ML19322B928

Annual Financial Rept 1978

ML19322B928
Person / Time
Site:	Comanche Peak
Issue date:	12/31/1978
From:	TEXAS UTILITIES ELECTRIC CO. (TU ELECTRIC)
To:
Shared Package
ML19322B927	List: ML19322B926 ML19322B928 ML19322B929 ML19322B930
References
NUDOCS 7912180417
Download: ML19322B928 (30)

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.l l Highlights Percent 1978 1977 increase Utility Plant * $5,862,096,000 $5.111,037,000 14.7 %

Construction Expenditures $ 737,353,000 $ 734.282,000 .4 Generating Capability in Kilowatts

• 16,682,000 15.223,208 96 Electric Energy Sales in Thousands of Kilowatt-hours 53,234,279 49.679,312 7.2 Operating Revenues - Electric $1,604,356,000 $ 1,367,778.000 17.3 Fuel Expense $ 577,780,000 $ 509,890,000 13.3 Operating Expenses Excluding Fuel $ 683,134,000 $ 568,562.000 20.2 Consolidated tJet income $ 200,738,000 $ 175,919,000 14.1 Earnings per Share $ 2.54 $ 2.40 5.8 Dividends Declared per Share $ 1.52 $ 1.40 8.6 Book Value per Share' $20.14 $19.10 5.4

'End at ve.v Consolidated Eamings Dividends Declared E '$ 2s7,$1 2 50 2M _ .___

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Management's Letter To the Shareholders: due principally to the increase in sales of During 1978, your Company continued to electricity and the higher electric service rates demonstrate its ability to cope with the serious approved by regulatory authorities.

problems that have been confronting the entire Consolidated net income for 1978 showed electric industry. Unfortunately, the long an increase of 14.1% over the prior year.

awaited energy legislation passed in 1978 did Earnings per share of common stock were not provide the solutions so desperately $2.54, an increase of almost 6%, on the needed. In fact it promises to impose even average number of shares outstanding which greater regulatory burdens and costs. was affected by the sale of 5,000,000 shares For some time we have emphasized that five of common stock early in the year.

ingredients are necessary for a workable Your Board of Directors raised the regular energy solution - conservation, resource quarterly dividend at its February 1978 meeting development, reasonable regulations, adequate from 35c to 38C a share - 12e per share on rates and public understanding. The only one an annual basis. At its February 1979 meeting, of these areas in which there has been the Board again raised the quarterly dividend progmss is energy conservation. Progress is rate by 3c a share, making this the 32nd being made, not because of regulations, but consecutive year in which the dividend pay-because of the common sense of consumers in ment has been increased. The new quarterly responsa to the cost of energy forced up by rate of 41c per share is payable April 2.

inflation and over-regulation. Later in this report, under the heading Positive results in other areas have been " Rates and Regulation," is a review of the prevented by continuing rhetoric which has rate proceedings concluded this year and a produced volumes of new regulations, but no discussion of the interim rate order issued in new energy supplies. The lack of action has October to one company by the Public Utility increased our dependence on imported oil and Commission of Texas calling for a hearing on this weakness is again threatening the nation's certain transactions between the System economy and security. companies. This hearing, which commenced in We need a redirection of efforts that February 1979, has been completed but a encourages domestic energy production. This decision has not been rendered. Also in that can only be achieved by reducing - not section is a report on the present status of the increasing - government regulations and Central and South West matter, including a allowing the market place to function as it summary of the recent decision of a Dallas should. federal court which strongly supports the The effectiveness of the free market system System's position.

is particularly evident in the relatively strong Construction expenditures, primarily for new economy of our service area. We believe that generating facilities in connection with the this reflects a unique spirit - a confidence that System's fuel conversion program, were $737 people have in their ability and in this area. million during 1979 and about the same as the A further indication of this strength is seen in $734 million reported for the prior year. Annual the Company's 1978 operating results. expenditures for the 1979-1981 period are Business and industrial activity contributed to expected to average slightly less than the total an increase of 7.2% in kilowatt-hour sales for for 1978. This leveling off of construction 1979, which is significantly above the national expenditures was attained by the deferral of average. Operating revenues were up 17.3% three lignite units during the year. Another factor was the sale of a 6.2% share of the Comanche Peak nuclear station to the Texas Municipal Power Agency; the joint ownership agreement executed for this sale is subject to approval by the Nuclear Regulatory i Commission.

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l In 1978 the System companies raised $340 valued and unselfish service of the two retiring million from the sale of various securities to the Board members.

public - the balance of our external We believe your Company is in a relatively requirements were obtained by issuing strong position and recognize our capable, commercial paper pending permanent dedicated employees for their contribution to financing. Because of the unsettled condition of the System's progress.

securities markets and general concern about The directors and management of your i the outlook for interest rates, it was decided to Company sincerely appreciate the continued j provide for a significant part of our 1979 interest and support of the shareholders.

requirements as early in the year as possible.

Accordingly, the System has raised almost j ,

$300 million by four security offerings during I the first two months of this year. If necessary j we can manage through 1979 without i additional long-term financing; however,  !

offerings of securities or private placement of l debt may be made by one or more of the l System companies late this year.

The Automatic Dividend Reinvestment and Common Stock Purchase Plan, introduced in T. L. AUSTIN, JR.

October 1978, has been well-received. Present ena< man or rne soard indications are that the Company will raise >

some $30 million by the sale of new-issue ,-

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common stock to shareholders under this Plan and through employee plans providing for

• stock purchases.

As the new year began, a major ice storm struck the Dallas area and interrupted service ,

to more than 75.000 customers. Crews from a *

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number of neighboring utilities were brought in to help restore service in an around-the-clock effort that lasted several days. System BURL B. HULSEY, JR.

employees, and those of other companies, P'"'*"'

were recognized for the outstanding job l performed under very trying conditions.

3 in February 1979, J. C. Pace, Jr., of Fort Worth, and William H. Seay, of Dallas were elected to the Board of Directors. The new March 23.1979 directors, who have been active in area business and civic affairs for many years, filled vacancies created by the resignations of two long-time directors, W. P. Bomar and S. J.

l Hay. We are grateful for the many years of i

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System Report Electric energy sales in 1978 increased 7.2% compiled from the Uniform Statistical Reports of over the prior year - to more than 53.2 billion electric utilities, the average cost of 90-95% of kilowatt-hours. A new System peak demand of the coal used for generation in 1977 was 97.5c 11.232,000 kilowatts (excluding interruptible per million 8tu - more than twice our lignite service to a large industrial customer) was set cost during 1978.

on July 18, 1978. This was an increase of Lignite was used to generate some 41% of 6.7% over the prior year. The projected growth the System's kilowatt-hours in 1978. Kilowatt-rate for the System is estimated at five to six hours produced by natural gas were reduced to percent annually for both peak demand and about 58%, Generation by oil was less than kilowatt-hour sales. 1%. In 1979, lignite is expected to generate These growing needs for dependable electric more than 50% of the System's kilowatt-hours.

service are being met through the efforts of The addition of the Comanche Peak nuclear more than 10,000 employees throughout the units and of four scheduled lignite units is System. The following report reflects their expected to reduce dependence on natural gas performance and describes significant and oil to less than 25% of kilowatt-hours progress and events during 1978. generated by 1985. Steady progress in the System's major fuel conversion program is Fuel shown by the chart Delow:

The System companies have maintained a strong fuel position and continue to place a KWH Generation by Type of Fuel high priority on securing new supplies for future use. we ammm . n For more than 30 years, the System has g ,3 3g 73 annually increased the total lignite reserves i l l l which it owns or has under lease. An estimated on' -

800 million proven recoverable tons of lignite , y.3 g.

have been obtainod to fuel the generating units ,

in operation, under construction and announced.

An active acquisition program seeks additional supplies needed for these units and for others that are in the planning or design stages. As the orderly transition is made to lignite Texas lignite has emerged as a major and nuclear fuels, the System's gas / oil-fired long-term energy alternative to expensive new generation will be used primarily during peak supplies of natural gas and oil. In recent years, load periods. Although requirements for these the leasing and purchasing of lignite rights have more expensive fuels will be substantially become extremely competitive. Because the reduced, the Fuel Company is continuing an System had been acquiring this fuel many years active acquisition program to assure the before others became interested in its potential, quantities of gas and oil that will be needed. To the three electric utilities have assured long. help meet peak and other short-term uses, the term supplies that are saving their customers System has developed underground storage with millions of dollars annually. a usable capacity of some 11 billion cubic feet During 1978, the average cost of lignite used of natural gas. Additional stuage for some 14 billion usable cubic feet is uc der development.

was 46.7c per million 8tu. This was about one-third of the cost of natural gas used and Oil storage, principally for standby use, totals less than one-fourth of the cost of fuel oil. more than 6.8 million barrels.

l Uranium under contract and in inventory will System lignite costs, although increasing due to inflation and other factors, have consistently substantially meet the fuel requirements for the first been well below the national average cost of two years' operation of both Comanche Peak units.

coal used for electric generation. Based on data A portion of this uranium is in the conversion and enrichment process so that the initial fuelload for Unit 1 will be ready when needed.

12

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the opention of both units for The assembly of three new an additional nine years, with draglines was completed an option to purchase -

during the year and the supplies for six more years. erection of a fourth was The acquisition of uranium for una train derivers lignite from Thermo mine. begun. Work on two  !

17 years of operation of each unit places the additional draglines is scheduled to start System in a very favorable nuclear fuel position. in 1979.

The System also has contracts for related fuel The Comanche Peak nuclear station was processing services except for the reprocessing of approximately 52% complete as of December 31, spent fuel, which is pending action by the federal 1978, and the Squaw Creek cooling reservoir had government. Storage of such fuel can be provided been filled to 74 % of its planned storage on-site for several years of operation. Under the capacity. Delivery of the reactor vessel for Unit No.

proposed Spent Nuclear Fuel Act of 1979, utilities 2 was made to the site in March of 1979.  :

would have the option for off-site storage of spent Preparation of the Comanche Peak operating l fuel in a federal facility. license application, the final safety analysis report and the final environmental report was completed Ccastruction in 1978. Copies of this material, totaling more than Two 750,000 kilowatt lignite-fueled generating five tons of paperwork, were shipped to the Nuclear units were completed in 1978, and construction Regulatory Cemmission. The NRC has accepted continued on four other lignite units and two the application and reports, and has begun the nuclear units with a combined capacity of detailed studies and reviews required to issue .

4,952,400 kilowatts owned by the System. The operating licenses for Comanche Peak. The NRC schedule for the addition of new generating has ordered an antitrust hearing in connection units is as follows: with this application.

c. e s ~.c. The three utilities originally owned an equal share smm un., r, " ' * " "*

of the two 1,150,000 kilowatt Comanche Peak Marto Lake-3 Lignite 750.000 1979 units. However, negotiations involving the sale by Comanche Peak-1 Nuclear 1.078.700* 1981 Dallas Power of a 10% interest in the project to sandow-4 Lignite 545.000 1981 comanche Peak-2 Nuclear 1.078.700* 1983 the Texas Municipal Power Agency and the Brazos Forest Grove-1 Lignite 750.000 1984 Electric Power Cooperative have been underway T**O[g g ,

T.,n oax.2 y

Lignite 66g y 562.500* 1986 for some time. On January 2,1979, a joint ownership agreement was executed between the w.i r apaomiy to ine syst m three electric utilities and TMPA for its purchase of 6.2% of Comanche Peak. TIis transaction is The Martin Lake and Forest Grove units are subject to approval by the NRC. Negotiations are jointly-owned by the System's three electric continuing with BEPC for the sale of a 3.8%

utilities. At year end, Martin Lake Unit No. 3 interest. With the completion of these sales, Dallas was 99% complete and Martin Lake Unit No. 4 Power's ownership of Comanche Peak would be was 20% complete. The dam for the cooling reduced to 23b%, with Texas Electric and Texas reservoir at the Forest Grove site near Athens, Power each retaining a one-third interest.

Texas, was 80% complete, and filling of the The service dates for three lignite units were reservoir is expected to begin about mid-1979. changed in 1978. The Martin Lake Unit No. 4,

! Initial construction work began on the Forest planned for operation in 1983, is now scheduled for l Grove generating unit in 1978. 1965. The service date for the Forest Grove unit l Sandow Unit No. 4, owned by Texas Power, has been moved from 1982 to 1984, and the Twin was 37% complete at the end of 1978. This Oak Unit No. 2 was delayed one year from 1985 unit will be operated primarily for a major to 1986.

industrial customer. Work is now underway at the Twin Oak site, where the 750,000 kilowatt units will be jointly-owned by Texas Power and 13

i l

Construction expenditures are somewhat lower resulting from legislation passed in 1977 are than previously announced due to this rescheduling unreasonable and impose unnecessary costs and and the expected participation of TMPA in the delays. The suits filed in early 1978 by the construction of Comanche Peak. Expenditures for Generating Company and by numerous others additions to electric plant, excluding nuclear to challenge these rules were consolidated and fuel and non-utility property, for 1978 and are being appealed to the U.S. Court of estimates for 1979,1980 and 1981 are shown Appeals for the District of Columbia Circuit.

below in millions of dollars: Sulfur dioxide (SO,) removal systems (scrubbers) are now in operation on three

'979 i980 398:

78 750,000 kilowatt lignite units. A thorough study of the first of these, installed on Martin Lake

$ rut 7 r,.ns,n,ss on.

$458 39

$398 59

$3:5 74

$375 53 Unit No.1, was made following 17 months of o,stneuton . 90 89 ici iis operating experience. This scrubber has G""- is is i4 is demnstratM that it can meet SO, emission

'"$f*" is ir e e standards, but that the cost of operating and t.9n.te 74 97 56 49 maintaining the equipment far exceeds the value rotas . 683 673 566 6i5 of any benefits that can be proven. Regulations Aruoc- 54 64 87 60 proposed under the Clean Air Act Amendments rots con .<uci.on of 1977 are even more difficult to justify on a ee tu<es - 5737 5737 5653 5675 cost benefit basis.

' Apowanco for funds used dunng construction Removal of fly ash from stack emissions is also increasingly expensive. At year end, the Operations installation of bag filters on Monticello Units 1 The System's lignite generating capacity was and 2 was nearing completion. A portion of the increased by approximately 50% during 1978 $32 million add-on system has been placed in with the commercial. operation of two new operation and it should all be in service 750,000 kilowatt units - Martin Lake Unit No. 2 by late spring.

and Monticello Unit No. 3. The Generating The System fully intends to comply with all Company is now operating seven lignite units at reguiations in the construction and operation of three plant sites with a total capacity of its facilities. However, this continues to be a 4,550,000 kilowatts. more difficult and expensive task as both the Mining operations, which were expanded number and the stringency of government during the year to meet increasing fuel regulations are increased.

requirements, produced 18.3 million tons of For example, capital expenditures for flue gas lignite. The Generating Company now has a cleaning equipment have risen from $4.00 per total of nine draglines in operation, three of kilowatt for our first lignite units at Big Brown to which were placed in service in 1978. Four new $58.00 per kilowatt for Martin Lake Units 1 and mining areas were opened - one at Big Brown. 2 - from about 3% to more than 20% of the two at Martin Lake and the Thermo facility total cost of the units. In the last ten years, the located near Sulphur Springs, Texas. The amount of time required to obtain permits, System has implemented a successful construct and place a new lignite generating reclamation program since the first jointly-owned station in service has virtually doubled - from unit went into service at Big Brown in late 1971. about four to eight years - principally because All mining areas are being operated under of new regulatory requirements.

required permits issued by the Railroad Commission of Texas. Compliance with state Rates and Regulation surface mining and restoration regulations can While the System's fuel diversification program be achieved; however, we feel strongly that the has assured long-range fuel supplies at a much more restrictive federal requirements savings of milions of dollars to the customers of the three electric utilities, it has been necessary for each of the companies to seek rate 14

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, y 4 . : s entirely within the State of increases over the last few  %

years. The higher level of -

Texas. TIS members include electric service rates has -

West Texas Utilities Company been required in order to .- -s ' .. and Central Power and Light support the System's ' - - " ' - Company, which are substantial construction u nov - mooo u wans in owarion subsidiaries of Central and program and offset the effects of continuing South West Corporation, a registered holding inflation and increasing regulations, company under the Public Utility Holding Dallas Power and Texas Power filed in Company Act of 1935. CSW also has two December 1977 for increases in rates. Both electric utility subsidiaries operating in companies received approvals from the Public Oklahoma, Arkansas, Louisiana and a small Utility Commission of Texas on May 8,1978. area in east Texas. These companies, Public Dallas Power began billing new rates in August Service Company of Oklahoma and 1978 which were designed to increase annual Southwestern Electric Power Company are operating revenues by approximately $41.6 members of the Southwest Power Pool and million, or 13%. Higher rates for Texas Power have historically been operated separately from j were fully effective by the end of August and WTU and CP & L.

represented an increase of about 7%, CSW's status as a holding company was l

l or $41 million. challenged before the Securities and Exchange i Texas Electric applied higher rates Commission by some of its Oklahoma customers representing an annual increase of $38 million, in 1974. Beginning in early 1976, CSW took or 8.4%, effective with bills rendered in several steps in an effort to preserve this status.

November. The new rates were authorized in On May 4,1976, WTU interconnected its Texas an interim rate order issued by the PUC on system across the state line into Oklahoma. This October 20, 1978, less than five months after action was taken without notice and in violation filing. This order also called for an additional of an agreement of almost 40 years with Texas hearing, which began on February 20,1979, to Electric Service Company. Texas Electric inquire into certain transactions among affiliates, promptly disconnected from WTU.

including Dallas Power and Texas Power, and to Following public hearings, the Public Utility determine whether any refunds or adjustments Commission of Texas issued an order in June i to rates may be required. 1977 finding, among other things, that it was The primary basis for the hearing involved the not in the public interest to interconnect the i

sale of portions of Martin Lake Units No. 3 and member systems of TIS with the electric utilities No. 4 by Texas Power to Texas Electric and comprising the SWPP. The order, which restored to Dallas Power and certain fuel transactions the mode of operation of TIS as it was prior to between the companies. The hearing was May 4,1976, has been challenged by CSW concluded on March 5. It is expected that a in the courts.

final order from the Commission will be received Other steps taken by CSW have included in the next few weeks. filing of actions before FERC, other federal As the factors described above continue to administrative agencies and courts. These impact on the System's financial results and actions have been aimed at forcing because the rates approved have been lower interconnections between TIS and the SWPP.

than the companies requested, it will be in one, and perhaps the most important of necessary that all three of the electric these proceedings, WTU and CP & L sought to utilities file for additional rate relief in the force the System and Houston Ughting &

l Very near future. Power Company to interconnect with the SWPP, The System electric utilities operate entirely alleging that their failure to do so violated the l within the State of Texas and are not Federal antitrust laws. After a lengthy trial subject to the jurisdiction of the Federal Energy before the United States District Court for the Regulatory Commission. Interconnections are maintained with the member systems of the Texas Interconnected System which also operate 15

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sponsored by ten year that the decision not investor-owned utilities in to interconnect did not g ,

f Texas, including the System violate such laws. In a . companies. The project is i

detailed opinion, which Employee explains energy conservation. now also receiving l supported the System's position in every substantial federal funding. This has enabled the l respect, the Court further found that it would construction of a new fusion machine, the Texas not be in the public interest for TIS to be Experimental Tokamak (TEXT), which is interconnected in interstate commerce. expected to be operational by late 1980.

In February 1979, CSW filed a petition with The System utilities are participating in a FERC requesting that interstate interconnections practical application of solar power in three between TIS and SWPP be ordered under experimental residential installations. It is hoped provisions of the Public Utility Regulatory that an analysis of test metenng of these homes Policies Act of 1978. This Act gives FERC the over a period of several years will help determine authority to order an otherwise intrastate electric how this energy source can be more efficiently utility to interconnect in interstate commerce if utilized. The companies are also involved j this action would encourage overall conservation in projects to test the feasibility of using wind of energy and capital, optimize the overall power on a small scale for electric generation.

efficiency of the use of facilities and resources These emerging energy technologies still and otherwise promote the public interest. Such require many years of additional research and an order under PURPA would not necessarily development before any of them can contribute subject an intrastate utility to FERC jurisdiction. significantly to meeting energy neeos.

The Federal District Court found that such interconnections involving the System would not System Employees meet the criteria established under PURPA. - The efforts of System The System plans to continue to protect its employees were recognized in interests in this and all other pending actions 1978 with the electric industry's and believes that it may be some time before highest honor, the Edison these complex matters are resolved. . , ,

Award. In making the presentation, the Edison Electric Research and Development institute cited the System for " making the best The System electric utilities' primary use of fuel resources, meeting energy needs and involvement in research and development is accomplishing environmental goals to the benefit through the Electric Power Research Institute. of its customers and its service area."

EPRI, organized to conduct a major research The companies have long recognized the effort for the electric industry, is now in its importance of skilled, capable people and have seventh year of operation. The majority of the placed a high priority on training and 1,300 EPRI projects underway at year end were development activities. In addition to continuing directed at developing new energy sources and on-the-job training and information, the technology. The projects in progress represent companies provide all employees the opportunity i a commitment of one billion dollars by the for self-improvement through a program that industry. The Institute is supported by 540 helps pay for work-related college, technical utilities who benefit from a much more or special courses.

effective and productive program by com- Equal opportunity is a basic objective in all bining their resources. phases of employment and personnel activities.

The Texas Atomic Energy Research The companies continue to make progress in Foundation has been involved in the achieving such goals through considering development of the nuclear fusion process since 1957. Conducted at The University of Texas at 16

individuals based upon job-related qualifications not met expectations. While production from the and well-developed affirmative action programs. two mines will continue, this exploration program System employees have for many years will be terminated at the end of September 1979.

provided assistance to help customers obtain Basic Resources is developing the in situ the maximum benefit from their use of electric gasification process purchased from the Soviets in service. The fuel situation and rapidly increasing 1975. Required permits were obtained, and a costs have made such energy conservation demonstration project to determine the economics extremely important. As a result, the System and environmental effects of the technology began electric utilities have developed extensive in 1978. The site is a 30-acre tract some 15 miles programs in which employees demonstrate to west of Palestine. Texas. The project, which will and inform customers of practical ways to save include an extensive evaluation of potential end energy. In connection with these efforts, era- uses of the product gas, is planned for a minimum ployees are also communicating understanding duration of six months. As much as 200,000 tons of the reasons why the cost of electric service of lignite at a depth of some 270 feet will be bumed has increased, including the need to build new during this test. Based on results obtained during generating plants to use alternate fuels and the the initial period, additional testing may be growing impacts of inflation and regulation. conducted. Basic Resources has exclusive rights to the in situ process in the United States and rights Cther Energy Activities to sub-license this technology.

Two new companies, Chaco Energy Company Basic Resources and Solution Engineering, and Basic Resources Inc., were formed in 1976 incorporated, are involved in a joint venture to and 1977, respectively. Both are wholly-owr ed recover uranium using a relatively new in situ subsidiaries of Texas Utilities Company. The leaching process. The uranium is extracted companies are primarily involved in from the waste material at an old uranium mill developmental projects which, by their nature, in south Texas. Production at the site is are long-term. Operations of Chaco and Basic approaching the 300-pounds-per-day average Resources are expected to return a profit on for which the project is designed. A contract funds invested through the sale of fuel, energy was signed in 1978 covering the pre We of the technology and related services at competitive first 150,000 pounds of U3 0, prodwea for market prices. $6.3 million. Additional quantities may be Chaco has agreements with major leaseholders economically recovered, but no other arrange-in northwestern New Mexico for more than 320 ments have been made for the sale of such million tons of surface-minable coal above a depth production. It is hoped that the project will prove of 150 feet. Options are held on additional tonnage the technology for future use in uranium-below the 150-foot level. Mining operations, which bearing deposits that cannot otherwise be mined.

cre subject to the completion of regulatory reviews Basic Resources is also involved in the marketing and approvals, are expected to begin in the mid. of energy-related services. Future projects are 1980's and will include a land reclamation program. intended to be diversified and the operations of the A joint uranium exploration venture wi!h company may result in the development of fuel Ranchers Exploration and Development Company supplies, technology or related services which may of Albuquerque was assigned to Chaco in March ultimately be available for future use by the 1977. The Hope Mine near Grants, New Mexico, System electric utilities.

his been in production since early 1977. A second, smaller operation, the Doris Mine, began produc-tion in 1978. Overall, results of the program have l

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TE X AS UTILITIES COMPANY AND SUBSIDIARIES Financial Comments Financial and statistical data for Texas Utilities for 1976. Excluding interruptible service to a Company and its subsidiaries for recent compar- large industrial customer, energy sales increased able periods, as shown on the pages which 7.4% in 1978 over the prior year, and 10.3%

follow, are highlighted by portions of the infor- for 1977 over 1976; such sales by class of mation in this section of the Financial Report. customer were as follows (billions of Significant accounting policies are summarized in kilowatt-hours) :

the notes to financial statements. Industrial Residential Commercial 978 17.9 13.1 13.6 Ecrnings Gain 66 23 Consolidated net income and earnings per )$

share of common stock for 1978 and the two prior years were as follows: Energy sales in 1978 and 1977 benefited from colder than normal winter temperatures and gsgdated ,

Earn p, s e warmer than normal summer weather. Some ef-1978 $200.738.000 $2.54 1977 175.919.000 2.40 gy have been felt upon sales and load growth.

1976 147.920.000 2.29 Excluding interruptible service to a large indus-trial customer, peak load, or maximum System Per share earnings are based on the average demand, reached 11,232 m.egawatts in 1978, number of shares outstanding and reflect the di- compared with 10,525 for 1977, and 10,002 for lution resulting from sales to the public of 1976, an increase of 6.7% for 1978 and 5.2%

5,000,000 additional shares each in March 1978 for 1977.

and in May 1977. Consolidated net income and earnings per share are affected by certain of Operating Revenues the items discussed below. Electric operating revenues approximated

$1,604 million for 1978, $1,368 million for 1977, and Dividend increase $1,082 million for 1976. Excluding interreotible Continuing the Company's record of annual service to a large industrial customer, revenues by dividend increases, which commenced in 1948, class of custcmer were (millions of dollary :

the dividend was raised again in 1978:

Residentel Commercial Industrial Dnndends Declared Drvidend 1978 $641 $439 $332 Amount increase Payout 1977 552 376 274 1978 $152 12e 60 % 1976 442 304 218 1977 1 40 8 59 1976 1.32 8 58 Growth in operating revenues resulted from the increases in sales of electric energy, the general At its February 1979 meeting, the Board of rate increases obta,ned i by the efectnc utility sub-Directors again raised the quarterly dividend sidiaries, and from the fuel cost factor ,n i the rate I payment to common shareholders - this time schedules which provides for the full recovery of the by three cents per share, from 38 cents to 41 cost of fuel consumed in the generation of electric cents, or equivalent to 12 cents per share on energy.

an annual basis. This regular quarterly divi-dend is payable April 2,1979, to shareholders Rate Incresses of record on March 9. The electn,c utility subsidiaries have had to All dividends are paid in cash from retained apply to regulatory authorities for increases in cirnings and are reportable for federal income electric service rates to support their substantial tax purposes as ordinary dividend income. construction programs and to offset the increases being experienced in the cost of operations.

Electric Sales Electric energy sales in 1978 reached 53.2 billion kilowatt-hours compared to 49.7 billion kilowatt-hours for 1977, and 44.3 billion 19

Financial Comments (continued)

Each of the three electric utilities placed rate Taxes increases into effect on various dates in the Federal income taxes increased by $19.2 mil-second half of 1978 - see details and discus- lion for 1978, following a decrease of $19.5 sion under section on Rates and Regulation. million for 1977. The increase for 1978 is attrib-utable primarily to the corresponding increase Operating Costs in taxable income; the prior decrease resulted inflationary pressures continue to affect the principally from the substantial increases in cost of labor, materials and services. Operation deferred federal income taxes and the federal and maintenance expenses of System compa- investment tax credits provided for under the nies totaled / millions of dollars): Internal Revenue Code (millions of dollars):

operation Maintenance Federal Deferred investrnent Expense Expense incorne incorne Tax 1978 $190 8 $88.8 Taxes Taxes Credits 1977 168 5 69.4 1978 $30 5 $430 $80.6 1976 140.4 49.7 1977 11.3 28 5 75.8 1976 30 8 21.1 40.8 In addition to the normal pattern of growth, op-eration expenses increased in a number of These data show charges 'o operating expenses categories including expenses related to cus- only and do not include applicable federal tomer service, rate cases, and insurance and income taxes which are netted against other claims. Maintenance expenses were affected by income: $1.3 million for 1978, $5.1 million for the higher cost of maintaining lignite-fueled gen. 1977, and $3.0 million for 1976.

erating units compared to the relatively less State, local and miscellaneous taxes totaled complex gas-fueled units. $115.0 million for 1978, an increase of $16.3 million over 1977. Ad valorem, or property.

Fuel Expense taxes account for the largest share of these Fuel used in the generation of electric energy costs; however, recently the most rapid in-totaled $578 million in 1978, up from $510 mil- creases have been attributable to state and lion for 1977, and $368 million for 1976. In. local gross receipts taxes which are affected creases in the cost of fuel reflect the growth in by the increases in operating revenues.

energy sales and higher unit prices (cents per million Blu): AFUDC Allowance for equity and borrowed funds used Gas od Lignite Average during Construction approximated $54.0 million 1978 137 Oc 202 44 46. 7c 1001e for 1978, compared to $58.6 million for 1977 1977 1235 186 5 39 5 97.1 1976 101 0 229 4 28 8 78 5 and $49.8 million for 1976. The increase in the total amount of the combined allowances for increases in fuel costs are recoverable through 1977 of $8.8 million is attributable to the higher the operation of the fuel cost factor contained level of construction work in progress rather in the rate schedules of System companies. The than a change in the rate of accrual of AFUDC type of fuel used for the generation of electric which remains 7% of applicable construction energy is changing: costs; the decrease of $4.6 million in the amount of such combined allowances for 1978 cas od ugnite is due to the discontinuance of AFUDC on that 1978 580% 0.6% 41.4 % portion of ConstruClion work in progress in-g 39 15

]6 cluded in rate base by regulatory authorities.

Financing During the last three years, System companies have raised substantial amounts of long-term 20

l funds for use in connection with their construc- The Company's common stock offering was tion programs (millions of dollars): made through a nationwide group of underwrit-ers led by Morgan Stanley & Co. Incorporated; 1978 1977 1976 Goldman, Sachs & Co.; Merrill Lynch, Pierce, First mortgage bonds $- $175 $200 Fenner & Smith incorporated, and Salomon N,",7,',,"o*',',',c g, 2$ 3o '$ Brothers; the stock was promptly offered to the Pollution control bonds -

40 60 public at a price of $19.50 per share.

T'"as utihtees common stock 110 94 180 Funds raised to date in 1979 together with 5340 5339 5570 amounts available from short-term sources will be sufficient to meet the needs of System com-Short-term loans outstanding at the end of each panies for their 1979 construction programs.

year indicate the extent to which such bor- Additional long-term financing in 1979 will rowings have been used to provide for System ,

depend upon significant improvement in the requ:rements (millions of dollars): ,

availability of such funds at reasonable cost to I

1 1978 1977 1976 the companies.

Commercial paper $221 $176 $ 80 l Bank loans -

45 -

$221 $221 $ B0 The larger long-term financing program in 1976 i

resulted in a lower level of short-term borrow- Capitalization

"""'* " CU,,

ings at the end of that year, while a lesser amount of long-term financing in each of the - um ** D*'

years 1977 and 1978 resulted in greater use of commercial paper and bank loans for interim requirements. _

System companies had about $1.4 billion in-vested at the end of 1978 in construction work 75 in progress - utility plant not yet completed - - - - -

! and therefore not in service. As mentioned above, a significant portion of this amount is  ;

included in rate base, resulting in a reduction of j accruals for AFUDC. Of the $1.4 billion balance in construction work in progress, long-term 50 financing had been obtained for all but some

$221 million of such requirements -indicating a relatively conservative short-term loan position. - - - -

System financings during the first two months of 1979 comprised the following (millions of 23 _ , _

dollars):

Net Proceeds , _ ,

Texas Utihtes common stock 5.000.000 shares $ 94 8 Texas Power - $8 84 preferred stock o 1 300.000 shares 29 6 a, 13 7. 73 m ia

- 9%% first mortgage bonds 99 0 Texas Electric - 9W first mortgage bonds 73 8

$297.2 21

TFMAS UTILITIES COMPANV AND SUBSIDIARIES Statement of Consolidated income 1978 1977 1976 1975 1974 (Thousands of dollars)

OPERATING REVENUES - Electric S1,804,356 $ 1.367.778 $ 1.082.330 $888.736 $726.597 OPERATING EXPENSES (Note 1)

Operation . 190,806 168,486 140.414 124.361 107.574 Fuel 577,780 509.890 368.039 267.854 171.968 Maintenance 88,837 69.370 49.658 44.847 39.295 Depreciation provisions 134,338 116.348 104.686 94.765 78.993 Federal income taxes . 30,513 11.306 30.833 41.030 57.792 Deferred federal income taxes - net 43,024 28.535 21.109 18.509 14.382 Federal investment tax credits - net 80,627 75.835 40.753 21.087 9.809 State, local and miscellaneous taxes . 114,989 98.682 84.165 73.570 63.110 Total operating expenses . 1,260,914 1.078.452 839.657 686.023 542.923 OPERATING INCOME . 343,442 289.326 242.673 202.713 183.674 OTHEAINCOME Allowance for equity funds used during construction (Note 1) 28,038 33.198 26.485 18.676 12.331 Other income and deductions - net . 4,154 10.472 5.738 1.618 1.288 Federal income taxes on other income (1,316) (5.138) (2.950) (816) (560)

Total other income 30,876 38.532 29.273 19.478 13.059 TOTAL INCOME 374,318 327.858 271.946 222.191 196.733 INTEREST CHARGES Interest on mortgage bonds . 116,640 114.082 100,971 81.034 58.140 Interest on other long. term debt 24,784 18.816 5.873 5.754 5.881 Other interest 21,476 10.071 8.584 4.276 3.104 Allowance for borrowed funds used during construction (Note 1) (25,922) (25,379) (23.324) (12.942) (9.525)

Total interest charges . 136,978 117.590 92.104 78.122 57.600 PREFERRED STOCK DIVIDENDS OF SUBSIDIARIES 36,802 34.349 31.922 27.527 22.868 TRANSFER FROM SURPLUS RESERVE (Note 3) - - -

4.434 6.842 CONSOLIDATED NET INCOME . S 200,734 $ 175.919 $ 147.920 $ 120.976 $123.107 Earnings per share of common stock (on average shares outstanding: Page 32). 32.54 $2 40 $2.29 $2.02 $2.18 Ta r sccompanyng Notes to Financual Statements.

22

TEX AS UTILITIES COMPANY AND SUSSIDI ARIES Strtement of Consolidated Scurce of Funds for Construction 1978 1977 1976 1975 1974 (Thousands of dollars)

FUNDS FROM OPERATIONS

$200,738 $ 175.919 $147,920 $120.976 $123.107 Consolidated net income Less - Cash dividends declared by Texas Utahties Company on common stock 119,945 103.250 85.800 74.400 63.880 80,793 72.669 62,120 46.576 59.227 Balance 78,993 Depreciation provisions 134,338 116.348 104.686 94.765 42,797 29.397 21,109 18,509 14.382 Deferred federal income taxes - net 9,809 Federal investment tax credits - net 80,612 75,850 40.753 21.087 (53,960) (58.577) (49.809) (31.618) (21,856)

Allowance for funds used during construction Total funds from operations 284,580 235.687 178.859 149.319 140.555 FUNDS FROM FINANCING 200,000 175,000 200,000 200.000 First mortgage bonds -

216,752 69.486 117,347 - -

Other long-term debt Preferred stocks 29,655 29.655 29.550 59.250 60.154 Common stock of Texas Utilities Company 110,675 94.075 179,475 -

73.800 (45,000) 45.000 (50.000) 43.000 (1,000)

Notes payable - bink loans

- commercial paper 45,750 95,155 (28.050) 108.500 -

Long-term debt retired (27,646) (25,255) (3.841) (54.058) (6.255)

Total funds from financing 330,186 483.116 444,481 356.692 326.699 Total 614,766 718.803 f ?3.340 506.011 467.254 DEDUCT (13,173) 52.483 3.891 3,850 -

Non-utility property 29,745 6,328 9,687 2.554 2,554 Nuclear fuel Other - net (59,154) (29.967) (32.178) (6.717) 34.969 Total deductions (42,582) 28.844 (18.600) (313) 37.523 857,348 689.959 641,940 506.324 429,731 Balance CASH IN BANKS AND TEMPORAPY CASH INVESTMENTS - net change 26,045 (14.254) (20.041) 32.074 (32.811)

CONSTRUCTION EXPENDITURES (excluding allowance for funds used during construction) $883,393 $675.705 $621.899 $538.398 $396.920 Statement of Consolidated Retained Earnings 1978 1977 1976 1975 1974 l

(Thousands of dollars)

[

l BALANCE AT BEGINNING OF YEAR $800,280 $536.611 $474.491 $427,915 $408.888 ADD - Consolidated net income 200,738 175.919 147,920 120.976 123.107 Total 810,018 712,530 622,411 548.891 531.995 DEDUCT Cash dividends declared by Texas Utilities Company on common stock (Page 32) 119,945 103.250 85,800 74,400 63.880 Transfer to common capital stock account - - - - 40.200 Total deductions 119,945 103.250 85.800 74.400 104.080

]

$800,073 $609,280 $536.611 $474,491 $427,915 l BALANCE AT END OF YEAR (Note 2) l l

See accompanysng Notes to Fnnancial Statements. l 23

TE A AS UTIU TIES COMPANY AND SUBSIDIARIES Consolidated Balance Sheet December 31 1978 1977 1976 1975 1974 (Thousands of dollars)

Assets UTILITY PLANT - at original cost (Note 1)

Electric plant in service:

Production $2,394,364 $ 1.901.002 $ 1.535.101 $ 1.433.465 $1.263.027 Transmission 699,386 670.758 598.825 539.475 487,113 Distribution . 1,223,948 1,148,113 1.086.086 1.035.571 966.831 General . 109,677 97.386 87.398 84.467 77.310 Total . 4,427,355 3.817,259 3,307,410 3.092.978 2.794.281 Construction work in progress 1,418,055 1.278.870 1.079.968 631,481 371.857 Held for future use . 16,686 14.908 11.317 11.667 10.870 Total utility plant 5,862,096 5,111,037 4,398,695 3.736.126 3,177,008 Less reserve for depreciation . 1,057,068 917.637 813.837 716.726 629.236 U'ility plant, less reserve 4,805,028 4,193.400 3.584.858 3,019.400 2.547,772 INVESTMENTS - at cost Non-utility property 47,148 60.321 7,838 3.947 97 Other investments (Note 1) 16,926 18.075 19.042 19.775 19.650 Total investments 64,074 78.396 26.880 23.722 19.747 CURRENT ASSETS Cash in banks 29,876 30,163 23.874 23.327 20.601 Special deposits . 11,765 11.761 13.097 5.041 4.987 Temporary cash investments - at cost 1,700 27.458 19.494 -

34.800 Accounts receivable Cestomers 90,553 71,632 61,015 49.036 40.576 Other 12,652 9.883 20.225 8.559 11.494 Reserve for uncollectible accounts . (4,325) (3.484) (3.047) (2,774) (2.009)

Inventories - at average cost:

Materials and supplies 36,555 31.335 31.061 32,806 28.797 Fuel stock 69,807 73.893 67.490 57.815 34.220 Other current assets 14,385 11.980 12.093 9.947 10,050 Total current assets 262,968 264.621 245.302 183,757 183.516 DEFERRED DEBITS . 29,738 27.389 21,140 18,784 17,400 Tota! $5,161,808 $4.563.806 $3.878.180 $3.245.663 $2.768.435 See accompanyong Notes to Financral Statements 24

1978 1977 1976 1975 1974 (Thousands of dollars)

Liabilities CAPITAllZATION Common stock (Page 32)

Texas Utilities Company - without par value . S 934,225 $ 823.550 $ 729.475 5 550.000 $ 550.000 Retained earnings (Note 2) 690,073 609.280 536.611 474.491 427,915 Surplus reserve (Note 3) - - - -

4.434 Minority interest in subsidiary . 1,246 1.183 1.076 999 973 Total 1,625,544 1.434.013 1.267.162 1.025.490 983.322 Preferred stocks (Page 28) 506,233 476.578 446.923 417.373 358.123 Long term debt. less amounts due currently (Page 28):

First mortgage bonds 1,565,507 1.584.907 1.418.307 1.234.707 1,036.107 Other long-term debt . 474,765 275.804 210.466 101.328 103.657 Unamortized premium and discount (1,618) (1.654) (1.370) (1,154) 259 Total 2,038,654 1.859.057 1.627.403 1.334.881 1.140.023 Total capitalization . 4,170,431 3.769.648 3.341.488 2.777.744 2.481.468 CURRENT LIABILITIES Notes payable - bank loans . - 45.000 -

50.000 7.000

- commercial paper . 221,355 175.605 80.450 108.500 -

Long-term debt due currently 19,400 9.855 22.562 1.794 52.124 Total (to be refinanced) 240,755 230.460 103.012 160.294 59.124 Accounts payable . 159,331 128.732 104.033 63.202 37,154 Dmdends declared 39,860 34.841 31.079 25.928 23.327 Customers' deposits . 9,992 9.243 12.553 10.528 9.155 Taxes accrued . 62,079 43.382 42,017 35.733 30.201 Interest accrued 45,625 40,671 35.526 28.225 23.988 Other current liabihties 29,279 17.193 12.794 7.352 6.365 Total current liabihties 506,921 504.522 341.014 331.262 189.314 RESERVE FOR INSURANCE AND CASUALTIES (Note 1) 7,628 5.583 6.562 5.520 4.700 ACCUMULATED DEFERRED FEDERAL INCOME TAXES (Note 1) 170,344 127.946 99.592 78.483 59.973 UNAMORTIZED FEDERAL INVESTMENT TAX CREDITS (Note 1) 226,484 156.107 89.524 52.654 32.980 Total $5,161,808 $4.563.806 $3,878.180 $3.245.663 $2.768.435 See accompanynng Notes to Fsnancial Statements 25

TEXA3 UTILITIES COMPANV Statement of income 1978 1977 1976 1975 1974 (Thousands of dollars)

DIVIDENDS ON COMMON STOCKS OF SUBSIDIARIES Dallas Power & Light Company . $ 19,105 $ 14.104 $ 13.042 $ 13.042 $ 12.173 Texas Electric Service Company 46,000 40.000 34.500 29.900 26.550 Texas Power & Light Company 59,040 54.050 48.300 43.030 37.140 Total dividenos 124,225 108.154 95.842 85.972 75 863 UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 85,345 72.297 54.477 36.300 46.615 INTEREST ON LOANS TO SUBSIDIARIES 15,192 7.833 8.641 4.176 5.839 Total 224,762 188.284 158.960 126.448 128.317 OTHER INCOME 105 20 62 19 366 TOTAL INCOME 224,867 188.304 159.022 126.467 128.683 EXPENSES AND OTHER DEDUCTIONS Administrative and general expenses. 3,807 3.158 3.299 1.817 1.461 Interest on notes payable . 19,433 8.315 7.245 3.150 3.075 Federal income taxes . - - - -

590 State franchise and miscellaneous taxes 889 912 558 524 450 Total expenses and other deductions 24,129 12.385 11.102 5.491 5.576 NET INCOME $200,738 $ 175.919 $147.920 $ 120.976 $ 123.107 Statement of Source of Funds for investment 1978 1977 1976 1975 1974 (Thousands of dollars)

FUNDS FROM OPERATIONS Net income $200,738 $175.919 $147.920 $120.976 $123.107 Less - Cash dividends declared on common stock . 119,945 103.250 85.800 74.400 63.880

- Undistributed eamings of subsidiaries 85,345 72.297 54.477 36.300 46.615 Total . 205,290 175.547 140.277 110.700 110.495 Net funds from operations . (4,552) 372 7.643 10.276 _

12.612 FUNDS FROM FINANCING Common stock 110,675 94.075 179.475 -

73.800 Notes payable - bank loans . (45,000) 45.000 (50.000) 43.000 (1.000)

- commercial paper 45,750 95.155 (28.050) 108.500 -

Total funds from financing . 111,425 234.230 101.425 151.500 72.800 Total . 106,873 234.602 109.068 101.776 85.412 ADD-Other-net . 3,528 2.142 4.338 659 3.035 Total . 110,399 236.744 113.406 162.435 88.447 CASH IN BANKS AND TEMPORARY CASH INVESTMENTS - net change . (59) 68 (101) (190) (123)

NOTES RECEIVABLE SUBSIDIARY COMPANIES - net change . (60,340) (69.565) 54.500 (100.700) 23.900 INVESTMENTS IN COMMON STOCKS OF SUBSIDI ARIES $ 50,000 $167.247 $167.805 $ 61.545 $112.224 26 See accompanyong Notes to FrancalStatements.

e &+m 4

TEXAS UTILITIES CCMPANY Bolance Sheet Cecember 31 1978 1977 1976 1975 1974 (Thousands of dollars)

A: sets INVESTMENTS IN COMMON STOCKS OF SUBSIDIARIES-at equity $1,663,581 $ 1.528.236 $ 1.288.692 $ 1.066.410 $ 968.565 CURRENT ASSETS Cash in banks 1,693 1,634 1,702 1,601 1.411 Notes receivable subsidiary companies . 208,605 148.265 78.700 133.200 32.500 Other current assets 2,605 1.940 738 932 _

202 Total current assets 212,903 151.839 81.143 135.733 34.113 Total $1,876,484 $ 1.680.075 $ 1.369.832 $ 1.202.143 $ 1.002,678 Liabilities CAPITAL STOCK Common - without par value (Page 32) . $ 934,225 $ 823.550 $ 729.475 $ 550.000 $ 550.000 RETAINED EARNINGS Undistributed earnings of subsidianes 800,941 515.596 443.298 388.821 352.521 Other net earnings . 89,132 93.684 93.313 85.670 75.394 Total retained earnings (Note 2) 690,073 609.280 536.611 474.491 427.915 CURRENT LIABILITIES Dividends declared . 30,644 26.250 23.100 18.600 17.400 Notes payable - bank loans -

45.000 -

50.000 7.000

- commercial paper 221,355 175.605 80.450 108.500 -

Other current liabil. ties . 187 390 196 552 363 Total current liabihties 252,186 247.245 103.746 177.652 24.763 Total $1,876,484 $ 1.680.075 $1.369.832 $ 1.202,143 $1.002.678 Statement of Retained Earnings 1978 1977 1976 1975 1974 (Thousands of dollars)

BALANCE AT BEGINNING OF YEAR $609,280 $536.611 $474.491 $427.915 $408.888 ADD - Net irk Sme . 200,738 175.919 147.920 120.976 123.107 Total 810,018 712.530 622.411 548.891 531.995 DEDUCT Cash dividends declared on common stock (Page 32) 119,945 103.250 85.800 74.400 63.880 Transfer to common capital stock account - - - -

40.200 Total deductions 119,945 103.250 85,800 74.400 104.080 BALANCE AT END OF YEAR (Note 2) 9690,073 $609.280 $536.611 $474.491 $427.915 See accompanynng Notes to Fsnancial Statements 27 i l

LUBSIDI An!ES OF TEXAS U TILtTIES COMPANY Preferred Stocks and Long-term Debt .

Preferred Stocke First Mortgage Sonde (cumulative, without par value, entitled upon hquidation to $100 a share) (less amounts due currently)

Devidend Shares December 31 Interest Senes December 31 Nd'*__

pgstand,ing _ _ 1978 1977 _ Hate Due 1978 1977 Dallas Power & Light Company Dallas Power & Lighi Company

$4 00 70.000 $ 7.048.930 $ 7.048.930 2% % 1979 $ - $ 10.000.000 4 24 100.000 10.081.000 10.081.000 2% 1980 24.500.000 24.500.000 4 50 74.430 7.443.000 7.443.000 3W 1983 9.000.000 9,000.000 4 80 100.000 10.009.000 10.009.000 7% 1983 25.000.000 25.000.000 6 84 200.000 20.022.600 20.022.600 7% 1984 25.000.000 25.000.000 7.20 200.000 20.043.800 20.043.800 7% 1985 25.000.000 25.000.000 7 48 300.000 30.073.200 30.073,200 3% 1986 10.000.000 10.000.000 4% 1986 10.000.0 % 10.000.000 Teaas Electnc Service Company 4% 1993 25.000.000 25.000.000 4 00 110.000 11.000.000 11.000.000 4N 1996 20.000.000 20.000.000 4 56 65.000 6.562.653 6.562.653 5% 1997 16.000.000 16.000.000 4 64 100.000 10.016.000 10.016.000 94 2000 30.000,000 30.000.000 5 08 80.000 8.004.169 8.004.169 7% 2001 30.000.000 30.000.000 7 44 300.000 30.005.970 30.005.970 7% 2002 30.000.000 30.000.000 8 32 300.0 W 29.655.000 -

8% 2005 50.000.000 50.000.000 8 44 300.0 0 30.045.900 30.045.900 Texas Electnc Service Companyt 8 92 200.000 20.075.980 20.075.980 9 36 300.0 M 29.625.000 29.625.000 2% 1979 -

8.000.000 3% 1981 11.500.000 11.500.000 Tenas Power & Light Company

• 3% 1982 8.000.000 8.000.000 4 00 70.000 7.000.000 7.000.000 34 1985 17.000.000 17.000.000 4 44 150 000 15.061,485 15.061.485 3's 1986 10.000.000 10.000.000 4 56 133.786 13.378.600 13.378.600 4% 1987 16.000.000 16.000.000 4 76 100.000 10.000.000 10.000.000 4W 1988 10.000.000 10.000.000 4 84 70.000 7.000.000 7.000.000 4% 1993 22.000.000 22,000.000 7 24 250.000 25.112.750 25.112.750 44 1995 16.000.000 16.000.000 7 80 300.000 30.030.300 30.030.300 5% 1996 15.000.000 15,000.000 8 16 300.000 29.655.000 29.655.000 64 1997 18.000.000 18.000,000 8 20 300.000 30.107.700 30.107.700 7% 1999 15.000.000 15.000.000 8 68 300.000 29.550.000 29.550.000 8% 2000 25.000.000 25.000.000 9 32 300,000 29.625.000 29.625.000 74 2001 25.000.000 25.000.000 74 2002 30,000.000 30.000.000 Total 5.073.216 $506.233 037 $4 76.578.037 8% 2004 40.000.000 40.000.000

_=c= =--.c. = . = ==u- .-

9W 2004 60.000.000 60.000.000

• In February 1979. 7emas Power & Light Company sold 300.000 8 ". 2005 50.000.000 50.000.000 shares of $8 84 Preferred Stock for a net amount of $29.591.400 8 '. 2006 100.000.000 100.000.000 Old Ocean fuel Company 5 1981 7.000 1.407.000 Texas Power & Light Companyt Other Long-term Debt 3% 1982 14.000.000 14.000.000 December 31 3% 1984 20.000.000 20.000.000 1978 1977 4% 1986 10.000.000 10.000.000 44 1988 12.500,000 12.5C3.000 Sinking fund Debentures 4W 1991 12.000.000 12.000.000

$ 88.971,000 (less amounts due currently) $ 85.930.000 h000000 t 5 19 % 20.000.000 20.000.000 Pollution Control Revenue Bonds SW 1997 30.000.000 30.000.000 Cess funds on deposit 6% 1998 25.000.000 25.000.000 8% 2000 30 000.000 30.000.000 with trustee) *

• 88.835.205 72.083.597 8% 2000 30.000.000 30.000.000 7% 2001 30,000.000 30.000.000 Senior Notes 300.000.000 100.000.000 7W 2002 40.000 000 40.000.000 7W 2003 50.000.000 50 000.000 Notes Payable -

14.750.000 8% 2004 50 000.000 50.000.000 ION 2004 50.000.000 50.000.000 Total $4 74. 765.205 $275.804.59 7 9W 2005 100.000.000 100.000.000

= = = = = - - = = 8 60 2006 100.000.000 100.000.000 8M 2W WM.M MMM

• Total amount of bonds issued $ 100.000.000 $ 100.000.000 Funds on deposit with trustee 11.164.795 27.916.403 Total $ 1.565.507 000 $ 1.584.907.000

= - - . = = -

Utihty plant of the System companies is generany subject to the hen of the mortgages.

tin February 1979. Temas Electnc Service Company sold $75,000.000 pnncipal amount of First Mortgage Bonds. 9W % Senes, due 2009, and Texas Power & Light Company sold $100.000.000 pnncipal amount of First Mortgage Bonds. 9%% Senes. due 2009 28

TEXAS UilLITIES COMPANY AND SUBSIDIARIES NEtes to Financial Statements

1. Significant Accounting Policies and 1977 were 39.6% and 36.5%, respectively; Consolidation - The consolidated financial state- the statutory rate was 48%; the difference was ments include Texas Utilities Company and all of its primarily due to the exclusion from taxable income subsidiaries; all significant intercompany items and of the allowance for funds used during construction.

trans,ctions have been climinated in consolidation.

Retirement Plans - The companies have uni-Utility Plant - The cost of property additions, form retirement plans covering substantially all including replacements of units of property and employees. The costs of the plans are determined betterments, is charged to utility plant. An by independent actuaries and are fur.ded by the allowance for funds used during construction has companies as accrued. The costs of the plans been charged to utility plant at the rate of 7% of approximated $17,198,000 for 1978 and expenditures incurred. except for that portion of $13,862,000 for 1977. The companies have made construction work in progress included in rate base minor amendments to the plans to comply with the by regulatory authorities. Maintenance and repairs Employee Retirement fncome Security Act of 1974 of property, and replacements of items determined and other amendments which were eifective January to be less than units of property, are charged to 1,1976. Unfunded prior service costs, attributable operating expenses. Depreciation reserve is charged to such amendments and certain changes in with the cost of units of property retired, plus actuarial assumptions, approximating $65,123,000 removal costs, less salvage. at December 31,1978, are being amortized at an annual cost of $4,572,000. The actuarially Other Investments - The difference between computed value of vested benefits exceeded the the amount at which the investment in a subsidiary fund assets by approximately $37,700,000 as of the is carried by the Company and the underlying latest anniversary dates of the respective plans.

book equity of such subsidiary at the respective dates of acquisition of $14,257,000 is included in Reserve for insurance and Casualties - The other investments. companies make provision for major uninsured I sses and claims and charge the amounts thereof Depreciation - Depreciation provisions are w ncuW generally based upon an amortization of the original cost of depreciable properties on a straight-line 2. Refained Earnings basis over the estimated service lives of the properties. Depreciation provisions in percent of i a m as supplemented, and the debenture agreements of the av rage depreciable property approximated 3.9% subsidiaries contain provisions which, under certain for 1978, and 3.8% for 1977. conditions, restrict distributions on or acquisitions of Federal Income Taxes - Deferred federal income their common stocks. At December 31,1978,and taxes are generally provided for differences between December 31,1977, $43,959,000 and $40,215,000, book and taxable income; such differences result respectively, of retained eamings of two subsidiaries pnmanly from the use of liberalized depreciation for was thus restricted as a result of the provisions of property placed in service after 1969 and also the such articles of incorporation. Retained earnings cliss life depreciation system (ADR) for property (Company and consolidated) at both dates also placed in service after 1971. Federal income tax included $281,243,000 representing the Company's provisions have been reduced by the amounts of equity in undistributed eamings since acquisition investment tax credits allowable under the Intemal included in transfers by subsidiaries from their Revenue Code, including amounts for an Employee retained earnings to stated value of common Stock Ownership Plan established pursuant to the stock, making a total of $325,202,000 and Tex Reduction Act of 1975, as amended; a ratable $321,458,000, at December 31,1978,and portion, except for amounts applicable to the December 31,1977, respectively, of retained Employee Stock Ownership Plan, is being amortized earnings which was restricted.

to income over the estimated service lives of the properties. The effective income tax rates for 1978 3. Dallas Franchise in December 1977, the City of Da!Ias granted Dallas Power & Light Company a new franchise l

29

Notes (continued) which conforms to the Public Utility Regulatory Act in April 1977 Texas Utihties Company entered of the State of Texas. into a surety agreement pursuant to which the The prior franchise from the City of Dallas Company has undertaken to assure the perform-provided for a surplus reserve created out of " net ance by Chaco Energy Company, a subsidiary, of a earnings." The surplus reserve was stated in the lease under which coal reserves will be acquired.

franchise to be "available for and may be used as an equahzing fund to promote the orderly and 5. Replacement Cost economical operation and development of the Unaudited replacement cost data are disclosed in Grantee's business" and transfers were made to the annual report of the Company to the Securities and from surplus reserve in accordance therewith, and Exchange Commission on Form 10-K for 1978 This provision is not contained in the new franchise. in compliance with the reporting requirements of the Commission; copies of the report are available to

4. Commitments and Contingencies shareholders and investors upon request. The For major new construction work now in progress reported data calls attention to the fact that in or contemplated by the subsidiaries, and commit. recent years the impact of inflation has generally ments with respect thercto, see " Construction." resulted in replacement costs for electric plant in The three electric utikty subsidiaries have entered service which are significantly higher 'han the into contracts with public agencies to purchase historical costs of such assets as rep irted in the coohng water for use in the generation of electric financial statements of the Company, energy and the subsidiaries have agreed, in effect, to guarantee the principal, $135,865,000 at Decem- 6. Quarterly Financial Information ber 31,1978, and $126,035,000 at December 31 Unaudited consolidated operating revenues, net 1977, and interest on bonds issued to finance the income and earnings per share by quarters for reservoirs from which the water is supplied. 1978 and 1977 are reported under Financial Statistics, pages 3? and 33.

Accountants' Opinion OELOITTE HASKiNS & SELLS CERTIFIED PUBUC ACCOUNTANTS To the Shareholders of Texas Utilities Company:

We have examined the financial statements (pages 22 to 30) of Texas Utihties Company and Texas Utihties Company and subsidiaries as of December 31,1978 and 1977 and for the years then ended. Our examinations were made .n 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. We have previously examined and expressed our unqualified opinions on such financial statements for each of the three years ended December 31, 1976, from which the accompanying financial information (pages 22 to 27) for those years was prepared.

In our opinion, the financial statements referred to above present fairly the financial position of the companies at December 31,1978 and 1977 and the results of their operations and the source of their funds for construction and for investment for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. Also, in our opinion, the financial information referred to above presents fairly in all material respects the information set forth therein in conformity with generally accepted accounting principles apphed on a basis consistent with that of the financial statements for 1978 and 1977.

DELOITTE HASKINs & SELLS Dallas, Texas March 23,1979 30

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31

TEXAS UTILITIES COMPAtW SYSTEM Financial Statistics 1978 1977 1976 UTILtTY PLANT end of year (thousands) . $ 5,862,096 $ 5,111,037 $ 4.398,695 Reserve for depreciation 1,057,068 917,637 813.837 Construction expenditures (includes allowance for funds used during construction) 737,353 734.282 671,708 CAPITAll7ATION RAT;OS end of year First mortgage bonds 38 % 42 % 43 %

Other long-term debt . 11 7 6 Preferred stocks . 12 13 13 Common stock. retained earnings and surplus reserve. 39 38 38 Total 100 % 100 % 100 %

Long-term debt in percent of Utility Plant. less reserve . 42 44 45 AVERAGE INTEREST RATE ON LONG-TERM DEBT end of year . 7.46 % 7.26 % 7.18 %

AVERAGE DIVIDEND RATE ON PREFERRED STOCKS end of year . 7.28 7.21 7.14 COMMON STOCK OF TEXAS UTILITIES COMPANY

• Shares authorized end of year . 150,000,000 150.000.000 150.000.000 Shares outstanding - average . 79,026,787 73.194.444 64,625.000 Shares outstanding end of year . 80,665,889 75.000,000 70.000,000 Book value (consolidated) per share end of year $ 20.14 $ 19.10 $ 18.09 Earnings (consolidated) on average book value . 13.1 % 13.0 % 12.9 %

CONSOLIDATED NET INCOME TO COMMON STOCK OF TEXAS UTILITIES COMPANY (thousands) . $ 200,738 $ 175,919 $ 147,920 DIVIDENDS DECLARED ON COMMON STOCK OF TEXAS UTILITIES COMPANY (thousands) . $ 119,945 $ 103,250 $ 85.800 Percent of (consolidated) net income 60 % 59 % 58 %

EAPNINGS AND DIVIDENDS PER SHARE OF COMMON STOCK OF TEXAS UTILITIES COMPANY

• Earnings (consolidated) on average shares outstanding $ 2.54 $ 2.40 $ 2.29 Dividends declared . 1.52 1.40 1.32 Dividends paid (cash) 1.49 1.38 1.30 Indicated annual dividend rate end of year 1.52 1.40 1.32

• Effective in . Jay 1972, the 26.750.000 shares of outstanding common stock of the Company were spht on a two-for-one basis into 53.500,000 shares without capitahzation of retained earnings. per share earnings, dividends and book value have been adjusted retroactively.

In January 1979. the Company sold 5.000.000 shares of its authorized but unissued common stock for a net amount of $94,750.000 QUARTERLY MARKET PRICE RANGES. DIVIDENDS PAID AND EARNINGS PER SHARE OF COMMON STOCK Price Range Dividends Paid Earnings Quarter Ended 1978 1977 1978 1977 1978 1977 High Low High Low March 31 $22.125 $ 19.25 $22.00 $19.125 $0.35 $0.33 $0.43 $040 June 30 21.25 19 25 22.25 18 875 0.38 0.35 0.40 0.39 September 30 22.25 20 00 23.375 20.50 0.38 0.35 1.21 1.07 December 31 20 375 18 00 22.75 19.75 0.38 0.35 0.50 0.54

$ 1.49 $ 1.38 $2.54 $2.40 32

1975 1974 1973 1972 1971 1970 1969 1968

$ 3.736.126 $ 3,177,008 $ 2,771.698 $ 2.462,669 $ 2,208,718 $ 1,968.686 $ 1,761,022 $ 1,604,070 716,726 629,236 552,477 495,571 443,459 400,158 366,682 333,732 570,016 418,776 321,907 265.800 251,377 220,820 169,831 138,279 44 % 42 % 41 % 43 % 42 % 42 % 39 % 42 %

4 4 5 6 7 8 9 9 15 14 14 14 12 12 12 10 37 40 40 37 39 38 40 39 100 */. 100 % 100 % 100 % 100 % 100 % 100 % 100 %

44 45 45 48 49 50 48 50 6.86 % 6.44 % 5.70 % 5.58 % 5.37 % 5.15 % 4.49 % 4.25 %

7.02 6.62 6.28 6.15 5.84 5.74 5.39 4.48 150,000,000 80,000,000 80,000,000 80,000,000 40,000,000 40,000,000 40,000,000 40,000,000 60,C30,000 56,588.889 55,354,167 53,500,000 26,606,250 26,000,000 25,458,333 25,400,000 60,000,000 60,000,000 56,000,000 53,500,000 26,750,000 26,000,000 26,000,000 25,400,000

$ 17.07 $ 16.30 $ 15.09 $ 13.40 $ 12.45 $ 11.18 $ 10.42 $ 9.34 12,1% 13.5% 14.2 % 15.1% 14.9 % 15.4 % 15.2 % 14.9 %

$ 120,976 $ 123,107 $ 111,243 $ 104,137 $ 92,790 $ 86,496 $ 77,082 $ 68,504

$ 74,400 $ 63,880 $ 57,590 $ 53,500 $ 51,000 $ 46,800 $ 42,924 $ 40,640 61 % 52 % 52 % 51 % 55 % 54 % 56 % 59 %

$ 2.02 $ 2,18 $ 2.01 $ 1.95 $ 1.74 $ 1.66 $ 1.51 $ 1,35 1.24 1.12 1.04 ' 1.00 0.96 0.90 0.84 0.80 1,22 1.09 1.03 0.99 0.945 0.885 0.83 0.79 1.24 1.16 1.04 1.00 0.96 0.90 0.84 0 80

's 4

, OUARTERLY CONSOLIDATED OPERATING REVENUES AND NET INCOME Operating Revenues - Net income Ouarter Ended 1978 1977 1978 1977 (Thousands of dottars)

March 31 $ 338,157 $ 281,589 $ 32,570 $ 27,950 June 30 362,373 300,862 31,947 28.311

> September 30 - 545,453 458,730 96,457 78,843 December 31 358,373 326,597 39,764 40,815

$1,604,356 ' $1,367.778 $200,738 f,,175,919 l

33 i

i

TEXAS UT UTIES COMPANV SYSTEM Operating Statistics 1978 1977 1976 NET GENERATING CAPABILITY end of year (megawatts)

Installed capability 16,587 15.128 14.194 Purchased power 95 95 95 Total 16,682 15.223 14.289 PEAK LOAD dunng year (megawatts)* 11,548 10.798 10.240 GENERATING CAPABILITY BY TYPE OF FUEL end of year Gas 56 % 62 % 68 %

Gas / Oil 16 18 16 Lignite 28 20 16 Total 100 % 100 % 100 %

ELECTRIC ENERGY GENERATED AND PURCHASED (megawatt hours)

Generated - nel station output 57,196,077 5'1.156.235 47.573.856 Purchased and net interchange 79,688 72.845 46.656 Total generated and purchased 57,275,765 53.229.080 47.620.512 Company use. transmission and distnbution losses, and unaccounted for 4,041,486 3.549.768 3.290.124 Total electnc energy sales 53,234,279 49.679.312 44.330.388 ELECTRIC ENERGY SALES (megawatt-hours)

Residential 17,943,224 16.642.382 14.548.407 Commercial 13,117,202 12.347.755 11.338.371 Industrial

• 16,469,636 15.678.254 13.917.588 Government and municipal 1,728,056 1.565.518 1.425.665 Other electnc utilities 3.976,161 3.445.403 3.100.357 Total 53,234,279 49,679.312 44.330.388 CPERATING REVENUES - Electnc (thousands)

Residential 3 640,611 $ 552.331 $ 442.204 Commercial 439,146 375.822 303.785 Industrial

• 373,456 310.811 238.426 Government and municipal 49,623 40.331 32.390 Other electnc utilities and miscellaneous 101,520 88.483 65.525 Total $1,634,356 $1.367.778 $ 1.082.330 PERCENT OF OPERATING REVENUES Residential 40 % 40 % 41 %

Commercial 28 28 28 andustnal* 23 23 22 Government and municipal 3 3 3 Other electnc utilitie.3 and miscellaneous 6 6 6 Total 100 % 100 % 100 %

ELECTRIC CUSTOMERS end of year 1,410,913 1.342.093 1.296.513 DWELLING UNITS not included in number of customers Ondirect residential sales: apartments, etc ) 243,886 248.755 240.672

• Includes interrupt:ble service to a large industrial customer:

Peak Load (megawatis) 316 273 238 Doctric Energy Sales (megawatt-hours) 2,891,259 2.786.027 1.822.488 Operating Pevenues (thousands) $ 41,572 $ 36.878 $ 20.052 34

i I

1975 1974 1973 1972 1971 1970 1969 1968 13,791 12,187 11,822 10,767 9.150 8.150 7,240 6.865 95 140 163 163 163 163 163 163 13.886 12.327 11.985 10,930 9.313 8,313 7.403 7.028 9.674 9.885 8.923 8.435 7.892 7.423 6.990 5.781 70 % 79 % 81 % 89 % 97 % 100 % 100 % 100 %

13 9 9 - - - -

17 12 10 11 3 - -

100 % 100 . 100 % 100 % 100 % 100 % 100 % 100 %

45,862,942 43.969.560 42,169.231 40,151,227 36.041,530 33.822,440 30.653.705 26.268.282 225.718 176.059 449.061 239,660 259.278 259.328 592.179 295.139 46.088.660 44.145,619 42,618,292 40,390.887 36,300,808 34,081.768 31.245,884 26.563.421 3.238.645 3.052,126 2.872.902 3.029.500 2,654.846 2.579.573 2,453,169 2.029.102 42.850,015 41,093.493 39,745,390 37.361,387 33.645.962 31.502.195 28.792.715 24.534.319 14,575.846 13.532.494 13,122,546 12,748.036 10.915.310 *?.P a405 9.073.588 7,281,535 11.026.495 10.285.297 10.130,629 9,471.615 8,307.851 7,602.0 % 7.022,941 6.226.452 12.962,019 13.231.004 12,715,469 11,535,114 11.267,589 10,940.552 10,055.445 8.597,143 1.333,765 1,293.641 1.226,292 1,227.335 1,111.712 1.019.789 955.257 845,171 2.951.890 2.751.057 2.550.454 2.379.287 2,043.500 1.832.415 1.685.484 1,584,018 42.850.015 41.093.493 39.745.390 2/ ".61.387 33.645.962 31,502.195 28.792.715 24,534.319

$ 374.480 $ 308,735 $ 268.131 $ 253,473 $ 213,790 $ 200.393 $ 183,963 $ 155.282 251,882 204.441 178,718 162,274 138,054 127,527 118,186 107.097 182,491 149,526 125,144 109.026 99.039 95.831 88,464 79,%0 25,337 20.209 16,974 15,899 13.700 .2.408 11.411 10.261 54.546 43.686 26.129 22,602 18.775 .6.876 14.910 13.396

$ 888.736 $ 726.597 $ 615.096 $ 563.274 $ 483.358 $ 453,035 $ 416.934 $ 365,996 42 % 42 % 44 % 45 % 44 % 44 % 44 % 42 %

28 28 29 29 29 28 28 29 21 21 20 19 20 21 21 22 3 3 3 3 3 3 3 3 6 6 4 4 4 4 4 4 100 % 100 % 100 % 100 % ~ 100% 100 % 100 % 100 %

1,258,087 1.231.723 1,208.929 1.182,006 1.152.747 1,127.021 1,104.365 1,075.401

' 150,375 236.055 232.358 224,577 211.645 197.868 176.762 126.758 169 283 253 150 213 235 162 82 2,038.618 2,431,269 2,001,058 1,500,644 1,945,309 1,947.850 1.401,417 551,333

$ 18.704 $ 15.309 5 10,037 $ 6.637 $ 8.276 $ 8.226 5 5.624 $ 2.224 35

R l

Texas Utilities Company System

! l I

, The Texas Utilities Texas Power & Light l Company System is investor- Company serves customers owned and includes three in 51 counties in north central electric utilities, two fuel com- v nd east Texas, including 263 panies, a generating company, a service ' incorporated municipalities. The company and two nonutility companies engaged territory served includes the rich in energy-related activities. The System provides agricultural blacklands of central Texas, electr;c energy in 87 counties in north centrai, east farming and ranching sections north and and west Texas, with more than four million east of Dallas, part of the oil and gas people - about one-third of the population of fields of east Texas and the Dallas / Fort the State. Worth Regional Airport. The area has a highly '

i Texas Utilities Company is a holding company diversified base of light and heavy manufacturing which provides common stock capital for its and substantial commercial activities.

subsidiaries and supplies the short-term funds Texas Utilities Services, Inc. furnishes required in connection with the construction engineering, construction management, financial programs of the System companies. At year end, and other services at cost to the the common stock of the Company was owned System companies.

by more than 59,000 registered shareholders, Texas Utilities Fuel Company owns a natural including residents of every state and a number of gas pipeline system, acquires, stores and delivers foreign countries. Thousands of others are indirect fuel gas and oil and provides other fuel services at owners through insurance policies, pension and cost for the three electric utilities.

personal trusts, mutual funds and similar investor Texas Utilities Generating Company acts groups. The Company owns substantially all of the as agent for the three electric utilities it' the outstanding common stock of Dallas Power & operation of their jointly-owned generating stations Light Company and all of the common stock of and furnishes related services at cost; it also Texas Electric Service Company and Texas operates a lignite-fueled generating station for a Power & Light Company. large industrial customer.

Dallas Power & Light Company serves the Old Ocean Fuel Company, a subsidiary of City of Dallas, the nation's seventh largest city, and Texas Electric Service Company, owns and three adjoining incorpormed communities in Dallas operates facilities for transporting and storing i County. The area is a banking, irsurance, commer- natural gas.

cial and regional distribution center, with Chaco Energy Company, chartered in New substantiallight manufacturing and other industry. Mexico, is involved in fuel acquisition and will own Texas Electric Service Company provides and operate facilities for the production and service in 48 counties in north central and west delivery of coal and other fuels.

Texas. This is a highly diversified area which Basic Resources Inc. is primarily engaged in the ,

includes the City of Fort Worth, a center of banking, development of energy resources, technology and i business and industry, and 74 other incorporated related services.

municipalities. The area between Fort Worth and Dallas is a complex of light industry and commerce.

In west Texas, the company serves a major portion of the Permian Basin and other oil and gas fields, l

and extensive farming and ranching areas.

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