RBG-28088, Gulf States Utils 1987 Annual Rept
| ML20155G523 | |
| Person / Time | |
|---|---|
| Site: | River Bend  |
| Issue date: | 12/31/1987 |
| From: | Booker J, Draper E GULF STATES UTILITIES CO. |
| To: | NRC OFFICE OF ADMINISTRATION & RESOURCES MANAGEMENT (ARM) |
| References | |
| RBG-28088, NUDOCS 8806200008 | |
| Download: ML20155G523 (44) | |
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. r l GULF ~ STATES UTILITIES COMPANY P O S T O F r t C E S O X- 2 9 51 . DEAUMONT, as
_T E X A S 77704 AREA CODE 713 838-6631 June 13, 1988 RBG- 28088 File No. G9.5 U. S. Nuclear Regulatory Concission-Document Control Desk Washington,.D.C. 20555
-Gentlemen: j River Bend Station Unit 1 Docket No. 50-458 Annual Report Enclosed are ten (10) copies of the Gulf States Utilities Company 19E7 Annual Report. This report is being submitted in accordance with Section 50.71 of Title 10 of the Code of Federal N gulations and U. S.
Nuclear Regulatory Commission Regulatory Guide 10.4. Copies of the Cajun Electric Power Cooperative, Inc.- 1987 Annual Report will be provided once it becomes available.
Sincerely, a %
J. E. Booker Manager-River Bend Oversight
'JEB/DHW/do Enclosures cc: U. S. Nuclear Regulatory Commission 611 Ryan Plaza Drive. Suite 1000 Arlington, TX 7601:
NRC Resident Inspector P. O. Box 1051 (O St. Francisville, LA 70775 1 I lo 8806200008 871231 PDR ADOCK 05000458 J DCD _ <
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Financial Highlights 1987 1986 Change
. Total Operating Revenue (000) ~ $1,432,586 51,478,388 (3.1)
- Operating Expenses and Taxes (000) 51,055,966- $1,164,582 .(9.3)
Net income (000) . 5 241,101 5 244,981' (1.6)
' Income Applicable to Common Stock (000) 5 178,091 5 181,854 (2.1)
Earnings per Average Share of t Common Stock Outstanding $1.65 S1.71 (3.5)
Dividends per x -
5 .67 (100)
Average Common Shares
. Outstanding (000) 107,995 106,132 1.8
' Number of Electric Customers (end of Year) 554,90: 555,075 -
Total Kilowatt-Hour Sales (000) 26,620,287 26,949,012 (1.2)
System Peak Load - Kilowatts 4,991,000 5,089,000 (1.9)
L - Description of Business Gulf States Utilities was incor- ability to interchange electricity with Dividends porated in 1925 and is primarily in the 40 members (29 members and 11 The resumption of dividends has the business of generating, transmit- associated members) serving eight a high priority for Gulf States'
, ting and distributing electricity to states in the South and Southwest. board of directors, but the picture 555,000 customers in southeast Texas The company had a peak load of remains rather bleak, given the and south Louisiana. The service 4,991 megawatts in 1987, while it uncertainty of regulatory area extends 350 miles westward had installed capacity and firm proceedings, from Baton Rouge, La., to a point . power purchase agreements totaling The company has been unable to about 50 miles east of Austin, Tx. 6,871 megawatts at the time of that pay dividends on common stock The service area encompasses the peak load.
since the second quarter of 1986 and northern suburbs of Houston and Effective July 1,1987, the com-the board reludantly decided in the major cities such as Conroe, pany sold the oil and gas reserves of Huntsville, Port Arthur, Orange its wholly-owned subsidiary, first quarter of 1987 that the prefer-and Beaumont, Tx.: Lake Charles Prudential Oil & Cas, Inc. to Moore red and preference stock dividends and Baton Rouge, La. McCormack Energy, Inc. GSIJs of- could no longer be paid.
GSU also sells electricity to ficials and employees are in the Holders of common shares of
~ municipalities and rural electrical process of discontinuing alj stock need to be aware that the com-cooperatives in both Texas and Prudential affairs as Prudential's pany cannot resume payment of Louisiana. in Baton Rouge, GSU employees received a severance their dividends until the cumulative supplies steam and electricity to a packsge and have been released. preferred and preference stock large industrialcustomer through a Although the ongoing operations of dividends are repaid and preferred cogeneration facility and the com- Prudential have been discontinued, sinking fund obligations are pany owns and operates a natural the subsidiary will remain in ex- satisfied.
, ; gas retail distribution system serving istence for a few years to bring to a
' 83,000 customers. close all corporate matters.
As a member of the Southwest Power Pool, the company has the I
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Report to Shareholders
final order is not expected to be approved before early March.
t is said that the test of a strong person is how he While the rate cases dragged on, River Bend or she faces adversit y. Your company and its people hummed along. It operawd 151 consecutive days Iwere put to the test time and time again during 1987 during one stretch of 1987, which was the fourth best and, unfortunately, are continuing to wrestle with record among the 30 boiling water reactors in the adversity as we move into 1988. As was the case in United States. At times during 1987, River Bend pro-1987, our principal focus continues to be rate cases in vided one-third of all the power generated for our
, Louisiana and Texas. Although our River Bend nucle- customers. A major accomplishment in 1987 was its ar power plant has generated more than 8 billion successful first refueling which was completed faster kilowatt-hours of electricity since December of 1985 than the average for similar plants.
and set operating records during 1987, we are still The Nuclear Regulatory Commission also con-fighting to have the unit rec- tinued giving GSU high ognized in our rates. .
marks for River Bend, awar- ,
I had believed that by the ding the company the highest time this letter was written -
possible ratings in the critical l there would be conclusive areas of plant operations,
)
news to report. Although we -
qualityprograms and training. i have achieved some court- A ordered rate reliefinLouisiana, we are still waitmg for a "
1-\sfolded, these it has rate beencases partic- have un- ,
I
, ularly unsettling to see the positive decisionin Texas that same basic set of facts pro-will enable the company to * ' ~
duce such different conclu-beg,m thelongjourneybackt sions about the prudency of fmancial stability. f the decision to build River TheLouisiana PublicService Bend. In Louisiana. the com-Commission (LPSC) rendered .
mission's consultants con-a totally unacceptable decision
- , cluded that Gulf States on Dec.15. Rejectmgits own should have built a lignite-consultants andstaff srecom- .~, ,
fueled plant instead of River mendations, the commission- -
,' Bend, which accounts for the ersgrantedS63 million -oniy "
56 million more than the $5', .. $1.4 billion disallowance that remains an issue in our court milhonminterimrelief already appeal. In Texas, the three in effect. We immediately administrative law judges asked a state district court t '
. whi listened to 118 days of overturn several elements of ' '
testimony and reviewed the LPSC order, mcluding; a ,
r thousands of pages of finding that $1.4 bilh,on m -
. i documents found that the River Bend costs shouldbeper-manently disallowed on a *
\ -
decision to build River Bend
,, , was prudent. Obviously, system .<icebasis.OnFeb.18, we concur with the Texas the court ordered immediate E. Linn Draper, Jr.
findings i
implementation of a $92 mil- .. The quality of the construction at River Bend has lion first-year rate increase in Louisiana, which includ- l not been seriously dis uted. Indirectly, even our rate
- ed the S63 million increase granted by the commission. case critics acknowle[ge that the project was a con-The court also set a return on common equity of 14
, struction success story. Although different outside ,
( percent, compared to the 12 percent figure approved consultants reviewed many areas of the project on by the commission. The prehmmary m1 unction behalf of intervenor groups, they were unable to means that the 592 million rate increase will remain recommend any major construction cost j ir effect while the disallowance and other issues are disallowances. The administrative law judges in i
bemg decided on appeal. Texas made a disallowance recommendation of $253 milli n,8 percent f the project's total cost, based < n n Texas, the Public Utility Commission (PUCT),
what they termed imprudence and inefficiency in the i
fwhich was to have made a decision in early rocess. The hearing examiners finding January, issued a series of preliminary rujings on Fe3.
construction that GSU ha [ justified 92 percent of River Bend costs
- 23. The impact on Texas rates was not immediately makes the commission's preliminary decision par-clear. The commission held that $1.6 billion of GSU.s ticularly disheartening.
share of River Bend costs could be placed in the rate base, but the remaining 51.5 billion would be set With only a minuscule portion of River Bend costs aside for the present time. The company will have the Y Y reflected in our rates, the company's financial opportunity to present additional evidence justifying condition continues to be precarious and the threat of those costs at a later date. These decisions are not bankruptcy lingers. Special accounting orders from final until the PUCT issues a written order, and a the regulatory commissions make our financial 3
Report to Shareholders condition appear much better than it actually is. must be made up before common stock dividends can Earnings for 1987 were $1.65 per share of common be resumed. Even if we obtain reasonable treatment stock, compared to 51.71 in 1986, but the quality of from the Texas PUC, the road to financial recovery the earnings is poor because of the non-cash ac- still will be a long and arduous one.
counting orders. Although reported net income for Aside from the rate cases, another key to regaining 1987 was $241 mulion,162 percent resulted from the our financial health is the economy of our service non-cash accounting orders. In terms of real cash, we area. The depressed state of the Gulf Coast oil and are taking in much less than we are paying out. This gas business, with high unemployment plaguing most cannot continue indefinitely. of the area we serve, has been a major factor in the Early in 1987, we received emergency rate in- customer and political unrest swirling around the creases in both states. Those actions, coupled with company. Provided we emerge from these rate cases continuing cost cutting and cash conservation with sufficient resources, GSU is going to place even measures taken by the company, got us through more emphasis on trying to revitalize the area 1987. Even with the court-ordered Louisiana rate in- economy and bring in new jobs.
crease, GSU will still have to borrow money to meet There are signs that the service area economy is its financial responsibilities, stabilizing. The number of customers remained The rate news at the wholesale level is more relatively stable in 1987 and kilowatt hour sales positive. We have reached agreement in our River declined only 1 percent from 1986 levels. This is Bend plant-in-service case with all but one of our much better than the 7 and 8 percent drop in sales for wholesale customers. It is significant that these the previous two years and our corporate planning agreements include no findings of River Bend staff believes that the economy hit bottom in 1987 imprudence. and that better times lie ahead.
The Dec.15 rate decision in Louisiana was the latest in a series of negative rulings from that for the first time in many years, Norman R. Lee's commission. It reinforced the perception among our 1 name will not be found in the list of GSU officers Texas customers that Louisiana is not willing to pay and directors. Mr. Lee, who retired as president and its share, although River Bend provided many vice chairman of the board in November of 1986, economic benefits to that state. Recognizing the stepped down as a director at the 1987 annual problems created by the regulatory imbalance meeting. He is certainly missed. Also, Paul W. Mur-between Texas and Louisiana, I asked your board of rill, who served as chairman of the board for five directors to tahe steps that could lead to a restructur- years, asked to be relieved of his duties as chairman ing of the company aimed at ensuring that each state in June and I was named his successor. Dr. Murrill is receiving the level of service to which it is entitled, continues to serve as my special advisor and remains based upon the amount of revenues it provides. on the board of directors. Sam F. Segnar, chairman Such a restructuring cannot be achieved overnight, of Houston-based Vista Chemical Co., joined our in fact, there is no precedent to tell us that it can be board of directors in February of 1968.
accomplished at all. But the oroblem is serious Finally, a few words are in o 4r about the enough to make us try. employees of your company. Like you, they are suffering. Although they have not had pay raises s you know, our financial condition did not since 1986 and constantly work under tremendous Aallow the board of directors to authorize any pressure, they persevere. Times are tough for them dividend payments during 1987. As was the case at and their families and we don't tell them often the May 1987 shareholders meeting, I still cannot tell enough how much we appreciate them. But we do you when dividends might be resumed. We also were appreciate them. and it is their dedication, despite the unable to pay dividends on preferred and preference adversity, that will see Gulf States through these stock during 1987 and all of those omitted payments difficult times.
Sincerely, E. Linn Draper, Jr.
Chairrnan of the Nard.
') resident and Chief Executive Officer March 1,1988 4
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1987 In Review.
Sales and Earnings Earnings per share of common stock in 1987 were Overall electric sales declined by 1 percent during S1.65, contrasted with S1.71 for 1986 There were no
' 1987..This was the slowest rate of decline since 1985, common, preferred or preference stock dividends L when Gulf States' kilowatt-hour sales recorded an 8 paid during the year because of Gulf States' financial l percent drop. This has been viewed by some condition. -
economists as an indication that the economy in Although the company reported net income of
. Southeast Texas and South Louisiana, hard-hit by $241 million for 1987,162 percent, or $390 million, the oil recession that began several years ago, has represents special non-cash accounting e ntries.
stabilized and that a slow recovery may be at hand; Without the accounting entries GSU would show a During 1987, electric sales totaled 26.6 billion net 1oss of $149 million for the year. The principal kilowatt-hours, compared with 26.9 billion kwh in ?ntries, m comphance with special accountmg orders 1986. Sales to industrial customers, who represent issued by the Texas and Lou,siana i regulatory com- l nussi ns, nclude the deferral of River Bend nuclear about 48 percent of GSU's annual electric sales, declined 3 percent from the previous year. This was power plant expenses and depreciation, the accrua1 primarily because two large customers displaced 84 f a carrying charge on the company s investment ,m megawatts with cogeneration.' As a group, however, the plant not yet mcluded in the rate base and the 40 of GSU's largest industrial customers increased c st of buying power from Cajun Electric Power their usage during the year. An experimental in- Co-op s portion of the plant.
dustrial rate aimed at combatting the loss of sales to The earnmgs reported by the company, m, ,
cogeneration was credited with keeping 83 .cc rdance with generally accepted accounting prin-megawatts on the GSU system last year. c ples and in view of the court appealin Louisiana, ,
do not m, clude any provisions for Louisiana s share of Residential sales increased slightly, commercial the $1.4 billion disallowance of the company's invest-sales remained stable and wholesale sales dropped ment in River Bend ordered by the Louisiana Public
- slightly.
Service Commission (LPSC) in mid-December. The Electric sales to other utilities were enhanced company is waiting for a decision from the Public during the summer of 1987 through contracts with Utility Commission of Texas (PUCT).
Florida Power & Light Co. and the Jacksonville Elec-tric Authority in Florida. These off-system sales to Financial Condition other investor-o,wned utilities, rura.1 cooperatives and Interim emergency rate increases granted by Texas mumcipal electric systems represent an area of and Louisiana regulators early last year, coupled business that the company will continue to pursue with efforts on the part of management and in 1988, employees to trim expenses and enhance cash flow, Operating revenues for the year were 51.4 billion, helped the company avert a financial crisis during l compared with 51.5 billion in 1986, down 3 percent. 1987. However, the company's need for meaningfut i The decline can be attributed primarily to reduced and permanent rate increases to improve cash fuel prices, flow continues, as GSU fights to avoid bankruptcy.
GSU Rates Compared to Other Utilities >
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(Residential Cost Per 1,000 KW's*)
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! $83.98 Average Residential
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7 % d h he $42.21 12000 -
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y V- -[ O ,d Nationally National GSU Nationally 4000_ -A B 7 1.
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1987 In Review The company had projected a 5211 million cash In its first comprehensive assessment of River Bend sb~tfall for 1988 if rates remained at Dec. 31,1987, since the plant went into commercial operation in levels. Even with the rate increase ordered by the June 1986, the Nuclear Regulatory Commission court in Louisiana, GSU will have to borrow money (NRC) continued its praise of the facility. The "report in order to meet its financial responsibilities. card," prepared by the NRC's Systematic Assessment Gulf States sold the oil and gas properties of its of Licensee Performance (SALP) team, gave GSU the wholly-owned subsidiary, Houston-based Prudential highest ratings, Category 1, in thcee key areas -
Oil and Gas, Inc., to Moore McCormack Energy, plant operations; quality programs and ad-Inc. of Dallas, effective July 1, for $22.5 million. ministrative controls affecting quality; and training After retiring production loans, net proceeds to the and qualificatior, effectiveness. The seven other areas company were about $15.3 million, less any costs reviewed by the SALP team received Category 2 associated with phasing out Prudential's operations. ratings, the second highest.
In February 1987, Moody's Investor Service, Four more of the 10 training programs at the site Standard & Poor's Corp. and other rating houses were accredited during the year by the downgraded Gulf States' bonds and stocks further Institute of Nuclear Power Operations (INPO). The below investment grade. This action reflected the remaining three programs are expected to be financial community's concern about the regulatory accredited later this year which will make GSU a full climate in the GSU service area. member of the National Academy for Nuclear Train-Gulf States secured a 565 million line of credit ing, established by INPO to recognize ac-through Irving Trust Co. in order to implement the complishments in the nuclear industry and to ensure interim rate increase in Texas. To secure the line of the safe operation of U.S. nuclear plants.
credit from Irving T ust, Gulf States had to agree to a number of conditions, including: high interest rates: Rates and Regulation no preferred or common stock dividend payments The engineering and managerial accomplishments while the agreement is in force; a pledge of accounts of successfully building and operating River Bend receivable as collateral: and a lien to Irving on the were largely overshadowed by the protracted Lewis Creek power plant in Texas. In June, the final regulatory challenges to having the plant's costs steps were completed to provide Irving with a first reflected in the rate bases. While both Texas and mortgage on the power plant. A subsidiary of GSU, Louisiana regulator 3 commirions granted interim GSG&T Inc., was created to hold title to Lewis emergency relief earlier in the yv, the effort to Creek. Through February 1988, no borrowing had achieve permanent and adequate is relief been made under the Irving line of credit. continues.
Although the area economy appears to have River Bend stabilized, it has done so at an unacceptably low The success experienced during River Bend's level. The region's economic troubles have been a construction stage has coatinued with the efficient contributing factor in GSU's financial and political operation of the nuclear power plant. The plant has problems, as well as in customer opposition to rate proven itself to be a "world class performer" during increases. Economic growth is crucial both to Gulf its commercial operation. States and the region it serves. One of the company's During 1987 alone, River Bend generated almost 5 primary goals is to meet its revenue requirements to billion kilowatt-hours of electricity. From Jan. I to the greatest extent possible through additional sales shutdown in mid-September for refueling, the plant rather than increased cm tomer rates. This is a longer-recorded a capacity factor of 85 percent, which is the term solution to GSU's eur~mic problems, actual generation as a percentage of its maximum however. In the meantime, adequate rate relief re-capability. During the first three months of 1987, mains at the cornerstone of the company's financial River Bend actually exceeded its rated capacity of 936 recovery. In both states, the company proposed rate megawatts be:ause of favorable weather and produc- moderation plans that took into account the difficult ed up to one-third of all the electricity generated by economic times facing the region.
Gulf States. Even with the three-month refueling Theloulslana Rate Case Gulf States filed a $202 outage, the plant provided 15.2 percent of GSU's net million rate moderation case in Louisiana in July generation for the year. 1986. (This amount was later reduced to $194.3 The successful first refueling itself was a major million to reflect the effect of changes in federal tax accomplishment for 1987 - completed in 103 days. laws.)In this filing, the company sought to ease the compared with the national average of 106 days for financial burden of higher electric rates on customers domestic boiling water reactcrs (BWR). The next and the local economy through a plan to phase in the refueling is scheduled for the spring of 1989. costs of River Bend over an eight-year period. Under While River Bend's 151 days of continuous opera- this proposal, rate increases would occur during the tions during the first fuel cycle placed the unit fourth first three years, followed by five years of stable rates among the 30 boiling water reactors in the United in which costs deferred from the first years would be States, it set the world record for BWR's with the recovered.
Mark 6 containment design. In September 1986, the company asked the From the time River Bend began producing elec- 1.ouisiana Public Service Commission to grant 5100 tricity in December 1985 to the ead of 1987, more million in emergency rates to cover Louisiana's ,
than 8 billion kilowatt hours have been generated. portion of 1987 projected cash operation and 6
1987 In Review maintenance expenses, including interest. On while the various issues on appeal are being decided.
Feb. 24,1987, on remand from a state district court, Texas Rate Case. In Texas, the company remains tne LPSC voted to grant GSU 557 million in emergen- mired in the longest rate proceedings in state history.
cy rate relid. On Nov.18,1986, Gulf States filed a $144.1 Hearings on the company's application for S194.3 million rate case with the Public Utility Commission million in pt rmac ent relief, which includes the $57 of Texas and asked that $82 million be granted im-million in et ergetcy rates, opened last March 30. mediately on an emergency basis.
Subsequent .seari tgs and meetings were conducted As with the Louisiana filing, the company's on a sporadic bas s until Dec.15. Rejecting its own permanent case called for an eight-year rate modera-staff recommcnd.. tion of a 10-year rate moderation tion plan.
plan with a Su n liion first-year rate increase, the On Feb. 3,1987, the commissio.iers granted $39.9 LPSC, on a 3-c vc te, allowed only a 563 million per- million in emerg ncy relief, contingent upon the manent rate imn ise with no qualified phase-in plan company securing a S250 million line of credit. This to recover defe. , d costs, disallowed as imprudent stipulation was later modified to allow the interim
$1.4 billion of C. U's 70 percent share of River Bend rates to be put into effect when GSU could costs on a syster wide basis and set a IL percent demonstrate that it could provide assurance of ob-return on comm .1 equity. The disallowance proposal taining $250 s.idion from sources other than Texas was based on the contention that a lignite-fueled ratepayers.
plant should have been built instead of River Bend. By the end of March, GSU submitted a 5266 The company appealed all major aspects of the million financial plan to the PUCT which included a rete order to the state district court in Baton Rouge, 565 million line of credit provided by Irving Trust saying that the proposed $1.4 billion disallowance - Co., S57 million in interim rates in Louisiana, S47 one of the largest rendered in any proceedings in the million in reductions to the 1987 construction United States - would severely impair GSU's hopes budget, S20 million from pollution control bond trust for financial recovery and that the record and the fund deposits, $13 million in new revenue from a rate facts clearly do not support a disallowance. On Feb. case settlement with wholesale customers and $64 18, the court ordered immediate implementation of a million in omission of preferred and preference 592 million first-year rate increase in Louisiana, dividends. The commissioners voted 2-1 to accept the which includes the 563 million increase granted by company's proposal.
the commission. The court also set a return on com- Hearings on the company's permanent rate case mon equity of 14 percent, compared to the 12 percent started on March 23 and lasted through Sept.15.
figure approved by the commission. Other major This was the lengthiest, and probably the most com-aspects of the commission's decision - including the plex, case heard by the PUCT in its 12-year history.
disallowance of St.4 billica. in River Bend costs on a It was the first time the commission had dealt with in-system-wide basis - remairi on appeal. However, clusion of a major part of a nuclear power plant in the S92 million rate increase will remain in effect the rate base of a Texas utility. The hearings stretched Total Eamings Per Share Construction Expenditures Douars _
Malions Elec+de Department M' Retum On II #
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1987 In Review through 118 days, plus 10 days devoted to the River Bend in the rates. The impact these decisions will emergency rate case. In all,88 witnesses,44 represen- have on Texas rates was not immediately clear, but ting Gulf States, testified. preliminary indications were that they would not In December, the administrative law judges who produce an adequa televel of revenue. The commission presided over the ase presented their recommenda- held that S1.6 billion of GSU's share of River Bend costs tions. They found that the decision to build River can be placed in the rate base, along with 5187 millior Bend was prodent z.nd that the company was entitled of the Texas retailjurisdiction's deferred River Bend to a first-yerit. rease of $86.3 million, with S274 costs. The remaining $1.5 billion of plant costs and million of River Bend costs to Se disallowed because $151 million in deferrals are to be set aside and not this amount was imprudently or inefficiently incur- allowed in the rate base now. However, the commis-red during construction of the plant. That sion said it would reconsider the set-aside costs at disallowance was later recalculated to be some future time. Two of the three commmissioners
$253 million. contend that the company did not meet its burden of The administrative law judges also propc, sed a proof concerning the increase in the cost of River Bend.
10-year rate moderation plan with three additional federalRegulation. Gulf States sells power wholesale smalle t rate increases and recovery of the deferred to four rural cooperatives and seven murucipalitics in costs over the final six years of the plan. Texas and Louisiana. The company and 10 of its The PUCT was scheduled to render a decision by wholesale customers have settied a rate case filed Jan.11,1988, but the commissioners raised addi- with the Federal Energy Regulatory Commission tional questions they believed might warrant more (FERC)in 1986 that reflects River Bend costs in testimony and urged Gulf States and the intervening wholesale rates. Under the terms of the settlements, parties and staff to reach a negotiated settlement to which have been approved for the majority of avoid any court contests. Additional hearings were wholesale customers by the FERC, wholesale rates held in February, with more tentatively scheduled for are increased by 24 percent from 1986 through 1989 early March. On Feb. 23, the commission issued a and 14 percent,10 percent and 7.4 percent respective- 1 series of preliminary decisions regarding treatment of ly through 1992.
c development specialists is to
, match the right prospect with the Economic Development - right comraunity.
Through national advertising Key To Financial Recovery ana area promotion. speciai business data and information services, community marketing Gulf Stres Utilities' involve- customers we m and selling programs and incentive electric ment in area economic develop- them more of our commodity - rates for new or expanding ment is almost as old as the electricity -is the answer. And a businesses in the region, GSU is corapa' y itself. Within the last wider customer base and the per- attracting new industry and jobs.
few years -in the face of the manent jobs it provid.s, lessens The Economic Development severe downtura in the oil, gas the need for future rate increases. Data Center contains the and petrochemicalindustries - In short, GSU must sellits way Southwest's most complete and the need for economic develop- into financial stability, up-ra-date information on ment has taken on even greater The area of Southeast Texas business development in the Guif importance. Development of a and South Louisiana Gulf States Coast region. This service assists diversified, expanded economic serves offers a new business or cities and qualified private base is critica! to rebuilding industrya wealth of natural groups in creating proposals and the region. resources, skilled labor, a presentations for business Since GSU is tied sa clccly to nationally centrallocation, prospects, provides community the area it serves, the company's reasonable energy costs, good profiles and data on buildings, financial problemt and those of transportation tacilities and a sites, industrial parks and com-the area are almost inseparable, stable business climate. The Gulf mercial buildings available for Rate increases, as discussed States Business Development economic development use.
earlier, are at best a stopgap Group works directly with com- Our exclusive Computer measure on the road to financial munities and business prospects A alysis of Buildings and Sites recovery. In the long run, considering our area. The job of (CABS), .available through the increasing the number of the 11 fully-trained economic cemer, can quickly provide a 8
1987 In Review The settlement rates will produce lower reveaaes exceptions to the law jude's report and is awaiting a f #1 N
than those the FERC would have allowed the um- final decisior 5e FERC. A negative decision r 1 pany to implemert under bond in August 1986. would, in all .me. ood, be appealed to the federal ,ei @.
However, it is sigt liicant that these rates reflect the ccurts. . 1 N wholesale custom as' share of River Bend costs. With the River Bend quuion settled, the wholesale In other action regardirg the Southern Co., the 5th U.S. Circuit Court of Appealsinlate August ruled Q4 ./3[;
U customers should have relatively stable rates for the that the federal district c urt has jurisdiction over g,M "
foreseeable future. As part of the settlement, Gulf certain matters despite Southern's daim that all mat- .c -
States has agreed to provide a portion of the ters shovd be dacided by FERC. p$r4% ~!
wholesale custu as' energy at a lower rate that Gulf States filed ti.Pawsuit and the petition with i keeps the company competitive with other wholesale t'EhC in 1986, aUning the Southern Co. had failed ?nDV' power suppliers. and rerused ta negotiate in good faith changes in the Js Also extended to wholesale customers was an in- purchased power agreements, as required by the VMbQ.Q centive rate to encourage growth, similar to the ter:as of the contracts. GSU contends that its obliga. L.%.F economic cievelopment rate for GSU's qualifying tions under the contracts have been terminated by 4 $-
retail customers. The incentive rate gives these reason of breach of contract by the Southern Co. and a ' k municipalities and cooperatives another tool to use in for other reasons. 4, #=
attracting new business and industry. In another legal matter, an agreement in principle j ?
Negotiations are continuing with the one was reached on Feb. 8,1988, to settie eight class- :' y i.
wholesale customer that has not agreed to the at tion lawsuits filed on behalf of shareholders against .O W ~ '
settlement. This customer represents !ess than 1 per- the company and a group of its officers, directors and Mk, cent of Gulf States' wholesale load. several investment barking firms and to settle a 2%
The Southern Co. Suit. An administrative law judge derivativelawsuit filed against a group of officers $$:1 for the FERC in May denied Gulf States' request to terminate or modify its 1982 contracts for power pur-chased from the Southern Co. The company has filed and directors. In agreeing to settle the case, the com-pany and other defendants continue to deny all charges. The settlement is designed to avoid addi-
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i
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business prospect with informa- meet ;he needs of new business either located or expanded within 1l' ~S.e .: J '
tion on a particular type of and industry. Team Cities pro- Gulf States' service area. These . .
facility. CABS can provide data vides community assessment, firms created approximately #' .
and photos on as ilable short and long range goals, selec- 3,700 permanent jobs for the : '..
buildings, including sizes, loca- tion and training of a community region. New and expanding small ,+, .
tions, ages, condition of the marketing team and, ultimately, businesses created about 2,200 W .b. _ . . .
buildings and lease or sale prices.
- signation as a Team City, permanent jobs. ..,~
If an appropriate site can't be Innovative rates have been Ir dustries that located or ' P .S .
found in one city, CABS can quickly locate another within the designed to promote economic development and to retain expanded with GSU's help last year represent a diversification Mv ij d 28,000 square-mile GSU existing mdustrialload. Several that will broaden the economic O.q / ,
territory.
GSU also provides community new rates offer industries options by: giving qualified industrial base of the area. These include a manufacturer of offshore equip-Qf fp profilec to help . usinesses deter- customers electricity competitive- ment, two seafood processing / . Q. . -
mine a suitable location. The ly priced with cogeneration; plants, a gasket manufacturer, a e e." .:.;
profile includes community providing a discount to com- kiln drying operation, a piping y g[.V ' .' '
population, labor analysis, tax panies that increase their number fabricator, a fruit and dairy pro-structures, government, financial of permanent, full-time employ- ducts processing operation, a )f.l ';f institutions, education, climate, ces; providing incentives for floor tile maker and a heating and air conditioning equipment
% P.I.
major employers and medical existing customers to incrcase -
facilities. electricity use over their present manufacturer. .f The "Team Cities" program brings members of the public and capacity; and providing a com-petitive rate to industrial Additionally, constn.ction of three state prisons in the GSU N.V[
!cw~.. f privatesectors together to promote customers that locate adjacent to service area will create approx- ,.
the development of individual a self-generating industry, imately 1,000 more jobs. g ~ .l cities. The program oilers direc- These economic development These are welcome, positive ?- %'
tion to a city's economic dev elop- efferts paid off in new industries signs of a reboundinglocal ?*V/ ' d ment goals by designating com- and jobs during 1987. Last year, economy and with it, a more .
munities that are prepared to 58 manufacturing industries financially secure Gulf States.
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l.M. -1 w .Y # e G ,(3 i
9 &
yg
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1987 In Review tional expense and inconvenience associated with The company's employment practices are guided protracted litigation of this kind. The agreement pro- by the principles of equal opportunity for all. Affir-vides for the creation of a 56.5 million settlement mative action programs have enabled Gulf States to fund, most of which will come from insurers over attract ard retain skilled personnel from all com-and above the applicable deductable amounts, munity sectors. Fair employment practices and Payments will be made to those who purchased GSU policies help the company develop its human common stock during an agreed upon period in the resources to more effectively se ve its customers.
past and who apply to participate in the w:lement.
Eligible shareholders will be notified af ter the final Management Changes settlement is filed and approved by the federal court. On June 4, the board of directors named E. Linn This is expected to be in April. Draper, Jr. chairman of the board. in addition to his duties as chief executive officer and president. Paul General Operations W. Murrill requested to be allowed to step aside as Although the company focused a great deal of board chairman af ter more than five years and attention on rate cases for virtually all of 1987, Gulf recommended that Draper be named as his successor.
States has not lost sight of the fact that its primary Murrill remains as special advisor to the chairman business is making and selling electricity. A more and a member of the board.
detailed discussion is found elsewhere in this report Sam F. Segnar, chairman of Vista Chemicals Co.
of the company's renewed efforts to better market of Houston, was elected to the board of directors of electricity, with the emphasis on economic Gulf States on Feb. 4,1988. He also serves on the development. boards of First City Bancorporation of Texas, Hart-Unit 4-A gas turbine at Louisiana Station in Baton marx Cerp. of Chicago, Textron Inc. of Providence.
Rouge, formerly the No. 7 peaking unit at Nelson R.I., Seagull Energy Corp. of Houston and Becor Station near Lake Charles, went into commercial Western Inc. of South Milwaukee, Wis.
operation on July 26. The unit was moved from one Amery J. Champagne, formerly general manager side of the state to the other to serve the large Exxon of energy supply, was made vice president for energy refinery and chemical complex with both steam and resources in April. He assumed most of the respon-electricity. Gulf States employees managed the pro- sibilities of George McCollough who retired as senior ject from start to finish, providing the engineering vice president for energy and planning.
and design work and supervising ontractors. In July, the board selected James E. Moss to Project CARE - Community Assistance Relating become the company's vice president of marketing to Energy - the company's program to aid elderly James D. Watkins was appointed division vice presi-customers in meeting energy bills during a financial dent for Baton Rouge, replacing Moss.
emergency, is entering its fif th year. During 1987, funds donated by employees and customers to the project helped 5,688 elderly households in Texas and Louisiana pay their electric, gas, propane and butane bills. Contributions from all sources during the rear Total Utility Plant totaled about 5317,000. Millions A new customer assistance program - the __
Gatekeeper Program - was begun during 1987. Gulf M 5'000 States employees who have a great deal of public r'I %'M9 9.k-contact - meter readers, for example - are trained 4,500 I to identify what could be nhysical, emotional or '
d economic problems of our older customers. Informa-tion gathered during employee contacts with 4'000 3,500 't: 1]' g[_.f
~
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'j . :+I d
, 4 j
1 4
customers is passed on te the state, county or regional agency primarily responsible for assisting 3,000 ! !.__k ! ~ -
r) the elderly. The professional staff at this agency then 2,500 - j I_g#He *! %g yL sees to it that the appropriate health or social service 2,000 l__d ' d i I dd agency makes contact before a real crisis develops for jQ M :J [)
one of our customers.
pJ! N, ,i I!a f3i At the end of 1987, Gulf States had about 4,800 1,000 employees. Th!s is compared to the 5,200 employed at the end o' v 5 following construction of River 500!iIlI}Idb f1; ' ~ t ft Bend.The . ; freeze and early retirements offered L .1 I l Idl.d_LL; in 1986, r e attrition and the elimination of all 2 3 8 8 Q; but the n aal unfilled positions helped reduce the Q $ $ $ $
work fort The foregoing portion of this report is intended to pre ,ent information the company believes may be of int erest to shareholders.
For purposes of making insestment decisions, the more wmplete info mation contained in the coc pany's Annual Report on Form (
10-K and other current reports filed with the 5esurities and bchange Commission should be consWted.
10
Financial Information cuir states utiiities Co.
FINANCIAL SECTION .
Contents Management Responsibility for financial Statements 11 Common Stock Prices and Cash Dividends fcr Sharc 11 Selected financial Data . 12 Management's Discussion and Analysis of financial Condition and Results of Operations 12 Statement of Income 18 l Statement of Sources of funds invested in Utility and Other Plant . 19 Balance Sheet 20 Statement of Changes in Capital Stock and Retained F,amings . 21 Statement of Capitalization 22 Notes to the financial Statements . 24 Auditors' Report .
40 Statistical Summary .
41 Management Responsibility for standards indade a review of intemal accounting controls, tests of transactions, and Financial Statements other procedures sufficient to provide Management is responsible for the reasonable assurance that the financial preparation, integrity, and objectivity of the statements are neither materially misicading financial statements of Gulf Strtes Utilities nor contain material errors.
Company. The statements has e been prepared in conformity with ge1erally accepted The Board of Directors, through its Audit accounting principles applied on a consistent Committee, has general oversight of basis and, in some cases, reflect amounts management's preparation of the financial based on estimates and judgment of statements and is responsible for engaging, mana e ent, giving due consideration t subject to sharcholder approval, the independent accountants. The Audit The Conkpany maintains a system of Committee, comprised entirely of outside intemal controls designed to help give directors, reviews with the independent reasonable assurance that the books and accountants the scope of their audits and the records properly reflect the transactions of accounting principles applied in financial the Company and that established policies reporting. The Audit Committee meets and procedures are followed. Intemal control systems are subject to inherent limits in regularly, both separately and jointly, with the recognition of the need to balance their costs independent accountants, representatives of with the benefits they produce. The management, and the Intemal auditors, to Company's management strives to maintain review attivities in connection with financial this balance. reporting. The independent accountants have Coopers & Lybiand, independent certified full and free access to meet with the Audit public accountants, are engaged to examine, Committee, without management in accordance with generally accepted representatives present, to discuss the results auditing standards, the finan'lal statements of of their examination and their opinion on the the Company and issue a rr; port thereon, adequacy of intcmal accounting controls and which appears on page 40. Such auditing tbc quality of financial reporting.
Cornmon Stock Prices and Cash Dividends Per Share For the years ended December 31 m'i$bs mM he near men to. re[$re nose men to. re[U.re first Quarter . $ 10 $ 7% $- first Quarter . $ 15 $10% $.41 Second Quarter 8% 7% -
Second Quarter 13 7% .26 Third Quarter 8% 7 -
Third Quarter 9% 7% -
rourth Quarter . 7% 4% -
fourth Quarter . 8% 7 -
The Ccmmon Stock of the Company is listed on the New York. Midwest and Pacific Stock Exchanges. The approximate number of common shatcholders on Decemtier 31.1987, was 78,387.
11
.. w oe u i
Financial Information Selected Financial Data (in thousands except per share amounts and ratlos)
For the Years Ended December 31 1987 1986 198s 1984 1985 Operating He venue . . . . . . . . . . . . . $ 1,432,586 $1,478,388 $1,858,436 $1,M7.041 $1.436,188 income from Continuing Operations 242,605 273.459 277,764 260,673 231,202 Income Applicable to Cor tmon Stock 178,091 181,854 205,362 202,511 180,747 Earnings Per Average Common Share Outstanding from Continuing Operations . . . . . . . . . . 1.66 1.98 2.22 2.33 2.33 Dividends Per Share of Common Stock.... ............. ..... - .67 1.64 1.64 1.62 Return on Average Common Equity 9.29% 10.49 % 13.05 % 14.42 % 14.78 %
Ratio of Earnings to fixed Charges 1.84 1.92 2.18 2.38 2.46 As of December 31 Total Assets' . ............. ... $ 6,677.057 $6,338,939 $5,779,681 $5,084,437 $4,517,406 Long Term Debt and Preferred Stock Subject to Pfandatory Redemption 3,090,977 3,128,650 2,782,112 2,347,648 2,040,295 Capital Leases (Current and Non-curreat) . . ................... 187,640 228,270 223,734 197,593 167,882 Book Value Per Share . . . . . . ..... 18.70 16.79 16.02 15.79 15.75 Capitalization Ratios:
Common Shareholders' Equity . . 37.8% 35.0% 35.4% 36.6% 36.6%
Preferred and Preference Stock 11.1 10.8 11.4 11.8 12.3 Long Term Debt . . . ...... . . s1.1 22 53.2 51.6 51.1 100.0% 100.0 % 100.0 % 100.0 % 100.0 %
See Notes 1 and 3 to the financial Statements regarding outstanding contingencies, current rate matters involving possible disallowances and write-offs and new accounting standards effective in 1988.
' Restated for accounting change - see Note 6 to the financial Statements.
Management's Discussion and Analysis of Company. For recent developments in the financial Condition and Results of Loulslana rate proceedings, regarding the Operaflons issuance of a preliminary injunction on in reviewing this Management's Discussion february 18,1988, see Note 14 to the and Analysis and the financial statements of financial Statements. Additional substantial the Company, special attention should be write-offs, losses, and adjustments would given to the disclosure that the Company result from an adverse final PUCT order, for may have to scck relief from its creditors recent developments in the Texas rate under the Bankruptcy Code during 1988, proceedings, regarding prudency issues, see further, the results reported in 1987 and Note 14 to the financial Statements. Reported l
1986, are not indicative of results expected to results for 1987 and 1986, reflect the effects be reported in 1988, and subsequent periods. of accounting orders relating to River Bend Special attention should be given to the fact Unit 1 (River Bend) which were issued by the that the results reported in 1987 and 1986, respective commissions. All matters should l
do not take into account the impacts of the be considered in light of these speclat rate order issued by the Louisiana Public Service Commission ILPSC) on December 15, accounting treatments and the transition from i
1987, now on appeal, and the rate order the prior accounting orders to the accounting l
l under consideration by the Public Utility to be required as a result of the permanent Commission of Texas (PUCT). The Company rate orders and requirements under new presently believes that the LPSC order, unless accounting standards. This Discussion and substantially modified as a result of the Analysis and the Notes to the financial appeal, and the application of new accounting Statements are based upon information standards, will result in very substantial write. available as of the time they were released offs and charges that will result in substantial for printing. Retail rate procccdings were in a net losses being reported in 1988, and very active status at such time. Very subsequent periods, and substantial adverse significant developments may occur during adjustments to the capital accounts of the the printing and distribution period as well as 12
Oult' States Utilitics Co.
thercafter. Readers are urged to investigate alco unsure whether such bonds or preferred j and consider such subsequent developments, stock could be marketed regardicss of 1
" * " #S 9" "
FinancinOs and Capital Hesources met. Extemal intermcdlate or long term J The Company's financial condition financing may only be availabic through I
+
continuco to deteriorate during 1987. Issuance of unsecured or subordinated lien Inadequate permanent rate relief, operatinS debt securitics if, and to the extent, they can f costs of River Bend, buybacks of power from be marketed. As discussed in Note 11 to the L Cajun Electric Power Cooperative, inc's, financial Statements, the Company's l (CEPCO) share of River Bend, increased revolving credit agreement, with an unused financing costs, payments for nuclear fuel, balance of $450 million, is not available as payments under deferred construction an additional source of financing due to agreements, and debt maturitics, as well as nollfication by the major banks involved in other pressures, have resulted in an ongoing the agreement that a "material adverse need for cash which is expected to exceed change" has occurred and funds will no the presently estimated cash resources of the longer be advanced under the agreement.
Company. There can be no assurance that The Company has available unsecured short-such needs can be met, in addition, term lines of bank credit oi approximately .
significant contingencies exist which could not $12 million at December 31.1987, flowever, j be met with current cash resources. The there can be no assurance that cxisting short-Company presently estimates that its cash term lines of credit can be accessed or that resources could reach an insufficient they will remain availabic. See Note 12 to the operating level during the first half of 1988, financial Statements for infonnation regarding without adequate permanent rate relief and a $65 militon credit facility available to the financing, neither of which can be assured. Company. The Company may have to seck Even if adequate rate relief is otetained, relief from its creditors under the Bankruptcy further c.- mal financing would be necessary. Code during 1988, if it is unable to obtain I The Company's ability to obtain financing adequate permanent rate rellef, additional through the issuance of debt securitics and financing, or other sources of funds or I preferred and preference stock is materially deferrals of cash requirements. I affected by the credit ratings assigned by l rating agencies. During 1986 and 1987, rating Results Of Operatlou .
agencies downgraded the Company's long- The Company's 1987 and 1986 net lacome term debt and preferred and preference stock has been affected by the receipt of to "speculative" grade. As a result, certain accounting orders issued in 1986 by L security markets are currently unavailable, regulators in Texas and Loulslana, pending =
Also, in January,1988, the Public Service completion of the Company's current retail ,
Company of New liampshire, an investor- rate cases. The accounting orders result in
- owned utility owning an Interest in the the Company deferring, for financial reporting j nonoperating Scabrook nuclear generatin9 purposes, the retall portion of those expenses ]
plant, filed for relief under Chapter 11 of the incurred in connection with the operation of Bankruptcy Code. Such development may adversely affect the marketability of any River Bend and the costs of buying bach power from CEPCO and recording non-cash 3 ;
se uritics issued by the Compan). canying charges on the Company's
,l T 'c failure to declare dividends on investment in the unit not already rcIlected in preft red and preference stock during 1987, rate base. The rate (nct of tax) used to l and the omission af common dividends since compute the canying charges was increased the second quarter of 1086, make it highly from 9.75 percent to 10 percent at the ]
J unlikely that additional shares of such stock beginning of the second quarter of 1987, and was increased to 10.25 percent at the l
- . could currently be marketed. At December 31,1987, based upon the results beginning of the fourth quarter of 1987, to of operations for the year then ended, and rcilect the increased cost of capital of the existing circumstances, the Company is Company. The Company is also recording a unsure whether it is able to meet coverage reduction to the dcferred River Bend costs, as requirements necessary for the issuance of discussed in Note 3 to the financial additional first mortgage bonds as specifled Statements, and has started to amortize the in the Company's Mortgage Indenture or for accumulated deferred River Bend costs for the issuance of preferred stock as specitled in the Louisiana jurisdiction over a ten ) car its Restated Articles of Incorporation. It is period. Additionally, in accordance with the
- 13
Financial Information tenns of a rate moderation plan approved for Rates. The changes in base rates shown the majority of the Company's wholcsale above reflect rate orders and/or settlement customers by the federal Energy Regulatory agreements implemented during the period Commission (FEPC), the Company is from 1985 through 1987.
recording in the Statement of income a During 1987, the Company implemented deferred revenue requirement representing retall interim rate increases in both Texas those River Bend costs which are applicable and Loulslana. On April 7,1987, the to wholesale customers and which have been Company implemented an annualized interim deferred for later recovery under the rate increase of $39.9 million in Texas. On provisions of the rate moderation plan. These March 5,1987, the Company implemented a items (nct of the related tax effects) have $57 million annualized emergency rate increased the Company's 1987 and 1986 net increase in Loulslana, which remained in income and camings per share as follows: cifcct until December 15,1987, when the ror ine tune no tn. rodea LPSC granted the Company a $63 million
--En', pennanent rate increase which the Company mei inmuoY eb Ese.coI.
. ers mei i .ea ers is appealing. For recent developments in the
""'"*"*"dPh**"'*"") Loulslana rate proceedings, see Note 14 to De erY ecn the financial Statements. For the year ended cupenses. $168.573 $1.56 $ 93.821 $ .88 December 31,1987, the Company billed d $31,959,000 and $46,958,000 in interim rate D'[e*,"en ue requirement . . 15.862 .15 7.264 .07 relief in the Texas and Loulslana jurisdictions, Amortuation of respectively, accumulated deferred River During 1986, the Company placed into Bend costs. (1,431) (.01) effect an $80 million base rate decrease as "I[rh#" ng part of a settlement agreement with its Texas char es ... 263.988 2.44 132.768 1.25 retail customers. Additionally, in August, R*d" "
defened er 1986, the FERC granted the Company a $26 send costs. (56.938) ( .53) - - million wholesale rate increase, subject to
$390.054 $3.61 $233,853 $2.20 hearing and refund, in connection with the I commercial operation of River Bend.110 wever, Without the inclusion of the above items in as more fully detailed in Note 3 to the the Company's Statement of income, the financial Statements, the Company Company would have reported a net loss in subsequently reached a settlement agreement 1987 of $148,953,000 and net income of only with most of its wholesale customers, which
$1 t,128,000 for 1986. The deferred items has been approsed for the majority of the described above include substantial cash Company's wholesale customers by the FERC, expenditures which were not recovered in and placed into effect, rates which will result 1987 and 1986, and there can be no in revenues lower than those originally assurances such expenditures will ultimately authorized by the FERC.
j be recovered. The discussion below provides During March,1985, the Company reached infonnation on significant items which als an agreement with its wholesale customers alfccted the Company's results of operations which resulted in an $18.55 million increase during the period from 1985 through 1987. In wholesale rates. The Company had initially operating Itevenue implemented a $29.3 million rate increase as authorized by the TERC in Septembcr,1984, Operating revenue declined by 3 percent subject to hearing and refund. In July,1985, during 1987, as compared to 1986. This the FERC outhorized the Company to place decline followed a decrease of 20 percent into effect a $15.7 million rate increase during 1986, and an increase of 20 percent applicabic to transmission service customers, during 1985. The components of the changes Additionally, during 1985, the Company in operating revenue are detailed below: placed into effect a $1.1 million retail rate rno,
.Jg-g= *"'*Lr, ,-
a reduction previously ordered by the LPSC in On ihou ande)
December,1983.
Change in base /tIIonaf t Ilour Sales. The Company's 1987
, 68M3 $ M9320) $ 3 U 88 ruel cost recovery (99 592) (307.255) 289.677 kilowatt hour sales declined by 1 percCut sales solume and compared with 1986. A decline in sales to other 14 64 6 3) 2 70)
Industrial customers comprised virtually the
== == == cntire 1987 decline. however, partially 14
Gulf States Utilitics Co.
offsetting the total decline was a 1 percent Bend and the decreawd utilization of increase in sales to residential customers. purchased power to meet load requirements.
The industrial sales decline reflects the The increase in fuel expense during 1985, as depressed condition of the petroleum based compared to 1984, was caused by increased economy in the Company's service area, fuel prices resulting from the expiration of a which has continued for the past three years, low cost natural gas contract. The average as well as the loss of certain industrial cost per kilowatt hour of natural gas customers who have converted to increased from 1.50 cents during 1984, to cogeneration. See the Statistical Summary on 3.11 cents during 1985. The effect of the Page 41 for Information on klie .att hour sales increased fuel prices was mitigated by and related revenues by customer class, reduced generation requirements caused by decreased sales, Increased power purchases The Company's 1986 kilowatt hour sales declined by 7 percent as compared to the under long term contracts, and the increased utilization of the Company's less expensive prior year. Kilowatt hour sales to industrial coal fired generation.
and wholesale customers accounted for approximately 89 percent of the total sales Purchased power expense decreased decline. The decline in industrial sales 7 percent during 1987, primarily as a result of originates from the reasons previously decreased kilowatt hour purchases reflecting described. The decline in wholesale sales has reduced load requirements, cessation of resulted primarily because of the transfer of capacity payments to the Southem Company certain wholesale customers to a during 1986, and the Increased utilization of "
transmission service rate schedule during the River Bend to meet existing load second half of 1985. requirements. This increase was offset in part During 1985, kilowatt hour sales declined by increased capacity costs associated with the CEPCO buyback. As discussed previously by 8 percent and the decline in sales to and in Note 3 to the financial Statements, industrial and wholesale customers accounted the CEPCO buyback cost has generally been for most of the overall sales decline. These deferred under accounting orders. Purchased declines again reflected the depressed economic conditions impacting the power expense declined by 23 percent during 1986, primarily as a result of decreased Company's industrial customers and the kilowatt-hour purchases reflecting reduced transfer of certain wholesale customers to a load requirements, cessation of certain transmission service rate schedule. The sales payments to the Southem Company during declines in 1985, were offset in part by the last half of 1986, the availability of lower increased commercial sales caused primarily cost natural gas for use in Company-owned by customer growth. units, and the increased utilization of River ,
Op_erating Expenses and Taxes Bend to meet load requirements. Purchased p wer expense increased by 67 percent 1 Aief and Atrchased Power. fuel expense during 1985, as a result of additional kilowatt-decreased 10 percent during 1987, when hour purchases made to displace the higher compared with 1986. The decline in fuel cost of fuel for Company-owned generation.
results from lower fuci prices, offset slightly by increased generation. The 10 percent Other Operations and Maintenance Erpense, decrease in the Company's average fuel cost Other operations and maintenance expense, highlights the continued decline in the price excluding those associated with River Bend, of natural gas as well as the low cost of decreased 6 percent during 1987. Other nuclear fuel, which was utilized more operations and maintenance expense, extensively in 1987 than in 1986. fuel excluding those associated with River Bcnd.
cxpense declined by 21 percent during 1986, increased approximately 1 percent, during
- after increasing 36 percent during 1985. The 1986 and 1985. The 1986 increase was ;
decline in fuct expense was the result of primarily the result of an $8.9 million lower fuel prices offset by increased provision for pension benefits recorded in generation. During 1986, the Company's connection with the Company's early overall system fuel cost declined by retirement plan offered during 1986, offset by a reduction in the amount and price of gas 34 percent, primarily as a result of the
- decline in the price of natural gas, the pur^ased for resale and the e.. arts of the Company's primary fuel source. Kilowatt hour Compny to save cash.
generation increased 19 percent during 1986, Other operations and maintenance expense and reflected the Increased utilization of River related to River Bend increased during 1987.
15
Financial Information I
{ as compared to 1986, due to the full year of declines during 1986 and 1985, renect lower commercial operation and the fuct reloading amounts of taxable income. Other taxes have outage which occurred in the last part of increased as a result of higher franchisc and 1987. Other operations and maintenance revenue related taxes.
cxpense related to River Bend increased As discussed in Note 4 to the financial during 1986, as compared to 1985, due to Statements, the 1986 Tax Reform Act the commercial operation of River Bend in contains several provisions which impact the 1986. As discussed previously and in Note 3 Company. Total federal income tax expense to the financial Statements, these expenses is expected to be less under the new law, as have been generally deferred under compared to the old law, as the effect of the accounting orders, tax rate reduction is likely to exceed the Depreciation thpense. Depreciation increased tax charges from other provisions expense, excluding depreciation and of the new law. In 1987, this effect was not decommissioning expenses recorded on River significant. While the Company's cash Bend, increased P percent during 1987, as payments for federal income taxes were not compared to 1986, due primarily to the affected in 1987, they may be higher under reversal of Big Cajun 2 Unit 3 depreciation in the new law in the near term, primarily due to 1986, as discussed below. Depreciation the new attemative minimum tax.
expense, excluding depreciation and Additionally, internal cash generation is likely decommissioning expenses recorded on River to decrease primarily as a result of reduced Bend, decreased by 3 percent during 1966, as deferred tax charges due to the new law's compared to 1985, primarily as a result of lower tax rates.
the reversal of approximately $7 mill lon of depreciation expense previously recorded on Non Operatin9 Items __-
Big Cajun 2 linit 3, offset by depreciation Alloteance for runds Used During expense on routine plant additions. Pursuant Construction (ATUDC) and Elect Bend Carrying to the settlement of the Company's Texas Charges. The total of AFUDC and carrying rate case in June,1986, Big Cajun 2 Unit 3 charges on the River Bend investment was not considered as plant in scrtice for increased by 10 percent during 1987, as ratemaking purposes in Texas and, compared to 1986. This compares to consequently, depreciation expense on the increases of 16 percent during 1986, and unit was not being recovered. The Company 34 percent during 1985. These increases are interpreted the settlement agreement as primarily the result of increases in the allowing the reversal of previously recorded amount of construction work in progress depreciation. (CWIP) qualifying for AFUDC through the Depreciation expense related to River Bend commercial operation date of River Bend and increased during 1987, as compared to 1986, the subsequent recording of carrying charges due to the full year of commercial operation. on both the plant investment in River Bend Dcorcciation expense related to River Bend not allowed in the Company's rate base by increased during 1986, as compared to 1985, the PUCT and LPSC and the cash portion of due to the commercial operation of River deferred expenses recorded pursuant to Bend in 1986. As discussed previously and in accounting orders.
Note 3 to the financial Statements, thcsc Reduction of Deferred Elecr Send Costs.
expenses have generally been deferred under As a result of the interim rate relief granted in accounting orders. both Texas and Loulslana retailjurisdictions Taxes. Income taxes increased in 1987, the Company has reduced the dramatically during 1987, due to the tax amount of deferred River Bend costs bcIng effect of deferring certain River Bend related recorded in accordance with accounting operations and maintenance expenses and orders issued in 1986 by the regulatory capacity buyback costs for the entire year of commissions. This amount reflects a 1987, in accordance with regulatory reduction of $1.50 (Texas) and $1.00 accounting orders, versus capitalizing the (Louisiana) for cach $1.00 of revenue operations and maintenance expenses in received as a result of the Interim rate 1986, prior to commercial operation and increases. Such adjustment is required since deferring them subsequent to June 16,1986. the Commissions, as a result of granting Capacity buyback costs were not incurred interim rate relief, have allowed some Rher prior to commercial operation. Income taxes Bend costs (on a non specl6c basis) to be decreased by 105 percent during 1986, after collected through rates rather than being a decline of 48 percent during 1985. The deferred.
16
o d '
Gulf States Utilitics Co. [
9 Other Net. Other net decreased during extemal financing. The cliccts of in0ation g 1987, as compared to 1986, due to have been further exacerbated by slower w decreased interest income camed on sales growth. k temporary cash investments. During 1986, other nct increased when compared to 1985. New Accounting Standards due to increased interest income carned on ,
temporary cash investments. The financial Accounting Standards Board 51 has issued several Statements on financial E Interest Charges. During 1987, interest on Accounting Standards (SFAS) which will affect S long term debt increased due to the Interest the Company's results of operation and si requirement on increased debt and financial position. SFAS No. 90, Regulated g requirements on first mortgage bonds issued Enterpriscs- Accounting for Abandonments a during 1986. Interest on short term debt and and Disallowances of Plant Costs, will require 31]
other interest expense increased due to the the Company to write-off any portion of the j a required pa"ment of interest on unused River Bend investment that is permanently nuclear fuel. Prior to 1987, such interest was excluded from rate base and to write down E capitalized as part of the Company's nuclear ...a investment in River Bend Unit 2 to an -h fuel lease. For additional information regarding the Company's nuclear fuel lease' amount equal to the present value of h probable future revenues. As discussed in see Note 6 to the financial Statements. Note 3 to the financial Statements, the increased interest on long-term debt during Company is appealing the LPSC's (
! 1986 and 1985, resulted from interest December 15,1987 rate order which, among L requirements on new borrowings made to other things, permanently excluded 3 refund short and intermediate-term debt $1.4 billion of the River Bend investment on a incurred in connection with the Company's total Company basis from the rate base construction program. These increases were (approximately $677 million on a Loulslana 3 offset in part by lower interest rates on short retalljurisdictional basis). If SFAS No. 90 ~M and intermediate-term dcbt. were applied as of December 31,1987, the 4 Company would be required to write-down dul^
Discontinued Nonufflity SubsIdlary approximately $22 million related to the _
Operations. The losses recorded in 1987, wholesale and Ter.as retall portion of the 1986, and 1985, were incurred by Prudential unamortized River Bend Unit 2 cancellation =
Oli and Gas, Inc. (Prudential), a wholly-owned cost (see Note 3 to the financial Statements).
subsidiary of the Company. These losses Additionally, if the LPSC decision had not d' resulted from the write off of costs recorded in the subsidiary's full cost pool. Such write-been appealed, at December 31,1987 the $ -;
Ccmpany would have been required to record g offs were necessitated by declines in the price of oil experienced during 1985 and 1986. For a write off of $514 million (nct of tax impacts) g related to the River Bend Unit I disallowance as information regarding the sale of Prudential's 4 oil and natural gas rescrYes in 1987, see Note and an additional $41.8 million (net of tax) write-off related to River Bend Unit 2. For -1" 7 to the financial Statemer9s. recent developments in the Louisiana and _
Effects of Inflation Texas rate proceedings, see Note 14 to the 2 financial Statements. SFAS No. 92, Regulated The effects of Innation upon the Company Enterpriscs - Accounting for Phase-In Plans, have been less in the period 1985 through defines the accounting for phase in plans.
1987, than in the preceding three > car period because the rate of Innation has declined. SFAS No. 96, Accounting for income Taxes, _
This decline is evidenced by the mini.,i significantly changes accounting for income j growth in the Consumer Pilce index oscr the taxes and supersedes almost all existing -
period from 1985 to 1987. tiowever, over the authoritative accounting literature on longer term. Inflation has had serious cifccts accounting for income taxes. Adoption of 4 on the Company's financial position. During SFAS No. 96 is expected to have an periods of high inflation, provisions for undetermined but significant impact on the E depreciation become inadequate as Company's balance of deferred taxes. The _
construction costs increase. The rise in impact on the Company's Statement of construction costs, in tum, results in the need income for futurc years cannot be determined -'
for larger amounts of capital and increased at this time.
17 _3 I
3
_ _ _ _ _ _ _ _ _ _ _ - _ _ _ _ _ _ _ _ _ _ _ _ b
Financial Information Statement of Income For the years ended Decentber 31 (in thousands except per share announts) 1987 1986 1985 Operating Revenue Electric $ 1,330,106 $1,367,480 $1,714,405 Steam . . 69,056 77,783 102,576 Gas. 33,424 33,125 41,455 1,432.5_8 G 1,478,388 1,858.436 Operating Expenses and Taxes f uel . 406.139 449,213 569,182 Purchased power , 322,732 347,075 449,5M Other operations 240,788 232,032 185,969 Maintenance . 108,797 83,684 79,834 Depreclation and amortization 187,459 162,272 112,789 Deferred River Bend expenses (29'1,845) (175,236) -
Deferred revenue requirement (26,436) (13,452) -
Amortization of accumulated deferred River Bend costs . 1,793 - -
Income Taxes federal 24,291 5,473 45,435 State (275) (7,496) (5,633)
Other taxes 83,523 81.017 77,441 1,055,966 1,164,582 1,51{ 571 Operating income . 376,620 313,806 343.865 Other Income and Deductions Allowance for equity funds used during construction 259 77,447 145,257 River Bend carrying charges 263,988 132,768 -
Reduction of deferred Rher Bend costs (94,896) - -
Other - net. 5,744 8,562 (6.012)
Income Before Interest Charges . 351,715 532,583 483,110 Interest CharDes Long term debt. 299,931 285.946 263,022 Short term debt and other. 17,358 9,741 10,679 Allowance for borrowed funds used during construction. (8.179) (36,563) (68,355) 309,110 259,124 205,346 Income from Continuing Operations 242,605 273A59 277,764 Discontinued Nonutility Subsidiary Otarations . (1,504) (28.478) (12.265)
Net Income 241,101 244.981 265,499 Dividends on Preferred and Preference Stock . 63,010 63,127 60,137 Income Appilcable to Common Stock $ 178,091
$ 181,854
$ 205,362 Aserage Shares of Common Stock Outstanding. 107,995 106,132 97,970 Earnings Per Average Share of Common Stock Outstanding from Continuing Operations . $ 1.66 $ 1.98 $ 2.22 Earnings Per Average Share of Common Stock Outstanding $ 1.65 $ 1,71 $ 2.10 Dhidends Per Share of Common Stock $ - $ .67 $ 1,64 The accompanying notes are an integral part of the financial statements.
i 18
Gulf States Utilitics Co.
Statement of Sources of Funds Invested in Utility and Other Plant '
For the years ended Decernber 31 (in thousands) 1987 1986* 1985' Provided Prom Operations Net income . , , ,, , $ 241,101 $ 244,981 $ 265,499 Principal income items not requiring current funds Depreciation and amortization . ,
187,459 162,272 112,789 Deferred income taxes - net . 27,719 2,587 108,889 Investment tax credits- net ... . ... , (3,703) (3,621) (M,489)
Equity component of allowance for funds used during construction , , (259) (77,447) (145.257)
Nor* utility subsidiary operations . 167 1,670 2,307 Early retirement pension benefits. .. .
-- 8,938 -
Deferred River Bend expenses, revenue requirement, and carrying charges. . . . . , , (583,269) (321,456) -
Reduction of deferred River Bend costs. .
94,896 - -
Amortization of accumulated deferred River Bend costs 1,793 - -
Discontinued nonutility subsidlary operations. 1,504 28,478 12.265 Total provided from (used in) utility operations (32,592) 46,402 302,003 Dividends Preferred and preference (34,160) (63,127) (60,137)
Common ,,
- (70,319) (161,605)
Reinvested funds provided from (used in) utility operations, (66,752) (87,044) 80,261 Provided from Financing Sales of securttles Common stoch , , . ,
1,145 47,070 122,180 Preferred stock subject to mandatory redemption - 75,000 60,')00 first mortgage bonds (principal amount) -
200.000 100.000 Euro4ebentures (principal amount) - - 75,000 Pollution control bonds (principal amount). .
- 20,000 1M,000 Change in pollution control funds held by trustee . 20,019 12,001 36,253 Change in escrow deposit-guaranteed debentures - 24,000 14,481 Net change in short term borrowings - - (52,000)
Retirement of long-term debt. . . . (25,570) (39,015) (100,564)
Retirement of preferred stoch subject to mandatory redemption - (48,148) (5,306)
Net change in revolving credit agreement. - 80,000 120,000 Deferred River Bend construction and continuing services commitment .
13,779 46,750 -
Net change in lease obilgations .. . (40,630) 4,536 26,141 Dividends in arrears on preferred stock subject to mandatory redemption , 36,155 - -
Other lor,g-term debt . 679 - -
Total provided from financing. 5,577 422,194 550.185 Other Sources and Uses investments (In) and advances (to) from subsidlary companies . 3,581 (12,561) (13,663)
Temporary cash investments . (12,487) (76,765) (60,596)
Change in other working capital- net . 55,082 (27,931) (17,467)
Amortization of leased nuclear fuel. 34,450 23.232 298 Other - net 46,16G 33,557 3,97 c Total other sources and uses . 126,792 (60,468) (87,500)
Gxpenditures for Utility and Other Plant . 65,617 274,682 542.946 Equity component of allowance for funds used during construction. 259 77,447 145,257 Invested in Utility nd Other Plant $ 65,876 $ 352,129 $ 688.203 0 Restated for accounting change - see Note 6.
The accompanying notes are an integral part of the financial statements.
19 k -- ----- - _--- _ ___ _
Financial Information Balance Sheet December 31 (in thoilsands) 1987 1986*
Assets Utility and Other Plant, at original cost Plant in sersice . . . . .......... ....
$ 6,434,702 $ 6,394,183 Less: Accumulated prostslon for depreclation 1,374,019 1,204,730 5,060,683 5,189,453 Construction work in progress. 7.393 18,704 Nuclear fuel. 181,1_51 _ _198,446 5,249.227 5,406,603 ~
Other Property and Insestments Nonutility subsidiary companies 41,871 47,123 Other . _3,11,2 3,64_1
_ ___4 4,9_._83 _ _5_0,7_CA_
Cash and temporary cash Insestments . 155,321 143,880 Receivables Customers 123,860 116,381 Other .. 13,914 24,878 fuel inventorics ... 29,307 32,584 Materials and supplies 6,242 6,364 Prepayments and other 30.906 23,279 359,550
~~-
~350,366 - ~~
Dcferred Charges and Other Assets Unamortized debt expense . . . ..
24,148 25,565 Unamortized project cancellation costs. 118,755 125,126 Accumulated deferred income taxes . 59,095 47,528 Defened Riser Bend costs 808.036 321,456 Other . 13,263 _ . ._11,531_
_1,023,29_7_
_ 531,2_06
$ 6,677,057 $ 6,338,939 Capitalization and Liabilities Capitalization (Sec Statement of Capitalization)
Common shareholders' equity. $ 2,020,308 $ 1,812.228 Preference stock . 100,000 100,000 Preferred stock Not subject to mandatory redemption 136,444 136,444 Subject to mandatory redemption 356,522 323,313 Long term debt . 2,734,455 __2._805,337
~ ~ ~ ~ ~5,347,729 5.177,322~
Current Liabilitics Long term debt due within one year . . . . .. .. ..
80,000 17,000 Preferred stock and long term debt sinking fund requirements . 32,266 10,570 Deferred Riser Send construction commitments 13,216 14,999 Accounts payable - trade 102,602 63,431 Customer deposits . 15,593 15,149 Taxes accrued . 20,286 20.912 Interest accrued 93.680 92,082 Capital leases - current . 92,698 34,621 Other . __
37,531 . _26_,339
~ ~ ~ ~487.872 ~ ' ~ ~ - - ~295,103 Deferred Credits and Other Liabilitics Insestment tax credits . 114,025 117,728 Accumulated deferred income taxes . 506,093 459,778 Capital leases - non current 94,942 193.649 Over-recoscry of fuel costs 38.748 33,443 Disputed amounts 49,694 31,500 Other . 37,954 30,416
__ 5t H ,4 56 __ 866,514 Commitmer"s and Contingencies (Note 1)
$ 6,677,057 $ 6.338.9 *,9
- Restated for accounting change - see Notc 6.
The accompanying notes are an integral part of the financial statements.
20
Oulf States Utilities Co.
Statement of Changes in Capital Stock and Retained Earnings For the years ended Deccinber 31 (in thousan3)
"l0"l*
[3d5N!. 'OT" e70.k5 bh5 UC Balance January 1,1985 $243,767 $1,024,753 $ (1,641) $27,642 $ 441,044 Net income - 1985 265,499 Preferred stock sold (600,000 shares) 60,000 Prefened stock sinking fund requirements . (4,M5)
Retirement of preferred stock (5,306) 728 Cnmmon stock sold:
Public offerings (4,000,000 shares) 56,000 Dividend reinvestment and stock purchase plan (4,352,640 shares) 58,237 Employee benellt plans (551,501 i shares) 7,388 Consersion of debentures (42,550 shares) 555 Dividends declared:
Prefened and preference (60,137)
Common (161,605)
Capital stock expense (1,871)
Balance: December 31,1985 294,416 1,146,933 (3,512) 28,370 484.801 Net income - 1986 244,981 Preferred stock sold (750,000 shares) 75,000 Preferred stock sinking fund requirements . 2,045 Retirement of preferred stock (48,148) (2,240)
Common stock sold:
Distdend reinvestment and stock purchase plan ',3,792,949 shares) 40,456 Employee benc4 plans (699,295 shares) 6,599 Consersion of debentures (1,131 shares) 15 Dividends declared:
Prefened and preference (63,127)
Common (70,319)
Capital stock expense (357) (372)
BaIancc December 31,1986. 323,313 1,1M,003 (3.869) 26,130 595,964 Net income - 1987 2 A 1,101 Common stock sold:
Employee benefit plans (149,365 shares) 1,145 Reacquired capitel stock . 31 Preferred stock sinking fund requirements . (2,946)
Dividends in anears on preferred stock subject to mandatory redemp;!on . 36,155 (34,160)
Capital stock expense (37)
Balances December 31,1987 $356,522 $ 1,195,148 $ (3,906) $26.161 $ 802.905 The accompanying notes arc an integral part of the financial statements.
l 21 l
l
Financial Information Statement of Capitalization December 31 (in thousands) 1987 __
1986 Common Shareholders' Equity Common stock Authorized 200.000,000 shares without par value Outstanding 108.055,065 and 107,905,700 shares, respectively. $ 1,195,148 $1,194,003 Premium and expense on capital stock (3,906) (3.869)
Other paid in capital. 26,161 26,130 Retained eamings . 802,905 595,964 2,020,308 1,812,228 I Preference Stock Authorized 20,000,000 shares without par value, cumulative Outstanding 4,000,000 shares Redemptk>n Cumulative Per Prke as of Dividend share Dhidends shares December 31.
series in Arrears _ Outstanding 1987
$4.40. $ 4.58 2,000,000 $ 30.45 50,000 50,000 4.01 2,000,000 30.15 50,000 50,000 3.85.
100,000 100,000 Preferrett Stock Authorized 6,000.000 shares,
$100 par value, cumulative Outstanding 4,617,568 shares shares Redempdon Cumulathe Per outstanding at Prke as of Dividend sharc Dhidends December 31. December 31, series in Arrears 1967 1987 Not subject to mandatory redemption
$ 4.40. $ 4.58 51,173 $108.00 5.11) 5.117 4.50. 4.69 5,830 105.00 583 583 4.40 1949 4.58 1.655 103.00 166 166 4.20. 4.38 9,745 102.818 975 975 4.63 14.804 103.75 1,480 1,480 4.44.
5.00. 5.21 10,993 104.25 1,099 1,099 5.08. 5.29 26.845 104.63 2,685 2.685 4.52. 4.71 10,564 103.57 1.056 1,056 6.08. 6.33 32.829 103.34 3,283 3.283 7.56. 7.88 350,000 101.80 35,000 35,000 8.52. 8.88 500,000 104.43 50,000 50.000 9.96. 10.38 350,000 106.64 35,000 35,000 136,444 136.444 Subject to mandatory redemption 8.80. 9.17 301.029 105.00 30.103 30.103 9.75. 10.16 29.636 105.00 2.963 2.963 8.64. 9.00 302,465 105.00 30,247 30,247 11.48. 11.96 480.000 105.00 48,000 48.000 14.21 40.000 105.00 4,000 4,000 13.64.
12.92. 13.46 600,000 112.92 60,000 60.000 11.50. 11.98 750,000 111.50 75,000 75.000 Adjustable Rate 9.31 300,000 104.70 30,000 30,000 Adjustable Rate 9.36 450,000 106.80 45,000 45,000 Preferred dividends in arrears . 36,155 -
361,468 325.313 Preferred stock sinking fund requirements (4,946) (2,000) 356,522 323.313 (statement continued on toiiowwy pasca 22
Gulf States Utilitics Co.
1987 1986 I.eng Term Debt first mortgage bonds Maturing 1988 through 1992 -
4% due May 1,1988 . , ,, . . ..
- 20,000 4%% duc January 1,1989 . . . 10,000 10,000 5%% due December 1,1989 . . . . .. .
16,000 16,000 4%% due July 1,1990 . . . .. . .. . .
17,000 17,000 14%% due May 28,1991. . . . . .
75,000 75,000 17W% due January 13,1992 . . .. 100,000 100,000 4%% due May 1,1992. . . . . . . .. .
17,000 17,000 Maturing 1993 through 1997 - 4%% through 16.8% , 206,430 215,000 Maturing 1998 through 2002 - 6%% through 8W% 210,000 210,000 Maturing 2003 through 2007 - 8W% through 10.15% .
270,000 70,000 Maturing 2008 through 2012 - 10%% through 15%, .
325,000 325,000 Maturing 2013 through 2016 - 11% % through 13W% . 500,000 500,000 first mortgage bonds sinking fund requireme.nts . . . (27,320) (8,570) 1.719,110 1,766,430 Pollution control and industrial development bonds 7% due 2006. . ..
25,000 25,000 5.9% due 2007 . . . . . .
23,000 23,000 10%% due 2012 . . .
48,285 48,285 9%% due 2013 . . . . 17.450 17,450 10%% due 2014 .
50,000 50,000 12% due 2014, . . . .
52,000 52,000 Variable rate due 2014. . .
94,000 94.000 Variable rate duc 2015. . . .
154,000 154,000 Variable rate due 2016. . . . .
20,000 20,000 Pollution control funds held by trustec . - (20.019)
Debentures Guaranteed debenture!,
17W% duc October 1,1988 .
- 60,000 16% dte April 15,1990 . . .. . .. 60,000 60,000 Eurodebentures - 13% due 1992 75,000 75,000 Convertible debentures - 7%% due 1992 .
2,003 2,003 RevoMng credit agreement . . . , .
350,000 350.000 Deferred River Bend construction and continuing services commitment (variable rate through 1991) 47,313 31,751 Other long term debt . . , 679 -
2,737,840 2,808,900 Unamortized premium and discount on debt net . (3,385) (3,563) 2,734,455 2,805,337
$ 5,347.729 $5,177,322 The accompanying notes are an Integral part of the financial statements.
23 k- _ _ . _ _ _ _ _ _ - _ _ _ _ _ _ _ _ _ _ _ _ .
I Financial Information I
1 condition and its bankruptcy couid have Gulf States Utilities Comnanv r J significant adverse effects on the Company, 1 Notes to the Financial including but not limited to possible NRC j Statements acthn as ecscribed above. g S "*** C*"Panu Utigation. The
- 1. Conunitments and Company and the Southern Company have Contingencies entered into purchase power contracts t'fnancial Condiffon. The Company's providing for purchases by the Company of financial condition has continued to capacity and energy from coal fired units deteriorate, and the Company is in critical owned by the Southem Company. In the need of timely and adequate permanent rate Company's opinion, based on advice from relief in both Texas and Louisiana. The legal counscl, such contracts have been Company's cash resources are very limited terminated by reason of alleged breach of q and could reach an insufficient operating level contract by the Southem Company and for during the first half of 1988. The Company other reasons and its obligations under the ;
continues to receive increasing pressures contracts have been discharged and excused. lq from its creditors and suppliers, including but Accordingly, on July 2,1986, the Company ]
not limited to the nuclear fuel lease facility flied suit against the Southern Company in 1 and suppliers of fuct and purchased power. If U.S. District Court requesting that the adequate pennanent rate rellef is not granted Company be excused and discharged from in Texas and Loulslana sufficient for the the contracts and for other relief. Additionally, )
Company to arrange additional credit or the Company and the Southern Company ;
financings, the Company would probably have cach filed applications with the federal to file for relief from creditors under the Energy Regulatory Commission (FERC) ,
Bankruptcy Code or attempt to negotiate sccking findings and actions, respectively, to a such relief, and there can be no assurance vold or reform the contracts and to support that any such negotiations would be timely or and continue such contracts. The PERC d successfully concluded. For recent accepted jurisdiction over certain issues but developments in the Loulslana and Texas refused hearing on state law contract issues. ~
rate proceedings, see Note 14. On May 12,1987, the presiding administrative The Nuclear Regulatory Commission (NRC), lawjudge rendered an initial decision ,
which regulates the operation of River Bend rderi g that the Company's complaint be Unit 1 (River Bend), has expressed to the dismiud and granting certain declarations .
Company its concem that the Company's fasorable to the Southem Company and financial condition could negatively impact supporting the contracts. The Company has activitics associated with River Bend. The NRC filed exceptions to such initial decision and is ;
requested that the Company evaluate its sccking a favorabic decision from the FERC .'
plans to assure that continued safe operation upon its review of the initial decision. No and fulfillment of commitments to the NRC assurance can be given that the initial will not be affected, report the results of the decision will be reversed or changed in favor evaluation, and keep them informed of of the Company by the fERC or upon tN developments if the Company's financial subsequent appeal. Also, the Company's
.h~ ppeals to the appropriate state courts of the
- condition continues to deteriorate, what
' ~
action the NRC may take and its financial actions of the Public Utility Commission of 1
,! Impact upon the Company cannot be Texas (PUCT) and the Loulslana Public 3 predicted, but such action could include Scnice Commission (LPSC) disallowing pass 4 suspension of operation of River Bend, which thr'ough of Southem Company capacity could have a very substantial adverse effect charges under the contracts are pending. The g'> Company cannot predict the outcome of 1 on the financial condition of the Company.
these proceedings.
The Company has significant business N' . relationships with Cajun Electric Power As of December 31,1987, the Company
_$ had not recorded as a liability and not paid
,j Cooperative, Inc. (CEPCO), including co-
- - ownership of River Bend Unit 1. The Company approximately $144 million of charges billed 4 has been informed that CEPCO is in arrears to the Company by the Southem Company, j; in payment of some of its debt senice and has employed bankruptcy counscl. One of its as in the Company's opinion, based on advice from legal counscl. such contracts
. ;f
. member cooperatives has filed bankruptcy. have been terminated and its obligations c further, deterioration of CEPCO's financial under the contracts have been discharged
'. 24
-b
?
.n- >1
Gulf States Utilitics Co.
and excused. If the Company had not been damage and decontamination, liability to discharged and excused from the contracts, employees and third parties, and incremental and had recorded the charges, net income for replacement power costs, as described below.
1987 and 1986 would have been reduced by liowever, some potential liabilitics, including l approximately $73 million and $12 mil!1on, but not limited to liabilitics relating to the respectively. The Company has also withhcid release or escape of hazardous substances payment of approximately $26 million which into the cnstronment to which the Company is recorded as an amount in dispute on the may be subject, may not be insurable and balance sheet resulting from differences in the amount of insurance carried may not be certain amounts billed by the Southern sullicient to meet potential liabilitics and Company and amounts pald. The Company losses. There is also no assurance that the has estimated that minimum payments for Company will be able to maintain insurance capacity which would be due under such coverages at their present levels. Under those contracts from January 1,1988, through their circumstances, such losses or liabilities would termination in 1992 would aggregate have a material adscrse effect on the financial approximately $744 million and that condition of the Company, payments for energy would be approximately Public liability in case of a nucicar incident
$386 million. If the Company is ultimately at any licensed nuclear faciluy in the United unsuccessful in the pending litigation and States is currently limited to $715 million were required to make such payments to the under provisions of the Price Anderson Act Southern Company and not permitted to pass (Act) still in clicct. The Company insures ,
these costs through to customers in its rates, River Bend for this exposure through a j the Company would probably be unable to combination of private insurance and the j make such payments and would probably industry wide secondary financial program.
have to scck protection from its creditors Under this program the Company is subject under the Bankruptcy Code, to a retrospective assessment of $5 million Disposal of Spent NucIcar Tucl and NucIcar per incident with a maximum amount of $10 Decommissioning. As prosided in the million payable in any one year. Should more Nuclear Waste Policy Act of 1982, the than two incidents occur in a single ) car, any Company has entered into contracts with the liability in excess of the $10 million will t c United States Department of Energy (DOC) for payable in the succeeding year (s).
disposal of spent nuclear fuct from Riser The Price Anderson Act legislation espired
! Bend. Under the terms of the contract, the August 1,1987. Bills to amend the Act, Company is required to pay a quarterly fee to including proposals to substantially modify or the DOE of one mill per kilowatt hour climinate the limitation on liability prosisjons, generated by River Bend. The Company is have been Introduced in Congress, but no currently recovering such costs from action has been approved. Under the wholesale and Louisiana retall customers and provisions of the Act, all reactor facilitics with expects regulatory authorization to recoser operating licenses or construction permits these costs in the Texas retail jurisdiction. Issued before August L 1987, will continue to A 1985 decommissioning study indicates be covered under the expiring scrsion of the that the total estimated cost to decommission Act until such time new legislation is enacted.
Riser Bcnd is $202 million in 1985 dollars. The Company maintalt's $500 million Decommissioning studies are reviewed and property damage insurance and $250 million updated periodically to reflect changes in of such excess insurance for River Bend from decommissioning requirements, technology, the private insurance markct. Additionally, the and inflation. The Company has either Company has acquired $775 million of excess received or expects to reccise regulatory property insurance coverage on River Bend authorization to recoser through rates through participation in the Nuclear Electric amounts required to fund the insurance Lim!!cd (NEIL) 11 program. Under decommissioning costs over a period of 35 to NtlL ll, the Company is subject to a 40 years, but cannot be assured of such masimum assessment of approximately $8.3 initial or continuing authorization. million in any one policy ) car. Although the Nuclear insurance. Ownctship and Company has continued to increase the limits operation of a nuclear generating unit of such insurance as capacity becomes subjects a company to significant special availabic, no assurance can be given about risks. The Company is insured to an extent the adequacy of such insurance limits in the as to its interest in River Bend for property cscnt of a major accident.
25
Financial Infonnation k Some extra expense for River Bend through December 31,1987. Unicss the replacement power is insured through the financial condition of the Company improves, Ntil I program. Following an insured the Company expects to continue to be property loss which results in the unit being unabic to pay dividends on such stock.
unavailable for generation and a 26 week Dhidends on all serics of the Company's Y waiting period, the Ntil I program will pay preferred and preference stock are cumulative.
! the Company a specified weekly indemnity for if the Company falls to pay the dividends in 52 weeks followed by one half the specified arrears and all diddends which have, in the weekly indemnity for an additional 52 week meantime, become due and payable on
, period. Under the NEIL I program the preferred stock on or bcfore the fourth Company is subject to a maximum annual succeeding quarterly dividend date after a I retrospective assessment of approximate ly failure to pay a quarterly dividend, the y $1.3 million. holdcrs of such stock would have the right to b Stockholder Litigation. The Company, and elect a majority of the Board of Directors.
with variations as between sults, its officers Such voting rights are presently expected to and directors, and River Bend contractor, become effective on March 15,1988. Similar have been named in eight class action voting rights to c!cct two directors complaints filed in 1986 and 1987, in the U.S. are provided for holders of preference stock, District Court for the Eastem District of if the Company falls to pay the dividends in Texas. The suits allege violation of the arrears and all dividends which have, in the
$ securitics laws and wrongful conduct invohing meantime, become due and payabic on such various disclosures in connection with various stock on or before the sixth succeeding offerings of common stock and reports filed quarterly dividend date after a failure to pay a with the Securitics and Excnange Commission quarterly dividend. The Company may not (SEC), allegedly resulting in damage,in pay any dividend or distribution on any of its unspecified amounts to the plaintiffs and common stock, or purchase or otherwisc other purchasers of the Company's common acquire common stock, unicss all cumulative dhidends and sinking fund obligations have I stock similarly situated. The Company denics, been paid on preferred and preference stock.
i and is advised that the other defendants Under its Articles the Company may not pay ceny, any such violations or wrongdoing and F will vigorously defend such actions. Under its any dividend or distribution on any of its Restated Articles of incorporation (Articles), preference stock, or otherWse acquire as amended, and Bylaws, the Company is preference stock, unicss all sink'ng fund
[ obilgated to indemnify its ofilcers and obligations have been paid on preferred
- directors under conditions presently believed stock. On December 15,1987, the Company to exist. failed to satisfy the $2,000,000 sinking fund requirement related to the $11A8 Series On february 8,1988, an agreement in Preferred Stock. Sec Note 12 regarding
[ principle was executed providing for the dividend paymert and other restrictions i settlement of such suits against all
' defendants except the contractor and for contained in the tenns of a $65 million credit I settlement of a derivative suit based upon facility.
L similar allegations and upon allegations of Pursuant to SEC Staff Accounting Bulletin mismanagement primarily relating to River No. 64, the Company has accrued dhidends E Bend. Such settlements are subject, among on and increased the balance of mandatory g other conditions, to negotiation of a redeemable preferred stock with an offsetting i stipulation of settlement and to approval by decrease to retained camings, flowever, since
{ the court. dividends on all series of the Company's 2 Dividend Suspension. In view of the preferred and preference stock are cumulative continued deterioration of the Company's (the aggregate amount of cumulated and i
a financial condition, the Board of Directors did unpaid preferred and preference stock dividends as of December 15,1987 bcIng not declare any dividends on the Company's common stock for the third quarter of 1986, $62,378,000). Income applicable to common and no dhidend on common stock has been stock and camings per average common share outstanding have been computed declared through December 31,1987. The Board of Directors did not declare the assuming that all such dividends, through December 31,1987, were accrued.
dhidends on the preferred and preference stock of the Company payable on March 15, Cancelled NucIcar thlt. The Company 1987, and has continued not to declare them previously reported the cancellation of River E 26
Gulf States Utilitics Co.
Bend Unit 2. The Company has begun Invested in constmction work in progress j- amortizing that portion of the cost of the unit (CWIP). Such AFUDC has been segregated y applicable to its wholesale and Texas retall into two componen, parts - borrowed and 1 operations over 10 and 15 year periods, equity funos. That portion allocated to respectively. As discussed in Note 3, the borrowed funds is reflected as an adjustment C LPSC, as part of its December 15,1987 rate to interest charges, while that portion decision, disallowed all costs Incurred In applicable to equity funds is shown as a connection with the Company's investment in source of other income. Both the equity and River Bend Unit 2 (approximately $41.8 the borrowed portions of AFUDC are non-cash
.: million, net of tax, for the Loulslana items which have the cifect of increasing the
- jurisdictional basis). The Company has Company's reported net income. When the
=5 appealed the LPSC's decision in a state related utility plant is placed in service, a
- district court. The Company cannot predict retum on and recovery of these costs "l the outcome of the state district court's generally have been permitted by regulators decision with respect to this or any other in determining the rates charged for utility issue. At December 31,1987, the senice. The Company computed AfUDC at unamortized balance of the Company's the following net of tax rates compounded Investment ir. River Bend Unit 2 was semiannually:
$116,337,000. Sec Note 3 for additional write" January 1.198 March 31.1986. 10.00%
downs required with respect to such Unit 2. Apru l.1980 June so.1986 9.75 July 1.1986 December 31,1906. 9.50
- 2. Suntmary of Signllicant in 1987, due to the construction interest
- Accounting Policies capitalization provisions of the Tax Reform System of Accounts. The accounting Act of 1986, the Company lugan accruing records of the Company are maintained in AfUDC at pre tax rates. These rates were as acco.-dance with the Uniform System of follows
Accounts as prescribed by the FERC and January 1.1937 March 31,1987 . 12.00 %
adopted by the LPSC and the PUCT. Apru 1.1987 september 30.1987. 12.25
' ****o'*"'"*" '** **
Utility I'lant and Depreciation. Utflity and other plant is stated at original cost when first Revenue, t'uel, and l'urchased l'otver. The dedicated to public service. Costs of repairs Company records revenue as billed to its and minor replacements are charged to customers on a cycle billing basis. Revenue is expense as Incurred. The original cost of not recorded for cncrgy delivered and depreciable utility plant retired and cost of unbilled at the end of each fiscal period. The removal, less salvage, are charged to accu. Company's wholesale and Loulslana retall mutated provision for depreciation. The rate schedules provide for adjustments to provision for depreciation is computed using substantially all rates for increases or the straight line method at rates which will decreases in the costs of fuel for generation, i amortize the unrecovered cost of depreciable purchased power, and gas distributed. The i plant over the estimated remaining service Company's Texas retall rate schedules life. Include a nxed fuel factor approved by the Composite depreciation rates were as PUCT. Such factor remains the same until the gg;;gg.s. Company flies for a general rate increase or 1987 1986 1985 until the PUCT orders a reconcillation for any over or under collections of fuel cost. fuel and purchased power costs in excess of steam 4.55 2.47 2.34 oas . 3.52 3.52 3.33 those included in base rates or recovered Total company . 2.96 3.30 3 41 through fuci adjustment clauscs are deferred Decommissionin The Company is (or accrued) until such costs are billed (or accruing the decor'g.nmissioning costs of River credited) to customers.
2 Bend over the life of the plant, inventorIcs. The Company's fuel Allowance for Amds Used DurIng inventories are comprised of fuel oil, valued
& Construction (AlvDCi and Capitall'zation of at scighted average cost, and coal, valued at
. Interest. The accrual of AFUDC is a utility last In, first out (LifO) cost. Materials and supplies are valued at weighted average cost.
] "
accounting practice calculated under guidelines prescribed by the PERC and Income Tmes. The Company and its capitalized as part of the cost of utility plant subsidiaries file a consolidated federal y representing the cost of servicing the capital income tax retum. Income taxes are allocated
- 27 B
Financial Information consistent with current year presentation, sith E
to the individual companics based on their I respective taxable income or loss and no affect on net income or common shareholders' equity. i' investment tax credits.
The Company follows a policy of
[ comprehensite interperiod income tax 3. Rates and Accountin0 $
i g
allocation where such treatment is permitted Rate Mattens
. for ratemaking purposes by regulatory bodies. Loulslana. On July 25,1986, the Company >
Deferred income taxes result from timing filed a rate moderation plan with the LPSC differences in the recognition of revenue and providing for the costs of River Bend to bc
- expenses for tax and accounting purposes, phased in over cight years with deferrals of j investment tax credits have been deferred costs in the first three years and recovery of and are being amortized ratably over the deferred costs over the remaining five years useful lives of the related property, while the rates related to River Bend would Subsidiary Companies. The Company remain level during such five year recovery accounts for its investments in its wholly. period. On September 8,1986, the Company i owned nonutility subsidiary companics, flied with the LPSC an emergency request for Prudential Oil & Oas, Inc. (Prudential) and interim rate relief in the amount of Varibus Corporation (Varibus), on the equity $100 million and asked that such relief
= basis. Prudential was engaged primarily in the become effective in November,1986. On ;
exploration for, development, production, and December 2,1986, the LPSC denied the marketing of oil and gas properties. See Company's request for interim rate relief. The Note 7 for Information regarding the sale of Company filed an appeal of the LPSC's decision in a state district court. Pending a
= Prudential's natural gas and oil reserves, Varibus operates pipelines and owns rights to ruling by such court, on february 6,1987, lignite rescrTes. the Company filed with the Loulslana ;
Supreme Court requesting that the Supreme in Octobcr,1987, the financial Accounting Court direct the state district court to remand r Standards Board (FASB) Issued Statement of the case back to the LPSC. Also on that date, f financial Accounting Standards (SPAS) the Company filed a new cmcrgency interim f No. 94, Consolidation of all Majority-Owned request for $100 million with the LPSC. The E Subsidiaries. SfAS No. 94 will require new request was updated with respect to E consolidation of Varibus and Prudential Texas rate relief, suspension of preferred and
' effective for financial statements presented at December 31,1988. Two additional preference stock dividends, downratings of subsidiaries, OSO&T, Inc., discussed further the Company's securitics, and other developments. On febmary 13,1987, the in Notes 6 and 12 and Gulf States Overseas state district court remanded the case back to finance N.V. are prescntly being accounted the LPSC. On March 2,1987, the LPSC issued s for on a consolidated basis. an order granting the Company $57 million in l- Refl<ement Pfan and Other rost Employment annualize'd emergency rate relief which was
[
8enefits. The Company has a subsequently extended to December 15, y noncont:3utory pension plan, which covers 1987, the date of the permanent rate order.
g s meeting certain age and servic On December 15,1987, the LPSC issued an all emplog' s. The Company s poh,cy is to requiremen. rder granting the Company $63 million in V fund the ac uarially computed pension rate relief (including the $57 million of contribution annually. Past and prior service previously granted emergency rate relief) and
/ costs are being funded by the Company over a 12 percent retum on common equity, while i
periods of up to forty years, also disallowing $1.4 billion of the Company's E
in addition to the pension plan, the total River Bend plant investment Company provides retired employees with life (approximately $677 million on a Loulslana l and health care insurance benefits, All of the y- retailjurisdictional basis) as having been Company's employees may become eligible imprudently incurred. The order also for benefits upon reaching nomial retirement disallowed any recovery of costs incurred in age. The annual cost of such benefits, which connection with the Company's investment in
_ is currently not material, is recognized as its cancelled River Bend Unit 2 of
- claims are actually paid- approximately $61.8 million. The LPSC order
. ReclassI/lcatIon of frlor Years Mnancial also approved the form of a rate moderation Statements. Prior year financial statements plan but required evidentlary hearings and have been reclassifled in order to be subsequent approval by the LPSC of any 28
Gulf States Utilitics Co.
future Increases to be granted under the rate period. As a part of the request, the Company moderation plan. The LPSC order failed to requested interim rate relief of $82 million to specify the level of revenue requirements become effective in December,1986.
deferred under the plan as well as the timing Hearings on the interim request commenced of recovery of the deferred amounts, on January 12,1987, and concluded on On December 50,1987, the Company January 27,1987. On febmary 3,1987, the cppealed the LPSC's action in a state district PUCT granted the Company an annualized court. The Company's appeal requested, interim increase of $39.9 million, subject to
'cmong other things, injunctive relief refund, contingent upon the Company conceming the failure of the Commission's obtaining a new $250 million line of credit, or r;te moderation plan to meet the criteria set equivalent, to pay necessary operating forth in generally accepted accounting expenses. On March 31,1987, the Company principles for such plans and the decrease in submitted, and the PUCT approved, a retum on common equity from the 14 percent $266 million finance plan. Such approval recommended by the Commission allowed the interim rate increase to be consultants to the 12 percent granted in the implemented on April 7,1987. The PUCT r te order and the resulting impact from this stated that if bankruptcy proceedings should decrease on the amount of rate relief granted be filed, the rate increase would no longer be by the LPSC. The Company's appeal also effective. Hearings on the pcm1anent portion covers the LPSC's ordered imprudency of this request began on March 23,1987,and disallowance related to River Bend and the concluded on September 15,1987.
disallowance of any recovery of the cancelled Briefs and reply briefs in this proceeding River Bend Unit 2. were filed in the fourth quarter of 1987, with the PUCT Examiner's Report subsequently Pending the outcome of the appeal, the also filed in December,1987. The PUCT has Company placed the increased rates into held additional meetings and hearings in this cffect, discontinued accounting treatment of proceeding in January and early February, River Bend costs pursuant to the accounting 1988, with additional hearings on the sulje';t order received from the LPSC in December, of rate case expenses held beginning 1986, began amortizing the deferrals and February 16.
cccruals accumulated under the accounting order, and did not recognize the alleged for recent developments regarding rulings imprudency disallowance of River Bend and on the prudency of River Bend by the PUCT the disallowance of recovery of the cancelled on February 23,1988, see Note 14. The River Bend Unit 2. Hearings were held on Company cannot predict the ultimate J:nuary 28 through February 1 and on outcome of the proceedings and appeals or February 18 in state district court on the when they will be finally concluded.
Company's petition for injunctive relief. Bholesale. On June 24,1986, the injunctise relief was granted on February 18, Company filed a wholesale electric rate 1988, for this and other recent developments increase request with the TERC in the form of !
In these proceedings, if any, after a rate moderation plan to phase in the River February 18,1988, see Note 14. The Bend in service costs over an eight year Company cannot predict the ultimate period. The request asked for increases cf outcome of these proceedings or when they approximately $24.9 million (39.8 percem),
will be finally concluded. $18.5 million (21.2 percent), and TeAas. On November 18,1986, the $13.5 million (12.8 percent), respectively, in Company filed a $144 million (26 percent) each of the first three years, with the portion r:tc Increase request with the PUCT and of rates relating to River Bend remaining rpplicable citics. The request was based on a constant during the final five years of the plan test year ended June 30,1986, which as the Company recovers its deferred -
included River Bend in rate base and asked investment costs from the first three years of for a 15.25 percent return on equity. The approximately $61.6 million. The requested request proposed a rate moderation plan amounts were based on a 15.25 percent providing for the costs of River Bend to be retum on comm'm equity, phased in over eight years with deferrals of On August 22,1986, the FERC lssued an costs in the first three years and recovery of order pemiitting the proposed first year rates deferred costs over the remaining five years to become eticctive on August 25,1986,and while the rates related to River Bend would the proposed second and third year rates to remain IcVel during such five year recovery become effective on July 1,1987 and July 1, 29 i
Financial Information 1988, respectively, under the Company's regulated enterprises. SFAS No. 90 specifics proposed rate moderation plan. The order did the accounting for the financial cifect of not permit the Company to include in its disallowances of costs of newly completed rates, or defer for financial accounting plants and plant abandonments and requires purposes, costs associated with River Bend an immediate charge to operations for any for the period June 16,1986, the date the portion of the cost of River Bend permanently unit became commercially operabic, to excluded from rate base. Additionally, it August 24,1986, amounting to approximately requires the Company to reduce its
$6 mil!!on. Investment in the abandoned River Bend At the time of the order, the Company had Unit 2 to an amount equal to the present already commersted negotiations with its value of the probable future revenues wholesale customers regarding alternative expected to be provided over the rates. A settlement regarding alternative rates amortization period authorized by regulators.
has been rear %cd with all but one wholesale in subsequent years, the Company will customer, and the Company is seching such recognizc Interest income to the extent of the setticment with its remaining wholesale difference between amortization allowed for customer. The Company filed a motion with regulatory purposes and reduced amortization the FERC for authorization to collect the recorded for financial reporting purposes.
proposed settlement rates effective as of SFAS No. 90 is generally effective beginning August 25,1986, and was pennitted to in fiscal year 1988, implement such rates effective as of that if SFAS No. 90 were applied as of date. Under the proposed settlement, the rate December 31,1987, the Company would be moderation plan period is ten > cars, and the required to write-down approximately rate increases from 1986 through 1989, to $22 million related to the wholesale and
( the applicable customers for purchases on Texas retall portion of the unamortized River the standard wholesale rate will be Bend Unit 2 .ancellation loss (see Note 1).
24 percent,14 percent,10 percent, and Additionally, if the LPSC decision had not 7.4 percent, respectively, tiowever, the been appealed, at December 31,1987 the settlement provides that for several > cars Company would have been required to record substantial portions of such customers' loads a write-off of $514 million (net of tax impacts) may be served from power purchased from related to the River Bend Unit 1 disallowance others for which the Company receives and an additional $41.8 million (net of tax) transmission charges or, depending on wilte off related to River Bend Unit 2. For relative costs of such other power, from the recent developments in the Texas and Company at a rate lower than the standard Loulslana rate proceedings, see Note 14.
rate. The Company believes that currently no Statement of TInancial AccountIn,q Standards write-off of the wholesale portion of the River No.92. In August,1987, the FASB issued Bend investment is required to reflect the SFAS No. 92, Regulated Enterprises -
reduction in revenues as described above. Accounting for Phase In Plans. This statement Accounting standards, as discussed below, prescribes the criteria which must be met by which are effective for 1988, could possibly a phase-in plan ordered by a regulator in result in a wTite-off of some portion of the order for the regulated utility receiving such wholesale portion of the River Bend order to be able to record, 'or financial investment in an amount which has not >ct reporting purposes, the deferrals of expense been determined. Additionally, there can be or revenec requirements included in the no 'urances that, as a result of the loss of phase in plan. As discussed previously, the wholesale customers, a write-off of some LPSC order of December 15,1987 failed to portion or all of the remaining unrecovered s ccify both the level of revenue River Bend investment allocable to the requirements 'icferred under the phase in wholesale jurisdiction will not be required at lan adopted by that regulator and the timing a futurc date. of recovery of the deferred amounts. It is the Accounting Developments Company's opinion that the LPSC plan Statement of financIaf Account'nq Standards thereforc fails to mcct the criteria set forth in No. 90. During December,1986, 'the FASB SFAS N . 92. For recent developments in the issued SFAS No. 90, Regulated Enterprises - Loulslana rate proceedings, see Note 14.
Accounting for Abandonments and An additional provision of SFAS No. 92 is Disallowances of Plant Costs, which amends the prohibition, clicctive January 1,1988, of certain accounting standards for rate the recognition of the equity portion of 30 I i
Gulf States Utilitics Co.
canying charges, accrued in accordance with January 1 to March 31,1987,10 percent from cn accounting order granted by a regulator, April 1 to September 30,1987, and on recently completed generating plant that is 10.25 percent from October 1 to in commercial sersice but not yet reflected in December 31,1987. The deferral af costs and rates. This provision does not require the accrual of carrying charges associated with reversal of such equity charges accrued prior River Bend was terminated in the Loulslana to January 1,1988. jurisdiction on December 15,1987, upon receipt of the permanent rate decision.
The Company is continuing in 1988, l
pending the receipt of a rate order from the Reduction of Deferred River Send Costs. As PUCT to defer expenses and accrue the debt a result of the interim rate relief granted in portion of canying costs related to River both the Texas and Loulslana retail Bend. While the Company will be prohibited jurisdictions, the Company has reduced by from the financial statement recognition of $94,696,000 (pre tax), far the year ended the equity portion of canying costs in December'31,1987, the amount of deferred cccordance with the provisions of SFAS River Bend costs being recorded in No. 92 described above, nothing in SFAS accordance with accounting orders issued in No. 92 prohibits such carrying costs from 1986, by the regulatory commissions. This being allowable for future ratemaking amount reflects a reduction of $1.50 (Texas) consideration. However, there can be no and $1.00 (Loulslana) for each $1.00 of tssurance as to the extent of the future revenue received as a result of the interim recoverability, if any, of the deferrals and rate increases. Such adjustment is required cccrusts of River Bend costs recorded since the Commissions, as a result of pursuant to the PUCT accounting order granting interim rate relief, have allowed subsequent to January 1,1988. The equity some River Bcnd casts (on a non specific portion of the Texas retall amount of River basis) to be collected through rates rather Bend carrying costs was approximately than bcIng deferred. The reduction of
$74 million for the twelve months ended defened River Bend costs was terminated in December 31,1987. the Loulslana jurisdiction upon receipt of the per ncnt rate dccision.
Deferred Revenue Requirements. In cccordance with the terms of the rate Recovery of Costs. The Company was moderation plan approved by the FERC, as ordered by the LPSC, by virtue of the described above, the Company is recording a December 15,1987 rate order, to amortize deferred revenue requirement representing the defened costs and accrued canying those River Bend costs applicable to charges related to the accounting orders over wholesale customers which have been a ten year period.
deferred for future recovery from such customers. The Company had recorded Deferred River Send Costs. For the effect of deferred revenue requirements of $26.4 and the deferred River Bend costs on the results
$13.5 million for 1987 and 1986, respectively. of operations, see Management's Discussion and Analysis of financial Condition and River Send Cost Deferrals. Pursuant to Results of Operations, cccounting orders received from the LPSC and the PUCT, the Company, prior to rcccipt Statement of Financial Accounting Standards of permanent rate orders, deferred IYo, 95. In November,1937, the FASB issued recognition, for financial reporting purposes, SFAS No. 95, Statement of Cash flows. The of the retril portion of the operating costs Statement provider fcr the replacement of the essociated with River Bend and costs of Company's curren Statement of Sources of purchasing capacity from CEPCO's portion of runds invested in Utility and Other Plant the unit incurred subsequent to the unit's effective in 1988.
commercial in-sersice date and accrued carrying r.harges upon the retall portion of 4. Federal Income Taxes _
both the cash portion of the deferrals and the investment in the unit not included in the The provisions for federal income taxes Company's rate base. The rate used in were less than the amounts computed by computing the carrying charges was applying the statutory federal income tax rate 9.75 percent during the period from to net income before federal income taxes.
t
, 31 L
Financial Information The reasons for these differences are a; Timing differences exist for which deferred follows: taxes have not been provided and, therefore, 1987 1986 1985 have not been recovered through rates. The (in thousands except percents) Cumulatlve amount of timing differCnces for which no deferred taxes have been provided Yc "E*M* *"' . s 273.232 s 237.262 $321.066 was approximately $131 million at December sututory tas rate 40% -46% 46 %
rederal income tases at 31,1987. The tax effect of the Company's 1987 statutory tax rate . . . . 109.293 118,541 147.690 federal tax loss has been recorded as a
^ " ( *d reduction of deferred income taxes. At r d rYinc'omItI"[s '"
resuions from: Decembcr 31.1987, for tax purposes, the Ec"rInYc^a'r[ng* cysts Company had tax loss carr) forwards of from taxabic income . . . (105.325) (113.863) (98.262) $797 million and investment tax credit items capitaused for book carryforwards for book and tax purposes of for Y t M s*e's#. 542 (14,523) (9,681) approximateiy $180 miiiion. These wiii be used Non<sefened depreciation to reduce income taxes in future years and, if
' not used, will expire through the year 2002. An AYustEn"for prior years cases and other additional $80 million of Investment tax credit regulatory adjustments. 693 (3.732) 492 cart) forwards may be available to the Company Du# ftSty t sItDIlaies 66a 13.868 6aa3 If credits generated prior to 1986 are Deterras or nuclear ruei determined not to be subject to the 35 perccist reduction of tax credit cart) forwards required by 3mNz'ausg '
investment tas credit . (3.712) (3,530) (3 872) the 1986 Tax Refctm Act.
roreign tax credit resersai - -
3.976 other items 4 526 (1,513) 3.10s The 1986 Tax Reform Act contains many Total federai income provisions that are affecting and will continue to taies .* 32a31 s 12.281 s 55.567 affect the Company. These provisions include Enective rederal income tas reductions in the corporate tax rate, a reduction rate. . __138% _4s% __p.5% of investment tax credit carr) forwards, repeal of the Investment tax credit effective January 1, The components of federal income taxes are 1986, inclusion of unbilled revenues and as follows: contributions in aid of construction in taxable 1987 1986 1985 Income, required Interest and overhead Charged to operaung II" h """
- CapitallZatlon for Construction, lengthened tax expemes: depreciation lives, and a new attemative a"*p"ro$*I .s -
_s (1.120) s (8.229) Company's future tax liability cannot presently
d' I"' "
D*7s"e',d t . n be determined but will be dependent in large Tat depreciation 105.714 159.111 103.067 part upon the final amount of permanent rate C'P i
gya,tized construct 8m9 Tellef reall2cd from the Company's retail rate Amorured nucicar unit cases or upon appeal, as discussed in Note 3.
cancenauon costs . (1.827) (1.66ai (1.497) for recent developments in the Loulslana and "t s't, """ "C'"'" "
200 100 s.139 Texas rate proceedings, see Note 14.
In December,1987, the fASB lssued SfAS Nrlo"s"tsYI[ued it.662) i6.106) ia412) sook expenses cererred No. 96, Accounting for Income Taxes, which for tai purposes . t5.447) (1.257) aSo must be adopted by the Company beginning in
"[a'n)To*d"n} bc'neN' 1989. SPAS No. 96 significantly chanjes recognized cunently (140 955) (212.680) -
accounting for income taxes and supersedes TM,*eToM"yo, almost all existing authoritative accounting boou expensed for tai literature on accounting for income taxes. While user'eienues 4, -
~
the Statement retains (with the exception other . (1.059) (697) 187 described below) thC cxisting regulrcment to Toui deferred rederai record deferred taxes for transactions that arc income ta=es - net 27.994 10.214 10s.153 reported in difierent years for financial reporting insestment tas credits - and tax purposes, it resises 'hc computation of net . < 3. 703 i <3 621) (54 4s9) deferred taxes so that the amount of deferred
%'j','oj,*in['" '
taxes on the balance sheet is adjusted expenses 24.291 5473 45 435 whencver tax rates or other provisions of the chysed to other income - income tax law are changed. Adoption of SFAS
-o 10 132 No. 96 is expected to have an undetermined but ro,,i reder,i incow,e ta mes s _32_13_1
_ s _12 281 s _55.5_6_7 significant impact on the Company's balance of impact on the Company's Statement of income 32
Gulf States Utilitics Co.
1987 1986 for future years cannot be detennined at this U" ' h *"'* "d ')
timc. Actuartai Present value of tunefit The statement also changes current practice obngauons; by significantly limiting the ability to recognize Accumulated benent obligation, net deferred tax assets, i.e., the deferred tax hjudj7 [5j',dj'g"j* d ,ggg gg 9 effects of expenses or losses reported later for Projected benefit obilgadon . $173.087 $178.212 tax purposes than for financial reporting Plan assets, at fair market purposes. vaiue . . 200.762 202.786 5, Retirentent Plan rian *S'et$ in etce55 d Projnted benent obugation (27.075) (24.S74) unrecognized net gain . 15.659 14.494 The Company's peasion provision for the y:ars ended December 31,1987,1986, and U",,Cggny Q,,being no36 33 m 1985, was $798,000, $(614,000), and unrecognized prior senice
$7,994,000, respectively. Of such amounts, cost . (21.462) (22.869)
$703,000, $(446,000), and $4,912,000, other - primartiy benetti payments respectively, were charged /(credited) to $o$utN"th7p7oje d neat income with the balance of such costs for obligauon -
(3a14) cach period charged /(credited) to -6 (1,842) $ 12.640)
~~
constmction and other accounts.
During the third quarter of 1986, the The accumulated benefit obligation is the Company adopted the provisions of SPAS present value of future pension benefit No. 87, Employers' Accounting for Pensions. payments and is based on the plan's benctit The adoption of the new standard resulted in formulas without considering expected future an increase in nct income of $922,000. The salary increases. The projected benefit components of the pension provision for 1987 obligation considers futu salary increases, and 1986, arc summarized as follows: The assumed discount raw and long term 1987 isse retum on pension assets was 7W percent and (la thousands) 7W percent. respectively. The expected rate of semcc cost . .. $ 6.690 s 7.114 increase in future salary levels averaged integ st on projected benent a9 approximately 6.1 percent.
o Inre ni$edIethn$sh >
Qg At December 31,1987,62.5 percent of plan assets were invested in equity secudtles, Amortizadon of net gain . (356) -
Amortirauon of prior sentce 30.8 percent In bonds, and 6.7 percent in 7 cash or cash equivalents, Ar izadon of' net transttlon (2.387) (2,388) met During the first quarter of 1986, the rension prousion . $ 798 s (614' Company initiated an early retirement plan available to employees meeting certain The obligations for plan benefits and the qualifications and making application therefor amount recognized in the Company's balance pdor to April 15,1986. A total of 317 of 488 sheet at December 31,1987 and 1986, are ellglble employees elected to take early reconciled as follows: retirement. The cost of the early retirement plan approximated $14.4 million, of which
$8.9 million (exclusive of related tax effects) was charged to operating expense during the second quarter of 1986, with the balance charged to construction.
- 6. Leases The Company has existing agreements for the Icasing of certain vehicles, coal rail cars and other equipment, buildings, and nuclear fuel. Lease charges werc $67,367,000,
$20,119,000. and $16,632,000 during 1987, 1986, and 1985, respectively. Of such amounts, $65.925,000, $17.466,000, and
$ 14.041,000, respectively, were charged to incon'c.
33 C-
Financial Information future minimum lease payments under leases on the financial statements for 1987, noncancellable capital and operating leases and restated the applicable financial (including amounts due under a nuclear fuel statements for prior periods to proside lease Ls discussed below) for each of the comparatise infonnation. Since SFAS No. 71 next five years and in the aggregate at also requires the Company to record lease December 31,1987, are estimated to tse (In expense in a manner consistent with thousands): ratemaking treatment, the change in
$115,153 accoundng has no aded on nd income 1988 1989 100,996 The Company is leasing the Lewis Creek 1990 12,903 generating station from its wholly owned 1991 10,521 subsidiary, OSO&T, Inc. Such lease is not 1992 10,653 separdtcly reflected as a result of the Remaining years . 187,597 consolidated reporting of the Company and
$437,8] such subsidiary.
= =
The Company has a nuclear fuct financing 7. Discontinued Nonutility agreement with a non aftlilated third party fuct Subsidiary Operations corpo ation (the Lessor), which provides for the Lessor to finance nuclear fuel for futurc Effective July 1,1987, the Company sold use at River Bend. On July 30,1987, the the natural gas and oil reserves belonging to Company and participating banks agreed to Prudential, a wholly owned subsidiary, for an amenoment that reduced the banks approximately $23 million.
commitme'it to the outstanding lease balance Operating results of Prudential, as shown each time the Company makes a quarterly below, are reported separately as payment for nuclear fuct used. As a result, discontinued nonutility subsidir.ry operations the cost of new fuel (including acquisition, in the accompanying financial statements.
conversion, enrichment, and fabrication), included in the loss on disposition is a prc-Interest on the unused fuel, and other 'ax provision of $757,000 related to the costs expenses may no longer be capitalized in the of disposal of the oil and gas operations, lease, but rather will be paid for by the 1s Company directly. This will result in the -ies _;, ,
ens _
Company having to obtain funds from other per . hare .mouni.i m
sources to pay fuel costs previously expected OI;crddyn["';p,,,u9n, I to be financed through the Icase. On before tas ciicct 5 (2311 s t37.43 t > $ <23 976i income tai proitsion 899 11.s u
( October 31,1987, the Company and the -
participating banks, which are prosiding credit OPc'ating ioss from ex nunued perau ns (23n (28A7ai 02mi for the nuc! car fuel lease, amended the credit f "
agreement whereby the Company paid $12 ' ,"j"j'pr'okrties f (1.2735 - -
I million on October 31,1987 and will pay $4.6 income tai prosision - - -
million per month, in addition to the quarterly het ioss on disposioon (1.273i - -
fuel use payments, beginning February 1, Loss trom discontinued 1988, to reduce the unpaid lease balance.
perau ns so m s<2ayJn s =o 2.23 Loss per average common Under the provisions of SPAS No. 71 and share outstanding from No.13, the Company has recorded its capital
- * "d""*d P*""'
bon S 027 $ y2i 34
]
Gulf States Utilitics Co.
O. Jointly Owned Facilities As of Cecember 31,1987, the Company owned undivided interests in three jointly owned
- electric generating facilities as detalled below (dollars in thousands):
River Bend Moy S. Nelson Big Cajt'n #2 Unit 1 Unit 6 Unit 3 Company Share of Investments: i Plant in senice. . .. . $3,055,913 $404,387 $219,586 j Accumulated depreciation . . . . .
116,880 72,194 23,298 Total plant capability .... . .. ... .. 936 MW 550 MW 540 MW Puel source . . . . , ,,. . . . Nuclear Coal Coal Ownership share . .. .. . . 70% 70% 42 %
The Company's shale of operations and maMtenance Company and the participants in Rher Bend and Nelson expense related to the, jointly owned units in sttvice is Unit 6. The amounts above do not reflect costs try:!uded in operating expenses. see Note 15 for predonsly recovered through CWIP included in rate base.
lnformation relating to bu)t>ack agreements between the O. Capital Stock and Retained stock without par value (none issued) and Earnings 6.000,000 shares of preferred stock $100 par value authorized (4,617,568 issued).
The Company offers its common, Limitati ns based on the ratio of after tax preference, and preferred shareholders the opportunity to reinvest their dhidends and to camings to fixed charges and preferred make additional cash payments to acquire dhidends are imposed by the Articles upon shares of the Company's common stock the issuance of additional preferred stock. ,
through its Dhidend Reinvestment end Stock Based upon the results of operations for the !
Purchase Plan (DRIP). (However, see Note 1 year ended December 31,1987, and existing for information on the omission of common, circumstances, the Company is unsure preferred, and preference stock dividends whether it is able to issue any additional during 1986 and 1987.) The Company also preferred stock, offers all employees meeting designated service requirements the option to participale Certain limitations on the payment of cash in benefit plans which provide an opportunity dhidends on common stock are contained in
! to obtain common shares of the Company. At the Articles, indentures, and loan agreements.
~ December 31,1987, the Company had Under existing limitations discussed in Notes reserved 5.562,503 shares of common stock I and 12, the Company may not pay to be issued in connection with its DRIP and dividends on such stock. If such restrictlans employee benefit plans. However, the did not exist, the most restrictive limitation at ,
Company currently intends that the DRIP and December 31,1987, as to the amount of employee benefit plans purchase shares of such dividends which might be paid, was common stock in the open market in order to meet the requirements of its DRIP and contained In the Atticles. Based on such employee benefit plans, rather than offering limitation, the retained camings available for unissued shares which would have a dilutive payment of dhidends as of December 31, I effect on camings per share and book value. 1987, amounted to approximately At the Company's option, the Articles $659 million. Preferred and preference provide that all or part of its preferred and dhidend requirements, as well as preferred preference stock may be redeemed at stated stock sinking fund requirements, have priority prices. Certain lisues are subject to over the payment of cash dhidends on restrictions in the Articles which prohibit common stock, redemption for a period of time, directly or Indirectly out of the proceeds of or in Payment of dhidends on preference stock is enticipation of borrowings or issuance of subordinate to payment of dhidends on ,
Edditicnal stock of equal or prict rank having preferred stock and preferred stock sinking ['
l a lower interest cost or dhidend rate. fund obligations. There are no limitations in
! At Dece.mber 31,1987, the Company had the Articles on the issuance of preference i authorized 10,000,000 shares of preferred stock. i l
35
- 1. !
l 1
Financial Information _
" d
- 10. Preferred Stock Subject to U"[u'i LL""i. %.
Mandatory Redemption
-""'";dfy . g cash AdeMons Maturities The series of preferred stock subject to y go g.no 3 93me mandatory redemption are entitled to sinking 19a9 n320 Ime a sM1 funds which provide for the annual 1990 67.320 17.724 92.929 redemption of shares (varying in ainount from 1991 48.57o 17.724 21.o92 3 percent to 5 percent of the number of 1992 8.570 17.520 114,003 shares originally issued) at $100 per sharc, The Company's Mortgage Indenture plus any dividends in crears on such stock contains an interest coverage covenant which (see Nott.1)- limits the amount of first mortgage bonds On December 15,1987, the Company failed which the Company may issue. Based upon to satisfy the $2,000,000 sinking fund the results of operations for the year ended requirement related to the $11.48 Series December 31,1987, and existing f Preferred Stock. Sec Note 1 for the circumstanmes, the Company is unsure consequences of such failure. whether it is able to issue any additional first mortgage bonds.
During 1986, the Company purchased in At December 31,1987, the amount the open market, shares of the applicable outstanding under the Company's $800 saries of preferred stock in excess of the million revolving credit agreement consisted amount needed to satisfy the 1986 sinking of $150 million bering an interest rate of 9'/s fund requirement. At December 31,1987, percent, $130 million at 97a percent, and assuming that the additional shares $70 million at 9yis percent. During January, purchased during 1986 are used to satisfy 1987, seven of the participating banks future sinking fund requirements, minimum (representing over 24 percent of the redemption regulrcments amount to aggregate commitments under the credit
$2,945,900, $4,701.100, $7,679,700- agreement) notifled the Company that in view
$11,056,700, and $14,816,700 during the of the Company's present Anancial condition, years 1988 through 1992, respectively, projected liquidity crisis, and failure to obtain exclusive of the $2,000,000 unsatisned adequate rate relief, a material adverse provision from 1987, discussed above. change of the type spccined in the credit See Notes 1 and 12 for limitations on agreement exists. Whatever the rights of the payment of dividends on and purchases of parties may be under the agreement, the preferred stock. Company has becq notined by the banks that they will not make additional loans under the
- 11. Long Term Debt agreement at this time. Amounts outstanding under the agreement at September 12,198fL The Company's Mortgage Indenture are repayable over a threc9 ear period with contains sinking fund provisions which the first payment due on March 12,1989.
require, generally, that the Company make American Municipal Bona Assurance annual cash deposits equal to 1.2 percent of Corporation (AMli4C). The Company has the greatest aggregate principal amount of agreements with AMBAC which guarantee the first mortgage bonds outstanding or, in lieu payment of principal and interest on thereof, to apply property additions or $65,735,000 of pollution control revenue reacquired first mortgage bonds for that bonds. Such agreements require the purpose. The Company has satis 0cd the Company to make cash reserve deposits (or, mortgage requirements in past years and altcmatively, sign a promissory note for plans to meet current and future 20e percent of the cash reserve deposit then requirements by certifying "available net pa,abic) upon the occurrence of a material addidons" to the trustec. Those strics of the development as d* fined in the agreements. A Company's first mo;tgage bonds which were material development was deemed by AMBAC privately placed require cash sinking funds. to base occurred as of September 30,1986, first mortgsge bond sinking fund as a result of the Company's fixed charge requirements, along with long tenn debt coverage ratio (calculated in accordance with maturities (excluding those amounts to be the agreements) being below the required due under the Qvolving credit agreemern as Icsci specifled in the agreement. The cash discussed below), for cach of the next five reserse deposit required was approomately years are detailed below (in thousands): $55 million. The Company executed onc > car 36 j
(
m Gulf States Utilities Co.
notes totalmg approximately $110 million in 12. Notes Payable lieu of making a cash deposit. In November, 1987, AMBAC disputed the fixed charge As of December 31,1987, the Company
-coverage ratio submitted by the Company had agreements with banks and banking based on the results of operations as of institutions which provided for short term September 30,1987. The Company lines of credit totaling approximately $77 contended that the material development million of which $65 million is collateralized tsserted by AMBAC no longer existed and as described below. There can be no requested cancellation of the notes by assurance that the remaining unsecured sources of short term funds may be accessed AMBAC. at this time, or will remain available, or that During January,1988, the Company and new sources can be arranged. Interest rates AMBAC amended the original agreement. As associated with these lines are based on the
.part of the settlement, the Company agreed pdmc rate Commitment fees range from 3/s to deposit $12 million in an escrow account of 1 percent to 3/4 of 1 percent of the amount g which may be retumed to the Company, of available credit. in lieu of commitment
- based on the fixed charge coverage ratio at fees, certain banks require a nonrestricted and subsequent to April,1990, while AMBAC cash balance be maintained equal to 5 agreed te cancel the notes totaling percent to 10 percent of the commitment.
$110 mil. on and agreed that no further ccsh Information regarding short term debt deposits would be required through April, outstanding is detailed beinw:
1990. The Company and AMBAC also agreed ,,,, ,,,,, ,,,,
to amend the calculation of the fixed charge , ,
coverage ratio. Madmum amount mhrred River Hend Cons lruction and *"[*[dj""d"9 P'd d ,_ ,
Continuing Services Commitment. The com,,,u,, p,pe, _ _ g,non Company has previously reported that certain herage daily amount post ccmpletion costs relating to the outstanding construction of River Bend remain unpaid to Bank notes . -
37 40.619 Stone & Webster Engineering Corporation, commerdai paper - - 14 the general contractor on the project. As of Tedm,8j'gegdi t g $t
' *t December 31,1987, the Company's share of end or pedon such costs amounted to $46,848,000. The aank notes . - - -
Con,pany and Stone & Webster reached an commerdal raper - - -
agreement whereby such costs would be paid n ated average annuai by the Company and CEPCO in total monthly '"Q'j,*, ) -
tan se installments of $2 million beginning commerdet paper - - 8.75 february 1, '588, and continuing until the principal or.4 unt due and related accrued (a) Calculated by dMding the sum of the effective inter-
"S t ar by the average daily short temi debt Interest is p2.id. At current interest rates, fu tin these monthly payments would condoue for approximately 37 months. The Company and included in the $77 million short term lines CEPCO own 70 percent and 30 percent of the of credit is a $65 million credit facility to be unit, respectively. The Company is negotiating tenninated and paid on or before May 28, for a further deferral and has not commenced 1988. The facility is fully underwritten by making such payments. Irving Trust Company and is collateralized by a pledge of the Company's accounts in addition, an agreement has also been receivable and the Lewis Creek Ocnerating reached regarding the payment of costs Station (the Station), a 530 megawatt gas-relating to a continuing services agreement fired generating facility. The Station has been with Stone & Webster. Under the agreement, transferred to a new wholly-owned subsidiary, the Company's portion of the accumulated OSO&T, Inc. The Company is leasing the
- charges accrued at December 31,1987, of Station from the subsidiary and will continue
$13,681,000, will be payable in full on to operate the Station. The credit agreement January 1,1989, and will include accrued contains negative covenants which, among interest on the amount duc. Costs for other restrictions, restrict the incurrence of services rendered under the agreement additional debt, creation of liens, payment of subsequent to March 31,1987, are being paid dividends, sale of assets, and acquisition of monthly as incurred, assets.
37 tw _ _ _ _ _ _ _ _ - _ _ _ - _ _ _ _ _ - _ - _ _ _ - _ - _ _ - _ _ _ _ _ _ _
Financial Information
- 13. Purchase Power _ Agreements in the amount of $24.1 million. Such amount was recorded on the balance sheet as an The Company has agreements with the acct unt receivable and offsetting amount in participants in Ncison Unit 6 and River Bend dispt.ie. CEPCO disputes the offset and (sce Note 8) to buy back declining amounts certain other payment adjustments made by of their share of the capacity of these units the Company and claims the Company is for periods ranging from seven to fourteen approximately $19 million in arrears under years in the case of Nelson Unit 6 and five the buyback arrangement. The Company also years in the case of River Bend. The variable claims that CEl'CO owes it approximately costs associated with such buybacks are $21.1 million of overpayments relating to the composed of fuct costs and operations and River Bend buyback which are not reflected in maintenance expenses, while the fixed costs the financial statements. The Company has are based upon gross plant investment and advised CEPCO that it may need to other factors. For the years ended December renegotiate the River Bend buyback 31,1987,1986, and 1985, variable costs agreement if adequate and timely pennanent applicable to the Nelson Unit 6 buybacks rate relief is not received.
werc $12.8 million, $16.4 million, and $25.2 million, respectively, while the fixed costs As discussed in Note 1, the Company associated with such buybacks were $17.9 entered into contracts, which it asserts are million, $20.9 million, and $26.9 million, terminated and on which it is currently respectively. Based upon current information, withholding payment, with the Southern the Company estimates that the fixed costs Company providing for power purchases by incurred in connection with the helson Unit 6 the Company, The fixed costs applicable to buybacks will range in declining amounts the power purchases from the Southem from $18 million in 1988 to $5 million in Company arc based on cests of existing and 1992. From 1993 through 1996, aggregate future generating units and other factors. For payments for the buybacks of power of such the years ended Decembc. 31,1987,1986, unit are estimated to be approximately $14 nd 1985, the 6xed costs associated with the million. power purchases totaled approximately $16A milli n, (excluding withhcid payments),
River Bend isjointly owned by the $112.6 million, and $132.3 million, Company and CEPCO. Previously, the respectively. Under the tc ms of the contract, Company was obligated to purchase 100 If determined to still be e fcctive, the percent of CEPCO's share of the unit 3 Company would be requhed to make, on a capacity for one year and thereafter declining take-or-pay basis, payments for fixed costs amounts for two years, liowever, on currently estimated to range in amounts from September 2,1986, the letter of agreement $135 million to $82 million during the period between the Company and CEPCO was from 1988 through 1992. The variable costs amended to change the original three year associated with such purchases are schedule to a five-year schedule beginning on c mp sed of fuel costs and operation and June 16,1986, the commercial operatloa nialntenance expense, for the years ended date of River Bend. The flxed costs incurred December 31,1987,1986, and 1985, such in connection with the buybacks of power variable costs totaled $60.3 million, $58.6 under the new agreement were $150.4 million million, nd $125.1 million, respectively.
and $92.5 million for the years ended December 31,1987 and 1936, respectively, 14. Subsequent Events-and will range in declining amounts from $99 -
million in 1988, to $17 million in 1991. For On february 18,1988, the l.oulslana state the years ended December 31,1987 and district court Judge issued a preliminary 1986 variable costs applicable to the River injunction ordering the immediate Bend buyback werc $49.7 million and $14.9 impicmentation of a $92 million rate increase million, respectively. swhich included the $63 million granted by The Company and CEPCO are parties to the LPSC on December 15,1987) and setting t FERC proceedings regarding certain long the retum on common equity at 14 percent.
standing disputes relating to transmission The judge also adopted a phase In plan which charges, and the Company has offset meets the guidelines set forth in SFAS No. 92 January,1987 buy back payments against for a quallfled phase in of the prt. dent costs
- claims asserted by the Company. At of the Company's River Bend investmem as i December 31,1987, the Company claimed detennined by the LPSC. As a result, the l CEPCO had underpaid transmission charges Company will record in 1988, for financial 38 ;
)
1
. . L Gulf States Utilities Co.
reporting purposes, the deferred revenue that the ultimate rate tr fatment of the r quirements associated with such plan amounts placed in abeyance will be subject subject to the outcome of the appeal to a future demonstration by the Company of discussed in Note 3. the prudency of such costs. The PUCT has The first year $92 million increase will requested additional information from the remain in effect until the appeal of the LPSC's Company regarding revenue requirements December 15,1987 order on the merits, is resulting from the above ruling. The Company decided. No assurance can be given as to the cannot predict the ultimate outcome of the timing or outcome of such appeal. Texas rate proceedings, or any possible On February 23,1988, the PUCT appeals, or when they will finally be prelimir.arily ruled on the prudency of River concluded. The prelkninary review of such Bend. The PUCT found $1.6 billion of the proposals indicate that if relief is finally so Company's total Riser Bend plant investment limited, it may be insufficient to prevent the cnd $187 million of the related Texas retail Company from having to seek relief from its jurisdiction deferred River Bend costs were cieditors under the Bankruptcy Code, prudent. The remaining $1.5 billion of the in late February,1988, the Company and River Bend plant investment and $151 million Stone & Webster reached an agreement to of the Texas retalljurisdiction deferred River defer the $2 million monthly payments to Bend costs were placed into abeyance with Stone & Webster, which were to begin in no hnding as to prudency. The PUCT stated Februt.ry 1988, until July 1,1988.
- 15. Quarterly Financial Information (Unaudited)
(in thousands except per share amounts)
Earnings Per Average Operating Operating Net Common Share 1987 Revenue income Income _ outstanding _
( First Quarter . . . . . . . ............... $302,835 $ 53.607 $41,110 $.23 second Qua rte r . . . . . . . . . . . . . . . . . . . . 364,114 100,633 61,524 .43
$ T hird Qu a rt e r . . . . . . . . . . . . . . . . . . . . . . 429,387 134,119 9C.260 .69 F urth Quarter . . .................. 336,250 88,261 48,207 .30 1986 First Quarter , $ 375,171 $ 78,170 $ 66,117 $.48 Second Quarter . . .
358,848 77,511 64,648 .46 Third Quarter. .. 405,915 99,909 90,081 .69 rourth Quarter .
338,454 58,216 24,135 .08 39
Financial Information Auditors' Heport To the Shareholders of Gulf States Utilities Company:
l We have examined the balance sheet and the statement of capitalization of GULF STATES UTILITIES COMPANY as of December 31,1987 and 1986, and the related statements of income, sources of funds invested in utility and other plant, and changes in capital stock and retained earnings for cach of the three years in the period ended December 31,1987. Our examinations were made in accordance with generalt, accepted auditing standards and, accordingly, included such tests of accounting records and such other auditing procedures as we considered necessary in the circumstances.
As of December 31,1987 and 1986, the Company has capitalized approximately $3 billion of construction costs related to its River Bend Nuclear Generating Plant and has capitalized, in accordance with regulatory orders, $808 million and $321 mllllon, respectively of deferred charges representing plant operating and carrying costs incurred subsequent to commercial operation. Without regulatory orders prescribing the deferral and capitalization of such operating and carrying costs, net income for 1987 and 1986 would have been reduced by $390 million
($3.61 per share) and $234 n.Clion ($2.20 per share), respectively. During 1986, the Company filed requests with regulatory commissions in Texas and Loulslana requesting rate increases for recovery of River Bend construction costs and deferred charges. As discussed in Notes 3 and 14, if existing regulatory orders are not modified, a significant write-off of capitalized costs sssociated with River Bend may be required. The extent of recovery of capitalized River Bend costs will not be detenninabic until appropriate proceedings, including court appeals, have been concluded, in the opinion of management, no assurance can be given that the Company will ultirnately cam an adequate retum on or fully recover its investment in River Bend.
As discussed in Notes 1 and 3, the Company is involved in legal proceedings relating to contractual disputes, shareholder litigation and rate issues. Management cannot predict what effect the ultimate resolution of these proceedings will have upon the Company's financial position or results of operations.
As discussed in Note 1, Insufficient rate increases, among other things, will also result in a need tor funds in excess of the currently estimated resources of the Company. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilitics that might be necessary should the Company be unable to continue in existence.
In our opinion, subject to the effects on the 1987 and 1986 financial statements of such adjustments, if any, as might have been required had the outcome of the uncertaintics and the recoverability and classification of recorded asset amounts and the amount and classification of liabilitics discussed in the preceding paragraphs been known, the financial statements referred to above present fairly the financial position of GULF STATES UTILITIES COMPANY at December 31, 1987 and 1986, and the results of its operations and the changes in its financial position for each of the three years in the period ended December 31,1987, in conformity with generally accepted accounting principles applied on a consistent basis.
I 11ouston, Texas [
february 23,1988 Y #
40 l
Gulf States Utilitics Co.
I Statistical Summary F r the years ended December 31 1987 1986 1985 _1984 1983 ELECTRIC DEPARTMENT -
-Number of customers at year end:
Residential . . .
484,838 4 % 608 485,825 485,711 475,782 '
Commercial .. , . 61,861 62,059 61,712 60,372 57,446 Industrial . ...
4,319 4,322 4,398 4,302 4,146 Temporary construction . , 1,442 1,656 2,188 2,924 3,624
. Other , .. 2,445 2,430 2,333 , 2,182 2,101 Total Customers . 554,905 555,075 556,456 555,491 543,099 Sales - Milowatt hours (thousands):
Residential . . . 6,208,961 6.174,567 6,224,555 6,209,347 5.686,436 Commercial , 4,911.378 4,920,882 4,964,416 4,745,055 4,341,093 Indur trial I1,811,676 12,158,762* 13,590,004 15,924,402 14,257,141 Tem, orary construction .
16,241 42,498 47,475 57,354 55,927 Other. . .
1,485,242 1,508,245 1,890,700 2,152,052 2,109,974 Total Sales 24,433,498 24,804,954 26,717,150 29,088,210 26,450,571 Revenue - (thousands):
Re.sidential . $ 430,392 $ 425,206 $ 528,593 $ 434,946 $ 396,026
. Commercia' ,, .
312,544 309,440 358,882 278,155 255,147 Industrial . ..
476,871 500,026' 680,755 573,839 534,066 Temporary constructic,n . 1,364 3,066 3,666 3,702 3,699 Other, .
108,935 120,690 142,509 120,059 116.511 Total Revcnue . . $ 1,330,106 $1,358,428 $1,714,405 $1,410,701 $1,505,449 Average Annual KWii Use Per Customer:
Residential . 12,818 12,731 12,806 12,901 12,097 Commercial- . 79,180 79,416 80,951 80,264 77,138 Industrial .. .
2,744,986 2,781,053 3.110,553 3,725,006 3,431,322 Revenue Per KWH - (cents):
Residential . . 7.17 6.89 8.49 7.01 6.96 Commercial . 6.73 6.29 7.25 5.86 5.88 Industrial . . .. . .. 4.14 4.11 5.01 3.60 3.75 Electric Energy Output - Thousands of KWil:
Net Oenerated ... . . .
23,421,700 23,009,283 19,286,014 26,218,067 25,846,238 Net Purchased and Interchanged 4,593,232 5,281,404 11,340,923 6,953,777 4,987,292 28,014,932 28,290,687 30,626,937 33,171,844 30,833,530 System Peak Load - Including Interruptible Load - Megawatts . 4,991 5,089 5,139 5,475 5,348
. Total Capability, including Contract Purchases at Time of System Peak Load (MW) ,
6,871 7,548 6,610 6,780 7,152 Load factor . . . . .. .. .. 64.1 % 63.5 % 68.0 % 69.0% 65.8 %
STEAM PRODUCTS DEPARTMENT Steam Revenue (thousands) . . $ 69,056 $ 77,783 $ 102,576 $ 83,165 $ 83.646 Steam Sales - KWH (millions) . . .
2,187 2,144 2,288 2,606 2,555
[
Steam Sales - millions of pounds 8,593 7,516 7,695 8,466 8,559 OAS DEPARTMENT Oas Revenue (thcusands) . $ 33,424 $ 33,125 $ 41,455 $ 53,175 $ 47,093 Number of Customers . . .. 83,003 83,994 85,039 85,665 85,737 Output - MM cu, ft. of natural gas purchased . .. 7,305 7,086 8,454 8,252 9,149 Sales - MM cu. it. 7,489 7,065 7,946 9,140 8,498 WEATilfR DATA Cooling degree days (Normal 2,696) ~2,65 0 " 2,935 2.877 2,65A 2,473
- Percentage change from normal, . . . (1.7) 8.9 6.7 (1.6) (8.2)
Heating degree days (Normal 1,830) 1,882 " 1,636 1,565 2,062 1,829 Percentage change frorr normal. ?. 8 (10.6) (14.5) 12.7 (.1)
- Excludes 182,580 MWH and $9,052 applicable to prior periods, related to capitalized Rher Bend construction energy.
- Estimated 41 l
L
Officers Chairman, President and CEO E. Linn Draper, Jr. (8) 45 Bobby J. Willis (25) 51 Chairman of the Board, President Vice President & Controller and Chief Executive Officer Jasper F. Worthy (31) 59 Special Advisor to the Chairman Vice President-General Services Paul W. Murrill(5) 53 Division Vice Presidents Special Advisor to the Chairman John W. Conley (29) 56 Senior Executive Vice Presidents Division Vice President-Western Joseph L Donnelly (8) 58 Arden D. Loughmiller (26) 49 Senior Executive Vice President Division Vice President-Beaumont and Chief FinancialOfficer Ronald M. McKenzie (21) 47 Edward M. Loggms (29) S7 Division Vice President-Port Arthur Senior Executive Vice President J. Ted Meinscher (37) 55 Senior Vice Presidents Division Vice President-take Charles William J. Cahill, Jr. (7) 68 James D. Watkins (29) 56 Division Vice President-Baton Rouge Senior Vice President-Special Projects Other Officers James C. Deddens (4) S9 Senior Vice President-Leslie D. Cobb (32) 52 River Bend Nuclear Group Secretary Calvin J. Hebert (25) 53 '"1yde W. McBride (10) 35 Senior Vice President-Extemal Affairs Assistant Treasurer
.Vice Presidents Timothy L. Morris (8) 36 Assistant Secretary James R. Aldridge(7)S7 Vice"a- ht-Human Resources
( ) Years of service William E. Barksdale (30,56 Ages and years of service Vice President-Engineering as of DecemberJL 1987 and Technical Senices Amery J. Champagne (14) 44 Vice President-Energy Resources Anthony F. Gabrielle (7) 60 VLe President-Computer Applications Charles D. Glass (38) 59 Vice President-Operations William J. Jefferson (7) 58 Vice President-Rates and Regulatory Affairs Cecil L. Johnson (11) 45 Vice President-Legal Senices James E. Moss (29) 51 Vice President-Marketing Jack L Schenck (6) 49 Vice President & Treasurer I
l
)
l l 42 I c _____ ____ _ __ _ __
c.e- , V. .
_ w; . a l' Orsi
~ ' '
Directors Stockholder Information '
. ! Robert H. Barrow - . .
James E. Taussig II - Stock Listing K General, Retired Commandant President. Taussig Corporation Gulf States Utilities Company's i United States Marine Corps take Charles, LA (1975) ' - common stock is traded under the J St. Francisville, LA (1984) ~ symbol GSU on the New York,:
.. ' Executive Committee. Midwest and Pacific Stock Exchanges.
1* John W. Barton . .? Chairman, Executive Committee j Vice President-Louisiana Stock Transfer Agents
( ) Year Elected 1 fAircraft, Inc.- . .
Gulf States Utilities Company -
- Baton Rouge, LA (1970) ~ Beaumont, Texas
' Joseph L. Donnelly:. .. Morgan Shareholder Services
- Senior Executive Vice President Trust Company
'and Chief FinancialOfficer New York, New York Beaumont, TX (1986) Principal Offices Jegistrars
'~
- E. Linn Draper, Jr. 350 Pine Street First City National Bank of Beaumont Chairman of the Board, . - Beaumont, Texas Beaumont, Texas
' President and Chief Executive Officer 77701 M rganShareholderServices
< Beaumont TX(1985)
Divisions Trust Company M+stin Goland New York, New York.
Presxlent-Southwest - 285 Liberty Avenue
, ; ResearchInstitute . Beaumont, Texas Dividend Reinvestment Plan Agent
- San Antonio, TX (1983) . 77701 Gulf States Utilities Company P. O. Box 1671 Lhvin W.1 :am 1540 Ninth Avenue Beaumont, Texas Investment Consultant ' Port Arthur, Texas 77741 Boston, MA (1959) 77640 .
William H. LeBlanc, Jr. Highway 75 North
- Chairman of the Board Conroe, Texas The Form 10 K Annual Report to the Securities
' of Baton Rouge Supply Co., Inc; 77301 and Exchange Commission and GSl7s 1967 Baton Rouge, LA (1974) Financial and Statistical Report can be obtained 446 North Boulevard without charge from Leslie D. Cobb, Secretary, Ch sles W. McCoy - Baton Rouge, Louisiana P. O. Box 2951, Chairmanof theBoard - 70802 Beaumont, Texas 77708.
L Premier Bancorp Inc.
Baton Rouge,'IA (1985) ' 314 Broad Street Noticeof AnnualMeeting take Charles, Louisiana
' PrulW.Murrill 70601 The 1988 Annual Meeting of shareholders will
, ; Special Advisor to the Chairman be heki at 2 p.m., Thursday, May 5,1988, in Beaumont, TX (1978) the company's headquarters,350 Pine Street, Beaumont, Texas. Formal notices of the
. Monroe J. Rathbone, Jr.
meeting, proxy statements and proxies will be
- Medical doctor and partner-The Surgical Cluuc mailed to the common shareholders on or about March 18,1988. Shareholders are invited to Baton Rouge, LA (1975) attend, but if they cannot, they are urged to 7Nst S. Rogers .
fill out and retum their pmxies.
- Consultant-First City Bancorporation of Texas, Inc.
Houston, TX (1978)
JSam F. Segnar Chairmanof theBoard Vista Chemical Co.
~ Houston, TX (1988)
- Bismark A.Steinhagen Chairman of the Board-Steinhagen Oil Company, Inc.
- Beaumont, TX (1974) 43 t
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Gulf States Utilities Co. Bulk Rate P. O. Box 2951 U. S. POSTAGE Beaumont Texas 77704 PAID tiouston, Texas Pennit Number 427 l
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