assets 180,515 146,035 Deferred Debits 7,531 5,199 Total $2,451.513 $2,157,991 See accompanying Notes to FinancialStatements. 26

Liabilities Daember3/, 1982 1981-Thousands ofDollars Crpitalization Common stock (Note 3) S 769,500 $ 739,500 Retained earnings (Noted) 151,311 89,944 Total 923,811 829,444 Preferred stock (Note 3) - 209,606 109,606 Long-term debt-less amounts due currently (Notc5) 893,116 730,103 Total capitalization 2,026,893 /,769,/53 Current Liabilities Notes payable-Texas Utilities Company (parrnt) 7,000 13,000 Accounts payable: Affiliates 51,316 33,862 Other 21,812 29,729 Dividends declared 1,250 - 4,250 Long-term debt due currently 8,000 Customers' deposits 7,I12 6,321 Taxes accrued 39,338 41,159 Interest accrued 21,272 17,411 Other current liabilities 2,501 6,052 Total current liabilities 157,661 159,784 Iteserve for Insurance and Casualties 2,982 2,068 Accumulated Deferred Federal Income Taxes 121,181 100,957 Unamortized Federal Investment Tax Credits 115,793 126,032 Commitments and Contingencies (Notes 1 and 6) Total $2,151,513 $1,157,994 See awompanying Notes to FinancialStatements. 27

Texas Electric Senice Company and Subsidiary-Consolidated Statement of Retained Earnings Year EndedDenmber3I. 1982 '1981 1980 Thousands ofDollan Balance at Beginning of Year S 89,944 $123.011 $ 75,402 l Add-Net income 165,558 155,03J 121,217 Total 255,502 278,045 196,619 Deduct Dividends (cash): Preferred stock: .$ 4 series ($ 1.00pershareperannum) H0 H0 NO $ '4.56 serics ($ 4.56pershanperannum) 296 296 296 $ 4.64 series ($ 4.64pershanperannum) 464 464 464 $ 5.08 series ($ 5.08pershanperannum) 407 407 407 $ 7.44 series ($ 7.Hpershareperannum) 2,232 2,232 2,232 $ 8.32 series ($ 8.32pershareperannum) 2,496 2,496 2,496 $ 8.44 series ($ 8.Hpershareperannum) 2,532 2,532 2,532 $ 8.92 series ($ 8.92pershanperannum) 1,784 1,784 1,784 $ 9.36 series ($ 9.36pershareperannum) 2,808 2,808 2,808 [ $10.12 series ($10.12pershareperannum) 3,542 3,542 1,829 Common stock (pershan: 1982, $2.80,1981, $2.56,1980, $2.20) 84,160 71,100 58,320 Total dividends 101,16I 88,101 73,608 l Transfer to common stock account (Note 3) 100,000 l l Total deductions 101,161 188,101 73,608 Balance at End of Year (Note 4) $154,341 $ 89,9H $123,011 See accompanyingNotes to FinancialStatements. l l l 28

Texas Electric Service Company and Subsidiary-Consolidated Notes to FinancialStatements t: 4

1. Significant Accounting Policies '

2. Affiliates

~ Conso/idation-The consolidated financial state-The Company is a wholly-owned subsidiary of l 'ments include the Company and its wholly-owned Texas Utilities which provides common stock capital subsidiary, Old Ocean; all significant intercompany and short-term financing to the Company. Dallas items and transactions have been eliminated m Power and Texas Power, whose respective systems are consolidarian. interconnected with that of the Company, are also sub- - E/ectric Plant-Electric plant is stated at original sidiaries of Texas Utilities. Texas Unhties has three cost. The cost of property additions charged to electric other. subsidiaries which perform specialized services, plant includes labor and materials, applicable over-at cost, for the System, including the Company: Texas head and payroll-related costs and an allowance for Utilities Services Inc. furnishes engineering, financial funds used during construction. and other services; Texas Utilities Fuel Company A//orance For Funds Used During Construction - owns a natural gas pipeline system, acquires, stores Allowance for funds used during construction and delivers fuel gas and provides other fuel services .(AFUDC) is a cost accounting procedure whereby for the generation of electric energy; and Texas Utili-amounts based upon interest charges on borrowed ties Generating Company operates the jointly-owned funds and a return on other capital used to finance con-generating stations and furnishes related services, struction are charged to electric plant. The accrual of meluding the ownership and operation of fuel produc-AFUDC is in accord with established accounting prac-- tion facilities for the surface mining and recovery of tices of the industry, but does not represent current lignite for use as fuel at such stations. cash income. Effective January 1,' 1982, the Company The Company, jointly with Dallas Power and Texas capitalized AFUDC at a net of tax rate of 9% com- . Power, has entered into agreements with Fuel Com-pounded semi-annually of expenditures incurred, pany to procure certain fuels and related services and except for that portion of construction work in progress with Generating Company for the production oflig-allowed in rate base by regulatory authorities. Prior nite fuel and the operation of electric generating sta-AFUDC rates effective in January 1981 and Novem-tions; payments are at cost of the services received and - ber 1979 were 8%% and 8%, respectively. These rates are required by the agreements to be "at least equiva- ~ were determined on the basis of, but are less than, the - lent in the aggregate to the annual charge to income on cost of capital used to finance the construction the books" of Fuel Company and of Generating Com-pany. The Comp is, m effect, obligated for its program. shar,e of the princ,any $174,734,000 at December 31, Deperciation-Depreciation is based upon an amor-

ipal, tizanon of the original cost of depreciable properties 1982, and interest on long-term notes of Fuel Com-on a straight-line basis over the estimated service lives pany and of Generating Company through the pay-of the properties. Depreciation as a percent of average ments described above. Such notes mature at various depreciable electric plant in service approximated dates through 1999 and have interest rates ranging 3.5% for 1982 and 1981, and 3.6% for 1980.

from 8.50% to 10.45E Federa/ Income Taxes-The Compa.ny is included in In August 1982, the Board of Directors of Texas the consolidated federal income tax return of Texas Utilities directed management to proceed with the Utilities and subsidiary companies, and federal implementation of a revision of the organizational L -income taxes are allocated to all subsidiary companies structure of the System. Such revision willinvolve the t based upon taxable income or loss. Deferred federal merging of the Company, Dallas Power and Texas income taxes are generally provided for differences Power into Electric Company, with the merging com-i between book and taxable income; such differences - panies thereafter becoming divisions of Electric Com-l result primarily from the use 'of liberalized deprecia-pany. The merger is expected to become effective tion and accelerated cost recovery allowable under the with the commencement of business on January 1, Internal Revenue Code. Investment tax credits are 1984. being amortized to income over the estimated service liv ~ s of the properties. (SeeNote 7.) Forinfonnation conarningjoint/y-ownedgeneratingsta-e Resert'eforInsuranceandCasua/ ties-The Company, tions, seepage 11. as allowed by regulatory authorities, mamtains a reserve for major uninsured losses and claims. 4

Texas Electric Senice Company and Subsidiary-Consolidated Notes to FinancialStatements

3. Common and Preferred Stocks rN'ErYYrr

(!>rfore adding arrumulated December 31.1912 Decem/wr31. I981 dwidends) Shares Shares Eventual Outstanding Amount Ountandag .1 mount Currret .ilinimum Thousands 7housands ofDollars ofDollars Common stock-without par value; authorized 80,000,000 shares 30,300,000 3769.500 29,3N.NJ $739,5N Preferred stock-cumulative, without par value: cntitled upon liquidation to $100 a share; authorized 10 000.000 shares: $4 seths 110.000 $ II.000 1IJ.AV $ 11,0N $102.N $Idl.N $ 4.56 series 65.0fM 6.563 65.0N 6,563 Ill.N - Ill.N $ 4.64 scncs 100,000 10.016 IN,0N IJ,016 103.25 103.25 $ 5.08 series 80,000 8,0fH 80,0N 8,N4 103.60 103.60 $ 7,44 scrics 300/M0 30,006 3N.av JJ.N6 104.26 102.40 $ 8.32 series 300,0fM 29,655 3N.AU 19,655 108.32* 101.N $ 8.44 series 3(M.0fM 30,lH6 JN,Av 30.040 107.40 103.13 $ 8.92 series 200J)(M 20,076 2N.NJ N,076 105.83 103.60 $ 9.36 series 300,000 29,625 JN.NJ 29.625 107 JZ 102.34 $10.12 series 350.000 34.615 350.NJ 34.615 110.12* IN.N 2,105,000 $209.606 2.105.NJ $N9,606

• Redemption may not be eferredturneth through certain refunding operations.

4. Retained Earnings Restrictions The Company issued and sold shares of its autho-.

The Company's articles ofincorporation, the mort-rized common stock to Texas Utilities as follows: gage, as suppleme,nted, and the debenture agree-- hlarch 1982, 1,000,000 shares for $30,000,000; ments contam provisions which, under certain condi-November 1981, 800,000 shares for $24,000,000; July tions, restrict distributions on or acquisitions of its 1981,1,500,000 shares for $40,500,000; and February common stock. At December 31,1982, $25,431,000 of 1980, 2,000,000 shares for $50,000,000. retained earnings was thus restricted as a result of the The Company also issued and sold 350,000 shares of provisions of the articles ofincorporation. $10.12 preferred stock for $34,615,000 in June 1980. The articles of incorporation restriction provides in In November 1981 the Company transferred effect that the Company shall not pay any common l $100,000,000 from retained earnings to the common dividend which would reduce retained carmngs to less l stock account. than one and one-half times annual preferred dividend The Company issued and sold 350,000 shares of requirements. The mortgage restriction is based pri - ( $10.08 preferred stock for $34,695,500 in hlarch 1983. marily on the replacement fund requirements of the No shares of the Company's common or preferred mortgage. The restriction contained in the debenture stock are held by or for account of the Company nor agreements is designed to maintain the aggregate pre-are any shares of such capital stocks reserved for o'fi-ferred and common stock equity at or above 33%% of cers and employees or for options, warrants, conver-total capitalization. sions and other rights in connection therewith. i I t 30 i I

n 7

5. LongIren., Debt (/ess amounts due curmidy)

- The total amounts of sinking fund debentures authorized in the debenture agreements have been - lir,,&ryl, issued. The Company's first mortgage bonds may be i,s2 19,1 issued in additional amounts, without limitation as to 73,,,,,s,,f o,y,y First mortgage bonds: the maximum thereof, but limited by property, earn- $$UNSN"*igj 8QQ #Q$ ings and other provisions of the mortgage. None of the - 4ya series aue i987 . 16.000 f6,av long-term debt is pledged, held by or for account of 4%% series duc 1988 10.000 10.Av the issuer, or held in its sinking or other special funds. jy[N*ljl*jyj NE j;$ Substantially all of the electric plant is subject to the 5%% series duc 1996 15.000 15,AV lien of the mortgage. 18.000 18.AU 6%% series due 1997 '- '15.000 - 15.AW

6. Commitments and Contingencies 7%% series due 1999 8%% series duc 2000 25.000 15.AV 7%% series due 2001 25.000 15,Av The Company, Dallas Power and 'l,exas Power have 7%% series due 2002 30.000 av.Av entered into contracts with public agencies to pur-

"N 50*s d"* $$ chase cooling water for use,in the generation of electric - 8%% serics due 2005 50,000 50.Av - energy and have agreed, in effect, to guarantee the 8$[N*'jl j$ Principal and interest on bonds issued to fmance the i4%% serics due 2010 75.000 ' 75,AU reservoirs from which the water is supplied. At 15%% series duc 2011 50.000 50.AU December 31,1982, the Company was obligated for $2s"e* ries"due 2Si2 $46,163,000, principal amount of such bonds, which ' Pollution control series: mature at vanous dates through 2011 and have interest 13%S Serie$ ^ due 2011 20.230 .10.13J rates. ranging from 5%.% t.o 10%E The Company is iOW Series B due 2012 13,700 required to make periodic payments equal to such Funds on deposit with trustee - (5.139) (7.8911 Total af7.791 631.333 Principal and interest for the years 1983 through 1987; rotiuiion controi revenue bonds: as follows: $4,028,000 for 1983, $4,018,000 for 1984, 19.025 19,015 - $4,023,000 for 1985, $4,009,000-for 1986 and 6;y;N ljl*jg-p g 'li g 6%% series due 20ivr $4,012,000 for 1987. In addition, the Company is obli-Funds on deposit with trustee (1.931) //.430/ gated to pay certain Variable costs of operatmg and - Tot.d 41.319

1. 1.310 maintaining the reservoirs. The Company's total pay-;

sinking rund dchentures: ments for 1982 and -1981 were $4,436,000 and s%%. due 1985 2.270 - 1.507 $3,604,000, respectively. Amounts payable under the 6%% due 1993 7.653 - 7.67s contracts may be reduced, under certain circum-T stances, due to the sale of water to nonaffiliate parties. ""NtYe"[p7eYuN t na f46 507 In June 1982, the Company, Dallas Power and Texas l'namortized discount (6,573). (#.1/7e Power entered into an agreement, which is subject to Totai (6.047) r3.710> regulatory approval, with a municipality for it to' Totai long-term debt-less assume all contract rights and obligations of the three - amounts due currently $393.ff6 J73J,ld3 companies in connection with the principal amount of certain bonds (of which $33,173,000 is the Company's - Sinking fund and maturity requirements for the-share included above), related interest and costs of years 1983 through 1987 under long-term debt instru-operating and maintaining the reservoir; however, the l' ments in effect at December 31,1982 are as follows: Company, Dallas Power and Texas Power would be 3fj,j,,, cont,in, gently liable in the event of default by the t cad mumcipality. $"$",# - /s5"$"t$i M("Nise The, Company is involved in various lega,1 and rear 1 a s3Mp W ngs c,m c opimon of Thousands ofDoHan the Company, are not expected to have a material i933 s3.9ss 3.933 effect upon the financial position or results of opera 1984 - '$6B $$ yy tions of the Company. 1937 3.45J 16.AV 16.AV (a) Erduding $562,AYforrad ofdeyean 1933 and1934 and$310,AYfor s 1 rad of the rean 1983 through 1987 satisfiedpriorto Ikrember31,1981. tbt (>therrequiremens war be satisfirdby certification ofproperty additions at 1 therare of167% ofsud trquirrments. 31 = -

Texas Eleebic Senice Company and Subsidiary-Consolidated Notes to FinancialStatements

7. Federal Income Taxes

8. Retirement Plan The details of federal income taxes are as follows:

The Company has a retirement plan covering sub-Year Ended &rrmber31, stantially all employees. The cost of the plan is deter-3,2 f,gf f,gg mined by an independent actuary and is funded by the Donsands ofDon,,, Company as accrued. The cost of the plan, including Charged to operating expenses: amounts capitalized, approximated $9,265,000 for Current federat income taxes $28,f30 J52,473 J35,90' 1982, $7,875,000 for 1981, and $7,153,000 for 1980. As Deferred federalincome ofJanuary 1,1982 and 1981, accumulated benefits and o[fr'esr"c*e5between depreciation net fund assets were as follows: methods and lives 16,930 15,384 13,914 . ppg', ,gg, Certain capitalized construction costs 3,01f ZJ67 2,945 Dossands ofDollars Other 283 1,436 (392) Actuarial present value of accumulated benefits: Vested 369,962 $66,587 Total 20227 19,187 16,467 N nvested 5,81f 7.141 _ Investment tax credits-net 23.132 19,348 19,237 Total 375,776 J73,719 Total federalincome taxes e n s 11,789 91,008 71,613 Net fund assets $64,80f $6?,314 Charged to other income 998 883 1,552 Total federat income taxes - 372,787 591,891 $73,165 Assumed rates of return of 7% for 1982 and 5%% for 1981 were used in determining the value of accumu-Federal income taxes were less than the amount lated benefits; if the 5%% rate had been used for 1982, computed by applying the federal statutory rate to pre- ' the present value of accumulated benefits would have tax book income as follows: been approximately $10,000,000 higher. Year Ended &cember31,' 1982 1981 1980 Dousands ofDollars Federalincome taxes at statutory rate of 46% $109,639 $113,586 $89,416 r Reductions in federalincome taxes resulting from: Allowance for funds used during construction 27,3f7 17,891 12,171 Depletion allowance 7.721 5,021 1,348 Amortization ofinvestment tax credits 2,693 2,439 . 2,314 Other (909) (3.658) (682) Total reductions 36,352 11,695 16,151 i Total federalincome taxes 3 72,787 $ 91,891 $73,165 Effective tax rate 30.5 % 37.2% 37.6% 32

7 -, Texas Electric i Service Company and Subsidiary-Consolidated m- -.p. Supplementaryinformation. Concerning Effests ' ofChanging Prices Unaudited information furnished -in compliance : the original cost is not recoverable through rates as

with the reporting requirements of Financial \\ccount-depreciation and is reflected as Reduction to Net

ing Standards Board Statement No. 33, Iinancial Recoverable Cost of Electric Plant. The Company

~ Reporting and Changing Prices (FASB 33), follows. believes, based on past experiences, that it will be ~ The Statement indicates the need for experimentation . allowed to recover the investment in electric plant in providing information about the effects of changing- .when replacement of facilities actually occurs. prices. Such information is intended to help readers Dunngpriods ofinflation, the holders of monetary - better understand the impact ofinflation on the Com-assets sutTer a loss of general purchasing power while .pany. Because the information is presented on an holders of monetary liabilities experience a gain. The experimental basis, it should be viewed with caution. - amount shown as Gain From Decline in Purchasing Calculation of the information inherently involves the - Power of Net Amaunts Owed reflects the net of these use of assumptions,. approximations, and estimates -- two items and is primasily attributable to the substan-and, therefore, the resulting measurements should be' tial amount oflong-term debt which has been used to . considered in that context and not as precise indi-finance electric plant. Since depreciation on this elec-cations of the effects ofinflation. The effects of tric plant is limited by regulation to the recovery of his-changing prices are not recognized for income tax or torical costs, a holding gain on debt is not allowed and state-making purposes; therefore the~ supplementary recovery is limited to only the embedded cost of debt -information should not be interpreted as adjustments. capital. To reflect the results of rate. regulation, Gain to earnings reported in the Financial Statements. From Decline in Purchasing Power of Net Amounts Information concerning the effects of general infla-' - tion (constant do//ar) was determined by converting _ Owed is offset by the Reduction to Net Recoverable Cost of Electric Plant. ' historical cost amounts into dollars of equal purchasing = power, as measured by the Consumer Price Index for . All Urban Consumers. Information concerning changes in specific prices (current cost) represent such changes in electric plant - from the date costs were initially incurred to present, ' and differs from' constant dollar information to the extent that the specific prices have increased at a rate different than the general rate ofinflation. The current cost of electric plant was computed by indexing the . existing historical cost of plant by the Handy-Whitman Index of Public Utility Construction Costs for the South Central Region and other appropriate indices. Such current costs are not necessarily representative of ' the replacement cost of the Company's productive l. - capacity that might be incurred in a future period. Depreciation on the constant dollar and current cost basis was determined by applying the Company's straight-line depreciation rates used for financial [ 1 accounting purposes to the appropriate indexed elec-tric plant amounts, and is the only income statement item that has been restated from the Financial State-

ments. In compliance with FASB 33,~no adjustment has been made to federal income taxes.

Under' rate-making rules prescribed by the Public Utility Commission of Texas, only the original cost of utility plant is recoverable through revenues as depre- ' ciation.' Therefore, the excess of the cost of plant stated in terms ofconstant dollars and eurrent cost over M n w ~ er v e --e,r---e e,-n.--- <--<w-,w,,. e---. ~. - ----.. ---,_-.a ,e - -, s-e -m-..,,---.-

Texas Electric Service Company and Subsidiary-Consolidated Summary ofNetIncome Adjustedfor Effects of Changing Prices Year Ended December 31,1982 flistoricalCost Adjustedfor Changing Prices Remedin GeneralIdation Specific Prices (Thousands ofDollars) FinancialStatements (Constant bollar) (Current Cost) Average 1982 Dollars Operating revenues $1,148,538 $1,148,538 $1,148,538 - Operating expenses (a) 962,907 1.029,867 1,042,631 l Operating income 185,631 118,671 105,907 Other income 46,512 46,512 46,512 Totaliccome 232,143 165,183 152,419 Interest charges 66,585 66,585 66,585 Net income $ 165,558 $ 98,598 $ 85,834 Increase in specific prices of electric plant held during the year (b) $ 241,143 Reduction to net recoverable cost of electric plant 3 (I?,733) (93,578) Effect of general inflation on electric plant (147,533) Efrect of general inflation in excess of increase in specific prices of electric plant after reduction to net recoverable cost 32 Gain from decline in purchasing power of net amounts owed 38,848 38,848 Net change in purchasing power 3 26.115 $ 38,880 (a) includa deprwiation of$54,689,N0forhisto&oltast, $121,649,0Nforconstantdollarand$134,413,000fortunentcost. (b) AtDwember31,1982, elutricplant, netofaasmutateddepraiation, aras34,150,875,N0forcurrentcostand32,265,013,000forhistoricalcost. Comparison SelectedFinancialData Adjustedfor cts ofChanging Prices (Thonunds ofDollan) 1982 1981 1980 _ 1979 1978 e1982 Dollan At:erag$779,818 $ 710,135 $743,090 Operating revenues $1,148,538 $1,N3,350 Constant Dollar Information N;t income 98,598 103,397 88,303 60,974 N t assets at yeas end at net recoverable cost 1,120,655 1,067,103 1,015,449 975,059 Current Cost Infortnation 1 N:t income 85,834 88,034 69,655 40,329 i Effect of general inflation in excess of increase in specific prices i of clcctric plant after reduction to net recoverable cost 32 (96,109) (160,596) (179,310) N t assets at year end at net recoverable cost 1,120,655 1,067,103 1,015,449 975,059 GeneralInformation Gain from decline in purchasing power of net amounts owed 38,848 84,776 118,619 127,598 i Consumer price index-average 289.1 2 72.4 246.8 217.4 195.4 34 2

Texas Electric Senice Company G1 Subsidiary of Texas Utilities Company) QQfcep GeneralOffces i Fort \\f' orth, Texas W. G. Marquardt PresidentandChiefExwutive y D. E. Keleh Fort it' orth hea l'ia Pasident B. R. Edmondson Arlington R. T. Martin A. S. Dechert Su'burban l'ia President H. A. King, Jr. GmndPrairie E. D. Scarth K. M. Webb Fort \\\\' orth l Suburban Area 17ce President G. A. Bales Suburban Area W. M. Tavlor Albert,C,ano Suburban R. L. l< Suburban

y, pg,59,,

W. D. l<,asn reeman Suburban E. L. Watson R. J. Peters Suburban 17a President C. C. Richardson Suburban J. P. Knierim Leroy Sullivan Suburban TaasuurandAssistantSanta0'

3. H. Sanders Big Spring Division C. E. Layton LeRoy Olsak Lamesa 8""/"O' Mrs.Jimmie Knight O'Donndl J. M. O'Donnell R. D. Keeney Eastland Division Assistant 1reasurer B. W. McKinnis Brulenridge I<,reda b,ousae D. R. Armstrong DeLeon, Connan Assistant Swatary J. T. Saltcr Graham

. ancaster Ranger Transfer Agent for Preferred Stocks R. N. Rhodes Sweetwater Division The Fint NationalBank of B. B. Hardce Colorado City Fon \\\\'onh H. Y. Clark, Jr. Snyder C. W. Barclay if'estern Division R gistrar for Preferred Stocks Ira Adams Andras Continenta.,lNationalBanf of M. E. Trimble, Jr. Crane g,y gg yg L. F. Stoebner Grandfalls, Alonahans, \\\\7nk T,rustee for b,.rst Mortgage C. W. Barclay JIidland W. M. Griffin Odessa 7h ?tYn rican Bankl J. C. Blair, Jr. Stanton Fon \\\\' orth, X. A. J. D. Redding 11'ichita Falls Division R. D. Alsup Archer Citr Trustce for Sinking Fund B. J. Vincent Burfburnett Dchentures V. L. Smith Henrietta The Fint NationalBank of W. N. House loca Park, Elatra Fon\\\\'onk J. R. Neskorik Sermour Netice to Shareholder: The "7ax Equity and Fiscal Responsibility An of1982"indudes provisions chich require that 10'7c ofeach interest and dividerdpayment be eithhehlandJat the amounts withhehlbe sent to the Internal Revenue Serviafor application against sharehokkr tax obligations. Thesepmcisions of the Aa beome effenice on July 1,1983. The Company has ban advisedby its Legal Counsdthat anain armptions are allowed under the Aa chich war exempt a sharehokkrfmm the withholding requirement. Individualsharehokka are urged to contaa the Internal Revenu'e Settare or theiraccountant conarning questions about the exemption qualipcation or otherpm:isions of the Act. This repon is submittedfor thepurpose ofpmcidingstodhokkn and othen information about Texas EkaricSertia Company, and not in connation eith any pmposedsak of, or offerto sdlor buy, any storf orsuurities. 35

Texas Electric Senice Company Directors T. L. Austin, Jr., Dallas Paul Leonard, Fort Worth E. Bruce Street, Graham Chairman ofthe Boardand Investments Investments W. G. 31arquardt., Fort Worth W. K. Stripling, Jr., Fort Worth .T s 't t's oinpariy PresidentandChiefExecurice Incestments 3no. P. Butler, b1idIand Texas EkrtricService Company Chas. C. Thompson, SeniorChairman ofthe Board Dr. 3ames M. Moudy, Colorado Csty ' The FintNationalBank of.\\lidland Fort Worth Chainnan ofthe BoardandPresident Ed. B. Collett, Fort Worth ChanceHorEmeritus City NationalBank ofColorado City Investments Texas Christian Unicenity C. H.Wilemon,Jr., Arlington l J. A. Gooch, Fort Worth Charles R. Perry, Odessa Chainnan, 7exas Commerce Bank-Senlar.Ilemberofthefnn ofCantry, President, Peny Investments, Inc. Arlington Hanger, Gooch, \\lunn &CoHins Cities and Towns Served Adedy Ranger Akdo Crowley Hudson Oaks RichlandHiHs Andnres Dalwonhington Gardens Hurst RiverOaks Annetta Dean Iowa Park Roscoe Annetta Nonh DeLeon JoHy Saginaw Annetta South Easdand ' Kennedale Sansom Park ArrherCity Edgediff 12ke \\\\'onh Seymour Arlington Ekrtra lakeside Snyder j Azk Evennan lakeside City Stanton i Bdlevue Forest HiH Lamesa Sweetwater Benbrook Fonan Loraine ThonitonciHe BigSpring Fort \\\\'onh .\\fansfdd \\\\'atauga Blue \\lound Gorman .\\ficHand \\\\'estbroof Barkenridge Graham .\\lonahans \\\\' estover HiHs Burfburnett Grandfans North RichlandHills \\\\'estworth Burkson GrandPrairie Odessa \\\\'hite Setdement Carbon Hakom City O'Donndl \\\\'ichita Fans Coahoma Haskt Pantego \\\\'ickat Colorado City Henrietta Phasant l'aHer \\\\'illow Park Crane Holliday Pyare \\\\' ink i l

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