ML20247J782

City Public Svc 1987-88 Annual Rept

ML20247J782
Person / Time
Site:	South Texas
Issue date:	12/31/1988
From:	Eva Hill, Von Rosenberg SAN ANTONIO CITY PUBLIC SERVICE BOARD
To:
Shared Package
ML20247J737	List: ML20247J747 ML20247J774 ML20247J782 ST-HL-AE-3181, Forwards 1988 Annual Financial Repts for Houston Industries, Inc,City of Austin,Central Power & Light Co & San Antonio City Public Svc
References
NUDOCS 8907310320
Download: ML20247J782 (44)

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CITY PUBLIC SERVICE ~

e90731oaro e9c.n4 87-88 ANNUAL REPORT PDR ALOCK 05000498 i FDC ,

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HIGHLIGiff5~OF THE YE R ~

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SUMMARY

OF 7

. Z s:Je a APPLICATION OF REVENUE

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$389.532,000 to ~ 54.028,550,000 e City equity increased Gross revenue for 1987-88 . _57912 5.7,000 5181.495,000 to- 51,477.500,000 _,=-.; - a _m.: =m=.m.=_=.==m... _ _

e City payments were Appucat n of Remue:

up 53,455.000 to 5 99,646,(KM) Fuel, purchased power and resale pas . 5284.019,000 Other operating and reneral capenses 34,921,000 e Gross revenues decreased Maintenance of the systems 36,025.000

~ $12.461,000 to .

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5 791.757.000 For debt requirements . 5221,665,000 e Revenue per residential KWFI tess interet,t charged to const. 107,025 20_00 sold decreased 4.2% to i. 6.55e Interest charged to operations 114,64ti,000 e Revenue per residential'MCF of Paymeno t the City of San Antonio 99,4 6,000 gas declined 7.4% to 55.12 Balance from operations avanaNe for const. 182,W,M s Maximum electric sys' tem load -

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decreased 45.000 KW to , 2.551,000 = = = = = = = = = = = = - . = --- ========*==r==-

Gross amount spent for replacements. improvements e 1.729 electric customers and espansion of gas and electne systems. 540R,ft52,0fK) were added to total . 459,766 8,639 (KNI Amount provided for future construction .

,e 94 miles of electric transmisuon Total ."~~

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and distribution lines were added

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== ==;.u  :..= ===:= = = = = =a Funds obtamed

• Amount of Fas (MCF) ,

Bond Ftnd. 5199,449,000 r,aved through use of coal Operations 182.506.000 for reneration 44,237,(K)0 Contribution and advances in aid of const. 5.536.0M)

• Purchase of fuel, power and Fas de- 1.itigation Settlement Proceeds 30.000,(KH) creased 532.232,000 to total 5 284,019,000 Total ,5417A91]Kg P

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I CELEBRATING 45 YEARS AS SAN ANTONIO'S MUNICIPAL UTILITY i

CITY PUllLIC SERVICF SAN ANTONIO N NATURAL GAS AND ELECTRIC UTILITY ANNUAL RLlW:l' FOR YEAR ENDED J ANUARY 31.1988 i

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E M=ri s'"*' '" ' eflections on forty five show the prudence of the city's years of service as a municipally- investment in the utility 45 years owned utility show a history of ago when the city purchased the accomplishment and a solid base gas and electric systems for $33.9 from which City Public Service million in revenue bonds. Sinct is poised to meet the challenges that time, CPS has grown to be of a growing city in the future. one of the largest municipally-

- Celebrating the anniversary pro- owned gas and electric utilities vided the opportunity to consider in the country.

a period of rapid growth which CPS provides electricity for

has brought San Antonio to the Bexar County and small portions pasition it now occupies as ninth of seven adjoining counties, a i largest city in the nation. service area of 1,566 square miles,

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As CPS marked its 45th anni- and distributes natumi gas in the

<, !Mb[;fi Q l versary, the utility also achieved San Antonio urban area. As the f (" il several notable milestones. The provider of natural gas and elec-jh~s 4

j utility now has more than $4 tric service in the San Antonio 73 .

j billion in assets and the City of metropolitan area. City Public 9 San Antonio's equity is approxi- Service has contributed to the 4

mate'y 51.5 bi!! ion. In Novem- economic growth and progress ber 1987, the n.onthly payment of the city by providing an ade-totheCityofSar Antoniobrought quate, reliable, cost-competitive the total payments and services energy supply.

since 1942 to more than $1 billion. These accomplishments De nmth IsgN uty ai myht 5

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rowth in San Antonio, although sjwver electric sales reached new records as customers than during the past few years, contws to continued to require more energy. At year's end,  ;

challenge CPS in its continuing efforts to p<c,de the utility served 459,766 electric customers, a the excellent service necessary to carry the cay slight increase osu the previous year. Total into the 1990s and beyond. Several substantial power generated and purchased in 1987-88 reached ventures begun during the fiscal year point to a record 11,2 billion kilowatt hours. The peak continued fature growth as these businesses demand of 2,551,000 kilowatts exceeded projec-stimulate the local econ- tions, although it was omy. Rivercenter Mall, a slightly less than the record complex of 130 retail stores ._

set during the previous sum-and restaurants which will i~I i 7 @ - 7 mer's extreme heat, Sales open in February, will bring ,.  !

~ Nig - [ e to electric customers also

' ',:-( / g' f both visitors and local shop- '

exceeded CPS forecasts, pers to the downtown area.

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County projects four mil-

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ny  ? ,- Gas customers declined lion visitors during its first slightly to 284,122 during year as the newest addition y 'A the year, reflecting both the to the tourist industry in the 4 . '

economic slowdown and

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j an increasing trend to build Both city and state gov-

• j@ 1 ' 1 f(, i " all-electric residences and ernments are investing in Rancemn Math >iva m tu apartments. Gas sales,how-the future of San Antonio, ever, reached 26.6 million with major street improve- MCF, up 6.6 percent over ments and an ambitious program of highway the previous y ear. primarily duc to colder weather expansion to enhance the modern transportation during the spring.

I network throughout the CPS service area. CPS Our economic forecasts indicate the local is participating with local government agencies economy will stabilize in 1988 and then begin a and businesses in the TriParty Project to improve recovery. We expect, therefore, that customers 70 square blocks in downtown San Antonio. will increase by approximately 6,000 per year Despite the slowdown in the Texas economy during the neat 24 months and by 12,000 to 1 which had some effect in the local area, CPS 15.00() during the 1990s.  !

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l hile the utili:y was experiencing be offset by lower fuel costs and greater diversifi i record electric sales. City Public Service custom- cation of the fuels which can be selected for the )

ers were benefiting from the effects of low-cost generating system.

fuels and the utility's ability to select from several City Public Service customers also benefited fuels. As a result, energy costs were at the lowest from receipt of a $10 million installment on the I

levels since the fiscal year 1983. The price of a settlement of a lawsuit concerning coal-hauling kilowatt hour of electricity fell again in 1987-88 rates. The payment will be followed by six more as the price of natural gas annual payments, each of i for generation declined 13.5 which will be increased by I percent and coal went down $500,000 annually.

6.6 percent when compared In its continuing efforts with 1986 87. h,Y- 14 47 "[ [, , y -% [ g ' M p'[' to improve service to cus-The availability of low- Q, tomers, City Public Service priced gas enabled City Pub-Q " fgg[4, W e { purchased and began reno-lic Service to acquire in-creased volumes of gas for

, 1 vating a parking facility 7  ;- across the street from the electne generation, some- kg -

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'. }; 3 - Main Office. Three floors times at costs lower than

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coal. As a result, electric ~ ..

E" 7"  % added to the top of the generation from natural gas j[ ' Drh " * '

- .g..y Navarro Parking Garage to hh[

accounted for 60 percent .

accommodate employees of the total production. The *mu caim=

• sa w* dedicated to serving cus-019M t$y sea %wid of Tem. Inc lower overall fuel cost and tomer needs. The Down-operating efficiency of the town Customer Service utility brought a 4.4 percent reduction in the Center, located in the garage structure, also is residential cost per kilowatt hour and resulted in being remodeled and ample customer parking City Public Service bills ranking in the lower will be provided. The end results of the renova- l third among utilities in the state and the nation. tion are an improved working environment for Ratepayers should continue to enjoy favorable employees and smoother functioning of depart-I rates during the coming year despite a rate ments being housed under one roof. The renova-increase which took effect in January 1988. The tion project is scheduled for completion in the increase in gas and electric rates is expected to summer of 1988.

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Lme crew m # e 1940s.

ommitment to service re- and insulated waterheating equip-quired CPS personnel to respond ment to increase energy effi-to one of the worst storms to hit ciency. Customer energy usage San Antonio in recent years. will be analyzed to determine the Crews worked around the chick amount of monetary and energy to restore service to 64 feeder savings through this program.

circuits which affected approxi- CPS is concerned not only mately 75,000 homes throughout with the efficient use of gas and the city. The heavy rains and electricity, but also the safe use strong winds caused the largest of these commodities. To under-number of outages in the hisiory score that concern, Public Safety of the Gas and Electric Opera- Awareness personnel presented tions Center and presented a 528 safety programs to school challenge which was profession- groups, local contractors, civic ally met by CPS employees. and social organizations and area Concem for the community fire fighters.

led CPS to another successful CPS employees also demon-yearof serving customers through strated their commitment to the special customer programs. The community by contributing CPS Consumer Infomiation Di- $297,000, a record amount, to vision made more than 71,000 the 1987 United Way campaign.

contacts in the community dur- Per capita giving also increased, {

ing the year to emphasize the as both active and retired em-safe and efficient use of gas and ployees helped make 1987 the electricity. Contacts included en- most successful year yet for CPS und nma n ergy surveys of residential, com- contributions.

mercial and industrial proptrties; Support for Project WARM business and community service (Winter Assistance Relief Mobi-presentations; power plant tours; lization) also increased. During and responses to more than 51.500 the calendar year 1987, more telephone inquiries. than 15,900 customers contrib-A pilot program to determine uted $406,614 to assist needy the effectiveness of weatherizing customers in paying their winter low-income homes was com- utility bills. As the program en-pleted during the summer of tered its sixth season, more than 1987. CPS staff members over- 16,000 low-income customers had saw the w ork oflocal high school received Project WARM assis-students w ho caulked and weath- tance.

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diversification of the fuels base to include April 1987. The last major milestone for the year nuclear power took another step forward as the was completed when fuel loading began on i South Texas Project (STP) passed several major August 22 and was completed four days later. At milestones. Construction of Unit I was completed year end, final tests were being made in prepara-and work on Unit 2 was ahead of schedule during tion for the start of low-power testing.

most of the year. Duriag the year, the cost of completing the STP On August 21,the Nuclear Regulatory Commis- was reassessed, with the resuh that the total sion (NRC) issued a license project cost was increased l

authorizing nuclear fuel to by $3(YJ million. After the be loaded in Unit I and .

benefit of thelawsuit against pennitting testing up to 5 the formerconstrutoris con-percent of the unit's capac-sidered, the total construc-ity to begin. While several

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"N t v 'f - N tion cost for completing the unanticipated equipment e  ;, J STP is forecast to be S5.278 N, - W N-problems after issuance of -

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'.s the low-power license de- 3  ?" -

By year end, the 2,500-layed achieving Texas' first [ ,- megawatt project was 95 nuclear reaction before year .

percent complete and Unit end, Unit 1 is expected to so,,3 %,, p,,,,, 2 remained on track for j reach that milestone during commercial operation by the first quarter of 1988. mid-1989. At full capacity, Commercial operation is forecast for summer CPS, which owns a 28 percent share of the 1988. project, will receive approximately one-third of j l

in preparation for operating the plant, the NRC its annual electric needs. The 700 megawatts of l licensed the reactor operators in February 1987 power will be produced by low-cost nuclear fuel l and the first electricity was produced during hot w hich adds another dimension to the mix of coal, i functional testing in March. Testing and approval oil and natural gas which currently can be used I

of the Emergency Preparedness Plan followed in to generate electricity. l l

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uilding for the future means assuring CPS option than mining and burning lignite at this custorners a more reliable energy supply at the time.

lowest possible cost. To help assure future energy CPS began construction of the 17-mile North needs can be met, City Public Service began Gate Pipeline which is expected to be operational planning for a new coal-fired unit and started by June 1988. The 24-inch pipeline will extend construction of a pipeline w hich will create more gas service to northern Ilexar County, but more competition in meeting the utility's gas require- importantly, it will provide CPS with an addi-ments and will increase re. tional connection to the Va-liability of the system, lero Pipeline and a new During the year, CPS connection with the Oasis completed negotiations with Pipeline, which opens new a consortium composed of 1  ;

'fy gas supplies to CPS. The Utility Engineering Corp., .

. new pipeline also will pro-H.Il. Zachry Co. and Com- duce greater reliability ard f '

bustion Engineering Co. to -

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.g flexibility in supplying the add another coal-fueled gen- - - utility's natural gas needs.

erating unit at Calaveras ' \ To maintain a reliable Lake. Construction of the -

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supply of low-cost fuel fo-500-megawatt plant is sched- . . ;_ .

, its gas-fired plants and gas uled to begin in September .,-

,[ distribution customers, CPS 1988, with mmmercial op- I

. $"dk solicited bids for the supply l etation expected in the sum- ^ ="* """"

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• of natural gas when the mer of 1992. current contract ends in June The need to build a plant 1988. The CPS Board of fired with low-sulfur Western coal was based on Trustees has approved in principal a contract with projected future electric requirements created by Valero Natural Gas Partners for 80 percent or customer growth and increased consumption per more of CPS gas requirements and with a customer. Studies showed the recently-achieved subsidiary of Houston Pipe Line Company which reduction in coal-hauling rates and competitive will provide at least 15 percent of the system's coal prices, combined with the advantage of the gas needs. Both gas suppliers will base prices on . j exis:ing land, water and coal-handling facilities spot market prices with ceilings designed to keep j at the Calaveras 1.ake site, made coal a better CPS prices in fine with other Texas utilities, j 1

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om en m ine na distinguished records were Planning, was promoted to re-accoraplished by CPS Trustees place Mr. von Rosenberg as As-and employees in leading the sistant General Manager for Plan-utility during another successful ning and Development. Robert year. Board Chairman Earl C. J. Costello, previously Manager Hill completed his second term of Transmission and Distribution as a Trustee and was succeeded Engineering, was named Assis-as Chainnan by Lila Cocircll. tant General Manager for Opera-Pat legan filled the Vice Chair- tions. Both are long-term CPS man's position vacated by Mrs. employees who have distin-Cockrell. At the stafflevel. Gen- guished management careers.

eral Manager J.K. Spruce retired As City Public Service com-after nearly 40 years of service. pleted its 45th year of service as lie had served as General Man- a municipally-owned utility, the ager since February 1976 and company continued to meet the was responsible for guiding the challenges of providing reliable, utility through numerous cha!- cost-effective natural gas and lenges, including fuels diversifi- electrie servim.The record shows cation, energy conservation and consumer costs were among the settlement of lawsuits concem- lowest in the s:. ate and nation and ing gas contracts, coal hauling that CPS played a major role in and the South Texas Project. helping San Antonio grew to be Mr. Spruce was replaced by one of the largest cities in the Arthur von Rosenberg, a CPS country. As the future unfolds, employee since 1959. In his the dedicated employees of CPS previous job as Assistant Gen- stand ready to meet the chal-eral Manager for Planning and lenges and opportunities of serv-j Development, Mr. von Rosen- ing the utility needs of San

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.s o berg negotiated the $111.5 mil- Antonio.

+7 lion settlement payment to CPS from the Burlington Northem // I Tmwhmr campmem is hg -

oms man

. go um and Southem Pacific Railroads.

Earl C.11ill lie also developed the strategy j Chainnan for obtaining competitive coal transportation service and natu-s al gas at lower prices. dM Jamic E. Artcll, Manager of Arthur von Rosenberg Generation and Environmental General Manager 11

CPS BOARD MANAGEMENT OF TRUSTEES STAFF i6- .

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Chainnan - '

ARTitt:R VON ROSENIll RG Arorney-at law y- j 4 Genera tanager 4'.

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[ Sh l.11.A COCKRl'.Lt. '

JAMIEI: AX!! Lt Vwe-Chairman Awstant General Man.iger Presulent. Atkirn Trasel bpDeuFn ,

J i for PlanmnF and ()eselopment DEPARTMENT m: ym . . 3 MANAGERS N -

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RAlPilC.AlONZO b ,

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Customer Sersices L.E. BOULDEN -4 Materials & Transponation um STEVEN BRAIMER Adminntrative Senices MARTIN f . CLAUSEWIT7. Rt Hl A M i sCOtti.Do Power Plant Engineering T rusice l

,, ROlit.RI J COSTi.i t o ANTHONY C. EDWARDS Crhe'l Pubin Atentant. Amstani General Mantger I Employee Relatuur. Rubcn I wobedo and Company  ; ,

for Operanons KENNETH J. FIEDLER y ng, Operations g PAUL R. GARZA r Field Administration a WILLI AM IE GEISSLER . l, Generation and Environmental Planning kgga er ,

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FR ANK D. IIAEGLLIN

.Y Ib sonnel Services CY C. HUTCit!NSON s' Data Pmcessmg Senices . .

,gl JOllN J. LEAL -

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o nowggo L g gi g yAs Perwnnel 1 rusice Assniant General Manager JOHN G. M ACK trpn Progwrnes -

i for 1-inarst Prrxtuction ,

J AMES W. PETrlNOS \

Construction DON ALD R. SCHNTI7 .

Gas Engineering and Fuels STEWART SClKX)LLR , h .; .[. Y' legal Senices \

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II ARBAR A K. STOVER

Public Relations

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, sg DON AL.D S. TIIOM AS T f mancial Sen1ce$ lilARY G CI5NI kOS

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Kl NNi lli H ifcZ JOE O. TREVINO t rOff nuo Trustee ,

Awistant General Man.tret 1runsmission and Distr:bution Enginceimg Mann of San An'omo for Athmnstratum 12

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1987-88

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FINANCIAL STATEMENTS s

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PS maintained us strong financial position the total eleco-ic production fuel costs to be 6.8 during the fiscal year, despite slower customer percent lower than th~e previous fiscal year, even growth w'hich reflected some of the symptoms though CPS increased electric. generation by 5.6

, of the Texas economy. Irwer unit costs of both percent.

, pas and electricity. how ever. produced growth in The average revenue for the fiscal year amounted sales and continued good financial results. to 5.9 cents per KWH and $4.71 per MCF, the Total assets exceeded the 54 billion mark ~at the iowest it has been since fiscal year 1982. This close of the fiscal year, i lower price encouraged increasing 5389.5 million. greater usage by customers.

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'nua '~m or 10.7 percent. Construe-with total electne sales reach-

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[ ing a record 10.6 billion amounted to 52.1 billion. KWil and gas sales ad-with the South Texas Nu- w !f s

w ma nc 23 mn 3m 4 sr F i vancing 6.6 percent over ,

clear Project accounting for G AS SALES IMILLif)N MCF) the previous' fiscal year.

$2 billion, or 95.8 percent .eu w m . om? . ive _

The number of electric cut-

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of this total. Outstanding , [ [ -

tomers served during the revenue bends totaled S2.2 A ' year rose only 0.4' percent -

l l billion, while City equity l , to 459,766. while gas cus-s 's s .\

increased 14 percent and = m m ud t w tomers declined minimally ~

ELECTRIC SALES (IIILLION KWill ,

amounted to $1.5 billion at ,

and totaled 284,122 at year year end. end. j A major ingredient in the favorable CPS Gas and' electric operating resenues declined I 1

' performance is the continuing decline in the cost 1.8 percent to $753.3 million { luring the year, as ' i of fuel for electric generation and distribution pas low er fuel and gas cost recoveries were only .

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for resate. Tne a /erage cost of gas to fuel electric panly offset by $25.1 million from greater sales j generation dropped 30 cents per MCF to $1.87 and $2.7 million from a January '1988 rate per MCF, w hile coal costs declined 51.93 per ton inct :ase. Electric revenue of 5626.7 million was -

during the year. The lower price of fuel caused 2 pcreent lower than last year while gas revenue i

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declined 1 percent to $126.6 million. Interest and the advance refundir g of higher inkrest bonds other non-operating income rose 4.5 percent to During the year, S160 million in new bonds

$38.5 million. were issued at an average interest cost of 7 per-Electric and gas operating expenses were 5.5 cent and ,with a sery favorable AA rating by percent lower than the previous year. Fuel, both major rating agencies. This interest rate and purchased power and resale gas costs declined the effects of the advance refunding of older,

$32.2 million or 10.2 percent below the last fiscal higher interest bonds combined to lower the year due to the lower gas average interest rate on all

, and coal costs. Other operat- outstanding bonds to 7.5 trJ u.rcuac ing and maintenance costs - percent Irom 8.2 percent ENE gas ,

~"* [j 3%

partially offset the lower sm last year and 8.9 percent in

%'A /2 gas and fuel costs, rising the fiscal year ended in 0}] }

by $9.2 million or 9 percent l ] ] q j j January 1985.

due to costs associated with l@ h j !j t  ! .3 Capital expenditures for maintenance efforts during  ?

l] l]  ! ] h utility plant additions dur-the slower growth period.  ! g"I -

h 9 ing the year declined 5.1 Last year's expenses were .

l [ [" _ percent to $408.9 million.

slightly lower than normal [ /f [ Costs associated with the due to a credit for a $2.1 'h h.,y.[g gg',"g*[g,gg.'[ nuclear plant were $28.4 million legal fee recovery million less than' last year in a dispute involving coal but continued to represent freight rates. Interest and debt expense of $178.1 the most significant capital outlay, accounting for '

million was $12 million greater than last year. 71.9 percent of the capital costs for the year.

and the amount of interest charged to construction Revenue bond proceeds were used to pay for 48.8 was $107 million. up $5.6 million. Interest costs percent of the year's capital additions: 42.5 rose, primarily due to costs associated with the percent was financed from revqnue funds and the Issuance of additional bonds and to greater balance from litigation settlement proceeds and amortization of debt cost incurred as a result of '

customer contributions.

y e

G

=

l .I 3

1. 4

_ _ __ _________m____ _ _ _ _ _ _ _ _

~

, , a e-

.. BALANCE SHEETS JANUARY 31,1988 AND 1987 ,

's e w

ASSETS . Notes 19P8 -1987

~

, (in thousands)

~

~

UTILITY PLANT -- At cost: 'l' s Electric. $1,292.661 $1,221,198 Gas . a. , , 208,101. 196,620-

~'

General , . . . ,

.- . - ^

.70,995 ~ 60,956 -

Construction work in progress . 8 J 1,973,012 : . 1,675,726 -

Nucitar fuelin process : .. .. 8 102,089 >

100,979 Total utility plant.. 3,646,858 3,255,479 less accumulated depreciation 473,275 446.9'13

~

Utility plant - det.. '

3,173.583 2,808,566 ..

s . . _

h RESTRICTED CASH AND INVESTMENTS: . 1,2,3 Bond Construction Fund .. -

- 41,335 Dond Reserve - Old Series Bonds.. '.4 17,279 ,17,353 Bond Reserve - New Series Bonds.. '4 182,639 ,173,786

1. improvements and Contingencies Fund . .., . ... .a.4 _ 140,078 , '131,439 :

O,ther. . . ,. ,1 17.711 5.150

~

Total restricted" cash and investments.. 357.707 369,063 V

CURRENT ASSETS: - -

Cash, including temporary cash inui.nents.. . . . . .

1,2 37,687 19,045 Customer accounts receivaNe,less allowance for doubtful accounts of $1,297,000. -

in 1988 and $1,222,000 in 1987. .a.. 60,503 - 54,947 Other reccisaNes >

9 46,952 -

.'42,352 Inventories and supplies - at aserage cost: j Materials and supplies : . 22,235 20,642 Y Fuel stock,. 32,775 42,089 _.

Prepayments - 1,547 1,859

~

Total current assets.. , . 201,699 180,934 -

L.

l.ITIGATION SETTLEMENTS BENEFITS RECEIVABLE . ~ . . 8,9 165,000- ' 205,500

- o i

DEFERRED DEBITS AND OTIIER -

1 130,561 74,955

. . i

.l TOTAL,... ,

- $4 028,550 $3,639.018

- _m See notes tofinancialstatemena i i l

~

0 A )

~

i i 1

i l .  !

n

% , a j

~

i C . _ _- . . ..__ _ . . _ . . . . . . _ . ....!.................. .. . . - . . - - . . . . . . . . . . . . . . . .- -]

w I

s LIABILITIES . Notes . 1988 1987_2

~

(ut thousands)

LONG-TERM DElfr - Revenue Improvement Bo'nds: 3,4 l

Old Seriet 5 J95,880' $~ 105,785 New Series,. . , 2,098,800 1,903,425 Less: Unamortized discount on bew Series Bonds . .

(24,9J0) (20,812)

Net long-term' debt . .

~ 2,169,740 1,988,398

. .- . -a l

EQUITY: , . .,

Appropriated retained earnings: 3 Bond Reserve - Old Series Bonds..

~

17.279 _ ~ 17,353 Bond Reserve - New Series Bonds . 130,18d 121,328 Improvements and Contingencies Fund . 140,078 131l439 Total . 287,537 270.120 '

. Reinvested earnings . .

..r.

. . f,189,963 1,025,885

- Total equity , ...

1,477,500 _1,296,005 e .

\ '

CURRENT LI ABILITIES:

Current maturities oflong-term debt . . .; . . 4 37,440 34,820 Short-term debt. 5 98,000 100,000

, Accounts payable and accrued liabilities . 75,906 61,610 Litigation settlement benefits payable to custsners.. "

9 10,177 834 Customer service deposits , 16,283 / 14.079 i ' %_ 237,806

! Total current liabilities'. 211,343 1

I DEFERRED CREDITS AND OTiiER: ~

s Customer advances for construction . 14,860 14,751 Other 11,280 1,965

, Total deferred credits and'other . 2:1,140 16,716 i

i ITIGATION SETTLEMENT BENEFITS PAYABLE. . 9 69,625 79,666 '

l ..- -. - . _ . - - _ . - - . _ _ . - -

CONTRIBUTIONS IN AfD OF CONSTRUCTION . 1 50,739 46,S90~ l

. - - . - - - . . = . - . . . _ . . - . - - . - - - . . . . - . _ _ .

% l COMMITMENTS AND CONTINGENCIES 6,8,9 * ,,_- - .

~

. 3 ( ,

TOTAL- 14 028J50 $3,639.018 3

. a. - .n. . _ . . . . - - - - ..-.n,,-. . . - . . - . - . - . . , . . . ._ - , , . > .-._..-.n,g ,.a.._,

5-e notes to finannat statemesa -

i

, )

s

• x.

l- ,

STATEMENTS OF EARNINGS AND APPI.ICATION OF EARNINGS -

, Years ended January 31, Notes 1988~ 1987_

(m thousands)

REVENUE: 1 Electric. ... . 5626,726 $639,626 '

Ga s. . , . 126,581 127,814 Interest and other income . 38,450 36,778 Gross revenue. . .

7917E 2 804.218 EXPENSES- 1 Fuel, purchased power and resale'Fas . y - -

284,019 316,251 Other operating and general . 74,921 68,998 Maintenance . 36,025 32,761 Depreciatica ,

' . 44,609 41,811 Interest and debt expense . ~

178,067 166,029 Allowance for interest used during construction. , (107,025) (101,402).

. Payments to the City of San Antonio 7 99,646 96,191 Total expenses ' 610,262 620,639 7..

NET EARNINGS . I81,495 183,579 Add:

Depreciation 44,609 41,811 Interest requirements on New Series Bonds (payable from Improvements and Contingencies Fund) 162,143 153.411 AVAILABLE FOE APPLICATION ,

$38R,237 _5378,801 APPLICATION:

7 3 pay long-term debt requirements -- -

. Old Series Bonds: ,

Principal payments .. *

$ ' 9,435 5 9,000 Bond reserve (74) (84)

To raimested earnings - Net gain on sale of assets 300 5 To !mprosements and Contingencies Fund.- >;

Min; mum requirement (12W5 of pross revenue) 3 98,970 100,527 Balance of available revenue . 279.616 269,353 APPLICATION . -

5378,801 5388,24.2_

5

&r note, wfinair;u! utnemems.

O 1

I s

h

• m 6

\

4 STATEMENTS OF CHANGES JN EQUITY ,

e _j 1

- , Years ended January 31, i

'1988 1987 c

- (irt thousands) - 1 '

BOND RESERVE - OLD SERIES BONDS:

Balance, beginning of year . , $' 17,353 $ 17,437 Deductions - transfer of earnings . ,. - (74) -(84) ,

Bala nce, end of year . $ 17,279 $ 17,353 j BOND RESERVE - NEW SERIES BONDS: , J

~ Balance, beginning of year.. _ _

$ ~ 121,328 ' $ 101,216,  !

, Additions - from.1 improvements and Contingencies Fund. 8,852 20,112 *j Balance, end of year . , .. $ 130,180 ' $ 121,328.

IMPROVEMENTS AND CONTINGENCIES FUND:- '

~ Balance, teginning of year.. [.

$ 131,439 $ 73,58$

Additions - from application of earnings:

Minimum requirement (12%% of gross revenue) . 98,970 100,537 ,

Balance of available retenue '279,616 269,353 ,

Total .. .

510,025 443,466 Deductions:

New Series Ibnds:

Additions to reserve , 8,852 ~ 20,112 Payment of bond interest. . . . . . , 162,143 153,411 Payment of bond principal . ..

25,385' 23,350 Construction expenditures . 173,567 ' ! ! 5,154 Total ,

369,947 312.027 Balance, end of year.. $ 140,078 $ 13143_9

- . - . = . . . .

~

. REINVESTED EARNINGS: ..s. ~

Balance, beginning of year ..,.. $1,025,885 $ 920,187 Additions:

From improvements and Contingencies Fund. -

For construction . . .

173,567 115,154 For New Series Bonds principal pap'ments. . . . 25,385 23,350

. From application of earnings:

Old Series Bonds principal payments  ;.. .

9,435 9.000 Net pain on sale of assets. 300 5 Total . -

_ 208,687 147,509 Deduction - Depreciation 44,609 41,811 Balance, end of year.. $M89,963 - $10_2M85 See notes tofinonaalstatemena A

t STATEMENTS OF CHANGES IN FINANCIAL POSITION Years ended January 31, 19R3 1987

/

(in thouwnds)

SOURCES Ol' FUNDS:

Net etirnings .$ ISI,495 5 183,579 Add (deduct) amounts not affecting

• orkinF capital, Amortization of New Series Bond discount . ' 1,453 1,081 Amortization of deferred debts. 7,546 4,140 -

Depreciation _ ,

44,609 41,811 Allowance for ir.terest used dming constructiort. (107,025)' (101,402)

WorHng capital provided from operations . 128,078 129,209 Contributions in aid and customer ac:vanxs for construction 5,536 7,018 Sale of revenue improvement bonds 158,143 181,772 Sale of refunding bonds .... 385.166 310,242' Litigation settlement. - 111,500 Decrease in restricted cash and investments -

11,356 -

Decrease in htigation settlements beacfits receivable . -

40,500 -

Other g 6,315 -

Total ,

735,094 739.7H.

APPLICATION OF FUNDS:

Acquisition of utility plant - net of allowance for interest used during construction 301,827 329.208 '

increase in litigation settlements benefits receivable ,

- 40,500 Retirement of bonds 34,820 32,350 Defeasance of bonds refunded . 328,870 253,350 Increase in current maturities oflonF-term debt 2,620 2,470 Increase in restricted cash -

56.524 Litigation settlement received - 31,000 Excess of reacquisition amount over principal of bonds refunded in advance c 53,897 57.649 Decrease in litigation settlement benefits payable 10,041 834 Other 8,717 6.350 Total 740,792 810,235 DECREASE IN WO'RKING CAPITAL . _5_[5,698) $L70.494)

CIIANGES IN WORKING C APITAL COMPONENTS: I increase (decrease) in current assets:

Cash, including temporary cash irivestments . $ 18,642 $ (55.041)

Custcmer accounts receivable 5,556 _ 3,714 Other receivables 4,600 9,015 inventories and supplies (7,721) 10,44!

Prepa3 ments (312) (26.196)

Decrease (increase) in current liabihties:

Current maturities of long-term debt (2,62 )) (2,470)

Short-term debt 2,0f6 -

Accounts payable and accrued liabilities . '

(14,296)

(6.118)

Litigation settlement benefits payable to custom'ers (9.343) (834)

Customer service deposits. . (2,204) (3,095)

DECREASE IN WORKING CAPITAL ._ .(5,6 911) (70,494)

WORKING CAPITAL (DEFIDIT). I EGINNING OF YEAR . (30,409) 40,085 WORKING CAPITAL (DITICIT), END OF YEAR J.136,1,07) $ (30 439) s -- . _. - .--_- . - .-

WVMulr3tofiHbnrMlSilHCMrMS f

..' ,k *'

y NOTES TO FINANCIAL STATEMENTS - JAN'UARY:31,1988 AND 1987 l -

t l ' l. .

SUMMARY

OF SIGNIFICANT ACCOUNTING DEFERRfD DEBITS' AND OTHER - These amounts -

~

l POUCIES , , consist primarily of ihe ~ unamortized balances of bond uance expem and ees d reacquon anmunts om 1 BASIS OF ACCOUNTING - City Public Service (CPS) menue n pn al amounb refunded in ahame.

uses the accrual method of accounting based up(m the Amortizati n is rec rded oser the period of the outstanding Uniform System of Accounts for Gas and Electric Utilities

' bonds. - -

7 issued by the National Association of Regulatory Utility l-Commissioners, ,

2. CASH,TEMPOR'ARY CASH INVESTMENTS AND 'l FISCAL i. EAR - The fiscal year ended January 31,1988, .

INVESTMENTS. l is referred to herein as 1988 and the year ended January 31. ,  !

1987. as 1987. - CPS deposits at January 31,1988 and 1987 were entirely ,

j R EVENUES AND EXPENSES - Revenue is recogised as c llateralized by banks for' the account of CPS. CPS' H investmems, including both restricted and unrestricted, at billed on a cycle basis. Rate. schedules include fuel and pas Japeary 31.1988 and 1987, were all -m U.Si, Treasury

- mst adjustment clauses that permit recovery of fuel and pas l securities and were held at'the Board's general depository

_ costs in the month incurred. CPS charges to expense the cost l bank for the a'ccount of CPS. CPS' investments are' generally; j

, of electric production fuel in Jhe period 'that it is consumed -

limited to US Goye'rnment obligations '

and the cost of resa'le gas in the period of purchase, ,

ym eralized cash and certificates of deposit, including -

UTILITY PLANT - These assets are stated at the cost of restricted amounts of $11.0 million, were $20.1 million at construction, incicding costs of contracted services. diwet January 31,1988. Investments in U.S. Government obliga-

- material a.nd labor. indirect costs including general engineer-tions, including restricted amounts of $346 7 million, were -

ing, labor and material oserheact. and an allowance for interest used during construction ("AIUDC") CPS computes

$375.3 millien with a market value of $3717 million at anuary 3L M8.

AIUDC using rates representing the cost of borrowed funds on project / estimated to cost in excess of one million doth and expected to require more than one _ year to complete. 3. REVENUE BOND INDENTUR E REQUIREMENTS Retirements of utility plant, together with removal cost less The Trust Indenture executed by the Csty of San Antonio (the salvage, are charged to accumulated depreciation. The

" City")in conjunction with the issu mce of the revenue bonds maintenance of property, and replacement and renewals of ^

dated f ebruary 1,1951,thrbugh August 1.1974.-Old Series, items determined to be less,than a uni ( of property, are Bonds." contUns, among others, the following provisions:

charged to maintenance expense. Genera' utility plant assets '_'

consist of land, buildings. and equipment for general and , 1) All.of the assets of the gas and electric systems. together ,

administrative purposes that art used commonly in electric i with the net resenues of the systems, as defined, are -

)

and gas operations. pledged with the Harris Trust _and Savings Bank of Chi- ,

i!

~

caro. Illinois. as Corporate Trustee, to secure the payment ,

CPS comput s depreciation using the straigtst-line method of the "Old Series honds" ' -

over the estirrated se;tice hves of the various closes of depreciable property as determined by periodic engineering 2) Gross revenues of the pas and electric systems shad be .

studies. Deptemtion as a percentage of average depreciable applied to: (a) expenses of operating and maintaining the plant uas 3 087 in 1988 and 3.07% in 1987. systems;(b) debt service and reserve requirements on the s -

"Old Series Bonds";(c) payment of an."in lieu of tax"

• Contributions in aid of construction 'are amortized oser a

. amount to the Ciiy;(d)an amount equal to l 2b4 of gross period equal to the lives of the related assets.

revenues to the improvements and Contingencies Fund;, ,

OTHER RESTRICTED CASit - These amounts consist . (c) additional benefits and payments to the City to bring primarily of funds being held in escrow ,as required under Citf benefits and payments to 14% of gross revenues:(f)'

contracts wiih a pas supplier and a public ' housing authority. additional payments to the improvement and Con' tin-and other funds not generally available for current operations. ' pencies Fund uMil such fund cauals 20% of the value of fixed capital assets; and (g) balance to a surp!us fund.

INVESTMENTS - Investments are .tated at cost which . .

appr'odmates market value. The specific identification method .3) The follcw ing funds are established:(a) General Fund;(b) is used to determine cost in computing gain or loss on sales of ; improvements and Comin'gencies Fund;(c) Bond Cons securities. Amortization of premium and accretion of discotmt struction I und (containing the proceeds of revenue

'is recorded over the term of the in estment. bondsk (d) Principal and Interest Current Requirements 9

1 l

. +

_ _ _ __ . _ _

• _..I .____________._.m_m t__dn___m_.m__________.________'__w

- c. .

e (containing the monthly' payments of annual debt require- In February 1987, CPS refunded $328,870,000 of previously

• ments), and (e) Bond Reserve Fund (containing an issued and outstanding New Series Bonds'through the amount equal to the next fiscal year's principal and interest issuance of $391,780.000 New Series 1987 Revenue Refund- ~

requirements). These funds may be invested with authorized ing Bonds Although the advance refunding resulted in depository Lanks or in U.S. Government securities. -

reacquisition amounts in excess of bond principal amounts Beginning with the year ended January 31.1976, New Series refunded of $573 million the present value of the economic Electric and Gas Systems Revenue Improvement < Bonds.

, savings at the time of sale was approximately $365 million

~ ("New Series BondO were issued. These bonds are junior and aggregate debt service payments were reduced by $72.1 milli n. United States Government securities were purchased and subordinate to the "Old Series Bonds" The bcad ordinances authorizing these issues provide that no further

' with the net proceeds of the 1987 refunding issue and bonds or obligations wi". oc n'uthorized or issued under the depasited in an irrevocable trust to satisfy scheduled principal and interest payments of the refunded issues. The refunded terms of the Trust Indenture for "Old Series Bonds." While bond issues and trust accounts. as well as those of previous any of the "Old Series Bonds" are outstanding, the "New refundings, are not included in CPS financial statements. At Series Bonds" are payable solely from the net revenues of the January 31,1988, portionr of the bonds w hich w ere defensed systems (1) deposited and available for' deposit in the ine.tance wm nik ' outstanding 1 as follows:

improvements and Contingencies Fund and f2) from funds.

payable to the City. At such time as the Trust ladenture -

i s y,,i,% p,,,ndm, s 97 i3o.000 covering the ."Old Series Bands" becomes inoperative, i rug nu amendmr :s.usom revenues will be applied as follows:(a) for maintenance and ,mg , ngs gmna,n, as3omo operating expenses of the systems; (b) for payments of the '

"New Series Bonds";(c) for,the payment of any obligations During January 1988, the City of San A'ntonio gave notice of inferior.in 1;en to the "New Series Bonds",which may be its intention to issue New Series 1988 Bonds in an amount of issut;d;(d) for an amount equal to 6W of theg*oss revenues of $160 million to be delisered on or about April 7.1988. The the systems to be deposited in a Repair and Replacement proceeds from the bonds will provide funds for the purposes ,

Fund; (e) for cash payments and benefits to the City not ta ofimproving and extending the electric and gas systems of the exceed 14% of the gross resenues of the systems; and (f) any City.

remaining resenues to the Repair and Replacement Fund.

The funds created by the "New Series Bonds" ordinance are 5. SHORT-TERM DEBT similar to those set forth under the "Old Series Bonds" Trust in November 1983, the City Council of the City of San Indenture. Antonio authorized the issuance of $100 million in tax-exempt commercial paper (the " Commercial Paper") to assist

4. 1.ONG-TERM DEBT in thefinancing of eligible projects, including fuel acquisition A summary of long-term dest is as follows: and vpital improvements to the utility systems (the "Sys-tems"). As of January 31,1988,$98 million in principal Warhwd- AscraFr (Mpd ime inw , um on pn, ,i ,

amount swas outstanding, with a weighted average interest m unn omsu admtJi""* N *- rate of approximately 4.98% and an average life outstanding rm thonade/

of about 62 days. All proceeds have been used for construc-Did S=- tion purposes.

1968 1474 IW9lW7 , e3M s lo W s s 115.220 ~

The Commercial Paper is eq'ually and ratably payable from  !

' % sn. '

ms-m m .20i4 7su 2ron orsno and is secured by (i) the Net Revenues of the systems and (ii) a um m m unws y] lien n the sale and pledge of the proceeds from the sale of Arnouw oue.hn nw w s2.m4 680 sum an - other Commercial Paper, the subsequent sale of bonds, and

_== ====

borrowings under the Credit Agreement (as defined herein).

Principal due (in thousands) for the next fise years are: Such pledFe on Net Revenues is subordinate and inferior to t"siD* the pledge securinF payment of (i) the Old Series Bonds (ii) ,

the New Series Bonds and (iii) any New Series Bhnds to bc vm 67 .n wi issued in the future. The City and Texas Commerce Bank f )) y Natilmal Association han entered into a revolving credit twi iosas 46ws s6ue agreement (the " Credit Agreement") pursuant to which such m2 ti.sw 4930s o 40s bank is obligattd under the Credit Agreement toloan to the M3 1390 s4.145 f.6.2Rs City an aggregate amount not to exceed $100 milh.on for the

~ As of January 31,1988, bond reserve requirements for the purpose of payinF amounts due on the Commercial Papen Old Series Bonds and New Series Bonds have been met. Any borrowings under the Credit Agreement are equally and 10 o

t'

j- :

i

j. t

N

~

J

. - ratably secured by and payable from the above descritted Employees that retired prior to 1983 are receiving annuity' sour 6es pledged for payment of the Commercial Paper. ' pre payments from an insgrance carrier as well au receiving some . -

- have been no borrowings un' der the Credit Agreement as of benefit,s directly from CPS. These incremental costs for 1988 , -

- January 31,1988.1 , , and 1987 were $723,000 and $711,000, respectively, and > --

were rec rded w h'en paid. CPS also provides certain health

6. rPENSION PLAN . -

care and life insurance benefits for retired employees. CPS' ,

' CPS has a self-administered, defined-benefit contributory employees a re eligible for these benefits upon retirement froin . ,

pension plan covering substantially all employees. Partici- - CPS. The cost cf retir,ee health care 'and life insurance

pating employees contribute 5% of their base pay,bi-weekly; benefits, funded by CPS and retired employee contributions,

~ Normal retirentent age is 69; leowever, early retirement is is recognized as an expense of CPS as employer co'ntributions -

svailable with 15 years of benefit service. Benefits are reduce:1 are made to the programs These costs approximated $792,000 .

for retiremerit under age 55. and $734,000 for 1988 and 1987, respectively. 4 The total employer pension cost (all funded), which includes 7. PAYMENTS TO THE CITY.OF SAN NTONIO 1

, amortization of past service costs over 30 years using the Unit .

~. -

Credit Cost actuarial method,is summarized as follows: The Trust Indenture provides for benefits and services totaling 14% of CPS gross revenues, as defined, to be paid or t'u Jo8.1 - provided to the City. The City had previously elected to -

/* d"*""d" accept benefitsless than 14% of gross revenues; how ever, on -

",i$ r$En , so.s s9.in , October 1,1987, the City reinstated benefits at the full 14% of 's rmem ,c or co,ered p.yroit . 125 its ahaW menn h &&n d Gy W& W w effect on financial operations.

Governmental Accounting Standards Board Statement (G ASB) No. 5, effectiv for years beginning after December symem todeG@.aWonMor M8ad W wne 1986. requires that a pension benefit obligation be measured nsine the actuarial present value of Credited Projected. - 09u seq Benefits,"as adjusted fe>r projected salary increases. This t m aawndo .

~

measure is independent of the funding method used to in nen or tam s 8.946 s '7.799 -

determine conuibutions tc the plan. The actuarial valuation Refund pas and cicctne enim ..y.. 15,656 ' 15.286

^'#""" "'""

as of De'cember 31,1987, was computed using an assumed rate of return of 8.5% and projected salary increases averaging -

6.51 As a result, under G ASB No. 5 the following represents CP5' pension benefit obligation (in thousands) as of December 8. SOUTH TEXAS PROJECT 31, 1987: CPS is one of four participants in the South Texas Project scor retirm. b ner,ci r.cs .nd maciive porncipanis s s4f62 MT{h wMg sWm M me 12% wpuu n&c ,

generating umts under co'nstruction at a site in Matagorda

^ For actne pr aapams .

t msecr and emsnecimanced med bencre . 1464n County, Texas. The other participants in the, project are i msom-tmaami nonmied benent- __: 'sa Houston Lighting & Power Company ("HL&P"), the project i romi renoon nenera ospwm . -

smna inanager, Central Power and Light Company (" CPL") and the City of Austin (" Austin"). Under the terms of the STP, J Nei Amen AsaWe fi,r ekn iknc6tomi fair markei saluet.

. sIM O'i participation agreement, each participanIprovides financing i tinfatst renwin pencra ot.npunn. s 1 792, for its share of construction expenditures with CPS

• partici-  ;

' pating interest in the project being 28% or 700 megawatts .

Prior to GASB No. 5, CPS reported the plan status as the

~

Projected commercial opvation dates are summer.of'1988 -  ;

actuarial present value of accumulated plan benefits. Under and June 1989 for Units 1 and ?, respectively. l such method, the actuarial presen values of accumulated in 1982, the Citr of Austin filed suit against HL&P, originally plan benefits using an assumed rate of return of 8'"r was seeking rescissibn of its obligations in connection with the - '!

$137,856,000 at December 31,1986. At that time, net assets Project. That suit is now pending in a State District Court in }

available for plan benefits were $132,075,000 at fair market -

Dallas County, Texas, and includes claims that HL&P

( breached its duties and mismanaged the Project as Project The actuarial presenhalue of accumulated plan benefits as of Manager, seeking damages on various theories raaging from -"

{

December 31,1987 is $158,565,000 based on the same 5406 million to approximately S938 million. On January 7, actuarial method with some chhapes in actuarial assumptions, '1988, HL& P filed pleadings against CPS, CPL and its parent tl including an 8.5% rate of return. This value compares to the compa ny, Central and South West Corporation ("CSW"). in -

net asset value of $148,962.000 as reported above. , the City of Austin litigation in Dallas County and in the State y

11 + ,

7

4

. District Court in Matagorda County seeking s dedarator) participants currently maintain property damare insurance of judgment that ilL& P he no liabihty to the other participants 51.23 billion through AMerican Nelear Insurers ("AN1")

m the Project and :.ecking contribution and indemnity from and Nuclear Elec'ric Insurance Limited FNEIL") and are CPS. CPI, and CSW for an3 damages for which it is held planning to' purchase additional $f 65 million limits from hable to the City of Austin. In March 19b8, CPS cnd cpl. NE!!. fnUowing Unit l's initial criticaht). The NEIL excess made a call for binding irbitratisn concerning their dispute propecy damage irmurance flotahng $500 million) must be with Ill &P oser the South Texas Project includir7 any .used ta cover decontamination and clean-up expenses bejore mismanagement by illAP. under the terms of the South eing used to coser direct loss'es to property.

Texas Project Participation Agreement. and hase requested he participants ha s e purchased all available private insurance that any proceedings on HI &P's pleadmps against CPS ar.d (currently $160.million) arainst liability claims that mar CPI be sta3cd pending the arbitration.

result from a nuclear incident the totai of which claims are in December 1985. a suit involving the project u as settled on limited under the Price-Anderson Act to 5.720 million as of -

the agreement of Brow n & Root. the former architect / engineer January 1988. In January 1987. the participants extcuted and, constructor for STP. to pa) the plaimi7fs. CPS and the with the NRC an indemnification agreement under the other participants. 5750 million CPS commenced receipt of provisions of the Price-Anverson Act, which could result in us $210 million share of the settlement in January 1986. STP participants being auessed retrospective premiums cjf up Quarterly installments without interest. in the amount of to $5 million per incident (but not more than $ 10 million per

$7.5 million are remitted pursuant to an unquahfied contrac- year) to coser claims in excess of that coiefed by private tual obligation of Aetna 1.ife Insurance Company. The insurance.

remaining payments hase been recorded as current other ThePrice-Anderson Actexpired August I.1987.Congressis receivables and as Litigation Settlements Benefits Receivabic.

currently considering bills that would extend the Pn.ce-The estimated total direst cost of the project is 55.278 billion Anderson Act and could substantially increase the liability for after consideration of the net presem value of the Brown & nuclear ,lant owncrs Until a new Law is passed the current Rool settlement and other project related credits. CPS' prosisions continue to apply to STP. ,

portion of the total costs for STP is $2.1 billion for '

construction, and interest during construction and $115 9 COMMITMENTS AND CONTINGENCIES million for f uel to be purchased prior to commercial In December 1986. CPS apptoved a settlement offer from

. operation of each l' nit. CPS' share of remaining costs is railroads inElved in disputed issues about the proper and esumated to be 5105 milhon for plant cons:ruction and 513 lawful freight rates. As a result. CPS receised a 531 m;llion miPion for notlear fuel oser the next two years.excluse of paymem from the railroads in January 1987, most of w hich miere+t T he costs mas vary f rom thcotimated amount due

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will be used to replace utility funds used to make the $26.4 to innation thanges m equipment delisery. corlstruction milbon court ardered rail tariff pa3 ments and to offset legal y hedules. and reputatory thanges. expenses incurred during the dispute. In Jc6uar3 1988. CPS As of January 31.1988 Ci$ has expended approximately receised an additional 510 million, and t PS will receiy 51.4X8 bilhon on the project (net of the 5210 milhon settle- additional annual paymenis ranging from 510.5 to $13 ment uit' Brow n & I outt including interest during construc. million, totahnp $70.5 million. over the next six years from tion of 5479 milhon and adiance pa3 ment on fuel of 5102 the railroads w hi< h is ex pected to be returned to customers as mil mn payments are seceised. The remaining ;tmounts due have been recoraed as cunent other receivables and Litigation A bcense authorizing the loadmp of fuel and operation of Um.t.

Settlements Benefits Receisable. -

I of the S I P at power les els up to 5'i of rate'd thermal pow er w as iwued by the Nuclear Regulatory Commission ("NRC") OTHER - CPS is invohed in various Iepal proceedings on Argust 21.1987 The s Prdect Manager loaded fuel shortly related to alleged personal and property darnapes, breach of thereafter and commenced an imtial startup test program. contract. environmental matters.condempetion appeak and Unit I at hics ed its initial criticaht) in earl) March and 1111P div rimination cases. In the opinion of management of CPS.

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. u as es pected to seek authorization f rom the NRC to proceed the outcome of such proceedings will not have a material j woh its test program up to full power operation shortly ads erse effect on the financial position or results of operations thereafter. of CPS. -

In connecoon with the licensing and operation of STP. the Other purc hase and construction commitments amounted to participants base obtained all nuclear property and nuclear approximately S525.5 million at Ja nuary 31,1988. including habitin insur ance required to date. liow es er. there can be no $441 million for a turnley contract for construction of a new assurance that all- potential losses or liabilities will be coal fired power plant to be completed by the summer of insurable or that the amount of insurance carried uit! be 1992. As of January 31.1988 CPS has no significant lease-sulfident to coser all potential lowes and liabibbes. The commaments.

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10. SEGMENT INFORM ATIOp' '

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Segment information is as follows: ,

, 1988 1987 (in thousands) (in thousands) ,

Electric Gas Total ' Electric Gas _ Total _

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REVENUE . $ 626.726 -$ 126,581 5 753,307 5 639,626 $ 1'27,814 5 767.440 EXPENSES: '

Operating and maintenance expenses 289,591 105.357 394,965 304.816 117,194 418.010 Depreciation . .

38,683 5,926 44.609 36,501 5,310 41,811 Total 328,274 111.300 439.574 341,317 118,504 459,821 Operating Income $ 298 452 m 25_15 1281 313,733 $_298 309 $ 9,3J 0 307,619 Interest and other income , 38,450 36,778

.Nonoperating expenks , 170,688 ,

160.818 Net earnings $ 181,495 $_1_83,579 -

CAPITAL EXPENDITURES $.J8_5,306 , 23,546 $ 408J_52 $ 409h90 _ _$ 21,520 $ 430.610 UTILITY ASSETS , $1.687,504 $265.945 $1,953,449 $1,617,023 $245,290 $1.862,313 CONSTRUCTION WORK IN PROGRESS . 2.060.485 14,616 2,075.101 6,904 _].,775,705 4 769.801 TpTAL ASSETS SA747.989 $280.561 $4.028.550 $3)R6,824 -

$252194 E639,018 REPORT OF CERTIFIED PUBLIC ACCOUNTANTS The Board of Trustees ingly, included such tests of the accounting records and ~

City Publi,: Senice such other auditing procedures as we considered necessarys in the circumstances. ,

We have examined the balance sheets of City Public .

Senice at January 31.1988 and 1987, and the related in odr opinion the 7 statements mentioned above present statements of earning s and application of earnings, chances fairly th'e Gnancial position of C,ity Public, Sen ice at '

in equity and changes in financi;.1 position for the ye$trs January 31.1988 and 1987, and the results of operations an c angey n qnandal podtion for the y ears then ended.

then ended. Our examinabons were made in accordance wIth generally accepted auditing standards and, accord- n conformity with generaHy accepted accounting princi-

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ples applied on a consistent basis doring the period. ,

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March 9,1988 0

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'FIVE YEAR FINANCIAL REVIEW Years ended January 31.

1988 19R7 1986 19R5 1984

)s idol lars in shou.wnds)

REVENUE AND APPLICATION Resenues: . . .

Electric sales 5 626.726 5 619,626 5 700,371 5 636,364 5 _544,125 Gas sales 126,581 127,814 136.500 133,301 147,890 Other income 38.4f0 36,778 31,962 34,589 '23.452 T otal revenues ~$ _7911 757 5 804.218 $ 868.833 5 804,254 5 715,467 Resenues applied:

• Cost of operating systems:

Gas, electricity and fuel purchased 5 284.019 5 316,251 5 397,414 5 394,321 5 390.0')4 Other operating and peneral expenses 74,921 68,998 65.035 53,716 50,831 Maintenance 36,025 32.761 33,379 28,164 25,432

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To'al $ 394,965 5 418.010 $ 495.828 5 476,201 5 466_.267 Opetating Fund -

1 5 5 ,2,500 $ $ Debt requirements Sr Old Series Bonds: .

Interest 5 6,954 5 7,426 5- 7,875 $ 8,303 $ 8.696 '

Principal requirements 9,435 9 000 8,600 8.195 i 7,835 Resene requirements' .(74) (84) (46) (17) 25

' Debt expense 14 _14 12 12 13

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Total 5 16.329 5 16.356 5 16.441 $ 16 493 $ 16,569 Payments and senices to City: ,

Payment in lieu of taxes 5 8,946 $ 7,799 $ 7,096 $ ' 6.401 $ 6,028 Refunds for rrvices 15,656 15.286 17,009 16,351 14,163 Addmonal pay ment .,

75,044 73,106 79,867 72,755 61,302 Total 5 ~ 99,646 5 96l191 5 103.972 5 95,507 5 81,693.

- Debt requirements for New Series Bonds: -

Interest expense $ 162.143 $ 153,411 5 135,235 - S 110,165 5 86,645 Prmcipal requirements 25.385 23.350 21.440 19,730 18.120 Reserve requirements 8.852 20.112 11.503 6,049 15.298 Debt expense , 8.956 5.178 1,867 229 119 Total 5 205,336 5 202.051 $ 170,045 5 136.173 $ 120,182 Allowance for funds used during construction _ ,107,025)

( f 101,402) (87.296) (64.467) ,

(48.439)

Additions to plant:

Total expenditures for 3 car .

.5 408,852 $ 430,610 5 435.060 $ 390.035 $ 259.083 1 es construction funds provided by sources othet than revenues 234,985 3'15,451 261.235 256,001 187,822 Resenues uv'd for addition to pla-t 5 173,867 5 115.159 $ 173.825 5 134,034 $, 71,261 Addition te improvements and Centmpencies Fund R.639 57.853 (6,482) 10,313 7,934 Total 5 182,506 5 173.012 5 167,343 5_ 144.347 5 79.195 Total re',enues appled 5 791.757 5 F04.218 $ 868.F33 ' 5 804.254 5 715.467 *

' ilAEANCE SilI E1 DATA Utility plant at cost 5 3,646.858 5 3,255.479 5 2.838,847 5 2.620,511 5 2.236.613 Annual construction additions 408,852 430.610 435.060 390.035 259,083 Accumulated depreciation 473,275 446,913 418,743 384.084 '

350.654 Annual depreciation allowance 44,609 41.611 40.351 37,837 -35,918 Principal and interest coserare 1,95s 2.00x 2.15x 2.24 x 2.05x lt

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FIVE-YEAR OPERATION'S REVIEW- .

', Years ended January 31,

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1988 1987__ 1986- 1985 1984 i

_J OPERATING REVENUES - ' '

• Electric .  ;

Residential ..

$ 271,402 $ ~ 276,307 5' 292,216- f 263,217 $ ~219,067 -

Commercis) and industrial . 254,156 266,747 295.158 268,950 230,528 ..

Street lighting. . . 8,049 - 7,781 8,241 ~ 7,990 - 6,864 Public authorities. ,73,319 71,073 80,007 75,491- 65,032 Other utilities . ,

14,795 13,982 20,618 15.836- 18,928-  !

Miscellancoes.. _ .....

5,005 3.736 4,111 4,880 3.706-  !

Total electric. 3 5 626,726 $ 639,626 $ 700371 5 636,364 $ 544,125 Gas: ,

Residential . $ 76,060 $ 75,091 5 79,346. $ 75,803 $ 85,716 Commercial and industrial . 4C,375 44,357 47,957 48,452 , 52,388 ' ,

Public authorities , 8,185 7,442- 8,153 s 8,031 9,324 Miscellaneous 961 924 1,044 f,015 462.

Total gas ; $ 126,581. $ 127,814 $ 136.500 $ 133301 5 147,890 SALES (000 0 MUTED) /

Electric - KWil: -

Residentia) ,

4,141,93o 4,036,562 '3,782,693 - 3,491,219 3,139333

'4,645,938 4,636308~ '

Commercial and. industrial 4,465,682 4.107.615 3,839,434 Street lighting._ ,

79,548 78,732 78,445 76,565 - t 78,034 Public authorines . 1,468,775 1,358,027 .

,1,300,515 1,246,417 '1,197,944 Other utilities 237,855 - 257,848 413381 181,741 194,636 Total. . 10,574,054 10367,477 10,040,716 9,103.557 8,449,381 Gas - MCF:

Residential. -

1,1,846 13.576 14.332 13,643 15,493 Commercial and industrial . , 9,814 9,770 10.206 10,152 10,677 l

. Public authorities . -

1,988 1,657 1,764 _ , 1,708 1,925.

i Total 26,648 25,003 '

-26302 25,503 28,095 i>URCil ASE FOR RESALE:

Ekrtric (1,000) KWH

• 15,039 398,'401 842 0-Gas (1,000) MCF 27,127 - 25,701 26,040 26367 29398 ELECTRIC GENERATION - e (1,000) KWil . 11.213.230 10,617,fiS9. 10,607,972 9,774,125 - 8,992,120 Ekctric Gen. Capacity, KW (Gas)* 2,400,000 2,400,000 2,400,000 2,400,000 '2,400,000 '

Electric Gen. Capacity, KW (Coal) . 836,000 836,000 836,000 836,000 836,000 I ELECTRIC PEAK DEMAND - KW 2.551,000 2.596,000 2350,000 2,7 t0,000 2.148,0(X)

NUMBER OF CUSTOMERS: . < .

Electric' 459,766 458,037 446,573 423,316 398,983 284,122 l

Gas . 285,697. 284.876 - 280,575 279.116 '

RESIDENTIAL AVERAGES: s E1cetric- ~,

Revenue per cust, m $ 67135 $ 692.51 $ 765.21 $ . .724.92 $ 647.97 -

KWil per customer . 10,246 10,117- 9,906 9,615 9,285 Revenue per KWil . 6.55e 6.84c 7.73c 7.54c 6.98c; Gas:

Revenue per customer $ 28833 $ 284.45 $ 30334 $' 293.06 $- 337,11 MCF per custoiner 563 51 4 54.8 52.7 ' 60.9 -

Revenue per MCF $ ' 5,12 $ 5.53 $ 5.54 $ 5.56 5 -5.53

• Of rattr gfor the yes uns a 2.1M.utK! NH'for thepar+mrpemd

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CITY PUllLIC SER\'lCE P.O. ISOX 1771. S AN ANTONIO., TEX AS 78296 '

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! Interim Report O h  ! Third Quarter Quarter Ended October 31,1988 I

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City Public Service

{ San Antonio's Natural Gas

! and Electric Utility

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i l Statement of Revenue and Application of Revenue f (Dollars in thousands)

Quarter Ended 12 Months Ended October 1988 October 1988 9 THE REVENUE FROM OPERATIONS WAS:

Electnc sales . . . ,

1988

$ 195,115 5 6.975 Change From 1987 1988

$ 637,180 $ 16.645 Change F rom 1987 Gas sales . . 14.289 (2.540) 118.550 (13.204)

[, .. interest and other . . . , , 9.299 660 34.655 (7,629)

? Total Revenue . . . $ 218,703 $ 5 095 $ 790.385 $ (4.188)

,3 THE REVENUE WAS APPLIED AS FOLLOWS:

+M FOR OPERATIONS AND MAINTENANCE Fuel, purchased power, test energy and resale gas . $ 59,372 $ (6.306) $ 252.654 $ (39,604)

Operating and general expenses . 24,102 4.597 80.948 10.109 Maintenance . . 11.612 1.983 37,689 1 873 Total . $ 95.086 $ 274 $ 371.291 $ (27.622)

FOR OPERATING FUND ADDITIONS $ $ $ 0- $ FOR DEBT REQUIREMENTS- )

interest and debt expense . $ 47,468 $ 2.555 $ 184 997 $ 8.374 Retirement of bonds . 9.360 655 38.785 4.083 Additions to Bond Reserve Fund . 889 (2.074) 1,407 (12.042)

Allowance for funds used dunng construction . j22.386) 3 896 (108.706) (3 041)

Total . $ 35,331 $ 5 032 $ 115.983 $ (2 626)

FOR F AYMENTS AND SERVICES TC THE CITY OF SAN ANTONIO.. $ 29.579 $ 1.502 $ 106.460 $ 11.733 FOR ADDITIONS TO UTILITY PLANT:

Total expenditures . $ 83.003 $ (13.912) $ 387.984 $ (34 666)

Additions to improvements and Contingencies Fund 36.321 2.182 J27.951) (101.102)

Subtotal . $ 119,324 $ (11.730) $ 360,003 $(135.768) l Less funds from Bonds. Brown & Root.

l T ECP, contnbutions, etc. . $ 60.617 $ (10 017) $ 163.382 $(150.095)

Total revenues available for plant . $ 58.707 5 (1.713) $ 196.65t $ 14.327 l

l TOTAL REVENUE APPLIED. $ 218.7,03 $ 5 095 $_790.385 $ (4 188)

( ) Represents decrease Electric Statistics Quarter Ended 1D'31/88 12 Months Ended 10/31/88 l * .

Electnc sales (KWH in thousands) . 3,363.577 146 453 10.943.746 516 221 Maximum electnc demand (KW in thousands) . 2.663 112 2,663 112 Average use per residential customer (KWH) . 3.599 209 10,721 619 Electne customers (average number for penod) . 464.757 3.564 461.752 2.437 )

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Balance Sheet Assets October 31 October 31 (Dollars rn thousends) 1988 1987 9 Net Utility Plant..

Nuclear Fuel-Net

. $ 3.277.821 ai 119,798

$3.077.606

$ Restricted Cash and investments:

.c Bond Construction Fund .... . . . .. .. . ... . $ 33.362 $ Bond Reserve Fund . .. . . .. .. . .. . 198,111 196.703 Bond Fund Current Requirements . .. . . . 77,646 71.507 Improvement & Contingencies Fund . . .. . .. . .. .. 173.225 201.176 Other. . .. .. . . . . . . . . . .. . . .. 20.688 10.894 Total . . . .. ... . $ $03 032 $ 480.280 Current Assets:

Cash and temporary investments . . .. . .. $ 32.011 $ 41.232 Customer accounts receivable (net) . . 42.233 42,436 Other receivables . . .. . ... 46.983 46.120 Materiats and supphes .. . . 34,718 20.640 Fuel stock . . . . . . 22.345 21.964 Prepayments and other. ... . 11 (162)

Total . . . . . .

$ 178,301 $ 172.230 Other Receivables (Net of Current Maturities). .

$ 143,384 $ 183 000 Deferred Debits and other . .. . $ 119M $ 126 830 l TOTAL ASSETS . . , . .. $c.341.848 $4.039 946 Long-Term Debt: Ll8blllIles Old Senes . . . . $ 105.785 $ 115.220 New Senes . 2.286.335 2.151.720 Unamortized premium /(discount) . . (25.851) (25.317)

Less current maturities . . 37.440 34 020 Totai . , .. $2.328.829 $2.206 803 Earnings Reinvested in Plant .. .. $1.669.860 $1485 647 Current Liabihties-Current matunties of long-term debt . . $ 37.440 $ 34.820 Short-term debt. . 98.000 98.000 Accounts payable and accrued liacihties . . . . 40.652 49.466 Litigation Settlement Benehts Payable . 10.173 8.340 Customer service deposits. .. 16.597 16 010 Total . . . . . $ 202.862 $ 206 636 Deferred Credits ^

Customer advances for construction . . . $ 13.962 $ 14.976 Other. I 10.028 $ 2.389 Total . . $ 23.990 $ 17.365 Litigation Settlement Benefits Payable $ 61.750 $ 72.160 Contnbutions in Aid of Construction . .

$ 54,557 $ $1335 TOTAL LIABILITIES . $4.341.848 $4.039 946 Gas Statistics Quartee Ended 1001/B8 12 Months Ended 10/31/88 Gas sales (MCF m thousands) . 3.488 (181) 26.356 (485)

Gas used for elec. generation (MCF in thousands) . 15,495 (5.109) 61.006 (3.700)

<e .r Average use per residential customer (MCF) . E.9 (0 4) 55.2 (1.5)

. gf Gas customers (average number for penod). 283.970 106 284.010 (696)

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• Increase (decrease) from previous pened  ;

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i Report from Management -

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Wed for Fiscal Quarter Ended Ocober.31,1988 t .

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To Our Customers and Bondholders: ,

City Public Service welcomed a major event at days before. The 24-hour electric consumption the South Texas Project during the third quarter, record was broken on August 24 when an all-time which ended October 31. Unit 1 of the nuclear high of 48,587,300 kilowatt hours was recorded.

project began enmmercial operation on August 25 The records are a reflection of growing demand for after completing all Nuclear Regulatory Commission electricity as costs have declined.

requirements. As of October 31, Unit 1 had The San Antonio City Council approved a 4.9 produced 2.3 billion kilowatt hours of electricity percent rate increase in September. The new rates since it began full-power testing in April. went into effect October 28 and will provide Meanwhile, nuclear fuel for Unit 2 began arriving approximately $41 million annually in additional on September 8 in preparation for fuelloading at revenue.

the end of the year. Hot functional testing was Following an expression of interest from Central completed during the quarter and the unit produced and Southwest Corp. of Dallas in considering the its first electncity on August 29. With heat produced purchase of the utility, the CPS and City of San by the unit's four 8000-horsepower reactor coolant Antonio staffs have undertaken a study of the pumps and the pressurizer heater, enough steam potential operation of the utility under investor was made to roll the turbine and generate 100,000 ownership. The major areas of the study include a kilowatts of electricity for approximately five comparison of benefits to the City, the effect on minutes -long enough to synchronize the unit with ratepayers' bills and the economic impact on San the South Texas electrical grid. Antonio, including any effects on the work force.

Work on Unit 1 of the 500 megawatt coal-fired Results of the study, which is scheduled to be JK. Spruce Power Plant began September 30, after completed by late November, will be presented to the Texas Air Control Board issued the required the City Counci! for further consideration.

construction permit. Issuance of the permit followed CPS customers continued to enjoy the benefits the withdrawal of a late-filed heanng request by a of low rates due to the diversification of fuels, low State Representative, based upon the CPS agree- fuel costs and efficient operation. Residential ment to defer application for air quality permits to electric rates were the lowest of the 25 largest cities construct a second unit at the same site. A delay in in the U.S. during October. San Antonio's low gas j issuance of the permit would have delayed con- rates position it well for the approaching colder l struction and increased the cost of the plant. After weather. Modest rates and the financial and j issuance of the permit for the first unit but within the operational strength of CPS continue to make San j allowed 30-day period, an appeal of the permit was Antonio a good place to live and conduct business, i filed on behalf of nearby residents. While a contested hearing must now be conducted unless the contestants' concerns are resolved, work at the Since@y, site is allowed to continue. Any substantial changes in the terms of the permit resulting from a hearing ., ,

could delay construction and increase the costs of -

W the piant. Lila Cockrell 4l Dunng the quarter, the utility broke records for Chairman, Board of Trustees tb[

My both peak demand and 24 hour2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> consumption. On August 11, the new hourly peak of 2,664 megawatts fg s was set. The now peak was above the predicted EM7 annual peak of 2,638 megawatts and broke the Arthur von Rosenberg d previous all-time records which had been set only General Manager

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Financial Highlights

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3rd Ouarter 1988 .

The South Texas Project provided 12.8 percent of electrical requirernents for the third quarter and added nuclear fuel to the current fossil fuel mix. Nuclear ED generation now represents 9.8 percent of total capacity and will total 17.8 percent when Unit 2 goes into commercial operation. The comparative cost of fuels based on the heat cost per million BTU's indicates that nuclear fuel averaged $0.442 as compared to $1.398 for coat and $1.923 for gas.

Record electnc sales for a third quarter were achieved as sales were 3.8 percent higher than the record set in 1986-87 and 4,6 percent over the quarterly sales last year.

Greater usage per customer for residential commercial and industrial customers was pnmarily responsible for the increase. Gas sales were 4.9 percent less than last year as overall usage per customen dechned 5 percent.

Total revenue of $218.7 million advanced 2.4 percert over last year. Electric revenue .ose 3.7 percent as the

$10.6 million from higher sales and $3.1 milhon from the January 1988 rate increase rnore than offr,et $11 million I in lower fuel cost recovenes. Gas revenue dechraed 15.1 l purcent; the effect of lower gas cost recovenes und lower sales were partly minimized by the January rate increase revenues.

Operating and maintenance expenses of $95.1 million ruse 0.3 perant. Production fuel and resale gas dechned

$6.9 milhon.The c )st of added ct.M generaSon was more than offset by a lower cost of coal and transportation rate settlement credits apphed to coal costs. A 26 6 percent drop in gas generation was partly offset by the advance of gas costs of $0.21 per MCF. Resale gas dropped 28.1 percent or $0.59 per MCF. Operating and general expenses were 23 6 percent higher due ma.nty to the added costs of STP which went into commerciai opeisi;on in Auguct and greater electric system operating and maintenance costs.

Quarterly construction expenditures of $83 million were I 14.4 percent less than last year's third quarter. Work on l Unit 1 and the common facihties of STP were cornpleted  ;

during the quarter, rtiducirig er.penditures for STP to '

$50.9 milhon as compared to $70.2 million. In addition, i construction activites on Unit 2 were nearly complete at '

i the end of the quarter. Expenditures for Unit 1 of the J K. j

) Spruce power plant totaled $12.1 million. 4

' i City Public Service i

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P.O. Box 1771 T San Antaneo. Texas 78296 ' (512) 227 3211

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2 ARTHUR ANDERSEN

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l-CITY-FUBLIC SERVICE FINANCIhLSTATEMENTSASOFJANUARY 31, 19'89 AND 1988 TOGETHER WITH AUDITORS' REPORT h

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ARTHUR ANDERSEN & Co. 1 1

l SAN ANToxio. TEXAS l

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j REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS i a

To the Board of Trustees of City Public Service:

We have audited the accompanying balance sheet of City Public Service as=of; January 31, 1989, and the related statements.of earnings and' application of

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l earnings, changes in equity and cash flows for the year.then ended. These financial statements are the responsibility of the~ management of City Public Service.. Our responsibility is.to express an opinion on these financial statements based on our ~

audit. The financial statements of. City Public Service.as of January 31, 1988, were audited by other auditors whose report dated March 9,1988; expressed an unqualified opinion on those statements.

We conducted our audit in accordance with generally' accepted' auditing standards. Those standards require.that we plan and perform the audit-to obtain reasonable assurance about whether the' financial statements are-free.of' material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the-financial statements. .An audit also includes assessing'the accounting principles used and significant estimates made bylcanage-ment, as well as evaluating the overall financial statement presentation. 'We believe that our audit provides a reascnable basis for our opinion.

In our opinion, the financial statements referred'to abeve present fairly, in all material respects, the financial position of City Public Service as of-January 31, 1989, and.the results of its operations and its cash flows for the year chen ended in conformity with generally accepted accounting principles.

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San Antonio, Texas March 13, 1989 l

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BALANCE SHEE%?

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ASSETS 1989 198@

UTILITY PLANT, at cost (Note 1):

Electric $2,921,759 $1,292,-

Gas 231,207 208,;

General 89,166 70,1 Construction work in progress (Note 8) 586,197 1,943,,

, Nuclear fuel, at amortized cost (Note 8) 119,383 102,!

Held for future use 31,877 2 9,<

Total utility plant 3,979,589 3,646,(

Less- Accumulated depreciation . 522,371 473,1

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! Utility plant, net 3,457,218 3,173,;

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h. RESTRICTED CASH AND INVESTMENTS (Notes 1, 2 and 3):

l Bond reserve-Old series bonds (Note 4) 17,279 ' 17,l New series bonds (Note 4) 180,917 182,t Improvements and contingencies fund 156,167 140,(

i' Other (Note 1) 9, 741 17 Total restricted cash and investments 364,104 357,:

CURRENT ASSETS:

Cash, including temporary cash investments (Notes 1 and 2) 47,198 37,t Customer accounts receivable, less allowance for doubtful L accounts of $1.335 in 1989 and $1,297 in 1988 44,291 60,:

Other receivables (Notes 8 and 9) 49,809 46,5 Inventories and supplies, at average cost-Materials and supplies 37,406 22',1 Fuel stock 28,983 32, Prepayments 4,628 ' 1,1

- - . --c Total current assets 212,395 201,(

LITIGATION SETTLEMENTS BENEFITS RECEIVABLE (Notes 8 and 9) 124,000 165,f DEFERRED DEBITS AND OTHER (Note 1) 125,431 130,1

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$4,283,148 $4,028,!

.................e The accompanying notes are an e, -

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LLIC SERVICE

[UARY 31,1989 AND 1988 iousands)

EQUITY A!!D LIAb1LITIES 1989 1988 LONG-TERM DEBT, revenue improvement bonds (Notes 3 and 4):

Old series $ 85,505 $ 95,880 New series 2,215,805 2,098,800 Less- Unamortized discount on new series bonds (25,462) (24,940)

Net long-term debt 2,275,848 2,169,740 EQUITY:

Appropriated retained earnings (Note 3)-

Bond reserve-Old series bonds 17,279 17,279 New series bonds 128,460 130,180 Improvements and contingencies fund 156,167 140,078 Total appropriated retained earnings 301,906 287,537 Reinvested earnings 1,320,719 1,189,963 Total equity 1,622,625 1,477,500 CURRENT LIABILITIES:

Current maturities of long-term debt (Note 4) 53,370 37,440 Short-term debt (Note 5) 98,000 98,000 Accounts payable and accrued liabilities 67,617 75,906 Litigation settlement benefits payable to customers (Note 9) 10,649 10,177 Customer service deposits 17,794 16,283 Total current liabilities 247,430 237,806 DEFERRED CREDITS AND OTHER:

Customer advances for construction 13,234 14,860 other 10,818 8,260 Total deferred credits and other 24,052 23,140 LITIGATION SETTLEMENT EENEFITS PAYABLE (Note 9) 59,083 69,625 t:0NTRIBUT10NS IN AID OF CONSTRUCTION (Note 1) 54,110 50,739 l

l COFD!ITMENTS AND CONTINGENCIES (Notes 6, 8 and 9)

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jy,FRTERI- $4.283.148 $4,028,550

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b al part of these financial statements. p .wadalw '

Aperittre E N 89073(O 320-Q (

CITY PUBLIC SEP.VICE.

STATEMENTS OF EARNINGS AND APPLICATION OF EARNINGS FOR THE YEARS ENDED JANUARY 31, 1989'AND 1988'

-(In1 Thousands) 1989 1988-REVENUE (Note 1):

Electric $ 636,086'. t 626,726 Gas 106,114 126,581 Interest and other income 36,191 38,450-Gross revenue 778,391 791,757 EXPENSES (Note 1):

Fuel, purchased power and resale gas 228,547 284,019 Other operating and general 84,781 69,302 Maintenance 42,948 36,025 Depreciation 66,397 44,609 Interest and debt expense 193,817 183,686 Allowance for interest used during construction' (88,008) .(107,025)

Payments to the City of San Antonio (Note 7) 104,784 99,646

__.____.. .__.=

Total expenses 633,266 610,262 NET EARNINGS 145,125 181,495 ADD:-

Depreciation 66,397 44,609 Interest requirements on new series bonds (payable from improvements and contingencies fund) 172,023 162,143 AVAILABLE FOR APPLICATION $383,545 $ 388,247 SEEEESBS ' BBBEREBBB APPLICATION: .

To pay long-term debt requirements-Old series bonds-Principal payments $ 9,905 $ 9,435 Bond reserve -

(74)

To reinvested earnings, net gain on sale of assets 133 300 To improvements and contingencies fund- '

Minimum requirement (12-1/2% of gross revenue)

(Note 3) 97,300 98,970 Balance of available net earnings 276,207 '279,616 APPLICATION $383,545. $ 388,247 3553E333 B33M33538 The accompanying notes are an integral part of these financial statements.-

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CITY PUBLIC SERVICE 1

i STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED JANUARY 31, 1989 AND 1988

( It. Thousands) 1989 1988 BOND RESERVE, old series bonds:

dalarce, beginning'of year $ 17,279 $ 17,353 Deductions- Transfer of earnings -

74 Balance, end of year $ 17,279 $ 17,279 BOND RESERVE, new series bonds:

Balance, beginning of year $ 130,180 $ 121,328 l Additions- Transfer from improvements and I

contingencies fund for debt service -

8,852 Deductions- Transfer to improvements and contingencies fund for debt service 1, 720 -

Balance, end of year $ 128,460 $ 130,180 IMPROVEMENTS AND CONTINGENCIES FUND:

Balance, beginning of year $ 140,078 $ 131,439 Additions-From application of earnings-Minimum requirement (12-1/2% of gross revenue) 97,300 98,970 Balance of available net earnings 276,207 279,616 Transfer from bond reserve, new series 1,720 -

Total 515,305 510,025 Deductions-New series bonds-Additions to reserve -

8,852  ;

Payment of bond interest 172,023 162,143 Payment of bond principal 27,535: 25,385 Construction expenditures . 159,580 173,567 Total 359,138 369,947 I Balance, end of year $ 156,167 $ 140,078

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1989 1988 l

REINVESTED EARNINGS:

l Balance, beginning of year $1,189,963 $1,025,885 l

Additions-From improvements and contingencies fund-For construction .

159,580- 173,567 For new series bonds principal payments 27,535 25,385 From application of earnings-Old series bonds principal payments 9,905 9,435 Net gain on sale of assets 133 300 Total 197,153 208,687 Deduction- Depreciation 66,397 44,609 Balance, end of year $1,320,719.$1,189,963 l

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

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9 CITY PUBLIC SERVICE STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JANUARY 31, 1989 AND 1988 (In Thousands) 1989 1988 1

CASH FLOWS FROM OPERATING ACTIVITIES:

Net earnings $ 145,125 $ 181,495 Noncash items included in net earnings-Allowance for interest used during construction (88,008) (107,025)

Depreciation expense 66,397 44,609 Amortization expense-Debt issuance expense 7,567 7,546 J

Discount on long-term debt 1,538 1,453 J Nuclear fuel s,191 -  !

Gcin on sale of utility plant (133) (300) f Changes in current assets and current liabilities (7,463) 12,877 Proceeds from freight litigation settlement 10,500 10,000 {-

Increase in other liabilities 733 721 Refund of freight litigation settlement benefits payable to customers (10,070) (698)

Net cash provided by operating activities 129,377 150,678 l

NET CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeus from sale of utility plant 138 300 Additions to utility plant (266,940) (304,737)

Net cash used by investing activities (266,802) -(304,437)

CASH FLOWS FROM FINANCING ACTIVITIES:

Contributions in aid and customer advances for construction -

3,465 5,536 Proceeds from issuance of long-term debt 157,940 158,143 Sale of refunding bonds -

385,166 Defcasance of bonds refunded ,

(328,870)

Debt issuance costs (632) (213)

Excess of reacquisition amounts over p-incipal of

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bonds refunded in advance -

(53,897)

Principal payments on long-term debt (37,440) (34,820)

Proceeds from STP litigation settlement 30,000 30,000 Net cash provided by financing activities 153,333 161,045 NET INCREASE IN CASH AND CASH EQUI'/ALENTS $ 15,908 $ 7,286 w____-____._______._

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1989 1988 CASH, including temporary cash investments:

Beginning of year $ 37,687 $ 19,045 End of year 47,198 37,687 Net increase 9,511 18,642 RESTRICTED CASd AND INVESTMENTS:

Beginning of year 357,707 369,063 End of year 364,104 357,707 Net increase (decrease) 6,397 (11,356)

NET INCREASE IN CASH AND CASH ECJIVALENTS $ 15,908 $ 7,286

========= .........

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

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4 CITY'PUBLIC SERVICE NOTES TO FINANCIAL STATEMENTS JANUARY 31, 1989 AND 1988.

(1) Summary of significant accounting policies-Organization-City Public Service (CPS), a municipal, utility owned by the City of San Antonio (the City), provides electricity and natural g.ts to the San Antonio metropolitan area. As a municipal utility, CPS is exempt from payment of income taxes,. state franchise and sales taxes and_real and' personal property taxes'. CPS provides certain payments and benefits to.the City as described more- fully in'-

Note 7.

Basis of accounting-The accounting records of CPS are maintained in accordance with generally accepted accounting principles for rate-regulated enterprises, as prese'ribed by the Financial Accounting Standards Board (FASB) and, where. applicable, the Governmental Accounting Standards Board (GASB). The accounting records of CPS follow the Uniform System of Accounts for Gas and Electric Utilities: issued by the NationalL Association of Regulatory Utility Commissioners. Certain prior period amounts have.

been reclassified for comparative purposes.

Fiscal year-The fiscal year ended January- 31, 1989, is referred to herein as 1989.and the-year ended January 31, 1988, as 1988.

Revenues and expenses-Revenue is recognized as billed on a cycle basis. Rate schedults include fuel and gas cost adjustment clauses that permit' recovery of fuel and gas ' costs'in the month incurred. CPS charges to expense the cost of electric production fossil fuels in the period that it is consumed and the ccst of resale gas in the period of purchase.

CPS amortizes its share of nuclear fuel for the South Texas Project-(STP) to

-fuel expense on a unit-of production method. Under the Nuclear Waste Policy Act of-1982, the. Federal Government assumed responsibility for the permanent disposal of-

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spent nuclear fuel. CPS is charged a fee for disposal of spent nuclear fuel,, which: )

is included in fuel expense, in the amount of $.001 'per kilowatt hour (KWH) for its j share of electricity produced by STP, other than for precommercial power generation.

For further discussion regarding the STP, see Note 8. l Utility plant-These assets are stated at the cost of construction, including costs of contracted services, direct material and labor, indirect costs, including general  ;

engineering, labor and material overhead, and an allowance for interest used'during  ;

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construction (AIUDC). CPS computes AIUDC using rates representing the cost of borrowed funds on projects estimated to cost in excess of $1 million and expected to require more than one year to complete. Retirements of utility plant, together with removal cost less salvage, are charged to accumulated depreciation. The main-tenance of property, and replacements and renewals cf items determined to be less than a unit of property, are charged te maintenance expense. General utility plant assets consist of land, buildings and equipment for general and administrative purposes that are used commonly in electric and gas operaticns.

CPS computes depreciation using the straight-line method over the estimated service lives of the various classes of depreciable property as determined by periodic engineering studies. Depreciation as a percentage oi average depreciable plant was 3.07% in 1989 and 3.08% in 1988, excluding STP Unit 1 and Common Facilities which were added to utility plant on August 25, 1988. The average annualized rate for depreciable STP Plant was 2.70% for 1989.

Contributions in aid of construction are amortized over a period equal to the lives of the related assets.

Other restricted cash-These amount. consist of funds not generally available for current eperations.

Investments-Investments are stated at cost which approximates market value. The specific identification method is used to determine cost in computing gain or loss on sales of securities. Amortization of premium and accretion of discount is recorded over j the term of the investment.

Deferred debits and other-These amounts consist primarily of the unamortized balances of bond issuance 1 expenses and excess of reacquisition amounts over revenue bond principal amounts refunded in advance. Amortization is recorded over the period of the outstanding 1 bonds.

Nuclear decommissioning- .,

CPS' portion of the estimated costs for decommissioning the STP nuclear power plant is approximately $95 million in 1986 dollars, based upon an engineering study. This cost estimate will be reviewed and updated periodically and could change by a material amount. CPS will record the expense of decommissioning over the life of the STP nuclear power plant. Various funding alternatives are still under evaluation by CPS at this time. In accordance with the Nuclear Regulatory

. Commission's (NRC) regulations, a nuclear decommissioning plan must be submitted to the NRC by July 1990. '

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Statement of cash flows-L During1989,CPSadoptedStatementofFinancial.AccountingStandards'No.955

" Statement of Cash Flows" (SFAS 95). Accordingly, a. statement,of cash' flows has been~ presented for the years ended January 31, 1989'and 1988.' -For' purposes-of reporting cash flows, CPS considers all highly liquid debt instruments purchased I

with a maturity of approximately three months or less~to be short-term investments..

Accordingly, CPS' temporary cash ' investments and restricted cash. and investments .

are cash equivalents. No material noncash' investing or financing transactions were ]

recorded during 1989 and 1S88 which should be reported in accordance'with SFAS 95.

In order, to determine net cash provided by. operating activities, net earnings.

have been adjusted by, among other things, changes'in current assets and current liabilities, excluding changes in cash and temporary cash investments, current maturities of long-term debt and litigation settlements benefits receivabir' and payable. Those changes shown as an (increase) decrease in current.asstts and as'an increase (decrease) in current liabilities are as follows:

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1989 1988 (In Thousanda)

Customer accounts receivable $ 16,212' $(5,556)

Other receivables, net of current maturities of. litigation settlements benefits receivable '(2,437) (4,100)

Inventories.and supplies (11,379) 7,721 .

Prepayments ( 3,081) 1312-Short-term debt .

'(2,000)-

Accounts payable and accrued liabilities (8,289) 14,296' Customer service deposits 1,511 2,204 Changes in current assets and current liabilities s (7,463)'$12,877 55553533 MESSESS The following provides information related co cash interest paid by CPS for the years indicated:

1989 1988 (In Thousands)

Interest (net of AIUDC) $185,362 $176,197 SEEMBESB SSMESSES l

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(2) Cash, temporary cash investments and investments-CPS deposits at January 31, 1989 and 1988, were entirely collateralized by banks for the account of CPS. CPS' investments, including both restricted and l unrestricted, at January 31, 1989 and 1988, were all in U.S. Treasury securities and were held for the account of CPS at its general depository bank. CPS' invest-ments are ;enerally limited to U.S. Government or U.S. Government guaranteed obligations.

Fully collateralized cash was $2.8 million at January 31, 1989. Investments in U.S. Government or U.S. Government' guaranteed obligations, including restricted amounts of $361.0 million, were $408.5 million with a market value of $413.0 million at January 31, 1989.

(3) Revenue bond indenture requirements-The trust indenture executed by the City in conjunction with the issuance of the revenue bonds dared February 1,1951 through August 1,1974 (Old Series Bonds),

contains, among others, tha following provisions:

(1) All of the assets of the gas and electric systems, together,with the net revenues of the systems, as defined, are pledged with the Harris Trust and Savings Ban 4 of Chicago, Illinois, as Corporate Trustee, to secure the payment of the Old Series Bonds.

(2) Grcss revenues of the gas and electric rystems shall be' applied to; (a) expenses of operating and maintaining the systems, (b) debt service and reserve requirements on the.Old Series Bonds, (c) payment of an "in lieu of tax" amount to the City, (d) an amount equal to 12-1/2T of_ gross revenues to the improvements and contingencies' fund, (e'/ additional bena -

fits and payments to the City to bring City benefits and payments to 14% of' gross revenues, (f) additional payments to the improvements and contingen-cies fund until such fund equals 20% of the value of fixed capital assets and (g) balance to a surplus fund.

(3) The following funds are established: (a) general fund, (b) improvements and contingencies fund, (c) bond construction fund (containing the proceeds of revenue bonds), (d) principal and interest current requirements (containing the monthly payments of. annual debt requirements) and.(e) bond reserve fund (containing an amount equal to the next fiscal year's principal and interest requirements). These funds may be invested with authorized depository banks or in U.S. Government Securities.

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Beginning with the year ended January 31, 1976, new series electric and gas systems revenue improvement bonds (New Series Bonds) were' issued. These bonds are-junior-and1 subordinate to the Old Series Bonds. The bond ordinances authorizing-these issues provide that no.further. bonds or obligations will be authorized or issued under the terms of the trust indenture for' 01d. teries Bonds. . While any of the Old Series Bonds are ' outstanding, the New Series Bonds are payable solely from.

the net revenues of the systems (1) deposited and available for deposit. in the l improvements and contingencies fund and (2) from funds payable to'the City.- At ,

such time as the trust indenture. covering the Old Series Bonds becomes inoperative,-

revenues will be applied as-follows: (a) for maintenance and opereting expenses of the systems, (b) for payments of the New Series Bonds, (c) for the payment or any obligations infer >ar in lien to the.New Series Bonds which may be issued, (d) for an amount equal to 6% of the gross revenues of the systems to be deposited in a repair and replacement fund, (e) for cash payments and benefits 'to the' City not to exceed 1/% of the gross revenues of the systems and (f) any remaining revenues to the repair and replacement' fund. The New Series Bonds ordinances require that a bond reserve fund et least equal to'the average' annual principal and interest requirements of all' outstanding'New. Series Bonds be established.

Ac of. January 31, 1989, bond reserve requirements for the Old Series Bop {s and New Series Bonds have been met.

(4) Long-term debt-A summary of long-term debt is as follows:

' Weighted-Average Interest Rate on Outstanding January 31 Final Bonds at ----------------------

Maturity January 31, 1989 1989 1988 (in Thousands)

Old Series, 1971-1974 1990-1997 6.45% $ 95,880 $ 105,785 New Series, 1975-1988 1990-2016 7.58% 2,258,800 2,126,335 Unamortized New Series Bond discour.t (25,462) (24,940) 7.56% 2,329,218 2,207,180 Less- Current maturities 53,370 -37,440 Long-term debt, net of current

• maturities $2,275,848 $2,169,7.40

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f Principal due (in thousands) for the next five years are:

l Principal Due l

Old Series New Series Year Bonds Bonds Total l~

1990 $10,375 $42,995' $53,370 1991 10,945 46,625~ '57,570 1992 11,500 50,610 62,110 1993 12,090 54,945 67,035 1994' 12,720 59,450 72,170 In previous years, CPS has refunded previously issued and outstanding.New Series Bonds through the issuance of New Series Revenue Refunding Bonds. The-refunded bond issues and trust accounts are,not included in CPS financial statements. At January 31', 1989, portions of the bonds which were defeased in-substance were still outstanding as follows:

Fiscal year 1986 refunding. $ 97,130,000.

Fiscal year 1987 refunding 253,350,000 Fiscal year 1988 refunding- 328,870,000 On March 10, 1988, the City sold $160 million of the City of San Antonio, Texas Electric and Gas Systems Revenue Improvement Bonds, New Series.1988.-.The net cash proceeds.from the sale of revenue bonds during fiscal year 1989 totaled $157.9 million as shown on the statement of cash flows. The proceeds from the bonds-provided funds for the purpose of improving and extending the electric and gas systems of'the CJty.

(5) Short-term debt-In November 1983, the City Council of San Antonio, Texas (City Council),

authorized the issuance of $100 million in Tax-Exempt Commerciai Paper (TECP) to assist in the financing of eligible projects, including fuel acquisition and capital improvements to the utility systems (the Systems). On October 20, 1988, the City Council adopted an ordinance to extend and broaden the Commercial' Paper Program in an amount up to $300 million of outs'anding t TECP1 st any one time. The I program's scheduled maximum maturities will not extend beyond, November 1, 2028. As of January 31,1989, $98 million in principal amount was outstanding, with a weighted-average interest rate of approximately 5.89% and an average life out-standing of approxim tely 98 days.~ All proceeds have been used for construction l purposes.

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l The TECP is equally and ratably payable from and is secured by the net revenues of the. Systems and a lien on the sale and pledge of the proceeds from the sale of other TECP, and the subsequent sale of bonds and borrowings under the credit i agreement (as defined herein). Such pledge cn net revenues is subordinate and i inferior to the pledge securing payment of the Old Series Bonds, the New Series l

Bonds and any New Series Bonds to be issued in the future. The City has covenanted in the note ordinance to maintain at all times credit facilities which would provide available borrowings sufficient to pay the principal of the TECP. Unless and until the credit a2reement is amended or a new credit agreement is entered into which' would allow CPS to borrow in excess of $200 million, CPS may not have outstanding more than $200 million commercial paper. Any borrowings under the credit agreement are equally and ratably secured by and payable from the above-described sources pledged for payment of the TECP. TFtre have been no borrowings under the credit agreement as of January 31, 1989.

(6) Pension plan-CPS has a self-administered, defined-benefit contributory pension plan covering substantially all employees. Participating employees contribute 5% of their base pay biweekly. Normal retirement age is 65; however, early retirement is available with 25 years of benefit service. Benefits are reduced for early retirement under age 55.

Tne total employer pension cost (all funded), which includes amortization of paat-service costs over 30 years using the unit credit cost actuarial method, is summarized as follows:

1989 1988 l (In Thousands) l Amounts deposited in the CPS Employees' Pension Trust $11,734 $9,345 Percentage of covered payroll 14% 12%

CASB Statement No. 5, effective for years beginning after December 1986, l

requires that a pension benefit obligation be meneured using the actuarial present va'.ue of credited projected benefits, as adjusted for projected salary increases.

This measure is independent of the funding method used to determine contributions to the plan. The actuarial valuation as of December 31, 1988, was computed using an assumed rate of return of 8.5% end projected salary increases averaging 6.5%.

As a result, under GASB No. 5, the following represents CPS 5 pension benefit obligation (in thousands) as of December 31, 1998 and 1987.

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'1988 '1987 For retirees 3 beneficiaries and inactive participants $ 70,384 $ 54,862 For active participants-Employer and employee-financed vested benefits 153,914~ 146,473 Employer-financed nonvested benefits 27,161 '25,848 Total pension benefit obligation 251,459 227,183'

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Net assets available for plan benefits (at fair market value) 170,216 148,962 Unfunded pension benefit ob.igation $ 81,243 $ 78,221 Prior to GASB No. 5, CPS reported the plan. status as the actuarial presenti value of accumulated plan benefits. Under such method, the actuarial present values of accumulated plan benefits using an assumed rate of return of 8.5% was

$158,565,000 at December 31, 1987. At chat time, net assets available for plan benefits were $148,962,000 at fair market value. As of December 31, 1988, the actuarial present value ut accumulated plan benefits was $177,804,000. This value compares to the net asset value of $~.70,216,000 as reported above.

Employees that retired prior to 1983 are receiving annuity payments from an.

insurance carrier as well as receiving some benefits directly from CPS.. These incremental costs for 1989 and 1988 were $699,000 and $723,000, respectively, and were recorded when paid. CPS also provides certain health care and life insurance benefits for retired employees. CPS' omployees are eligible for these benefits

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upon retirement from CPS. The cost of retiree health care and. life insurance bene-fits, funded by CPS and retired employee contributions, is recognized ~as an expense of CPS as employer contributions are made to. the programs. These costs appror.imated

$881,000 and $792,000 for 1989 and 1988, respectively.

(7) Payments to the City-The trust indenture provides for benefits and services totaling 14% of CPS gross revenues, as defined, to be paid or provided to the City. .The City had previously elected to accept benefits less than 14% of gross revhnue; however, on October 1,1987, the City reinstated benefits at the full 14% of allowable revenues.

Pr7ments to the City for 1989 and 1988 were as follows:

1989 1988 (In Thousands)

In lieu of taxes $ 9,891 $'8,946 Refund gas and electric services 16,255 '15,656 Additional payments 78,638 75,044

!$104,784 $99,646 i

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i (8) South Texas Preiect (STP)- .

CPS is one of four participants.in the STP, which consists of two-1 250'5 megawatt nuclear generating units in Matagorda County, Texas. The other participants in-the project are Houston Lighting & Power Company (HL&P),.thef Project Manager, Central Power and Light Company _(CPL) and the City of Austin (Austin). Under the terms of the STP Participation Agreement, each' participant provides funding for its share of construction and operating expenditures. CPS

ownership interest in the project is 28% cr 700 megawatts. The NRC has issued an operating license for Unit 1 of the STP which was declared commercially operational August 25, 1983.

A license authorizing the loading of fuel and operation of Unit 2 of the STP at power levels up to 5% of rated thermal power was issued by the NRC on December 16, 1988, and fuel was loaded shortly thereafter. A full power license is expected to be requested from the NRC in March 1989 with commercial operation expected to commence in June 1989.

In January 1983, Austin filed suit against HL&P, originally seeking rescission of its obligations in connection with the STP. That suit is now pending in a State District Court in Dallas County, Texas, and includes claims that HL&P breached its duties and mismanaged the planning and construction of the STP as Project Manager, seeking damages on various theories ranging from approximately $500 million'to' approximately $940 million, a portion of which is alleged to be subject'to trebling. On January 7, 1988, HL&P filed pleadings against CPS, CPL and its parent company, Central and South West Corporation (CSW),.in the Austin litigation in Dallas County and in the State District Court in Matagorda County seeking a declaratory judgment that HL&P has no liability to the other participants in the STP and seeking contribution and indemnity from CPS, CPL and CSW for any damages for which it is held liable to Austin.

In March 1988, CPS and CPL made a call. for binding arbitration,- under the terms of the STP Participation Agreement, concerning their disputes with HL&P over the SIP including any mismanagement by HL&P, and have requested that any proceedings on HL&P's pleadings against CPS and CPL be stayed pending the arbitration. The arbitration call, which is binding on the participants and should supersede HL&P's district court actions against CPL and CPS, asserts issues concerning (1) the ' extent to which HL&P has breached its obligations under the Participation Agreement and the amount of damages caused by such breach and (2) that neither CPS nor CPL is liable to HL&P for any portion of the damages alleged against HL&P by Austin. CPS has filed a pleading in the Dallas County case denying HL&P's allegations, seeking an order compelling arbitration and subject thereto, urging a counterclaim for damages. In'the opinion of management of CPS, the' outcome of such proceedings will. ,

not have a material adverse ef fect on the financial position or results of operations of CPS.

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In' December 1985, a suit involving the project was settled on the agreement of' Brown & Root, the former architect / engineer and constructor for STP, to pay the plaintiffe, CPS and the other. participants, $750 million. CPS commenced receipt of 1 its $210 million share of the settlement in January 1986, of which' $105 million was outstanding at January 31, 1989. Quarterly installments, without interest, in the-amount of $7.5 million are remitted to CPS pursuant to an unqualified contractual obligation of Aetna Life Insurance Company. The remaining payments have been recorded as current other receivables and as litigation settlements benefits receivable.-

The current estimated total direct cost of the project is $5.428 billion after consideration of the net present value of the Brown & Root Architect / Constructor Settlement and other project related credits. CPS' portion of the total costs for.

STP is approximately $2.1 billion for construction and interest during construction and approximately $115 million for nuclear fuel to be purchased prior to commercial operation of each unit. CPS' share of remaining costs is estimated to be approxi-mately $37 million for plant construction over the next year, exclusive of interest.

The costs may vary from the estimated amount due to inflation, enanges in equipment delivery, construction schedules and regulatory changes.

Congress has renewed, until August 1, 2002, the Price-Anderson Amendments Act of 1988, a comprehensive statutory arrangement providing limitations on nuclear liability and governmental indemnities. The limits of liability for licensees.of nuclear power plants were increased from $720 million to $7.635 billion per incident. The ma/ uum amount that each licensee may be assessed following a nuclear incident at an insured facility is $66.15 million (which amount may be adjuated for inflation) for each licensed reactor, but not more than $10 million per reactor for each nuclear incident in any one year. CPS ar.d each of.the other participants of STP are subject to such assessments, which CPS and the other participants have agreed will be borne on the basis of their respective ownership interests in STP. For purposes of these assessments, STP has two licensed reactors' .

The participants have purchased the maximum limits of nuclear liability insurance,.

as required by 1 w, and have executed indemnification agreements with the NRC, in accordance with the financial protection requirements of the Price-Anderson Act.

NRC regulati.ons require licensees of nuclear power plants to obtain on-site property damage insurance in a minimum amount of $1.06 billion. . NRC regulations j also require that the proceeds from this insurance be used first to ensure that the I

licensed reactor is in a safe and stable condition so as to prevent any significant I

risk to the public health or safety, and then to complete any decontamination l- operations that may be ordered by the NRC. Any funds rematoing would then be I available for covering direct losses to property. Insurance proceeds are to be paid to a special trustee appointed to hold insurance proceeds up to $1.06 billion l

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1 to be used for stabilization and decontamination. The stabilization and decontamination priority and trustee provisions are currently under consideration for further rulemaking before implementation. f The participants of STP currently maintain on site property damage insurance i in the amount of $1.395 billion, which amount is less than the total amount of such insurance currently available to cover such losses but more than required by NRC regulations. CPS and the other participants in STP have entered into an agreement that provides for the total costs of decontamination liability and property insurance for STP (including premiums and assessments) to be shared pro rata based upon each participant's respective ownership interest in STP.

(9) Commitments and contingencies-In December 1986, CPS approved a settlement offer from railroads involved in disiputed issues about the proper and lawful freight rates. As a result, CPS received a $10.5 million payment from the railroads in January 1989, and a $10.0 million payment in January 1988. CPS will receive additional annual payments ranging from $11.0 to $13.0 million, totaling $60.0 million, over the next five years from the railroads, which is expected to be returned to customers as payments are received. The remaining amounts due have been recorded as current other l receivables and litigation settlements benefits receivable.

1 Other-l CPS is involved in various legal proceedings related to alleged personal and property damages, breach of contract, environmental matters, condemnation appeals and discrimination cases. In the opinion of management of CPS, the outcome of such proceedings will not have a material adverse effect on the financial position or results of operations of CPS.

Other purchase and construction commitments amounted to approximately $1.529 billion at January 31, 1989. This amount includes approximately $720 million for various gas purchase contracts over the next five years and approximately $312 l million for railroad services for hauling coal. Also included is $396.3 million for a turnkey contract for construct. ion of a new 500 megawatt coal-fired electric generating plant to be completed by the summer of 1992. All permits for construc-tion of the plant have been obtained and construction has begun. However, an appeal to the Texas Air Control board has been filed by nearby residents regarding the construction permit issued by ench' board. While management of CPS expects that an early hearing will confirn the validity of the permit, an adverse determination could cause delay in construction and increased cests for the plant.

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(10) Segment information-1989 1988 Electric Gas Total Electric Gas Total (In Thousands) (In Thousands)

Revenue $ 636,086 $106,114 $ 742,200 $ 626,726 $126,581 $ 753,307 Expenses-Operating and I

maintenance expenses 279,954 76,322 356,276 283,972 105,374 389,346 Depreciation 59,906 6,491 66,397 38,683 5,926 44,609 Total 339,860 82,813 422,673 322,655 111,300 433,955 Operating income $ 296,226 $ 23,301 319,527 $ 304,071 $ 15,281 319,352 Interest and other income 36,191 38,450 Nonoperating expenses 210,593 176,307 Net earnings $ 145,125 $ 181,495

........=. ..........

f Capital l expenditures $ 328,305 $ 22,817 $ 351,122 $ 385.306 $ 23,546 $ 408,852 Utility assets $3,455,647 $241,304 $3,696,951 $1,717,325 $265,945 $1,983,270 Construction work in progress 579,815 6,382 586,197 2,030,664 14,616 2,045,280

--=.------- -------- ---------- ---------- ----- .. ..-------

Total assets $4,035,462 $247,686 $4,283,148 $3,747',989 $2B0,561 $4,023,550 i e

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